BAQ to the drawing board

A few weeks ago, British Airways, the airline that used to advertise itself with a spaceman with a flashing bottom, wanted to run a major code-share agreement with Iberia and American Airlines that wasn't a merger. Before that, it wanted a takeover of India's GoAir and in July it bought French Airline L'Avion. In October, it - and CX - both issued firm and frantic denials that Cathay was planning a bid for BA, its associate in the OneWorld grouping. Now BA wants a merger with another OneWorlder, Qantas. Butit isn't a takeover.
For an airline that, just a few months ago, couldn't organise a luggage trolley in an airport, BA is paying attention to the big picture.
Whether it is allowed to enter into a full-blown merger with Qantas is going to be one for the regulators. And so far, things are not looking too rosy. In principle, the Australians have said "no worries: take a chunk of Qantas and she'll be right." But that's only half the story: they have also said that if there's a whiff of takeover rather than merger, then they'll block the deal.
But as everyone knows, there is no such thing as a merger: one party always comes out on top.
Qantas and BA are both big boys and have been around a long time. They have both been working hard to combat over-capacity (and they share a lot of Asia-Pacific traffic) and cut costs. But that means that there is not a lot of fat to trim if the objective is to merge to make a single, more cost efficient airline.
BA is cash rich - but only because it made a stonking profit last year whilst telling us all we had to pay fuel surcharges. And so did Qantas, Singapore Airlines, Cathay Pacific and others. BA's cash pile is estimated at more then one and a quarter milliard pounds. That's a lot of zero - but they, and Qantas and all the others mentioned, have all said that this year will be tough and hinted at the possibilities of losses. BA lost almost GBP50 million in the first half of this year.
On Monday this week, the Australian government announced a willingness to allow an increased foreign stake in Qantas - but said it would not allow a takeover and would limit foreign ownership to 49%.
A month ago, BA's attempt to purchase GoAir of India fell apart due to Indian government restrictions on ownership. BA is not the first company to find that India's restrictive ownership practices in what are considered strategic industries block significant shareholdings. But at the same time as GoAir was prevented, another Indian airline, IndiGo reported its first ever fall in passenger traffic, and GoAir repositioned itself slightly north of the budget LCC sector by promising a new class with a bit more legroom and the middle seat always free. Perhaps taking out a row of seats and shuffling them others up a bit to make more front room is easier and cheaper than simply taking out the aisle seats and moving the middle seat across a bit - after all, aisle space often seems just as precious as seat space.
03/12/08 ChiefOfficers.Net, UK

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Categories: Foreign Dec 2008, GoAir Dec 2008, Indigo Airlines Dec 2008