A British Airways-Iberia merger: what does it change?

The fact that Iberia and British Airways are planning to merge isn't news by now. The deal's going to mean that the combined airlines become the third-largest airline group (behind Air France-KLM and Lufthansa), and there's the usual talk of synergies and cost savings, etc. We are laying the foundations of what will be one of the most important airlines in the world, a real global airline, said Iberia CEO Antonio Vázquez. I believe that, thanks to this transaction, which is the most important in the European airline industry in recent years, we are more prepared than ever to face future challenges. Meanwhile, British Airways CEO Willie Walsh has said that the merger will create a strong European airline well able to compete in the 21st century. Both airlines will retain their brands and heritage while achieving significant synergies as a combined force.

Sound familiar? Check out what the CEOs of Northwest and Delta had to say back in 2008. And I'm sure it's been said many times before. But besides giving graphic artists the chance to create some hybrid BA-Iberia tails, what does the deal really do? What do these types of mergers do nowadays, anyway? Sure, the deal will help both airlines stave off the other two big airline groups in Europe, but will it effectively deal with BA's oft-publicized woes? Or, as one comment on the BBC's website asked:

Will the cost of jet fuel be any cheaper if they merge? Will the service be better? Will things go back to the golden days of air travel when you could take just about all the luggage you wanted for free, and the onboard meals where for free as well as the soft drinks? Will there be more legroom in economy class? Will we be treated slightly better than cattle? Will they ban cell phone chatter and lap top tickering on planes - finally, thankfully? Will there be Peace and Quiet? No? Why merge?

Granted, no one's expecting the glory days of air travel to come back; nor does the merger have much to do with cell phone use or legroom, of course. But it did make me think about how airline CEOs sometimes talk about mergers as silver bullets - even if they don't really change much, as the BA-Iberia linkup will probably do.

BA loses $2.3 million a day as OpenSkies cuts back

Dow Jones is reporting that British Airways is burning through £1.4 million, or $2.3 million, a day, according to the airline's CFO, Keith Williams. Williams said in February that the airline was losing £2.7 million of cash a day, which is almost $4.5 million, so I guess that's an improvement. But William is also warning that the "cash burn isn't sustainable," and that rate is likely to increase during the winter. So BA is by no means out of the woods yet.

And in related news, BA subsidiary OpenSkies has announced that it will drop its New York - Amsterdam route next month, leaving the premium BA offshoot flying just one route (New York - Paris). OpenSkies CEO Dale Moss has said that "while OpenSkies developed more than 16% market share during only nine months, it was not enough to sustain a profitable service at this time." "We tried very hard to make it, but the current market forces were just a bit too difficult," he said on the company's blog. "My most sincere wish is that someday OpenSkies will return to Amsterdam and make it another signature route." But despite Moss' optimistic outlook, parent British Airways has hired an investment bank to find a buyer for the airline.

photo by bribriTO from Flickr, licensed under the Creative Commons

Pilots agree to cuts, but trouble still ahead for BA

It seems as though British Airline Pilots Association (BALPA) members are actually buying British Airways CEO Willie Walsh's statements that the airline is facing its largest-ever crisis, since 94% of them voted today in favor of a 2.6% cut in salary, a move that should save the airline £26 million. "We have pressure tested the company's trading position and cost base, and are satisfied that this step is necessary to help BA recover its position as one of the world's most successful airlines," said Jim McAuslan, general secretary of BALPA.

BALPA's agreement to pay cuts is a relief for Walsh, who is going to have a much harder time convincing cabin crew and ground handling staff to take a salary cut. Four weeks of negotiation have failed, and the threat of a strike looms large for the airline. “There is every sign that a conflict is looming if this last throw of the dice does not succeed," said Mick Rix, who heads up the GMB union. The Unite union evidently doesn't buy Walsh's message as BALPA did, saying that "BA’s management are opportunistically using the recession to force through changes which are more far-reaching and damaging to BA’s future.

The pilots have seemed to recognize that the airline's future is at stake during these critical next months. While painting gloom-and-doom pictures has always been a management strategy used to extract concessions from unions, I think that British Airways is genuinely in a "fight for survival," as Walsh put it. Naturally, it was under Walsh's nose that the airline went from making record profits one year to posting record losses the next, and once the dust settles after the current crisis, Walsh might find that he needs to move on. But to be fair, BA is saddled with outdated, expensive labor contracts - ones that need to change, and change in a hurry.

"The problem is that there’s no flexibility with the cabin staff," said Howard Weeldon, a senior strategist at London's BGC Partners LP. "It’s been entrenched for 20 or 30 years... There has to be some form of compromise, because you can’t have an airline without cabin crew and the cabin crew need the jobs. A strike would be very, very foolish and it would only make things much worse.” But unless the cabin and ground staff agree to a reduction in wages, a strike might be just the thing that Walsh finds himself facing later this summer. He's also going to have a difficult day tomorrow, when he addresses BA's shareholders at their annual meeting - and they can't be happy about the fact that the airline has stopped issuing a dividend. The airline has even talked with key shareholders about an emergency rights issue for £500 million, although that would probably be a last-resort option.

photo by michal818 from Flickr, licensed under the Creative Commons

OpenSkies to become ClosedSkies?

If you're not familiar with OpenSkies, it's the premium transatlantic brand that British Airways launched a year ago with some BA 757s, which fly in an all-business class configuration. It merged with French competitor L'Avion last July, and the process was completed in April. The subsidiary took advantage of the identically-named Open Skies treaty, which allows European Union airlines to fly from any EU country to the US.

But The Guardian is now reporting that BA, faced with deepening financial troubles, is looking at shutting down or selling off OpenSkies. BA, which itself developed much of its product around catering to business travelers, has been adversely affected by the drop-off in business travel over the last year, and it's not unreasonable to think that OpenSkies, an all-business class airline, must be affected in the same way. "Every part of our business is under review in these difficult and challenging times," said a British Airways spokesperson. "Closing [OpenSkies] would have no material effect on our financial performance," said CEO Willie Walsh. "But the team there knows that it will close if it does not deliver on its business plan."

The report conflicts with recent statements by Dale Moss, OpenSkies' managing director. "We are not on the business plan that we set out, but we are not far off - we are probably nine months off where we wanted to be at this particular time," he said. Moss stressed that despite the downturn in business travel, the airline will continue flying. More importantly, Moss said that OpenSkies will try to use its lower cost base to compete more effectively against its transatlantic competitors. But BA's operating in crisis mode, and if the operation isn't making money, then its future looks bleak. The fact that Walsh is publicly talking about giving OpenSkies the axe can't be a good sign.

BA's 'value calculator' goes after Ryanair, easyJet

If nothing else, British Airways certainly deserves credit for their latest attempt to fight back against its two main low-fare rivals, Ryanair and easyJet. The airline has launched a "value calculator" on its website, which illustrates the various "hidden" fees that have made the low-fare airlines famous. BA shows what Ryanair and easyJet charge for checking baggage and food and drink, among other costs, and then contrasts those with BA's "no extra charge" column. You can check off as many boxes as you wish, and the total at the bottom of the columns update "With British Airways," the website says, "the price you see is the price you pay."

BA has a point. Alison Hunt recently wrote an article where she researched a long weekend trip in Venice from London on BA and Ryanair. She notes that if "you were to fly with Ryanair (£157.06), check into the hold just one piece of luggage (£20 in fees, both ways) weighing 23kg (another £120 due to the expensive restrictions Ryanair places on heavy luggage), pay by non-VISA Electron debit card (£20) and spend £8 each on sandwiches and drinks on each flight (£32) you could be looking at a grand total of £349.06 - £64 more than BA. Eek!" £350 is a far cry from the base £9.99 fare that Ryanair advertises. In other words, if you were to take advantage on Ryanair of the little 'extras' that you didn't pay any additional money for on BA, your ticket would end up being more expensive.

But the popularity of Ryanair is due to its 'a-la-carte' pricing - if you don't want it, you don't have to pay for it. Assuming that you didn't check any bags or purchase any food or drink onboard, you'd still have to pay Ryanair's ridiculous online check-in fee of £5 and debit card charge of £10. But even with the £15 in fees, your new price of £172.06 would still be less than BA's £285. And Hunt assumes that you'll forget your boarding pass, which Ryanair charges £40 for doing. If you keep track of things, your cost will be even less.

The moral of the story - be careful when booking on low-fare carriers, because sometimes you might end up being charged for a lot of 'extras' that you didn't know about. But if you're smart about it, you can still end up saving a good deal of cash flying on Ryanair or easyJet versus on British Airways.

As BA hurts, Iberia looks to Air France, Lufthansa

photo by jmiguel.rodriguez

The relationship between British Airways and Spanish carrier Iberia runs long and deep. BA owns 13.5% of Iberia and has two seats on its board, and the two airlines are members of the oneworld alliance. The airlines have been pursuing a merger for a while now, and back in February, Iberia chairman Fernando Conte said that a 'preliminary decision' on a merger would be arrived at in March. But only a few weeks ago, Spanish airline Iberia said that it indefinitely postponed the timeline for finishing up merger talks with British Airways; chairman Fernando Conte said that Iberia should instead "concentrate on the reestablishment of its financial solidity." Yet it's interesting how the announcement came right around the time that British Airways announced a record loss and reports emerged about how the carrier is struggling with a pension plan deficit of at least £1.2 billion ($2 billion). BA CEO Willie Walsh has even said that the airline "is in a fight for survival."

Hmm... coincidence?

Probably not. Although talks between BA and Iberia are still continuing, it's clear that Iberia is starting to question the financial viability of its British partner, and so reports that it's looking for a future partner with stronger financial performance aren't surprising. Iberia's finance director, Enrique Dupuy, said Wednesday that Iberia can't hold its own against what he called airline "megagroups", namely, Air France-KLM and Lufthansa. "A merger with BA is a good fit for Iberia, but a merger with Lufthansa or Air France would be quite a good fit as well," Dupuy said. "We have spent a lot of time examining these alternatives, and of course they are not ruled out, perhaps the most attractive aim is British Airways but we also have very attractive alternatives."

In a statement to The Airline Blog, Iberia's international press manager Santiago de Juan made clear that as of now, the only deal being negotiated is between Iberia and BA: "Mr. Dupuy said something Iberia has been saying for some time now, which is that Iberia wants to play an important role in the consolidation process the airline industry is going through. That means that Iberia has analysed the different possibilities for this consolidation process, Air France and Lufthansa included, but at this moment Iberia is in merger talks with British Airways and it is NOT in merger talks with [Lufthansa or Air France]." de Juan would not comment on whether Iberia's recent look at 'different possibilities' had anything to do with BA's financial trouble.

Virgin Atlantic posts profit, but can it last?

photo courtesy Virgin Atlantic

Only a few days after arch rival British Airways posted a record loss, Virgin Atlantic Airlines announced some surprising news this week: it made a profit for the 2009 fiscal year. Even more surprisingly, pre-tax profits doubled from £34.8 million to £68.4 million ($109.3 million). And to rub it in even more to British Airways, Virgin claims that the increase in profits came from an increase in premium passengers, a demographic that BA is particularly reliant upon. Because price-cutting, Virgin was able to keep load factors in its first and business class seats solid. "We are winning market share from our competitors during the toughest trading environment ever," said CEO Steve Ridgway. "Our load factors remain resilient as travelers take advantage of these bargain fares, proving the value of vigorous competition."

But Virgin's reported recent financial success isn't as simple as just an increase in passengers. Virgin Atlantic locked in its fuel prices two years ago, meaning that the airline didn't have to deal with the steep rise in prices that occurred last year. And Virgin Atlantic, unlike most of its competitors, isn't publicly listed, meaning that it doesn't have to disclose detailed financial information. The Times' Ian King notes that Virgin released the numbers two months earlier than they did last year, which "raises the suspicion that their release has been timed not only to embarrass the old enemy but also to emphasize the airline’s strength to the trade at a time when the battle for corporate clients is more ferocious than ever."

While Virgin might be in a comparatively good spot right now, especially when viewed in light of British Airways' abysmal financial performance, they might not be able to keep it up for much longer. The transatlantic price war that Virgin is taking part in has started to take a toll on profits, and the state of the industry as a whole isn't solid (as Virgin's CEO has admitted). Check back in a couple of months - I'm sure that we'll see a much more subdued financial announcement from Virgin Atlantic then.

S7 Airlines to join oneworld alliance

photo courtesy S7

Russian carrier S7 (formerly known as Siberian Airlines) has announced today that it will officially join the oneworld alliance next year. British Airways has 'sponsored' the airline, which is Russia's largest domestic airline and a large player on international routes, too. S7 recently switched to an all-Western built fleet (no more smoky Russian jets) and is quickly expanding. Willie Walsh, CEO of British Airways, released a boilerplate statement with the usual "S7 is a perfect fit for oneworld," etc., etc., but also said that "oneworld's priority is the quality rather than quantity of member airlines." That's probably a subtle dig at oneworld rival Star Alliance, which is at least twice as large in terms of number of airlines. But perhaps when it comes to Russia, Walsh needn't be worried. The S7 announcement leaves Star as the only alliance without a significant presence in Russia (Aeroflot is a member of SkyTeam).

And speaking of Star, Greek carrier Aegean Airlines will become a full member of the alliance next year.

British Airways posts record loss

photo by lrargerich

British Airways today posted the largest loss since it was privatized in 1987, and CEO Willie Walsh warned that he sees "no signs of recovery anywhere." "I'm 30 years in this business and I've never seen anything like this. This is by far the biggest crisis the industry has ever faced," he told CNN. The airline halted its dividend and Walsh announced that he would work without pay in July: "This is no stunt. I want to make a contribution in recognition of the extremely challenging position we face."

BA's posted a net loss of £375 million ($594.6 million) for the 12 months that ended on March 31, only a year after posting a record £712 million profit a year before. Its operating loss of £220 million was compared to year-ago results of £878 million in profit. BA's full year fuel costs are near £3 billion - something that Walsh pinned the loss on, along with "reduced passenger and cargo demand."

While the news of the huge loss is certainly surprising, especially in light of the fact that the airline posted record profits only last year, it wasn't altogether unexpected. BA has long been dominant in flying 'premium' passengers; some have argued that it was the airline that really made business class popular. The number of premium passengers that it flew dropped 13%, and while this number isn't far from the industry average, BA has more exposure to the premium market than other airlines; as such, it is adversely affected by the double-digit drop even more.

This has meant that, over the past year, the airline has had to put volume over yields. In other words, instead of focusing on 'profit per seat' figures that are boosted by premium-paying passengers ('yield'), it's focusing on filling seats, even if those passengers filling seats are paying less. "We're now saying it's getting that balance between yield and volume so it's more a focus on volume than it has been," said Walsh, who believes that going after increased market share "is sustainable in the long term and will be profitable."

BA also announced that it is still ordering the Boeing 777-300ER for delivery between 2010-12, the same time that its remaining Boeing 757-200s will leave the fleet and be replaced by aircraft in the Airbus A320 family. But BA will slash capacity by 4% next winter to reflect the lowered demand for travel as it parks 16 aircraft.

Air France and Delta finalize joint venture

A Boeing 777 in Air France's new livery. Photo courtesy Air France

Air France/KLM and Delta yesterday put the finishing touches on a $12 billion-a-year joint venture deal that would allow them to operate as a single carrier on North Atlantic routes. The pact extends a previous joint venture that KLM and Northwest have had since 1997. Air France merged with KLM in 2004, and Delta recently took over Northwest, allowing for a four-way alliance (all are already members of the SkyTeam alliance).

The deal is a revenue- and profit-sharing venture, and will have antitrust immunity (something that American and British Airways are seeking right now). It affects more than 200 daily transatlantic flights to over 400 destinations in Europe and North America, or around 27% of total trans-Atlantic capacity. It also allows them to more effectively combine operations. For example, if both Delta and Air France have a flight from New York to Paris, but both flights are only 1/3 full, they can be combined and flown on one aircraft. Marketing, pricing, and ticketing will also be shared, and these result in very impressive cost savings (about $150 million per airline).

As previously mentioned, American, Iberia and British Airways in the oneworld alliance and United, Lufthansa (and soon Continental) in the Star Alliance are working on similar deals. This means that airlines without an alliance affiliation - like Virgin Atlantic - might suffer as a result. And while this means that Air France and Delta are cooperating even more closely, they can't actually merge - under US law, a foreign company can't own more than 25% of a US airline, although this rule might end in the future.

Some slides from the Air France/Delta news conference in Paris on Wednesday:

AA/BA alliance a "monster monopoly"?

photo by Jun Seita

Virgin Atlantic president Richard Branson has called upon the US Department of Transportation to reject a proposed alliance between American Airlines, British Airways and three other airlines, claiming that it would form a "monster monopoly" that would pose a serious threat to the survival of rival airlines and would mark the end of "red-hot competition."

In an address to the National Press Club in Washington last week, Branson warned that a tie-up would be "disastrous" for consumers, and highlighted the fact that American and British Airways, combined with their oneworld alliance partners, would control almost half of the takeoff and landing slots at London Heathrow. "It doesn’t make sense to encourage even less competition by allowing dominant carriers to increase their stranglehold by setting prices together and agreeing schedules," he said. "...Our arguments are as strong today as they were on the previous two occasions when BA and AA tried to merge. Their dominance has grown even further between then and now."

Under the proposed alliance, American, British Airways, Finnair, Iberia, and Royal Jordanian Airlines would receive antitrust immunity on transatlantic flights - something that has already been granted by the DOT to carriers in the rival SkyTeam and Star alliances. "This permission or antitrust immunity has already been granted to 10 airlines in Star and six in SkyTeam - including the recently merged and now world's largest airline Delta," said an American spokesperson, in an email to AFP, adding that the proposed alliance was "simply seeking to level the playing field."

But Branson predictably did not agree with this logic, stating: "I understand that it is tempting for regulators to say, 'We’ve given dispensation to one alliance, we should do likewise for others' as they’ve done previously. But they must resist temptation. Each anti-trust application must be considered on its merits and it’s clear that the application for a merger between BA and AA must be rejected."

Branson has lobbied against proposed two AA/BA tie-ups in the past (1997 and 2001), both of which failed due to regulatory concerns. American's argument that 'it's only fair that we get this too' certainly has credit to it, but the sticking point is likely to be Heathrow - the AA/BA presence there is already enormous. The DOT has six months to issue a ruling, so we'll just have to wait and see if Branson is successful in putting down a proposed AA/BA alliance for a third time.

Last month, former American CEO Robert Crandall said that "any objective observer would have to look very hard to find a way in which alliances have benefited consumers." He also believes that "airline alliances have been far more beneficial for international airlines than for US carriers, and for that reason alone, I think they should be disallowed." Interestingly, he also noted that if Star Alliance and SkyTeam are allowed their own antitrust agreements, "AA-BA should be permitted as well."

American's new deal with BA, Iberia

American Airlines, Iberia, and British Airways announced earlier today that they were forming a three-way alliance that would allow them to cooperate on flights between Europe and North America. Although the three airlines are already part of the oneworld alliance, the deal allows them to work more closely together and to cut costs. Not surprising, Virgin Atlantic's Richard Branson took a dim view of the deal, which he said would create a "monster monopoly".

The announcement comes at a time when other airlines are also seeking to link up: United, Continental, Air Canada and Lufthansa are working on a transatlantic alliance, similar to the AA/Iberia/BA one announced today.

BA's OpenSkies to merge with L'Avion

British Airways has announced that it will purchase Paris-based premium carrier L'Avion to add to its OpenSkies premium transatlantic subsidiary. The deal, which only set back BA $52 million in cash, will be completed this month, and OpenSkies will formally combine with L'Avion shortly thereafter.

In a statement, British Airways head Willie Walsh noted that "L'Avion is a successful airline that has built up a premium business in a relatively short period. It has many synergies with OpenSkies and buying it provides a larger schedule and an established customer base."

L'Avion flies Boeing 757-200 aircraft from Paris Orly to Newark, and is the last of the independent premium transatlantic airlines surviving - MAXjet, Silverjet, and EOS have all become victims of higher oil prices.

Continental rejects United as merger partner

photo by Drewski2112

Well, it was a bit of a surprise. After the linkup between Delta and Northwest a few weeks ago, many (myself included) expected to see continued industry consolidation. And a merger between United and Continental was seen as a likely one; rumors floating around pointed to an announcement as soon as this week. The merger would have created an airline that might rival Delta/Northwest in size, as well as international coverage (United's strong Asia presence would fit nicely with Continental's extensive European route network).

But last week, a little something occurred that made Continental think twice: United posted a $542 million loss for the first quarter of 2008. Even in the airline industry, a half billion dollar loss is pretty big, and it's a sign of an ailing airline. United's huge loss scared away Continental, which announced on Sunday night that it was abandoning merger talks with United.

The airline made the announcement in a letter to employees from CEO Larry Kellner and President Jeff Smisek. "We want you to know that our Board of Directors met today and has unanimously supported management’s recommendation that, in the current industry environment, the best course for Continental is to not merge with another airline at this time," it read... The Board very carefully considered all the risks and benefits of a merger with another airline, and determined that the risks of a merger at this time outweigh the potential rewards, as compared to Continental’s prospects on a standalone basis." The letter - which never identified United Airlines by name - went on to say that the airline will "continue to review potential alliances and our membership in SkyTeam. We are considering alternatives to SkyTeam as we carefully evaluate which major global alliance will be best for Continental over the long term."

Continental's decision is certainly a setback for United, which has been looking to merger for some time now. I don't think that the decision to not merge was arrived at easily, since there could have been some benefits from linking with United. But the folks over at Continental are betting that a merger with United, which is racking up heavy losses, could also drag them down as well. Even though Continental definitely wants a better Asian route network - and they could have obtained it through a merger with United - it might be able to get it another way. If United files for bankruptcy again, Continental might be able to grab the Asian routes by themselves, without having to deal with United's poor financial shape.

Continental has also reportedly been in talks about forming a three-way alliance with American Airlines and British Airways, although, from an anti-trust standpoint, this might be a bit difficult.

And as for United - well, this is certainly bad news. CEO Glenn Tilton tried to remain upbeat in a statement released Sunday night: "Our strategy is consistent. Consolidation is underway - ensuring you have the right partner is everything. We will pursue all options to ensure a strong, sustainable future for our airline and will not shy away from the tough choices necessary to create value for our shareholders and benefit our employees and customers." A United-US Airways merger might happen, but I don't know if it will do much good. Both airlines are still dealing with their respective trips to bankruptcy court, and I don't think that a merger between them will solve anything.

British Airways launches OpenSkies

Although it’s no secret that British Airways has been looking to expand in the transatlantic market, the airline made an announcement yesterday that it is starting an “airline within an airline”. OpenSkies, as the new entity is called, will start flying in June with a single Boeing 757-200 from New York to either Paris or Brussels. Another 757 is planned to join the fleet later this year, with six aircraft in all by 2009. In a statement, Willie Walsh, BA CEO, said that "by naming the airline OpenSkies, we're celebrating the first major step in 60 years towards a liberalized US/EU aviation market which means we can fly between any US and EU destination”. Future cities will probably include Milan, Frankfurt, Amsterdam, and Madrid.

This is a smart move on BA’s part – the Open Skies agreement signed between the US and the EU would add a lot of pressure at BA’s London Heathrow hub. Currently, only United Airlines, American Airlines, BA, and Virgin Atlantic can fly from the US into Heathrow, but this is expected to change soon as more US carriers add the airport. It’s also a smart idea that British Airways decided to buck the “premium transatlantic” trend that pushed MaxJet into bankruptcy last month – OpenSkies will have business class, premium economy, and economy class (each with 24, 28 and 30 seats, respectively). But BA isn’t alone in this area – British carrier bmi, Delta Air Lines, and Air France/KLM are all expected to follow suit with Heathrow-US routes.

MAXjet suspends shares

“Boutique airline” MAXjet Airways today requested that its shares be suspended in advance of a statement from the airline about its rather precarious financial situation. MAXjet flies five Boeing 767-200s from London-Stanstead to three US cities (JFK, Las Vegas, and Los Angeles) with around 100 leather seats apiece and four-course meals (not to mention champagne cocktails and canapés). The airline went public in June, but has since flown into a rough patch (their stock has fallen 50% and new route from London to Washington was axed, in addition to planned service to Miami starting next February).

Not all the news is negative, though. MAXjet carried 47% more passengers last month than it did last November, while the airline’s load factor increased 11% to 69%. But although more seats are being filled, MAXjet is finding it harder to make money. Lots of factors – increased competition with carriers like Silverjet and EOS, high oil prices, and a weak US dollar (which particularly affects an airline with so much UK-based traffic) could be to blame. The airline’s loss increased to $49.5 million in the first half of 2007, up from $30.4 million in the same period a year ago.

According to MAXjet, everything is business as usual, for now. The airline’s announcement about its finances, according to a statement released by the airline, will “be made as soon as possible”. “The company wishes to confirm to its employees, customers and suppliers that business continues to function as normal.” Whether or not MAXjet will be able to get over this remains to be seen – the transatlantic business travel market is notoriously competitive, and with British Airways getting in on the game soon, things aren’t likely to ease up. If BA arch-rivals Air France or Lufthansa also consider entering the premium transatlantic market at a more competitive rate (and Lufthansa has already made moves towards doing this), they could seriously jeopardize the futures of all-business class airlines like MAXjet.

British Airways orders 787, A380

British Airways announced last Thursday that it would order 12 Airbus A380s and 24 Boeing 787s, with options for 7 more A380s and 18 more 787s. The planes will be delivered between 2010 and 2014. "This is an exciting day for British Airways with our largest fleet order since 1998," said Willie Walsh, BA's chief executive. "It's great news for our business, our customers and the environment." Walsh also pointed out that the two new types are environmentally friendly and also produce a quarter of the noise of a Boeing 747-400.

BA has said that they will use the A380 to "provide more capacity for the airline's key high-density markets and [to] maximise use of scarce Heathrow slots", while the 787 will "be used to start new routes and increase frequencies in existing markets". The airline also announced that it is looking to replace the 747-400 and is looking at the 787-10, 777-300ER and A350XWB models as potential replacements.

AiRUnion moves towards Star as S7 joins oneworld

Lufthansa announced on Wednesday that it will begin codesharing with the Russian airline alliance AiRUnion, which is made up of the carriers Domodedovo Airlines, KrasAir, Omskavia, Samara Airlines, and Sibaviatrans. The deal will help Lufthansa, which serves eight cities within Russia, create domestic connections. Likewise, the AiRUnion carriers will have access to Lufthansa's international network.

While the deal doesn't make AiRUnion a member of Star Alliance, of which Lufthansa is a founding member, it does move the Russian alliance closer to Star. AiRUnion already codeshares with Star carrier Austrian Airlines on the Moscow-Vienna and Krasnoyarsk-Vienna routes.

Novosibirsk-based S7 Airlines, Russia's number-two carrier, also announced a few weeks ago that it was in talks with British Airways to join the oneworld alliance. Aeroflot, the country's largest airline, is already a member of SkyTeam. So because there are three major airlines/groups in Russia (Aeroflot, S7, AiRUnion) and there are three major world airline alliances (SkyTeam, oneworld, Star), it would make sense that AiRUnion will probably become a Star member in the coming months.

Virgin eyes premium market

Speaking on the day of his airline's inaugural flight between London-Heathrow and Nairobi, Kenya, Virgin Atlantic chief Sir Richard Branson recently announced the launch of a business-only airline that would connect London and various European destinations with the US. Branson said that the airline "would provide choice and quality for the customer" and would hopefully be up and running in nine to 18 months.
The airline wouldn't be a fully separate entity; it would probably be an airline within an airline (Branson did say that the airline would be under the Virgin Atlantic name). The London airport was not yet mentioned - Heathrow, Gatwick, Luton, or Stanstead are all possibilities. Like arch-rival British Airways' newly announced service, Virgin's will connect London, Paris, Milan, Frankfurt and Zurich with the US (probably New York). "We've got to compete in this area," said Branson. "The service will be of the highest quality and will be competitive in terms of price." Virgin will also have to go up against airlines like Silverjet, Maxjet, Eos, and L'avion, all of which offer premium trans-Atlantic service.

Virgin is also reportedly in talks with aircraft manufacturers Boeing, Airbus, Bombardier and Embraer over a new aircraft order for up to 15 airplanes.

BA joins premium transatlantic competition

Last year I wrote about so-called 'boutique airlines' - airlines which catered exclusively to the first- and business-class markets - and also looked at the expansion of these types of airlines across the Atlantic, where they have been most prolific. A handful of these 'boutique airlines' include Maxjet, Eos, and Silverjet, which fly between the New York area and London. There's also L'avion, which flies between Paris-Orly and Newark. All four fly specially configured Boeing 757s or 767s in a business or first-class configuration.

Now British Airways is foraying into this group of carriers, which target the upscale leisure traveler but mostly the business traveler. It announced that beginning in the summer of 2008 it would start flying all-premium class transatlantic services. However, the interesting part is that it wouldn't just be to and from the UK - BA is looking at service from a US city (probably New York) to various European cities like Paris, Madrid, Frankfurt, Milan, and Zurich. The chief executive of BA, Willie Walsh, said that the airline would probably - like the 'premium competition' - use Boeing 757s and/or 767s, which are smaller than the 747s and 777s that the airline currently uses on transatlantic routes.

This seems like a natural choice for BA, which has accomplished a lot with its first and business class products. But these have come under increasing pressure from the start-up 'boutiques', so BA is trying to hit back with a 'boutique' of its own. However, the fact that it wants to fly between the US and other European cities, not just the UK, is a bit more surprising, and also a gamble. Analysts have pointed out that BA has lost money before in such moves, so we'll have to see if they will be successful this time round. In any event, the move certainly will increase competition on the transatlantic routes and bring the battle for premium customers beyond the 'boutiques' - airlines like Air France and Lufthansa, BA's main competitors, will have to look out as well.