09 April 2009

BAAABI All But Dead in Its Current Form

The now stalled negotiations between British Airways, Iberia and American Airlines to form a true joint venture are all but dead in their current form after BA's leader Willie Walsh told a Spanish Newspaper that “These negotiations aren’t a distraction for our management team,” he said. “BA and Iberia know each other very well, so I don’t feel under any calendar pressure.”

Perhaps not so for him - but in March his opposite number at the former Spanish National Carrier indicated that a decision was both imminent and would indeed be made at the end of March. Well that came and went with no public announcement. So pretty much that puts paid to the possibility of a BA+IB merger in the short term.

So this leaves the proposed BA+AA+IB (BAAABI to you and me) JV in limbo. American might just start to get impatient with their European cousins.

In my opinion the IB+BA merger has lost its luster and wont regain it for some time. Willie has many more urgent issues on his plate. When he says this topic "isn't a distraction for our management team" that is somewhat of an understatement. BA has many pressing issues on its plate that far outweigh the merger. Not least of which of course is the current situation with its traffic numbers. March is likely to be awful at the very time when the US market is actually showing some signs of life. Whereas total US travel agency transaction numbers were off by a lesser amount in March that the disastrous numbers in Jan and Feb, International yields went into the toilet.

So does the transatlantic JV make sense in this environment? Specifically booking numbers for March show that international transaction numbers were off by 8% vs the total transactions off by 11%. However when the value of all US agency issued tickets is counted the proportion was reversed 27% vs 25%. I guess those Wall Street Types have either stopped traveling or are slumming in Coach - or more likely on domestic airlines. Anecdotally we are hearing that many recipients of US government bailouts are quietly instituting a buy American policy. The logic is that the US public would be really outraged if they thought that their tax dollars were being used to fly in business or first on a foreign airline when their own carriers are hurting so badly. Thus BA is clearly hurting badly and their numbers show it. BA's profile on the Transatlantic that represents such a large part of its business right now just stinks.

However with Continental getting its Star anti-Trust immunity nod this week - AA at least must be thinking that things are looking up. Not so fast quickdraw. AA+IB+BA's share of traffic at LHR is not dropping - actually it has climbed. With AA closing LGW and STN last year all their eggs in the Southeast of England are now concentrated at LHR. The dominant position that the triumvirate comprise at Fortress LHR is not likely to change any time soon either. Thus the dominant position they would exert on the Transatlantic market remains a threat to any competitor.

QED I think my supposition is that BAAABI is still dead.

Let's hope that they can come up with something magical to revive this.


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