British Airways to start new U.S.-to-Europe service
British flagship carrier will seek to attract mostly business customers
By Aude Lagorce, MarketWatch
Last Update: 8:00 AM ET Jan 9, 2008
LONDON (MarketWatch) -- British Airways Plc, Europe's third-largest airline, on Wednesday announced the launch of a new service between Continental Europe and the U.S. in a move to capture business customers on two lucrative routes.
The new subsidiary, called OpenSkies in reference to the agreement that made it possible, will start in June with just two Boeing 757s. The jets, which will carry up to 82 passengers, will operate daily from New York to either Brussels or Paris, British Airways said in a statement.
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The airline eventually plans to operate six 757s by the end of 2009, all of which will be sourced from its current fleet.
The business cabin will feature British Airways' well-known lie-flat seats.
"This is an exciting new venture for us and we're confident that it will be a great success as we build on the strength of British Airways' brand in the U.S. and Europe," Chief Executive Willie Walsh said.
Robert Cullemore, an analyst with U.K.-based aerospace consultancy Aviation Economics, said the move represents its first attempt to leverage its operational expertise and the experience it has gained from years of transatlantic operations out of the U.K.
"It's also a competitive reaction to the entry of Air France and possibly others on Heathrow-U.S. routes in the spring," he added.
The Brussels-New York route is currently served by Continental Airlines (CAL: news) , American Airlines (AMR: news) and Delta Air Lines (DAL: news) .
Aviation Economics' Cullemore said that on this route British Airways will be looking to appeal to the higher end of the market with its lie-flat beds, which its American competitors are just beginning to roll out.
The Paris-New York route is served by the same airlines plus Air France (AKH: news) and the relatively new all-business airline L'Avion. Cullemore said BA's main target on this well-served route would likely be L'Avion and forecast that the British airline would likely leverage its well-known brand try to draw in American customers on the route.
Naming a service after a pact
The new British Airways service was made possible by the "open-skies" agreement signed between the U.S. and Europe last year. Starting this spring, the pact will allow European airlines to fly from anywhere in the European Union to any point in the U.S. without restriction on pricing and capacity, and vice versa.
"By naming the airline OpenSkies, we're celebrating the first major step in 60 years towards a liberalized U.S/E.U. aviation market," Walsh said. "It also signals our determination to lobby for further liberalization in this market when talks between the E.U. and U.S. take place later this year."
BA originally opposed the pact and urged the U.K. to veto it, saying the pact favored the U.S., especially as it wouldn't let E.U. carriers access the domestic U.S. market.
The agreement also threatened British Airways' dominance on some very lucrative transatlantic routes. At the time the deal was signed, ABN Amro analysts warned that an influx of competitors at London's Heathrow airport could "drive a collapse in U.S. route profitability" for BA.
Under current rules only four carriers -- United Airlines (UAUA: news) , American Airlines, British Airways and Virgin Atlantic -- are allowed to fly routes between the U.S. and Heathrow, which is the world's busiest airport for international passengers, and the third-busiest overall, behind Atlanta Hartsfield-Jackson and Chicago O'Hare.
But rival carriers have rapidly stated their determination to take advantage of "open skies."
Both Ireland's Aer Lingus Group and the U.S.'s Continental have already announced their intention to fly new routes.
Last year, Air France and Delta Air Lines Inc. unveiled plans for a joint venture that will see them share costs and revenue on transatlantic routes.
The venture will start in April, just when the "open-skies" agreement is due to come into force. The airlines estimate annual revenue of $1.5 billion in its first phase and $8 billion in its second phase. Read more about the Air France-KLM, Delta joint venture.
Aude Lagorce is a senior correspondent for MarketWatch in London.
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