Exclusive interview: BA's Willie Walsh

British Airways has been making the headlines on an almost weekly basis this year. Today (November 13) it is the merger with Iberia, in early November it was a record £292m first half loss and the ongoing threat of strikes continues to make the news. With all this on his plate chief executive Willie Walsh is a busy man. But he still made time for Routes News at the launch of the airline’s new Heathrow to Las Vegas route in late October. We spoke to him about what the new Las Vegas route signifies for BA and how he plans to steer the airline back into profitability.

Mergers and acquisitions

Firstly on the issue of mergers, with the Iberia deal looks set to go ahead late next year, Walsh does not rule out some consolidation further afield is also not ruled out, with Walsh saying that if American Airlines asked BA to take a stake in JAL, he would consider it: “It’s something we have talked to American about in the past about making an investment in JAL.”

Leisure versus business

Meanwhile, four of the five new routes British Airways launched this winter are to leisure destinations (Sharm El Sheikh, Dominican Republic, the Maldives, and Montego Bay) and all of them are from Gatwick. So does this herald a shift away from business to leisure?

“I think it shows an increased focus on leisure. We have had a focus on a specific leisure market the long-haul leisure market and we have been very successful to the Caribbean, for example,” Willie Walsh, British Airways CEO told Routes News.

Walsh also remains positive about the holiday market: “Gatwick works well for us. The cost base works well for us. We look for routes that don’t need to justify transfer traffic.”

“Premium leisure is one of the strong growth areas. We have possibly missed something over the years and we have recognised it’s an important market and it’s a growing market, even in this current economic climate. It’s an important segment of the market, and our pricing is competitive. We are trying to identify destinations from Gatwick which are point to point and can support a premium cabin on that route,” he said.

Las Vegas, by contrast, is the only mixed business/leisure route BA has launched this winter, and the only new route from Heathrow.

Why Vegas and why now?

“We think this is a route that has a lot of potential,” Walsh stated. “We have identified a lot of traffic travelling to Vegas from Europe and that’s why we wanted to do it from Heathrow. The transfer feed is important to maintain this route.”

He added: “This is by far the best performing new route we have seen. Forward bookings are fantastic.” Plus, Walsh said that the route was also set to perform well on the cargo side.

Walsh, however, ruled out launching any more new routes in the immediate future, but did reveal that “there are few cities we are looking at” to launch direct service. “There are two or three possibly in North America we would like to serve, and then in Asia there are a number of destinations.”

Walsh indicated that Asia is clearly one region earmarked for future routes. “The Asian routes are on the agenda when we take delivery of the B787 in 2012.”

“From a business and a network point of view there are about eight to 10 cities we would like to add. Had we not seen this downturn those are destinations we would be targeting.”

All-business class

Walsh reaffirmed his faith in – and commitment to – the all-business service from London City Airport to JFK.

“Bookings have been very encouraging, we are really pleased with it so far. People’s experience and the feedback we are getting is great.”

When asked whether it was the right thing to do, in terms of the perception of the financial sector, he replied: “These people are not travelling because they think it’s a nice thing to do. They are travelling because they have to do business. We think this is a service that allows them to maximise their time in the office. The bit that people haven’t fully understood or appreciated is that according to IATA figures, although premium traffic overall is down by 18.8%, transatlantic premium traffic is down by just 14.8%. It’s true the financial sector took a big hit, but it has recovered some ground. Premium decline has levelled out, and the October figures show that, but if you look at the last six months, yields are down.”

More premium product news

In terms of product, BA will start installing its £100m revamped first class on a B777 this winter with a view to starting to fly it early next year.

“We will modify one of our aircraft this winter and we are starting fitting it into B777s next year. First will be on the new B777-300s we have on order and our B787s will have a First. It’s a product that works well for us, particularly on 747s where there is a very effective use of floor space.”

And Walsh does not believe that the downturn has heralded the gradual disappearance of the first-class product. “We are not taking First off any routes,” he stated.

World Traveller Plus (WTP) is also under review in terms of a revamp, but Walsh said there were no fixed plans at this stage: “WTP has been very successful for us, it’s been performing very well. I think there are things we can do to enhance the product though.”

Capacity cuts

While Walsh ruled out pulling off any routes at the moment, he did say there would be further capacity cuts next summer. “We will make an announcement about capacity cuts early next year. It will be frequencies not routes. Some of it comes from flying smaller aircraft. We’ve already replaced B747s on some routes with B777s.”

The aim is ultimately to keep the BA network intact: “There will be no significant changes to the network. No destinations are under review at the moment.”

Short-haul

Of course, though BA’s short-haul network is under considerable strain when faced with fierce low-cost competition in Europe and over-capacity in the market.

Walsh concedes: “We have taken a lot of capacity out of domestic flying. The main reason we do it is to provide the connectivity. There’s no other point in doing it, there’s no money there – it is for the connectivity.”

Like all operators in Europe, BA remains aware of the competition posed by the rise and rise of fast trains on the continent. “If high-speed rail becomes a reality then we would see no need to fly to those destinations, but I think it’s a long way away,” says Walsh.

And would he go the way of Iberia and set up a separate airline for domestic and short-haul?

“I don’t think that would work for us. It’s not a bad thing for Iberia as the majority of their short-haul traffic is domestic, but for us it’s intra-Europe. So I can see why they are doing it, but the integration of our network works much better for us than for them.”

However, Walsh accedes that some of the factors forcing change upon Iberia – no-frills competition and a shift away from business on short-haul – are just as relevant to BA.

“Some of the changes we have seen [in the past year] are permanent. Short-haul premium passenger volumes will continue to decline even with an improving economy. Long-haul will recover but we have seen a massive decline.”

BA recently introduced charges for golf clubs and skis, as well as a fee if passengers wish to choose a particular seat – things that Walsh believes passengers are willing to pay for.

“The charges are for new services, not pre-existing ones,” he states. “People do value these seats and we see it as a revenue stream, ticket revenue is going down and we need to look at other ways to generate revenue.”
Would BA consider charging for food and drink on short-haul routes, as Iberia already does?

Walsh replies: “We are not like no-frill carriers, I don’t see us unbundling product like the no frills carriers have done.We are very clear what we can and can’t do within the BA brand and we know what people will accept and what they will not accept.”

APD

The issue of the Air Passenger Duty (APD) is only gaining more and more coverage in the UK, with leading travel companies and industry bodies leading campaigns against the controversial tax. BA has been a leading light in this fight. Walsh commented: “There is a perception or there has been a perception that business travel is immune to price increases. That is not the case. APD will see fares increase by 112% – these are very significant taxes.”

Walsh’s argument against APD is two fold – one, none of it goes directly to the environment; and two, it will do more damage to UK plc. in terms of business, than gain in terms of tax revenues.

He cited the Dutch example, in which the government there recognised the potential damage to the economy and has scrapped plans to raise APD. “I met with Alistair Darling (the UK treasurer) and he is familiar with this, he gets it, but he reminded me of the challenges the government faces in terms of raising revenue.”

2010 and beyond

Overall the picture is grim, with Walsh resigning himself to a second year of financial losses – the first time in the carrier’s history.

“There is more business confidence out there and it’s a lot more positive than it was. I think we’ll start to see the UK recover next year. But we are still in recession and the recovery will take some time. I think next year will be difficult. The economic environment won’t be in recession, but it won’t be into significant growth. Industry is still in a difficult place. I get no comfort from the fact that I am running a business that is going to report a loss two years in a row.”

This is why he is pressing ahead with restructuring, despite the threat of strikes.

“We are going through a restructuring that has to happen. The industry is changing and BA has no choice. We have been very fair, very reasonable and very patient. I’m confident that we’ll see our way through this. We have got to bring this business into profitability. We have got to go forward and change. This is not a temporary downturn, it’s very much a structural change,” he concluded.

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