Rising oil prices will lead to even more airline merger activity in 2011 than there was in 2010, British Airways chief executive Willie Walsh told The Transnationalin an exclusive Friday interview. Walsh also said he expects an increase in international airline joint ventures and hit out at Virgin Atlantic for "hypocrisy" in opposing BA's recent tie-ups with American Airlines and Iberia.
"2011 will be a year of significant consolidation," said Walsh. "It may accelerate a little as a result of the current high oil prices. 2010 was a busy year for mergers but 2011 will be busier. Our industry needs to consolidate. It is part of the solution to its structural financial problems, although it is not the only answer." Walsh expects a rash of mergers in almost every region, possibly including Asia, which has seen less consolidation than has other parts of the world.
BA plans to complete its merger with Iberia on Jan. 24, following the September 2010 launch of an antitrust-immune transatlantic joint venture with oneworld partners Iberia and AA. European and North American members of both Star Alliance and SkyTeam previously launched similar transatlantic joint ventures.
Some corporate buyers have expressed concerns that the consolidation of competing carriers into a small number of joint ventures would stifle competition, but Walsh insisted that the oneworld JV would have the opposite effect. "Competition between three alliances on the North Atlantic is most definitely a better position than between two alliances with a third unable to join in," he said. "In all, there are 40 airlines operating between Europe and North America, and we have seen no reduction in capacity. In fact, we have seen it grow. The only way the alliances will succeed is if they do compete on both price and service.
"Corporate customers have been looking to alliances for deals," Walsh continued. "There has been clear evidence of that on the North Atlantic."
Sounding Off On Virgin And AA's Distribution Battles
BA's fiercest long-haul competitor, Virgin Atlantic, confirmed in November 2010 that it had hired Deutsche Bank to conduct a strategic review of its business. This followed comments from Virgin chairman Sir Richard Branson that his carrier would no longer be able to compete independently if BA's JV obtained antitrust immunity. Walsh heaped scorn on the suggestion that diminishing competition is forcing Virgin's hand. "Virgin raised the white flag on its independence many years ago because it is 49 percent owned by Singapore Airlines, which some people have conveniently forgotten," Walsh said. "There are also other airlines in the Virgin Group which participate in code shares. It highlights the hypocrisy of Virgin that it is jumping up and down about this. What Virgin does not like is that there will be more competition, not less. Their arguments are without any basis."
Meanwhile, Walsh said he is reading with close interest press reports regarding the disputes between American Airlines and various distributorsbut has not discussed the matter with BA's Dallas-based partner. As to whether BA might pursue a similar direct-connect strategy, Walsh replied: "We will continue to distribute our products through the global distribution systems, but I am conscious that many airlines around the world look at the value chain and see profitability in other areas when they are suffering losses. One area highlighted recently by [International Air Transport Association director general] Giovanni Bisignaniwas the profitability of the global distribution systems, but at BA, we have no issues with our GDS partners at the moment."
BA's current GDS participation agreements with Amadeus, Sabre and Travelport each run to 2013.