Interview: BA's Keith Williams And Simon Talling-Smith

British Airways parent International Airlines Group is integrating its latest purchase, British Midland. British Airways chief executive Keith Williams and executive vice president of the Americas Simon Talling-Smith recently discussed with BTN's Jay Boehmer the growth opportunities BMI affords the carrier as well as BA's closer ties to fellow IAG subsidiary Iberia and joint-business partner American Airlines.

Where does the BMI integration stand?

Keith Williams: We acquired BMI on April 19. Initially we acquired 56 slots in Heathrow, which takes BA's slot holding to just over 50 percent. We're absorbing BMI into BA, and BMI will cease to exist by Christmas; all the livery will be BA. It's a very quick turnover, which is necessary because the business was losing £200 million a year. The opportunity for BA, because we've always been slot-constrained at Heathrow, is that it gives us ultimately between 42 and 56 slots [after the European Commission mandated that BA relinquish some of the newly acquired slot pairs], which is big. To me, it's a once-in-a-lifetime opportunity for British Airways to do something we've always wanted to do, which is to grow the long-haul network out of Heathrow. As a rule of thumb, we need three short-haul slots to feed one long-haul slot, because the routes generally only work through the transfer traffic. If you look at Heathrow today, 35 to 40 percent of the traffic going through is transfer traffic. What you can see with BMI is the build of the transfer traffic into Heathrow and then additional long-haul flights out of Heathrow. We've increased short-haul flying from regions of the U.K. into Heathrow. We've started new routes like Rotterdam and Leeds to bring the feed into Heathrow, and then we'll start new long-haul routes, starting in December to Seoul. Over time you'll see that we'll add more long-haul routes until we get to—rule of thumb—three to one, so we'll get 12 to 14 long-haul destinations.

Will those come in the form of new destinations or frequency adjustments?

Williams: There might be frequency adjustments, but I think the opportunity for us is to really start to grow business to the East. A lot of the work we've done over the years in restructuring the company—we've had 10 years of restructuring, really—was to restructure the cost base to make us more competitive in other regions of the world. We can take the BMI business from a £200 million loss-maker into £100 million additional profit by 2015.

When do you expect those additional long-haul routes to take hold?

Williams: I would say over the next three to five years, as we get the new aircraft deliveries. We've got 24 Boeing 787s and 12 Airbus A380s coming into BA.

How coordinated are your sales efforts with Iberia?

Simon Talling-Smith: Very coordinated. The principle within the joint business, which also includes American, is joint contracts and joint submissions, because we can offer better reach, a better range of prices and a better range of destinations. We're doing that in all of our agency submissions and our corporate submissions. In other parts of the world, outside of the joint business with British Airways and Iberia, normally one will represent the other in any given country. Here in North America, British Airways represents Iberia. In Argentina, Iberia represents British Airways. In those situations the sales team will negotiate contracts on behalf of both airlines.

How are the revenue synergies with Iberia coming along?

Williams: They're coming through very quickly. You've got the JBA with American and Iberia, and then you have the other avenue, which is the direct BA-Iberia feed. You see that in the growth of the network between London and Madrid. We can put more traffic through Madrid to South America; they can put traffic out through London to the East, where they really don’t have a network. That side of it is coming through. Then you've got the obvious cost synergies. We started off with a target synergy level of £400 million by 2015. We now can see that coming in at £500 million. In a low-margin business, that's good.

BA has beefed up its systems to collect more data on passengers. How does that better help you serve the corporate segment?

Talling-Smith: Sometimes a corporate buyer will come to you and say, "Look, I'm getting a lot of heat from my travelers because they say that their bags have been lost." Sometimes that's absolutely right, and sometimes they've just been unlucky and four people have just knocked on their door to complain about bags. This allows us to follow up with the company to show that they had 45,000 journeys in the last two years and show them how many bags were lost. Because we've taken operational data, customer data and corporate data and put them in one place, we can finally link all of these things and get travel performance reports on service delivery for a corporate. It tends to be done on request, but the conversations are very useful after that.

Do you have any plan to make this a monthly or a quarterly report to send out to all clients?

Williams: Not at the moment, but not unthinkable.