December 22, 2011

Turbulence in airline sector

British Airways, Virgin and bmi

The rivalry between British Airways and Virgin has resumed over the slots at Heathrow (Virgin has 3% and BA 45%) and the sale of BMI by German national carrier Lufthansa.  IAG, owner of British Airways, has now announced that it has reached agreement to buy BMI in a £172M deal which will provide it with an additional 56 take-off and landing slots at Heathrow.  Willie Walsh makes no secret of the fact that one of the primary motivations was to obtain the additional slots, but he has also warned that there are likely to be a number of job losses at BMI.

Eurozone Crisis

 The International Air Transport Association warned that global airlines will plunge into combined losses of $8bn (£5.1bn) next year if the Eurozone crisis becomes a full scale banking crisis and recession. If the crisis is resolved, it forecasts global airlines will generate total profits of $3.5bn next year. European airlines, however, are expected to make a loss regardless of the outcome – falling freight traffic as well as depressed passenger numbers being to blame.

Closer to home, the air passenger duty increase confirmed by the Treasury is estimated to cost the UK economy £4bn and 80,000 jobs by 2015. Germany, Austria and the US are also planning levies. There are concerns over delays in implementing the Single European Sky project which targets increased airspace capacity and reduced air traffic costs.

American Airlines

A short time ago, the parent company of American Airlines (America’s third largest airline) filed for bankruptcy protection (Chapter 11 in the US – Administration in the UK). It is facing huge debts ($29 billion) from high fuel prices and expensive staff contracts which its competitors moved away from years ago.

Rivals United and Delta used bankruptcy to shed costly employment contracts, reduce debt, and start making money again. They also grew through mergers – and a possible merger with US Airways has been suggested. Some analysts – including Vaughn Cordle - think the move will lead to further consolidation in the airline industry, particularly the 20 commuter airlines.


For the aerospace industry the outlook looks better – AMR (American Airline’s parent company) wants to proceed with an order for 460 new jets from Boeing and Airbus and take delivery of over 50 others already ordered.

2012 certainly promises to be an interesting year!

Please contact Stewart Wilkinson for further information on 02075832222 or [email protected]



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