After a damaging three-day strike forced British Airways back to the negotiating table, management set about leaking plans for a low-cost carrier in a bid to raise the pressure on the cabin crew union. At the same time, BA has started talking with Iberia about a possible alliance, following a deal between American Airlines and Aerolineas Argentinas.

BA's plan for a low-cost carrier hit the UK press in mid-July just two days after BA's management and cabin crew union officials sat down with a mediator and agreed to further talks in secret. One senior BA source says 'he wouldn't necessarily disagree' with suggestions that the leak was linked to the union talks.

Both BA and the Transport and General Workers Union have agreed to a press blackout as they attempt to hammer out how to achieve the targeted £42 million (US$71 million) in annual savings from mainline cabin crew. The strike in early July severely affected the carrier: European services out of London/Heathrow had still not returned to normal a month later. BA took a £15 million strike charge in its first quarter to 30 June, but a £130 million profit from selling its US Airways stake helped its pretax profits to rise 46.7 per cent rise to £220 million. The carrier estimates the dispute will cost £125 million in total.

The fallout has also dealt a bitter personal blow to chief executive Bob Ayling - a close friend of UK prime minister Tony Blair. The acrimonious nature of the dispute persuaded Blair to exclude Ayling from an inner circle of influential businessmen he is gathering around him.

The second blow to Ayling came at the annual meeting in mid-July, where he was faced by hostile questions from shareholders - infuriated not just by the strike but also by the carrier's new livery.

On the alliance front, the UK carrier is still no closer to getting its alliance with American Airlines past the regulators in Brussels. The European Commission is demanding the two carriers give up 350 weekly slots at London's two airports, including 264 at Heathrow. Both carriers are preparing a response to Brussels but have already indicated that if they deem the demands too unreasonable they will reduce the linkup to a marketing arrangement.

Nevertheless, the proposed linkup with American is pushing BA into the arms of Iberia. The US carrier is set to take a 10 per cent stake in Aerolineas Argentinas alongside Iberia, and as part of the deal American is eying an equity stake in Iberia as part of the latter's privatisation.

BA is likely to follow suit and is understood to be in exploratory talks with Iberia. Both American and BA have to decide by the end of the year on taking a stake, thought to be around 5 per cent. The three carriers are expected to link their frequent flyer programmes by the end of October. Madrid is looking to privatise Iberia by 1999.

Mark Odell

Source: Airline Business