British Airways Plc’s business-class-only service from London to New York probably will be profitable in the first year, Chief Executive Officer Willie Walsh said as the U.K. carrier began flights today.
“We believe there is a big demand for this service,” the CEO said in a Bloomberg Television interview from London City airport. The flights will attract business flyers who now travel from Heathrow, Europe’s busiest airport, as well as some private jet customers, he said.
The London-based airline, Europe’s third-largest, has historically made almost all of its profit from first- and business-class travel. Last year, BA garnered 45 percent of revenue from premium tickets that accounted for only 13 percent of seat sales. Premium traffic fell 12 percent last month, compared with a 1.3 percent gain in coach.
“It’s a difficult environment, but I think this is a measure of confidence,” said Walsh, who is taking the trip to New York today. “Business travel is still under stress” and the carrier hasn’t yet seen signs of recovery, he added.
The London-New York service will show whether the carrier can lure bankers, lawyers and other professionals with a product with prices starting at about 1,900 pounds ($3,000) for a round- trip ticket. Financial institutions accounted for 13 of the airline’s top 50 clients last year.
“It may be that BA is being quite clever in calling the bottom of the market here,” Douglas McNeill, an analyst at Astaire Securities in London, said in a Bloomberg Television interview. “We’re pretty well there.”
British Airways rose 0.4 percent to 216.6 pence in London trading, extending its gain this year to 21 percent and increasing its market value to 2.5 billion pounds. BA led advances in the Bloomberg EMEA Airlines Index, which fell 1 percent.
The service from London City is targeted at frequent travelers based in the nearby Canary Wharf complex and the main City financial district 5 miles (8 kilometers) away.
“If the price is right, we’ll use it,” said Ben Varey, vice president of corporate real estate and travel for Credit Suisse and a guest of BA on the inaugural flight. “The stopover is the bit I’m most interested in seeing how it works.”
The twice-daily service on Airbus A318 planes includes a refueling stop in Ireland on outbound trips because London City’s short runway limits takeoff weights. Customers flying west will be able to clear U.S. immigration in Ireland, which may mean a shorter total trip time than traveling to Heathrow and clearing immigration in New York.
Westbound flyers will arrive in New York essentially as domestic passengers and can “get in a cab in six minutes,” Walsh said.
Sharon Milner, corporate and client services manager for Linklaters LLP, the biggest U.K. law firm by revenue, said the stop in Ireland may be troublesome.
“Return flight times are really good, but I’m not so sure about the outbound flight,” said Milner, who also took the trip today. “We would consider using this service back and another service there.”
Dimitri Panayotopoulos, vice chairman of Procter & Gamble Co., said the company will consider using the service.
“It’s a good idea,” said the executive for the world’s largest consumer-goods company, who was at London City for a different flight. “If you clear customs early, it could be more convenient.”
Walsh said in a separate interview that British Airways would like to buy BMI from Deutsche Lufthansa AG, the German carrier that acquired the airline in July, to increase the number of takeoff and landing slots at its main base. BMI is the second-largest operator at London Heathrow after BA.
“We’ve just expressed an interest,” Walsh said. “Slots at Heathrow are an attractive proposition.”
British Airways said in July last year that it was in talks with Madrid-based Iberia Lineas Aereas de Espana SA about an all-stock merger. Negotiations have foundered as the global recession depressed air travel, and as the carriers failed to reach agreement on issues including how a new company’s stock would be split among investors.
“The bilateral discussions with Iberia have been progressing in recent weeks,” Walsh said. “I’m not overly concerned about the time scale. I’ve been pretty relaxed about it and I’ll remain relaxed about it.”
BA doesn’t have plans to eliminate short-haul routes as a result of the beginning of the New York flights, Walsh said. The carrier, which has cut jobs and frequencies on some routes, had a 106 million-pound net loss in the three months through June, the carrier said July 31.