British Airways Continues to Dominate its Competitors

June 11, 2008— -- HOUSTON — British Airways officials shamelessly promoted their carrier as "The World's Favourite Airline" until 2001, when it stopped being even Europe's biggest, arguing that even if U.S. carriers were bigger, theirs was better by every measure of quality, and much preferred by travelers who had an option.

These days, CEO Willie Walsh might be tempted to bring that slogan back.

It is still just Europe's third-largest carrier, behind both Air France-KLM Group and Lufthansa, which also owns Swiss International Air Lines. But after a six-year makeover that has sharpened its focus on serving high-fare-paying first- and business-class international fliers, Walsh can make a good argument that BA has become the world's most successful international carrier. Its profit margins are bigger than either of its principal European rivals'. And BA continues to dominate the market at London Heathrow, Europe's biggest and most lucrative airport, despite a calamitous opening of its much-hyped Terminal 5 in spring.

Preserving — maybe extending — those advantages brought Walsh to Houston last month and could set up BA as an influential player in the rescue of the financially battered U.S. airline industry.

Ostensibly, he was in town to celebrate the transfer of BA's Houston-London service from Gatwick Airport to Heathrow, a move made possible in spring by the new "open skies" air services agreement between the United States and the European Union. But Walsh also met privately with Larry Kellner, CEO of Houston-based Continental, and several of his top lieutenants.

Continental has become the target of a quietly intense bidding contest after rejecting a merger offer from United. BA and its key partner, American Airlines, want Continental to join their Oneworld global alliance. Similarly, United and its strategic partner, Germany's Lufthansa, are courting Continental as a potential member of their Star global alliance.

Whichever team Continental joins would get a big boost not only from Continental's dominant position here in the booming capital of the oil industry, but also from its strong hub at Newark Liberty International Airport, where it has become the market leader in the hugely important metropolitan New York market.

"The possibility of bringing Continental into Oneworld is one that we found to be very interesting," Walsh said. "We've tended to take the view within Oneworld that quality is more important than quantity. It's a smaller alliance in terms of the number of airlines in it. But if you look at the quality of those airlines, they're all good-quality airlines. And we think Continental would fit in well with our members, because it is a very good-quality carrier, too."

Should U.S. law change and Continental — or American — need fresh capital to survive the industry's current financial nightmare, Walsh and his colleagues at BA admit that they would be very interested in owning a controlling stake in one or more U.S. carriers.