British Midland takes shock U-turn by launching US routes

British Midland, the country's second biggest scheduled airline, yesterday signalled a sharp change in strategy by unveiling plans to launch transatlantic services to 10 US cities.

The announcement came less than three months after the airline's chairman, Sir Michael Bishop, warned of an impending "bloodbath" on the North Atlantic and criticised moves to turn Heathrow into a "bucket and spade airport" for the US.

Up until now British Midland has concentrated on building up its domestic and European services using its privileged position at Heathrow, where it controls 14 per cent of all runway slots. Now it has applied to the Civil Aviation Authority for route licences to 10 US destinations, including New York, Washington, Atlanta, Boston, Chicago, Los Angeles and Miami. It aims to start operating services within the next 18 months with an initial fleet of three aircraft.

It will take British Midland into direct competition on US routes with British Airways and Virgin Atlantic, the only two UK carriers allowed to operate scheduled services across the Atlantic.

Austin Reid, British Midland's managing director, said the move had been driven by the impending "open skies" agreement between Britain and the US which will allow any airline to operate across the Atlantic. He also said suitable aircraft were likely to be available earlier and more cheaply because the Asian downturn was forcing carriers to reschedule or defer deliveries.

Mr Reid said British Midland would have preferred to complete its expansion into Europe before embarking on long-haul services but had been "stopped in its tracks" by the lack of available slots.

In contrast, the long-awaited British Airways-American Airlines alliance is expected to see up to 300 slots taken from the two carriers and redistributed to other transatlantic operators.

Up to five US carriers are expected to enter the market in addition to its two existing operators, American and United Airlines. "In terms of UK plc that is a rather unequal equation," Mr Reid said.

In contrast to a warning last December from his chairman's about "the air-fare war to end all air-fare wars" on the Atlantic, Mr Reid added: "We see significant benefits arising from increased competition on transatlantic routes and it is essential that the number of UK airlines servicing the market is increased to three."

Mr Reid denied that British Midland was acting as a "stalking horse" for SAS, the Scandinavian carrier which owns 40 per cent of the airline. SAS is also a member of the Star Alliance, with which the BA-AA alliance will compete.

He said that SAS has only been informed yesterday morning of British Midland's decision to apply for the route licences, though as a major shareholder it had been kept informed of the company's plans to enter the long-haul market.

British Midland is also studying the possibility of teaming up with a partner when it enters the US market.

`Open skies will lead to a bloodbath across the Atlantic. There will be the air-fare war to end all air-fare wars. We don't want to see Heathrow become a bucket-and-spade airport for the US'

Sir Michael Bishop, chairman,

British Midland, 8 December, 1997

`We see significant consumer benefits arising from increased competition on transatlantic routes and it is essential that the number of UK airlines serving the market is increased to three'

Austin Reid, chief executive, British Midland, 24 Febraury, 1998, announcing plans to fly to 10 US destinations