BA puts its budget airline Go up for sale

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The Independent Online

British Airways put its budget airline Go up for sale yesterday, with rival easyJet and Go's management immediately emerging as the most likely buyers.

British Airways put its budget airline Go up for sale yesterday, with rival easyJet and Go's management immediately emerging as the most likely buyers.

BA said it was selling Go as it no longer fitted with its new strategy of flying fewer routes and concentrating on higher paying business traffic. Goldman Sachs has been appointed to advise on the transaction.

Go, founded two years ago in response to cheap new rivals such as easyJet and Ryanair, is valued by analysts at up to £500m. Go's management, led by the American Barbara Cassani, is tipped as a likely bidder, although Ms Cassani was not available for comment yesterday.

Easyjet, in the midst of a £750m flotation, appeared more willing to throw its hat in the ring. A statement on its website yesterday did not try to dampen speculation on its interest. "We will take extreme care before taking a decision to look at Go and would only do so at the right price," it said.

Some analysts said Stansted airport in Essex could offer easyJet an alternative hub to Luton, where it is in dispute over landing charges. However, others said there would be few synergies to be gained from merging two low price airlines.

Ryanair ruled itself out, saying it could see "no value" in buying Go. "We see a company that is making losses, has expensive aircraft, flying to expensive, congested airports," said Ryanair's commercial director Michael Cawley. "If BA wants to pay us to take if off their hands, then we'd take a look at it."

Virgin, which runs the Virgin Express budget airline out of Brussels, said it was "definitely not interested" and the UK market was "already overcrowded".

Go, set up in 1998 with a £25m investment from BA, flies to 21 destinations from its base at Stansted. Yesterday BA said Go had made a profit every month so far this year and was on track to break even in 2001.

Lord Marshall, BA's chairman, said: "We do not feel that Go is a part of the future strategy of BA, particularly with short-haul operations. So it is sensible for BA and Go to go their separate ways."

Asked if the no-frills airline had been a mistake, he said: "I don't think it was a mistake to launch it. We've gained a lot of knowledge and experience." But he admitted Go had cannibalised customers from BA as it flies many of the same routes.

Analysts supported the decision which, together with better-than-expected half-year profits, pushed BA shares 6 per cent higher to 351p. Ian Wilde, airline analyst at SG Securities, said: "They've been clear right from the start that it was a bit of an experiment."

BA yesterday reported second-quarter profits of £200m compared with £40m a year ago, despite huge fuel price rises. Rod Eddington, who took over as chief executive in May, warned of further restructuring to come in operations. Schedule changes next summer, combined with the introduction of more, smaller new aircraft, will see year-on-year capacity cut by 10 per cent.

Plans for a wholesale shake-up of BA's Gatwick operation will be announced in the next few weeks. These could include several hundred job losses as duplication with Heathrow is cut. Mr Eddington said he planned to integrate BA's European businesses, now split into 10 groups and franchises. The programme to drop routes that do not make money will continue.

BA's second-quarter results, which follow the collapse of its merger talks with KLM in September, showed that its strategy of dropping uneconomic routes and passengers is bearing fruit. Yields, a measure of how much an airline makes on each passenger, rose 8.7 per cent in the quarter, BA's biggest ever year-on-year improvement. Innovations such as beds in business class helped premium traffic rise 7.7 per cent.

Costs were steady despite a £61m rise in fuel costs. The dividend was held at 5.1p per share.

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