World's newest airline faces stormy forecasts

BA's OpenSkies subsidiary is taking off in troubled times, hoping to avoid the fate of rivals
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Undeterred by a raft of airline bankruptcies caused by the record fuel price, British Airways brought the world's newest airline into being yesterday.

The timing of the launch of OpenSkies, a subsidiary that will fly between Europe and America, caused some consternation given the moribund state of the industry. "It is not obvious why they would choose to launch this with the world looking the way it is,"said Andrew Lobbenberg, an analyst at ABN Amro.

The inaugural service, which took off from Paris Orly destined for New York, launched just a day after Penelope Butcher of Morgan Stanley warned that the aviation industry was flying into a period that, because of soaring oil price and rapidly slowing economies, would be worse than the fraught years after 9/11, when several major carriers went bust, as well as the 1992-93 recession.

Willie Walsh, BA's chief executive, said he was confident that OpenSkies would not meet the fate of so many other recent start-ups, such as Silverjet, Oasis Airlines and Eos Airlines, all of which folded in recent months.

"While the economic climate has worsened in recent months, we believe that OpenSkies can compete effectively. It has a low-cost base and support from British Airways in key areas such as sales and marketing," he said. "This differentiates it from some new airlines that have failed recently, which were operating in isolation without the backing of an established carrier."

Dale Moss, former chief operating officer of Jet Airways, has been hired to run the airline.

Even if it does go wrong, it would mean no great loss for BA. The Paris-New York route will start with just one plane, a 757 configured for just 82 passengers, 52 of which will be business and premium seats.

BA plans to add a second plane later this year, with a plan for up to six by the end of next year, flying to other destinations including Milan and Amsterdam.

The carrier is very much an experiment. BA billed it as the first started up specifically to capitalise on the recently liberalisation that allows full competition among airlines across the Atlantic for the first time.

Other carriers, including Continental, Air France, United Airlines and Delta, have all launched new routes since the so-called "Open Skies" regulations took effect in April, yetnone has started newsubsidiaries.

The opening of the North Atlantic routes, however, is arguably the biggest game to play for in the aviation industry. So important is North Atlantic corridor that Mr Walsh risked a strike by BA's powerful pilot union, which objected to the hiring of new pilots on less attractive terms for Open Skies. They withdrew a High Court action last month. The mainline carrier, meanwhile, has pared back plans to increase capacity, and will ground some of its fleet this winter.

OpenSkies has taken a page from the recently deceased business-class only carriers by offering a cabin heavily weighted to high-paying premium travellers, who will pay at least £1,750 for a return business class ticket.