US airlines prepare for strategic tie-up with BA

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Deputy City Editor

Sir Colin Marshall, chairman of British Airways, said yesterday that a number of US airlines were lining up to join the company in a strategic tie-up. Talks with the airlines, which he refused to name, could start if BA is forced to sell its 25 per cent stake in USAir, its current partner in the important north American market.

British Airways maintained that its favoured partner in the US was still USAir, which swung into the black in the three months to September after recent heavy losses, but the company conceded that a mooted takeover bid for the airline by either United Airlines or American Airlines could mean it had to rethink its strategy.

Sir Colin was speaking as British Airways announced record profits for the second quarter of pounds 295m, up 12 per cent. During the half year to September, sales exceeded pounds 4bn for the first time, planes were on average more than three quarters full - the load factor reached a record 76.9 per cent - and pre-tax profits jumped 23 per cent to pounds 430m.

Robert Ayling, who takes over as chief executive in January, dismissed the importance of falling yields, the widely used measure of revenue received per passenger kilometre flown. These continued to fall thanks to competition and an increase in the proportion of long-haul flights, which cost passengers less per kilometre but are more profitable for airlines to operate than short flights.

Following the results, analysts upgraded their expectations for the full year. BA is now expected to make profits of about pounds 580m in the full year to next March. Despite the higher projections, the shares, which have almost quadrupled in value over the past five years, closed 8p lower at 466p.

Mr Ayling admitted that the Eurostar train services between London and Paris and Brussels, had hit existing air services. Passenger volumes on the Paris route fell 13 per cent in the first half, although British Airways maintained its 45 per cent share of the air traffic market to the French capital.

Mr Ayling confirmed BA's vision of being "the best managed company in Britain" by the year 2000. He has staked his reputation as chief executive on the success of a management improvement programme tagged Leadership 2000.

Earnings per share increased 24 per cent to 33.8p (27.2p) and the interim dividend, with a scrip alternative, is 10 per cent higher at 3.85p (3.5p).

Investment column, page 22