View from City Road: A turbulent time for BA's strategy

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The Independent Online
Bernard Attali, when chairman of Air France, said British Airways would probably live to regret its pounds 258m investment in USAir. The UK carrier sniffily rejected the comments, which, after all, came from an airline that survives only thanks to massive government handouts. On the evidence so far, however, Mr Attali seems to be having the best of the argument.

BA's global investment strategy has still to prove its worth. After USAir's announcement of third-quarter losses of dollars 180m ( pounds 114m) the number of doubters has swollen. The USAir investment, made two years ago, was the key element in BA's plan to become a global airline by building minority stakes in carriers around the world. Whether it will survive long enough to fulfil BA's ambitions is now in some doubt. Two air crashes and a fierce price war have taken their toll on USAir's passenger traffic. The company has not made a profit since 1988, and warns that this year's losses will be greater than last year's dollars 349m.

USAir has the highest costs in the airline industry, but the urgent need to restructure is bogged down in union negotiations. Not until that restructuring is sorted out will BA pump in more money.

BA could afford to write off its investment, but could it afford the loss of strategic direction? Of all the overseas investments made so far, only the Australian airline Qantas looks a success. Investments in France's TAT and Germany's Deutche BA show few returns.

Meanwhile BA, which has spent about pounds 400m on buying minority stakes, says it has no plans to fill the gaps in its global strategy, notably in the North Pacific. Perhaps the critics are right after all: the global strategy, though it looks logical, is in practice a flawed drain on resources.