View from City Road: BA gets a flying start on the others

British Airways operates in a market place which, despite progress towards deregulation, is still essentially rigged in its favour. This should not, however, be allowed to take away from its achievement in producing bumper profits at a time when most the world's airlines are still deep in the red. While BA prospers, Air France and other national flag carriers far more outrageously favoured than BA are equally outrageously bust; they wouldn't exist at all but for government handouts.

In the past three years, BA has reduced its cost base by the equivalent of more than pounds 580m a year, or almost 10 per cent of revenues. New working practices, improved supplier terms and better aircraft utilisation will save another pounds 150m this year. Where BA leads, others must inevitably follow. In an attempt to stay ahead of the game, BA is now exporting its cost- cutting expertise to its pounds 600m portfolio of international airline investments, where it is turning out to be anything but a passive investor.

Having sat out a strike at its loss- making 49-per-cent-owned TAT European Airlines associate so it can push through a 30 per cent cut in costs per passenger and pull the company out of its financial dive, BA is now turning its attention to USAir.

BA warned USAir in March that there would be no more money for the company until the American airline's finances were on a secure footing. USAir management and local unions are sparring over a dollars 1bn restructuring plan involving dollars 500m worth of job and wage cuts to stem USAir's hefty losses. Yesterday, BA upped the stakes by warning that unless a plan was agreed by autumn, it would write off its pounds 275.3m investment in the company.

Successful restructuring of USAir will be a strong vindication of BA's 'global' strategy and will give its next alliance-building move - probably in southeast Asia to build on the privatisation of Qantas - a fair wind from the stock market. If you want shares in the airline industry, BA is still the best long-term buy.