News that British Airways would take over CityFlyer Express finally came as little surprise. The regional airline was its first franchise partner back in 1993 and has thrived from flying in the BA colours. In the process CityFlyer has built up a valuable block of slots at London Gatwick, integral to BA's development there. So most had assumed that BA would be the buyer ever since rumours began early last year that CityFlyer was up for sale,
In fact, the acquisition priced at around £75 million ($125 million), is likely to make little change for either carrier. It was prompted less by airline strategy than the decision from CityFlyer's venture capital owners to cash in their successful investment.
"We talked to a lot of people but we felt that BA's bid was best," says CityFlyer managing director Brad Burgess. "BA was a natural buyer. If you took away the brand, the access to Club lounges and the 20% traffic connections at Gatwick we would probably be making losses," he says.
Burgess adds the change in ownership will "allow for a better deployment of assets", but says that the company can continue to fund expansion out of cashflow. He confirms that the airline is still looking at the purchase of larger aircraft than its existing Avro RJand ATR fleet to help increase capacity.
BA has carefully maintained arms-length relationships with its franchisees, allowing them to pursue their low-cost operations without much interference. Out of eight existing partners, it only has equity in Brymon Airways which it held from before the franchising concept was put in place. Peter Woodrow, who oversees franchising at BA, says that the CityFlyer deal changes little. "It does not interfere with our relationships with other franchisees and does not create a precedent," he says.
According to analyst Chris Avery at Paribas in London, BA's acquisition was a defensive move against rival bids by other UK and European airlines, a charge denied by Woodrow. "BA was very concerned about losing part of its short-haul feed to its long-haul network at Gatwick. It was never going to let Virgin Atlantic, KLM or Air France buy it," Avery says.
The UK Government is set to rule on the deal by January and will no have to take consider protests from rivals that BA now dominates Gatwick.
However, Avery says BA has less control over its hub than its European competitors have over theirs, with 39% of the slots at Heathrow and, after the CityFlyer acquisition, 42% of slots at Gatwick. This compares with Lufthansa's 61% share at Frankfurt and KLM's 52% share at Amsterdam.
In a recent statement, BA chief executive Bob Ayling confirmed that slots at Heathrow are worth some $3 million apiece and Gatwick at the peak cannot be far behind.
Source: Airline Business
