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Chairman’s statement

Strategic partnerships

We have made no secret of the fact that we believe in the next 10 or 20 years the industry will be dominated by a small number of global airline groups. We want to be leaders in that consolidation process.

During the year we continued our merger discussions with Iberia, where we continue to hold a 13.15 per cent stake. I am glad to report the discussions have made good, although slightly slower than expected, progress.

Both airlines see the logic of a tie up. We are largely agreed on how to bring the two businesses together. Getting the governance right so that we can be sure of delivering the anticipated synergies is presenting the biggest hurdle to progress, but we remain hopeful this can be overcome for the benefit of our customers and shareholders.

During the year we also tentatively explored a merger with Qantas. Although ultimately that came to nothing, we learned a lot from our talks and the lessons will be invaluable to us in the years ahead as consolidation marches forward.

In February, the oneworld alliance – involving 10 partner airlines – celebrated its 10th anniversary. Whilst the alliance continues to be highly successful, it is now at a crucial point in its development.

In August we applied for anti-trust immunity to operate a joint business across the Atlantic with fellow oneworld members, American Airlines and Iberia. The EU and US competition authorities are currently deciding if we should be able to enjoy the same rights on these routes as are already enjoyed by our major competitors in their global alliances, Star and Skyteam.

Star and Skyteam dominate traffic between the EU and the US with 35 and 28 per cent market shares respectively. The oneworld share is 21 per cent. So the decision really boils down to whether two or three alliances should compete to serve the transatlantic market.

This is our third attempt to win clearance. It is quite conceivable that our partners will look for different options if our application is refused again.

Open Skies

The first phase of the EU-US Open Skies liberalisation has opened up Heathrow to any EU or US airline that wishes to fly from the airport to the US. Five new airlines acquired slots at Heathrow to start US flights in addition to the four incumbent airlines, changing the competitive environment at the airport. Thanks to the first phase of liberalisation we too have launched our OpenSkies subsidiary, operating premium services from Paris and Amsterdam to New York.

The next phase – Open Skies 2 – is just as important to ensure that the EU gets reciprocal access to US markets. We are disappointed that the US appears to be dragging its feet. EU carriers have the right to insist that the first phase of Open Skies is rescinded if satisfactory progress is not made by 2010.

We hope that is unnecessary. Protectionism is the last thing the global economy can afford right now.

Chart of ready to go mainline network full year average

American Airlines & Iberia aircraft

In August we applied for anti-trust immunity to operate a joint business across the Atlantic with fellow oneworld members, American Airlines and Iberia.

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