Walsh: Slot Rule Could Prompt More BA Cuts

By Adrian Schofield

British Airways would cut its winter capacity by even more than the 4% it already plans if the European Union extends the suspension of “use it or lose it” slot rules, says airline CEO Willie Walsh.

While there is a good chance that such an exemption will be granted — it already has been for this summer — it would likely be too late for airlines to make significant capacity adjustments for the winter, says Walsh. Airlines are loath to cut too many flights at airports such as London Heathrow if it means losing valuable slots that will be needed when travel demand returns.

The EU is considering extending the slot rule suspension into the winter season, but wants to complete impact studies first. Walsh notes this will probably push any such move past airlines’ decision points for winter schedules. BA will be urging European regulators to extend the exemption early, but Walsh is not optimistic. “I don’t think [regulators] understand the lead-time the industry needs” to adjust capacity, he said.

Walsh said the 4% capacity reduction BA is planning now assumes no movement on slot rules. If an exemption does eventuate after winter schedules are set, BA will be able to make some further “tactical” capacity cuts, but not to the extent the carrier would really like.

This is what happened with this year’s summer schedule — the slot rule exemption came too late to make more than tactical capacity adjustments. BA reduced its capacity by 2.5% versus the 2% it had earlier planned. Walsh said the carrier was forced to fly more short-haul services than it wanted to in order to protect Heathrow slots.

Walsh said the slot rules are keeping capacity higher than it should be at Heathrow. Heathrow capacity is about 2% down year-on-year, but the reduction is much steeper at other London-area airports, he said. “There is a lot of capacity coming out of the London market, but not at Heathrow because of the slot rules...The potential for capacity reductions [at Heathrow] is substantial.”

BA would be “reluctant to spend money on [additional] slots” at Heathrow, said Walsh. In the current environment, “we could clearly buy them, but not be able to use them,” he said.

The 4% winter capacity cut BA is planning is in response to a dire demand environment that contributed to an operating loss for BA’s financial year (DAILY, May 26). The carrier plans to reduce frequencies rather than cutting routes, Walsh said.

The winter capacity reduction will mean BA will ground an additional eight 747s and eight 757s. This reflects an acceleration in the planned retirement schedule for the 757s, which BA has already said it wants to sell.

Meanwhile, pressure on capital spending means BA will be deferring its replacement plans for its 737-400 fleet. The carrier had originally planned to begin replacing these aircraft in 2012. While this fleet is about 16 years old, it is “relatively young in terms of [flight] cycles,” Walsh said.

Photo: OneWorld

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