Flying High: on Certainty and Consolidation

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An airplane needs to be safe in order for passengers to board it. Likewise, an airline CEO wants to feel the same clarity and certainty that so many of his c-suite compadres do in order to sustain growth.

“We've seen over the last couple quarters really great growth, particularly across the Atlantic,” Simon Talling-Smith, British Airways North America CEO, told me as my guest host on “Worldwide Exchange.” He added that the dichotomy between strong growth and a lack of certainty might be mitigated by secure tax policy, which will bring “more confidence to the market, and that will be great.”

While tax breaks will help larger companies, like British Airways , to secure growth, Talling-Smith said that small businesses will benefit as well. “We’re doing a lot of work to make sure small businesses can trade and meet people face to face, so they can grow their businesses,” he said.

Despite favorable tax breaks, Talling-Smith told me that British Airways still faces, er, headwind in the form of oil prices.

“While it's not settled in the 80s at the moment, again future certainty that it stays in the 80s or maybe creeps in to the early 90s will make a big difference,” he said. In the event that the price of oil doesn’t remain stable (“We’re expecting it to stay in the 80s for the coming quarters,” he said), British Airways hedges two to three quarters out.

Predictability is essential to the aviation industry where safety is concerned as well. When asked about the take-away message from the recent saga between Rolls-Royce and Qantas, in which a Rolls engine failed on one of Qantas’ planes, Talling-Smith responded:

“I think it says first and foremost how important the idea of safety and security is to any airline and any customer of an airline around the world.”

He defended the actions of both companies in a recovery effort in which the plane was returned safely to the tarmac and no one was injured.

“I think what you saw in Qantas was very fast response. They were fairly cautious, they kept the aircraft on the ground for the right amount of time,” he said.

Rolls-Royce also responded quickly, he said, adding that the early reports that Rolls-Royce will be the best BP were unfounded. “I think they handled the incident fairly well,” he said.

British Airways has already put a merger through to join with Qantas in an effort to compete on a global scale, not just with other European carriers but airlines in Asia as well.

“Consolidation is the name of the game in the airline industries,” he said. “In a way, it's ridiculous that there are so many interest airlines that currently exist around the world.”

The two companies have had a joint venture for 15 years- consolidation in the air contributing to the greater certainty of profits on the ground.


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