Branson opens new front

By DAILY MAIL REPORTER
Updated:

 

SIR Richard Branson never pauses for breath. All the time spent discussing his interest in Concorde - apparently beyond reach because of airworthiness problems - was deep cover for the more serious talks with British Midland.

A link with bmi, in which the German carrier Lufthansa has a 30% stake, would be ideal for Virgin Atlantic as it seeks to compete more fiercely with British Airways and the American transatlantic players. Virgin has long been held up from expansion at Heathrow and Gatwick by the domination of slots at Britain's busiest airports by British Airways.

It is often forgotten by analysts and investors that the hidden value within BA is its take-off and landing slots. These are not valued in airline accounts, even though there is a healthy trade in slots.

The bmi slots would provide Virgin Atlantic with feeder traffic to and from Europe, and improve its connections across the UK. What it would not change immediately is Virgin Atlantic's ability to conjure up slots to North America and Caribbean holiday destinations, although that might happen if we eventually get a durable 'open skies' agreement across the Atlantic.

The assumption at Virgin Atlantic is that a deal between it and bmi would be BA's worst nightmare because it would mean fighting on a new front. This may be wishful thinking. Under Rod Eddington, BA has shown itself to be a more formidable competitor by taking on discount carriers in Europe with online booking systems and cheaper, if not the cheapest, fares to key destinations.

The mechanism for bringing the two carriers together would be to set up a new company into which Virgin Atlantic (in which Singapore Airlines has 50%) and bmi are injected. This company would then be part of a broader codesharing group including Lufthansa and possibly the rest of its global partners in the Star Alliance. It would be self-financing, as both carriers - unlike many of their European and American counterparts - are still in the black.

BA may feel the need to respond. Its obvious target is KLM, which has been weakened by terrorism, Sars and the world economy, but failed to find the cost savings to offset revenue losses. This could also ease crowding at Heathrow since it would give BA access to a new hub and slots at Schiphol.

Eddie's gift
THE odds are shortening on a cut in the Bank of England's base rate next week. Figures from the High Street and manufacturing suggest that the Baghdad bounce has become stuck in the sand. In its latest survey of manufacturing the CBI says that 40% of firms surveyed report orders below normal.

There had been some hope that the sharp drop in the pound against the euro and a basket of currencies since the start of the year might provide a boost to exporters. Despite the ability to offer more competitive prices, exporters are coming up against moribund markets in Europe and beyond.

As a result of the continued subdued state of the economy, the CBI has trimmed its growth forecast for this year to 2.1% and next to 2.5% - where it is in line with the Bank of England. This is below the Treasury's budget forecast of 3% to 3.5% next year - widely criticised as too optimistic.

Just to underline the weakness, retail sales also are under the cosh, rising at an annual rate of 2.7% in April, the slowest increase since May 1999.

The dampening down of consumer demand has been forecast by the Monetary Policy Committee, with Bank of England Governor Sir Eddie George predicting that government spending and business investment will take up the slack.

An activist MPC, which voted narrowly to hold rates in May, can now be expected to act next week. It will be George's parting gift to the nation as he sails off into the sunset.

Black day
SHAREHOLDER activism seems to be alive and well on both sides of the Atlantic. The latest victim is none other than Conrad Black, proprietor of the Daily Telegraph.

Black's control of the Telegraph, the Chicago Sun Times and the Jerusalem Post is to be significantly diluted with the sale of a substantial stake in the controlling company Hollinger International to major outside shareholder, Memphis-based Southeastern Asset Management. The board will also be shaken up with the appointment of three outside directors, with the goal of improving governance.

Black may have secured his own financial future and removed the threat of litigation as a result of these moves. But the possibility of someone doing to Conrad what he did to the ruling Berry family at the Telegraph - from whom he wrested control nearly two decades ago - looks on the cards.

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