Loganair planning to end BA franchise deal?
26.03.06
Scottish airline Loganair may pull out of its flagship franchise deal with British Airways and broker a deal with a rival carrier.
The company, based at Glasgow Airport, operates BA-branded planes on routes from Aberdeen, Edinburgh, Glasgow and Inverness to the Scottish islands, and into Northern Ireland and the Irish Republic under the current franchise arrangement, which is to expire in March 2008.
Loganair pays for the use of BA's famous brand and for other services, including allowing its passengers to book flights using BA's website.
In return, the Scottish company enjoys a close association with BA and pictures of BA planes are displayed prominently on its website.
But Scott Grier, Loganair's chairman, believes time might be running out for the franchise because the arrangement may not be as mutually beneficial today as it was in 1994, when the Scottish airline's then-owner, British Midland, originally signed the deal.
Grier, who led a management buyout of Loganair in 1997, said BA's corporate strategy was changing under the rule of chief executive Willie Walsh, who joined in October.
He said: "Willie Walsh has been in business for about six months. We have not had the opportunity to meet him. That's a bit of a disappointment, but he's facing a lot of challenges.
"The BA franchise was critical to our getting started. As time has gone on, we have changed and they have changed. It may be the changes mean BA is less of an opportunity [for us] than it has been.
"[If the franchise ends] there are two options - we stand on our own two feet as an independent company, or we look to enter some other agreement with another major player. This is a big decision for the company. We have to weigh up the risks."
Grier, who owns 70% of the airline, said it was too soon to say which airline might replace BA.
The original franchise agreement was set up in 1994 before being extended in 1996 and 2003 as BA sought to concentrate its efforts on more profitable routes.
The deal has been the cornerstone of Loganair's business, and ending it is a risk for the company, which is expected to report profits of more than £1m on revenues of close to £50m this year.
One airline industry source said: "The BA deal is advantageous for them in terms of profile and you would assume it is commercially advantageous."
David Wragg, an independent airline expert, said it was difficult to assess what impact the loss of the franchise could have.
But he said sales on more popular routes such as Glasgow to Dublin could be hit as some passengers choose to use more well-known airlines.
He said: "When Loganair took the BA franchises, they felt it would improve bookings because the airline would be attractive to passengers because of the BA franchise.
"On many of the routes, you only fly Loganair. If you are flying to Stornoway, you have got to go Loganair.
"[On the major routes], the BA franchise helps a lot, but Loganair has got quite a good reputation in Scotland."
A spokesman for BA said: "We are half-way through the current five-year relationship. When the time comes, we will sit down with them."
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