British Airways & Possible "Go" Spinoff
Do Not Pass (Up) Go
By Holly Hegeman
Special to TheStreet.com
02/25/2002 07:06 AM EST
URL: thestreet.com
OK, now that JetBlue has finally done the deed and filed for its long-awaited IPO, what's an ahead-of-the-curve airline investor to do? Well, if you're a smart one, you'll cross JetBlue off the list of most-anticipated IPO candidates, and mark "Go" in its place.
Yes, you read that correctly. Go. As in, Go Fly.
Go is the airline originally set up within British Airways (BAB:NYSE ADR - news - commentary) in May of 1998. The flagship set up the "low-cost carrier within a carrier" to combat the increased incursion by low-fare airlines such as Ryanair (RYAAY:Nasdaq ADR - news - commentary) and easyJet into BA's turf.
However, unlike US Airways' (U:NYSE - news - commentary) ill-fated MetroJet, Go was set up as a totally separate and independent entity from the beginning. No sharing systems, no sharing aircraft, no sharing personnel. No sharing old ways of thinking.
Smart move.
Keen Management
But British Airways' smartest move in creating Go was tapping Barbara Cassani, a 10-year senior manager, to take the helm as CEO.
When British Airways decided last year to spin off Go, Cassani was all for it and helped to put the deal together to take Go private. In the process, venture capital group 3i and Barclays (BCS:NYSE ADR - news - commentary) become the two largest shareholders of the airline.
Cassani is impressive.
Speaking recently at the Raymond James Growth Airline Conference in New York, she described a business plan for the airline that is sound and well-executed.
She has also clearly established a management style that does not overlook the important components of a successful low-fare operation: an emphasis on strong employee-management communications; keeping costs low; a commitment that employees share in the profits (approximately 22.5% of the company is now owned by management and employees); and most importantly, a strong 30% average year-over-year growth plan.
As a senior executive with another low-fare carrier said to me recently, comparing Go's operation with Ryanair and easyJet: "Way too much ego and testosterone at Ryanair and easyJet. They are the hares. I like to think Barbara may very well be the tortoise."
Ironically, Cassani, an American, more or less fell into her career at British Airways. After working as an international consultant for Coopers & Lybrand in Washington, she transferred to the company's London offices, where she had moved with her British husband. On a whim, she answered an ad in the newspaper for a sales and marketing position for British Airways.
The rest, as they say, is history.
Taking Off
Go, which was profitable in fiscal 2001, (which ended March 31, 2001) saw revenue up 44% to about $183 million U.S. for the first half of fiscal 2002. Pretax earnings advanced at an even faster pace, increasing 51% to $24.1 million U.S.
For the year, there will be some softness reflected in total revenue, a result of the events of Sept. 11. But in her presentation, Cassani told investors that after a bit of a "wobble" following the terrorist attacks, the numbers were back on track.
James Parker, analyst with Raymond James, estimates the airline will post pretax earnings of about $11.4 million U.S. for this year, which would be an improvement of 45% year over year.
Go -- which is talking to Airbus and Boeing about new aircraft -- has 18 Boeing 737-300's, 850 employees, two bases of operation and flies to 23 cities from London. It also recently announced it will open a third operations base at the East Midlands Airport outside of London. Cassani seems particularly excited about this latest move, noting that current fares from East Midland to Scotland are running roughly $442 round trip. "We can make pots of money with our low fares flying these routes," she said in New York.
While other airlines obsess about revenue per available seat mile (RASM) and cost per available seat mile (CASM), I'm impressed that Cassani sees other metrics as equally important -- such measures as repeat business and personal recommendations, for instance. As she was quoted as saying two years ago: "In our first year of operation, repeat business and personal recommendations -- two metrics that we track every week -- were our two largest sources of business. And 92% of the people who have flown with us say that they would do so again."
It's now year three, and the numbers seem to be getting better. In addition, the airline last year was voted "UK's Best Low-Cost Airline," in an independent travel survey.
Look for a Go IPO in the next year or so.
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Holly Hegeman pilots the Wing Tips column for TheStreet.com. At time of publication, Hegeman held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. You can usually find Hegeman, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site at www.planebusiness.com. |
