British Airways CEO sees more bankruptcies and mergers

By Bill Rigby

NEW YORK (Reuters) - British Airways' chief executive expects more failures and more mergers in the air industry this year as carriers face the challenges of soaring oil prices and a weak U.S. economy.

The British flag carrier, which reported a 45 percent surge in annual profit last week, has cut costs and introduced surcharges to counter rising fuel prices, but admits that this year will be "challenging."

"I suspect that many airlines out there that struggled when fuel was less than $100 a barrel are not going to be able to take the required actions and we will see further failures," said Willie Walsh, speaking at an investor presentation in New York on Monday.

With crude oil cresting $127 a barrel, roughly twice its price a year ago, and the U.S. economy dangerously close to a recession, seven airlines have already declared bankruptcy or stopped operating in the past five months.

"Clearly, bankruptcy is an effective form of consolidation, as they (failed airlines) take their capacity out of the market," said Walsh.

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Two of the recently failed carriers, Eos Airlines and MAXjet Airways Inc, were in direct competition with British Airways, offering business-class only flights between London and New York, one of its most lucrative markets.

Despite that easing of competition, British Airways said transatlantic business has been declining because of the slowing U.S. economy and weak dollar. It is "inevitable" that the airline will cut its capacity for the usually low-demand winter season, Walsh said, but gave no further details.