British Airways Plc Chief Executive Officer Willie Walsh said it will take the airline a decade to get back a 350 million-pound (US$689 million) investment in moving to Terminal 5 at London's Heathrow airport, Bloomberg News reported.
"We'll break even over a 10-year period," Walsh said on Wednesday in London. "We've made that investment on the basis that it will pay for itself."
The airline, Europe's third-largest, expects to move to the new terminal in March 2008. The shift will consolidate British Airway's operations, including check-in staff and aircraft, in one location. The company currently operates out of Terminals 1 and 4.
"I don't think the market is anticipating a 10-year payback," said Penny Butcher, an analyst at Morgan Stanley with an "equal weight/cautious" rating on the stock. Investors were "hoping for the saving to come through quicker."
Walsh, 45, has pledged to cut 450 million pounds in costs at the airline and boost its operating profit margin to 10 percent.
"The argument to move into Terminal 5 was a cost-base argument," said Walsh. "We're very clear that we will get significant improvements in cost as a result of economies of scale that we get from pulling everything together under one roof."
The 350 million-pound investment was "a little higher than I was expecting," said Mike Powell, an analyst at Dresdner Kleinwort with a "buy" recommendation on the shares. He said he'd thought the investment would be closer to 250 million pounds.
Yesterday, Merrill Lynch & Co analysts Samantha Gleave and Rui Lopes wrote in a note to investors that the airline had said its investment in the new terminal would amount to 325 million pounds. They have a "buy" rating on the stock.
Terminal 5 will include a new air traffic control tower and 60 aircraft stands around a single building.
"We also get much better aircraft integration and we'll get better aircraft utilization," Walsh said. "We will be able to get better transfer flows from our short-haul into our long-haul business."
British Airways makes most of its profit from long-haul flights. The move could also lift revenue by helping the airline attract more business and first-class passengers, especially those transferring between flights.
(Shanghai Daily February 9, 2007)