FTSE 350 Outlook: Transport

British Airways has already announced plans to launch a new subsidiary focused on the new regime, appropriately named OpenSkies. It starts operating in June, with flights from New York to either Brussels or Paris. This will be followed by a second service later this year. The plan is to have six aircraft operating between the US and mainland Europe by the end of 2009. Budget airlines are not expected to be moved by the new open skies agreement, preferring to focus on short-haul European routes. That said, Ryanair has been playing its cards close to its chest. And while open skies may open up new revenue streams for some airlines, they will be also looking for ways to cut costs as the oil price hovers around the $100 a barrel mark. Hedging policies have acted as a partial buffer against more expensive fuel, while legacy carriers such as British Airways and Aer Lingus have increased their fuel surcharges to help ease the pain as well. Their problems have been exacerbated by a deteriorating business environment, which will continue to result in more business passengers downgrading to economy class. This spells bad news for full-service carriers such as British Airways, but potentially good news for budget airlines.

While bus operators have also been feeling the effect of higher prices at the pump, they have seen a strong rise in passenger numbers, while rail passenger growth has also continued unabated. Fare increases will also help drive margin expansion. For instance, FirstGroup has already indicated strong 2008 earnings due to high demand for rail travel and more efficiencies within its bus unit.

Also, expect van hire company Northgate to make another acquisition in mainland Europe as it looks for a third territory to complement its operations in the UK and Spain. And, following Groupe Norbert Dentressangle's £254m acquisition of Christian Salvesen, fellow logistics group Wincanton could be a takeover target in a consolidating market.