British Airways Essay

In 1987, British Airways was privatised, and everywhere the next decade inclineed from a loss-making nationalised company into The Worlds Favourite Airline a merchandise-leading and in truth profitable plc. The strategy that transformed the company into a marketing-led and efficient subroutine was conceived and implemented by Lord King as chair, aided by Sir Colin (subsequently Lord) marshall two tough airmen who confronted staff inefficiencies and so improve serve well effectiveness that BA was rated international business travelers favourite respiratory tract for several classs in the 1990s.Lord King having retired, Lord Marshall became Chairman and was succeeded as Chief Executive by Bob Ayling, a long-time BA manager.Ayling set in train a strategy to turn BA into a global airway transc endpoint the flag-carrier status (the role of a nations leading airline) it sh atomic number 18d with Air France, Lufthansa, Swissair, Alitalia, Iberia into an airline with no nation al home direct throughout the world. The dropping of the overtly British heritage and associations was reflected in a changed mug strategy. Away went aeroplane liveries featuring the coalition flag, to be replaced by tailfins bearing themed designs from around the world. This was to address the global traveller a savvy (mainly business) customer whose criteria for purchase were service levels, range of destinations, punctuality not price.But the re-branding became a debacle. Customers, staff, alliance renders, shareholders and retailers (travel agents) all aliked the British heritage and imagery and rebelled against the turn to an anonymous, characterless new style.Ayling also cogitate on embody-reduction programmes which antagonised and demotivated BAs staff and customers noticed the deterioration in behaviour of staff whose commitment to customer service suddenly plummeted.The issuance was that Ayling was ousted in a boardroom coup in March 2000. During his reign, a los s of 244m in the year to March 31 2000 the first since privatisation was enter and the groups market value had fallenby half.A New Face.In May 2000, Rod Eddington joined BA as Chief Executive. He was previously Managing Directory of Cathay Pacific and Executive Chairman of Ansett, an Australian airline.Eddingtons immediate actions were designed to restore profitability to BAs operations and to restore the Union Flag to BAs planes He set about reducing the fleet, moving to smaller aircraft, raw clearly unprofitable routes. He also targeted high-yield customers, the traditional mainstay divide for BA. Matching supply with demand was the overall concern, to restore positive bullion flow.Strategically, BAs longtime search for a fusion partner was resumed. A link with American Airlines, the first choice partner, was out of the irresolution after US regulatory authorities squashed the idea. A proposed merger with KLM, the Dutch flag carrier, was discussed in some depth, but that foundered on doubts over the long-term financial benefits, and arguments over the relative shares each airline would view in the merged company.Low-Cost Airlines.Meanwhile, the airline industry was under leaving a seismic shift with the rise of low-cost no frills airlines. Ryanair and liberalJet had, at first, demonstrated the world of a new market for cheap airline travel which had not been tapped by traditional airlines. But then they began to expand and to debate for passengers that unremarkably would bind gone to BA even business class customers couldnt see the reason to pay 100 for breakfast (the difference in price between BA and easyJet between London and Edinburgh.)BAs response (under Bob Ayling) was to form GO as a localise response to the no-frills(prenominal) competitor. operating(a) out of Stansted airport, GO was makedentirely distributively from BA, so none of the high-cost culture was inherited. Launched in the face of vociferous enemy from easyJet, GO ne vertheless established itself in the market though at what cost, no-one could guess.Rod Eddington soon decided that his focus on premium customers make GOs operations inconsistent with that of BA as a whole. GO was sold in May 2001 for 100m to 3i, a UK venture jacket crown and private equity group.GO was subsequently sold on to easy Jet for 375m.However, the driving of aggressive strategies from budget airlines is still forcing flag-carriers to re-assess their business models.The Outcome.For the year ended March 2001, Eddingtons steps had yielded a quadrupling of operating profits. Market share on key routes had been lost as cuts in fleet and routes bit, but BA believed it had lost customers who paid deeply-discounted fares. BA act its vigorous pursuit of high-yield passengers.September 11th.So, all seemed to be going well. The brand was being restored, financial performance was improving and the only real chore was lack of progress on forming a partnership with a US carrier, pr evented by the regulators. Then came September 11th, and the airline market fell apart. The consequences were bustling passenger numbers fell 28%, US airports were closed for a week, Swissair, Sabena, US Airlines and nearly, Aer Lingus, went bust. Alitalia lost 570m, Lufthansa 400m. Altogether the industry lost 7bn and shed 120,000 jobs 13,000 at BA and passenger numbers are still running at 13% below normal on transatlantic routes.In contrast, passenger numbers and financial results at low-cost carriers easyJet and Ryanair were rising impressively.Then came Sars, the Iraq warfare and the continuing sluggishness of the world economy, all deeply damaging to passenger numbers.Strategy at BA was thrown into disarray.Current Strategy.With the travel market is still subject to global economic and political uncertainty, BA has repeated its forecasts for lower revenues. However, the fundamentals of this business are stronger than they have been for quatern or five years John Rishton , Finance Director, says BA is generating cash, and is conserving that cash. (FT and D.Tel. 6.11.02).The operative imperatives to cope with the turbulent environment are expressed in BAs Future Size and Shape initiative which is intended to hand significant cost reductions. Originally targeted at 650m, the cost savings are now expected to save an annualised 1.1bn over 3 years (FT 19.3.03). alter operations and minimal overheads is the aim. hack on capacity, to match supply of aircraft and flights to the reduced demand. Cut staffing levels. A further 3,000 job cuts planned for March 2004 have been brought forwards to September 2003. Change BAs business model. Aware that no-frills competition is not going to go away, but that BA possesses a positive service heritage, BA wants to create an offering that combines the best bits of BA and the no-frills model. Martin George, BAs director of marketing and commercial development, explains our customers like the BA product convenient ai rports, high frequency, good level of service but want it at the right price, and thats what well give them. Its about changing our business model to allow us to compete profitably (Management Today, September 2000). Rationalise BAs internal UK and short-haul business CitiExpress has been formed from the activities of subsidiaries Brymon, BRAL, Manx and BA Regional. To stem heavy losses on this short-haul network, some rationalisation has been done it has pulled out of Cardiff and Leeds-Bradford airports, and will cut its ongoing fleet from 82 to 50 all-jet planes by end-2005. However, it is expanding operations from Manchester, and from London metropolis airport to Paris and Frankfurt. (FT 18.12.02).It is recognised that BA hold uped to take the bitter care for of cost cuts and restructuring earlier and in bigger doses than rivals in Europe and uniting America, and that Rod Eddington has pushed through changes that were long overdue. But is this enough? can BA wrest back th e short haul market from easyJet and Ryanair, while maintaining its come in in the longhaul marketStrikeIn July 2003, just at the start of the busy holiday season, BA was hit by an unofficial engage by Heathrow check-in and sales staff who were objecting to a hasty mental institution of a swipe-card automatic clocking system. 500 flights were cancelled, affecting 100,000 passengers. The damage to BAs service reputation was enormous.Both management and union leaders were taken by surprise, and it brought to a head the existence of restrictive practices going back 40 or 50 years which both sides have to confront.Performance.Results for the year ending 31st March 2003 showed a pretax profit of one hundred thirty-five on turnover down 7.8% to 7.69bn, up from a loss of 335 in the year to March 2002. The results included a charge of 84m for the planned ending of Concorde flights in October, and a fourth-quarter loss (January to March) of 200m. These positive results were entirely down to cost reduction. Nodividend was paid a consequence of the need to conserve cash. Operating margin at 3.8% is way below Eddingtons target of 10%. (D.Tel, 20.5.03, FT, 21.5.03).In the first quarter of the 2003-04 year, a pretax loss of 45m was incurred the effect of the Heathrow spank was put at 30-40m.The business environment.However, Rod Eddington sees the furure business environment as very hard to read, but expects it to get tougher. 2003-04 was meant, according to analysts, to be BAs year of recovery, but it is not now expected to happen. (DTel, 11.2.03)A critical development is the start of talks between the EU and the ground forces to dismantle the web of regulations that have controlled the development of international aviation since the mid-1940s.Eddington, as chairman of the Association of European Airlines, insists that truly global airlines are unsufferable in the current regulatory environment. If it were left to the market, international airlines would undoubtedl y comply in the footsteps of other industries and would seek the benefits of scale and scope that are presently denied them. A truly global airline..would be free to operate wherever its customers demanded, free to grow organically or through acquisition and free to charge whatever the market would bear.These talks are credibly to be very long. However, it potentially offers the opportunity for an opening of the two biggest airline markets and lead to substantial consolidation of participants. (FT, 29.9.03).The takeover of KLM, the Dutch flag carrier, by Air France, may be the precursor to the consolidation expected. BA sees no threat from what is now Europes largest airline. D.Tel, 1.01.03).