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Tuesday, February 9, 1999 Published at 14:51 GMT


Business: The Company File

Turbulent times at British Airways



British Airways was one of the world's most profitable airlines.

Now it is turning in losses with a share price to match, its shares have halved in value since May 1997.

So what has gone wrong?

Many of British Airways' grand designs seem to have been rocked by turbulence.

Add to this the simple fact that it is losing its hold on the highly profitable business-class customers and you have an airline in need of changing fortunes.

Times are tight

As businesses brace themselves for the chill wind of a tightening global economy, it is perhaps unsurprising that travel costs are one area where they are cutting back.


[ image:  ]
The era of jetting around in style expensively cocooned in business class has passed for many executives.

Instead, they look to fly economy or take one of the many cheaper seats available on the burgeoning number of bargain price airlines operating short haul hops.

This is bad news for British Airways and its chief executive Bob Ayling.

British Airways is the international leader when it comes to measuring the money or revenues earned per kilometre for each passenger that flies, one of the most popular yardsticks in the airline business for measuring success.

Although there are several airlines which beat BA on this, they all fly most of their customers within the US, not internationally.

Airlines face global chill

Operations editor of Flight International David Learmount said the problems facing BA are typical of the industry. It is not the only airline by any means returning poor profit figures.


[ image:  ]
"The airline industry is very cyclical. It's the first to get hit by a downturn in the economy. People don't necessarily stop travelling but they downgrade.

"Unfortunately for BA, it has increased its capacity which may have been a mistake. The percentage of seats filled on its flights has been lower."

As mentioned earlier, British Airways is not the biggest airline in the world, several US carriers are ahead of it buoyed by domestic traffic, but in terms of an airline which flies globally, it heads the rankings when measured on revenues per kilometre flown by passengers (see international airlines factbox above).

Clipped wings

But the problems go deeper.

Three years ago Mr Ayling planned his merger of BA with American Airlines.

This was to mean the pooling of flights, resources, and revenues.

This would have eclipsed other airline mergers which often amounted to joint marketing initiatives.

Although a considerable amount of time has passed, the merger is no nearer completion.

Regulatory bodies on both sides of the Atlantic, concerned about the anti-competitive hold this would have on the market, have yet to be convinced of the merits of such a deal.

Instead, BA has steamed ahead with its alliance with AA, Canadian Airlines, Cathay Pacific and Qantas. Last month Japan Airlines was added to the group.

It amounts to joint marketing of flights and pooled frequent-flier programmes.

Tailspin


[ image: BA planes changed their tailfins from this design....]
BA planes changed their tailfins from this design....
Other strategic faultlines have appeared which on their own do not seem to be major problems but when taken cumulatively do nothing to enhance the company's image in the mind of the customer.

The now notorious decision to change the tailfin design of BA planes from the Union flag to ethnic art patterns prompted all the wrong headlines.

Even the former UK Prime Minister Margaret Thatcher was reported to have been dismayed by the new and rather lurid decorations.

Arch-rival Richard Branson was quick to swoop and place the Union flag on some of the tailfins of his Virgin planes.


[ image: ....to these ethinic patterns]
....to these ethinic patterns
Another corrosive element has been the BA dispute with cabin staff.

Although this came to a head in the summer of 1997, there are reports that its effects are probably still being felt.

The strike itself lasted only three days and was over BA's attempts to alter pay scales for cabin crews. Labour, as with most businesses, is a considerable part of the company costs.

Passengers deserted to rival airlines, many were never to return.

Low morale was reflected in surly staff and the image of BA being a bully-boy employer is said to have lingered in the memories of many potential travellers.

Rough landing

There are other trading factors too, notably weak dollar revenues and relatively high sterling costs, all kicking in as the growth in air travel slows.


[ image: A friend of Tony Blair but are BA shareholders enamoured?]
A friend of Tony Blair but are BA shareholders enamoured?
It means BA and Mr Ayling in particular have a bumpy time ahead, with speculation growing that Mr Ayling may have to pay for this downturn in fortunes with his job.

It would, of course, be a major blow to a man whose career has simply soared away. His journey has taken him from working on the privatisation of BA in the UK Department of Trade and Industry, under the then secretary of state Norman Tebbit, to counting among his current friends the UK Prime Minister Tony Blair.





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