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Tuesday, May 25, 1999 Published at 08:19 GMT 09:19 UK

Business: The Company File

British Airways hits more turbulence

The 'old' British Airways, flying the flag

British Airways bills itself as the 'world's favourite airline'. First Class and Business Class travellers seem to disagree.

They have abandoned the airline in droves, which in turn triggered a slump in profits, the worst performance in six years.

The airline is now trying to rejuvenate itself, with a new strategy, a new flight schedule, new services and a tough cost-cutting programme.

Spin city

BA's chief executive, Robert Ayling, is up-front about the situation. He acknowledges that his airline had "a poor year".

He blames the general economic slowdown and the pressures of industry-wide discounting for the lousy figures. But he is trying to put an optimistic spin on it, insisting that the outlook for the company is good.

Mr Ayling tries to project the image of a company that is ready for take-off, after spending a couple of years on the taxiway.

The long period of dreadful industrial relations is over, he says, pointing to a string of agreements with all the company's trades unions, cutting annual costs by £1bn.

High margins

At the same time, BA tries to focus on its high-margin business.

[ image: Robert Ayling wants you to fly with him - if you fly Club Class]
Robert Ayling wants you to fly with him - if you fly Club Class
For airlines, it is not bums on seats that count. In fact, the 'world's favourite airline' does not want to fly any old customer.

Even though he tries to avoid the impression, Mr Ayling actually hopes to discourage certain people from flying: the low-fare, special offer, economy class kind of passenger is not so welcome anymore.

Transporting them is a drag on the profit margin.

Flying Club Class

Flying business class passengers, however, is a completely different proposition. They pay a premium to fly in comfortable surroundings.

They generate up to eight times the revenue of economy-class travellers, and anyway, in most cases it is not they who pay, but the companies who send them jet-setting.

That's the kind of people Mr Ayling wants to see on board of his jets, and to attract more of them BA wants to set "the pace in the industry" with the launch of "new premium products".

On-board this translates into more and better creature comforts.

BA wants to give its high-paying passengers extra space, and to make room the airline will cut down the number of seats it offers in economy class.

In an attempt to draw attention away from BA's miserable results, Mr Ayling upstaged his own earnings press conference by presenting the airline's new business class seat - a stripped-down first class seat that can be converted to something akin to a bed.

BA, though, cannot be sure that its strategy will work. It will be difficult to tempt back business class passengers. Many have switched to rival carriers, others were forced by their employers to tighten their seat belts and travel economy class.

BA, not British Airways

[ image: The 'new' BA, hoping to attract international business class passengers]
The 'new' BA, hoping to attract international business class passengers
A year ago, Mr Ayling attracted a lot of scorn, when he tried to shed the attribute "British" in British Airways. He rebranded the company, replacing the union jack on the tail fins of BA planes with 'multicultural' motifs.

The move was said to be a reflection of the fact that the majority of BA's customers lived outside the UK.

British Airways is now taking this policy to its logical conclusion, reducing the number of flights it offers inside the United Kingdom.

Mr Ayling has done his sums and realised that transporting people from, say, Leeds to Heathrow is not really worth BA's money.

The number of so-called 'transfer passengers' boarding BA planes at regional airports has already fallen to 30% of the airline's customers - down from 40% a year earlier.

Mr Ayling believes that trains are the solution. He wants to encourage BA passengers not to start their journey at their local airport, but take a train to one of his airline's big 'hubs' in Heathrow and Gatwick.

The company plans to axe some 20 short-haul routes out of London Heathrow, and use its slots for more valuable international flights.

This would be a bitter blow for the country's regions, who rely on good transport links to attract investment.

Such cutbacks could raise competition questions, as many of BA's domestic routes were acquired when it bought its competitors.

Southwest on a global scale?

In a warped way, British Airways is trying to emulate the example set by the most successful carrier in the United States, Southwest Airlines.

This cheap and cheerful airline avoids hubs, flying point to point serving a low-cost market.

BA attempts to do the same on a global scale, albeit for the high-end, high-margin first and business class market.

It is planning to increase the frequency of service, switching from a limited number of huge 747 jumbo flights to more direct services using the smaller Boeing 777 and 767 airplanes.

If Mr Ayling's new strategy delivers the revenue, he will be a hero.

If he fails, the UK will have lost its national carrier.

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