Air Transport World

Trying to raise the crossbar; British Airways dominates its home market and is highly profitable. But it needs to align costs and upgrade services.

British Airways dominates its home market and is highly profitable. But it needs to align costs and upgrade services

British Airways has had a great ride. It has had an unbroken string of profits since going public in 1987. It led the world's international airlines into strategic alliances when, in 1987, it signed a ground-breaking, though subsequently dissolved, code-sharing link with United Airlines. It dominates its home market so much that it causes U.K. regulators to grimace.

It has a determined management and a solid reputation in a variety of skills such as engineering and yield management. So, BA has reasons for confidence. For one thing, it is the sec-find-most profitable airline in the world.

And as Chief Operating Officer Alistair Cumming suggests: "We know our strength in the market." But BA also has concerns, among them costs, slippage in its service reputation, employee morale and major decisions related to its global alliance strategy. An industry analyst suggests: "It's like the comments we used to get on our report cards: 'Good but could do better.'"

Prof. Peter Drucker says successful companies must reinvent themselves every 10 years. BA is not quite doing that but it is contemplating major changes. Take costs. Barclays de Zoete Wedd analyst Ian Wild declares: "...The cost-control era is at an end." For the 1995-96 first quarter, costs rose faster than yield, 5.9% vs. 5.2%, respectively. Indeed, even while trying to boost load factors, Gumming says higher occupancy has shown "some evidence that the cost of handling will rise exponentially." So, Wild figures, BA's focus on higher-yield traffic won't cover higher costs when the next recession hits.

Chief Financial Officer Derek Stevens "recognize[s] we have high unit costs relative to competitors like the U.S. carriers and British Midland." To combat that, in each of the last five years, BA set a goal to reduce costs 150 million pounds from what they might have been operating business as usual. But Stevens says that "is only 2% of total costs."

London Heathrow Airport, the heart--and soul, too--of BA operations, is key to its cost problems and reduction efforts. An outsider observes: "They've bought off their Heathrow staff' with high pay. Cumming phrases it differently. The company "is behind in modernizing its labor agreements" at Heathrow. He figures BA concentrated so hard on maintaining service at Heathrow while dealing with congestion that costs were not the No. 1 priority.

Now, BA is examining work practices and work flow, how to pare staff, either through increased automation or part-time employees, and the use of less-skilled staff. …

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