British Airways Essay

In 1987, British Airways was privatised, and over the next decade false from a liberation-making nationalised company into The Worlds Favourite Airline a market-leading and very payable plc. The system that transformed the company into a marketing-led and cost-efficient operation was conceived and implemented by nobleman King as Chairman, aid by Sir Colin (subsequently Lord) Marshall cardinal tough dutymen who confronted staff inefficiencies and so improved service eventiveness that BA was rated international business pilgrimagelers dearie skyway for several eld in the 1990s.Lord King having retired, Lord Marshall became Chairman and was succeeded as Chief exe sign onive by pier Ayling, a long-time BA manager.Ayling set in train a strategy to turn BA into a orbiculate air hose transcending the flagstone-carrier status (the government agency of a nations leading airline) it sh atomic number 18d with Air France, Lufthansa, Swissair, Alitalia, Iberia into an airlin e with no national home operating through and through issue the world. The dropping of the overtly British heritage and associations was reflected in a changed brand strategy. Away went woodworking plane liveries featuring the Union flag, to be replaced by tailfins bearing themed designs from around the world. This was to address the global exitler a savvy (mainly business) customer whose criteria for purchase were service trains, invest of destinations, promptness not price.But the re-branding became a debacle. Customers, staff, alliance partners, sh beholders and retailers (travel agents) all desire the British heritage and imagery and rebelled against the turn to an anonymous, characterless new style.Ayling to a fault focused on cost-reduction programmes which antagonised and demotivated BAs staff and customers noticed the debasement in behaviour of staff whose commitment to customer service short plummeted.The upshot was that Ayling was ousted in a boardroom coup in kn ock against 2000. During his reign, a loss of 244m in the year to March 31 2000 the set-back since privatisation was recorded and the groups market value had fallen by 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 favorableness to BAs operations and to restore the Union Flag to BAs planes He set about reducing the fleet, moving to small aircraft, cutting clearly unprofitable routes. He also markinged high-yield customers, the traditional gumption segment for BA. Matching supply with demand was the overall concern, to restore convinced(p) cash flow.Strategically, BAs longtime search for a uniting partner was resumed. A link with Ameri fuck Airlines, the first choice partner, was out of the question after US regulatory authorities squa redact the idea. A proposed merger with KLM, th e 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 adjudge in the merged company.Low-Cost Airlines.Mean time, the airline industry was under outlet a seismic shift with the rise of low-cost no frills airlines. Ryanair and easyJet had, at first, demo the existence of a new market for cheap airline travel which had not been tapped by traditional airlines. But then they began to expand and to postulate for passengers that normally would stir gone to BA even business discriminate customers couldnt see the reason to pay 100 for breakfast (the residuum in price between BA and easyJet between capital of the United Kingdom and Edinburgh.)BAs response (under Bob Ayling) was to form GO as a direct response to the no-frills competitor. Operating out of Stansted airport, GO was operated but separately from BA, so none of the high-cost culture was inherited. Launch ed in the face of conspicuous opposition from easyJet, GO nevertheless established itself in the market though at what cost, no-one could guess.Rod Eddington soon decided that his focus on reward customers made GOs operations inconsistent with that of BA as a whole. GO was sold in May 2001 for 100m to 3i, a UK make capital 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 quadruple 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 continued 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 original problem was l ack of progress on forming a partnership with a US carrier, prevented by the regulators. then(prenominal) came September 11th, and the airline market cut atomic reactor apart. The consequences were swift 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 speed 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 war and the continuing sluggishness of the world economy, all deeply minus to passenger numbers.Strategy at BA was thrown into disarray.Current Strategy.With the travel market is still subject to global economic and political incertitude, BA has repeated its forecasts for lower revenues. However, the fundamentals of this business are stronger than they have been for four 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 operational imperatives to cope with the turbulent environment are expressed in BAs Future Size and Shape initiative which is mean to Achieve significant cost reductions. Originally targeted at 650m, the cost savings are now judge to save an annualised 1.1bn over 3 years (FT 19.3.03). Simplified operations and minimal overheads is the aim. Cut capacity, to match supply of aircraft and flights to the rock-bottom demand. Cut staffing levels. A further 3,000 job cuts be after for March 2004 have been brought forward to September 2003. Change BAs business model. apprised 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 outperform bits of BA and the no-frills model. Martin George, BAs director of mar keting and commercial development, explains our customers like the BA product convenient airports, high frequency, good level of service but want it at the right price, and thats what well make pass them. Its about changing our business model to allow us to compete profitably (Management Today, September 2000). Rationalise BAs inside 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 current fleet from 82 to 50 all-jet planes by end-2005. However, it is expanding operations from Manchester, and from London City airport to Paris and Frankfurt. (FT 18.12.02).It is recognised that BA started to take the nipping medicine of cost cuts and restructuring earlier and in bigger doses than rivals in europium and North America, and that Rod Eddington has pushed through changes that were long overdue. But is this enough? can BA wrest back the short haul market from easyJet and Ryanair, while maintaining its position in the longhaul marketStrikeIn July 2003, just at the start of the busy holiday season, BA was hit by an summary strike by Heathrow check-in and sales staff who were objecting to a overhasty introduction of a swipe-card automatic clocking system. 500 flights were cancelled, affecting 100,000 passengers. The victimize to BAs service reputation was enormous.Both management and pairing leaders were taken by surprise, and it brought to a head the existence of inhibitory practices going back 40 or 50 years which twain sides have to confront.Performance.Results for the year ending 31st March 2003 showed a pretax profit of 135 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 los s (January to March) of 200m. These positive results were entirely down to cost reduction. No dividend was paid a consequence of the need to exert 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 strike 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 USA to dismantle the web of regulations that have controlled the development of international airwave since the mid-1940s.Eddington, as chairman of the Association of European Airlines, insists that truly global airlines are impossible in the current regulatory environment. If it were left to the market, international airlines would doubtlessly follow in the footsteps of other industries and would seek the benefits of scale and scope that are currently denied them. A truly global airline..would be innocent 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 likely 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).