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Aviation History
1964
1964 - 2158.PDF
FLIGHT International, 30 July 1964 177 Unfair to BEA? MR MILWARD CRITICIZES OUR COMMENTS ON AIRLINE EFFICIENCY In his Chairman's Page in the July issue of "BEA Magazine" Mr Anthony Milward writes as follows:— | ANY of you will have seen a recent article on 'Airline Efficiency' in Flight International magazine [June 11], in which the air transport editor concluded that BEA is below average in airline operating efficiency. You were, I am sure, as astounded as I was that he had reached this conclusion and you might like to have my views on this article. While we in BEA welcome public interest in our airline and by no means resent criticism, the article made me rather cross, for the comparisons were quite unfairly damaging to BEA's hard-won international reputation as an efficient airline, and therefore harmful to the best interests of British civil aviation. I do not propose to comment in detail on the statistical comparisons on which the article was based. Those of you with some statistical training will share with me a scepticism about the shapes of some of the curves. "In point of fact, according to figures recently produced by the Cost Committee of the International Air Transport Association, BEA's operating costs per capacity ton-mile for intra-European services last year were more than 15 per cent lower than the average for all other airlines'1 operations within Europe. They were, moreover, between 10 and 15 per cent lower than those of three other airlines shown in the 'Flight' league table as having average efficiency. This must surely lead to the conclusion that our efficiency is above and not below average. "My objections to the article are, however, much more profound than this, and they would stand even if the statistical analysis were impeccable. As chairman of BEA, I try to judge our efficiency— as I think Parliament and the public would wish me to—by consider- ing to what extent we are successful in achieving our objectives; and I think that it is nonsense to talk about efficiency except in relation to objectives. "BEA's objectives are quite clear: we aim to offer safe and regular air services to the largest number of people at the lowest fares and rates economically possible. Furthermore, we accept a national obligation to support to the best of our ability the British aircraft industry and also, as a public corporation, to pay particular attention to conditions of employment and to the welfare of the thousands of men and women we employ. "I am not going to argue that we have succeeded in all respects in achieving these objectives, and certainly not that we are beyond criticism. What I do say, however, is that it is only relevant to discuss our efficiency in relation to these objectives. The alternative is to say that the objectives themselves are wrong. It is, I think, because the author fails to recognise this elementary point that his article is so unhelpful. "There are two issues in the article which illustrate particularly clearly the fundamental difference between Flight's approach and mine. First is the suggestion that BEA would be much more efficient, by the author's standards, if it were 'to reconsider a commercial policy aimed primarily at the tourist rather than at the regular traveller.' In other words, he recognizes that the seasonal nature of tourist traffic is one of BEA's basic economic problems, but suggests that an 'efficient' solution would be to carry fewer passengers at peak times. It is clear that we are no longer discussing efficiency but whether BEA's objective is right or wrong. I believe that BEA should try to carry as many people as economically possible at the times they wish to travel and to the places they want to go. We do all that we can—by off-peak fare inducements and other means—to mitigate the adverse economic effects of the seasonal nature of our business. But our basic philosophy is that, if it can be done profitably, we should carry as many people as possible, when they want to travel. This often means providing excessive capacity at peak periods, which tends to be enormously expensive and which, on Flight's reasoning, would show us up as very 'inefficient.' Nevertheless, I think it right that, wherever economically justified, the nation's carrier should try to carry the nation. Our customers obviously agree with this point of view, if one can judge by the pressure we are always under to meet such demands. "Another point in the article to which I object strongly is the treatment of load factor. BEA comes out on top in this comparison but the author tells us that load factor could be a measure of inefficiency. BEA's load factor in 1962, as shown in the article, was 59 per cent. Can anyone seriously suggest that, with 41 per cent of our product not being sold, there is a significant risk that traffic is being turned away? The fact is, of course, that the load factors achieved by many other airlines during the past few years have been disastrously low. This is why some of the airlines which came out well in Flight's efficiency analysis were able simultaneously to record enormous financial losses. I am reminded of a splendid dictum attributed to Captain Eddie Rickenbacker, chairman of Eastern Air Lines: 'In the final analysis the most important economic factor in airline operations is bums on the seats.' BEA's load factor doesn't just happen: we work very hard to achieve it. "You may be surprised to learn that the most 'efficient' airline in this article turned out to be one of the really big losers, whereas BEA, one of the most profitable airlines in the world last year, came out almost bottom of the efficiency table. On this basis you and I may well be satisfied to be 'inefficient'—or could it be that Flight's yardsticks are wrong?" The air transport editor writes: Mr Milward makes six main criticisms of our article:— (1) It was unfair. (2) It is nonsense to talk about efficiency except in relation to objectives. (3) BEA has a seasonal problem. (4) We did not use load factor as a measure of efficiency. (5) Our efficiency yardsticks must have been wrong if a profitable airline, BEA, came near the bottom while one of the biggest losers (Eastern) came top. (6) BEA's operating costs, according to IATA, are 15 per cent below the intra-European average. Five of these points were covered in the original article, as follows:— (1) "The chosen measures [of operating efficiency] have been weighted, as noted, in BEA's favour.'" (2) "Operating efficiency, which most reasonable people would define as high productivity of staff and equipment . . . is—or should be—independent of the different objectives . . ." (3) "The seasonal nature of BEA's business is one of the most pronounced in the world ... It is a peculiarly BEA problem and it must be borne in mind when comparing this airline's operating efficiency with that of others less seasonally afflicted." (4) "Load factor is more a measure of profitability than of efficiency . . . Fig 2 (LTM/employee) is perhaps the best way of bringing in load factor as a measure of efficiency." (5) "Why, if Eastern's operating efficiency is so high, does this airline make such heavy losses ? . . . Does not this invalidate the measures of efficiency examined in this article ? . . . They are the result of indifferent commercial judgments and policy, and are patently not the result of operating inefficiency." (6) Mr Milward has taken as his cost yardstick (using unpub- lished IATA figures) intra-European airline costs. He is comparing BEA's costs with those of subsidized Air Union airlines like Air France (which has exceptionally high costs), Alitalia, Lufthansa and Sabena. These airlines are not, like BEA, specialist intra-European operators, and it is not surprising that their intra-European costs are higher. It would be interesting to learn how these confidential costs have been computed. Are they, like BEA's domestic costs, arbitrarily loaded with longer-haul overheads ? If they are, it would be even more surprising if they were not higher than BEA's intra-European costs. No attempt to measure airline efficiency could be immune from criticism, but Mr Milward has not taken our essential point—that it is possible for an airline of low operating efficiency to make a
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