British Airways has warned that its UK regional feeder operations must return to profit within two years or face closure, following the introduction of a major rebranding and cost-reduction programme.

BA citiExpress Dash 8

This week the UK carrier unveiled the rebranding plan for its CitiExpress division into BA Connect with a new low-fares remit. The new subsidiary will inherit 50 regional aircraft including 28 Embraer ERJ-145s, 14 BAe 146/Avro RJs and eight Bombardier Dash 8 Q300s (pictured above).

The division, which was formed in 2001 through the merger of various BA divisions, has been suffering annual losses of around £30 million ($53.6 million), and its parent has given the regional business a two-year ultimatum to turn a profit: "The business plan calls for the airline to become profitable by the end of the financial year that finishes on 31 March 2008," says CitiExpress commercial director Steve Cassidy.  "When the regional businesses came together in 2001 they were profitable,” he adds.

According to the division, BA chief executive Willie Walsh has "made no secret of the fact that this new business model has to work" within two years, or face closure.

The aim of the reorganisation is to grow passenger volume by 10% and to reduce costs dramatically, says Cassidy. The cost reduction target is £35 million, which Cassidy says will be achieved by simplification of the division’s product and operations.

Business class seating will be stripped out of the aircraft and catering will no longer be offered free-of-charge. However, tickets will become fully exchangeable in a bid to keep business customers. Although the move is expected to damage yields, this should be more than offset by increased ticket sales and lower costs.

BA Connect will retain bases at Manchester, Birmingham, Edinburgh, Bristol, Southampton and London City airports.

Read BA's vision of its new regional services here.

Source: Flight International