TOM GILL / LONDON
Route and fleet changes are also key in new 'Future Size and Shape' strategy - but some say the cuts should go further
British Airways is to axe 5,800jobs, cut capacity at London Gatwick by 60% and re-organise its fleet as part of a plan to save £650 million ($930 million)a year. Despite the cuts, BA's long-awaited "Future Size and Shape" strategic review has fallen short of some investor expectations.
The airline, which posted losses of £144 million in the quarter to 31 December, is dropping 10 routes and transferring eight services from its loss-making hub at Gatwick to London Heathrow.
"We can no longer rely on long-haul business to subsidise short-haul. We will find a way to sensibly compete with no-frills carriers that allows us to be profitable," says chief executive Rod Eddington.
The carrier is transferring eight services - Abuja, Bucharest, Buenos Aires, Kiev, Lagos, Mauritius, Riga and Zagreb - from Gatwick to Heathrow, and will cut a further five unidentified short- and long-haul routes.
Flanking these network changes, BA has unveiled fleet changes aimed at boosting operational efficiencies and cutting costs. It is moving 16 100-seat BAE Systems Avro RJ100s based at Gatwick to Manchester and Birmingham, while eight Airbus A319s based at Birmingham will go to Heathrow to join the airport's fleet of 25 A319s and 11 A320s. In addition, four Boeing 737s will be moved from Manchester to Gatwick to join 29 737s in a bid to stave off the threat from low-cost carriers. This simplification will leave Gatwick with two aircraft types - Boeing 737s for short haul and 777s for long haul. Regional capacity will be cut by 5%.
BA says its fleet count will drop by 49 aircraft to 305 by summer 2003 (see table). This cut-back includes the completed retirement of its entire 747-200 Classic fleet (10 aircraft), as well as two 777s which are slated for a spring sale and a further five long-haul Boeings earmarked for disposal.
BA shares fell as much as 16.75% on news of the cuts, which some analysts believe are not deep enough. "BA is caught between a rock and a hard place. If it gives up Gatwick it opens itself up to a flood of competition from no-frills carriers. Doing nothing would mean continuing to lose millions," says Andrew Light at Schroder Salomon Smith Barney in London. "It has chosen a middle path."
Over the past three years BA has been confronted with a 300% increase in flight frequencies by low-cost carriers. They compete with the UK flag carrier on 62% of its short-haul routes, with EasyJet's aggressive push at Gatwick representing a further encroachment on BA's traditional market.
BA's response is to adopt elements of their business model: a single aircraft type, higher aircraft utilisation, simpler pricing and cheaper distribution. BA says the fleet changes will increase aircraft utilisation by 10%. It also plans to slash distribution expenditure by £100 million annually through commission cuts and increased internet sales.
BA dismisses suggestions that the changes mark a U-turn in strategy after selling its low-cost subsidiary Go. It says the objective is to maintain a two-class service offering connections to long-haul flights. BA's costs, even after such measures, will still be 40-50% higher than the budget carriers, estimates Schroder Salomon Smith Barney.
Some analysts were expecting more drastic action, such as an exit from Gatwick and short-haul services altogether. Robert Boyle, general manager, network planning, says these solutions were considered but rejected. However, more changes are expected once BA's subsidiaries complete their own strategy reviews in the next quarter.
Suggesting anticipated further use of franchise carriers, BA says its wholly owned subsidiary, Isle of Man-based Manx Airlines, will adopt the BA brand. Eddington insists that franchise operators are a "mixed blessing", and says there are no plans for "a wholesale move to franchises" on short-haul. Ultimately, such a move would happen if BA's short-haul operation fails to "get operating costs right".
The job cuts will include a 36% reduction at BA's head office. When the 5,800 new planned job losses are added to the 7,200 unveiled last year, by 2004, BA will have shed 23% of the 56,700-strong employees on the payroll in August 2001.
Source: Flight International
