COLIN BAKER BIRMINGHAM
Jim French has taken over the reins at British European at a difficult time, but is optimistic that he can return the UK regional to profitability
"These are difficult, but exciting times," says Jim French, newly appointed managing director of UK regional carrier British European, formerly Jersey European. The carrier, which is one of the largest regional carriers in Europe and an Air France franchise partner, suffered heavy losses last year. French's task is to return it to profitability.
It is a challenge the personable, straight-talking Scotsman seems to be relishing. With a 20-year background in the regional airline industry, French has strong views on which way the sector is going, and these convictions form a key part of his strategy for turning round the carrier which is one of a handful of regionals that has avoided falling under the wing of the majors, although flying for Air France forms a key part of its business.
He expects a reversal of the two key trends that have characterised the European regional sector in recent years: the rush towards regional jets (RJs), and carriers increasingly falling under the control of major airlines. On this last point, French confidently predicts the reverse will happen "over the next five years".
"After the larger airline has bought the smaller one, the next phase is the pilots want to be paid the same as their colleagues in the bigger airlines. So they are paid more. Then it is the engineers and then the cabin crew." Before long, he says, the larger airlines are asking themselves "what are we gaining here?"
French is equally prepared to go against the grain when it comes to RJs, arguing that - with the economic downturn beginning to bite - their increased costs will start to hurt, and that some carriers will regret getting rid of their turboprops. He also feels that their environmental benefits could be used to revive the turboprop.
This flies in the face of what many in the European regional industry have been saying and doing in recent years. At last year's European Regions Airlines Association (ERA) general assembly, many carriers were claiming they were able to attract more than enough passengers on to RJs to justify the extra cost. French is doubtful, although he admits his argument is strongest for journeys that take less than an hour.
To make his point, French gives the example of one route where British European gets five rotations a day out of its BAe146 jets, while a competitor manages eight a day using Dornier 328s. The two carriers were operating around the same number of seats per day, but the 328 operator was able to offer eight frequencies a day compared with British European's five - clearly a major advantage for business travellers. And the annual costs for the 328 operator were $3 million less.
Not surprisingly, then, turboprops loom large in his strategic plan for returning British European to profit - something which he admits is going to take time. After last year's hefty "bottom line" £10.7 million ($15 million) loss, the airline hoped to break even in 2001-02. Three months into the fiscal year, it became clear that this was not going to happen. As a result, chief executive Barry Perrott left in June, and French, who had been deputy chief executive, took sole charge of the carrier.
Since then there has been a business review, and although French says the carrier will have to "forget" 2001, a significant improvement in the business year ending March 2003 is the aim. A key part of French's strategy is to rejig the fleet, getting rid of four Bombardier CRJ-200s and three BAe146-200s. French says the level of improvement in the carrier's fortunes is "subject to aircraft disposal", adding: "It is a question of timing and price. We know it is a tough challenge."
Market conditions may not be ideal, but French is confident of at least attracting interest for the 50-seat CRJ-200s, and may be able to arrange a part-exchange deal with Bombardier. British European has eight Dash-8 Q400 turboprops on order from the Canadian manufacturer, and is rationalising its fleet around the BAe Systems Avro RJX and Dash-8 Q200/300/400 (and eventually just the 300 and 400 series). The fleet mix has become very complicated, which hinders flexibility, says French.
Areas for change
While it is high on his list, fleet composition is just one of many areas which, according to French, need to be rectified. The carrier is divided into airline and maintenance divisions, a policy he intends to change. "We are losing money because we have become too complex in our organisation, in readiness for the planned flotation," he says, referring to a stock market listing intended three years ago, but now unlikely to happen for another three or four years, as the airline rebuilds. The management teams for the airline and maintenance will be combined into asingle entity as French streamlines the carrier's operations - and cuts costs.
He says the fact that the maintenance division is a separate profit centre may not be in the airline's best interests. Around 70% of British European maintenance business comes from third parties. Fuel is another area which could be improved. "Fuel management is not good. There has been no hedging," French says.
He also criticises the pricing policy which he has inherited at the carrier. Last year, it introduced a new fare structure and one-way daily discount at the same time. The result was passenger numbers increased significantly, but yields plunged. "You can start a price war in one day, but it takes six months to get out of it," he says.
While the airline certainly has its problems, French points out other factors in play beyond the management's control. He says British European felt the cold wind of economic slowdown last year, and believes the calamitous state of the UK rail sector, which has boosted regional airline traffic, has camouflaged this industry trend.
As British European flies morecross-water traffic than most of its competitors, he says, it is less protected than they are. A significant amount of its traffic is to Belfast and France. The outbreak of foot-and-mouth disease among sheep and cattle in the UK saw large parts of the countryside closed this spring and cannot have helped air travel. "It is impossible to quantify, but it must have had an effect," French says.
Against this background, French aims to reduce costs by 5-10% and bring the airline into the black. The Stansted to Belfast City services are being axed as the company concentrates on routes out of London City and Gatwick airports, while the base at Leeds/Bradford will also go (though the airport will still be served).
But French is anxious to protect the company's core strategy, including operations at Belfast City, Birmingham, the Channel Islands and London City. "There has been a lot of investment. We don't want to throw it away," he says.
Meanwhile, he is keen to develop strategic relationships with other carriers. The rapid development of SkyTeam, led by Delta Air Lines and Air France presents French with an opportunity. It is much-needed considering the strength in the UK of British Airways and its oneworld alliance, plus the backing of the Star Alliance behind bmi British Midland. French estimates British European has an 11% share of the UK market. He concedes that so far alliance members have been flag carriers or large majors, but does not rule out deepening the SkyTeam relationship.
Air France, attracted by the idea of feeding its Paris Charles de Gaulle hub as well as entering a key market, seems ready to develop ties. Insiders at the flag carrier say SkyTeam could develop into a core of between eight and 10 members, with a second tier of smaller carriers, including British European.
French is as keen as Air Franceto develop the relationship, though he emphasises that the priority is to turn around the business. He stresses that British European is "going into its co-operation deals with its eyes open", and will need to fit them into the overall strategy.
Other links are being fostered, including codeshare agreements with Emirates and Continental Airlines: the latter providing a transatlantic link, the former an inroad into Birmingham's Asian community. Although talks with latest SkyTeam member Alitalia have yet to begin, the Italian carrier's entry into SkyTeam provides opportunities, as does CSA Czech Airlines.
Closer to home, a recent codeshare deal with Scot Airways on services between London City Airport and Scotland has come in response to stiff competition on these routes; and bmi's decision to move its Belfast operations from the International to the City airport could see the two carriers co-operating, French hopes.
Attempts to develop the carrier's international appeal have already seen a name change from Jersey European to British European, and the flight code is being changed to BE. These moves are welcomed by French, who notes with an exasperated smile that, before the name change, Americans assumed the airline was based in New Jersey. "If you have to explain your name, you've got the wrong one," he says.
Attempts to develop international links reflect the changing nature of the carrier's profile. "We have grown beyond being a purely regional airline," French says, claiming that British European is Europe's largest remaining "independent" carrier.
He recognises, however, that its frequent-flyer programme, which has yet even to be computerised, needs to be modernised, and that this "is one of the strongest arguments for joining an alliance".
The carrier has to decide whether to develop its own system or go into an alliance frequent-flyer programme, almost certainly SkyTeam's. Even if it decides on the former course, it is still likely to tie up with SkyTeam. "Whatever we decide, we have to move quickly," says French.
The development of the global alliances could present British European with another opportunity - coveted slots at London Gatwick. French is keeping a close eye on the attempt by one-world partners British Airways and American Airlines to gain anti-trust immunity across the Atlantic.
This is expected to result in slots becoming available, and, French believes, presents British European with an opportunity. "If the big guy eats his loaf, there are always crumbs for the little guy," he says. BA has been downsizing its Gatwick operations, which again will provide opportunities.
French uses this scenario to show the benefits of regional carriers remaining independent. "The advantage we have is quick response," he says, noting that, where regionals are controlled by majors, the larger carrier spends a lot of time determining how this fits into their strategy.
Of course, low-cost carriers are equally nimble and have had a huge impact on the UK airline sector. "I hadn't anticipated this," French says, although he points out that the likes of go, Ryanair and easyjet are chasing a different market segment to British European, which is primarily focused on business travel, rather than the budget-conscious leisure traveller.
Low-cost carriers have been increasing their presence in UK regional airports such as Belfast, Bristol and Edinburgh. Although these airports may be close to home as far as British European is concerned, French is far from convinced that this approach will work. "They are taking the model developed on trunk routes into the regions," he says, noting that the strategy is "unproven". He adds: "The UK is a finite market - the natural expansion may be in Europe."
French is critical of ideas being mooted in Europe, or more exactly Brussels, that would favour larger carriers in areas such as slot allocation. If there is an open bidding process, for instance, he asks: "How could we outbid a 450-seat aircraft?"
Reeling out a long list of UK towns and cities that no longer connect with London Heathrow, he adds: "There will be fewer regional services." French has been involved in the ERA since its earliest days, and says the organisation has given regional airlines "a presence and voice in Europe".
Although French wants British European to maintain a key presence in the UK, his first task is to get the carrier back on financial track. This may be a difficult time, but, as French says, it is also a time of opportunity.
Source: Airline Business