Willie Walsh, the chief executive of British Airways, will close the airline’s loss-making regional division if it has not returned to profitability by the end of the 2007-8 financial year.
This was the blunt message to BA CitiExpress managing director David Evans from Walsh, who took over the helm at BA in October. “If we don’t return to profitability by 2007-8, we won’t be around – it is as simple as that,” says Evans. “Willie told me that face to face, which is something I respect.”
The carrier lost around £30 million ($53 million) in the 2003-4 financial year, although Evans says there will be a “measurable improvement” of around 30% for 2004-5. “We are moving in the right direction in what has been a very challenging year,” says Evans.
The carrier is in the middle of a two year programme to cut costs by £35 million by the end of the 2006-7 financial year. This will include changes to the fleet – the airline has already removed six Avro RJ100s – more balanced capacity levels, and a 20% reduction in overheads. However, Evans warns that, “no matter what cost improvements we put in place, we have also got to do something else”.
To this end, BA CitiExpress is going through a rebranding exercise that will see it renamed BA Connect in time for the summer 2006 season, with significant changes to the product. Asked whether this comes from Walsh or his predecessor Rod Eddington, Evans says: “It’s a bit of both.”
He explains that in the last three to four years, the focus at CitiExpress has been on implementing the 2002 merger of British Airways Regional, British Regional Airlines, Brymon Airways and Manx Airlines operations at Birmingham and Manchester. “We had to get to grips with an extremely complex business,” he says, adding that this was the main reason the carrier has not undergone this type of exercise earlier.
Evans says, however: “It became clear one year ago that we needed to reposition ourselves in the market.” He adds: “Willie recognises that BA’s short- haul operations are not all one business. London Heathrow is different to the regional businesses. He has allowed us to sub-brand ourselves.”
The new initiative will see the Club Europe business class ditched on international services as the carrier moves to a one-class product – the carrier’s domestic services already operate in a single class. Fares will be slashed by more than 40% to as little as £25 inclusive per leg – with ticket restrictions to be ditched.
Passengers will have to pay for on-board catering, which Evans says will not make a profit, but will cover its costs. Evans says that while yields will suffer from the changes, going down by 5% or more, this will be more than compensated for by increased volumes.
London City flights will be excluded from the changes, and will continue to offer a two-class full service.
There will only be a few changes to the route network, although Evans says these will be net positive, signalling there will be more additions than cuts. There will also be no rationalisation of the carrier’s six bases. It has already shut bases at Cardiff, Leeds and Plymouth.
BA CitiExpress differs from most European regional carriers in that around 95% of its traffic is point-to-point, rather than feeding hubs. ■