British Airways.

Topics: British Airways, Airline, Low-cost carrier Pages: 6 (1666 words) Published: September 15, 2005
In 1987, British Airways was privatised, and over the next decade turned from a loss-making nationalised company into "The World's Favourite Airline" - a market-leading and very profitable plc. The strategy that transformed the company into a marketing-led and efficient operation was conceived and implemented by Lord King as Chairman, aided by Sir Colin (subsequently Lord) Marshall: two tough businessmen who confronted staff inefficiencies and so improved service effectiveness that BA was rated international business travellers' favourite airline for several years in the 1990's.

Lord King having retired, Lord Marshall became Chairman and was succeeded as Chief Executive by Bob Ayling, a long-time BA manager.

Ayling set in train a strategy to turn BA into a "global" airline - transcending the "flag-carrier" status (the role of a nation's leading airline) it shared with Air France, Lufthansa, Swissair, Alitalia, Iberia - into an airline with no "national home" operating throughout the world. The dropping of the overtly "British" heritage and associations was reflected in a changed brand strategy. Away went aeroplane liveries featuring the Union flag, to be replaced by tailfins bearing themed designs from around the world. This was to address the "global traveller" a savvy (mainly business) customer whose criteria for purchase were service levels, range of destinations, promptness - not price.

But the re-branding became a debacle. Customers, staff, alliance partners, shareholders and retailers (travel agents) all liked the British heritage and imagery and rebelled against the turn to an anonymous, characterless new style.

Ayling also focused on cost-reduction programmes which antagonised and demotivated BA's staff - and customers noticed the deterioration in behaviour of staff whose commitment to customer service suddenly plummeted.

The upshot was that Ayling was ousted in a boardroom coup in March 2000. During his reign, a loss of 244m in the year to March 31 2000 - the first since privatisation - was recorded and the group's market value had fallen by half.

A New Face.

In May 2000, Rod Eddington joined BA as Chief Executive. He was previously Managing Directory of Cathay Pacific and Executive Chairman of Ansett, an Australian airline.

Eddington's immediate actions were designed to restore profitability to BA's operations - and to restore the Union Flag to BA's planes! He set about reducing the fleet, moving to smaller aircraft, cutting clearly unprofitable routes. He also targeted "high-yield" customers, the traditional mainstay segment for BA. Matching supply with demand was the overall concern, to restore positive cash flow.

Strategically, BA's longtime search for a merger partner was resumed. A link with American Airlines, the first choice partner, was out of the question after US regulatory authorities squashed the idea. A proposed merger with KLM, the Dutch flag carrier, was discussed in some depth, but that foundered on doubts over the long-term financial benefits, and arguments over the relative shares each airline would have in the merged company.

Low-Cost Airlines.

Meanwhile, the airline industry was undergoing a seismic shift with the rise of low-cost "no frills" airlines. Ryanair and easyJet had, at first, demonstrated the existence of a new market for cheap airline travel which had not been tapped by traditional airlines. But then they began to expand and to compete for passengers that normally would have gone to BA - even business class customers couldn't see the reason "to pay £100 for breakfast" (the difference in price between BA and easyJet between London and Edinburgh.)

BA's response (under Bob Ayling) was to form GO as a direct response to the no-frills competitor. Operating out of Stansted airport, GO was operated entirely separately from BA, so none of the high-cost culture was inherited. Launched in the face of vociferous opposition from easyJet, GO nevertheless...
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