British Airways - UK Operations
British Airways (BA) was founded in 1974 after the merger of BOAC and BEA. The company operates flights to over 153 destinations world over and is one of the only 10 carriers that fly to all six permanently inhabited continents. BA is headquartered in Waterside and mainly operates from London Heathrow Airport and Gatwick Airport. It is permitted by the UK Civil Aviation Authority to carry passengers, cargo and mail on aircraft with 20 or more seats.
British Airways is UK's largest airline in terms of fleet size, International destinations and International flights. Until 2008, it used to carry UK's largest passenger numbers as well (34.6 million) but was overtaken by the low-cost carrier 'easy Jet'. The reason for BA's popularity in its home country has been its brand image, which stands for prestige, glamor, comfort, safety and reliability.
In recent times, the European civil aviation market in general and the UK airline industry in particular have seen the following trends:
-Increased competition especially with a rise in the number of low-cost carriers
-Competition from high speed trains
-Trend towards using smaller aircraft
-Fleet replacement and rightsizing
-Increase in passengers traveling by air without a concomitant rise in the capacity of air transport systems to handle them
-Negative impact of global terrorism leading to increasing flight cancellations and higher cost of security
Apart from the challenges arising out of market conditions, BA has also been mired in various controversies and embarrassments. Since the inception of Virgin Atlantic in 1984, the two companies have been accusing each other of playing 'dirty tricks' and poaching. In 1993, BA had to offer apology and pay £610,000 to Virgin.
In 2007, the company had to pay $300 million as fine for conspiring to fix air cargo prices in the US and in November 2010, it was fined ?104 million by the European Commission for price-fixing. The company has been troubled by a series of labor strikes on account of its proposed changes in salaries and working conditions of cabin crew as a response to the global financial crisis. The strike in March, 2011 is purported to have cost an already loss making BA £43m.
Structural and Functional Changes:
Despite a £1 billion drop in revenue during FY2011, the company is optimistic on account of the following measures it has taken in the recent past:
- BA achieved some progress in cutting costs as their fuel bill fell by nearly £600 million and they cut their unit costs by 6.5%. To cut costs, measures such as increasing the annual flying time for pilots (from 500 to close to 900) and reducing the turnaround time for aircraft from almost an hour down to 35 minutes have been introduced
- Successful merger with 'Iberia' which makes it the 3rd largest airline in terms of annual revenue in the world
- The company has addressed its £3.7 billion pension deficits and has reached an agreement with trade unions on future benefits of the schemes
- In January 2008, BA launched 'Open Skies' to take advantage of the liberalization of transatlantic traffic rights between EU and US
- The company bought a 10% stake in UK based ICRR that manages 'Eurostar' (a high-speed passenger rail service that connects London with Paris and Brussels).
The worst impact of recession seems to be over and February 2011 saw the industry record the first increase in premium traffic since August 2008. Given the improvement in economic conditions, British Airways is quite confident that it will be able to achieve higher levels of sustainable profits in the coming years.