British Airways chief executive Alex Cruz marked his first year in charge of the Oneworld carrier by launching a marketing push for a £400 million ($500 million) investment programme under which it is upgrading its premium product offering.
The investment covers a series of service enhancements on the ground and in the air, including the prospect – though there are no firm details as yet – of a new seat for BA's Club World long-haul business cabins.
It marks an attempt to put the focus back on the airline's premium-carrier credentials after recent headlines put the spotlight on economy measures – notably, plans to raise seat configurations on some of its aircraft and the move to a buy-on-board model for economy passengers on European short-haul flights.
Cruz took the helm of BA in April 2016 after successfully guiding Spanish low-cost carrier Vueling beyond the traditional low-cost carrier model and, ultimately, integrating it fully into the IAG camp.
After a relatively quiet first six months at his new role, the highest-profile measures have focused on the price-sensitive market. However, this brought its share of "BA going downmarket" headlines – perhaps exacerbated by the chief executive's LCC background.
However, at a 5 April media event in London to launch BA's new premium service investment, Cruz appeared to remain convinced of the power of both moves.
The plan to end complimentary food and drink in economy class on European short-haul flights and replace it with the buy-on-board approach – one championed by Europe's LCCs – has generated the most headlines.
Cruz likens the trend of moving to buy-on-board on short-haul European flights to another product-unbundling measure five years ago when airlines began charging for seat selection. He believes paying for food and drink on European short-haul routes will similarly become the norm.
"We know there are people who paid £29 to fly to Rome who expect a lot of things from BA. But we need those people to know we may not be able to deliver all of those things [at those price-points] and they may have to pay extra for that," he says.
"In the European marketplace, we are very much in line with what's happening," he says. "There are very few seats available in Europe that give you something to eat and drink."
Cruz points to ways it has attempted to differentiate its buy-on-board offering, such as through its partnership with UK high-street giant Marks & Spencer and innovations including contactless and Avios payment. But logistics issues dogged its early implementation in January, and Cruz acknowledges it is only now beginning to stabilise.
"Yes, we still have a few things we want to work though," he says. "Then at some point, we will begin to innovate."
The seat-densification plans will involve BA cutting unit costs on its Airbus narrowbody fleet by raising the London Heathrow-based A320 seating from 168 to 180, for winter 2017, and that of the A321 from 205 to 218 in time for summer 2018. The airline will also introduce 10-abreast seating on 25 Boeing 777s based at London Gatwick, increasing the economy-class cabin from 216 to 252 seats. It will at the same time trim the business-class cabin but double the premium-economy cabin on these aircraft to 48 seats.
"Wet-leased, used, three-class 777 with 10 seats across, it is a phenomenal competitive machine against our competitors at Gatwick. Phenomenal," says Cruz.
DIFFERENT POSITIONS
That competition at Gatwick notably includes long-haul flights from Norwegian. BA and, more generally, its parent IAG are clearly determined not to cede the price-sensitive long-haul market to emerging players.
That is perhaps most evident in BA's move to launch new long-haul services out of Gatwick, where it appears to have found a new sense of purpose. The airline followed the restoration of services from the south London airport to New York JFK this summer after a seven-year break by launching new transatlantic flights to Oakland from Gatwick in March. It will compete with Norwegian on both routes, as well as on a Fort Lauderdale service to be launched later this summer.
That move on the one hand is a defensive measure, aimed at snuffing out rival competition before it establishes itself. But on the other hand, Cruz sees it as an opportunity to develop a market.
That fits with the wider BA strategy. "We are reacting and adapting to new times," says Cruz. For example, he points to the developing premium-leisure segment, which has helped support business-class loads. "Premium leisure: that has been up and coming," he says, noting that BA has targeted product and services to reach this market.
At the same time it is also targeting premium traffic. Hence, the same airline that is tackling efficiencies in its economy offering is also embarking on a major investment in its business class and lounges – including, for example, the opening in April of its new First Wing check-in area at Heathrow, which provides a dedicated security channel with direct lounge access.
"[With] four cabins, we already begin to have the tools to be able to manage the different expectations from all those different segments. There is much work to be done. We are trying to adapt to how different consumers and segments are developing," says Cruz.
BA is certainly not alone among European network carriers in taking the fight to lower-cost rivals – be they new entrants on the low-cost front or the fast-expanding Gulf carriers. But the BA approach of doing so under one brand differs from the path taken by rivals Air France-KLM and Lufthansa – and, at Barcelona, by IAG itself.
Lufthansa has turned to Eurowings to provide a branding for its non-hub operations outside of Frankfurt and Munich, and briefly toyed with the Jump brand for long-haul low-cost operations. Air France-KLM, meanwhile, is launching Boost, a lower-cost unit tasked with long-haul flights currently unprofitable against Gulf competitors. IAG, in a further riposte to Norwegian, is with its recently announced long-haul operation named Level seeking to beat the Scandinavian carrier's long-haul plans from Barcelona.
The challenge is speaking to these different markets with one brand and allaying concerns that the moves to cater for lower-price-point customers are not the thin end of the wedge.
"In general, everyone asks us the question: are you going to do anything you do at Gatwick later at Heathrow? In some cases it is the case, in other cases it isn't. I think we will measure case-by-case the opportunity," says Cruz. As to whether 10-abreast configured 777s could be used at Heathrow, he says the move is focused at Gatwick because it needs it the most. "The intention is to place those 777s at Gatwick, see how it goes, and then we'll see what we do at Heathrow," says Cruz.
In many ways it echoes the philosophy Cruz successfully employed at Vueling. The Spanish carrier combined a low operating cost with moves to add service levels where passengers would pay for them and where it did not compromise on costs. At BA the starting position is different, but the logic seems similar: provide the range and empower passengers to choose what they are prepared to pay for.
"British Airways is a premium airline. We fly to premium destinations with premium passengers. We are going to continue being a premium airline," Cruz says.
"But we are going to provide options for those passengers that are price sensitive. We are not giving up on that market, without a doubt. We are going to give lots of options, so if you want to spend more money, we'll be there for you to have a better experience.
"That's what we believe the key is, and we are seeing other carriers grasping that concept, and we believe that's a very good competitive move against those that cannot go premium. We can go premium, they cannot," he argues.
Source: Cirium Dashboard
