Analysts warn that BA pruning is not enough

ALEXANDER CAMPBELL / LONDON

Analysts have warned that the £300 million ($550 million) cost- cutting plan rolled out by British Airways last week will not solve its problems unless it can also boost its share of the lucrative European business market.

"Although long-haul premium traffic has improved, they must focus on improving their short-haul business," says independent airline analyst Chris Tarry.

With increased competition in the European market against established and low-cost carriers having caused "a fundamental change in the revenue stream", Tarry says BA needs a much lower cost base to compete: "It remains to be seen if these cuts will be enough." Productivity at BA has improved over the past four years, but still remains well behind the figures for its low-cost rivals EasyJet and Ryanair.

BA plans to cut £300 million in staff costs over the next two years, saying the cuts will bring its margins up and put the airline "in a position to prosper". But with traffic rising, especially in the lucrative long-haul premium sector, it may be difficult to convince staff that more cuts are necessary.

The cuts are planned for the next two years, to be completed by March 2006, and will see the airline trim its overall employee costs by 14% from their current level of £2.1 billion. BA says it is "committed to" trade union demands that there are no compulsory redundancies.

Tarry warns that negotiations will face new problems as business picks up and staff see the share price rising. With traffic up, "the balance of power will shift towards the unions," he adds. "The cost of a day's disruption becomes higher as things improve."

The airline refuses to say how many jobs could eventually go. The Transport &General Workers' Union points out that an earlier round of cuts, the Future Size and Shape programme, saved £700 million at the expense of 13,000 jobs.

Reductions in the latest round will fall mainly on headquarters and administrative staff: the carrier says it will cut 30%of administrative staff costs and 15% of "operational" staff costs (pilots and cabin crew, ground crew, and customer services staff) - putting less of the new burden on the people who could more readily damage the airline by going on a sudden strike.

Source: Flight International