Max Kingsley-Jones/LONDON
BRITISH AIRWAYS is to concentrate on reducing costs at the airline's main hubs at Heathrow and Gatwick, doubling its franchising business and restructuring operating divisions such as its European partners as part of a company-wide £1 billion ($1.5 billion), three-year efficiency drive.
The move, which follows 1995's record £585 million pre-tax profit, is seen as an effort to get the airline into shape while its finances are good, to ensure that it remains competitive, and to prepare it for any economic downturn at the end of decade.
According to BA's chief executive Bob Ayling: "The competition is getting better and more efficient-our cost of providing a seat has risen faster than the price a customer pays. We have to create a new BA for the new millennium". In 1995 the company saw its costs rise by 11.6%, while its yields only improved 6.6%. The savings, are expected to be made through increased productivity, contracting-out and redundancies, while additional ways to boost revenue are being examined through the development of new business opportunities in areas such as inflight entertainment. Flightcrews have also been targeted for significant cost cuts.
The effort will centre upon a reduction in the costs of doing in-house functions to the level of external market prices. Many of the activities at Heathrow and Gatwick will come under close scrutiny, and BA threatens that if the cost reductions cannot be achieved, subcontracting will be considered. The airline has since announced the closing of contract-handling at Heathrow, with the loss of 750 jobs.
Having already restructured the engineering division into a separate profit centre, BA says that it "-has not ruled allowing outside investors to take a stake in the business". The airline's Cargo division is also expected to be a focus for the restructuring programme and company fleet planners have begun looking at fleet-rationalisation options to cut costs.
In moves, which will have a direct effect on its bottom line, BA's £50 million-a-year franchising programme will be doubled and Deutsche BA and TAT will be restructured.
BA has achieved some £800 million in savings in the past five years. The programme will involve the shedding of some 5,000 of its 49,000-strong UK workforce over the next 18 months, through voluntary redundancy or early retirement. BA says that it expects its employee tally to be about the same in 2000, but that the skills make-up will be different.
Source: Flight International
