BA cost drive bears fruit

British Airways has revealed new targets to bring down sales and distribution costs as part of its broader drive to keep savings moving.

In an upbeat briefing on progress to date, chief financial officer John Rishton reported in early March that BA had already comfortably beaten the original £650 million ($1.2 billion) cost cutting target outlined under the Future Size and Shape programme launched two years ago. When it reports for the full 2003/4 financial year to March, BA expects to hit the £900 million mark.

Labour costs have provided the bulk of savings to date, but distribution too has been a key area thanks to a concerted push towards lower agency fees and increased online bookings.

Overall selling costs are expected to fall to 9-10% of revenues this year, compared with 16-17% a decade ago, says Rishton, pointing to plans that see UK agency commissions fall to 1% and fees introduced for customer services that could be handled online. Some 15-16% of BA's total ticket sales are now made over the web and that is expected to rise to above 30% within three years.

Further enhancements are being added to the online offering under the Customer Enabled BA (ceBA) initiative, including the ability for customers to take advantage of up-sell offers, change their bookings and select seats online. Home printed boarding cards and baggage drop-off points are also now being rolled out for selected European destinations after a live trial in Edinburgh.

The latest business plan targets £150 million in savings from ceBA, alongside £300 million in external supplier costs and another £300 million from the labour cuts announced in January. Rishton says these will be needed to respond to "cost headwinds" of £300-400 million expected in the year ahead from a mix of increased pay, pensions and fuel costs.

Source: Airline Business