TOM GILL / LONDON
GB Airways could gain holiday routes while CityFlyer Express takes on business services
British Airways is expected to unveil plans to cut costs at its London Gatwick-based short-haul operation this week.
Analysts and unions were expecting some of the key findings of the Future Size and Shape study, a wide-ranging review of BA's business, to be released ahead of the airline's annual investor day meeting on 13 February.
BAis unlikely to withdraw from loss-making European routes, but may transfer flights to its franchises which use lower-cost regional jets and enjoy lower labour costs, suggest analysts. They say GB Airways could operate to leisure destinations around the Mediterranean, while wholly owned subsidiary CityFlyer Express takes on services to business destinations such as Frankfurt, Geneva and Paris.
Yet investors are pressing BA to raise profitability, after a record loss of $204 million in the quarter ending 31 December. Traffic fell 20.3% as the impact of 11 September deepened problems on the North Atlantic, says BA. Despite a 16.3% cut in capacity, load factors fell 3.3 percentage points to 65.2%.
Growing pressure from low-cost airlines is only adding to the carrier's problems. For the first time, BA faces head-on competition to Europe from a no-frills airline, following EasyJet's December decision to increase operations out of Gatwick. "Low-cost airlines are eroding yields and profits on BA's short-haul," says analyst Jonathan Wober at Deutsche Bank. "BA will have to trim unprofitable short-haul routes without choking off the feed to its long-haul operations."
BA has dismissed recent reports in the UK press that it is planning a low-cost operation at Gatwick and that it is set to cut around 16,000 jobs as "pure speculation". It announced over 7,000 job cuts after 11 September, and then accelerated the transfer of some flights from Gatwick to Heathrow as part of a network overhaul.
BA chief executive Rod Eddington's ultimate aim is to raise operating profit margins to 10%. However, Wober believes this is a tall order, considering BA's average margin over the past five years is 4.8% and its highest margin ever was 8% in 1997.
Source: Flight International
