For British Airways chief executive Alex Cruz, the year ahead is an opportunity to get the airline firmly on to the front foot.
The arrival of BA’s first Airbus A350-1000 in the summer will see it debut a new business-class seat – potentially the carrier’s most significant product investment for two decades – and coincides with celebrations to mark the centenary of the airline’s origins.
These developments come amid the airline’s most sustained period of financial prosperity in its history, yet also as it continues to face strong competition from operators at both ends of the product spectrum and seemingly endless uncertainty surrounding the UK’s planned exit from the European Union.
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It is almost three years since Cruz took the helm of the UK carrier. The former American Airlines executive was already a known quantity within BA parent IAG, having led Spanish low-cost unit Vueling since its merger with Click Air and during its subsequent full acquisition by the group.
Since then, however, BA has arguably spent more time on the back foot. A backlash over its move to replace complimentary catering on short-haul flights with buy-onboard options was followed by a damaging power outage in the spring of 2017, which brought BA services to a halt. A customer data breach created further unwanted headlines for the carrier last year.
All the while BA has been positioning itself for a major statement of intent. A £4.5 billion ($5.8 billion) investment programme, including development of the new Club World seat, was unveiled in 2017. While initiatives have already begun – and the size of the investment increased to £6.5 billion – the results of the work will only really become apparent in the coming summer.
“As with many things in our industry, it takes time for this investment to come through,” says Cruz. “2019 is going to see more things, more visible. From July the A350s that are being delivered will have the Club seat fitted, and there will be a few 777s [retrofitted] before the end of the year.”
Cruz remains coy on the details surrounding the new seat – other than confirming it will be larger and, significantly, offer all-aisle access. “With this seat we want to achieve two things,” he says. “One is catch up in some respect. Our seat… was incredible when it first came out, but even its subsequent releases are not as competitive as some of the other seats out there. And secondly, to go a little bit beyond. So, can we become a bit more competitive? We believe [that with] one or two of the other features, the seat… will offer an advantage over other standard club seats other airlines offer.
“When you bring that together with the new bedding, catering, ground services, all of a sudden you have a product which I think will be able to compete even more.”
Four A350s and a pair of refurbished 777s are likely to have the seat this year. “We will go faster if we can. We are working with the manufacturer of the seat. We are prepared to go faster, but this is a two-and-a-half to three-year roll-out,” says Cruz.
FLEET RENEWAL
The arrival of the A350-1000s – BA has 18 on order and options on a further 18 – forms part of wide-ranging fleet renewal. The airline in November bid farewell to the last of its 767s, which came after its former OpenSkies unit also carried out the last 757-operated flights. Already a 787 operator, BA will next year take delivery of the first of a dozen 787-10s it has on order.
But it still has to tackle the replacement of much of its 747 fleet, which dates back to the 1990s.
“We still have in mind the progressive retirement of the 747s, with the last one being retired in 2024. So we have a bit of time, not a lot of time,” he says. Flight Fleets Analzyer shows the carrier has 34 747-400s in service.
It is initially using the A350-1000s to replace the type. “The 747 is flying to some markets [in which] we do not need first class, there is less demand – and those will be perfect for the A350-1000.
“We need to formulate a stronger, more resilient position on future widebody commitments, beyond 2020-21,” Cruz says. “It’s something we are working on at the moment, and I wouldn’t be surprised if some time this year we say something about it.
“We are keeping an open mind [on the A380],” he adds, asked about the potential to add to its fleet of the type before Airbus had announced the programme’s cancellation. “This is not like the grocers – we don’t have a lot of choice. You’ve got the A380, the A350-1000, the 777X. Next year we begin to get 787-10s. So the universe is between those sort of aircraft. Boeing or Airbus, and the A380 and A350. Aer Lingus and Iberia both are very experienced with the A330s. Let’s see. It’s very much present at a group level. We will have to decide.”
CLASS BATTLE
While the airline’s introduction of A350s will see less first-class capacity, Cruz says BA remains committed to the segment. “We are probably going to make it a little bit more exclusive. Fewer seats and probably an upgraded product on what we already have.”
At the other end of the spectrum, BA has been addressing the premium leisure segment – notably at London Gatwick and with refurbished and densified 777s.
“Premium leisure as a sector has been increasing in size for the last five, six, seven years,” says Cruz, noting this has prompted it to increase its offering in that segment. “The refurbished 777s are very much an enabler of that. We are completely committed to that sector both at Gatwick and Heathrow and just making sure we have the right amount of product available.
“It is a healthy debate to talk about the differences between Gatwick and Heathrow,” he adds, noting the lower cost of operating at Gatwick, together with the market competition at the airport, as big drivers.
“This is an airport that has been at the forefront of heavy, intense difficult competition for many years now. As a consequence, Gatwick is the airport that has changed and evolved the fastest,” he says.
But he adds: “Be it people who may be more leisure orientated – and the network implies so – be it business passengers, BA is delivering quality product for all its passengers. There is no fundamental piece of the product that is significantly different between Heathrow and Gatwick.”
Notably BA has grown at Gatwick – including its long-haul services after several years of stagnation – and further boosted its presence there after IAG acquired slots from the administrators of Monarch Airlines in late 2017. “Gatwick on its own is showing, post-Monarch slots, a very significant opportunity. We added the slots in 2018 and yet the unit revenue performance went up,” says Cruz.
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That has seen the carrier compete head-to-head on long-haul transatlantic routes with ambitious new entrant Norwegian. Such was IAG’s interest in Norwegian that it last year took steps to acquire the group – a move which would have taken out a competitor and opened slots at Gatwick for BA. IAG though appears to have closed that avenue after confirming in late January that it would not submit a fresh bid for the airline.
Change ultimately could be coming at Heathrow too, amid the long-awaited decision on a third runway for the London airport – which took more tentative steps to fruition following UK government approval last summer.
“If a final proposition is done at the right price, which is so important, it will be a great opportunity for BA. We know that is not going to happen in the next five years,” he says, noting the airline can further improve its operations to better place it to exploit the opportunity. “I think for BA the ability to make its network richer and reach further… is extremely exciting.”
STAFF ENGAGEMENT
Cruz also emphasises the importance of training. The airline is introducing additional training for its customer-facing staff, virtually all of which will be service-orientated. “This is to reinforce the importance of the phase we are in right now, which is not just about our financial performance, but to enhance and drive forward the overall attitude towards customer service. That has always been there, but we are giving them more tools.”
BA has also begun rolling out its new “first-contact resolution” training initiative for airport staff at Heathrow. “It is doing something which I first saw when I joined American Airlines. You were trained on everything that anyone above the wing may see,” he says. “That is not the European model, except for smaller operations – people are segmented.
“We believe it’s time for BA to multi-skill staff at the airport, really with one aim: first-contact resolution, which means you will come to me, and I will be able to solve the majority of the problems.
“This is a huge effort – it has started – but it will be done in earnest after the summer. And we are very excited, because we believe it will allow us to manage individual day-to-day situations better. And in crunch times, if there are weather delays or other things, we won’t be restricted to 20 or 30 agents who know how to rebook – everyone can help.”
Cruz notes, however: “We are getting better and better at dealing with things when they happen. The last disruption had the highest number of automatic re-accommodations being done – via technology, via first-contact resolution, via all these things we are investing in.”
Part of the year’s activities also include work on a new uniform. “This is an engagement project. This is an opportunity for our uniform-wearing colleagues to come together to influence a really important aspect of their life, which is what they wear.” That is likely to see the resulting uniforms tested by staff during the year.
Attempts to improve staff engagement are notable given recent union statements. A joint position in November from its three key unions argued the airline had allowed a culture to develop in which “employees are disconnected from the airline’s success”. While that is set within the frame of annual pay and salary posturing, it does point to an issue the airline – and some of its peers – have had to face during the unprecedented period of profits.
“We cannot not talk about people – and that’s not just talking about remuneration and working conditions, which of course we are going to be spending a lot of time talking to the unions to reconcile, and I’m sure we’ll reach a deal, but beyond that, it is talking to people, listening to them, understanding them.
“All things need to be balanced,” he adds. “A big drive for the last 20 years [has been focused] on making the company financially stable – we have to keep it. So it’s not just about, ‘okay we are done’, there are a lot of things we have to continue to do to make BA better. There is a tremendous amount of investment on product and service, together with engaging with our staff.”
BREXIT
While there are plenty of global economic and political concerns which could hit the sector, BA finds itself at the heart of one notable uncertainty: Brexit.
Debate continues as to how IAG’s ownership structure will sit within the post-Brexit world. And the full economic impact, for the UK in particular, of Brexit – be it soft, hard, no deal or delayed – remains the subject of conjecture, even if the aviation industry and UK businesses have made no secret of their concerns regarding the potential economic damage a no deal exit could cause.
“In the airline industry we spend a lot of time preparing for stuff we would prefer didn’t happen. From an airline operational mindset, this is another event,” says Cruz. “[So] not now, but in a few years, I’m sure we’ll talk about it as something that came, something we looked at, we prepared for and dealt with it, and moved on,” he says. “Now we are in the middle of it and we have our own teams working on it and we are able to speak with the same degree of certainty that the government can.”
But he stresses Brexit will not prevent BA from delivering on its investment. “We are committed. So we are going to open Islamabad, Pittsburgh, we are going to open these leisure destinations. So, a full commitment to deliver the plan we have communicated,” he says.
Likewise, he believes the airline’s financial strength will enable it to better handle any shocks – wherever they come from – than it was when the financial crisis hit a decade ago.
“At that time, it parked aircraft and lost money, it was a very difficult time. Today, as a consequence of everything that has been done since then, BA is in a much better shape,” he says. “That is one of the messages we have been trying to get across in our investor day, that a lot of the hard work has been done. BA is a healthier company that could withstand a shock like the financial crisis.”
One of the key differences, he notes, from a decade ago is that BA is part of the wider IAG group. “That is an incredible advantage, if you have a challenge or opportunity, as we are not alone. We can help each other.”
BA has had its adversities, most notably the IT power outage and subsequent major disruption to services, and Cruz has found himself at the centre of these operational storms.
“I had a chance to learn a lot of stuff in terms of how to manage the brand, or how to manage crisis situations or opportunities at Vueling,” he says. But he acknowledges: “I am in a different market, I’m in my home – this has been my home the last 25 years – I know the market well and it’s the BA brand, which has been around 100 years. It’s part of everyone’s fabric, and yes, it’s different, because the age and size amplifies it a tremendous amount.
“It has been fascinating from a positive perspective. Yes, we have a couple of tougher times, but we also have a lot of good times as well,” Cruz says. “And I think we are entering a phase of our history where we are in a growth and investment cycle and it’s tremendously rewarding. But yes… I keep learning every day.”
Source: Airline Business
