Capt.Picard From , joined Dec 1969, posts, RR: Posted (13 years 8 months 1 day 2 hours ago) and read 2313 times:
Nice big article on BA from today's Telegraph newspaper, for those interested in the airline-plenty of interesting stuff here, including why Eddington thought selling GO was the right thing;
'The amazing shrinking airline
BA is slashing jobs, cutting routes and scaling down operations at Gatwick. The next job is to tackle the no-frills carriers. In an exclusive interview with Damian Reece, chief executive Rod Eddington pledges short haul will be in the black by 2004
ROD EDDINGTON, chief executive of British Airways, made a promise on Friday morning which his shareholders are unlikely to forget in a hurry.
Sitting in the airline's enormous headquarters, he pledged that profits from BA's chronically troubled short-haul business will be rolling in by 2004. This will be no mean feat but is the real thrust of last week's measures announced in BA's Future Size and Shape review.
Restoring profits to the group, which is expected to announce annual losses of £570m in May, is Eddington's simple ambition. If he fails, not only his job but the commercial future of the entire airline will be threatened.
But even with the shrinking of loss-making long-haul routes, annualised cost savings of £650m and 5,800 new job losses, all announced on Wednesday, the really ugly problem that has to be fixed is BA's sink hole at Gatwick, where most of its short-haul business is based.
While all the attention last week was focused on whether Lord Marshall, BA's soon to be septuagenarian chairman, should stay or retire, and alleged splits in the board over how radical Future Size and Shape should be, the question of if and when BA's short-haul operations would ever make any money was somehow left behind.
Eddington confirmed that BA's short-haul business would be restructured to compete against the low-cost airlines, not as a new brand but by selling cheaper tickets over the internet, as revealed in The Telegraph two weeks ago. But how soon all these changes would mean the short-haul business moving into profit was not discussed.
"Wednesday was about fixing the core business," says Eddington. "A huge piece of what we announced was about how we get smarter on our short-haul operations. The problem we have and have always had since before I arrived is that the profitable long-haul business has subsidised the short haul. I've said that can't go on, it's unacceptable."
A glance at the company's last set of full-year results, albeit from a time when profits were still being made, shows the scale of the imbalance in BA's business. For the year to March 2001 group operating profit was £380m while BA's transatlantic business alone had operating profits of £470m, or 124 per cent of the total. BA's European short-haul business was the main culprit for the group result.
"Before I arrived short haul was losing £300m a year, 12 months later it was losing £170m, still a big hole but a big difference. We have to get that into the black and my sense is it will take us two years, to 2004, provided we are in what I would describe as still air, or normal conditions.
"But recasting the short-haul proposition and making the right judgment about route structure is critical. My goal is to get short-haul operations into the black in two years' time."
Wednesday's announcement was a line in the sand for Eddington and BA, a mark by which they will both be judged. It was the unveiling of new BA, the BA that will hope to recover its gargantuan losses in the next few years as trading on its premium-priced long-haul routes recovers to some degree of normality. By then he hopes to have fixed the short-haul business so it will contribute to earnings as well.
While some in the City were satisfied with Eddington's plans, others felt he has missed the opportunity for a truly radical re-think and suspect a board split over how far he could go.
Eddington's relationship with his chairman, Lord Marshall, 20 years as chief executive and latterly as chairman of BA, is under scrutiny for signs of stress, especially as some investors are demanding a clear succession plan. Marshall intends to stand for re-election as chairman past his 70th birthday, the age where modern corporate governance thinking says enough is enough.
It is clear that the articulate Eddington, a friend of fellow Australians such as Rupert Murdoch and Rodney Marsh, the wicket keeper, argued fiercely with Marshall over the detail of Future Size and Shape. But he says these arguments were all part of the normal cut and thrust of top level corporate debate and did not carry any personal rancour.
"Not one word, not one word of disagreement," says Eddington about his board room sparring over Wednesday's announcement.
"I've known Colin for 20 years. He and I have always had a good relationship. We have argued and debated about all sorts of things. Actually argued is a bad word. We've debated and he and I have been able to get very quickly to the same place on any issue. He was absolutely aligned on the Future Size and Shape exercise."
Eddington is used to emergency management. Having arrived at BA in May 2000 he has had to master a flabby organisation flying too many loss-making routes with rock bottom morale after the final days of Robert Ayling's empire. The onset of a punishing global slowdown, the French Concorde crash and September 11 have all happened on Eddington's watch.
"The overall strategy at BA has not changed," says Eddington. "But as ever the devil is in the detail. We are a full service, network airline focusing on profitable segments, but that no longer means to say we will fly everywhere.
"We are a British-based company that trades globally but we will never be the airline of choice between, say, Hong Kong and Taipei. We were flying there three times a week. Cathay Pacific were flying 20 times a day. Is anyone going to fly BA no matter how good our product?
"We will fly to places that make a profit or contribute to network profits but there is no sense of empire. There is no sense of us going wherever there is a 3,000 metre strip of concrete. It is not strategically important for us to fly to Gdansk and Gothenburg. If you can make money, great. If not, get out," says Eddington.
Wednesday's announcement saw BA accelerate the shrink-to-fit process started by Ayling in 1999. Costs are being slashed, with £450m taken out by March 2003. Head office costs are reducing by a third and 13,000 jobs have gone since August last year.
BA's fleet and route network continue to be simplified and reduced to the point where BA's overall capacity reduction between 1999 and 2003 will be 21 per cent, a figure anticipated well before September 11.
Gatwick is losing a further eight routes to Heathrow, four long haul and four short haul, while a further 10 routes will be axed in October. By summer next year BA's Gatwick presence will have shrunk 60 per cent since summer 1999. This year passengers will fly long haul from Gatwick on 41 different routes. By 2003 that will have shrunk to just 15.
"The mistake BA made with Gatwick was developing it as another hub and spoke airport alongside Heathrow," says Eddington. Heathrow is a hub into which European and US passengers will fly to transfer on to long-haul routes. It is closer to London than Gatwick and is the airport of choice for American business travellers.
Gatwick, with one runway, is not. Even so, BA set it up as a hub and replicated many of Heathrow's short-haul routes to generate transfer traffic. As recently as 18 months ago planes from Heathrow and Gatwick, just 20 miles round the M25 motorway, were flying to the same places on 26 short-haul routes.
"Gatwick is an important part of our network but forget about it as a hub and spoke operation," says Eddington. "Think of it as a regional airport like Manchester or Birmingham, serving the South East. BA will still do transfer traffic but it will be 25 per cent of our capacity rather than 40 per cent, although at 25 per cent that's still 10m transfer passengers a year."
Eddington's short-haul business will now concentrate on taking on the growing threat of the no-frills airlines such as Ryanair, now valued at £2.8bn compared with BA's £2bn, and Go, which Eddington sold last year for £110m.
"There is a lot to learn from the no-frills carriers," admits Eddington. "The way they use the internet to sell tickets, the simple pricing structure and the high utilisation of a single aircraft size." All these methods are being drafted into BA's new modus operandi for short haul.
But why sell Go in the first place? Surely it could have been the basis for BA's short-haul operations, particularly at Gatwick where the likes of easyJet are now muscling in. "I arrive at BA and say 'Ryanair and easyJet are eating our lunch'. What's the answer, how do we compete? Go, we own Go, that's how we compete.
"Wrong answer," says Eddington. "The real question is what do we need to do with BA short haul so it can compete with the no-frills carriers? Go simply got in the way of us making the decisions we needed to make to our core business.
"We couldn't make short haul part of Go because in order for us to set up Go in the first place the Office of Fair Trading required us to have nothing to do with its management, so how does Go help BA?"
By closing short haul and selling it to Go as another option, BA would have seen a substantial number of customers who remain no-frills refusniks simply transfer to Lufthansa or Air France instead, says Eddington.
Eddington's next big date will be May's annual results and the headline-grabbing losses. But having coped with Concorde and September 11, Eddington is not phased by red ink. "There are no easy answers but what we have to do is make sure we have a more robust core business and therefore get the cost down and simplify our operations.
"We also have to find a way of competing against the no-frills carriers, not on every route, but if we are smart we can make money."
Dynkrisolo From United States of America, joined Feb 2001, 1879 posts, RR: 7
Reply 6, posted (13 years 8 months 1 day 1 hour ago) and read 2150 times:
I really wonder how much longer Rod can last at BA. I thought he was lucky that he left Cathay before the Asian Financial Crisis that resulted in Cathay's first annual loss in decades. Then he left Ansett before Ansett went into a tailspin. Was he really lucky or did he actually seeded some of sicknesses that took some time to develop? Since joining BA, he had not turned BA around. BA is actually performing worse and worse. The contraction of the North Atlantic traffic after the Sept 11 attacks, recent rapid expansion of European low-cost carriers, and the failure of AA/BA alliance will only make his job even tougher. I think he'll be out of the door soon unless something magical happens in the next year or two.
Capt.Picard From , joined Dec 1969, posts, RR:
Reply 8, posted (13 years 8 months 1 day 1 hour ago) and read 2144 times:
Yes, I have to admit that I was in two minds about whether to post this-most of what was written, everyone already knows-and not many people are interested in BA anyway, what with the sudden explosive growth of the low-cost airlines.
I have to agree with Singapore_Air here, I'm not a terribly big fan of the Torygraph-as my nickname for it suggests, it is too conservative and obnoxious in it's reporting, for my liking.
Eddington previously refused an iterview with the Telly, and a subsequent report painted him in very bad light-now that he agrees to talk with the Telegraph, the article's obnoxious rhetoric is somewhat subdued.
I prefer the Times, but especially the Guardian, The Economist & The Indy.
Hoffa From , joined Dec 1969, posts, RR:
Reply 11, posted (13 years 8 months 1 day 1 hour ago) and read 2112 times:
Interesting, but more of a "puff piece" than an actual substantial article. Eddington is painting himself as some sort of master strategist carefully controlling the levers but the truth of the matter is the captain of BA is asleep at the wheel. His answer to long term strategic shifts is an improved website. Can it be enough? Time will tell...
Go Canada! From United Kingdom, joined Jun 2001, 2955 posts, RR: 9
Reply 13, posted (13 years 8 months 1 day ago) and read 2100 times:
sorry hoffa but i have to disagree,
rod has been blocked by Lord marhsall and the baord and chief investors will be disgusted. rod wanted a far more radicall plan, which has not occured, BA need massive restructuring and it has not occured.
What will happen is that the plans will have to wait until after Marhsall's removal, whenever that may be.
The cruix is of the matter is marhsall, not rod.
It is amazing what can be accomplised when nobody takes the credit
Eg777er From United Kingdom, joined Feb 2000, 1844 posts, RR: 13
Reply 16, posted (13 years 8 months 1 day ago) and read 2084 times:
Seeing as I have less than 0.01 of my employees in the UK (i.e. me!), can I get a favourable letter from Tony too!?
Although I agree sometimes the Telegraph can be a bit right wing (!) - an article such as 'Why I sympathise with Milosevic' - gave me a giggle last week.
However, IMHO the Telegraph provides the best political and business coverage, and that tips it for me. I know the comment in the Indy is probably better but I've tried it and the Times as a 'daily buy' and switched back to the DT after a couple of weeks. My comment I get from the Economist (CP: do you subscribe?).
The Guardian I wouldn't touch with rubber gloves.
As for Eddington - the pressure's on and it's his move.
Capt.Picard From , joined Dec 1969, posts, RR:
Reply 17, posted (13 years 8 months 21 hours ago) and read 2060 times:
Yes, I subscribe to the Economist, and I like their style very much. I guess personal preferences come into it a lot; my father actually reads the DT and that's his cup of tea-sorry, but some of the DT's commentary makes me cringe too often!
Anyway, back to the story; I don't pretend to be an airline analyst working for Commerzbank or whatever, but from what I've read/heard/seen Rod seems to be the right guy to give BA a good'ole shake-up.
Contrary to what some say, I remember reading an article somewhere stating his stints at Ansett and Cathay were actually remarkably successful-Ansett's woes started after he left-whilst he was there, he apparently succeeded in turning things around quite well; and at Cathay, he told the pilot union who was boss, and to effectively grow-up; their salaries were hitting the roof (they were overpaid, imo), and CX was in a tight spot at the time; the only reasonable and viable option was to reduce the labour costs, which he did (to the consternation of the Cathay pilots).
No, I have to say that on balance, I think he's worked quite hard so far to sort out one *huge* mass of ineffciency and bureaucracy-he's had to cope with the festering problems that Ayling created, 9-11, Concorde and the general downturn in the economy as well-he might have reduced the workforce by a little more than he did, but that always risks an unpleasant show-down with the unions.
His proposals seem quite alright to me-he might have cut a few more Euro routes out of the network than he did, but anyway. I think the press have generally been too quick to judge him-the sensible guys will wait and see what happens in about 2 years time.
About Marshall, I don't really know what the score is-I have read the stories about him not being terribly enthusiastic about the radical cuts Rod was proposing-who knows.
I still can't beleive he allowed Ayling a free hand at making a major cock-up of BA...
The AA/BA thing was a big blow, but in all fairness, it was only a good deal for those two airlines-and no one else really.
The Coachman From Australia, joined Apr 2001, 1437 posts, RR: 0
Reply 19, posted (13 years 8 months 10 hours ago) and read 1997 times:
Yes, the year Eddington started at AN, AN reported a multi-ten million dollar loss. He slowly turned it around, even in the 1997 FY, when the Asian crisis really started to hit, he had turned the airline into a $AUD43 million profit. His last year yielded a $AUD157 million profit.
I don't think that he's been the problem, in fact, it's the people after him. CX is another example.
The thing is that Eddington can't do much about taking up BA in a worsening economy and a Sept. 11 downturn and report losses. His record is sound enough, he'll try his darndest and it will probably be the members of the board who don't want radical changes when they're needed who will be to blame if he can't deliver his promise.
Ceilidh From , joined Dec 1969, posts, RR:
Reply 20, posted (13 years 8 months 10 hours ago) and read 1996 times:
Congratulations Singapore_Air ... Labour is now officially sleazier than the previous Tory governments. Any deal you want here is available ... for the right donation to party funds (after all they need it, being £12m overdrawn at present).
From yesterday's Sunday Times:
British Airways to seek new alliance with American Airlines
BRITISH AIRWAYS is planning to revive its controversial alliance with American Airlines by attempting a scaled-down version of the deal.
The two airlines withdrew their alliance application from the American government last week, but sources at BA say a request for a code-share deal is now under consideration. This would allow BA to sell seats on American’s domestic network as if they were its own.
British transport officials meet airlines this week to plot the next move in open-skies talks with the Americans. One mooted solution is a “mini-deal” that would bring about a BA/American code share and an alliance between United Airlines and BMI British Midland.
Meanwhile Rod Eddington, BA’s chief executive, has spoken of a whispering campaign against his chairman, Lord Marshall. Reports of a rift between the two, and that Marshall is under investor pressure to leave early, have angered Eddington. “There has been no disagreement between us,” he said.
Eddington added that he did not think anyone on the airline’s board was responsible for the reports. “It could be someone who used to be on the board, or it could be a former senior executive,” he said.
Martin Broughton, chairman of British American Tobacco and the senior non-executive on BA’s board, insisted last night that there had been no investor pressure for Marshall’s departure. “I have been on the board since May 2000, and the succession has been under consideration for the last year,” he said. BA said last week that Marshall would stay for two more years.
Eddington insisted that he would attack travel agents’ commission as part of his reshaping of the airline, and warned that BA was not certain of survival. “No-one has a guaranteed place in the sun,” he said. oGo, the low-cost airline spun off from BA last year, has recruited Richard Baker, deputy chief operating officer of Asda, the supermarket group, as a non-executive director.
Baker’s appointment is a feather in the cap of Barbara Cassani, Go’s chief executive, who has been seeking to bolster the airline’s board with a leading retailer.
Singapore_Air From United Kingdom, joined Nov 2000, 13754 posts, RR: 18
Reply 21, posted (13 years 8 months 9 hours ago) and read 1978 times:
The CONservatives are sleazy, not Labour. It's human psychology (not having a go at you in particular). Because something is going your way slightly, one would rather indulge in the "good" thing (in this case the Labour deal with the Indian businessman), instead of balancing it out with the fact that this is merely over-hype and a CONservative way of getting on the news to bring down the government. That's all.
Eugdog From United Kingdom, joined Apr 2001, 518 posts, RR: 0
Reply 23, posted (13 years 8 months 7 hours ago) and read 1961 times:
I think it is wrong to score cheap politicl points. If you argue the conservative are con men etc then you must back it up with evidence -BUT not on this site.
I think the changes to BA are too little too late. The real threat will come when the discount operaters began to make inroads in to their buisness traffic. Thats what keeps BA alive - every else is contribution. BA could not compete on price because their cost are too high to slash businees class tickets significantly!!
I think they should of drastically curtailed thier European operations and used the freed up slots for a seperately mananged low cost operations with no frills but with the conveiniance of Heathrow!