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British Airways PLC

British Airways PLC

Waterside, PO Box 365
Harmondsworth
Middlesex UB7 0GB
England
Telephone: (44) 20 8562 4444
Toll Free: (800) 247-9297 (U.S. only)
Fax: (44) 20 8759 4314
Web site:http://www.britishairways.com

Public Company
Incorporated:
1924 as Imperial Air Transportation, Ltd.
Employees: 65,157
Sales: £9.278 billion (US $13.151 billion) (2001)
Stock Exchanges: London New York Frankfurt Munich
Ticker Symbol: BAY (London); BAB (New York)
NAIC: 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation; 56152 Tour Operators

British Airways PLC is the largest international airline in the world. It is based at Heathrow Airport in London, the busiest international airport in the world, and has a global flight network through partners such as American Airlines in the United States and Qantas in Australia. As the United Kingdoms sole global network carrier, it transports 36 million passengers a year to approximately 268 destinations and 97 countries.

Early History: Linking the British Empire

British Airways earliest predecessor was Aircraft Transport & Travel, Ltd., founded in 1916. On August 25, 1919 this company inaugurated the worlds first scheduled international air service with a converted de Havilland 4A day bomber leaving Hounslow (later Heathrow) Airport for London and also Le Bourget in Paris. Eight days later another company, Handley Page Transport, Ltd., started a cross-channel service between Londons Cricklewood Field and both Paris and Brussels.

That same year Britains advisory committee for civil aviation proposed plans for establishing a world airline network linking Britain with Canada, India, South Africa, Australia, and New Zealand. Because airplanes capable of crossing wide stretches of water were not yet available, the committee recommended that first priority be given to a route to India and be operated by a state-assisted private enterprise.

Progress was made quickly. Before the end of the year the British government was operating a service to Karachi and had established a network of 43 Royal Air Force (RAF) landing strips throughout Africa to the Cape of Good Hope. Meanwhile, strong competition from subsidized foreign airline companies had forced many of the private British air carriers out of business. By March 1921 all British airline companies had suspended their operations. The government intervened with a pledge to keep the British companies flying, using its own form of subsidization.

In January 1923 Parliament appointed the Civil Air Transport Subsidies Committee to form a single British international air carrier from existing companies. On March 31, 1924 Daimler Airway, British Marine Air Navigation, Instone Air Line, and Handley Page merged to become Imperial Air Transport.

In 1925 Imperial Airways operated a number of European routes while it surveyed a route across the Arabian desert from Cairo to Basra in present-day Iraq. The airline was faced with a number of problems on this route. The desert was featureless, making it easy to get lost. Water stops and meteorological and radio stations were difficult to maintain. Basra was a major terminal on the route to India. However, on January 7, 1927 the Persian government forbade Britain the use of its airspace, blocking all flights to India. Negotiations reopened this airspace two years later, but not before generating a demand for longer range aircraft.

Passengers flying to India flew from London via Paris to Basel, where they boarded a train for Genoa. Next, a flying boat took them on to Alexandria, where they flew in stages to Karachi. The passage to India, previously three weeks by sea, had been reduced to one week by air.

Imperial Airways service to Calcutta was established in July 1933, to Rangoon in September, and to Singapore in December. In January of the following year, Australias Queensland and Northern Territories Air Service (Qantas) inaugurated a route linking Singapore with Brisbane. The passage to Australia could be completed in 12½ days.

A commercial service through Africa was opened in 1931 with flying boats linking Cairo with Mwanza on Lake Victoria. In April 1933 the route was extended to Cape Town, the trip from London taking 10½ days. An east-west trans-African route from Khartoum in the Sudan to Kano in northern Nigeria was established in February 1936. This route completed a world network that linked nearly all the countries of the British Empire.

The primary source of revenue on the network was not from transporting passengers but mail. Nevertheless, an increase in demand for more passenger seating and cargo space generated a need for larger airplanes. Britains primary supplier of flying boats, the Short Company, developed a new model designated the C-class, with 24 seats and weighing 18 tons. Since it had an increased range and flew 145 miles per hour, it was able to simply bypass politically difficult areas. The Short C-class went into service in October 1936. A year later Imperial Airways made its first trans-Atlantic crossing with a flying boat equipped with extra fuel tanks. It was Pan Am, however, that first scheduled a regular trans-Atlantic service, employing more sophisticated and updated Boeing airplanes.

World War II and Nationalization

Imperial Airways was formed with the intention of being Britains chosen instrument for overseas air service. On its European services, however, Imperial was competing with the British Continental airline and an aggressive newcomer called British Airways, which had been created in October 1935 by the merger of three smaller airline companies. Three months later the company acquired a fleet of Lockheed 10 Electras, which were the fastest airplanes available. The competition from British Airways threatened the chosen instrument so much that in November 1937 a Parliamentary committee proposed the nationalization and merger of Imperial and British Airways. When the reorganization was completed on November 24,1939, the British Overseas Airways Corporation (BOAC) was formed.

The creation of BOAC was overshadowed by the declaration of war on Germany the previous September. The Secretary of State for Air assumed control of all British air services, including BOAC. Within a year Italy had entered the war and France had fallen. Britains air routes through Europe had been eliminated. British flying boats, however, continued to ferry personnel and war cargo between London and West Africa with an intermediate stop at Lisbon in neutral Portugal. The air link to Khartoum maintained Britains connection to the Horseshoe Route, from Cape Town through East Africa, Arabia, India, and Singapore to Australia. When Malaysia and Singapore were invaded by the Japanese, BOAC and Qantas opened a nonstop service between Ceylon and Perth in western Australia. BOAC transported ball bearings from neutral Sweden using a route that was dangerously exposed to the German Luftwaffe. BOAC also operated a service for returning flight crews to North America after they delivered American- and Canadian-built aircraft to the Royal Air Force.

When the war ended, BOAC had a fleet of 160 aircraft and an aerial network that covered 54,000 miles. The South American destinations of BOAC were assigned to a new state-owned airline, British South American Airways (BSAA), in March 1946. Similarly, the European services were turned over to British European Airways (BEA) in August 1946. After the war, Britain reestablished its overseas services to the nations of its empire. Some of the nations that had recently gained their independence from Britain received advice (and often finance) from BOAC.

In order to remain competitive with the American airline companies, BOAC purchased Lockheed Constellations, the most advanced commercial aircraft of the day. They later added Boeing 377 Stratocruisers and Canadair Argonauts (modified DC-4s). BEA operated generally smaller airplanes and more frequent flights between the British Isles and Continental Europe. In 1948 it joined other Allied airline companies in the airlift to Berlin during the Soviet blockade.

Fleet Strategies: From the Comet to the Concorde

Following a series of equipment failures at BSAA, the Civil Aviation ministry declared that the company should reemerge with BOAC. On July 30, 1949, BSAA was absorbed by BOAC. Even though its passenger load had steadily increased, BOAC accumulated a debt of £32 million in the five years from 1946 to 1951. Much of this was due to recapitalization, or purchasing new equipment, including the British-built Handley Page Hermes and de Havillands DH Comet 1, the worlds first jetliners.

In January 1954 one of BOACs Comets exploded near Elba in the Mediterranean. Another Comet crashed near Naples only 16 days after an investigation of the first crash was concluded. As a result, the Comets certificate of airworthiness was withdrawn. An investigation determined that the Comets pressurized cabin was inadequately designed to withstand low-air pressures at altitudes over 25,000 feet. When the airplane reached that altitude it simply exploded. The cabin was strengthened and the jet reintroduced in 1958 as the DH Comet 4.

The company was forced to purchase propeller-driven DC-7s to cover equipment shortages when delivery of its Britannia turboprops was delayed in 1956. When the Comet reentered service in 1958, BOAC found itself with two undesirable fleets of aircraft, which were later sold at a loss of £51 million.

Company Perspectives:

British Airways is all about bringing people together, and taking them wherever they want to go. This applies as much to our employees as the 36 million people who travel with us every year. The travel industry is notoriously competitive, and we have certainly had our share of challenges over the past few years. We believe we now have a firm strategy in place that gives us good cause for optimism going forward.

South American operations were suspended in 1954 when the Comet was taken out of service. Operation of the route with shorter range aircraft was too costly. At the insistence of Argentina and Brazil, which claimed Britain had lost interest in South America, the routes were reopened in 1960. That same year the first of 15 Boeing 707 jetliners was delivered to BOAC.

British European Airways used a wide variety of aircraft for its operations and remained a good customer for British aircraft manufacturers. In 1964 the company accepted delivery of the first de Havilland Trident 1, a three-engine airliner capable of speeds up to 600 miles per hour. A few years later, when the company expressed an interest in purchasing a mixed fleet of Boeing 727s and 737s, it was instructed by the government to buy British instead. BEA complied, ordering BAC-11 Is and improved versions of the Trident.

BOACs cargo traffic was growing at an annual rate of 27 percent. Nevertheless, a sudden and unexplained drop in passenger traffic during 1961 left many of the worlds airline companies with excess capacity, or too many empty seats to fly profitably. At the end of the fiscal year BOACs accumulated deficit had grown to £64 million. The losses, however, were underwritten by the British government, which could not allow its flag carrier to go bankrupt.

BOAC and Air France agreed to commit funds to build a supersonic transport (SST) in 1962. In June the company became associated with the Cunard Steamship Company. A new company, BOAC-Cunard Ltd., was placed in charge of the trans-Atlantic air services in an attempt to capture a larger portion of the American travel markets.

The British government published a White Paper (a statement of government policy) that recommended a drastic reorganization of BOAC. In response, the companys chairman, Sir Matthew Slattery, and the managing director, Sir Basil Small-piece, resigned. Britains minister for aviation appointed Sir Giles Guthrie as the new chairman and chief executive officer. Under Sir Giles Guthrie BOAC suspended its unprofitable services and rescheduled its equipment purchases and debt payments. After the financial situation had improved, the company continued to purchase new equipment and expand its flight network. In April of 1967 BOAC established its second around-the-world route and opened a new cargo terminal at Heathrow.

The companys sister airline, BEA, had been paying close attention to consumer marketing for vacationers. In 1967 the company created a division called BEA Airtours Ltd., offering complete travel packages to a number of vacation spots. In May 1969 BOAC opened a passage to Japan via the North Pole. The route was shortened even farther when the Soviet Union granted BOAC landing rights in Moscow and a Siberian airlane to Tokyo.

On March 31, 1972, after six years of record profits, BOAC announced that it no longer owed any money to the government. Later, on July 17, following several recommendations on further reorganization of the state-owned airline companies, management of BEA and BOAC were coordinated under a new government agency called the British Airways Group. On April 1, 1974 the two companies were merged and renamed British Airways. A second reorganization of the internal management structure occurred in 1977.

The first British Airways Concorde was introduced in 1976. Jointly manufactured by British Aerospace and the French firm Aerospatiale, the supersonic Concorde was capable of carrying 100 passengers at the speed of 1,350 miles per hour at an altitude of 55,000 feet. A seven-hour flight from New York to London was cut nearly in half the time by the Concorde. British Airways employed additional Concordes on a number of international services, most notably London-Singapore, which was temporarily suspended through 1978 due to political difficulties.

Key Dates:

1916:
Predecessor Aircraft Transport & Travel Ltd. is founded.
1919:
The company inaugurates the worlds first scheduled international air service.
1933:
Service to India and Singapore is established.
1935:
British Airways is formed by the merger of three smaller airline companies.
1939:
British Airways and Imperial Airways are merged and nationalized to form British Overseas Airways Corporation (BOAC).
1949:
British South American Airways (BSAA) is absorbed by BOAC.
1958:
The first successful jet trans-Atlantic service is completed.
1962:
BOAC and Air France agree to commit funds to build a supersonic transport (SST).
1967:
BOAC establishes its second around-the-world route.
1974:
The company is reorganized under the British Airways name.
1976:
British Airways and Air France simultaneously inaugurate the first SST Concordes into service.
1987:
British Airways is privatized.
1987:
British Airways acquires British Caledonian (BCal).
1988:
British Airways forms a marketing alliance with United Airlines that collapses two years later.
1992:
British Airways purchases 44 percent of USAir Inc.
1997:
The company sells its stake in USAir Inc.
1998:
Oneworld global alliance is launched between British Airways, American Airlines, Qantas, Canadian Airlines, and Cathay Pacifica group that eventually grows to eight members.
2000:
British Airways London Eye observation wheel opens; 3 million people ride the wheel in its first year of operation.

Road to Privatization in the 1980s

In 1980 Prime Minister Margaret Thatcher appointed Lord (John) King as the new chairman of British Airways. His stated assignment was to prepare the airline for privatization (sale to private stockholders). Lord Kings first move was to adopt aggressive American-style marketing and management philosophies. As a result, he initiated a massive campaign to scale down the company and reduce costs. Additional unprofitable air services were terminated, and a staff reduction (begun under Lord Kings predecessor, Roy Watts) was continued. A British Airways official told Business Week magazine, we had too many staff but couldnt get rid of them because of the unions. In order to utilize the excess labor, the company was forced to remain large. Lord King established a better relationship with labor, which had become more agreeable to layoffs and revisions of work rules. In three years the workforce was reduced from 60,000 to 38,000 without a strike.

On July 11, 1983, no fewer than 50 senior executives were fired. The companys chief executive officer, Colin Marshall, hired in their place a team of younger executives (mostly with non-airline business backgrounds). The new executive staff initiated a series of programs to improve punctuality and service at the airline, whose BA acronym stood in many customers minds for Bloody Awful. They hired Landor Associates, a successful San Francisco-based design firm with considerable experience with airlines, to develop an entirely new image for British Airways. The result was controversial. The British Airways coat of arms and portion of the Union Jack on the airplanes tail fin was bound to upset the more politically temperamental countries of the third world, which the company served. The familiar Speedbird logo, which harkened back to the days of Imperial Airways, was removed despite employee petitions to retain it.

British Airways also recognized a need to replace older airplanes in its fleet with more modern and efficient equipment. The companys Lockheed TriStars were sold to the RAF for conversion into tankers, and the BAC-llls were sold because they would violate new noise regulations. British Airways leased a number of airplanes until new purchases could be made after the privatization.

The company was plagued by its decision to retain separate European and overseas divisions. The result was a perpetuation of the previous management regimes of BEA and BOAC. To rectify this problem the operation was further divided into eight regional groups involved in three different businesses: cargo, charter, and tours. Each of the eight groups was given increased autonomy and responsibility for its business and profitability.

The Laker Airways Skytrain, an initially successful cut-rate trans-Atlantic airline, was forced to close down due to what its chairman, Freddie Laker, claimed was a coordinated attack by a number of airlines to drive the company into bankruptcy. Laker charged the companies, which included British Airways, with violations of antitrust laws. He later settled out of court for £48 million, but in a subsequent civil suit British Airways was also required to issue travel coupons to passengers who claimed they were hurt by the collapse of Laker Airways.

Ironically, in the mid-1980s the company began advocating the deregulation of European airlines in the belief that it could compete more effectively than its rivals. Air France and Lufthansa in particular were reluctant to participate, claiming that deregulation would endanger the delicate market balance which took so many years to establish.

In 1985 British Airways was made a public limited company, but its stock was retained by the government until such time that it could be offered to the public. The privatization of British Airways (which was limited to a 51 percent sale) was delayed by a number of problems. The companys chief domestic rival, British Caledonian, opposed British Airways privatization, claiming that the company already controlled 80 percent of the domestic market and was too large to compete against. But British Airways most significant obstacle to privatization involved reducing the debt that it accumulated during the 1970s, and increasing the companys profitability. In February 1987 the privatization was finally consummated when 720.2 million shares of British Airways stock were sold to the public for one billion pounds (US $1.47 billion).

Poised for International Growth: Acquisitions and Alliances

British Caledonian, or BCal, was formed in 1970 through the merger of Caledonian Airways and British United Airways. For many years, BCal was British Airways only large domestic competitor, fighting vigorously under the direction of Sir Adam Thompson for more favorable operating rights from the British government. When Britains Civil Aviation Authority recommended the reallocation of British Airways routes to BCal in 1984, Lord King threatened to resign. Instead, British Airways was instructed to trade its profitable Middle East routes for some of BCals less profitable Latin American destinations. The Middle Eastern routes became much less popular during 1986 as a result of regional tensions and falling oil prices. BCal, which had been generating a fair profit, started to lose money and was faced with bankruptcy.

In July 1987 British Airways acquired BCal for £237 million in stock. The new airline had almost 200 aircraft, and by combining British Airways 560,000-kilometer-route structure with BCals unduplicated 110,000-kilometer network, now formed one of the largest airline companies in the world. Several smaller independent British airline companies unsuccessfully challenged the BA/BCal merger on the grounds that the new company would dominate both Londons Heathrow and Gatwick Airports, forcing them to relocate to the less accessible and underdeveloped field at Stansted.

With its dominance of the home market secure for the time being, British Airways aggressively expanded in Europe, North America, and the Pacific Rim over the next several years, aiming to become a global airline. Its first foray into the lucrative U.S. market came in 1988 when it formed a marketing alliance with United Airlines designed to feed customers from one carrier to the other and vice versa. This partnership set the pattern for British Airways expansionit would not be based on forming new airlines outside England or acquiring them, but rather through strategic alliances. Nevertheless, this first partnership collapsed a little more than two years later when United became a direct competitor to British Airways once it had gained access to Heathrow in 1991, along with American Airlines. The two strongest airlines in the United States had purchased the Heathrow rights from the floundering Pan Am and TWA, immediately increasing competition in British Airways home market.

While the alliance with United was still operating, British Airways suffered losses in Europe in 1990 and 1991 because of the Gulf crisis in the Middle East. Shortly after, in July 1991, it entered into an alliance with Aeroflot in Russia to create a new airline called Air Russia. After several false starts over the next few years, this venture never got off the ground. Additional proposed alliances failed for assorted other reasons. Officials from British Airways and KLM Royal Dutch Airlines held merger discussions in 1991 and 1992, but talks broke down over the valuation of the two firms. Later in 1992 British Airways attempted to purchase 44 percent of US Air Inc. for $750 million. American, United, and Delta Air Lines (the U.S. Big Three) vigorously lobbied against the deal and demanded enhanced access to the British market if the deal was to be approved by the U.S. government. In December the US Air purchase was blocked.

That same month the first in a string of alliances was struck when the airline paid £450 million for 25 percent of Qantas, the Australia-based international airline. British Airways next acquired a 49.9 percent stake in the leading French independent carrier TAT European Airlines, and later launched a start-up in Germany called Deutsche BA with 49 percent ownership. Through these alliances, British Airways enhanced its position in the Pacific Rim and Europe. It now refocused its attention across the Atlantic where it restructured an offer for a piece of USAir into a $400 million purchase of 25 percent of the company. This alliance received U.S. government approval. The government also approved a code-sharing arrangement that enabled the partners to offer their customers a seamless operation when they use both airlines to reach their destination.

While all this dealmaking was going on abroad, British Airways faced an embarrassing and potentially costly fight at home with Richard Bransons upstart Virgin Atlantic Airlines. Since starting operations in the early 1980s, Virgin had made some inroads against British Airways primarily by focusing on customer service, something Bloody Awful BA had neglected for years. Branson filed suit against British Airways in 1991 alleging that British Airways had smeared Branson and his airline and conducted dirty tricks such as spreading rumors about Virgins insolvency. In 1993 the suit was settled out of court with British Airways offering a public apology and paying £500,000 to Branson and £110,000 to Virgin. The case also led to the resignation of Lord King. Second-in-command Colin Marshall took over as chairman. Further litigation followed between the two rivals, most seriously a $1 billion antitrust suit brought by Virgin in the United States. Various suits damaged British Airways reputation and led to comments such as the following from the Economist: BA now looks like an anxious, overbearing giant trying to squash a feisty little rival.

With its Virgin difficulties continuing, British Airways overseas partners suffered huge losses: in 1993 Qantas lost $271 million, while in 1994 TAT lost $60 million and USAir lost $350 million. The situation at USAir was so grim that British Airways declared that they would hold back an additional $450 million investment in the firm until the carrier reestablished itself in the black. The alliance continued to deteriorate and in pursuit of more promising partnerships, British Airways eventually sold its stakes in USAir in 1997.

As it approached the long-awaited 1997 deregulation of the European airline industry, British Airways was on solid ground. In the process of becoming one of the largest airlines in the world, it had also managed to remain one of the most profitable.

In mid-1996 British Airways announced plans for a broad alliance with American Airlines. Under this plan, the two carriers would coordinate schedules and pricing, code-share (sell seats) and more importantly, share profits and revenues. Together they submitted a joint application to the U.S. Department of Transportation requesting approval of the proposed venture and granting antitrust immunity. Their plan was vehemently attacked by competitors on the basis that it would permit the two airlines to monopolize cross-Atlantic traffic between Heathrow and the U.S. Both airlines had, in fact, previously refused to relinquish takeoff and landing slots at Heathrow; combined, they would control 85 percent of the peak takeoff slots in the largest single aviation market in the world. Intermittent negotiations and attempts to secure antitrust immunity continued into 2001, with both airlines struggling to agree on terms more conducive to an open skies agreement between the two countries. Competitors United Airlines and Lufthansa had already secured antitrust immunity and had prospered from open skies between the U.S. and Germany. Air France and Delta Airlines now threatened to beat British Airways and American to the punch.

Separately, the Oneworld alliance formed in 1998 by British Airways and a group of others eventually became one of the most successful. Officially launched in February 1999 by British Airways, American Airlines, Qantas, Canadian Airlines, and Cathay Pacific, it provided an interchangeable network for frequent fliers to claim rewards. The group eventually grew to eight members and 23 affiliates by 2001, and collectively served more than 200 million passengers in 133 countries with 566 destinations.

British Airways continued to expand its network through a combination of new routes, code-sharing agreements, and franchise partnerships with both domestic and international carriers. By 2001 it had acquired CityFlyer Express and British Regional Airlines Group (BRAL), and a 9 percent stake in Spains Iberia Airlines.

On the Brink: Preparing for Industry Consolidation and a Global Future

Starting in the mid-1990s, British Airways began investing in advanced information technologies to build a virtual airline to expedite ticketing, scheduling, and customer service functions. It also began outsourcing non-core operations that had been previously overstaffedground transport services, in-flight catering, and heavy-engine maintenanceto reduce costs and allow the company to refocus squarely on operating its air network. The outsourcing measures frustrated industrial relations and failed to significantly reduce employee numbers. Further, industry analysts speculated that the airline would be more vulnerable to an economic downturn because it would no longer have secondary sources of revenue to offset the accompanying downturn in air travel revenues. Not surprisingly, when the air travel market slowed in 1998, British Airways net profits of $330 million dropped precipitously to $34 million.

Declining profitability during the late 1990s led the airline to concentrate on the premium market for business travelers. By combining fleet and network changes, it could increase the number of business passengers, lower costs, and cater to a more profitable section of the market.

Tapped for the role of chief executive in May 2000, Rod Eddington set out to reduce exposure in unprofitable and non-core areas, selling stakes in Air Liberté and even placing its own no-frills carrier, Go (launched only in 1998), on the market. Plans to build Gatwick into a second international hub were abandoned. Instead, unprofitable routes were suspended and key longhaul routes were relocated to Heathrow. Smaller aircraft, specifically Boeing 777s, would replace the older, larger aircraft and play a major role in a new fleet strategy. With bigger business travel sections, each new aircraft could seat a greater number of premium business travelers and help cut excess capacity. It was anticipated that by 2002 more than half of British Airways fleet would consist of Boeing 777s.

In an effort to create a more appealing environment for its premium business travelers, British Airways invested in costly product and service enhancements. These included passenger seats that expanded into six-foot flat beds for in-flight sleeping; new state-of-the-art, in-flight entertainment; and modernized airport lounges with an upscale look and feel.

A veteran of Cathay Pacific and Ansett, Eddingtons approach improved both operations and morale. During his first year, the airline faced a number of adversities. Following a tragic Air France Concorde accident in Paris in 2000, British Airways entire Concorde fleet was grounded. In addition, foot-and-mouth disease caused a serious decline in travel and tourism in England, and rising oil prices doubled fuel prices.

A small highlight of 2000, the British Airways London Eye observation wheel opened in London. The London Eye, billed as the worlds highest observation wheel, offers passengers panoramic views of the city from 450 feet above the river Thames. During the wheels first year of operation, 3 million people rode.

By early 2001, the British Airways fleet and product strategy appeared to be working. Two positive trends had emerged: premium business traffic was on the rise and costs were on the decline. Pretax profits in 2000-2001 amounted to £145 million, a marked improvement over the previous years £5 million. The impact of the U.S. economic slowdown remained to be determined, though, and the airline faced difficult conditions in both passenger and cargo markets. British Airways fleet of seven Concordes was expected to return to service after a full year of safety modifications and further comfort upgrades. However, the terrorist attacks in New York City and Washington, D.C., in September 2001, added new levels of financial stress and uncertainty to the travel and airline industries.

European airlines found themselves on the brink of momentous change in 2001. The potential for industry-wide consolidation had begun to fuel discussions of cross-border allianceseven cross-border mergersthat would be necessary to survive the ensuing instability. British Airways was certain to take aggressive action in staking a claim. In June 2001, it resumed talks with KLM for a £5 billion merger between the two, which could create the worlds third-largest airline. Chief Executive Eddington vowed to continue pressing European regulatory authorities to allow the cross-border consolidation process, declaring [Consolidation] is a lengthy process (it took 30 years in the United States), but it is both inevitable and necessary if were to develop our position in the long-term. And I intend that British Airways will be in the vanguard of that process.

Principal Subsidiaries

Air Miles Travel Promotions Ltd.; BA & AA Holdings Ltd. (90.0%); Bedford Associates Inc.; Britair Holdings Ltd.; British Airways Capital Ltd. (89.0%); British Airways (European Operations at Gatwick) Ltd.; British Airways Finance B.V.; British Airways Holdings Ltd.; British Airways Holidays Ltd.; British Airways Maintenance Cardiff Ltd.; British Airways Regional Ltd.; British Airways Travel Shops Ltd.; British Asia Airways Ltd.; City Flyer Express Ltd.; Deutsche BA Luftfahrgesellschaft GmbH; Go Fly Limited; Speedbird Insurance Company Ltd.; The Plimsoll Line Ltd.; World Network Services Pvt Ltd.; Concorde International Travel Pty Ltd. (50.0%).

Principal Competitors

Deutsche Lufthansa AG; Societe Air France; American Airlines; KLM Royal Dutch Airlines; Singapore Airlines Limited; Scandinavian Airlines System; Swissair Group; Japan Airlines Company, Ltd.; UAL Corporation (United Airlines); Virgin Atlantic Airways Limited.

Further Reading

Antitrust Implications: The British Airways-American Airlines Alliance, U.S. Senate Subcommittee on Antitrust, Business Rights, and Competition of the Committee on the Judiciary, 105th Congress, 1st session, April 22, 1997, p. 342.

Banks, Howard, The Rise and Fall of Freddie Laker, London: Faber, 1982, p. 155.

Campbell-Smith, Duncan, The British Airways Story: Struggle for Take-Off, London: Hodder and Stoughton, 1986, p. 327.

Corke, Alison, British Airways: The Path to Profitability, New York: St. Martins Press, 1986, p. 145.

Doganis, Rigas, The Airline Business in the Twenty-First Century, New York: Routledge, 2001, p. 256.

Done, Kevin, BA and American Joint Venture Plan Faces Criticism, Financial Times, July 23, 2001, p. 14.

Done, Kevin, and Mark Odell, BA and American Under Pressure on Joint Venture, Financial Times, posted July 30, 2001, http://www.newsft.com.

Dwyer, Paula, Air Raid: British Airs Bold Global Push, Business Week, August 24, 1992, pp. 54-60.

Dwyer, Paula, and Keith L. Alexander, Sky Anxiety: Faltering Partners Are Shaking British Airways Strategy of Global Alliances, Business Week, March 21, 1994, p. 38.

Gurassa, Charles, BA Stood for Bloody Awful, Across the Board, January 1995, pp. 55-56.

Kindel, Stephen, Economies of Scope, Financial World, September 14, 1993, pp. 42-43.

Lynn, Matthew, Battle of the Atlantic, Management Today, November 1991, p. 48.

Palmer, Jay, The British Are Coming: By Slashing Costs, Selling Comfort and Forging Alliances, British Airways Has Made Itself a Contender in the Battle to Rule the Skies, Barrons, December 12, 1994, pp. 29-34.

Penrose, Harald, Wings Across the World: An Illustrated History of British Airways, London: Cassell, 1980, p. 304.

Simensen, Ivar M., BA, KLM Seen Back in Merger Talks, Financial Times MarketWatch, posted June 10, 2001, http://www.newsft.com.

Wada, Isae, Going Global: BA Chief Executive Outlines Carriers Expansion Plans, Travel Weekly, September 6, 1990, pp. 1-3.

We Are Flying into Turbulence, Economist, March 4, 1995, pp. 64-66.

updates: David E. Salamie, Suzanne Selvaggi

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British Airways PLC

British Airways PLC

P.O. Box 10
Speedbird House
Heathrow Airport
Hounslow, Greater London TW6 2JA
England
81 759-5511
Fax: 81 897-1889

Public Company
Incorporated:
1924 as Imperial Air Transportation, Ltd.
Employees: 50,060
Sales: £7.177 billion (US$9.78 billion)
Stock Exchanges: London
SICs: 4500 Transportation by Air; 4725 Tour Operators

British Airways PLC is the largest international airline in the world. It is based at Heathrow Airport in London, the busiest international airport in the world, and has a global flight network through such partners as USAir in the United States, Qantas in Australia, and TAT European Airlines in France. Via its own operations and those of its alliance partners, British Airways serves 95 million passengers a year using 441 airports in 86 countries and more than 1,000 planes.

British Airways earliest predecessor was Aircraft Transport & Travel, Ltd., founded in 1916. On August 25, 1919 this company inaugurated the worlds first scheduled international air service, with a converted de Havilland 4A day bomber leaving Hounslow (later Heathrow) Airport for London and also Le Bourget in Paris. Eight days later another company, Handley Page Transport, Ltd., started a cross-channel service between Londons Cricklewood Field and both Paris and Brussels.

That same year Britains advisory committee for civil aviation proposed plans for establishing a world airline network linking Britain with Canada, India, South Africa, Australia, and New Zealand. Because airplanes capable of crossing wide stretches of water were not yet available, the committee recommended that first priority be given to a route to India operated by state-assisted private enterprise.

Progress was made quickly. Before the end of the year the British government was operating a service to Karachi and had established a network of 43 Royal Air Force (RAF) landing strips through Africa to the Cape of Good Hope. Meanwhile, strong competition from subsidized foreign airline companies had forced many of the private British air carriers out of business. By March 1921 all British airline companies had suspended their operations. The government responded with a pledge to keep the British companies flying, using its own form of subsidization.

In January 1923 Parliament appointed the Civil Air Transport Subsidies Committee to form a single British international air carrier from existing companies. On March 31, 1924 the Daimler Airway, British Marine Air Navigation, Instone Air Line, and Handley Page merged to become Imperial Air Transport.

In 1925 Imperial Airways operated a number of European routes while it surveyed a route across the Arabian desert from Cairo to Basra in present-day Iraq. The airline was faced with a number of problems on this route. The desert was featureless, making it easy to get lost. Water stops and meteorological and radio stations were difficult to maintain. Basra was a major terminal on the route to India. However, on January 7, 1927 the Persian government forbade Britain the use of its airspace, blocking all flights to India. Negotiations reopened the airspace two years later, but not before generating a demand for longer range aircraft.

Passengers flying to India flew from London via Paris to Basel, where they boarded a train for Genoa. A flying boat then took them on to Alexandria, where they flew in stages to Karachi. The passage to India, previously three weeks by sea, had been reduced to one week by air.

Imperial Airways service to Calcutta was established in July 1933, to Rangoon in September, and to Singapore in December. In January of the following year the Australias Queensland and Northern Territories Air Service (Qantas) inaugurated a route linking Singapore with Brisbane. The passage to Australia could be completed in twelve-and-a-half days.

A commercial service through Africa was opened in 1931 with flying boats linking Cairo with Mwanza on Lake Victoria. In April 1933 the route was extended to Cape Town, the trip from London taking ten-and-a-half days. An east-west trans-African route from Khartoum in the Sudan to Kano in northern Nigeria was established in February 1936. This route completed a world network which linked nearly all the countries of the British Empire.

The primary source of revenue on the network was not from transporting passengers but mail. Nevertheless, an increase in demand for more passenger seating and cargo space generated a need for larger airplanes. Britains primary supplier of flying boats, the Short Company, developed a new model, designated the C-class, with 24 seats and weighing 18 tons. Since it had an increased range and flew 145 miles per hour, it was able to simply bypass politically difficult areas. The Short C-class went into service in October 1936. A year later Imperial Airways made its first trans-Atlantic crossing with a flying boat equipped with extra fuel tanks. However, it was Pan Am, with more sophisticated and updated Boeing airplanes, which was first to schedule a regular trans-Atlantic service.

Imperial Airways was formed with the intention of being Britains chosen instrument for overseas air service. On its European services, however, Imperial was competing with the British Continental airlines and an aggressive newcomer called British Airways. British Airways was created in October 1935 by the merger of three smaller airline companies. Three months later the company acquired a fleet of Lockheed 10 Electras which were the fastest airplanes yet available. The competition from British Airways threatened the chosen instrument so much that in November 1937 a Parliamentary committee proposed the nationalization and merger of Imperial and British Airways. When the reorganization was completed on November 24, 1939, the British Overseas Airways Corporation (BOAC) was formed.

The creation of BOAC was overshadowed by the declaration of war on Germany the previous September. The Secretary of State for Air assumed control of all British air services, including BOAC. Within a year Italy had entered the war and France had fallen. Britains air routes through Europe had been eliminated. British flying boats, however, continued to ferry personnel and war cargo between London and West Africa with an intermediate stop at Lisbon in neutral Portugal. The air link to Khartoum maintained Britains connection to the Horseshoe Route, from Cape Town through East Africa, Arabia, India, and Singapore to Australia. When Malaya and Singapore were later invaded by the Japanese, BOAC and Qantas opened a nonstop service between Ceylon and Perth in Western Australia. BOAC transported ball bearings from neutral Sweden using a route which was dangerously exposed to the German Luftwaffe. BOAC also operated a service for returning flight crews to North America after they delivered American- and Canadian-built aircraft to the Royal Air Force.

When the war ended BOAC had a fleet of 160 aircraft and an aerial network that covered 54,000 miles. The South American destinations of BOAC were assigned to a new state-owned airline, British South American Airways (BSAA), in March 1946. Similarly, the European services were turned over to British European Airways (BEA) on August 1, 1946. After the war Britain reestablished its overseas services to the nations of its empire. Some of the nations which had recently gained their independence from Britain received advice (and often finance) from BOAC.

In order to remain competitive with the American airline companies, BOAC purchased Lockheed Constellations, the most advanced commercial aircraft of the day. They were later joined by Boeing 377 Stratocruisers and Canadair Argonauts (modified DC-4s). BEA operated generally smaller airplanes and more frequent flights between the British Isles and Continental Europe. In 1948 it joined other Allied airline companies in the airlift to Berlin during the Soviet blockade.

Following a series of equipment failures at BSAA, the Civil Aviation ministry declared that the company should reemerge with BOAC. On July 30, 1949, BSAA was absorbed by BOAC. Even though its passenger load had steadily increased, BOAC accumulated a debt of £32 million in the five years from 1946 to 1951. Much of this was due to recapitalization, or purchasing new equipment; the British-built Handley Page Hermes and de Havillands DH Comet 1, the worlds first jetliners, were delivered to BOAC.

In January 1954 one of BOACs Comets exploded near Elba in the Mediterranean. Another Comet crashed near Naples only 16 days after an investigation of the first crash was concluded. As a result, the Comets certificate of airworthiness was withdrawn and a full investigation was ordered. In the final report it was determined that the Comets pressurized cabin was inadequately designed to withstand low air pressures at altitudes over 25,000 feet. When the airplane reached that altitude it simply exploded. The cabin was strengthened and the jet reintroduced in 1958 as the DH Comet 4.

The company was forced to purchase propeller-driven DC-7s to cover equipment shortages when delivery of its Britannia turbo-props was delayed in 1956. When the Comet reentered service BOAC found itself with two undesirable fleets of aircraft which were later sold at a loss of £51 million ($122 million).

South American operations were suspended in 1954 when the Comet was taken out of service. Operation of the route with shorter range aircraft was too costly. At the insistence of Argentina and Brazil, which claimed Britain had lost interest in South America, the routes were reopened in 1960. That same year the first of 15 Boeing 707 jetliners was delivered to BOAC.

British European Airways used a wide variety of aircraft for its operations and remained a good customer for British aircraft manufacturers. In 1964 the company accepted delivery of the first de Havilland Trident 1, a three-engine airliner capable of speeds up to 600 miles per hour. A few years later, when the company expressed an interest in purchasing a mixed fleet of Boeing 727s and 737s, it was instructed by the government to buy British instead. BEA complied, ordering BAC-11 Is and improved versions of the Trident.

BOACs cargo traffic was growing at an annual rate of 27 percent. Nevertheless, a sudden and unexplained drop in passenger traffic during 1961 left many of the worlds airline companies with excess capacity, or too many empty seats to fly profitably. At the end of the fiscal year BOACs accumulated deficit had grown to £64 million. The losses, however, were underwritten by the British government, which could not allow its flag carrier to go bankrupt.

BOAC and Air France agreed to commit funds for the buildings of a supersonic transport (SST) in 1962. In June the company became associated with the Cunard Steamship Company. A new company, BOAC-Cunard Ltd., was placed in charge of the trans-Atlantic air services in an attempt to capture a larger portion of the American travel markets.

The British government published a White Paper (a statement of government policy) which recommended a drastic reorganization of BOAC. In response, the companys chairman, Sir Matthew Slattery, and the managing director, Sir Basil Smallpiece, resigned. Britains minister for aviation appointed Sir Giles Guthrie as the new chairman and chief executive officer. Under Sir Giles BOAC suspended its unprofitable services and rescheduled its equipment purchases and debt payments. After the financial situation had improved, the company continued to purchase new equipment and expand its flight network. In April of 1967 BOAC established its second around-the-world route and opened a new cargo terminal at Heathrow.

The companys sister airline, BEA, had been paying close attention to consumer marketing for vacationers. In 1967 the company created a division called BEA Airtours Ltd., offering complete travel packages to a number of vacation spots. In May 1969 BOAC opened a passage to Japan via the North Pole. The route was shortened even further when the Soviet Union granted BOAC landing rights in Moscow and a Siberian airlane to Tokyo.

On March 31, 1972, after six years of record profits, BOAC announced that it no longer owed any money to the government. Later, on July 17, following several recommendations on further reorganization of the state-owned airline companies, management of BEA and BOAC were coordinated under a new government agency called the British Airways Group. On April 1, 1974 the two companies were merged and renamed British Airways. A second reorganization of the internal management structure took place in 1977.

The first British Airways Concorde was introduced in 1976. Jointly manufactured by British Aerospace and the French firm Aerospatiale, the supersonic Concorde was capable of carrying 100 passengers at the speed of 1,350 miles per hour at an altitude of 55,000 feet. A seven-hour flight from New York to London was nearly reduced to half the time by the Concorde. British Airways employed additional Concordes on a number of international services, most notably London-Singapore, which was temporarily suspended through 1978 due to political difficulties.

In 1980 Prime Minister Margaret Thatcher appointed Lord (John) King as the new chairman of British Airways. His stated assignment was to prepare the airline for privatization (sale to private stockholders). Lord Kings first move was to adopt aggressive American-style marketing and management philosophies. As a result, he initiated a massive campaign to scale down the company and reduce costs. More unprofitable air services were terminated, and a staff reduction (begun under Lord Kings predecessor, Roy Watts) was continued. A British Airways official told Business Week magazine that, we had too many staff but couldnt get rid of them because of the unions. In order to utilize the excess labor, the company was forced to remain large. Lord King established a better relationship with labor, which had become more agreeable to layoffs and revisions of work rules. In three years the work force was reduced from 60,000 to 38,000 without a strike.

On July 11, 1983, no fewer than 50 senior executives were fired. The companys chief executive officer, Colin Marshall, hired in their place a team of younger executives (mostly with nonairline business backgrounds). The new executive staff initiated a series of programs to improve punctuality and service at the airline, whose BA acronym stood in many customers minds for Bloody Awful. They hired Landor Associates, a successful San Francisco-based design firm with considerable experience with airlines, to develop an entirely new image for British Airways. The result was controversial. The British Airways coat of arms and portion of the Union Jack on the airplanes tail fin was bound to upset the more politically temperamental countries of the third world which the company serves. The familiar Speedbird logo which dates back to the days of Imperial Airways was removed despite employee petitions to retain it.

British Airways also recognized a need to replace older airplanes in its fleet with more modern and efficient equipment. The companys Lockheed TriStars were sold to the RAF for conversion into tankers, and the BAC-111s were sold because they would violate new noise regulations. British Airways leased a number of airplanes until new purchases could be made after the privatization.

The company was plagued by its decision to retain separate European and overseas divisions. The result was a perpetuation of the previous management regimes of BEA and BOAC. To rectify this problem the operation was further divided into eight regional groups involved in three different businesses: cargo, charter, and tours. Each of the eight groups has increased autonomy and responsibility for its business and profitability.

The Laker Airways Skytrain, an initially successful cut-rate trans-Atlantic airline, was forced to close down due to what its chairman, Freddie Laker, claimed was a coordinated attack by a number of airlines to drive the company into bankruptcy. Laker charged the companies, which included British Airways, with violations of antitrust laws. He later settled out of court for $48 million, but in a subsequent civil suit British Airways was also required to issue travel coupons to passengers who claimed they were hurt by the collapse of Laker Airways.

Ironically, in the mid-1980s the company began advocating the deregulation of European air fares in the belief that it could compete more effectively than its rivals. But Air France and Lufthansa in particular were reluctant to participate, claiming that deregulation would endanger the delicate market balance which took so many years to establish.

In 1985 British Airways was made a public limited company, but all its stock was retained by the government until such time that it could be offered to the public. The privatization of British Airways (which was limited to a 51 percent sale) was delayed by a number of problems. The companys chief domestic rival, British Caledonian, opposed British Airways privatization claiming that the company already controlled 80 percent of the domestic market and was too large to compete against. But British Airways most significant obstacle to privatization involved reducing the debt that it accumulated during the 1970s, and increasing the companys profitability. In February 1987 the privatization was finally consummated when 720.2 million shares of British Airways stock were sold to the public for one billion pounds ($1.47 billion).

British Caledonian, or BCal, was formed in 1970 through the merger of Caledonian Airways and British United Airways. For many years, BCal was British Airways only large domestic competitor, fighting vigorously under the direction of Sir Adam Thompson for more favorable operating rights from the British government. When Britains Civil Aviation Authority recommended the reallocation of British Airways routes to BCal in 1984, Lord King threatened to resign. Instead, British Airways was instructed to trade its profitable Middle East routes for some of BCals less profitable Latin American destinations. The Middle Eastern routes became much less popular during 1986 as a result of regional tensions and falling oil prices. BCal, which had been generating a fair profit, started to lose money and was faced with bankruptcy.

In July 1987 British Airways acquired BCal for £237 million in stock. The new airline had almost 200 aircraft, and combined British Airways 560,000-kilometer route structure with BCals largely unduplicated 110,000-kilometer network, forming one of the largest airline companies in the world. Several smaller independent British airline companies unsuccessfully challenged the BA/BCal merger on the grounds that the new company would dominate both Londons Heathrow and Gatwick airports, forcing them to relocate to the less accessible and underdeveloped field at Stansted.

With its dominance of the home market secure for the time being, British Airways aggressively expanded in Europe, North America, and the Pacific Rim over the next several years, aiming to become a global airline. Its first foray into the lucrative U.S. market came in 1988 when it formed a marketing alliance with United Airlines designed to feed customers from one carrier to the other and vice versa. This partnership set the pattern for British Airways expansionit would not be based on forming new airlines outside England or acquiring them, but rather through strategic alliances. Nevertheless, this first partnership collapsed a little more than two years later when United became a direct competitor to British Airways once it had gained access to Heathrow in 1991, along with American Airlines. The two strongest airlines in the United States had purchased the Heathrow rights from the floundering Pan Am and TWA, immediately increasing competition in British Airways home market.

While the alliance with United was still operating, British Airways suffered losses in Europe in 1990 and 1991 because of the Gulf crisis in the Mideast. Shortly after, in July 1991, it entered into an alliance with Aeroflot in Russia to create a new airline called Air Russia. After several false starts over the next few years, this venture never got off the ground. Additional proposed alliances failed in 1992 for other reasons. Officials from British Airways and KLM Royal Dutch Airlines held extensive discussions about a merger in 1991 and 1992, but talks broke down over the valuation of the two firms. Later in 1992, British Airways attempted to purchase 44 percent of USAir Inc. for $750 million. American, United, and Delta Air Lines (the U.S. Big Three) vigorously lobbied against the deal and demanded enhanced access to the British market if the deal was to be approved by the U.S. government. In December the purchase was blocked.

That same month the first in a string of alliances was struck when the airline paid $450 million for 25 percent of Qantas, the Australia-based international airline. In 1993, British Airways gained a 49.9 percent stake in the leading French independent carrier TAT European Airlines, then launched a start-up in Germany called Deutsche BA with 49 percent ownership. Through these alliances, British Airways had enhanced its position in the Pacific Rim and Europe. It now refocused its attention across the Atlantic where it restructured its offer for a piece of USAir into a $400 million purchase of 25 percent of the company. This alliance received U.S. government approval. The government also approved a code-sharing arrangement that enabled the partners to offer their customers a seamless operation when they use both airlines to reach their destination.

While all this dealmaking was going on abroad, British Airways faced an embarrassing and potentially costly fight at home with Richard Bransons upstart Virgin Atlantic Airlines. Since starting operations in the early 1980s, Virgin had made some inroads against British Airways primarily by focusing on customer service, something Bloody Awful BA had neglected for years. Branson filed suit against British Airways in 1991 alleging that British Airways had smeared Branson and his airline and conducted dirty tricks such as spreading rumors about Virgins insolvency. In 1993 the suit was settled out of court with British Airways offering a public apology and paying £500,000 to Branson and £110,000 to Virgin. The case also led to the resignation of Lord King. Second-in-command Colin Marshall took over as chairman. Further litigation followed between the two rivals, most seriously a $1 billion antitrust suit brought by Virgin in the United States. Various suits damaged British Airways reputation and led to comments such as the following from the Economist: BA now looks... like an anxious, overbearing giant trying to squash a feisty little rival.

With its Virgin difficulties continuing, British Airways overseas partners suffered huge losses: in 1993 Qantas lost $271 million, while in 1994 TAT lost $60 million and USAir lost $350 million. The situation at USAir was so grim that British Airways declared that they would hold back an additional $450 million investment in the firm until the carrier was in the black. In May 1995 British Airways was forced to take a $200 million charge to write down the value of its USAir investment.

Even though British Airways was struggling with its alliance strategy, the real test of its global strategy lay ahead with the long-awaited 1997 deregulation of the European airline industry. It approached that date as one of the most profitable airlines in the world, despite the faltering alliances, and had been in the black every year since privatization.

Principal Subsidiaries

British Airways Capital Ltd. (89%); British Airways Finance BV; British Airways Holidays Ltd.; Caledonian Airways Ltd.; Qantas Airways Ltd. (25%, Australia); TAT European Airlines S.A. (49.9%, France); Deutsche BA L.m.b.H. (49%, Germany); Air Russia (31%); Bedford Associated, Inc. (U.S.); British Airways (U.S.); Galileo International Partnership (14.6%, U.S.); USAir Group, Inc. (24.6%, U.S.).

Further Reading

Banks, Howard, The Rise and Fall of Freddie Laker, London: Faber, 1982, 155 p.

Campbell-Smith, Duncan, The British Airways Story: Struggle for Take-Off, London: Hodder and Stoughton, 1986, 327 p.

Corke, Alison, British Airways: The Path to Profitability, New York: St. Martins Press, 1986, 145 p.

Dwyer, Paula, Air Raid: British Airs Bold Global Push, Business Week, August 24, 1992, pp. 54-60.

Dwyer, Paula, and Keith L. Alexander, Sky Anxiety: Faltering Partners Are Shaking British Airwaysstrategy of Global Alliances, Business Week, March 21, 1994, p. 38.

Gurassa, Charles, BA Stood for Bloody Awful, Across the Board, January 1995, pp. 55-56.

Kindel, Stephen, Economies of Scope, Financial World, September 14, 1993, pp. 42-43.

Lynn, Matthew, Battle of the Atlantic, Management Today, November 1991, p. 48.

Palmer, Jay, The British Are Coming: By Slashing Costs, Selling Comfort and Forging Alliances, British Airways Has Made Itself a Contender in the Battle to Rule the Skies, Barrons, December 12, 1994, pp. 29-34.

Penrose, Harald, Wings Across the World: An Illustrated History of British Airways, London: Cassell, 1980, 304 p.

Wada, Isae, Going Global: BA Chief Executive Outlines Carriers Expansion Plans, Travel Weekly, September 6, 1990, pp. 1-3.

We Are Flying into Turbulence, Economist, March 4, 1995, pp. 64-66.

updated by David E. Salamie

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British Airways Plc

British Airways Plc

P.O. Box 10
Speedbird House
Heathrow Airport
Hounslow, Middlesex TW6 2JA
England
01-759-5511

Public Limited Company
Incorporated: March 31, 1924 as Imperial Air
Transportation, Ltd.
Employees: 36,500
Sales: £3.149 billion (US$ 4.723 billion)
Market value: £482 million (US$ 723 million)
Stock Index: London

British Airways earliest predecessor was Aircraft Transport & Travel, Ltd., founded in 1916. On August 25, 1919 this company inaugurated the worlds first scheduled international air service, with a converted de Havilland 4A day bomber leaving Hounslow (later Heathrow) Airport for London and also Le Bourget in Paris. Eight days later another company, Handley Page Transport, Ltd., started a cross-channel service between Londons Cricklewood Field and both Paris and Brussels.

That same year Britains advisory committee for civil aviation proposed plans for establishing a world airline network linking Britain with Canada, India, South Africa, Australia and New Zealand. Due to the fact that airplanes capable of crossing wide stretches of water were not yet available, the committee recommended that first priority be given to a route to India operated by state-assisted private enterprise.

Progress was made quickly. Before the end of the year the British government was operating a service to Karachi and had established a network of 43 Royal Air Force (RAF) landing strips through Africa to the Cape of Good Hope. Meanwhile, strong competition from subsidized foreign airline companies had forced many of the private British air carriers out of business. By March of 1921 all British airline companies had suspended their operations. The government responded with a pledge to keep the British companies flying, using its own form of subsidization.

In January of 1923 Parliament appointed the Civil Air Transport Subsidies Committee to form a single British international air carrier from existing companies. On March 31, 1924 the Daimler Airway, British Marine Air Navigation, Instone Air Line and Handley Page merged to become Imperial Air Transport.

In 1925 Imperial Airways operated a number of European routes while it surveyed a route across the Arabian desert from Cairo to Basra in present-day Iraq. The airline was faced with a number of problems on this route. The desert was featureless, making it easy to get lost. Water stops and meteorological and radio stations were difficult to maintain. Basra was a major terminal on the route to India. However, on January 7, 1927 the Persian government forbade Britain the use of its airspace, blocking all flights to India. Negotiations reopened the airspace two years later, but not before generating a demand for longer range aircraft.

Passengers flying to India flew from London via Paris to Basel, where they boarded a train for Genoa. A flying boat then took them on to Alexandria, where they flew in stages to Karachi. The passage to India, previously three weeks by sea, had been reduced to one week by air.

Imperial Airways service to Calcutta was established in July of 1933, to Rangoon in September and to Singapore in December. In January of the following year the Australias Queensland and Northern Territories Air Service (Qantas) inaugurated a route linking Singapore with Brisbane. The passage to Australia could be completed in twelve and a half days.

A commercial service through Africa was opened in 1931 with flying boats linking Cairo with Mwanza on Lake Victoria. In April of 1933 the route was extended to Cape Town, the trip from London taking ten and a half days. An east-west trans-African route from Khartoum in the Sudan to Kano in northern Nigeria was established in February of 1936. This route completed a world network which linked nearly all the countries of the British Empire.

The primary source of revenue on the network was not from transporting passengers but mail. However, an increase in demand for more passenger seating and cargo space generated a need for larger airplanes. Britains primary supplier of flying boats, the Short Company, developed a new model, designated the C-class, with 24 seats and weighing 18 tons. Since it had an increased range and flew 145 miles per hour, it was able to simply bypass politically difficult areas. The Short C-class went into service in October of 1936. A year later Imperial Airways made its first trans-Atlantic crossing with a flying boat equipped with extra fuel tanks. However, it was Pan Am, with more sophisticated and updated Boeing airplanes, which was first to schedule a regular trans-Atlantic service.

Imperial Airways was formed with the intention of being Britains chosen instrument for overseas air service. On its European services, however, Imperial was competing with the British Continental airlines and an aggressive newcomer called British Airways. British Airways was created in October of 1935 by the merger of three smaller airlines companies. Three months later the company acquired a fleet of Lockheed 10 Electras which were the fastest airplanes yet available. The competition from British Airways threatened the chosen instrument so much that in November of 1937 a Parliamentary committee proposed the nationalization and merger of Imperial and British Airways. When the reorganization was completed on November 24, 1939, the British Overseas Airways Corporation (BOAC) was formed.

The creation of BOAC was overshadowed by the declaration of war on Germany the previous September. The Secretary of State for Air assumed control of all British air services, including BOAC. Within a year Italy had entered the war and France had fallen. Britains air routes through Europe had been eliminated. However, British flying boats continued to ferry personnel and war cargo between London and West Africa with an intermediate stop at Lisbon in neutral Portugal. The air link to Khartoum maintained Britains connection to the Horseshoe Route, from Cape Town through East Africa, Arabia, India and Singapore to Australia. When Malaya and Singapore were later invaded by the Japanese, BOAC and Qantas opened a non-stop service between Ceylon and Perth in Western Australia. BOAC transported ballbearings from neutral Sweden using a route which was dangerously exposed to the German Luftwaffe. BOAC also operated a service for returning flight crews to North America after they delivered American and Canadian-built aircraft to the Royal Air Force.

When the war ended BOAC had a fleet of 160 aircraft and an aerial network which covered 54,000 miles. The South American destinations of BOAC were assigned to a new state-owned airline, British South American Airways (BSAA), in March of 1946. Similarly, the European services were turned over to British European Airways (BEA) on August 1, 1946. After the war Britain reestablished its overseas services to the nations of its Empire. Some of the nations which had recently gained their independence from Britain received advice (and often finance) from BOAC.

In order to remain competitive with the American airline companies, BOAC purchased Lockheed Constellations, the most advanced commercial aircraft of the day. They were later joined by Boeing 377 Stratocruisers and Canadair Argonauts (modified DC-4s). BE A operated generally smaller airplanes and more frequent flights between the British Isles and Continental Europe. In 1948 it joined other Allied airline companies in the airlift to Berlin during the Soviet blockade.

Following a series of equipment failures at BSAA, the Civil Aviation ministry declared that the company should re-merge with BOAC. On July 30, 1949, BSAA was absorbed by BOAC.

Even though its passenger load had steadily increased, BOAC accumulated a debt of £32 million in the five years from 1946 to 1951. Much of this was due to recapitalization, or purchasing new equipment; the British-built Handley Page Hermes and de Havillands DH Comet 1, the worlds first jetliners, were delivered to BOAC.

In January of 1954 one of BOACs Comets exploded near Elba in the Mediterranean. Another Comet crashed near Naples only 16 days after an investigation of the first crash was concluded. As a result, the Comets certificate of airworthiness was withdrawn and a full investigation was ordered. In the final report it was determined that the Comets pressurized cabin was inadequately designed to withstand low air pressures at altitudes over 25,000 feet. When the airplane reached that altitude it simply exploded. The cabin was strengthened and the jet re-introduced in 1958 as the DH Comet 4.

The company was forced to purchase propeller-driven DC-7s to cover equipment shortages when delivery of its Britannia turbo-props was delayed in 1956. When the Comet re-entered service BOAC found itself with two undesirable fleets of aircraft which were later sold at a loss of £51 million ($122 million).

South American operations were suspended in 1954 when the Comet was taken out of service. Operation of the route with shorter range aircraft was too costly. At the insistence of Argentina and Brazil, which claimed Britain had lost interest in South America, the routes were reopened in 1960. That same year the first of 15 Boeing 707 jetliners was delivered to BOAC.

British European Airways used a wide variety of aircraft for its operations and remained a good customer for British aircraft manufacturers. In 1964 the company accepted delivery of the first de Havilland Trident 1, a three-engine airliner capable of speeds up to 600 miles per hour. A few years later, when the company expressed an interest in purchasing a mixed fleet of Boeing 727s and 737s, it was instructed by the government to buy British instead. BEA complied, ordering BAC-111s and improved versions of the Trident.

BOACs cargo traffic was growing at an annual rate of 27%. However, a sudden and unexplained drop in passenger traffic during 1961 left many of the worlds airline companies with excess capacity, or too many empty seats to fly profitably. At the end of the fiscal year BOACs accumulated deficit had grown to £64 million. The losses, however, were underwritten by the British government, which could not allow its flag carrier to go bankrupt.

BOAC and Air France agreed to commit funds for the buildings of a supersonic transport (SST) in 1962. In June the company became associated with the Cunard Steamship Company. A new company, BOAC-Cunard Ltd., was placed in charge of the trans-Atlantic air services in an attempt to capture a larger portion of the American travel markets.

The British published a White Paper (a statement of government policy) which recommended a drastic reorganization of BOAC. In response, the companys chairman, Sir Matthew Slattery, and the managing director, Sir Basil Smallpiece, resigned. Britains minister for aviation appointed Sir Giles Guthrie as the new chairman and chief executive officer. Under Sir Giles BOAC suspended its unprofitable services and rescheduled its equipment purchases and debt payments. After the financial situation had improved, the company continued to purchase new equipment and expand its flight network. In April of 1967 BOAC established its second around-the-world route and opened a new cargo terminal at Heathrow.

The companys sister airline, BEA, had been paying close attention to consumer marketing for vacationers. In 1967 the company created a division called BEA Airtours Ltd., offering complete travel packages to a number of vacation spots. In May of 1969 BOAC opened a passage to Japan via the North Pole. The route was shortened even further when the Soviet Union granted BO AC landing rights in Moscow and a Siberian airlane to Tokyo.

On March 31, after six years of record profits, BO AC announced that it no longer owed any money to the government. Later, on July 17, 1972, following several recommendations on further reorganization of the state-owned airline companies, management of BE A and BO AC were coordinated under a new government agency called the British Airways Group. On April 1, 1974 the two companies were merged and renamed British Airways. A second reorganization of the internal management structure took place in 1977.

The first British Airways Concorde was introduced in 1976. Jointly manufactured by British Aerospace and the French firm Aerospatiale, the supersonic Concorde was capable of carrying 100 passengers at the speed of 1350 miles per hour at an altitude of 55,000 feet. A seven-hour flight from New York to London was nearly reduced to half the time by the Concorde. British Airways employed additional Concordes on a number of international services, most notably London-Singapore, which was temporarily suspended through 1978 due to political difficulties.

In 1980 Prime Minister Margaret Thatcher appointed Lord (John) King as the new chairman of British Airways. His stated assignment was to prepare the airline for privatization (sale to private stockholders). Lord Kings first move was to adopt aggressive American-style marketing and management philosophies. As a result, he initiated a massive campaign to scale down the company and reduce costs. More unprofitable air services were terminated, and a staff reduction (begun under Lord Kings predecessor, Roy Watts) was continued. A British Airways official told Business Week magazine that, we had too many staff but couldnt get rid of them because of the unions. In order to utilize the excess labor, the company was forced to remain large. Lord King established a better relationship with labor, which had become more agreeable to layoffs and revisions of work rules. In three years the work force was reduced from 60,000 to 38,000 without a strike.

On July 11, 1983, no fewer than 50 senior executives were fired. The companys chief executive officer, Colin Marshall, hired in their place a team of younger executives (mostly with non-airline business backgrounds). The new executive staff initiated a series of programs to improve punctuality and service at the airline. They hired Landor Associates, a successful San Francisco-based design firm with considerable experience with airlines, to develop an entirely new image for British Airways. The result was controversial. The British Airways coat of arms and portion of the Union Jack on the airplanes tail fin was bound to upset the more politically temperamental countries of the third world which the company serves. The familiar Speedbird logo which dates back to the days of Imperial Airways was removed despite employee petitions to retain it.

British Airways also recognized a need to replace older airplanes in its fleet with more modern and efficient equipment. The companys Lockheed TriStars were sold to the RAF for conversion into tankers, and the BAC-111s were sold because they would violate new noise regulations. British Airways is currently leasing a number of airplanes until it makes a decision on new purchases. This is not likely to occur until after the privatization.

The company was plagued by its decision to retain separate European and overseas divisions. The result was a perpetuation of the previous management regimes of BEA and BOAC. To rectify this problem the operation was further divided into eight regional groups involved in three different businesses: cargo, charter and tours. Each of the eight groups has increased autonomy and responsibility for its business and profitability.

The Laker Airways Skytrain, an initially successful cut-rate trans-Atlantic airline, was forced to close down due to what its chairman, Freddie Laker, claimed was a coordinated attack by a number of airlines to drive the company into bankruptcy. Laker charged the companies, which included British Airways, with violations of anti-trust laws. He later settled out of court for $48 million, but in a subsequent civil suit British Airways was also required to issue travel coupons to passengers who claimed they were hurt by the collapse of Laker Airways.

Ironically, the company is now advocating the deregulation of European air fares in the belief that it can compete more effectively than its rivals. But Air France and Lufthansa in particular are reluctant to participate, claiming that deregulation would endanger the delicate market balance which took so many years to establish.

In 1985 British Airways was made a public limited company, but all its stock was retained by the government until such time that it could be offered to the public. The privatization of British Airways (which will be limited to a 51% sale) has been delayed by a number of problems. The companys chief domestic rival, British Caledonian, opposes British Airways privatization claiming that the company already controls 80% of the domestic market and is too large to compete against. However, British Airways most significant obstacle to privatization involved reducing the debt which it accumulated during the 1970s, and increasing the companys profitability. In January of 1987 the British government announced that 720.2 million shares of British Airways stock would be sold to the public for one billion pounds ($1.47 billion).

British Caledonian, or BCal, was formed in 1970 through the merger of Caledonian Airways and British United Airways. For many years, BCal was British Airways only large domestic competitor, fighting vigorously under the direction of Sir Adam Thompson for more favorable operating rights from the British government. When Britains Civil Aviation Authority recommended the reallocation of British Airways routes to BCal in 1984, Lord King threatened to resign. Instead, British Airways was instructed to trade its profitable Middle East routes for some of BCals less profitable Latin American destinations. The Middle Eastern routes became much less popular during 1986 as a result of regional tensions and falling oil prices. BCal, which had been generating a fair profit, started to lose money and was faced with bankruptcy.

In July of 1987 it was announced that British Airways had reached agreement with BCal wherein it would acquire the airline for £237 million in stock. The new airline would have almost 200 aircraft, and combine British Airways 560,000-kilometer route structure with BCals largely unduplicated 110,000-kilometer network, forming one of the largest airline companies in the world. Several smaller independent British airline companies threatened to challenge the BA/BCal merger on the grounds that the new company would dominate both Londons Heathrow and Gatwick airports, forcing them to relocate to the less accessible and underdeveloped field at Stansted.

In the event of a successful merger, British Airways would be better able to compete with other international airlines (primarily the Americans), and perhaps be more successful in its attempt to deregulate the European airline markets. As a substantially public company, British Airways has followed the example of American airline companies by increasing its size by external growth.

Principal Subsidiaries

Alta Holidays Ltd.; British Airways Tour Operations Ltd.; British Airtours Ltd.; British Airways Associated Companies Ltd.; British Airways Engine Overhaul Ltd.; Overseas Air Travel Ltd.; British Airways Helicopters Ltd.; Martin Rooks & Company Ltd.; The Airways Housing Trust Ltd.; Travel Automation Services Ltd.

Further Reading

The Rise and Fall of Freddie Laker by Howard Banks, London, Faber, 1982; British Airways: The Path to Profitability by Alison Cooke, New York, St. Martins Press, 1986.

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"British Airways Plc." International Directory of Company Histories. . Encyclopedia.com. 21 Aug. 2017 <http://www.encyclopedia.com>.

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