British Airways Plc

founded: 1923

Contact Information:

headquarters: waterside hba3, po box 365
harmondsworth, ub7 ogb great britain phone: +44-20-8562-4444 fax: +44-20-8759-4314 toll free: (800)545-7644 email: [email protected] url: http://www.britishairways.com

OVERVIEW

British Airways Plc (BA), based at Heathrow Airport in London, is the world's largest international air carrier. BA carries approximately 36 million passengers each year with a global network spanning more than 250 destinations and 97 countries. The company was originally a government-run operation until 1987 when BA completed its initial public offering. After going public, BA posted impressive numbers, with stock prices top-ping $100 a share on the New York Stock Exchange during 1997 and 1998 before falling to $35.00 in 2002. Economic recession, combined with other uncontrollable factors such as an increase in fuel prices, the country's hand-and-foot disease crisis, and the terrorist attacks of September 11, 2001, have disrupted the airline's bottom line numbers. Burdened by a large debt load, BA has been looking to cut costs, improve customer services, and streamline operations to remain one of the world's leading airline service providers.

COMPANY FINANCES

For the year ending March 31, 1997, British Airways posted a profit before taxes of 640 million on revenues of £8.36 billion. Over the next three years, profits slid downward, and for the year ending March 31, 2000, the airline showed a profit before taxes of only £5 million, resulting in a net loss of £21 million, on revenues of £8.94 billion. The following year the company rebounded to post a profit before taxes of £150 million on £9.28 billion in sales. However, BA was struck with economic problems again for the year ending March 31, 2002, with income before taxes falling to reflect a loss of £200 million.

The majority of British Airway's revenues come from passenger ticketing. In 2001 of the £9.28 billion total sales, £7.8 billion was a result of passenger ticket sales. Cargo and mail services generated £579 million, and other services, including aircraft maintenance services and special holiday packages, accounted for £846 million.

ANALYSTS' OPINIONS

Analysts have expressed concern regarding British Airways' long-term success and tend to favor the airline's European peers Lufthansa, Air France, and KLM as better investments. BA has good reasons for its recent financial woes. The foot-and-mouth disease outbreak in Great Britain first stymied the economy, followed by a general slowdown in the global economy, and the airline's problems climaxed after the terrorist attacks of September 11, 2001. However, BA is not alone; the International Air Transport Association estimated that the airline industry lost approximately $17 billion last year. Although analysts can forgive BA short-term misfortunes, they show concern over the airline's large debt, its inefficient hub at Heathrow, continuing losses in its short haul network, and increasingly strong competition from discount, no-frills airlines. Given the difficult market, analysts are skeptical that BA will be set for any quick or remarkable recoveries in the near future.

HISTORY

In 1923, in response to stiff competition from foreign airlines that had forced all British-owned airline operations to suspend service, the British Parliament commissioned the Civil Air Transport Subsidies Committee to create a single British air carrier company from all existing operations. As a result, on March 31, 1924, Daimler Airway, British Marine Air Navigation, Instone Air Line, and Handley Page joined together to become Imperial Air Transport. As the airline industry grew, Imperial worked to connect the many points of the British Empire, with most of its revenues being generated by mail delivery services. Destinations included Calcutta, Cairo, Singapore, Brisbane, and Cape Town. By 1936 nearly all territories under British control were linked by Imperial flights.

Although Imperial was the leader in overseas air service, it was facing increasing competition from an aggressive new company, BA, which had been established in 1935 by the merger of three smaller airlines. Imperial decided the best strategy for survival in the European market was cooperation. Accordingly, in November 1937 Parliament was presented with a proposal to nationalize and merge Imperial and BA. The merger was completed on November 24, 1939, with the two companies reorganized as the British Overseas Airways Corp. (BOAC).

FAST FACTS: About British Airways Plc

Ownership: British Airways is a publicly owned corporation that trades on multiple exchanges around the world, including the London, Munich, XETRA, OTC, and New York Stock Exchanges.

Ticker Symbol: BAB

Officers: Lord Marshall, 67, Chmn; Rod Eddington, 51, CEO; Derek Stevens, 62, CFO

Employees: 62,175

Principal Subsidiary Companies: British Airways' wholly owned subsidiaries include, most importantly, British Airways Ltd., as well as CityFlyer Express Ltd., British Airways Holidays Ltd., British Airways Cargo, and Deutsche BA Luftfahrtgesellschaft GmbH. The company also holds partial equity in numerous ventures including The London Eye Company Ltd., Concorde International Travel Pty Ltd., and Qantas Airways Ltd.

Chief Competitors: British Airways' wholly owned subsidiaries include, most importantly, British Airways Ltd., as well as CityFlyer Express Ltd., British Airways Holidays Ltd., British Airways Cargo, and Deutsche BA Luftfahrtgesellschaft GmbH. The company also holds partial equity in numerous ventures including The London Eye Company Ltd., Concorde International Travel Pty Ltd., and Qantas Airways Ltd.

During World War II, the government took control of all British airlines. After the war ended, BOAC handed over all European destinations were assigned to British European Airways. Likewise all South American destinations were assigned to British South American Airways, a newly formed state-owned company; however, a series of equipment failures prompted BOAC to resume control of the South American network in 1949. During the remainder of the 1940s, BOAC spent large amounts of capital to upgrade its fleet, adding newer, faster airplanes. Purchases included Lockheed Constellations, Boeing 377 Stratocruisers, and Canadair Argonauts, as well as Handley Page Hermes and de Havilland's DH Comet 1, the world's first jetliner.

Despite increased passenger numbers, the rapid expansion of the company's fleet pushed its debt to £32 million. In January 1954 a Comet airliner crashed into the Mediterranean, followed by a second Comet crash just days after the investigation closed on the first accident. As a result, the Comet was declared unfit to fly and taken out of BOAC's schedule. With the Comet, the airliner's longest-range aircraft, out of commission, BOAC was forced to suspend all travel routes to South America. Eventually the mechanical problem with the Comet was discovered and resolved. Nonetheless, when the aircraft was reintroduced in 1958 as the DH Comet 4, its time had passed, and BOAC sold the fleet along with an outdated fleet of prop-engine DC-7s for a loss of £51 million.

BOAC's financial outlook did not improve in the 1960s. Although cargo tonnage had increased steadily, there was a sharp unexplained decline in passenger purchases. Like many companies within the airline industry, BOAC took a loss for 1961, increasing the company's debt to £64 million. The government stepped in to protect BOAC from bankruptcy and ordered a drastic reorganization of the BOAC. As a result, money-losing services were scraped, equipment purchases were reconfigured, and debt payments were rescheduled. The restructuring was successful, and BOAC posted record profits from 1966 to 1972, at which time it had completely repaid its debt to the government. In 1974 BOAC underwent further restructuring by merging with British European Airways to create BA. The financial recovery experienced during the 1970s was topped off with the addition of the first supersonic Concorde, which flew at speeds up to 1,350 miles per hour, cutting the normal 7-hour London-New York flight in half.

During the early 1980s, BA began to prepare to become a privately owned company. A concerted push was made to improve customer service, for which the airline had a notoriously poor reputation. Once again cost-cutting measures were employed, and between 1980 and 1983 the workforce was reduced from 60,000 to 38,000. Over fifty executives were terminated, and a professional marketing group was commissioned to give the company's public image a makeover. Despite opposition from competitors, BA became a limited public company in 1985, with the government retaining all control of the stock. The initial public offering completed in 1987 resulted in 720.2 million shares being sold for £1 billion. In the same year, BA acquired British Caledonian, known as Bcal, one of its major competitors. With the addition of the Bcal fleet and routes, BA became one of the largest airliners in the world.

During the late 1980s and into the 1990s, British Airways attempted with limited success to expand its international operations. In 1988 the company formed an alliance with United Airlines to shuffle customers between the two airlines. However, when United purchased rights three years later to access London's Heathrow from struggling Pan Am and TWA, the partnership ended and United became BA' direct competitor. In 1991 the airline entered into an agreement with Aeroflot, a Russian company, to develop a new airline called Air Russia, but the venture never came to fruition. The next year BA looked to the large U.S. markets. Its attempt to purchase 44 percent of USAir was blocked by the U.S. government after the major U.S. carriers lobbied strongly against the deal.

CHRONOLOGY: Key Dates for British Airways

1923:

British Parliament orders the formation of a single British international air carrier; Imperial Air Transport is founded the next year

1935:

Start-up carrier BA offers increasing competition to Imperial

1939:

BA is nationalized and merged with Imperial as British Overseas Airways Corporation (BOAC)

1951:

BOAC's debt reaches £32 million due to recapitalization expenses

1961:

Debt climbs to £64 million, caused by a decline in passengers; government finances company to prevent bankruptcy

1974:

Out of debt and financially stable, company is reorganized and renamed BA (BA)

1983:

More than 50 BA executives fired in a management shake-up

1987:

BA becomes a publicly owned company, selling 720 million stock shares for £1 billion

1997:

Reports fiscal year profit before taxes of £640 million

2000:

BA considers merging with KLM Royal Dutch Airlines but decides to pull out of negotiations

2001:

Reports a fiscal year profit before taxes of £5 million

British Airways did manage to purchase 49.9 percent of TAT European Airlines, a leading French airline, and 25 percent of Qantas, Australia-based airline. With these deals complete, BA placed on the table a revised offer for a portion of USAir, and this time received governmental approval. These acquisitions strengthened BA global presence, but negatively affected the organization's financial standing. In 1993 Qantas posted a lost of $271 million, and in 1994 TAT and USAir lost $60 million and $350 million, respectively. Despite the poor performance of its alliances, BA continued to post positive numbers. The late 1990s brought increased competition, establishing a tougher business environment for BA, and in 1997 the company sold off its interest in USAir. During 2000 the company considered merging with KLM Airlines, but backed out before the deal was completed.

STRATEGY

In 2002 BA conducted a Future Size and Shape review in order to determine the best solutions to the challenges facing the airline. The goal will be to create a simpler, leaner airline that is more focused on its core profitable routes. To quickly reduce overhead, the airline announced that it would cut 13,000 jobs by 2004. In another move to cut costs, BA has drastically reduced its plans for its terminal at Gatwick by abandoning plans to turn Gatwick into a second major hub for the airline. Instead, longhaul operations are scheduled for reduction from 43 to 25 by suspending unprofitable routes and moving others key routes to Heathrow. Gatwick will remain important to BA' shorthaul business. With more traffic moved to Heathrow, the airline will push the British government for improvements in the infrastructure of the airline industry so that its already inadequate terminal situation may in the future be alleviated.

In an attempt to reclaim the business of leisure travelers who were buying tickets from the no-frills airlines, on April 5, 2002, British Airways announced newly restructured fare plans that included domestic return fares starting as low as £69 and did away with the Saturday night stay restrictions. The airline also hopes to entice business and leisure travelers by providing quality products and services that are unmatched by its competitors. New offerings provided under the label of Air Travel For the 21st Century include refurbished First Class, the Club World flat bed, the improved Club Europe and World Traveller services, and the introduction of a new class, World Traveller Plus. Terminal facilities and lounges have also been upgraded and modernized to provide comfort and convenience to British Airway customers. To move to the forefront of technology, the airline has begun to offer innovative customer service options such as flight information and passenger check-up via mobile Internet. Discounts are offered to customers who book their flights at BA's Web site.

INFLUENCES

As a global company BA is continually affected—sometimes positively, sometimes negatively—by the world economy. Such uncontrollable variables as fuel prices and the strength or weakness of regional economies directly impact the profitability of the airline. Just as the airline was looking toward a recovery of the British economy after the outbreak of foot-and-mouth disease, which had resulted in a reduction in both passenger and cargo revenue, the terrorist attacks of September 11, 2001, weakened the global economy, sending the entire airline industry into a downward spin.

To encourage people to return to flying and to compete with the growing success of discount airlines, BA cut prices on numerous flights. However, this means that even if passenger numbers grow, as is expected to eventually occur, BA will be making less profit per passenger, thus requiring even greater increases in filled seats to make ends meet. Thus, BA is also continuing to look for ways to streamline operations and lower overhead.

CURRENT TRENDS

With a keen eye on cost reduction, BA announced the results of an in-house study "Future Size and Shape" in February 2001. The plan calls for the elimination of unprofitable segments of business operations by reducing capacity, eliminating unnecessary complexity, and reduction in the workforce, all of which is to be accomplished without affecting the quality of customer service.

To better position itself in the marketplace, BA has made a number of divestitures and acquisitions. The airline sold off its French subsidiary Air Liberté and its interest in Hogg Robinson. BA also sold GO, a low-fare regional airline. In its place, BA acquired British Regional Airlines Group, which it merged with its wholly owned regionally based Brymon Airways. CityFlyer Express was purchased and integrated into the mainline operations at BA's Gatwick terminal.

PRODUCTS

As of March 2002, BA had 360 aircraft in its fleet, including 7 Concordes (currently out of service for safety modifications), 56 Boeing 747-400s, 45 Boeing 777s, 44 Turbo Props, 33 Airbus A19s, and 21 Boeing 737-400s. This reflects an increase of 22 aircraft from the previous year, which is primarily due to the acquisition of British Regional Air Lines with 12 Jetstream 41, 13 British Aerospace ATP, 21 Embraer RJ145 and 5 British Aerospace 146 in service at year end. Aircraft removed from BA's service include 13 Boeing 737-300, which resulted from the sale of GO. Other changes are the consequence of regular operational procedures that introduces new aircraft and grounds outdated aircraft.

CORPORATE CITIZENSHIP

BA's Sustainable Business Unit provides the airline with input on environmental and social concerns as well as economic impact of business decisions. The Sustain Business Unit creates community and environmental policy through provision of support and advice, as well as monitoring, measuring, and reporting on the airline's performance in the areas of social and environmental responsibility.

As a corporation BA sponsors numerous ongoing charities as well as responding to special emergency needs. The company's Change of Good fundraising efforts have raised more than £12.5 million to help UNICEF. For the year ending March 31, 2001, BA provided £782,000 in direct funding to charities and community projects. However, accounting for in-kind goods and services donations, that total jumps to £6.4 million. BA focuses specific efforts in the areas of youth development, heritage and tourism, and the environment. Specific environmental concerns include noise, fuel efficiency and emissions, waste, water use, climate change, and congestion in the air.

GLOBAL PRESENCE

Of total ticket sales, business conducted within Great Britain accounted for £4.63 billion in revenues; continental Europe, £1.42 billion; the Americas, £1.75 billion; Africa, the Middle East, and the Indian subcontinent, £783 million; and the Far East and Australasia, £696 million. Strongest growth was seen in Africa, the Middle East, and the Indian subcontinent, which showed an increase of revenues by area of destination of nearly 7 percent.

Forming alliance has also been a trend in BA's global strategy. The one world alliance, founded in February of 1999 with BA as one of its founding members, is an international consortium of eight full members, including airline powerhouse American Airlines, and 23 affiliate member airlines. The goal of one world is to coordinate routes, scheduling, and ticketing to provide advantages to all airlines that are involved in the consortium. Benefits include reciprocal reward and recognition programs, common lounge access, smoother transfers, and increased customer support. BA has also worked to establish a unique relationship with American Airlines outside the realm of one world, but the future of the two superpower airline's interact has yet to be played out.

FROM "BLOODY AWFUL" TO "BEST AROUND"

In a major effort to overhaul its reputation for high-end ticket prices and low-end customer services and comforts, British Airways invested £600 million to upgrade and improve its product offerings. After conducting an extensive market research project to find out what passengers wanted from an airline, BA instituted numerous innovative changes in its products that were developed to maximize comfort and design. The most cutting-edge addition was the "lounge in the sky," which offers business class travelers a completely flat bed for resting during long flights. With the addition of the world traveler plus cabin, which provides more space, leg room, facilities, and double carry-on baggage allowance, BA became the first airline to offer four distinct cabins: first class, club world, world traveler, and world traveler plus. As a result of its investment in customer satisfaction and service, BA can proudly claim to have shed its old acronym's side-meaning of "bloody awful" to boast that it offers the "best around."

EMPLOYMENT

British Airways offers career opportunities in the areas of customer contact (terminal and in air), commercial sales and marketing, e-business and information technology, technical and operations, and corporate positions such as public relations, finance, legal, and human resources. Training resources, such as computer-based interactive learning centers, library facilities, reference materials, audio- and video-based learning, and numerous leadership and teambuilding programs are used for career enhancement. BA looks for candidates who possess the skills required for the position as well as initiative and good communication and teambuilding skills. For senior positions, proven leadership is an important factor also.

SOURCES OF INFORMATION

Bibliography

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"ba vows to regain lost sales." travel trade gazette uk & ireland, 22 april 2002.

"british airways introduces new products." africa news service, 18 april 2002.

"british airways offers new deals to compete with low-cost airlines." airline industry information, 4 april 2002.

"british airways to cancel 12 routes and cut staff." airline industry information, 25 april 2002.

"british airways to cut 5,800 more jobs." air transport world, march 2002.

burke, w. warner. "plane talk about change: how lord colin marshall transformed british airways into a customer-service powerhouse." in business climate shifts: profiles of change makers. boston: butterworth heinemann, 2000.

"cowen on...british airways." campaign, 18 january 2002.

"taking." airline business, 1 may 2002.

"uk company: british airways shrinking to grow." financial times, 20 may 2002.

vowler, julia. "can ba slash £45 million from its it budget and keep on flying?" computer weekly, 14 march 2002.

For an annual report:

on the internet at: http://www.britishairways.com

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. british airways plc's primary sics are:

4512 air transportation scheduled

4513 air courier services

4522 air transportation nonscheduled

4581 airports fields & terminal services

4731 arrangement transport freight & cargo

also investigate companies by their north american industry classification system codes, also known as naics codes. british airways plc's primary naics code is:

481110 scheduled air transportation