Troubling Times - how can British Airways turn it around?

The recent news regarding British Airways (BA) losses has brought to the fore, for myself at least, the need to examine the options that are available to huge national flag carriers whose route networks sprawl across the globe, when financial hardship arrives.


There is no doubt that economies will always be subject to expansion and retraction - a state of flux that will vary in its extremity. The economy of global commercial aviation is not immune from such fluctuation - in fact, I would argue it is a prime example. Uncertain times within the commercial aviation industry have followed it from its very conception, whether it be through the price of fuel, developing technology, terrorism or global recessions such as the current 'economic downturn'. These factors ensure constant change of varying degrees as have been seen over the past seven decades or so. Propliners, turbojets, all jet fleets - just a few of the realities of commercial aviation that have come and gone.


Airlines need to be in a position to be able to cope will all the factors which make their industry so unpredictable, in order to survive. Some would argue that airlines simply cannot structure themselves in order to deflect all the blows that are thrown at them, and to a large extent I would agree. However, it seems to me that many airlines are neglecting to factor in enough long-term flexibility into their business in order to weather the storm and emerge intact. The many external influences upon airlines are mainly manifest within their operating costs - the price of crude oil, airport surcharges and customs fees to name a tiny proportion. Add to this the increasing environmental lobby and concern over CO2 emissions and the 'carbon footprint', war and fears surrounding terrorism (admittedly this is now more than likely currently on the decline to have a significant impact) - this all takes it toll on passenger numbers and is therefore inextricably linked to airline revenue.



Most of the factors outlined above are out of an airlines direct control. However, the seeming need for British Airways to maintain its current structure, at whatever the cost does not demonstrate a real effort in order to mitigate the damaging effects of these external factors. The suggestion from the BA board for staff to work unpaid, backed by the decision of CEO Willie Walsh to work for free for the month of July of this year, seems quite frankly, pathetic. This is cheap way of saving cash in the very short term - probably decided upon as an unprecedented move for an unprecedented crisis. But the current economic downturn, perhaps never seen before in terms of its global scale, has happened and there is the potential for it to happen again.



Does BA needs to take a serious long-term look at how it is doing business in this volatile industry if it is to rise above the endless spiking and crashing of profits, which is no doubt doing the domestic and global image of legacy airlines untold damage? The most recent losses for BA, which many would argue is a direct result of the current economic downturn, is in my eyes extremely unfortunate, as in recent months the carrier has been associated with a number of exciting and daring developments. Such developments include the establishment of 'Open Skies' and the introduction of all-business class flights between London City and New York JFK airports using Airbus A318 aircraft.

Open Skies is a new airline created by BA in 2008 which uses two of its Boeing 757-200 aircraft, along with the two 757-200s from the former all business class French airline L'avion, which was acquired by BA. Open Skies takes advantage of legislation of the same name which allows any carrier within the USA and the European Union to operate any route between any two points within the USA and the European Union. Open Skies is currently operating routes from Paris and Amsterdam to New York. The establishment of Open Skies is an admirable, bold and brave step by BA, is the first venture of its kind and in my opinion has the potential to bring about an unprecedented and profitable long-term restructuring of BA itself. However, the first signs of faltering from BA are beginning to show. The carriers' initial plan was to develop Open Skies significantly by introducing more 757-200s as they were taken out of service from BAs mainline fleet. Unfortunately, most probably due to the current global economic situation and the need to save as much as possible on operating costs, BA has decided to put expansion of Open Skies on hold - with talk of a possible sale. The 757-200s earmarked for Open Skies route development will now be sold off. Will BA simply now retreat to its (currently unprofitable) traditional structure?

Some may say that the decision to halt Open Skies expansion and the selling off of its 757s is a 'logical' step by BA to save money, by slashing capacity. However, as far as I am concerned, they are only demonstrating their ability to be flexible in the very short term. I believe that BA are on the right path with Open Skies and they now have the ability to cherry-pick the most lucrative routes in the profitable transatlantic market as well as being able to develop new and potentially very profitable city pairs. Perhaps BA should think about cutting capacity elsewhere in its sprawling global network before Open Skies is placed firmly on the back seat.

Where else within its network and operations can BA look at cutting costs in this difficult economic environment, rather than stifling Open Skies? What direction should BA be considering to make themselves able to be as financially stable as possible? Can BA radically diversify?