There have been several aspects that needed to be evaluated and corrected by the Government with regard to the relentless losses that were being incurred by British Airways over some time, and they were mainly in the areas of:
- Steep hike in fuel prices.
- Airlines operating in a highly controlled and restrictive environment.
- Need for delisting from the Stock Exchanges.
Oil prices have become a major issue for the airline industry. The oil prices had, at one point of time, rising to an all-time high, and there is also a great deal of uncertainly regarding the movement of the oil prices in future, given the inability of OPEC to hold the oil price line, which would significantly affect the airline industry.
The fuel constraints had led to the suspension of flights to economically unviable destinations and curtailed others services also. Since fuel cost savings form a major determinant of profitability for the airline industry, the Govt felt that it is essential that fuel consumption is controlled to manageable and viable limits, and greater emphasis is laid on flying low fuel airliners for long haul flights and also in non-premium segments. Airlines operate under a heavily regulated environment and have to abide by the rules set out by the various Federal and State laws of the countries in which they fly. There are regulations to commercial activities of airliners with respect to areas like taxation laws, route flying rights, fare setting and landing permission in major airports. These factors could curtail the authority, autonomy and decision making process due to supervening Governmental regulations.
Normally, as far as Airlines Companies are concerned, it is the Government of the countries in which the flights touch down which decides about the regulations, and airline companies have to abide by them at all costs or decide to discontinue operational services in these sectors. The Board of Directors of British Airways plc has approved of the delisting of the Company from the New York Stock exchange (NYSE) and the consequent deregistration of the Company and the resulting non-requirement on its part for Reporting its Annual Reports under Securities Exchanges Act 1934. Necessary notice has been given to the NYSE to this effect.
It is widely believed that the standards provided by Heathrow Airport in London are far below the infrastructural facilities provided by other international airports in other European countries. Thus, it has been decided to open a New Terminal 5 at Heathrow at a total cost of £4.3 Billion, which is expected to become operational by 2008. The ‘Fit for 5 ‘has become a major issue in terms of a total change of logistical activities to this new terminal which would pose challenging and facilitative, and once operational, is expected to resolve imbalances in London’s air travel permanently.
British Airways would also be fully utilising the services of Terminal 5, and therefore, necessary facilities have to be initiated in order to provide a smooth transition of flights into Terminal 5 to ease air traffic and relieve congestion at Heathrow Airport and make air travel a more pleasurable experience, especially for international travellers. Moreover, with the introduction of biometric security checking for the passengers, it is believed that enhanced security and convenience for passengers would be ensured. It is also widely believed that Terminal 5 would usher in a new dimension of comfort, convenience and enjoyable flying for both international travellers from across the globe and domestic travellers within the UK. It would be considerable ease the discomfort and rigidity associated with travelling in the country over the past decade.
The enhanced margins for a giant airlines company can only be achieved by fleet rationalisation, constant commitment to excellent customer services and competitive prices in this era of open skies. During the year 2006/07, the airlines were committed to seeking compliance in the following areas:
- Building an effective cost base with a prime target of achieving ₤ 450M over the next two years and also increasing the current operating margin to 10%.
- Institute cost rationalisations in long haul premium classes of travel and the induction of ba.com, that is, upgrading technology, which allows the use of e, ticketing and also travellers are allowed to print their own boarding passes at home before embarking the flight.
- British Airways is preparing itself for Fit for five, which would make it competitive in 1998. 4. The areas of the cost base and NAPS Pension Funds need to be addressed before long-term investment in Long Haul Aircrafts is undertaken.
The formal opening of Terminal 5 at Heathrow Airport for international air traffic is expected to revolutionalise air traffic and would reinstate the airport’s claim of the British tradition of being one of the finest airports in Europe. This, coupled with major Cost Reduction programmes, especially in areas of Pension Funds, Labour Union litigation settlement costs, fuel consumption and unproductive staff and labour administrative costs, and ageing aircraft maintenance costs, through tough budgetary controls and effective variance analysis, could go a long way in serving the financial interests of the stakeholders of British Airways and reverse its financial fortunes in the years to come, in terms of making it a dividend-paying company.
Recommendations
The methods in which the objectives of British Airways could be achieved are as follows:
- British Airways would have to Endeavour to make itself the best UK airlines network catering to a large cross-section of fliers – business or tourists class.
- In order to stay ahead in business, it is vital not only to understand our customers more than the competitors do but also to provide his needs at no extra costs.
- Although British Airways has an excellent brand image, it needs to be sustained in the future in the face of cutthroat competition from smaller airlines companies.
- It should develop a competitive and rationalised cost structure in tune with the changing economic trends and dynamics, keeping the view the strategies and market gains of competitors in both domestic and long haul flights.
- It needs to enter into reciprocal strategic alliances with local airlines in countries where British Airways is not well represented in order to be truly called global airlines and also restructure flight schedules to fly in profitable sectors and high premium flights.
- Fleet rationalisation and inclusion of fuel effective wide-bodied Boeing Aircrafts with higher load capacity for long haul flights needs to be introduced.
- The Government needs to ensure that Terminal 5 Heathrow Airport should be operationalised. At the earliest, it is ending speculation that it has problems that seem insurmountable.
- There needs to be a hike in the surcharge of fuel that would, at least to a certain extent, offset the drop in revenues due to increasing fuel prices in the international markets.