Mon "The Australian"
No-frills do not fly well with a full deal
By Steve Creedy
October 27, 2003
No-frills airlines are here to stay but full-service carriers are becoming smarter about ways to deal with them, British Airways chief executive Rod Eddington says.
While the budget airline phenomenon has been a boon for the consumer, the BA boss doubts the wisdom of full-service airlines starting low-cost airline offshoots.
In an interview with The Australian, Mr Eddington declined to comment on plans by partner Qantas to start a low-cost carrier next year. But he reiterated the stance taken when he sold British Airways low-cost Go subsidiary to Easyjet.
"We sold Go because I put a simple proposition, which was that no full-service network carrier had ever successfully been able to operate a full service network airline and a no-frills carrier in the same market," he said.
"Plenty have tried. Most recently KLM sold Buzz and Air Canada, who set up several, including Tango and Jazz, went bankrupt.
"So a simple observation: no one's ever done it."
Mr Eddington, whose airline has endured an explosive growth in low-fare carriers in one of the world's most aggressive markets, said Go had confused BA's customers and staff.
The low-cost offshoot had also prevented a vigorous competitive response to low-cost competitors by mainline BA.
He said BA's short-haul business had been losing £300 million a year when he arrived at the airline but executives had seen Go as its main response.
"We're much smarter now about how we compete with the no-frills carriers," he said. "We have greater use of the web, we've completely changed our pricing distribution strategy and we've been much smarter about what we do and how we do it."
The BA chief said the British carrier had pioneered what he regarded as the sensible full-service response to no-frills carriers.
The carrier had pulled off low-yielding routes in favour of those with a reasonable mix of premium and leisure traffic.
It had also replaced widebody aircraft on shorthaul routes with smaller Airbus A319 and A320 aircraft flying high frequencies to drive business travel.
"And then use the net intelligently to sell the back of the aeroplane," he said. "Unashamedly learn some of the lessons from the no-frills carriers."
Mr Eddington said BA's lower fares had been well received but it also meant the airline had to lower costs because yields were thinner.
The airline was taking a million pounds a year out of its cost base but did not expect to ever match those of the no-frills competitors.
However, travellers would continue to pay a premium to travel on a full-service network and advantages such as Heathrow departures, pre-assigned seating and backup aircraft.
"The question is how big a premium will they pay and are your respective cost bases such that you can earn a living off that premium," he said. "You've got to get your costs aligned in an intelligent, sensible way."
Steve Creedy travelled to London courtesy of BA.
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