BA launch Gatwick no-frills price war
BRITISH Airways will tomorrow announce plans to use Gatwick airport as the base to launch a fierce counter attack against the fast growing low-cost airlines.
The move comes just eight months after BA sold Go, the budget carrier it launched in 1997. The initiative will be revealed alongside the announcement of record quarterly losses when BA publishes its third quarter results.
Analysts expect the carrier to report an operating loss of £225m, against an operating profit of £80m a year ago. The slump is due to the decline in traffic following the terrorist attacks on New York and Washington.
BA intends to reveal a series of new short-haul services from Gatwick designed to compete head on with Ryanair, easyJet and Go. The flights will copy the budget airlines' practice of stripping out all non-essential services such as complimentary meals and drinks to slash costs in order to charge fares comparable with established low-cost operators.
Fares are likely to be below £100 and less than half the existing BA prices for a particular destination.
The dramatic initiative is a result of a review of operations at Gatwick, launched as part of BA's wider strategic re-think called Future Size and Shape. This study, covering the whole airline and expected to result in significant job losses, will be revealed at the end of the month but tomorrow will see BA's low-cost fight back launched in full.
One option considered under the Future Size and Shape review was to pull out of Gatwick altogether but that has been rejected by the management led by Rod Eddington, the chief executive.
BA has identified a host of routes which it believes could be more profitable or turned round from losses by moving to a low-cost model. It intends to sell the flights over the telephone and the internet in the fashion pioneered by Ryanair and easyJet.
However, BA does not intend to launch a new brand to differentiate the flights from its full-service operations.
Routes chosen include destinations such as Malaga, Parma, Barcelona and Zurich which would compete directly with the likes of easyJet and Go, which operate mainly out of Luton and Stansted. BA's new low-cost operation will be run alongside full-service short-haul and long-haul flights out of Gatwick.
BA declined to comment yesterday but news of the initiative brought an immediate response from the established low-cost operators. A spokesman for easyJet said: "We will be looking very closely at BA's pricing strategy. If they are pricing below cost then that could be a case of predatory pricing, which is illegal."
Michael O'Leary, the head of Ryanair, the low-cost operator now valued by the stock market at £2.bn compared with BA's £2.3bn, said: "If British Airways wants a price war with Ryanair then they should just name the time and place."
Some analysts have been expecting a big rights issue from the airline to cope with the impact of September 11 but BA is understood to be ready to say it does not need to raise money from the markets yet, having raised cash levels to £3.4bn, including £1.1bn in cash and £800m of undrawn bank facilities.
The results of the Future Size and Shape review are likely to result in a radically different BA structure. The airline's plans were thrown into disarray recently when plans to merge its North Atlantic operations with those of American Airlines were scuppered by the US Department of Transportation.