BACon excerpt ATW Aug06
With the recent restructuring of its BA Connect regional operation into a low-fare carrier in response to LCCs, some wonder whether BA will import the model into its short-haul mainline operation at London Heathrow and Gatwick. Walsh says no. "I would argue we are most likely seen as the leading full-service network carrier and we are absolutely committed to maintaining a full-service product within British Airways," he states without hesitation. "It is significant that for the first time in ten years we have made a profit on our short-haul operations. Go back two or three years ago, probably even last year, [and] you would have heard people arguing that BA should pull out of short-haul. It is important that all parts of our business are profitable. There aren't too many network carriers around that can say that today."
The short-haul operations, which account for roughly two-thirds of passengers and one-third of revenue, posted an operating profit of £7 million last year compared to a deficit in excess of £300 million in 2000. However, only the Heathrow segment made money. Gatwick operations and the regional business still showed red ink, with the latter losing £20 millionalthough this represented a reduction from an operating loss of £27 million in FY05on revenue of £357 million.
"Psychologically it is nice to be back in profit on short-haul, but the level of profitability is nowhere near acceptable," acknowledges Walsh. "We have now three different programs running to address the three different parts of our business, all with a view to improving profitability. We have three short-haul businesses. It is important to differentiate between them. In the past, we would have adopted the one-size-fits-all approach to the problems that existed there. And we are very clear that you can't do that."
The regional operations, formerly known as BA CitiExpress, received a total makeover with the start of the summer schedule, including rebranding as BA Connect and a low-fare model. The 50 aircraft, consisting mostly of 50-seat regional jets with a smattering of larger RJs and smaller turboprops, now operate in a single-class configuration with paid-for catering.
"Coming in fresh from the outside, it's easier to take an independent view and make a quick decision," Walsh explains. "What I saw was a business that provided no passenger feed into our long-haul network, that was poor in terms of its commercial and financial performance and that was operating in a market dominated by low-fare carriers." With characteristic candor, he notes that while BA Connect has adopted an LCC model, it is not a low-cost carrier: "I would be fooling myself saying it is low cost, but it is competing in a low-fares environment." He has declared that the segment must return to profitability in the year ending March 31, 2008.