This is the memo that sent to their crew a few days ago! (As we expected)
Fit for the Future Update
August 2007
Dear Colleague
The last twelve months have seen a lot of change in our industry. We are facing tough competitive pressure both from the low cost carriers and the consolidation of the tour and travel industry. The internet increasingly provides opportunities for our customers to tailor make holiday solutions that more closely match their individual aspirations – eating into the traditional package holiday market. I do not need to tell you that the travel industry is in effect a barometer for whatever is happening globally. Headlines about global warming, which unfailingly emphasise the impact of air travel, have been made real in our home market with the devastating floods in parts of the UK. Interest rates have gone up and the property market has softened – weakening the demand for holidays. Fluctuations in the US and UK economies along with an increase in fuel price have put an additional burden on our costs. Closer to home we have suffered a number of operational setbacks that impact on our costs and our reputation.
We are by no means alone - this is the reality of the challenge that faces the whole industry.
The impact for us is that we will be well short of achieving our profit target for this year. I am sorry to have to inform you this means we will be unable to pay out the profit related company bonus, as it is a long way below the threshold we set.
It also means that we will need to change our business model to restore the company to an acceptable level of profitability.
We have three urgent and important tasks to manage within next year’s budget -
Maximising revenue opportunities
Reducing costs to make the business viable and remain competitive
Achieving customer service and operational performance that will delight customers and ensure repeat business
The fleet will be simplified with the removal of 747s, 757s and 2 x 767 aircraft. We have cut back winter capacity and achieved good winter lease out opportunities, with the result that traditional winter losses for 07/08 are forecast to be better than those for 06/07. We are currently evaluating options for the 2008 summer schedule and regional bases with reduced fleet; this will again give a better gross revenue contribution than the current year. Once fleet plans are finalised, the crew plans can also be firmed up. All indications are that we will need less crew to cover the operation than currently and we will be consulting with BALPA and AMICUS about this issue.
Our costs are too high for a business of our size and I am setting a cost reduction target to be achieved progressively over the coming six months. We have procurement and treasury experts who have been given tough and ambitious targets. We have estimated that there are significant savings available, by buying smarter and managing our money more effectively.
We urgently need to address the costs of our overhead and support activity. Along with the reduction in capacity, we can make manpower savings by working differently and consolidating activities across the group. I am asking each department head to identify savings in support activity in their area of at least 20%. Not all of this needs to be manpower and some of these savings will be dependant on systems investment, so will not be achievable immediately – but radical change to the shape and direction of the business will be needed.
At the same time we need to maintain our focus on our customers and ensure that the services we offer add value and that our operational performance is competitive.
Change can be extremely unsettling and I know it will be important to you that it is managed consistently and fairly. We will be following a thorough process to identify where we can make savings and over the next few weeks you will be briefed by your manager about how any changes may affect you. The timescales are tight as this work will be completed so that the improvements required can be built into the 2008 budget.
We will involve you as much as possible in the process and intend to keep you fully informed along the way.