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.

Surely the very fact that the airline is competing head on with EZY on routes it already operates is evidence enough of predatory tactics; are we to take it that places which aren't served by low cost carriers - Jersey for example - are still going to be stiffed by BA - and maybe even used to subsidize this fiasco in the making?

And operating lo-co type services alongside full service economy? That's another recipe for failure. If they had to do this, they should surely start with destinations not served by lo-cos and develop traffic there. This seems to be the difference between BA and bona fide low cost carriers; the lo-cos develop traffic, the likes of BA simply respond to the lo-cos directly, rather than attempting to develop traffic.

A stench of desperation in the air.

Good luck BA I am behind you. The market needed this to create some sort of normality in this topsy-turvy industry.

Surely this idea has been tried before in the US, with the likes of Continental Express, Delta etc. to try to compete with Southwest - It didn't work then and I can't see it working now.

If you are going to have peanut fare flights operating as BA services (without any different name, ie/;BA Express) and full service BA flights operating from the same airport I foresee a lot of unhappy SLF not getting the service they expect.

Its managers BA needs to remove, not packets of peanuts. <img src="smile.gif" border="0"> <img src="smile.gif" border="0"> <img src="smile.gif" border="0"> <img src="smile.gif" border="0">

So, let's think of a name this new "no frills" airline.

I know, we could call it GO!

Why are they doing this all over?

Let me get this right.

BA are losing money, so they intend reducing fares (by lots of quids) by introducing a low-cost service. This service will save them money by saving on food costs (a few quid) and tickets (a few quid).

Forgive my lack of understanding of economics, but will that not lose them even more money. Or are big savings to be found elsewhere..., or have they made a blunder..., or have they discovered a new form of business model that allows them to cut fares and so make bigger profits..., or has Rod Eddington just woken up from a bad dream!

Future - bleak, Size - small, therefore Shape-less.

[ 03 February 2002: Message edited by: Katy ]</p>

BA have some distinct advantages operating budget short haul out of Gatwick such as wholly owned and depreciated fleet of 733's, the best slots, high quality staff, logistics in place etc.

Switching to destinations where people actually want to fly ie Malaga, Alicante, Barcelona from the huge catchment area that is the SE of England should steal customers not happy travelling to Luton/Stansted - therefore they will be prepared to pay more for the priveledge, so BA can make money.

However the cost base at Heathrow will always drag profitability down, so should be cut back first. Go was a success because it didn't have to pay for the Waterworld overhead - Gatwick would be too given half a chance. <img src="wink.gif" border="0">

Hardly going to stop the mess the company is in is it though, Evil.

How can BA convince the travelling public that they offer a no frills service? easyJet, Ryanair and Go all have brand loyalty, BA is synonymous for its ‘full’ service and ‘high’ prices.

BA entered the low cost market then sold out. My own personal opinion is that BA will do anything to stop the loss of valuable slots even if it means operating some routes at a hammering.

As to a name for the low cost brand, BA BA BABY, like lambs to the slaughter!

Here is the link to the telegraph article:

<a href="http://portal.telegraph.co.uk/money/main.jhtml;$sessionid$0KTCFVAAAEWGPQFIQMGCFFOAVCBQUIV0?xml=/money/2002/02/03/cnba03.xml&sSheet=/portal/2002/02/03/ixport.html" target="_blank">Click here</a>

And here is the link to the FT article:

<a href="http://www.ftmarketwatch.com/news/story.asp?guid={82CD33F3-F7EC-487C-B957-D5C27FD55F9D}&source=moreover1" target="_blank">http://www.ftmarketwatch.com/news/story.asp?guid={82CD33F3-F7EC-487C-B957-D5C27FD55F9D}&source=moreover1</a>

Seems odd to me that a lot of you pruners are knocking BA's attempts to compete with the low cost carriers. The promotion of competition is one of the cornerstones that our capitalist free market economy is built apon.

Competition is what you are going to get and that can only be good for the consumer.

This new launch by BA into the no frills sector will only succeed if if BA'scost base is considerably reduced. The outcome of FSS should see to that. (Fingers crossed!)

. .Regards. .Exeng

Edited because those very long URL's mess up the page formatting

[ 03 February 2002: Message edited by: Capt PPRuNe ]</p>

It is hardly the fact that no more meals are going to be served on board that will allow the airline to reduce the costs of its tickets. Its cutting all those middle men (travel agents,...) The number of cabin crew on board, etc. . .It is a totaly different mentality that they will have to adopt in order to be successfull.. .Anyway best of luck to all those involved, safe and happy flying.. .Rgds Bokkie449

Exeng

[quote] This new launch by BA into the no frills sector will only succeed if if BA'scost base is considerably reduced. The outcome of FSS should see to that<hr></blockquote>

We used to have a a low cost-base airline at LGW that made money - it was called CityFlyer. This was then destroyed by the same management who are going to do the FSS. So I wouldn't hold out too much hope of success.

The only way this would work is if the whole of the Gatwick fleet became lo-cost. It's all academic of course cos it probably isn't going to happen but then this place is all about rumours. When BA was offering £70 round trip tickets at the end of last year there was a significant increase in pax loads. I don't suppose for one second they made much profit if any but if they cut their backroom costs it may be feasible. I think if BA could come up with a very simple pricing structure that was easy to understand by everyone I think they could be onto a winner.

Hudson Bay, is normality the punter being shafted.BA can,t turn them round quick enough and pay to much.

Jet11,

I can understand some of your frustration having been an employee of the successfull CityFlyer. However that company was purchased by BA and not destroyed as you suggest. Also all of you are still employed and enjoying better remuneration I believe; but that has been flogged to death before.

I understand also your cynicism with regards to hopes of future success. I too have been very cynical at times. I am somewhat less so these days as there are some positive indications that BA may be finally about to grasp the nettle.

I quote from todays Sunday Times:. .&lt;&lt;THE board of British Airways has approved a radical management plan to cut 16,000 jobs and change the airline’s routes and working practices. . .The axe will fall most heavily on management and other non-frontline staff.&gt;&gt;

If BA do not effectively reduce their cost base then any venture into the low cost sector will be doomed. We know that and so must Rod and his board.

I posted two other links earlier which make an interesting read.

. .Regards. .Exeng

Exeng-Hell of a shame I cant take you for a pint and discuss the contents of your first paragraph-because its woefully incorrect.

Exeng,. .I think you missed the point on CityFlyer....BA saw a successful, profitable airline operating in BA colours (probably found it embarassing so had to by it). It was not a no frills airline but a company who offered BA service at a reduced cost. At the intergration meeting between ourselves (CFE) and BA management there was no end of BA quotes such as "we see many benefits in CityFlyer that we would like to intergrate into BA", BA will never be able to do this because of their working practices/procedures. . .So all this talk about BA being a lo-cost provider is just that....TALK. It will never operate profitably unless management from outside BA are given free licence to run it. And of course Rod's ego would not stand it...

A generation ago there was an influential book published by Robert Townsend, a former CEO of Avis. He took Avis to no. 2 in the market ('so we try harder' was the slogan).

In the book he talks about a scheme to set up a low cost car rental that would have competed with the mainstream business.

He claims that the comment that killed the idea came from an executive who said:-

"I don't know what you guys call it, but where I come from they call it pissing in the soup"

[quote]Switching to destinations where people actually want to fly ie Malaga, Alicante <hr></blockquote>

. .Err..Are'nt they GB's routes not BA's? <img src="confused.gif" border="0">

. .BTW Springbok.

BA are cutting out the Travel Agents already........It's called Fresh Approach! <img src="mad.gif" border="0">

What Bolt,

&lt;&lt;Exeng-Hell of a shame I cant take you for a pint and discuss the contents of your first paragraph-because its woefully incorrect.&gt;&gt;

Please take the trouble to inform me of the errors.

Racasan,

Thank you for the history lesson. Signing off with F.U.B.A would perhaps indicate that you are missing the point entirely.

. .Regards. .Exeng