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

I assume they would be doing this at least partly to keep low cost carriers out of Gatwick and try and keep several thousand loyal employees gainfully employed who would otherwise be made largely redundant if were to pull out as has been rumoured here and elsewhere.

It sounds bold but the BA brand is a powerful one with a hitherto good reputation with the flying public as the worlds fav. If they turned Heathrow into the hub for premium and transfer customers with all the service and benefits they demand, and Gatwick into their budget customers London point they might be able to take on the low cost carriers on their terms.

As for costs, that may depend on how effectively they can trim management (as mentioned in the Sunday times) and how well negotiations go with the unions which would be interesting(!) for those partaking...

Exeng,. .The FUBA bit was a hangover from the takeover, and it was a takeover, however it's pretty obvious that you've had the BA chip fitted so all anti-BA views will fall on deaf ears.. .As I have indicated in my previous post, it's BA working practices (ie the unions) as well as poor management that is to the detriment of the company. If the workforce were more flexible the company may have a chance.

DD thanks for putting me right on the travel agents issue but as I said cutting the middle men is the key and I was merely citing the travel agents as an example. Its getting the big picture kind of idea.... .Rgds Bokkie449.

Racasan,

How condescending of you to suggest that all anti BA views will fall on deaf ears. I am interested in all views on BA, I just don't happen to agree with all of them. I have also been the author of several posts on both this forum and our own BA forum that have been highly critical of certain areas of BA. Some changes are now beginning to take place in certain areas that I have critised. These changes are woefully overdue, but better late than never eh.

Also may I respectfully suggest that you change the F.U.B.A. sign off, there are far more intelligent ways of expressing your discontent.

. .Regards. .Exeng

Exeng,. .So pleased to read your post about the article in the Times. I hope its true. Any 'slimming down' of any business should always start with the management as by definition they are'nt front line or customer facing. BA is so top heavy its in danger of turning turtle! Nothing personal you desk-jockeys but there is surely plenty of scope for 'downsizing' as you guys like to say, amongst yourselves!

Based on a very small smaple of personal experience, if they want an example of low service levels into LGW, then BA already have it. It is called Deutsch BA.

If BA are going to launch a second service, then I think that it is an attempt to do something with the people and equipment on hand. I cannot see it being more than a short term option. Perhaps they hope to use the resources in 'low cost' until/if the market returns to 'normal'.

Then they can phase it out and return to normal service, without major expansion costs.

If it does not work - they can say, "We tried" and shut it down/sell it off. But then I always was a cynic.

Good luck to them and my many fellow pax find good value and safe rides.

OK, let's get a few things straight here about CFE:

CityFlyer Express wasn't a low cost airline as such; indeed most of the prices for a ticket on our planes were very much in line with BA pricing as far as I'm aware; we still offered a full service on all our routes and no club class on domestic routes. However, we managed to make money on all the routes and more especially on the routes palmed off to us by BA.

WHY??

Well, in my view it's very simple really, and it really has very little to do with crew salaries. In our last year as CFE we made £11M profit. Even bringing Pilot and cabin crew salaries up to BA standards we are only talking a 3-4 million pound reduction in this profit at worst!.

No, the real saving came because we were a lean airline. Brad and his sharp knifed generals were constantly looking out for the best deal in catering, handling and aircraft. Our tunrounds used to cost £400.00 a go. There used to be a short period of glitches after changeovers from company to company, but after a month or two things would move pretty much to schedule.

Now the turnrounds cost somewhere in the region of £1,400.00! This is because the 'redcaps' cost far more to employ, as do the baggage handlers and the handling equipment to run and maintain; overheads which would be far more closely monitored by a third party.

For those redcaps and handlers reading this, I actually think you are quite good; but not £1,000.00 worth better than what we had with BMH. If you count the number of BA flights a day at LGW and multiply it by 1,000 then you will arrive at a figure of squandered money. I think you'll find it's quite high.

If the management at BA have any sense they'll sell off their handling black hole (which, in the long run will safeguard more of their jobs) and lean down leaving them free to exploit the market.

Yeah sure, it'll mean that the redcaps and handlers will have to accept a few changes - namely that they might have to work harder - but that's life; this isn't a nationalised industry offering a cushy job for life anymore.

So will BA really tarnish their image in this way? For a start they would have to:

- Rip out the forward galley, wardrobe, bulkheads, etc. to get another couple of rows of seats in.

- Reduce seat pitch, certainly in the forward part of the cabin which has wider C Class pitch.....squeeze another row in.

- Halve their handling overheads at LGW. BA in the North Terminal, with all the union agreements, etc. will really have to crack the whip to try and get the kind of productivity needed.

- Sack half the management to get rid of the real cost problem!

- Re-negotiate handling rates at all the overseas destinations to a stripped-down, low-cost operation.....but will handling agents suddenly be prepared to handle the same aircraft for substantially less....I doubt it.

- Get rid of their high-cost staff at the overseas airports.....serious union issues if BA aircraft are still going to operate to those airports.

- Re-educate the crews into the low-cost type of operation. The closest BA have got to this kind of attitude is in the CityFlyer crews, but even their operating philosophy is very different from a Ryanair/easyJet operating philosophy. You need the right kind of people / attitudes to make it work.....BA have a great bunch of crews but not necessarily for this kind of operation.

I could go on.

If BA are going to make a genuine go of it, then I wish them luck. If they are out to cross-subsidise and not pricing correctly then MOL and Stelios will be straight to the courts!

Sorry, I just can't see it working. The BA operation at LGW is so entrenched, and no-one has any experience of the kind of operation they want to emulate.

King Kee

Secret Squirrel / King Kee - Totally agree.

CFE was a low-cost BA operator but totally different from the real 'low-cost' boys. You only have to look at how lean the management set-up is in the likes of easyJet, and the attitude and dedication of the staff.....a lot of emphasis placed on quality of recruitment and phsychological profiles to get the right kind of people for the business.

I know how BA works, and the type of management. They could never, ever come close to matching the CFE cost-conciousness, so they don't stand a hope in hell of ever getting close to the easyJet/Ryanair philosophy.

Call me a cynic, but it's simply not going to work.

In Trim

The "Ryanair philosophy" ?

Is that the same sort of philosophy . . that charges professional people £50 . . just to look at their CV ?. . . . "The right attitude"

Were people actually queueing up to flog. . themselves to death working for easyjet . . before Sept 11th ?

Desperate or what?!!!!. .The Dinosaur breathes it's last? (in the shorthaul market anyway). .Sorry, but the reason that going from high to low cost has never been achieved is 'cos it just aint possible. Going the other way's no problem! Easy/Ryan won't just roll over Dan Air style, they'll slaughter BA on any of these routes if they can but get hold of the slots (but maybe that's the whole point). Reckon you're right Desk Driver, GB will lose out massively in the short term. I feel for the ostriches like Exeng though; I wouldn't swap places right now!

A low cost carrier has to be built from the bottom up. You cannot convert a high cost high revenue carrier like BA into a low cost carrier. It's like expecting an elephant to dance ballet.

Cheers

Exeng,

From a business point of view, what BA has done is insane. They have taken an airline at Gatwick with a lower cost base than its own and turned it into a higher-cost airline - not once, not twice but now three times with BCal, Dan-Air and latterly CityFlyer. Admittedly, the circumstances under which they acquired those three airlines were different each time but you have to admire their consistency in cocking things up thereafter.

Yes, you're right in that many of the CityFlyer chaps now benefit from better terms and conditions. Many of those people are also extremely uncomfortable about the lack of job security afforded by the inefficiency and high cost structure of the operation within which they now sit.

BA (or more specifically, those at Waterside) just do not know how to run a profitable Gatwick operation. They are only taking this move to try to break the vicious circle of cutbacks = more slots returned to the pool = more slots given out to easyjet = more competition for BA = more BA route cuts due to unprofitability. However, the p**s poor management of the Gatwick operation by sales, purchasing, revenue management, fleet scheduling, network development, crew scheduling to name but a few BA departments, is quite stunning.

And by the way - don't mistake a low-fare airline for a low-cost airline. They are not necessarily synonymous. Any idiot can sell seats for £19 one-way but only few can make a profit doing it.

Toodle pip.

Those of you writing off BA's chances are perhaps overlooking the possibility that Rod really will call the changes at Gatwick.

EOG was little more than a feeder network for lucrative long-haul flights from both EGKK/LL, which is why it always lost money - many of its services were for free!

Consider the possibility that BA ditches this philosophy, freeing up a/c, routes and schedules (previously restricted by transfer timetables), so that Gatwick can increase frequencies on busy routes where people are willing to pay.

Suddenly load factors are up, total flights are up, turnarounds are faster, and Gatwick makes money even with lower fares? It is a possibility, so don't write BA off in the low cost sector yet.

. .Evil <img src="cool.gif" border="0">

As one of the correspondents on this thread has pointed out, the destinations that easyJet et all wish to compete with BA on like Alicante, Malaga, Palma etc are all currently served by GB, who fly as BA. Unlike BA mainline, GB is very lean and has none of the debilitating overheads that BA mainline has. The only difference I can see in the costings is the catering (a few quid per head) and the franchise cost that GB pay to BA for operating as BA (several millions I am told). That is offset by the massive advertising budget of easyJet (many millions I am told) and the higher wage bills for their staff. Incidentally, GB will be one of the few airlines in the UK to make a profit this year.

As I read the comments on this thread, and many others that have gone before, I detect undisguised glee at BA's problems. The low-fares carriers will do well to remember that they will not be taking on the vast and unwieldy BA mainline on these routes, but a very lean and capable airline who can and will match them pound for pound. I have no doubt that easyJet will do well in the short term in taking on GB, because of the incorrect public perception that it is always cheaper to fly with easyJet. If however BA and GB play their cards right on the PR front, then in the end easyJet are going to lose some serious money on these routes because they will be taking on a company who are every bit as lean as they are.

Everyone knows the bottom line is that you must on average make at least £50 a seat. You can dress that up in £1.50 return trips to Malaga as the headline price with loads of people paying a couple of hundred quid to offset it, but the economics are fundamentally the same for both airlines. My gut feeling is that GB can make the fares cheaper on average than easyJet can. We will soon find out who is right.

My feeling is if BA and GB as a franchise can bring some clarity to pricing and dump the special offer free giveaway marketing spin that easy and ryanair regularly perform then they could be onto a winner. Also distancing Gatwick from their longhaul transfer may like exeng says do BA Gatwick a favour. We won't now see revenue being hived off, it'll be going straight to the bit that generated it. Good luck to BA I say, but that's cos I work for 'em.

Don't forget that we're not talking about BA as a whole becoming a low-fares airline, just selected routes from its Gatwick base. If the scheme becomes succesful, they may broaden the scheme to include flights to other shorthaul destinations.

The other low-fares airlines have made profits, so why can't BA?

For those who said it would be confusing for passengers who expect the full BA service, BA can set up a Low fares section on its website for the selected routes from Gatwick. Pax will be told that the Low fare flights do not include the usual in-flight complements, etc. Although Duty Free and snacks/drinks are available at a price.

I say Good Luck to BA. May they enjoy a prosperous future. <img src="wink.gif" border="0">

Ive said it before the one thing these low cost outfits are very good at is the advertising, giving the general public the idea that they can go anywhere for £15.

Ive booked to go to Spain in a few months with GB and have done it for £200 less than with GO and just recently they seem to be able to do this more regularly.

All I can say is thank god BA have come to their senses and decided if you can't beat them join them. To those who say they can't compete with Easy,GO etc I'd say watch out they can and they will. Their staff of which Iam one, with the right motivation and some clear direction of where we are going are just as dedicated and able to make a success of the low cost operation. Whatever your views of BA are the brand is still a strong one and is quite capable of existing alongside the others.

Amazon Man

You are correct in assuming BA have the best front line staff etc however we cannot compete with the low cost carriers with our overheads can you really see Jubilee house dismantling?? If they have the guts to do that then we have a chance. <img src="eek.gif" border="0">

Norman stanley fletcher and amazon man are spot on. I wish it well because some so-called budget airlines are having an easy (excuse the pun) time of it. Now some real competition.

As for marketing, it would be good to see a real hard hitting campaign that never ends. I have no doubt BA are more than capable of this.