Saturday, 29 July 2017

British Airways. Saint or sinner?

So what is it with British Airways? Why does it seem so many people are falling out of love with them? If they exist who are these people?  How many?  And do they have a point.
First one needs to clarify who they are as so many things have changed in the airline marketplace. British Airways (BA) used to be the UK’s national ‘flag carrying’ airline and was sometimes seen as a ‘full service’ airline.  In recent years a full service airline was one that charged an all-in price for the full service provided which used to be extensive. People got used to it and some still continue to expect nothing less. Then the airline market changed.

It started with the arrival of what many call ‘cost plus’ airlines. These people (like EasyJet and Ryanair) use a different cost model which is focussed on lowest seat price plus charges for almost everything else relating to the flight i.e. baggage, seat allocation, meals, credit charge use etc etc. Travellers could then choose what they needed, or wanted. This coupled with flexible seat pricing and initially different origin/destination usage appealed greatly to flyers, primarily in the leisure market.

BA and these ‘no frills’ airlines managed to live with each other (just) until the market changed. The catalyst for change came when the Low Cost Airlines (LCA) saturated their initial operating destinations with flights, ran short of new ones, saw opportunities in mainstream markets and, essentially, started wining customers away from BA and others. Their marketing was very popular with the public who failed to understand why the big airlines seemed to charge so much more.

Almost all airlines have one thing in common. They have shareholders who invest in them and expect a good return. Many are listed on their stock exchanges and therefor need to satisfy analysts and major investment institutions and share dealers. This drive for improved return on investment (ROI) is another key driver for airlines to seek lower operating costs and increased sales. Their very existance depends on it.

To my mind BA has had no choice but to respond positively to these drivers by being competitive with all opponents’ whist protecting and reshaping their brand. After all I have seen little evidence of the bulk of their customers demanding that BA charge premium fares for premium service. The contrary is more evident. With this in mind I see BA has little choice not only to vigorously defend their position but exploit opportunities for new business too.

So how can BA do this and are they competing on a level playing field?  Well the field is certainly not ‘level’ at present although it is starting to get there.  For example BA serves all sorts of routes that no LCA would dream of. They also operate up to four different classes of service on the same plane which is hardly ‘stack them high and sell them cheap’! They also operate on a completely different cost structure. They are trying to improve this by negotiating new staff contracts and outsourcing costs with sometimes disastrous but possibly predictable outcomes. Understandably staff do not want to change their desirable and traditional union negotiated remuneration packages and an outsourced function is less service secure than a costly internal one.

Meanwhile the LCAs continue with their cherry picked lucrative cost and price models without the need to worry about huge antiquated legacy issues. Not for them the concern of taking products away from customers which they never gave to them in the first place. Everyone seems to accept that they are the ‘people’s champion’ in the fight for low pricing.

The only trouble is people have begun to notice BA’s cost reduction and do not like it. People will always expect a service they have always enjoyed but woe betide anyone who takes it away! Hell hath no fury than someone with a meal/drink/seat taken away. This combined with the service imbalance of operating different classes on board is a huge challenge, especially as the less populated premium cabins do not contribute the majority of a flight’s revenue income.

So what is going to happen? Well it is anyone’s guess but I think BA will be taking a long hard look at how it will move forward and I have every confidence they will find a solution. I am also convinced it will not continue to operate exactly as it does now. Perhaps they might operate a two service/one flight system i.e. make the rear cabin low cost and the front full cost. With a flexible cabin configuration this may just work. Another possible option would be to split the airline into low cost short haul and full service long haul service as no LCA airline seems to have found a way into the intercontinental market yet and may never do so.

Going back to the beginning of this blog. Who is getting discontented with British Airways? clearly it is their premium business clients who perceive that service declines as BA drive for increased profitability How many? Well quite a lot really but the situation is still recoverable. And do they have a point? Well clearly they do.Whatever happens I do not envy British Airways but I wish them well. The road will be challenging but I am confident they will get there. They are, after all, a damn fine airline and the envy of many a nation.

Saint or sinner? Well saint is perhaps too kind but sinner? That would be unfair…wouldn’t it?!