The past year has been British Airways’ annus horribilis. From
tailfin design U-turns and cabin crew strikes to cost-cutting exercises
and the latest poor financial results, the BA brand has been through one
of its most testing years since privatisation. It culminated in chief
executive Bob Ayling’s announcement that the airline will slash capacity
by 12% over the next three years, in spite of a growing world airline
Ayling - formerly BA’s chief marketer - says he intends to re-establish
BA as the premium global airline brand, focus on wealthy and business
passengers and ditch all unprofitable operations. It’s an appealing
theory, but changing the direction of the world’s biggest international
passenger airline is not going to be easy.
To put the new strategy in perspective, it’s worth looking back a few
years. As the UK emerged from recession in the mid-90s, the outlook was
looking rosy for BA. Hitting record profits in 1996, Ayling prudently
embarked on his Business Efficiency Programme (BEP), which set targets
to save pounds 1bn by 2001. He also began to reveal plans for an
increasingly global airline, based around international alliances and a
bright new image.
Three years on, however, BA’s performance speaks for itself. Profits
plummeted from pounds 580m in 1997/98 to pounds 225m last year, and its
first quarter results for this financial year have followed the same
downward trend; first quarter profits fell 84% to pounds 23m. City
analysts now predict the airline will do well to break even this
The poor figures are due in part to a tough trading climate. The
economic slowdown in Asia last year seriously cut revenues and had a
knock-on effect in North America. The big airlines have switched
capacity to the US, creating excess supply and half-empty planes. Above
all, route deregulation has created a burgeoning low-cost airline sector
and a price war in European air travel.
Nevertheless, Ayling’s chosen direction has delivered a series of extra
body blows to the BA brand.
His cost-cutting programme has led to industrial unrest, most
prominently in the bitter cabin crew strike during the summer of 1997.
At the time of the strike, BA launched its controversial Project Utopia,
in which the airline played down its ’Britishness’ in favour of ethnic
Just as the strike was being settled, Baroness Thatcher famously threw
her handkerchief over a model of the new design in disgust, to the
delight of the tabloid press. Branson characteristically exploited the
situation by announcing he would put the Union Jack on his Virgin
The controversy raged on until June this year, when Ayling eventually
announced that at least half the fleet would once more ’fly the
Lastly, Ayling’s much-publicised alliance strategy - based around a
tie-up with American Airlines - is now all but dead in the water.
On top of all this, it could be argued that Ayling’s biggest failure is
a marketing issue: BA’s loss of high-revenue business and first-class
customers to rivals, specifically Virgin.
It’s all a far cry from the late 80s and early 90s, when BA left behind
its moribund state-owned rivals in Europe. At that time, its Union Jack
livery represented British quality and reliability worldwide. In 1995,
BA spent pounds 1.4m and had Saatchi & Saatchi hire Hugh ’Chariots of
Fire’ Hudson to direct ’Island’, one of the most expensive ads ever -
which spoke volumes about its confidence.
The contrast between then and now has led many in the media to call for
Ayling’s head to roll. However, the City, which instinctively backs his
cost-cutting approach, remains supportive. It is perhaps because the axe
is poised but steady above his head, that Ayling has now decided to
embark on his most high-risk strategy to date.
Despite previous forecasts that BA would grow capacity by 2% next year,
the airline will now dramatically scale down. It will do this by axing
unprofitable routes, switching to smaller aircraft to boost revenue
yields and jettisoning unprofitable customers.
For BA’s marketing director, Martin George, this means a new focus. ’We
want to be the best, not the biggest, and want far less business which
is driven by price alone,’ he says.
His challenge is to maintain an essentially populist brand - the
’world’s favourite airline’ - while getting rid of a tranche of rank and
file customers. An unenviable task.
’It certainly needs to be handled sensitively, but the only segment of
customers that we actually want to get rid of - those transferring to
our flights on short-haul routes - probably didn’t even choose our brand
anyway so we won’t offend them,’ he says.
George is relying on a three-pronged approach to fulfil Ayling’s target
of raising revenue per customer by around 25%.
First, there is a determination to return to BA’s tradition of
At the annual results press conference in May, Ayling personally
announced a pounds 200m investment in new ’lounges in the sky’ for
long-haul business-class travellers. By the time next year’s results are
announced, all BA’s Club World cabins will feature seats that turn into
beds and face the back of the aircraft. They will also be plugged into a
multi-channel entertainment system and the internet.
BA is bringing in similar improvements to its other types of cabin. Club
Europe will be overhauled in September, Concorde refurbished by next May
and even World Traveller will get a pounds 150m refit over two
Second, and tied in with new product development, comes a carefully
tiered communications strategy.
BA has already kicked off its first corporate advertising campaign since
the 80s. The TV ad, featuring PJ O’Rourke, has proved a big success, and
is a clear return to pride in BA’s Britishness.
After one more burst of O’Rourke this autumn, BA will begin rolling out
a series of ’customer benefit’ campaigns. This tier of communication is
likely to include new TV campaigns and will concentrate on product and
The final tier will be the continuation of regular World Offers
campaigns; promotions to sell off seat capacity, but designed to keep
this essentially price-led message very separate from the premium
positioning of its new product.
The challenge for M&C Saatchi, BA’s ad agency, is to continue to hit the
right tone with its creative treatments. Just as its ’Red Eye’ ad of the
late 80s summed up the aggressive business culture of that era, M&C now
needs to anticipate the spirit of the next decade.
George believes this will be about balance, innovation and service. He
is also striving to develop a fresh media strategy. ’The premium
audience we are focusing on is the most difficult group to target. They
are busy, watch little TV and are immune to advertising messages. We
need to find new ways of penetrating their psyche.’
Hence the third prong, a significant shift toward relationship and
database marketing techniques. ’Our correspondence with customers grows
by 15%-20% a year and we need to take advantage of this by being
proactive with our dialogue,’ says George.
BA has already made changes to its Executive Club scheme. In a bid to
retain and win back premium customers, it is no longer demoting
long-term Gold Card holders when they start travelling less frequently.
They are allowed access to lounges even when not flying BA, and are
allocated a personal contact at the company.
Much more fundamentally, by the end of this year BA will have completed
Ocean Wave, a huge project which consolidates 20 existing customer
databases into one central information source. This will enable BA to
bring up the travel history of individual customers at check-in, and
anticipate their requirements.
The database improvements will be integrated into a new online marketing
drive, and much of Executive Club communication will soon be switched
from traditional mail to e-mail.
’While traditional advertising is necessary to keep our brand at the
front of mind, we must be able to communicate to our audience what’s in
it for them personally,’ says George.
He accepts that all these efforts in marketing communications will be
useless unless better service is delivered to the customer, but says
there is a renewed push to bring staff onside with each initiative and
increased investment in the ’Putting People First Again’ staff training
It’s all admirable stuff, and if anyone can turn BA’s brand around it
may well be George. He is only 36 and has a convincing combination of
intellect, enthusiasm and energy. But just how sound is the strategy
that underpins the new marketing drive?
Among leading observers the jury is still out. Jonathan Wober, transport
analyst at Deutsche Bank, gives a typical response: ’BA certainly had to
do something, but I’m cautious about the capacity-slashing approach.
Excess demand and lower yields is an industry-wide problem. If BA trims
back and its competitors don’t, it could become both smaller and
higher-priced, while the majority of its passengers remain economy
Here Wober touches an important nerve. For, while BA starts scaling
down, Virgin is pursuing the opposite strategy. It intends to continue
to expand capacity and is confident that its profits will continue to
Virgin added Shanghai as a destination earlier this year and will begin
flying to Chicago in November. It will then compete on nine out of ten
of BA’s most popular routes.
’It is both rare and curious that BA is planning a capacity reduction at
a time when analysts are predicting 5% growth in international flights
this year,’ says Paul Moore, Virgin Atlantic’s head of PR. ’But if BA
turns its back on economy passengers we will happily step in and pick
What should be even more worrying for BA is that economy passengers
aside, Virgin has proved more successful in winning over the very
audience that BA is now targeting. In this sense, Moore argues that BA’s
thinking is fundamentally flawed.
’The statement that you are concentrating on premium customers is
short-sighted, because today’s economy-class customers may be tomorrow’s
business and first class. Many of our customers have switched because of
recommendations from friends or family. The secret of our success is to
keep all our passengers happy, regardless of where they sit,’ he
Of course, as the challenger brand and a fraction of its size, Virgin
will always have one marketing advantage over BA, by continuing to
position itself as the people’s champion.
Its leaner operation also makes it fleet of foot. So even where BA does
innovate, Virgin can quickly copy the innovations and implement them
across its fleet much more quickly than BA can update its own
For this reason, the winner in this battle will be the airline which
delivers the highest service standards. And it is here, in this critical
area, that Virgin has persistently outflanked BA during the past
One doesn’t doubt that BA genuinely desires to improve its service
standards, but airline service is highly sensitive to company morale.
Following privatisation, BA’s focus on service made it the pride of the
world, but in recent years, industrial disputes, exacerbated by
continuously negative media coverage, have left BA staff morale at its
BA’s profit slump this year deprived most of its staff of their
Demoralised cabin crew led to poorer service standards and, in turn,
more disgruntled passengers.
Ayling has also admitted that the cuts in capacity will lead to further
job cuts. While these are not likely to be in front-line or marketing
staff, they will hardly boost morale.
However, with its marketing might, a staff of talented communicators, a
top advertising agency and massive internal communications resources, BA
may just be able to turn its culture and its fortunes around.
If this happens, and Ayling has got his sums right, within three years
BA could once again be leading the pack, rather than chasing it.
- 1981 Lord King is made chairman, with a remit to make BA profitable
and prepare the group for privatisation
- April 1993 BA is repositioned as ’The world’s favourite airline’
- February 1987 BA is privatised; the flotation is 11 times
- January 1988 introduces New Club World and Club Europe brands
- February 1991 4600 jobs go, following the outbreak of the Gulf War and
a significant downturn in traffic
- October 1992 BA unveils its first fully integrated ad
- January 1993 BA pays pounds 610,000 in a libel case brought by Richard
- February 1993 Lord King steps down as chairman, Sir Colin Marshall,
later Lord Marshall, takes over with Bob Ayling as group managing
- March 1994 BA launches World Offers
- January 1996 Bob Ayling becomes chief executive
- June 1997 unveils its new ’global’ corporate identity
- July 1997 cabin crew go on a three-day strike; settlement reached in
- May 1998 Go operates its first flight from London Stansted to Rome
- June 1999 BA announces it will drop many of its ethnic tailfins and
return to the Union Jack
International Passengers (m)
Air France 18.2
American Airlines 17.3
United Airlines 11.5
Japan Airline 11.2
Swiss Air 11.0
Int+domestic Passengers (m)
United Airlines 86.8
American Airlines 81.5
US Air 58.0
Northwest Airlines 50.5
All Nippon Airways 41.5
Continental Airlines 41.3
Air France 33.5
Source: International Air Transport Association