Is BA flying into the eye of the storm?

As BA braces itself for the Open Skies treaty, new recruit, head of marketing communications Katherine Whitton, is ready to defend its quality proposition from rivals.

British Airways will not remember the past year with any fondness. First, there was a dispute with employees over pay and working conditions that almost led to a walk-out. Then there were the baggage problems at Heathrow that prompted weeks of negative press. And not forgetting a £270m fine for price-fixing over fuel surcharges, the discovery of which spurred the resignation of commercial director Martin George last year. To top it all, a report in August went so far as to claim that BA was the worst-performing airline in Europe.

But worse may be to come. Under the US-EU Open Skies Agreement, which comes into force next March (see box below), any European or US airline will be able to fly in and out of Heathrow, ending the exclusive rights granted to BA, Virgin Atlantic, United Airlines and American Airlines. Rivals are expected to take on BA on its home turf. As the airline prepares to move into its hub at Terminal 5, the next 12 months will be critical.

Into this maelstrom of uncertainty was plunged Katherine Whitton, who began her role in August as head of marketing communications, and replaced Jayne O'Brien, who left in March. Speaking exclusively to Marketing, Whitton admits that the opening of Terminal 5 'could not be happening at a better time'. The problems of the past year have taken their toll. 'People have high expectations of a long-standing leader brand, and therefore they disappoint easily,' she says.

The challenge she faces is to restore faith in BA and develop a clear positioning for a brand that has been unable to decide whether it is a premium or mainstream operator. Whitton, who worked on a BA co-branded credit card during her time at American Express, remains adamant that the airline's 'strong heritage and solid infrastructure' will pull it through, but she is cautious about whether BA can return to its former glory. 'We are not looking to get back to how we were,' she says. 'Five to 10 years ago the air-travel landscape looked very different.'

The problems of the past year have detracted from a financial turnaround at BA. Under chief executive Willie Walsh, who took over in 2005, a brutal restructuring has led to higher revenues, lower debt and a reduced pension deficit, which in turn has allowed fresh investment; BA has placed aircraft orders worth £4.1bn, expanding its capacity by 4% a year. 'It is an exciting time,' adds Whitton.

Investors are not convinced, however. BA's shares have plummeted by roughly a third since February as a result of fears that the competition following Open Skies will eat into profits. The transatlantic trade via Heathrow helped BA negotiate the air-travel slump post-9/11, but the Open Skies deal could seriously dent this business. Other airlines are likely to make multimillion-pound bids for runway slots and even budget airlines such as Ryanair are looking into transatlantic opportunities.

The major concern, however, is that BA's lucrative business-class service will be hit. Open Skies will open up the transatlantic business market to more airlines, with both mainstream carriers and business-only operators considering new routes.

BA is already responding. In May, it announced it would become the first mainstream carrier to launch an all-premium service between the US, probably New York, and mainland European cities such as Paris, Zurich, Milan and Madrid. Currently only Silverjet and US-owned airlines Eos and Maxjet offer all-business-class services from the UK to the US.

Whitton is guarded over the details, revealing only that 'business travellers remain a critical part of BA's passenger mix'. But there is certainly a renewed focus on its business market. The airline is spending £100m revamping its Club World business-class service, with changes to its in-flight menu, entertainment system, flat beds and airport lounge. It has signed a five-year deal with luxury skincare brand Elemis to provide Club World onboard amenities and operate spas within Club World lounges at Heathrow and New York's JFK airport, and launched a promotion promising to upgrade business-class flyers to first class if the service does not meet expectations.

'We are continually looking to offer our frequent flyers an upgraded experience, even when they are not flying,' says Whitton, whose remit includes overseeing the company's CRM strategy, including its Executive Club loyalty scheme. The 41-year-old grew up in Hong Kong, studying ancient history and classical archaeology at Sheffield University before beginning her career at a UK subsidiary of global financial firm Transamerica. Roles since then include a spell at direct agency Rapier and nearly a decade at American Express. She seems quite the opposite of the famously cut-throat Walsh, and it is clear she is still finding her feet at the airline.

Her biggest initiative to date has been last month's long-awaited launch of the 'Upgrade to BA' campaign. The ads, created by Bartle Bogle Hegarty, highlight the 'high levels of service' the airline claims to offer passengers.

It has been proving a baptism of fire. The campaign, the airline's first brand advertising since 2004, was roundly panned by the trade press - 'cheesy', 'budget' and 'the worst ad I've seen this side of Sheilas' Wheels' are some of the comments on one industry forum. The airline has also been attacked over the timing of the campaign, which was originally scheduled for last April.

Whitton shrugs off the criticism, claiming that the campaign researched positively in testing. 'We wanted to make sure we went with the statement of offering an upgraded experience when we could prove it,' she says. 'We are making significant investment in the brand, so it was the right time to go out with a differentiated brand philosophy.'

The reaction to the work underlines the balancing act BA is having to play. While seeking to cement its premium business, it is also trying to maintain broad appeal, and the 'upgrade' message sits uncomfortably alongside campaigns promoting how cheaply you can fly on its planes. Tim Duffy, chief executive of M&C Saatchi, which worked on the BA account until it switched to Bartle Bogle Hegarty in 2005, believes the brand's 'lack of clarity' is a major issue. 'BA is now in danger of being seen as less good than Virgin on long-haul business and easyJet on short-haul value,' he says. 'This is not sustainable.'

Whitton insists BA will not actively lower fares to compete with cheaper tickets. 'There will always be people who are price-driven because of their needs or the compromise they are prepared to make to gain price advantage,' she says. 'We have ongoing tactical price-driven campaigns, but our strategy is to offer the best value for the best service.'

Some industry analysts believe that BA will be forced to make a choice as competition intensifies. 'It has not been an airline for everyone for years,' says Iain Ellwood, head of strategy at Interbrand. 'I can see it becoming a mass-premium product, like Waitrose is in the supermarket sector.'

Ellwood, who believes BA is the 'whipping-boy brand' of the airline industry, thinks it is right to try to find a fresh positioning. 'The airline is on the cusp of recovery, so it was the right time to lay the seeds of a differentiated BA,' he says.

The 'upgrade' concept will be used in future activity, including multimedia work showcasing Terminal 5. The airline has high hopes for its new home, as its creaking Heathrow hub has been one of its biggest weaknesses.

The £4.3bn terminal will accommodate 90% of BA flights and boasts six business-class lounges with three Elemis day spas, 96 self-service check-in kiosks and fast bag-drop points as well as 141 restaurant and shops. It will accommodate 30m of the 68m passengers who pass through Heathrow each year and, after the luggage problems over the summer, its new baggage system will handle up to 12,000 bags an hour.

'It is going to be exceptional,' says Whitton. 'An enormous amount of thought has been put in to creating a fantastic BA-branded customer experience. We want to give people back time that is lost when travelling.' She can certainly sympathise - she commutes every day from her home in Brick Lane to BA's offices near Heathrow. 'I've got the trip down to a fine art of between 57 minutes and 1 hour 15,' she says.

A new terminal will not solve all the airline's congestion issues at Heathrow, though. With the airport running at full capacity, BA is almost unable to recover its schedule when disruptive incidents occur, such as security alerts or hazardous weather. It is significant that the aircraft BA has ordered will allow it to expand its capacity without having to apply for more runway slots. Even so, rival hubs, such as Paris Charles de Gaulle and Frankfurt, remain better placed as they have more than two runways and at least 20% unused capacity.

BA will have to tread carefully if it is to continue to push for airport expansion. As the protests at Heathrow this summer demonstrated, the growth of air travel and its impact on the environment are sensitive issues. BA, like other airlines, has been criticised for using carbon-offsetting schemes to gain environmental legitimacy in the eyes of the public. Greenpeace accused it of obscuring scientific arguments with misleading figures, keeping a tight hold over government policy and lobbying hard for airport expansion. Whitton does little to counter the allegations, claiming only that the airline has achieved 15% fuel efficiency, with a goal of a further 25% set for 2025, and that it is in the process of recruiting a head of CSR, who will oversee programmes for fuel efficiency, noise pollution and waste, HR, customer wellbeing and charitable giving.

She maintains that it is important not to interrupt people's lives with green manifestoes. 'Companies should not use their environmental credentials as a marketing ploy,' insists Whitton. 'We mentioned our goals on fuel efficiency in our brand campaign, but it was not the lead idea.'

What BA has in its favour, according to Colin Shaddick, travel analyst at Continental Research, is the sheer longevity of the brand. It has not fallen so far from its former glories that it cannot compete with more nimble rivals. 'Virgin may be maverick and innovative, but BA has tradition,' he says.

Nevertheless, Whitton has her work cut out over the next 12 months if the airline's financial recovery is to continue. 'The airline has taken its eye off what the customer wants,' concludes Ellwood. 'It needs to go back to the customer if it is going to start driving revenues again.'

Open Skies Agreement
  • The Open Skies Agreement is a treaty between the US and the European Union that will allow any European or US airline to fly any route between any city in the EU and US from next March. US airlines will also be able to fly between European cities.
  • The deal will see Heathrow Airport opened up to competition, although the expansion of transatlantic flights to and from the airport will be limited by its lack of runway capacity - Heathrow is 98.5% full and incumbent airlines will defend their slots.
  • The agreement has renewed interest in airline consolidation; under current regulations, an airline like BA could not buy Iberia because a Spanish-US treaty rules that only Spanish-owned carriers can fly from Madrid to New York. Open Skies changes this.
  • Experts differ on whether increased transatlantic competition will affect fares. Some predict a price war, while others believe it will lead only to lower prices in business class.
  • In April, Ryanair announced plans to launch an airline offering low-cost long-haul flights between Europe and the US from 2010.
  • Continental Airlines will offer direct flights between Heathrow and Houston before next summer. Northwest Airlines is likely to move its US connecting routes from London Gatwick to London Heathrow, while Virgin Atlantic is adding daily flights to New York from several European cities, including Paris, Frankfurt, Milan, Amsterdam and Zurich.
The Business Airlines
  • Mainstream airlines could find themselves competing with all-business-class operators under the Open Skies Agreement.
  • Currently, only Silverjet, Eos and Maxjet offer these services from the UK to the US.
  • Eos has filed an application to fly from continental Europe to the US and is expanding its fleet in preparation for new routes and additional flight frequencies.
  • Silverjet is launching a second route to Dubai next month from its private terminal at Luton and Maxjet is considering launching services from other European destinations.

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