Europe’s Biggest Airline Reports Big Losses
May 20, 2002
For the first time since going private 15 years ago, British Airways (BA) has concluded a year with negative figures. Its annual losses of some 320 million euro ($295 million) for 2001 are the worst among Europe’s major airlines.
The company has blamed September 11 and the growing threat of international terrorism for plummeting passenger numbers on long international flights. Full seat capacity was down 12 percent for the entire year, and per passenger revenue dropped 14 percent. Like its European rivals Lufthansa and Air France, BA was forced to ground flights to accommodate the decline.
But the big British airline was already in trouble long before the terrorists flew into the World Trade Center. Competition from low-cost, no-frills airlines such as EasyJet and Ryanair had put pressure on BA to lower its prices. At the same time, though, the BA continued to have high operating costs. It couldn’t afford to reduce its service simply for the sake of cheaper flights. As a result, BA lost customers to the cheaper airlines, especially many of its younger customers and weekend fliers.
Cutting Costs
BA Chief Executive Rod Eddington announced on Monday that the aviation industry would remain weak throughout the coming year. But the company is "determined to return the business to acceptable levels of profitability", he said.
In order to return to profit target levels, the company has begun a major overhauling of its European operations. This includes striking several less frequently booked flights and laying off some 13,000 jobs.
"We have had to take a series of tough decisions this year to protect British Airways for the long term," Eddington said justifying the job cuts. "It has meant sacrifice and hardship for our people", but in the words of BA Chairman Lord Colin Marshall, "in a weak sales environment, the focus remains on cutting costs."
Share holders responded approvingly to BA’s new plans for downsizing and restructuring. Shares went up 3.4 percent in early trading on Monday.