BA's in-flight revolution prepares for take-off

INSIDE THE breezy, futuristic complex that houses British Airways' new headquarters on the fringes of Heathrow airport, a revolution in airline strategy is quietly being put in place.

The City will not see much evidence of it when BA reports its full-year figures tomorrow. The house brokers, Merrill Lynch, are going for a pre- tax profit of just pounds 173m, against pounds 580m in 1997-98. The savage decline in profitability is the result of two principal drag factors - the fierce price war that is being fought out on long-haul routes and a decline in premium passengers.

If BA has got its strategy right, then it may have found the answer to both those problems. Since the start of modern jet travel, airlines have been organised and run as a network of routes. In BA's case, the centre of the web is Heathrow, the world's busiest international airport, and conventional wisdom says that the more passengers BA can get to interconnect through that hub, the more profits it will make.

But conventional wisdom has now been debunked at BA. Instead of aiming for volume, it is targeting only the profitable segments of the market. And instead of aiming to attract transfer passengers, it is focusing on point-to-point traffic.

At present the ratio of point-to-point passengers to connecting passengers is about 60:40. The aim is to raise that to 75:25. Likewise the proportion of business passengers to economy passengers is targeted to rise from 30:70 to 45:55.

Transfer passengers now have so many options for flying across the Atlantic - for instance someone travelling economy from Lyon to New York has a choice of six different airlines - that yields have fallen to the point where fares no longer even cover the cost of the aircraft.

The key to achieving that holy grail of attracting more point-to-point business passengers is more efficient use of the BA fleet. David Spurlock, a 31-year old American who moved over from the Boston Consulting Group two years ago to become BA's director of strategy, says: "It is always cheaper to shift underperforming assets into profitable market segments than it is to go out and buy new aircraft. That has never happened before in the airline business but it is happening at this one."

BA is reconfiguring its fleet so that nearly half its long-haul aircraft will soon be Boeing 777s, which have fewer seats for economy passengers and lower operating costs.

BA estimates that, on average, it will be able to increase yield per seat by 23 per cent on its North Atlantic routes by switching to 777s, which cost about pounds 40m a year to operate against pounds 50m for a 747.

In total, it believes that its fleet reconfiguration, which will also see larger 757 aircraft replaced by Airbus A320s will increase operating cash flow by pounds 200m a year. Freed from the mentality which said that BA's short-haul European network had to be run as a feeder for its long-haul routes, means that BA can concentrate on maximising returns rather than volume. The aircraft themselves are also being financed on a different basis. For instance, the fleet of 59 Airbus A320s which start arriving this September will come with lifetime engine maintenance contracts that are the responsibility of the manufacturer, so that BA pays for "power by the hour".

Mr Spurlock says that BA's aim is improve its capital efficiency by at least 15 per cent over the next five years - which is to say the amount of revenue generated through its asset base. Given that the BA fleet has a gross replacement value of pounds 15bn, that provides significant scope for improvements.

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

Reach Volunteering: Trustees with Finance, Fundraising and IT skills

Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent