British Airways to axe jobs in £450m cost cuts

Thousands of jobs are expected to be axed at British Airways, after it unveiled a £450m cost-cutting programme yesterday. The cuts are part of a plan set out by Willie Walsh, the chief executive since October, which includes targeting a 10 per cent operating margin within the next two years.

Mr Walsh said the company could also start to talk about growth for the first time since the September 11 attacks. BA would expand by adding aircraft to its fleet, he said. It has an option to buy 10 wide-body aircraft from Boeing.

Mr Walsh also said a 10 per cent operating-margin target would have to be met and a deal struck on pensions with employees and trustees of the BA pension fund.

He said: "This plan will make us fit for the future. By resolving our pensions deficit, reducing cost and delivering world-class customer service, we can make a 10 per cent operating margin a sustainable reality. Better management of our costs and having an absolute focus on customer needs will give us a lasting platform for success."

BA shares closed up 4 per cent at 328.75p. The £225m-a-year cost-cutting programme, part of the business plan which runs from now until March 2008, will encompass all areas of the business except fuel. BA has cut its workforce by 13,000 since 2001, although there have been no compulsory redundancies. The headcount stands at 48,000.

The company would not say how many more jobs would go. Some suggested there could be another 6,000 job losses, while others said the figure would be less than 2,000. Mike Powell, at Dresdner Kleinwort Wasserstein, said: "Given the competitive environment BA works in, it has got to keep working on costs ... [This plan] is bold, relative to other legacy airlines. It would be difficult to ask them to do more."

BA will table proposals for tackling its £2bn pension fund deficit at the end of the month. The company's cabin staff enjoy a retirement age of 55 and could be asked to work for longer or make higher contributions. Analysts said either move could lead to industrial action.

The airline's previous highest operating margin of 9 per cent was achieved in the mid-1990s. In the 2004-5 financial year, the figure was 6.9 per cent. The 10 per cent aim would be for the year ending March 2008.

Mr Walsh acknowledged that BA's budget rival Ryanair was able to produce margins of more than 20 per cent. He admitted: "That's not achievable in our business."

The order for new aircraft would not see planes delivered before 2008, when the company moves to its new base at Heathrow's new Terminal 5. The growth that might result would be "very modest", Mr Walsh said.

The business plan also includes money for upgrading the product available for passengers. For example, the airline will spend £40m on upgrading facilities in first-class cabins and offer on-demand films in all cabins.