Fighting hard for Gulf sales

Like all airlines serving the Middle East, BA has been hit by falling passenger numbers. However, now that the war in Iraq has ended, BA’s regional general manager, Steve Allen says the carrier is seeking to win back customers.

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By  Neil Denslow Published  May 25, 2003

I|~||~||~|British Airways is fighting hard to bring its Middle East business back on track. Just before the Arabian Travel Market (ATM), the airline’s regional general manager, Steve Allen, paid a visit to Abu Dhabi’s Civil Aviation Authority to talk about the state of the business in and out of the airport. “Very kindly, they waived all our landing fees for April and May, which obviously helps us in the long run and just cements our commitment to Abu Dhabi,” says Allen.

Simultaneously, the airline is also taking advantage of Dubai’s 50% landing fee discount, which came into force from the 1st April and will run until the end of June. BA is passing this saving on to passengers by introducing heavily discounted fares in the United Kingdom to try to get holiday travel to Dubai going again, despite the fact that summer is coming.

Just prior to the war, BA halved its twice-a-day service to Dubai, but by the time ATM came round (6th May) it was back up to 11 flights per week. Allen was hoping to improve on that as well. “We will resume 14 a week as soon as commercial demand comes through. It could be as soon as next week — we will just have to see how things go over the next week or so. But we expect to come back to 14 a week by the 1st June,” he says.

Increasing passenger numbers show that BA is succeeding in enticing travelers back to the Middle East. “Our sales during the last week of April grew about 7% more than they did for the same week of last year, which gives us an indication that people are starting to travel again. It is still about 25% down on last year’s numbers... [however,] if we can continue that [growth], then maybe this week we will find that bookings come in 10% faster than last year, and then maybe in two or three weeks’ time we will be back to last year’s levels,” says Allen

“I think we will end May probably about 15% down on where we were this time last year. That is my prediction. Let’s hope that comes through,” he adds.

Allen is optimistic though that traffic to the region will continue to grow. “We had our first full first class cabin since the war at the end of April as well, so the business traffic is starting to come back here. The leisure traffic is also coming back out of the UK. We think those two things together will give us quite strong route profitability in May.”

BA as a company seems in good shape to survive the current turmoil in the global aviation sector. The airline has embarked on a severe cost-cutting programme, which has seen more than 10 000 job cuts and reduced capacity. However, this has produced results. The carrier was actually in the black for the year ending 31st March 2003 with pre-tax profit of £135 million (US $219 million) compared with a £200 million ($327.9 million) loss last year.

“We would argue that we have taken significant costs out of our business — £1.5 billion worth of costs. At the start of the Iraq war we had £2 billion in cash. We basically built up a cash store so that, if the war goes on for a long time, then we will be one of the airlines that are prepared to weather the storm. We prepared quite well for it,” says Allen.

The airline is expecting more hits as well. “We think that there will continue to be things that will hit the world airline business, so we need to be more efficient and lower costs, which is what we have been working on,” he says.

This has been done, says Allen, without affecting the front-line. “The main aim of what we are trying to do is not to impact the customer-facing side of the business and cut the costs in the back office and support costs. As far as we are concerned we have got to deliver a full service airline to the customer. We have to make sure that BA continues to offer what it always has done and what it always will do, but that we do it more efficiently,” he explains.

||**||II|~||~||~|Most of the cost cutting has fallen on the airline’s staff in the UK, but the local office has also been affected. “We get the pressure [in the region] as well, but the majority is within the London staff because we have a very large proportion of our staff based in London. Out of the 50 000 [staff worldwide], which is what we are down to now, about 40 000 are based in the UK.”

Despite all the ‘dieting,’ BA is still overweight compared with the no frills airlines. However, counters Allen, “these carriers like Ryanair and easyJet have a completely different offering. They operate in a completely different way in a more restricted market.”

“We are offering different things. We are a full service airline — we offer four classes on long haul. No other airline in the world offers four classes with World Traveler Plus. We have horizontal flat beds in Club. Nobody else does that,” he adds.

At the same time, however, BA is also learning from the no frills carriers, as it seeks to cut expenses in the back office. “In common with the whole airline industry, we are trying to find new ways of doing things,” says Allen.

“[For instance,] in the UK up to about 50% of our sales are on the internet. That cuts down a lot of the costs in terms of staff and distribution. What we do [to cut costs] does not necessarily make us worse; it just makes us more efficient,” he adds.

Beyond the current crisis brought on by the Iraq conflict and then SARS, Allen is looking to grow in Dubai. “Even before that, we had envisaged that Dubai was a growing market and we needed to prepare to grow even more.”

Allen has his eye on Baghdad as well. “We are all geared up to going back into Baghdad as soon as we get the all clear from the safety and security point of view,” he says. Just when that might be is a little more difficult to say, but June is the rumour.

“It is very difficult to say without going in there and talking to people on the ground and in fact we have got somebody going in this week [ATM week]. He will be the first person who has been able to go in and look at it. So I could not give an exact date, but as soon as possible is the answer,” says Allen.

BA has a service agreement for three flights a week that is founded in a treaty that “goes back to the 50s or 60s, which we expect them to adhere to. There are no indications that they won’t” Allen adds.||**||

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