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BA – The Online Airline?
25 February 2002

British Airways seems to be trying to become an online airline. It wants to cut out middle-men such as agents, GDSs and online travel portals. The savings in distribution costs would be enormous - about £100 million according to a recent BA press release. Can BA become an Internet airline or is it deluding itself? Today’s Internet airlines are achieving impressively high load factors and online booking penetration. (In December 2001, easyJet achieved an 82.8% load factor with 89.1% of passengers booking online, while Ryanair achieved a 78% load factor and 91% online bookings.)

The low cost airlines want to dominate the short haul market, presumably at the expense of national airlines such as BA. Recently, easyJet CEO Ray Webster predicted that his airline would eventually operate 300 aircraft. Ryanair says it may purchase up to 150 new aircraft over the next 8 years. BA has stated that it will cut its fleet by 49 aircraft to 305 by Summer 2003.

The Internet airline model is simple. The key elements are: keep aircraft utilisation high with fast turnarounds; keep distribution costs low by selling direct; keep operational costs down by using secondary airports, cutting out catering and other frills; practice sophisticated yield management based on simple fare structures. These elements are well-suited to short haul routes and reflect established practice in domestic US air travel, which is akin to travelling by bus. Europe has been following this model with the low cost airlines offering hop on/hop off bus-like connections.

The existing low-cost European airlines are actually doing this very well, so well, in fact, that British Airways may find it cannot compete in this marketplace because high aircraft utilisation and low cost operations are quite alien to BA’s normal modus operandi. If this is the case, British Airways (along with most other national airlines) may be forced to cut back substantially on its European short haul routes, becoming almost a purely long haul operation.

Long haul and short haul air travel are very different kinds of purchases. Buying a bus-like short haul flight is fast becoming part of our everyday lives. It requires no thought and little effort and is ideal for booking online.

Purchasing long haul travel requires far greater consideration. Itineraries are likely to be more complex. Stays will be longer and trip expenditure is greater. These travellers are far more likely to want to consult a travel planner (perhaps a travel agent) with a whole range of adhoc questions that cannot be addressed by automated systems. Long haul travellers have a much lower propensity to book direct online.

As British Airways shrinks its fleet and sheds short haul routes, it may need to recognise that it cannot be a pure Internet airline, as its long haul product is not well suited to this. It might be better for BA to build a multi-channel strategy, embracing both direct and intermediary channels. In fact, should BA actually be re-positioning as the travel trade’s favourite airline, so that it can play to its future strengths as a world class long haul specialist? Time will tell.

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