British Airways | International Airlines Group (UK)

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British Airways remains one of the world's busiest airlines, but the entire industry has been savaged since the late 1990s by a seemingly endless series of obstacles, and BA has had its fair share of the industry's problems as well as several all its own. In 2001 for example, BA was overtaken by Lufthansa in total numbers of international passengers carried, forcing it to drop its claim to be "The World's Favourite Airline". It now ranks 6th by international passengers. In the mean time the group has soldiered on with a series of no-holds-barred cost-cutting exercises, shedding around 13,000 staff between 2000 and 2004, and even dropping its loss-making flagship service Concorde in order to regain profitability. That led to a significant improvement in performance for several years before a new set of problems engulfed the airline in 2008, resulting in its worst financial results for more than two decades. In 2009, BA announced outline terms for a proposed merger with its Spanish counterpart Iberia. This news was overshadowed by renewed disputes with cabin crew which led to two extended walkouts during Spring 2010. However, the merger went ahead regardless, with the creation of International Airlines Group.

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BA Holidays OneWorld
Air Miles BA World Cargo
Open Skies Opodo

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Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 28th May 2015: After months of politically charged negotiation, British Airways' parent IAG appears to have secured a deal to acquire Irish rival Aer Lingus at a valuation of around E1.36bn. The Irish government, controlling shareholder in the smaller carrier, agreed this week to relinquish its 25% stake after assurances that its national carrier would retain separate identity under its new owners as well as its existing flights to and from Dublin, Cork and Shannon airports. However, the sale is still subject to a vote of approval by Ireland's parliament, where opposition parties are still against the deal.

Adbrands Weekly Update 29th Jan 2015: British Airways' parent IAG raised its offer to acquire Aer Lingus to around E1.36bn. The Irish carrier's board said it was prepared to the recommend the offer, provided the airline retains a separate brand identity within the group. If completed, the deal would add a 4th brand to IAG's portfolio alongside BA, Iberia and Vueling, as well as an important collection of take-off and landing slots at London's Heathrow Airport. However, a takeover is likely to face considerable scrutiny from regulators since it would raise the group's share of Heathrow slots from 48% at present to around 55%. It also requires the agreement of Aer Lingus's two largest shareholders, rival Ryanair with almost 30% and the Irish government with 25%.

Adbrands Weekly Update 29th Dec 2014: IAG, the parent group of British Airways and Iberia, offered to acquire Irish carrier Aer Lingus. The approach was rebuffed by Aer Lingus's board, who said the undisclosed bid substantially undervalued the company. IAG is considering whether to raise its offer. Its CEO Wille Walsh was previously the head of Aer Lingus before joining British Airways. Aer Lingus has fought off a succession of takeover offers in recent years. most notably from local rival Ryanair, which still has a 30% stake in the business. A further 25% is held by the Irish government. The main incentive to any takeover of Aer Lingus is its collection of take-off and landing slots at London's Heathrow Airport, where it is the third largest carrier after British Airways and Virgin Atlantic.

Adbrands Weekly Update 19th June 2014: Top winner in the Direct category at this year's Cannes Lions Festival was OgilvyOne London, with its clever "magic of flying" campaign for British Airways in which electronic billboards pointed out aircraft passing overhead and supplied details of where they were going. Bizarrely, the same campaign only collected a Gold in the Outdoor category.

Adbrands Weekly Update 20th Mar 2014: Bartle Bogle Hegarty was reappointed to handle global advertising for British Airways, and was also awarded the airline's digital CRM and loyalty brief, previously handled by OgilvyOne. BBH has created a new unit to handle the latter business, in a joint venture with digital consultancy Seven Seconds, the new vehicle for former CHI & Partners direct marketers Simon Hall and Warren Moore.


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Background

Free for all users | see full profile for current activities: British Airways' roots lie in the early days of civil aviation following the First World War. The first international air service was launched in 1919 by Aircraft Transport and Travel Limited, later Daimler Airways. Its maiden flight delivered one passenger and a cargo of newspapers, cream and grouse to Le Bourget in France. Other companies set up to compete, offering flights to France and Belgium, but these independent businesses began to face stiff competition from government-owned airlines in continental Europe. In 1924, Britain's four main air companies - Daimler, Instone, Handley Page and British Air Marine Navigation Company - merged to form Imperial Airways. Gradually flights ventured further afield than Europe. By the 1930s, Imperial was flying as far as India, Egypt and South Africa. The company's partnership with Australia's Qantas began in 1935 when the two teamed up to provide flights between the UK and Australia (with a stopover in Singapore).

The same year, Imperial got its first domestic competitor when another group of independent carriers allied to form a company named British Airways. In 1939, the British government ordered the merger of Imperial Airways and British Airways to form a nationalised BOAC (British Overseas Airways Corporation). After the Second War BOAC took responsibility for intercontinental flights, while spin-off airline BEA (British European Airways) flew to Europe. The arrival of passenger jets in the 1950s allowed BOAC rapidly to expand its already growing international network. As flying times and costs fell over the course of the 1960s, the package holiday business took off, targeting a mass market. BEA launched its own charter airline, BEA Airtours (later Caledonian Airways) to handle this rapidly growing market.

In 1967, another government study proposed the re-merger of BOAC and BEA, and the formation of a second national airline out of the clutch of new operators who had grown up to serve the package boom. As a result, British Caledonian was launched in 1970, while BOAC and BEA were finally combined four years later as British Airways. The merger did not go smoothly, and the company was plagued by severe financial and labour problems in its first years. The launch of Concorde in 1976, a partnership with Air France, was one of the few successes of the period, though it was itself a hugely expensive operation. By the early 1980s, BA was chalking up a deficit of £540m.

In order to help stem the company's financial problems, the government finally decided to privatise BA in 1980, although it took another seven years of restructuring before the shares were finally floated in February 1987. British Airways acquired British Caledonian four months later, the first of a series of aggressive moves designed to win the newly liberated airline a global market. In 1989, BA also attempted to gain control of USAir and Belgium's Sabena. The first acquisition was blocked by rival US airlines (BA had to settle for a 25% stake, later sold) and the second deal foundered at the negotiating table.

In 1991, the company began to develop its international network through a series of deals. Over the course of two busy years, a co-operation arrangement was signed with Ireland's Aer Lingus, the company launched German subsidiary Deutsche BA, acquired failed package firm Dan-Air, and bought 50% of French-based TAT European Airlines (the other 50% was bought in 1997). BA also launched its Air Miles marketing and rewards scheme. In 1992, British Airways Regional was launched and BA became the Australian government's partner in Qantas, buying a 25% stake. The rest of the merged Qantas and Australian Airlines was floated in 1995. More damagingly, the airline spent a great deal of time and money defending (and eventually losing) a libel action brought by Richard Branson's Virgin Atlantic, which claimed British Airways had mounted a "dirty tricks" campaign designed to hinder the upstart carrier's transatlantic business.

In 1993, BA rescued another failed operator, Brymon European Airways, and began a series of franchise deals with other regional operators, including Comair of South Africa, SunAir and Maersk of Denmark, City Flyer Express, British Mediterranean, GB Airways and Loganair. Under the franchise arrangement, these airlines adopted BA's livery and branding in return for marketing and management support. Charter flight subsidiary Caledonian Airways was sold in 1995. In late 1998, BA bought out City Flyer for £75m, strengthening its hold on Gatwick airport.

In anticipation of a further deregulation of global airspace, an alliance with American Airlines was first proposed in 1996, and this led to the launch two years later of the OneWorld marketing partnership in response to a similar scheme, the Star Alliance, operated by United Airlines and Lufthansa with SAS, Brazil's Varig, Thai Airways and Air Canada. OneWorld brought together AA and BA with partners Canadian Airlines, Cathay Pacific Airways, and Qantas. The airlines agreed to promote each other's services to their passengers as preferred partners, combining timetables and frequent flyer incentives programs. In 1999, BA and American teamed up to buy a stake in Spain's Iberia airline, then being partially privatised by the Spanish government. BA took a 9% stake backed by AA's 1% at a cost of £212m. The Spanish airline also became part of the OneWorld alliance. However OneWorld suffered a severe blow in mid-year when US regulators denied AA and BA anti-trust immunity, effectively ruling out any closer form of joint venture.

This was only the latest of a growing number of problems. Shortly after the "dirty tricks" row with Virgin, the company made a bid to present a more international image by spending £60m on a major rebranding exercise. This included replacing the Union Jack on its aircraft tailfins with more artistic symbols representing its different destinations. It proved another PR disaster, as press, staff and even Prime Minister Margaret Thatcher expressed their dislike of the new designs. Finally the airline was forced to repaint its fleet and restore the Union Jack. A year later, a three-week strike by BA cabin staff in summer 1997 created turmoil at Heathrow airport, costing £125m in cancelled flights and leading to morale problems which ran on for several years. At the same time, competitive pressure on BA ramped up dramatically, as UK share was threatened by new "no frills" airlines Easyjet and Ryanair. BA launched its own low cost airline, Go Fly, in 1998. The war between airlines to keep market share led to heavy discounting, and this hurt most in the highly profitable business market. Meanwhile economic problems in the Far East led to a huge drop in Asian passengers. This created a 61% slide in profits for the year to 1999, the company's worst result since the early 1990s.

In response BA spent £200m to tempt back business customers, upgrading its Club World business class on long-haul flights with beds, improved entertainment, phones and fax facilities. At the same time it made further cuts, shedding up to 2,000 staff, as well as loss-making routes worldwide. Yet there appeared to be no end to new problems for the company. Later that year, Lufthansa, BA's strongest competitor in international flights, announced plans to take a 20% stake in British Midland, BA's main domestic rival. The year climaxed with an embarrassment for BA when the London Eye, a giant ferris wheel erected on the River Thames and sponsored by the group, failed safety tests. The attraction was to have been opened to the public on New Year's Eve, as part of London's millennium celebrations. Instead the opening was postponed until February 2000.

By the beginning of 2000, CEO Robert Ayling's position had become increasingly precarious. With the prospect of another poor year's performance to report, the BA board asked him to resign in March 2000. In fact financial results were not as catastrophic as had been feared, thanks to sizeable profits on the sale of non-core assets. Net pre-tax profits crept in at just £5m. New CEO Rod Eddington announced another cost-cutting programme in Spring 2000, including the sale of loss making French subsidiary Air Liberte. He also began moves to sell the group's no-frills subsidiary Go. (After several months of negotiations with different partners, Go was sold to management in June 2001, and acquired a year later by Easyjet.). BA then entered merger negotiations with Dutch national carrier KLM, but these stalled on disagreements over price. (KLM was later acquired by Air France). At the same time Concorde, one of the group's more profitable operations, was grounded for a year following an Air France crash.

The high cost of maintaining BA's second base at Gatwick airport as well as a number of unprofitable flight routes to Europe forced yet another round of cuts and job losses in 2000 and 2001. A fresh set of problems beset the company in September 2001, following the World Trade Center terrorist attacks. A preliminary suspension of flights, followed by huge drops in passenger numbers as travellers took the decision not to fly, led to a crisis for all airlines. The impact was clear in BA's financial results for the year to 2002, its worst in more than a decade. The group reported a pre-tax loss of £200m, despite £145m of gains from disposals including the sale of Go. (In 2001, the group had reported a pre-tax profit of £150m). However the loss was lower than investors had feared.

BA announced yet more job cuts, and said it would also reduce capacity by up to 30% over three years. As a result of the heightened competition from rivals, BA and AA also renewed their attempts to broaden their OneWorld alliance into a closer affiliation. The US Department of Transportation finally responded in 2001 with a tentative green light, but on condition that both carriers give up a significant number of their existing flights from London. Fearing that the competitive advantage of closer partnership would be outweighed by the loss of these slots, AA and BA once again abandoned their plans. In a further sign of the times, the once profitable flagship Concorde service was finally cancelled altogether in 2003 following the downturn in business.

In summer 2003, BA faced new labour problems when staff at Heathrow airport mounted unofficial strikes over new management systems. The strikes coincided with the start of the holiday season, causing delays of up to four days for some travellers, with potentially damaging results on BA's public image. Although that situation was eventually resolved, the spectre of strike action emerged once more the following year, although an actual walkout was averted. In summer 2005, baggage handlers went on strike in protest over the sacking of 800 workers at an entirely separate company which produced inflight meals for BA. That action led to the cancellation of around 500 flights to and from Heathrow, causing delays to more than 100,000 passengers.

A year later, BA's traditional summer troubles started in June, when the airline came under investigation by competition regulators in the US and UK for colluding with rivals to fix an agreed rate for fuel price surcharges on transatlantic flights. The investigation was initiated after Virgin Atlantic, also involved in the fixing cartel, confessed its involvement in return for more lenient punishment. Commercial director Martin George was suspended pending the outcome of the investigation, and later resigned from the group. BA was fined a combined total of £270m by the UK's Office of Fair Trading and the US Department of Justice, and together with Virgin settled a class action suit brought in the US by agreeing to split another $204m among all passengers who had bought tickets. (George and three other defendants were tried on charges of price-fixing in 2010. That enormously expensive case collapsed a few days after it opened as a result of the publication of new evidence, and the four BA executives were exonerated of any guilt.) Soon afterwards, heightened security alerts on all passenger flights during the summer generated substantial additional costs.

The airline continues to wrestle with a series of staff-related rows. In 2006, BA was forced to deal with considerable negative coverage as a result of its misjudged disciplinary treatment of a check-in clerk who refused to abide with company policy regarding the wearing of religious symbols (in this case a small cross). In January 2007, a long-running row with cabin crew staff over the excessive numbers of sick days reported (still approximately two-thirds higher than the national average) led to an announcement of industrial action, including three strikes during January and February. The action was called off less than a day before the first strike after hours of intense negotiation led to a last-minute deal. During the summer the company then suffered weeks of disruption to baggage handling as a result of a severe backlog caused by a terror alert. The threat of strike action re-emerged in early 2008 when BA's pilots threatened to strike over the company's plans to employ a separate workforce for its new OpenSkies subsidiary.

Before that issue was resolved, a new public relations disaster was created by the airline's over-ambitious hard launch of the new Terminal Five at London's Heathrow Airport. Despite the promise that the new terminal offered revolutionary baggage handling technology designed to create a smoother and more efficient service, the system broke down repeatedly in its first two weeks of operation, leading to the cancellation of more than 600 flights in ten days and a backlog of around 20,000 lost or delayed items of luggage. BA subsequently two senior members of its executive committee over the fiasco. See full profile for current activities


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