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Company History: British Airways PLC is the largest international airline in the world. It is based at Heathrow Airport in London, the busiest international airport in the world, and has a global flight network through such partners as USAir in the United States, Qantas in Australia, and TAT European Airlines in France. Via its own operations and those of its alliance partners, British Airways serves 95 million passengers a year using 441 airports in 86 countries and more than 1,000 planes. British Airways’ earliest predecessor was Aircraft Transport & Travel, Ltd. , founded in 1916.
On August 25, 1919 this company inaugurated the world’s first scheduled international air service, with a converted de Havilland 4A day bomber leaving Hounslow (later Heathrow) Airport for London and also Le Bourget in Paris. Eight days later another company, Handley Page Transport, Ltd. , started a cross-channel service between London’s Cricklewood Field and both Paris and Brussels. That same year Britain’s advisory committee for civil aviation proposed plans for establishing a world airline network linking Britain with Canada, India, South Africa, Australia, and New Zealand.
Because airplanes capable of crossing wide stretches of water were not yet available, the committee recommended that first priority be given to a route to India operated by state-assisted private enterprise. Progress was made quickly. Before the end of the year the British government was operating a service to Karachi and had established a network of 43 Royal Air Force (RAF) landing strips through Africa to the Cape of Good Hope. Meanwhile, strong competition from subsidized foreign airline companies had forced many of the private British air carriers out of business.
By March 1921 all British airline companies had suspended their operations. The government responded with a pledge to keep the British companies flying, using its own form of subsidization. In January 1923 Parliament appointed the Civil Air Transport Subsidies Committee to form a single British international air carrier from existing companies. On March 31, 1924 the Daimler Airway, British Marine Air Navigation, Instone Air Line, and Handley Page merged to become Imperial Air Transport. In 1925 Imperial Airways operated a number of European routes while it surveyed a route across the Arabian desert from Cairo to Basra in present-day Iraq.
The airline was faced with a number of problems on this route. The desert was featureless, making it easy to get lost. Water stops and meteorological and radio stations were difficult to maintain. Basra was a major terminal on the route to India. However, on January 7, 1927 the Persian government forbade Britain the use of its airspace, blocking all flights to India. Negotiations reopened the airspace two years later, but not before generating a demand for longer range aircraft. Passengers flying to India flew from London via Paris to Basel, where they boarded a train for Genoa.
A flying boat then took them on to Alexandria, where they flew in stages to Karachi. The passage to India, previously three weeks by sea, had been reduced to one week by air. Imperial Airways service to Calcutta was established in July 1933, to Rangoon in September, and to Singapore in December. In January of the following year the Australia’s Queensland and Northern Territories Air Service (Qantas) inaugurated a route linking Singapore with Brisbane. The passage to Australia could be completed in twelve-and-a-half days.
A commercial service through Africa was opened in 1931 with flying boats linking Cairo with Mwanza on Lake Victoria. In April 1933 the route was extended to Cape Town, the trip from London taking ten-and-a-half days. An east-west trans-African route from Khartoum in the Sudan to Kano in northern Nigeria was established in February 1936. This route completed a world network which linked nearly all the countries of the British Empire. The primary source of revenue on the network was not from transporting passengers but mail.
Nevertheless, an increase in demand for more passenger seating and cargo space generated a need for larger airplanes. Britain’s primary supplier of flying boats, the Short Company, developed a new model, designated the C-class, with 24 seats and weighing 18 tons. Since it had an increased range and flew 145 miles per hour, it was able to simply bypass “politically difficult areas. ” The Short C-class went into service in October 1936. A year later Imperial Airways made its first trans-Atlantic crossing with a flying boat equipped with extra fuel tanks.
However, it was Pan Am, with more sophisticated and updated Boeing airplanes, which was first to schedule a regular trans-Atlantic service. Imperial Airways was formed with the intention of being Britain’s “chosen instrument” for overseas air service. On its European services, however, Imperial was competing with the British Continental airlines and an aggressive newcomer called British Airways. British Airways was created in October 1935 by the merger of three smaller airline companies. Three months later the company acquired a fleet of Lockheed 10 Electras which were the fastest airplanes yet available.
The competition from British Airways threatened the “chosen instrument” so much that in November 1937 a Parliamentary committee proposed the nationalization and merger of Imperial and British Airways. When the reorganization was completed on November 24, 1939, the British Overseas Airways Corporation (BOAC) was formed. The creation of BOAC was overshadowed by the declaration of war on Germany the previous September. The Secretary of State for Air assumed control of all British air services, including BOAC. Within a year Italy had entered the war and France had fallen.
Britain’s air routes through Europe had been eliminated. British flying boats, however, continued to ferry personnel and war cargo between London and West Africa with an intermediate stop at Lisbon in neutral Portugal. The air link to Khartoum maintained Britain’s connection to the “Horseshoe Route,” from Cape Town through East Africa, Arabia, India, and Singapore to Australia. When Malaya and Singapore were later invaded by the Japanese, BOAC and Qantas opened a nonstop service between Ceylon and Perth in Western Australia.
BOAC transported ball bearings from neutral Sweden using a route which was dangerously exposed to the German Luftwaffe. BOAC also operated a service for returning flight crews to North America after they delivered American- and Canadian-built aircraft to the Royal Air Force. When the war ended BOAC had a fleet of 160 aircraft and an aerial network that covered 54,000 miles. The South American destinations of BOAC were assigned to a new state-owned airline, British South American Airways (BSAA), in March 1946. Similarly, the European services were turned over to British European Airways (BEA) on August 1, 1946.
After the war Britain reestablished its overseas services to the nations of its empire. Some of the nations which had recently gained their independence from Britain received advice (and often finance) from BOAC. In order to remain competitive with the American airline companies, BOAC purchased Lockheed Constellations, the most advanced commercial aircraft of the day. They were later joined by Boeing 377 Stratocruisers and Canadair Argonauts (modified DC-4s). BEA operated generally smaller airplanes and more frequent flights between the British Isles and Continental Europe.
In 1948 it joined other Allied airline companies in the airlift to Berlin during the Soviet blockade. Following a series of equipment failures at BSAA, the Civil Aviation ministry declared that the company should remerge with BOAC. On July 30, 1949, BSAA was absorbed by BOAC. Even though its passenger load had steadily increased, BOAC accumulated a debt of ? 32 million in the five years from 1946 to 1951. Much of this was due to “recapitalization,” or purchasing new equipment; the British-built Handley Page Hermes and de Havilland’s DH Comet 1, the world’s first jetliners, were delivered to BOAC.
In January 1954 one of BOAC’s Comets exploded near Elba in the Mediterranean. Another Comet crashed near Naples only 16 days after an investigation of the first crash was concluded. As a result, the Comet’s certificate of airworthiness was withdrawn and a full investigation was ordered. In the final report it was determined that the Comet’s pressurized cabin was inadequately designed to withstand low air pressures at altitudes over 25,000 feet. When the airplane reached that altitude it simply exploded. The cabin was strengthened and the jet reintroduced in 1958 as the DH Comet 4.
The company was forced to purchase propeller-driven DC-7s to cover equipment shortages when delivery of its Britannia turboprops was delayed in 1956. When the Comet reentered service BOAC found itself with two undesirable fleets of aircraft which were later sold at a loss of ? 51 million ($122 million). South American operations were suspended in 1954 when the Comet was taken out of service. Operation of the route with shorter range aircraft was too costly. At the insistence of Argentina and Brazil, which claimed Britain had “lost interest” in South America, the routes were reopened in 1960.
That same year the first of 15 Boeing 707 jetliners was delivered to BOAC. British European Airways used a wide variety of aircraft for its operations and remained a good customer for British aircraft manufacturers. In 1964 the company accepted delivery of the first de Havilland Trident 1, a three-engine airliner capable of speeds up to 600 miles per hour. A few years later, when the company expressed an interest in purchasing a mixed fleet of Boeing 727s and 737s, it was instructed by the government to “buy British” instead. BEA complied, ordering BAC-111s and improved versions of the Trident.
BOAC’s cargo traffic was growing at an annual rate of 27 percent. Nevertheless, a sudden and unexplained drop in passenger traffic during 1961 left many of the world’s airline companies with “excess capacity,” or too many empty seats to fly profitably. At the end of the fiscal year BOAC’s accumulated deficit had grown to ? 64 million. The losses, however, were underwritten by the British government, which could not allow its flag carrier to go bankrupt. BOAC and Air France agreed to commit funds for the buildings of a supersonic transport (SST) in 1962.
In June the company became associated with the Cunard Steamship Company. A new company, BOAC-Cunard Ltd. , was placed in charge of the trans-Atlantic air services in an attempt to capture a larger portion of the American travel markets. The British government published a “White Paper” (a statement of government policy) which recommended a drastic reorganization of BOAC. In response, the company’s chairman, Sir Matthew Slattery, and the managing director, Sir Basil Smallpiece, resigned. Britain’s minister for aviation appointed Sir Giles Guthrie as the new chairman and chief executive officer.
Under Sir Giles BOAC suspended its unprofitable services and rescheduled its equipment purchases and debt payments. After the financial situation had improved, the company continued to purchase new equipment and expand its flight network. In April of 1967 BOAC established its second around-the-world route and opened a new cargo terminal at Heathrow. The company’s sister airline, BEA, had been paying close attention to consumer marketing for vacationers. In 1967 the company created a division called BEA Airtours Ltd. , offering complete travel packages to a number of vacation spots.
In May 1969 BOAC opened a passage to Japan via the North Pole. The route was shortened even further when the Soviet Union granted BOAC landing rights in Moscow and a Siberian airlane to Tokyo. On March 31, 1972, after six years of record profits, BOAC announced that it no longer owed any money to the government. Later, on July 17, following several recommendations on further reorganization of the state-owned airline companies, management of BEA and BOAC were coordinated under a new government agency called the British Airways Group.
On April 1, 1974 the two companies were merged and renamed British Airways. A second reorganization of the internal management structure took place in 1977. The first British Airways Concorde was introduced in 1976. Jointly manufactured by British Aerospace and the French firm Aerospatiale, the supersonic Concorde was capable of carrying 100 passengers at the speed of 1,350 miles per hour at an altitude of 55,000 feet. A seven-hour flight from New York to London was nearly reduced to half the time by the Concorde.
British Airways employed additional Concordes on a number of international services, most notably London-Singapore, which was temporarily suspended through 1978 due to “political difficulties. ” In 1980 Prime Minister Margaret Thatcher appointed Lord (John) King as the new chairman of British Airways. His stated assignment was to prepare the airline for privatization (sale to private stockholders). Lord King’s first move was to adopt aggressive “American-style” marketing and management philosophies. As a result, he initiated a massive campaign to scale down the company and reduce costs.
More unprofitable air services were terminated, and a staff reduction (begun under Lord King’s predecessor, Roy Watts) was continued. A British Airways official told Business Week magazine that, “we had too many staff but couldn’t get rid of them because of the unions. ” In order to utilize the excess labor, the company was forced to remain large. Lord King established a better relationship with labor, which had become more agreeable to layoffs and revisions of work rules. In three years the work force was reduced from 60,000 to 38,000 without a strike.
On July 11, 1983, no fewer than 50 senior executives were fired. The company’s chief executive officer, Colin Marshall, hired in their place a team of younger executives (mostly with nonairline business backgrounds). The new executive staff initiated a series of programs to improve punctuality and service at the airline, whose BA acronym stood in many customers’ minds for “Bloody Awful. ” They hired Landor Associates, a successful San Francisco-based design firm with considerable experience with airlines, to develop an entirely new image for British Airways. The result was controversial.
The British Airways coat of arms and portion of the Union Jack on the airplane’s tail fin was bound to upset the more politically temperamental countries of the third world which the company serves. The familiar “Speedbird” logo which dates back to the days of Imperial Airways was removed despite employee petitions to retain it. British Airways also recognized a need to replace older airplanes in its fleet with more modern and efficient equipment. The company’s Lockheed TriStars were sold to the RAF for conversion into tankers, and the BAC-111s were sold because they would violate new noise regulations.
British Airways leased a number of airplanes until new purchases could be made after the privatization. The company was plagued by its decision to retain separate European and overseas divisions. The result was a perpetuation of the previous management regimes of BEA and BOAC. To rectify this problem the operation was further divided into eight regional groups involved in three different businesses: cargo, charter, and tours. Each of the eight groups has increased autonomy and responsibility for its business and profitability.
The Laker Airways Skytrain, an initially successful cut-rate trans-Atlantic airline, was forced to close down due to what its chairman, Freddie Laker, claimed was a coordinated attack by a number of airlines to drive the company into bankruptcy. Laker charged the companies, which included British Airways, with violations of antitrust laws. He later settled out of court for $48 million, but in a subsequent civil suit British Airways was also required to issue travel coupons to passengers who claimed they were hurt by the collapse of Laker Airways.
Ironically, in the mid-1980s the company began advocating the deregulation of European air fares in the belief that it could compete more effectively than its rivals. But Air France and Lufthansa in particular were reluctant to participate, claiming that deregulation would endanger the delicate market balance which took so many years to establish. In 1985 British Airways was made a public limited company, but all its stock was retained by the government until such time that it could be offered to the public. The privatization of British Airways (which was limited to a 51 percent sale) was delayed by a number of problems.
The company’s chief domestic rival, British Caledonian, opposed British Airways’ privatization claiming that the company already controlled 80 percent of the domestic market and was too large to compete against. But British Airways’ most significant obstacle to privatization involved reducing the debt that it accumulated during the 1970s, and increasing the company’s profitability. In February 1987 the privatization was finally consummated when 720. 2 million shares of British Airways stock were sold to the public for one billion pounds ($1. 47 billion).
British Caledonian, or BCal, was formed in 1970 through the merger of Caledonian Airways and British United Airways. For many years, BCal was British Airways’ only large domestic competitor, fighting vigorously under the direction of Sir Adam Thompson for more favorable operating rights from the British government. When Britain’s Civil Aviation Authority recommended the reallocation of British Airways routes to BCal in 1984, Lord King threatened to resign. Instead, British Airways was instructed to trade its profitable Middle East routes for some of BCal’s less profitable Latin American destinations.
The Middle Eastern routes became much less popular during 1986 as a result of regional tensions and falling oil prices. BCal, which had been generating a fair profit, started to lose money and was faced with bankruptcy. In July 1987 British Airways acquired BCal for ? 237 million in stock. The new airline had almost 200 aircraft, and combined British Airways’ 560,000-kilometer route structure with BCal’s largely unduplicated 110,000-kilometer network, forming one of the largest airline companies in the world.
Several smaller independent British airline companies unsuccessfully challenged the BA/BCal merger on the grounds that the new company would dominate both London’s Heathrow and Gatwick airports, forcing them to relocate to the less accessible and underdeveloped field at Stansted. With its dominance of the home market secure for the time being, British Airways aggressively expanded in Europe, North America, and the Pacific Rim over the next several years, aiming to become a global airline. Its first foray into the lucrative U. S. arket came in 1988 when it formed a marketing alliance with United Airlines designed to feed customers from one carrier to the other and vice versa. This partnership set the pattern for British Airway’s expansion–it would not be based on forming new airlines outside England or acquiring them, but rather through strategic alliances. Nevertheless, this first partnership collapsed a little more than two years later when United became a direct competitor to British Airways once it had gained access to Heathrow in 1991, along with American Airlines.
The two strongest airlines in the United States had purchased the Heathrow rights from the floundering Pan Am and TWA, immediately increasing competition in British Airways’ home market. While the alliance with United was still operating, British Airways suffered losses in Europe in 1990 and 1991 because of the Gulf crisis in the Mideast. Shortly after, in July 1991, it entered into an alliance with Aeroflot in Russia to create a new airline called Air Russia. After several false starts over the next few years, this venture never got off the ground.
Additional proposed alliances failed in 1992 for other reasons. Officials from British Airways and KLM Royal Dutch Airlines held extensive discussions about a merger in 1991 and 1992, but talks broke down over the valuation of the two firms. Later in 1992, British Airways attempted to purchase 44 percent of USAir Inc. for $750 million. American, United, and Delta Air Lines (the U. S. “Big Three”) vigorously lobbied against the deal and demanded enhanced access to the British market if the deal was to be approved by the U.
S. government. In December the purchase was blocked. That same month the first in a string of alliances was struck when the airline paid $450 million for 25 percent of Qantas, the Australia-based international airline. In 1993, British Airways gained a 49. 9 percent stake in the leading French independent carrier TAT European Airlines, then launched a start-up in Germany called Deutsche BA with 49 percent ownership. Through these alliances, British Airways had enhanced its position in the Pacific Rim and Europe.
It now refocused its attention across the Atlantic where it restructured its offer for a piece of USAir into a $400 million purchase of 25 percent of the company. This alliance received U. S. government approval. The government also approved a code-sharing arrangement that enabled the partners to offer their customers a seamless operation when they use both airlines to reach their destination. While all this dealmaking was going on abroad, British Airways faced an embarrassing and potentially costly fight at home with Richard Branson’s upstart Virgin Atlantic Airlines.
Since starting operations in the early 1980s, Virgin had made some inroads against British Airways primarily by focusing on customer service, something “Bloody Awful” BA had neglected for years. Branson filed suit against British Airways in 1991 alleging that British Airways had smeared Branson and his airline and conducted “dirty tricks” such as spreading rumors about Virgin’s insolvency. In 1993 the suit was settled out of court with British Airways offering a public apology and paying ? 500,000 to Branson and ? 110,000 to Virgin. The case also led to the resignation of Lord King.
Second-in-command Colin Marshall took over as chairman. Further litigation followed between the two rivals, most seriously a $1 billion antitrust suit brought by Virgin in the United States. Various suits damaged British Airways’ reputation and led to comments such as the following from the Economist: “BA now looks … like an anxious, overbearing giant trying to squash a feisty little rival. ” With its Virgin difficulties continuing, British Airways’ overseas partners suffered huge losses: in 1993 Qantas lost $271 million, while in 1994 TAT lost $60 million and USAir lost 350 million. The situation at USAir was so grim that British Airways declared that they would hold back an additional $450 million investment in the firm until the carrier was in the black. In May 1995 British Airways was forced to take a $200 million charge to write down the value of its USAir investment. Even though British Airways was struggling with its alliance strategy, the real test of its global strategy lay ahead with the long-awaited 1997 deregulation of the European airline industry.
It approached that date as one of the most profitable airlines in the world, despite the faltering alliances, and had been in the black every year since privatization. Principal Subsidiaries: British Airways Capital Ltd. (89%); British Airways Finance BV; British Airways Holidays Ltd. ; Caledonian Airways Ltd. ; Qantas Airways Ltd. (25%, Australia); TAT European Airlines S. A. (49. 9%, France); Deutsche BA L. m. b. H. (49%, Germany); Air Russia (31%); Bedford Associated, Inc. (U. S. ); British Airways (U. S. ); Galileo International Partnership (14. 6%, U. S. ); USAir Group, Inc. (24. 6%, U. S. ).