Don’t mess with air miles. That was the message delivered by irate passengers last month, when British Airways sparked an outcry by announcing that it would change its loyalty programme so that points will be awarded on the cost of flights or holiday bookings, rather than on the class of travel and destination.
It sparked a furious reaction from Mark Hopwood, boss of Great Western Railway — a sector that isn’t exactly known for its customer service. Hopwood, whose trains arrive late 40 per cent of the time, when they are not cancelled, said BA’s loyalty overhaul risked becoming an “expensive mistake driven by financial analysis that completely fails to grasp what emotions determine customer behaviour”.
Harsh stuff, perhaps. But British Airways chief Sean Doyle is not a man for turning. He refused to be drawn on the matter this weekend but is believed to be adamant that the changes are a matter of common sense and will result in a fairer loyalty model.
The air miles row is just the latest in a long list of complaints about the carrier. And yet despite perennial grumbles about customer service and crumbling IT systems, passengers are not being put off. Next month, BA is expected to report that 45 million people flew with the airline in 2024, second only to the 47.7 million it carried in 2019. Importantly for International Airlines Group (IAG), the FTSE 100 parent company, this is expected to translate into big profits. Analysts reckon annual earnings before interest and tax will top €4 billion (£3.4 billion). From a financial perspective at least, things are looking up, and IAG shares have doubled over the past year. No small part of this is due to Doyle’s £7 billion plan, hatched a year ago, to revive the fortunes of the UK flag carrier. “We are a business with momentum. I’m very happy with the traction that we are getting,” the 53-year-old said, reflecting on the first 12 months of the revamp. Half of the spending will go on new planes including seven Boeing 787 Dreamliners and 18 of the Seattle planemaker’s 777X — although the latter are beset by production delays. A further €2.1 billion will pay for long overdue IT upgrades and bolstering engineering facilities. And the remaining €1.4 billion will be spent on upgrading the first, business and premium economy cabins. But Doyle’s blueprint is not just about money. BA claims to have delivered nearly 700 changes in the first 12 months of the multi-year programme — everything from hiring 600 more staff at Heathrow compared with before the pandemic, to investing in a fleet of electric vehicles on its taxiways. At Heathrow, where BA has 55 per cent of the take-off and landing slots (worth an estimated €4.1 billion) bosses are already reaping the dividends of changes. “They’ve pushed us from being below the average in terms of [on-time] performance at Heathrow to being the leader,” said Doyle. Andrew Lobbenberg, a lead transport analyst at Barclays, said that BA’s net promoter scores — crucial markers of the quality of customer service — were on the up over the past 12 months. But this is coming from a low base. “BA is getting better,” he said. “Or as many customers, frustrated with the recent poor service levels, IT outages and flight delays might describe it, less bad.” • Why does BA keep having IT problems? Lobbenberg argues that many of BA’s problems are a consequence of decisions made by IAG prior to the pandemic. Under Doyle’s predecessor, Álex Cruz, bosses went on a mission to “prioritise short-term cash flow, constraining investment at BA in IT, fleet and product”, Lobbenberg said. “BA’s problems arising from years of underinvestment were compounded … by the nature of Covid-era employment support in the UK that saw BA lose many experienced staff through the pandemic,” he added. Robert Boyle, director of strategy at BA and IAG until 2019, agrees. “The app used to be quite good, and then they outsourced it to a third party. That dated back to the Cruz days. He came in and said: ‘You’re all crap. They are much more nimble in Vueling where I come from; I’m going to outsource this sort of stuff.’ Of course, it was never something that a third party was going to be able to solve.” Sean Doyle, the BA chief executive Doyle, the son of a Garda sergeant from Wexford, is more diplomatic. “Ten years ago, the BA app was really good — but other airlines have got better,” he said. “We’ve spent a significant amount of money over the past 18 months not just improving BA.com; but scrapping the old website and app altogether and replacing it with a new one. The new app will be launched in the next few months and is going to be a complete leapfrog from where we are today.” Customer-facing IT is one half of the equation. The other half is transitioning 10,600 servers and 660 applications to the cloud with the help of Amazon Web Services. The hope is that by reducing reliance on old-fashioned data centres, embarrassing, not to mention costly, calamities can be avoided. Best-known of these in recent memory was when a contractor accidentally unplugged the power supply at BA’s Boadicea House data centre in May 2017, causing a power surge and IT system failure. The ensuing chaos led to hundreds of flights at Heathrow and Gatwick airports being cancelled, affecting more than 75,000 passengers. Technology upgrades are only one element of Doyle’s revamp, however. His team are invoking the ethos of Lord (John) King, BA chief executive between 1981 and 1993, who said that BA was “premium or nothing”. BA’s base at Heathrow, where the company is hiring 600 additional staff members GETTY IMAGES The airline is focusing on growing its premium cabins — First, Club World (business), and World Traveller Plus (premium economy) — for good reason. London is the world’s biggest upmarket international travelhub by some distance. The capital’s airport welcomes almost double the number of premium passengers than New York, more than twice as many as Paris, and nearly three times as many as Singapore. Passengers flying from London to the US also tend to be wealthier than those in other European countries. Some 36 per cent of London passengers heading across the Atlantic earn more than €75,000 a year, compared with 26 per cent of those departing from Frankfurt and 24 per cent from Paris. BA’s fleet will be reconfigured so that there will be 20 per cent more premium economy seats by 2027; 15 per cent more business seats; and 10 per cent first-class spaces. Economy seats will rise by a more modest 5 per cent over the same period. The carrier’s biggest aircraft, the Airbus A380, is to be reconfigured in the coming years so that premium cabin floorspace will increase from 60 per cent to 72 per cent. Corporate travel is also on the up after demand was savaged by the pandemic. Analysts at Citi bank estimated in November that business passengers travelling from Europe to conferences in the US were up 19 per cent in the year to date. Doyle’s blueprint is not just about increasing revenues through investment, however. Cutting costs will play a huge role, too. • Inside BA’s new first-class suites BA reckons it can make £500 million of savings from suppliers between now and 2027 by switching to “zero-based budgeting” following a successful trial in 2024. Zero-based budgeting is a controversial approach that requires corporate managers to justify each item of spending every year, or even build their budgets from scratch, rather than the more common process of using the prior year’s budget as a starting point. Budweiser brewer Anheuser-Busch InBev used it to great effect a decade ago, but the initiative can go wrong by distracting staff from growing the business. Food conglomerate Kraft Heinz suffered a major run on its shares in 2019, which was blamed on a poorly executed rollout of zero-based budgeting. But Doyle defends the move. “In any business, if you don’t question what you are investing in and why you are spending money, you end up getting fat and getting lazy,” he said. “Reducing costs is a fundamental enabler of offering value for money. I would never apologise for spelling out the obvious in a strategy. It is important to remind our people of the need for good cost discipline.” As the loyalty programme backlash proved, BA has plenty of pitfalls to navigate before Doyle can rejuvenate its fortunes. Macro events such as wars create turbulence that is hard to plan for, whether through airspace closures or pushing up the price of aviation fuel, one of the sector’s biggest costs. BA’s success is also dependent on others playing their part, from air traffic controllers to aircraft engine manufacturers. Problems with Rolls-Royce engines, revealed by this newspaper last year, are proving a major headache, forcing BA to drop services to the likes of Kuwait, a country that the airline has served for 60 years. Issues with Rolls engines were to blame for 56 per cent of BA’s long-haul cancellations between April and September last year, according to analysts from Goldman Sachs. Doyle, however, prefers to focus on what he can control. “We are a much more agile, adaptive and responsive organisation than we were three or four years ago,” he said. “Whatever we have to deal with in the future, I feel we are in much better shape to deal with it.”Advertisement
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