British Airways Essay

I remember going to parties in the late 1970s, and, if you wanted to have a civilized conversation, you didn’t actually say that you worked for British Airways, because it got you talking about people’s last travel experience, which was usually an unpleasant one. It’s staggering how much the airline’s image has changed since then, and, in comparison, how proud staff are of working for BA today. British Airways employee, Spring 1990 I recently flew business class on British Airways for the first time in about 10 years. What has happened over that time is amazing. I can’t tell you how my memory of British Airways as a company and the experience I had 10 years ago contrasts with today. The improvement in service is truly remarkable. British Airways customer, Fall 1989 In June of 1990, British Airways reported its third consecutive year of record profits,  £345 million before taxes, firmly establishing the rejuvenated carrier as one of the world’s most profitable airlines. The impressive financial results were one indication that BA had convincingly shed its historic â€Å"bloody awful† image. In October of 1989, one respected American publication referred to them as â€Å"bloody awesome,† a description most would not have thought possible after pre-tax losses totalling more than  £240 million in the years 1981 and 1982. Productivity had risen more than 67 percent over the course of the 1980s. Passengers reacted highly favorably to the changes. After suffering through years of poor market perception during the 1970s and before, BA garnered four Airline of the Year awards during the 1980s, as voted by the readers of First Executive Travel. In 1990, the leading American aviation magazine, Air Transport World, selected BA as the winner of its Passenger Service award. In the span of a decade, British Airways had radically improved its financial strength, convinced its work force of the paramount importance of customer service, and dramatically improved its perception in the market. Culminating in the privatization of 1987, the carrier had undergone fundamental change through a series of important messages and events. With unprecedented success under its belt, management faced an increasingly perplexing problem: how to maintain momentum and recapture the focus that would allow them to meet new challenges. Crisis of 1981 Record profits must have seemed distant in 1981. On September 10 of that year, then chief executive Roy Watts issued a special bulletin to British Airways staff: British Airways is facing the worst crisis in its history . . . unless we take swift and remedial action we are heading for a loss of at least  £100 million in the present financial year. We face the prospect that by next April we shall have piled up losses of close to  £250 million in two years. Even as I write to you, our money is draining at the rate of nearly  £200 a minute. No business can survive losses on this scale. Unless we take decisive action now, there is a real possibility that British Airways will go out of business for lack of money. We have to cut our costs sharply, and we have to cut them fast. We have no more choice, and no more time . Just two years earlier, an optimistic British government had announced its plan to privatize British Airways through a sale of shares to the investing public. Although airline management recognized that the 58,000 staff was too large, they expected increased passenger volumes and improved staff productivity to help them avoid complicated and costly employee reductions. While the 1978-79 plan forecasted passenger traffic growth at 8 to 10 percent, an unexpected recession left BA struggling to survive on volumes, which, instead, decreased by more that 4 percent. A diverse and aging fleet, increased fuel costs, and the high staffing costs forced the government and BA to put privatization on hold indefinitely. With the airline technically bankrupt, BA management and the government would have to wait before the public would be ready to embrace the ailing airline. The BA Culture, 1960-1980 British Airways stumbled into its 1979 state of inefficiency in large part because of its history and culture. In August 1971, the Civil Aviation Act became law, setting the stage for the British Airways Board to assume control of two state-run airlines, British European Airways (BEA) and British Overseas Airways Corporation (BOAC), under the name British Airways. In theory, the board was to control policy over British Airways; but, in practice, BEA and BOAC remained autonomous, each with its own chairman, board, and chief executive. In 1974, BOAC and BEA finally issued one consolidated financial report. In 1976, Sir Frank (later Lord) McFadzean replaced the group division with a structure based on functional divisions to officially integrate the divisions into one airline. Still, a distinct split within British Airways persisted throughout the 1970s and into the mid-1980s. After the Second World War, BEA helped pioneer European civil aviation. As a pioneer, it concerned itself more with building an airline infrastructure than it did with profit. As a 20-year veteran and company director noted: â€Å"The BEA culture was very much driven by building something that did not exist. They had built that in 15 years, up until 1960. Almost single-handedly they opened up air transport in Europe after the war. That had been about getting the thing established. The marketplace was taking care of itself. They wanted to get the network to work, to get stations opened up.† BOAC had also done its share of pioneering, making history on May 2, 1952, by sending its first jet airliner on a trip from London to Johannesburg, officially initiating jet passenger service. Such innovation was not without cost, however, and BOAC found itself mired in financial woes throughout the two decades following the war. As chairman Sir Matthew Slattery explained in 1962: â€Å"The Corporation has had to pay a heavy price for pioneering advanced technologies.† Success to most involved with BEA and BOAC in the 1950s and 1960s had less to do with net income and more to do with â€Å"flying the British flag.† Having inherited numerous war veterans, both airlines had been injected with a military mentality. These values combined with the years BEA and BOAC existed as government agencies to shape the way British Airways would view profit through the 1970s. As former director of human resources Nick Georgiades said of the military and civil service history: â€Å"Put those two together and you had an organization that believed its job was simply to get an aircraft into the air on time and to get it down on time.† While government support reinforced the operational culture, a deceiving string of profitable years in the 1970s made it even easier for British Airways to neglect its increasing inefficiencies. Between 1972 and 1980, BA earned a profit before interest and tax in each year except for one. â€Å"This was significant, not least because as long as the airline was returning profits, it was not easy to persuade the workforce, or the management for that matter, the fundamental changes were vital. Minimizing cost to the state became the standard by which BA measured itself. As one senior manager noted: â€Å"Productivity was not an issue. People were operating effectively, not necessarily efficiently. There were a lot of people doing other people’s jobs, and there were a lot of people checking on people doing other people’s jobs† . . . As a civil service agency, the airline was allowed to become inefficient because the thinking in state-run operations was, â€Å"If yo u’re providing service at no cost to the taxpayer, then you’re doing quite well.† A lack of economies of scale and strong residual loyalties upon the merger further complicated the historical disregard for efficiency by BEA and BOAC. Until Sir Frank McFadzean’s reorganization in 1976, British Airways had labored under several separate organizations (BOAC; BEA European, Regional, Scottish, and Channel) so the desired benefits of consolidation had been squandered. Despite operating under the same banner, the organization consisted more or less of separate airlines carrying the associated costs of such a structure. Even after the reorganization, divisional loyalties prevented the carrier from attaining a common focus. â€Å"The 1974 amalgamation of BOAC with the domestic and European divisions of BEA had produced a hybrid racked with management demarcation squabbles. The competitive advantages sought through the merger had been hopelessly defeated by the lack of a unifying corporate culture.† A BA director summed up how distracting the merger proved: â€Å"There wasn’t enough management time devoted to managing the changing environment because it was all focused inwardly on resolving industrial relations problems, on resolving organizational conflicts. How do you bring these very, very different cultures together?† Productivity at BA in the 1970s was strikingly bad, especially in contrast to other leading foreign airlines. BA’s productivity for the three years ending March 31, 1974, 1975, and 1976 had never exceeded 59 percent of that of the average of the other eight foreign airline leaders. Service suffered as well. One human resources senior manager recalled the â€Å"awful† service during her early years in passenger services: â€Å"I remember 10 years ago standing at the gate handing out boxes of food to people as they got on the aircraft. That’s how we dealt with service.† With increasing competition and rising costs of labor in Britain in the late 1970s, the lack of productivity and poor service was becoming increasingly harmful. By the summer of 1979, the number of employees had climbed to a peak of 58,000. The problems became dangerous when Britain’s worst recession in 50 years reduced passenger numbers and raised fuel costs substantially. Lord King Takes the Reins Sir John (later Lord) King was appointed chairman in February of 1981, just a half-year before Roy Watts’s unambiguously grim assessment of BA’s financial state. King brought to British Airways a successful history of business ventures and strong ties to both the government and business communities. Despite having no formal engineering qualifications, King formed Ferrybridge Industries in 1945, a company which found an unexploited niche in the ball-bearing industry. Later renamed the Pollard Ball and Roller Bearing Company, Ltd., King’s company was highly successful until he sold it in 1969. In 1970, he joined Babcock International and as chairman led it through a successful restructuring during the 1970s. King’s connections were legendary. Hand-picked by Margaret Thatcher to run BA, King’s close friends included Lord Hanson of Hanson Trust and the Princess of Wales’s family. He also knew personally Presidents Reagan and Carter. King’s respect and connections proved helpful both in recruiting and in his dealings with the British government. One director spoke of the significance of King’s appointment: â€Å"British Airways needed a chairman who didn’t need a job. We needed someone who could see that the only way to do this sort of thing was radically, and who would be aware enough of how you bring that about.† In his first annual report, King predicted hard times for the troubled carrier. â€Å"I would have been comforted by the thought that the worst was behind us. There is no certainty that this is so.† Upon Watts’s announcement in September of 1981, he and King launched their Survival plan— â€Å"tough, unpalatable and immediate measures† to stem the spiraling losses and save the airline from bankruptcy. The radical steps included reducing staff numbers from 52,000 to 43,000, or 20 percent, in just nine months; freezing pay increases for a year; and closing 16 routes, eight on-line stations, and two engineering bases. It also dictated halting cargo-only services and selling the fleet, and inflicting massive cuts upon offices, administrative services, and staff clubs. In June of 1982, BA management appended the Survival plan to accommodate the reduction of another 7,000 staff, which would eventually bring the total employees down from about 42,000 to nearly 35,000. BA accomplished its reductions through voluntary measures, offering such generous severance that they ended up with more volunteers than necessary. In total, the airline dished out some  £150 million in severance pay. Between 1981 and 1983, BA reduced its staff by about a quarter. About the time of the Survival plan revision, King brought in Gordon Dunlop, a Scottish accountant described by one journalist as â€Å"imaginative, dynamic, and extremely hardworking,† euphemistically known on Fleet Street as â€Å"forceful,† and considered by King as simply â€Å"outstanding.† As CFO, Dunlop’s contribution to the recovery years was significant. When the results for the year ending March 31, 1982, were announced in October, he and the board ensured 1982 would be a watershed year in BA’s turnaround. Using creative financing, Dunlop wrote down  £100 million for redundancy costs,  £208 million for the value of the fleet (which would ease depreciation in future years), even an additional  £98 million for the 7,000 redundancies which had yet to be effected. For the year, the loss before taxes amounted to  £114 million. After taxes and extraordinary items, it totalled a staggering  £545 million. Even King might have admitted that the worst was behind them after such a report. The chairman immediately turned his attention to changing the airline’s image and further building his turnaround team. On September 13, 1982, King relieved Foote, Cone & Belding of its 36-year-old advertising account with BA, replacing it with Saatchi & Saatchi. One of the biggest account changes in British history, it was King’s way of making a clear statement that the BA direction had changed. In April of 1983, British Airways launched its â€Å"Manhattan Landing† campaign. King and his staff sent BA management personal invitations to gather employees and tune in to the inaugural six-minute commercial. Overseas, each BA office was sent a copy of the commercial on videocassette, and many held cocktail parties to celebrate the new thrust. â€Å"Manhattan Landing† dramatically portrayed the whole island of Manhattan being lifted from North America and whirled over the Atlantic before awestruck witnesses in the U.K. After the initial airing, a massive campaign was run with a 90-second version of the commercial. The ad marked the beginning of a broader campaign, â€Å"The World’s Favourite Airline,† reflective of BA’s status as carrier of the most passengers internationally. With the financial picture finally brightening, BA raised its advertising budget for 1983-84 to  £31 million, compared with  £19 million the previous year, signalling a clear commitment to changing the corporate image. Colin Marshall Becomes Chief Executive In the midst of the Saatchi & Saatchi launch, King recruited Mr. (later Sir) Colin Marshall, who proved to be perhaps the single most important person in the changes at British Airways. Appointed chief executive in February 1983, Marshall brought to he airline a unique resume. He began his career as a management trainee with Hertz in the United States. After working his way up the Hertz hierarchy in North America, Marshall accepted a job in 1964 to run rival Avis’s operations in Europe. By 1976, the British-born businessman had risen to chief executive of Avis. In 1981, he returned to the U.K. as deputy chief and board member of Sears Holdings. Fulfilling one of his ultimate career ambitions, he took over as chief executive of British Airways in early 1983. Although having no direct experience in airline management, Marshall brought with him two tremendous advantages. First, he understood customer service, and second, he had worked with a set of customers quite similar to the airline travel segment during his car rental days. Marshall made customer service a personal crusade from the day he entered BA. One executive reported: â€Å"It was really Marshall focusing on nothing else. The one thing that had overriding attention the first three years he was here was customer service, customer service, customer service—nothing else. That was the only thing he was interested in, and it’s not an exaggeration to say that was his exclusive focus.† Another senior manager added: â€Å"He has certainly put an enabling culture in place to allow customer service to come out, where, rather than people waiting to be told what to do to do things better, it’s an environment where people feel they can actually come out with ideas, that they will be listened to, and feel they are much more a part of the success of the company.† Not just a strong verbal communicator, Marshall became an active role model in the terminals, spending time with staff during morning and evenings. He combined these a ctions with a number of important events to drive home the customer service message. Corporate Celebrations, 1983-1987 If Marshall was the most important player in emphasizing customer service, then the Putting People First (PPF) program was the most important event. BA introduced PPF to the front-line staff in December of 1983 and continued it through June of 1984. Run by the Danish firm Time Manager International, each program cycle lasted two days and included 150 participants. The program was so warmly received that the non-front-line employees eventually asked to be included, and a one-day â€Å"PPF II† program facilitated the participation of all BA employees through June 1985. Approximately 40,000 BA employees went through the PPF programs. The program urged participants to examine their interactions with other people, including family, friends, and, by association, customers. Its acceptance and impact was extraordinary, due primarily to the honesty of its message, the excellence of its delivery, and the strong support of management. Employees agreed almost unanimously that the program’s message was sincere and free from manipulation, due in some measure to the fact that BA separated itself from the program’s design. The program emphasized positive relations with people in general, focusing in large part on non-work-related relationships. Implied in the positive relationship message was an emphasis on customer service, but the program was careful to aim for the benefit of employees as individuals first. Employees expressed their pleasure on being treated with respect and relief that change was on the horizon. As one frontline ticket agent veteran said: â€Å"I found it fascinating, very, very enjoyable. I thought it was very good for British Airways. It made people aware. I don’t think people give enough thought to people’s reaction to each other. . . . It was hardhitting. It was made something really special. When you were there, you were treated extremely well. You were treated as a VIP, and people really enjoyed that. It was reverse roles, really, to the job we do.† A senior manager spoke of the confidence it promoted in the changes: â€Å"It was quite a revelation, and I thought it was absolutely wonderful. I couldn’t believe BA had finally woken and realized where its bread was buttered. There were a lot of cynics at the time, but for people like myself it was really great to suddenly realize you were working for an airline that had the guts to chan ge, and that it’s probably somewhere where you want to stay.† Although occasionally an employee felt uncomfortable with the â€Å"rah-rah† nature of the program, feeling it perhaps â€Å"too American,† in general, PPF managed to eliminate cynicism. The excellence in presentation helped signify a sincerity to the message. One senior manager expressed the consistency. â€Å"There was a match between the message and the delivery. You can’t get away with saying putting people first is important, if in the process of delivering that message you don’t put people first.† Employees were sent personal invitations, thousands were flown in from around the world, and a strong effort was made to prepare tasteful meals and treat everyone with respect. Just as important, BA released every employee for the program, and expected everyone to attend. Grade differences became irrelevant during PPF, as managers and staff members were treated equally and interacted freely. Moreover, a senior director came to conclude every single PPF session with a question and answer session. Colin Marshall himself frequently attended these closing sessions, answering employee concerns in a manner most felt to be extraordinarily frank. The commitment shown by management helped BA avoid the fate suffered by British Rail in its subsequent attempt at a similar program. The British Railway program suffered a limited budget, a lack of commitment by management and interest by staff, and a high degree of cynicism. Reports surfaced that employees felt the program was a public relations exercise for the outside world, rather than a learning experience for staff. About the time PPF concluded, in 1985, BA launched a program for managers only called, appropriately, Managing People First (MPF). A five-day residential program for 25 managers at a time, MPF stressed the importance of, among other topics, trust, leadership, vision, and feedback. On a smaller scale, MPF stirred up issues long neglected at BA. One senior manager of engineering summarized his experience: â€Å"It was almost as if I were touched on the head. . . . I don’t think I even considered culture before MPF. Afterwards I began to think about what makes people tick. Why do people do what they do? Why do people come to work? Why do people do things for some people that they won’t do for others?† Some participants claimed the course led them to put more emphasis on feedback. One reported initiating regular meetings with staff every two weeks, in contrast to before the program when he met with staff members only as problems arose. As Marshall and his team challenged the way people thought at BA, they also encouraged changes in more visible ways. In December 1984, BA unveiled its new fleet livery at Heathrow airport. Preparations for the show were carefully planned and elaborate. The plane was delivered to the hangar-turned-theater under secrecy of night, after which hired audio and video technicians put together a dramatic presentation. On the first night of the show, a darkened coach brought guests from an off-site hotel to an undisclosed part of the city and through a tunnel. The guests, including dignitaries, high-ranking travel executives, and trade union representatives, were left uninformed of their whereabouts. To their surprise, as the show began an aircraft moved through the fog and laser lights decorating the stage and turned, revealing the new look of the British Airways fleet. A similar presentation continued four times a day for eight weeks for all staff to see. On its heels, in May of 1985, British Airways unveiled its new uniforms, designed by Roland Klein. With new leadership, strong communication from the top, increased acceptance by the public, and a new physical image, few on the BA staff could deny in 1985 that his or her working life had turned a new leaf from its condition in 1980. Management attempted to maintain the momentum of its successful programs. Following PPF and MPF, it put on a fairly successful corporatewide program in 1985 called â€Å"A Day in the Life† and another less significant program in 1987 called â€Å"To Be the Best.† Inevitably, interest diminished and cynicism grew with successive programs. BA also implemented an â€Å"Awards for Excellence† program to encourage employee input. Colin Marshall regularly communicated to staff through video. While the programs enjoyed some success, not many employees felt â€Å"touched on the head† by any successor program to PPF and MPF.