BA - Future Size and Shape Unveiled

Major package of measures to restore profitability

£650 million of annualised cost savings

5,800 further job losses in addition to 7,200 announced previously

Total head office and support staff to be reduced by more than a third

Significant restructuring of short haul business to compete with no frills carriers

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London, Wednesday February 13, 2002: British Airways today unveiled a major package of measures designed to return the airline to profitability, following a wide-ranging analysis of its business led by chief executive Rod Eddington.

Mr Eddington said: “We started this review with one clear objective in mind - to turn this company around. We will remain true to our heritage of being a full service network carrier committed to customer service excellence and world class products. But we must transform British Airways into a simpler, leaner, more focused airline so we can thrive and prosper in an increasingly competitive market.”

Mr Eddington said: “We started this review with one clear objective in mind - to turn this company around. We will remain true to our heritage of being a full service network carrier committed to customer service excellence and world class products. But we must transform British Airways into a simpler, leaner, more focused airline so we can thrive and prosper in an increasingly competitive market.”

The conclusions of the review - known as ‘Future Size and Shape’ - signal a significant change to the size of British Airways as it takes further steps to address its cost base and sets the company on course to achieve a 10 per cent operating margin. This will be supported by an annualised cost saving of £650 million achieved by March 2004, with £450 million of this secured by the end of the first year (2002 - 2003).

There will be a further 5,800 job losses over the next two years, in addition to 7,200 announced in September 2001. In total, this amounts to a manpower reduction of 13,000 or 23 per cent of the airline’s workforce of 56,700 in August 2001. Head office and support staff will reduce by more than a third (36 per cent). The company wants to achieve the manpower reduction by voluntary means and will work with the trade unions to achieve the target. The airline is making a provision of £200 million over the next two years for restructuring costs.

British Airways will restructure its European short haul business to provide a competitive response to the no-frills carriers.

This will include a change to its short haul pricing structure - giving business travellers and holiday makers lower fares, greater flexibility and more choice - a simpler short haul fleet and higher aircraft utilisation. The new pricing structure will be rolled out from June 2002.

The airline will cut its global distribution costs to generate £100 million of savings, including reducing payments to travel agents in the UK for short haul bookings. This is also being introduced in June 2002 and will result in British Airways’ lowest fares being available on the internet.

Mr Eddington said: “We will not become a no frills airline nor will we launch one. We will compete profitably and intelligently alongside them by adopting what they do well - online bookings, high aircraft utilisation and pricing simplicity. We will mix it with what we do well - providing a great network with frequent flights from convenient airports, as well as delivering world class customer service.

“Our premium and frequent customers remain as important as ever and we will continue to invest in products and services that they value.”

The Future Size and Shape review has endorsed the airline’s existing fleet and network strategy unveiled in 1999. Since then, the airline’s fleet and network strategy has cut capacity by downsizing and simplifying its fleet and reducing its exposure to unprofitable transfer markets. From summer 1999 to summer 2003, the airline’s overall capacity reduction will total 21 per cent.

British Airways subsidiaries are conducting their own Future Size and Shape review, which will be announced by Spring.

Chairman Lord Marshall of Knightsbridge said: “The Board is fully behind the review and has been working together with Rod Eddington to ensure the best possible outcome. We believe that this has been achieved. The Board has no doubt that the British Airways team can deliver reform and revival in the most effective way, to the benefit of customers, shareholders and employees, alike.”

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