Official: British Airways Becomes a Low-Cost Short Haul Airline

In a development that isn’t particularly surprising, British Airways has now, from this week at least decided to charge for food and drink on its short-haul flights in economy classes.
The days of having a free beer or a glass of wine on board your flight to Europe is now gone, although you’re more than welcome to have one if you pay.

If you happen to be a non-status passenger, most of the differentials that used to justify BA’s price premium have now drifted away and save for the fact that you can fly from Heathrow, you will end up having an experience no better than that of Easyjet in that:

  • No checked baggage allowance, unless you pay for it
  • No priority boarding, unless you have status
  • No choosing seats in advance, unless you have status, or you pay for it
  • No food or drink on board, unless you pay for it
  • Equally cramped cabin layouts
  • Equally low-paid and unqualified staff

The last two points potentially are worse on British Airways. For a start, on some of its Airbus aircraft, one of the toilets has been removed at the rear to accommodate more seats – a move that is becoming increasingly more common. However, unlike the low cost airlines, BA will retain it’s Club Europe ‘premium’ cabin at the front of the aircraft, and generally the forward toilet is reserved for these passengers (who could number as little as 1 or 2). Therefore the pax:loo ratio on these planes is much worse.

And let’s not get onto the staff. Almost commensurate with the rate of pay, cabin crew were almost a differentiating factor on their own – service can make or break a flight. On the new contracts, British Airways are paying as little as anyone else, with truly predictable results. It’s certainly the case that they do have cabin crew that are competent at their jobs, but in equal manner there are plenty of cabin crew at Ryanair/Easyjet who are too. What these latter companies do not have is a disconnect between management and each other; it’s fair to say that internal politics overshadows much of the service. To be fair, the cabin crews are less to blame – I’m sure they want to offer good service but the constant cost-cutting of BA has meant they cannot.

A Contrarian View: Can British Airways make it pay?

OK, that’s about it for a rant. It’s fairly true that short-haul has gone low-cost, but that’s the way the wind has been blowing for some time, and it’s not as if BA are the only culprits here; virtually all European airlines (and American ones too, for that matter) have decreased quality offerings to only a notch above that of the low-cost airlines. The lack of comfort for even business travellers today suggest that most people aren’t bothered about food on board these short-haul flights. For many people, it may even be an upgrade as the original food offerings were pitiful. Airlines do most things on board for profit, so even the business travellers presumably are happy enough to sacrifice some things in return for a cheaper price.

Essentially, the charging of food is a back-door price increase. It can’t really be described as anything else, because a scenario where no-one orders anything is extremely unlikely. If we extrapolate trolley popularity from the low-cost airlines, it’ll almost certainly be the case that food will sell well – particularly on the longer-haul flights. Sure, people could buy their own food before boarding – a Boots meal deal from the airport is generally decent value – but it’s surprising how many people don’t.

The upsides, therefore are tremendous. People will buy their food and drink at tremendous mark-ups. I’m sure they will have a metric of average spend per customer to target, but I’d be amazed if each flight did not take at least £1,000, particularly those based around meal-times. This equates to a rather modest average spend per customer (considering that someone who eats a sandwich and has a glass of wine will not see much change from a tenner).

That £1,000 is not all profit – of course, the expenses associated with storing, buying and tracking said items needs to be taken into account, but multiplied over the short-haul sectors that BA run per day, the cumulative effect will be large. Looking at Ryanair’s accounts and the great boost that on-board revenues provide, I wouldn’t be surprised to see the uplift for British Airways to be at least £50m a year.

So where are the costs?

Most of the costs are hidden. There could be some reputation costs incurred as people start to realise that things were not as good as they used to be, but in truth, the likelihood of defections is pretty low. Heathrow is by far the biggest draw to British Airways insofar that people cannot fly a low-cost carrier from Heathrow even if they wanted to. Therefore the lack of a coffee is not going to make people make the journey from Heathrow to Gatwick instead.

This may start to hurt British Airways on flights where a connection is required. If a flight requires one stop to reach the final destination, or if a customer is slightly more flexible then by comparison other airlines start to look more attractive, particularly as BA’s long-haul product is not that competitive either. But again, for a lot of people there isn’t that choice.

So, I’d expect initially some complaints, but then a period where people simply get used to it and in one year’s time people will have largely forgotten about it. On many of the leisure routes people will be in too much of a good mood that £5 extra is nothing really, and on business routes those purchases will be expensed anyway.

One of the biggest threats could be the expansion of Heathrow to accommodate other airlines such as Easyjet. If that happens, I’d expect a reversal of this policy pretty sharpish, but to be honest, I can’t see Easyjet getting a foothold there. Slots will still be precious at an enlarged Heathrow, and from the airports point of view, it would be a waste to have them go to the same old places.

Is there anything else that can be done to cut value further?

In the race for the bottom, I still think British Airways have some room to go. Devaluing their Avios scheme further certainly would cut their liabilities, and tightening up their premium membership programme would also work as well.  I fully expect these to happen sometime soon.

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