Rod Eddington took the helm of British Airways Plc in May 2000 after pledging to turn around a carrier that just had its first annual loss. Instead, he posted its biggest quarterly loss yesterday.
The shares of Europe's biggest airline by passenger traffic have fallen 36 percent since Eddington took over and its market value of US$3.3 billion now ranks fourth in Europe behind Deutsche Lufthansa AG, Ryanair Holdings Plc and Air France SA.
Eddington's efforts were undermined by a slowing economy and the Sept. 11 terrorist attacks, resulting in a drop in demand of more than a third. He also failed to complete a proposed merger with KLM Royal Dutch Airlines and abandoned efforts to form a closer alliance with AMR Corp's American Airlines because of regulators' demands.
"Eddington may well have to go back to the drawing board," said Howard Wheeldon, an analyst at Prudential Bache Ltd with a "sell" rating on the airline's shares. "British Airways is stuck in a big spider's web."
The carrier reported a record loss of ?144 million (US$204 million), or 13.4 pence per share, for its fiscal third quarter ended Dec. 31, compared with a profit in the year-earlier quarter of ?36 million.
The airline's main predicament is its inability to exploit the potential of London's Heathrow airport, Europe's largest. The airport is near capacity and the planned addition of a fifth terminal will not yield as many new slots as British Airways had hoped because of takeoff and landing restrictions.
Heathrow also was the main obstacle to approval of a closer alliance with American Airlines. US regulators demanded British Airways and American cede 16 daily flights to rivals. The airlines said the price was too high.
And while growth is limited at Heathrow, which has only two runways, Lufthansa's base at Frankfurt Airport is planning to add a fourth runway and Air France's in Paris at Charles de Gaulle airport has four.
With 37 percent of the landing and takeoff slots at Heathrow, from where only four airlines are allowed to serve the US, the 51-year-old CEO also has a prime asset.
"British Airways is sitting on a gold mine" said Henry Essenberg, executive vice president for KLM's passenger division.
Yet one gold mine isn't enough to constitute a global strategy, investors said, and until Eddington presents a clear plan, some will stay away from the stock.
"We're not interested in an old-fashioned carrier like British Airways," says David Binnie, who helps manage ?8 billion at Edinburgh Fund Managers Group Plc. "A company like that will find it very difficult to transform themselves overnight."
When Eddington took over from former CEO Robert Ayling, he did little to change strategy, aside from accelerating planned cuts in traffic from London's Gatwick and concentration at Heathrow.
Ayling was ousted as the airline prepared to post its first full-year loss, amid low employee morale and investor discontent at the performance of the carrier shares, which were approaching a seven-year low.
Eddington is an Australian and a former Rhodes Scholar at Oxford University, where he studied engineering science and played cricket. He is the first foreigner to head Britain's former state-owned carrier. He was executive chairman of Ansett Holdings Ltd, Australia's second-biggest airline, which was grounded by an administrator Sept. 14 after it ran out of cash.
His pay had been ?525,000, though in October the airline announced that Eddington and 12 top executives reduced their pay by 15 percent to trim costs. That would have brought his pay to about ?446,000 a year. He declined to be interviewed for this article.
To cope with changes in the industry following the Sept. 11 attacks, Eddington appointed five senior managers to carry out a study of the carrier's future size and shape. The results are to be released later this month.
The CEO said this month in the online edition of the airline's internal newsletter that the goal is to achieve 10 percent operating margins. The closest his airline ever came was 8 percent, in 1997. Its average over the last five years has been 4.8 percent. Lufthansa's is 8 percent, Air France's 3.2 percent. The five-year average for Ryanair is 21.8 percent.
The airline needs a partner within Europe to compete with Air France's tie with Alitalia SpA and Lufthansa's links with Scandinavian Airlines System and BMI British Midland Airways. The smaller airlines feed traffic to Lufthansa and Air France while the big airlines provide them with a network of international destinations.
British Airways may still try to win KLM as an ally, though the Dutch carrier is likely to be courted by Air France's SkyTeam Alliance as well. The Dutch carrier's base at Amsterdam's Schiphol Airport has six runways and is a main European gateway for travelers going to destinations across the continent.
Eddington also needs a new trans-Atlantic strategy after the scrapping of its plans to ally with American. The British carrier's main focus is point-to-point travel between London and major US cities.
While British Airways is the largest carrier on North Atlantic routes, it lacks the ties to destinations throughout the US that competitors get with code sharing, or the ability to sell tickets on each others routes.
Lufthansa's tie with UAL Corp's United Airlines and Air France's with Delta Air Lines Inc. both have regulators' approval to share passengers and revenue, helping to increase profit.
British Airways has said its scrutinizing its whole network, though trimming routes can be tricky. No-frills upstarts including Ryanair and EasyJet Plc have been eroding British Airways' market share on short routes, and they're stealing business passengers, too, as they expand.
"If they cut back then they open the way for the competition," said Liz Burke, a transport analyst for Aegon Fund Managers Ltd.
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