The Long Haul to Profits

Those $22 Ryanair flights from London to Milan are all well and good, but if you’re off to Chicago this week, you’ll still have to do business with one of those big, dumb dinosaurs we used to call the major airlines. For all of the red ink they’ve been spilling, Europe still needs its British Airways, KLMs and Lufthansas. The trouble, as British Airways ceo Rod Eddington will tell you, is that it just doesn’t need so many of them. “If you look at North America, you have four or five full-service carriers,” says the 52-year old Australian, who took over B.A. in 2000. “We’ve got three times that in Europe, and the industry cannot support that.” Eddington’s job now is to ensure that B.A. is one of the last ones standing. Last week he announced another 5,800 job cuts on top of the 7,200 already in the works. The head of Britain’s airline workers’ union called the cuts “butchery.”

Well, it’s tough to be a hero when you run a real global airline. If Ryanair’s Michael O’Leary can bask in the glory of having built up a business almost from scratch, Eddington’s lot in life is to try and fix what someone else broke. After rising through the ranks to lead Hong Kong-based Cathay Pacific, the former Rhodes scholar (he left Oxford with a doctorate in engineering) took the top job at Australia’s troubled Ansett airline in 1997. Eddington’s cost cutting brought Ansett into the black and reduced its debt by two-thirds, but he couldn’t finish the job. He left in 2000 after Air New Zealand bought full control of the airline; Ansett has since gone bankrupt.

He arrived at British Airways just before the airline announced its first annual loss since privatization. A dedicated cricketer, Eddington reached a sort of détente with bitter B.A. rival Richard Branson of Virgin Atlantic by joining the Virgin side for a match in Oxfordshire. (They won.) To claw back to profitability, he sold off no-frills subsidiary Go for a nice profit, and reduced the airline’s overall capacity while offering more perks to high-margin, business-class flyers, most notably on the vital U.S.-bound routes.

That strategy just might have worked. But Sept. 11 decimated the transatlantic trade — the airline lost $205 million in its most recent quarter — and now Eddington is shifting focus back to coach. Although he’s cutting routes even as O’Leary is buying new planes, he hopes B.A. can take a bit back from the discounters by selling cheap tickets over the Internet and simplifying its short-haul fleet to get more out of each aircraft. He’s still not charging for peanuts, though. Q&A

TIME: Were B.A. and the other full-service airlines caught flat-footed by discounters like Ryanair and EasyJet?
Eddington: Yes. We should have been much quicker to learn from the things they did well. Are they lucky that they don’t fly in the North Atlantic? Yes, they are. Many charter operators who are close to the no-frills model and fly to the U.S. have had a tough time of it.

TIME: Do you have any regrets about selling Go?
Eddington: No. When I arrived at B.A. and asked people how we should compete with Ryanair, they said not to worry because we own Go. In other words, we don’t need to get our own house in order. But we needed to change the way B.A. itself runs things to confront Ryanair and EasyJet, and no full-service airline has ever been able to run a no-frills carrier in the same family successfully.

TIME: Has B.A. been too focused on its U.S. routes?
Eddington: Which country is going to be the major economic power of the next 20 years? The United States.

TIME: Some analysts complain your latest cuts still aren’t deep enough.
Eddington: We could have taken more jobs out by closing down our short-haul business. That would have been a strategic mistake. Our customers fly to New York and back one week, and to Rome and back the next. We need to offer a total network, and if we don’t Air France and Lufthansa will.

TIME: Who is the better cricket player, you or Richard Branson of Virgin?
Eddington: I’m a big fan of Richard Branson.

TIME: So you won’t comment on his cricket skills?
Eddington: Let’s just say that he and I share a love of the game.