Future size & shape unveiled

British Airways PLC
13 February 2002




        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


        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.'

        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.

        Today, the airline announced that - as part of the strategy - a further
        eight routes will transfer from Gatwick to Heathrow by summer 2002 -
        four long haul (Mauritius, Buenos Aires, Lagos and Abuja) and four short
        haul (Bucharest, Kiev, Riga and Zagreb). By summer 2003, Gatwick
        capacity will have reduced by a total of

        60 per cent, since summer 1999.

        The airline also plans to cut a further 10 routes - five long haul and
        five short haul - as part of the overall reduction in capacity and will
        announce the details of the route cuts once consultations have been
        completed.

        Through increased aircraft utilisation and network restructuring, the
        UK-based fleet has been reducing steadily. From summer 2001 to summer
        2003, it will have reduced by 49 aircraft - from 354 to 305.

        Since December 2000, the airline has been scaling back its operation at
        London Gatwick to transform it into a base for point-to-point short haul
        flights and a limited number of long haul routes. By summer 2003, long
        haul destinations will have reduced from 41 in summer 2001 to 15
        destinations through the suspension of unprofitable routes and moving
        others to London Heathrow.

        A major part of the fleet simplification plan involves the transfer of
        16 RJ100s based at Gatwick to the airline's regional bases in Manchester
        and Birmingham. In turn, eight A319s at Birmingham will move to Heathrow
        to join the existing fleet of 25 A319s and 11 A320s. Four B737s will
        move from Manchester to Gatwick joining 29 B737s already there.

        Mr Eddington said: 'Simplification is key to removing cost from the
        business. These fleet moves mean our operations at Gatwick will be flown
        by just two aircraft types - Boeing 737s for short haul and Boeing 777s
        for long haul. For our regional bases, a simpler fleet helps to deliver
        operational efficiency.'

        Two Boeing 777 aircraft are being sold and will exit the British Airways
        fleet in Spring 2002. The company will seek to sell a further five
        aircraft from its long haul Boeing fleet.

        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.'

        February 13, 2002 Ends 021/BC/02











        NOTES TO EDITORS:

 1. By December 31, 2001, manpower levels had reduced by 5,800 towards the 7,200
    target announced immediately after September 11. The further cuts will
    reduce mainline manpower levels from 56,700 in August 2001 to 43,700 by
    March 2004. Of the Group's airline operations, mainline excludes
    CitiExpress, British Airways Regional and DeutscheBA.

 2. The £650 million of annualised cost savings is broken down as follows: £450
    million employee and employee related costs, e.g. property cost savings;
    £100 million global distribution costs; £100 million procurement and
    information technology efficiencies. The savings will be secured gradually
    over the next two years, leading to a total annual saving of £650 million
    from April 2004.


        3. The booking payments, made by the airline to the travel agents, from
        1 June 2002 will be:

        £2.50 per sector for non full fare Domestic and European, reduced from
        £6, based on British Airways' cost of fulfilling a booking online.

        £5.00 per sector for full fare Domestic and European, reduced from
        £11.00. The additional payment is due to the flexible nature of these
        tickets.

        For long haul, the booking payments will remain unchanged at £20 per
        sector for full fare and premium bookings and £11 per sector for non
        full fare bookings.

 4. By summer 2003 - compared to summer 2001:

  • 9 per cent less overall capacity across the network (21 per cent since
    summer 1999)
  • 52 per cent less capacity at Gatwick (60 per cent since summer 1999)
  • 10 per cent better short haul aircraft utilisation
  • 49 fewer aircraft
  • 15 per cent fewer destinations
  • 40 per cent fewer aircraft subtypes


        5. British Airways will be hosting an investor conference at 0915 GMT to
        present Future Size and Shape. This event will be webcast and can be
        viewed on www.bashares.com. A reply facility is available.





                      This information is provided by RNS
            The company news service from the London Stock Exchange