BA chief unveils £450m cost-cutting proposals

The new chief executive of British Airways today announced plans to cut costs by £450m in the next two years in a move likely to lead to more job losses.

The proposals, unveiled by Willie Walsh, cover the period from the end of this month to the end of March 2008, when BA moves into its new operational home in Terminal 5 at Heathrow.

Unions had been waiting to see what Mr Walsh, who replaced Rod Eddington as the chief executive of Europe's third-biggest airline in October, had up his sleeve.

He gained a reputation as a fierce cost-cutter during his stint at the Irish airline Aer Lingus.

BA has barely emerged from a restructuring programme that has seen 12,000 jobs go since 2002. Six hundred management jobs were axed last autumn.

The Transport and General Workers Union, which has more than 20,000 members at BA, said talk of further job losses was causing concern.

"Thousands of jobs have already gone, and we saw the effects of that a couple of summers ago when the airline found itself short of people at Heathrow," Brendan Gold, the union's national secretary for civil aviation, said.

Mr Gold said unions would be studying the details of the two-year business plan and predicted tough talking ahead.

"Everyone wants BA to continue its success," he said. "But that must include recognition that the workforce and the unions have and will continue to play a key role."

BA declined to provide details of its plan to reduce costs, but said it would leave it on track to hit a key profitability target.

"This will leave the company on track to deliver a 10% operating margin in the year to March 2008 assuming fuel prices and external environment are stable," a BA statement said.

Like other established carriers, BA has come under fierce pressure from discount airlines such as Ryanair and easyJet.

Despite this, it last month reported "encouraging" results as pre-tax profits rose 8.6% to £164m in the third quarter despite soaring fuel costs.

BA said its fuel costs for the year to March 2006 were now expected to be £505. Fuel is forecast to be up by around £400m for this year.

Apart from plans to cut costs, BA is to invest almost £200m in new Club World seats, on-demand films in all cabins and its website. The airline also has plans for new procedures to improve punctuality and baggage performance in preparation for Terminal 5.

"This plan will make us fit for the future," Mr Walsh said. "By resolving our pensions deficit, reducing cost and delivering world-class customer service, we can make a 10% operating margin a sustainable reality."

BA has a pension deficit of £1.4bn, and its plans to cut the cost of its main pension scheme have sparked concern among its pilots.

The 2,822 members of the British Airlines Pilots Association at BA have been advised by the union to borrow £25,000 each to prepare for a long strike over pensions. The union fears the company may ask staff to pay higher contributions, work longer or accept lower benefits.

BA has dismissed as "utter fiction" reports that it had put forward plans to cut staff pensions by more than one third in an effort to deal with its pension gap.