British Caledonian in The 1980s - Unexpected Reversal of Fortunes

Unexpected Reversal of Fortunes

BCal had high hopes for 1986. It expected to make record profits representing a substantial improvement on the previous year's pre-tax profits of £21.4 million. The British Caledonian Group expected its turnover to exceed half-a-billion pounds while BCal expected to carry just under two-and-a-half million passengers. The year's crowning glory was to be the flotation of the British Caledonian Group on the London Stock Exchange.

Instead, 1986 turned out to be BCal's "annus horribilis" during which it was facing its most acute crisis as a result of events beyond its control. The airline was never going to recover from this crisis, which ultimately sealed the company's fate.

The events that brought about a dramatic turn-around in BCal's fortunes plunging it into a £19.3 million pre-tax loss included

• the American bombings of Libya during April 1986 in retaliation for that country's alleged involvement in the bombing of the West Berlin discothèque La Belle the same year during which several US servicemen and a Turkish woman were killed

• the world's worst nuclear accident in Chernobyl in the then Ukrainian Soviet Socialist Republic on 26 April 1986

• the adverse impact of the Nigerian naira's devaluation on BCal's earnings from passenger and freight bookings originating in Nigeria and paid for in the local currency, which the Nigerian government of the day prevented from being repatriated to the UK.

The first two events almost emptied the cabins of BCal's widebodied planes plying the transatlantic routes linking Gatwick with Houston, Dallas, Atlanta, New York JFK and Los Angeles because of a sudden surge in cancellations, especially from passengers based in the US. Many of BCal's American passengers cancelled or postponed their trips at that time because they feared retaliatory attacks by Libyan secret service agents and did not want to risk exposing themselves to the radioactive fallout from the Ukrainian nuclear catastrophe while conducting their business or spending their holidays in Europe. At the time, BCal's transatlantic scheduled services accounted for a quarter of the airline's worldwide revenues and 37% of its passenger traffic. The Libyan bombings also dashed any hopes BCal had to resume operations on its profitable Gatwick—Tripoli route later that year, resulting in a further loss of expected revenues and profits.

The third had a serious impact on BCal's finances at a time of crisis as it denied the airline speedy access to a substantial amount of money derived from passenger and cargo sales in its most important and most profitable overseas market. This resulted in a significant revenue loss.

What was already a bad situation for the airline was made worse by the continuing decline of the oil price, which had started the year before. The rapid fall in the oil price reduced the oil industry's spending power, thereby significantly reducing the number of oil-related business passengers planning to fly with BCal in future. As these passengers used to account for a major share of the airline's high-yield premium bookings, future revenue and profit projections needed to be revised as well to take account of much reduced demand for the company's most expensive tickets.

In addition, the Government announced the withdrawal of BCal's licence to operate the high-frequency Gatwick—Heathrow Airlink helicopter shuttle service as a result of the completion of the M25 London orbital motorway, thereby denying the airline's passengers easy access to connecting flights from Heathrow and depriving passengers travelling with airlines based at that airport of the opportunity to avail themselves of convenient onward connections from Gatwick. The resulting reduction in the number of passengers changing flights at BCal's Gatwick base had a detrimental effect on load factors on the airline's profitable long-haul routes. This in turn reduced the profitability of these routes, as well as the airline's overall profitability by an estimated £2 million per annum.

As a result of the problems it was facing during that time, BCal was forced to announce 1,000 job losses. It also needed to make adjustments to its schedule to take account of the expected changes in traffic patterns. This led to an immediate reduction in the number of weekly frequencies on BCal's underperforming Saudi Arabian routes. The aircraft capacity released was redeployed on BCal's well-performing route to Dubai and Hong Kong.

Altogether BCal suffered a total revenue loss of £80 million while the airline itself lost two-and-a-half million pounds every month at that time.

The airline embarked upon a major asset disposal programme to compensate for this significant revenue loss and to have sufficient funds to keep the business running. These asset disposals included the profitable sale of two, relatively young McDonnell Douglas DC-10-30 widebodied aircraft to Continental Airlines, the sale and lease-back of the entire 13-strong, short-haul BAC One-Eleven fleet, the sale of six of Caledonian Hotel Holdings' hotels, the sale of Caledonian Airmotive to US-based Ryder Systems, the sale of Caledonian Leisure Holdings and the disposal of British Caledonian Helicopters the following year.

Despite facing a major crisis, BCal continued adding new aircraft, routes and flight frequencies in an effort to maintain a competitive operation.

Two more 747s joined the fleet during 1986. This permitted a major capacity increase on the popular Gatwick—Dubai—Hong Kong route.

During that year, Muscat, Gaborone and Aberdeen joined the network.

BCal's acquisition of a fifth 747 the following year permitted the launch of a new route from Gatwick to Tokyo on 31 May 1987, at a frequency of three return flights per week. In addition, for the first time in five years, two new European routes were launched from Gatwick. These served Milan Linate and Nice at a frequency of 13 and three return flights per week, respectively.