ABSTRACT
The cost problem affecting British European Airways was the need to bring down the cost of providing each unit of output, the capacity ton mile (CTM). While the ratio applying between the cost of providing each ton of capacity and the revenue received from it was more than the proportion of total capacity sold, the airline would make a loss. Profitability depended upon purchasing new types of aircraft, which could operate at lower costs than those which were available in the first years after the war.
The direct operating costs of an aircraft are made up of crew costs, fuel, landing fees and the cost of engineering maintenance and repairs (mostly labour costs). Other costs include capital charges and the overheads of administration, sales, ground handling and station costs. The bigger aircraft which were introduced, and which incorporated engine and airframe improvements, made little difference to the capital or fuel costs of each unit of output. The advantage which they provided was that in an era of rapidly growing demand they created huge savings, resulting from scale increases, in the productivity of labour employed in airline transport. The larger and faster aircraft produced many times more CTM per hour but the aircrew hours, engineering hours and ground personnel hours needed to support each aircraft flying hour increased only marginally, in spite of the large increase in output. Thus specifying the largest possible aircraft which was consistent with the growth of traffic densities was the airline’s route to productivity improvement.
The difference between BEA and the other organisations studied is that the airline did not conduct its own research and development to produce new aircraft types. Its influence on development was thus confined to that which it could exercise as a customer in its choice of new equipment, but due to the innovative approach which the airline adopted that influence was considerable. It may be argued that the influence exercised by BEA as a customer on the development of aircraft was as significant in determining the choice of techniques as that which the other corporations exercised as major performers of research and development.
However, the technical decisions which BEA took were inseparable from the decisions made to purchase new aircraft. There was from the time of the airline’s formation an established procedure for arriving at decisions to invest in new equipment. Forecasts of the anticipated level of traffic on each route were prepared by the commercial department and their implications for scheduling and service frequency were worked out with the flight12 operations department. When, as happened at regular intervals, the growth of traffic indicated that larger aircraft were required, discussions were begun, involving the engineering department, in order that a recommendation about the new type required could be made to the Board.
Demand was thus the main determinant of the need for new aircraft, but the operational costs of the aircraft were also of great importance, since the airline had a commitment to operate profitably. The agency which was responsible for formulating an aircraft requirement in response to information from other departments was a group located in the engineering department. The department’s experience of the cost of maintaining and operating existing types was fed into the purchase decision, to establish that the aircraft would be economically viable, as well as being of the right size and type.
The major new techniques incorporated in transport aircraft in the period 1945–75 had been invented before the second world war or else were developed during the war. The exceptions were the turbo-propeller engine, the fan jet engine and the various types of electronic navigational aids. The aircraft manufacturers and the various national governments undertook development; the airlines were called upon to exercise their judgment on the question of when these new techniques could be applied to civilian transport planes and what increases in scale could be attempted. The very large increases in the scale of output of individual aircraft, which multiplied the capacity ton miles produced per hour by the average airliner twenty or thirty times, did not always produce improvements in the capital productivity of the equipment. Where the scale increases benefitted efficiency was in cutting labour costs drastically.
BEA’s policy was to innovate by introducing new types of aircraft of the largest size that was commercially prudent and to order them from the British industry in order to foster its commercial development. The results in the first fifteen years were satisfactory; the airline achieved profitable operation and the British industry produced its most successful transport aircraft. But the decisions involved in the transition from turbo-props to pure jets proved less happy and resulted in the airline having a number of aircraft during the 1960s which were not wholly suited to the routes on which they had to operate.
The advantage of using pure jets was that aircraft output could be trebled or quadrupled, compared to the piston engined and turbo-prop types which preceded them, while direct operating costs were slightly reduced and overheads, particularly labour, were substantially reduced, due to scale increases. The pure jet made possible the increase in scale which allowed labour productivity to improve. However, it appeared at first that the cost advantages would accrue only to the very large aircraft, such as the Boeing 707 and Douglas DC-8, which were being developed for longer hauls. Short-haul routes in Europe did not have the traffic density to allow the use of planes of this size. BEA decided to retain turbo-props for the shorter routes and introduce jets fairly slowly on the longer hauls. The jet which they chose, the Trident, did not have the increase in capacity and reduction of operating costs necessary to short-haul operation and which were demonstrated by its contemporary, the Boeing 727. The turbo-prop, the Vanguard, had to be moved on to secondary routes as it encountered jet competition.
13The Trident and Vanguard were not positively unsuccessful in the BEA fleet, but they were not well suited to the traffic and competition in the 1960s. BEA’s next major purchase decision resulted in the airline opting for American aircraft. Although the government did not allow the order to proceed, the decision to choose the Boeing 727 and Boeing 737 marked a major change in policy. It raises the question of whether the ‘Buy British’ policy had previously exerted an unfortunate effect upon the process of deciding the requirements of future purchases.
BEA’s innovative role had been directed at sponsoring new aircraft for the British industry to manufacture. It was tacitly hoped that they would prove to be attractive to the world’s airlines in general. However, when the ‘Buy British’ policy involved not considering projects from foreign manufacturers, the airline was in danger of becoming isolated, of being prevented from recognising how foreign manufacturers and foreign airline operators were thinking about their market needs. With projects from abroad excluded from BEA’s detailed negotiation and specification procedures, the airline was less likely to arrive at a correct judgment of the type of aircraft which would satisfy world demand. This may have represented the greatest hindrance to the successful pursuit of the policy of innovation. It remains a moot point whether BEA had been best serving the interests of the British manufacturers by refusing to buy foreign aircraft, or whether, by evaluating the full range of alternative types, BEA would have come closer to agreeing with the industry on aircraft specifications which were also attractive to other airlines and which would thus have raised the sales of aircraft manufacturers.
