CityFlyer Express was a short-haul regional airline with its head office in the Iain Stewart Centre next to London Gatwick Airport in England.
In 1993 it became the first British Airways (BA) franchisee operating as British Airways Express. CityFlyer's ownership passed to BA in 1999 when that company bought out the original promoters as well as 3i, the airline's main shareholder at the time. Initially, CityFlyer continued to operate as a separate unit, but it was eventually absorbed into British Airways' mainline short haul operation at Gatwick in 2001, the result of a change in British Airways' strategy for its Gatwick operation.
Following its absorption into British Airways, the airline's turboprops were retired, while the company's fleet of regional short-haul jetliners and the associated crews were transferred to British Airways' regional operation in Birmingham and Manchester. This in turn resulted in British Airways mainline short haul crews based at Gatwick operating most of the erstwhile CityFlyer Express routes using the former's Gatwick-based Boeing 737 fleet.
History
thumb|[[Short 360 in Connectair livery]]
thumb|[[ATR 42 in 1993]]
thumb|[[ATR 42 at Düsseldorf Airport in 1993]]
Origins
CityFlyer Express can be traced back to the formation of Connectair in 1983. Connectair became a feeder airline for British Caledonian, at the time the UK's so-called Second Force airline, on 30 May 1984 when it commenced a regional scheduled service between Gatwick and Antwerp with a single, leased Embraer EMB 110 Bandeirante turboprop. A small number of larger capacity, more efficient Shorts 330 turboprops eventually replaced the Embraer Bandeirante.
There was joint ticketing for both airlines, Connectair flight numbers were prefixed with British Caledonian's BR designator, the two-letter International Air Transport Association code identifying the airline on whose behalf a flight is operated, and all of the company's aircraft were painted in the British Caledonian Commuter livery. However, this relationship stopped short of a franchise agreement.
Following British Airways' takeover of British Caledonian in December 1987, Connectair operated its flights under the UK flag carrier's BA designator without adopting the British Airways livery for an interim period.
The ILG era
In June 1988 the firm was acquired by the International Leisure Group (ILG), the parent company of Air Europe. Following ILG's acquisition of Connectair, the airline was re-branded Air Europe Express and adopted a new corporate identity as of 1 February 1989.
ILG's decision to purchase Connectair was part of Air Europe's corporate strategy at the time to establish itself as a major short haul scheduled operator at its Gatwick base. Gatwick had become very busy during the late 1980s. This meant that the much-coveted early-morning peak time slots, which Air Europe needed to be able to operate at times that were attractive to business travellers as well as competitive with its rivals' departure and arrival times, were in increasingly short supply. Connectair held a fairly large number of conveniently timed slots at Gatwick, which it had accumulated since its British Caledonian Commuter days. ILG's acquisition of Connectair therefore represented a golden opportunity to substantially increase the number of slots the group's airlines controlled at Gatwick, thereby strengthening Air Europe's competitive position at that airport.
Larger Shorts 360s gradually replaced the Shorts 330s. On 29 October 1989 ILG fully integrated Guernsey Airlines into its existing Air Europe Express operation.
These moves provided Air Europe with additional transfer traffic for its developing short haul European scheduled route network. They also enabled Air Europe to launch new routes where there was insufficient traffic to support its larger Boeing 737 and Fokker 100 jet aircraft or where these aircraft were too big to provide a frequent schedule during the start-up phase, such as Gatwick—Düsseldorf and Gatwick—Jersey for instance.
Following the replacement of the Air Europe Express Shorts 360 turboprops with Air Europe's larger and faster Fokker 100 jets on the Gatwick—Düsseldorf and Gatwick—Jersey routes, Air Europe Express launched a new thrice-daily Gatwick—Birmingham schedule with its Shorts 360s.
During the year ending August 1990 the Air Europe Express operation carried more than a quarter of a million passengers across its route network for the first time.
British Caledonian, which BA acquired at the end of 1987 in what was widely acknowledged to be a rescue deal to prevent that airline from going under and its assets to pass into the hands of foreign-owned or -controlled competitors, had inherited British United's scheduled route structure at the time of its creation in late November 1970 when that carrier was taken over by Caledonian Airways.
The most fitting description for the resulting network of domestic, European and intercontinental long haul scheduled services from Gatwick was a motley collection of routes resembling a rag bag. This made it difficult to develop profitable streams of transfer traffic using Gatwick as a hub. For this reason it was always going to be a challenge to persuade people to fly to Gatwick from relatively minor places like Genoa or Jersey in order to make an onward connection at the airport to what many people would consider secondary places in Africa or South America, and an even greater challenge to do this profitably.
In anticipation of gaining all necessary approvals for the proposed alliance — including anti-trust immunity, BA decided to reserve the required slots at Heathrow by moving all long-haul services to East, Central and Southern Africa (other than those to South Africa itself) as well as to Latin America to Gatwick over the 1996 summer timetable period as well as the 1996/7 winter timetable period. BA chose to transfer these routes to Gatwick because they generated lower traffic volumes and were therefore less profitable than its routes to North America, the Middle East, the Indian sub-continent as well as the Far East. They also carried relatively few transfer passengers. This meant that the risk of losing these passengers to a competitor because of Gatwick's smaller number of connections compared with Heathrow was fairly low.
BA furthermore decided to transfer a number of barely profitable or wholly loss-making, short haul routes to secondary destinations in the UK and Eastern Europe to Gatwick because BA could use these slots far more profitably to operate additional transatlantic services from Heathrow under this alliance.
With the benefit of hindsight, BA had underestimated the strength of the gathering opposition to its planned "virtual" merger with American Airlines. It had also underestimated its opponents' political clout with the regulatory authorities in the UK and the US as well as the European Union.
At the time Sir Richard Branson publicly referred to this mega alliance as the "alliance from hell". He feared that it was part of a new BA strategy to drive Virgin Atlantic, BA's main UK-based transatlantic competitor, out of business. He therefore wanted to have it stopped at any cost.
BA's US-based transatlantic rivals, especially those that were denied access to Heathrow under the stringent Bermuda II regulatory regime, wanted approval of this alliance to be made dependent upon the successful negotiation of a new UK-US "Open Skies" air services agreement that would supersede Bermuda II and remove all access restrictions to Heathrow.
Eventually, the alliance was effectively killed off when regulators on both sides of the Atlantic demanded that BA should hand over hundreds of slots at Heathrow and that anti-trust immunity should be withheld for the Heathrow—JFK "flagship" route.
At the same time, BA's senior management had become so preoccupied with this alliance that it did not pay any attention to the fundamental changes that were beginning to re-shape the airline industry at the time. These changes were going to have a profound effect on the commercial environment in which BA was operating. They included the inexorable rise of the low-cost, "no frills" airlines, first and foremost EasyJet and Ryanair, in BA's own backyard as well as the growing competitive threat posed by the government-assisted recovery of Lufthansa and Air France, BA's main European full-service, network airline rivals, both of which had been in no position to challenge BA commercially in the early to mid-1990s as they were effectively bankrupt at that time.
For all these reasons the grandiose BA-AA alliance ultimately turned out to be a very costly distraction for BA's management and was the main contributing factor that led to Robert Ayling's downfall who happened to be the BA chief executive during that period.
Project Jupiter
Project "Jupiter" was BA's internal working title for the strategy it had devised to turn the struggling Gatwick operation into a fully fledged hub.
The airline reckoned that this would enable it to turn around the poor overall financial performance of its operation at the airport after years of heavy losses.
BA decided to give its operation there the economies of scale as well as the scope, in terms of flight connections, it considered necessary to attract enough travellers who were prepared to pay fares that were sufficiently high-yield to achieve sustained profitability.
The aim was to make Gatwick the second biggest hub-and-spoke operation on BA's network as well as one of the biggest outside the US.
Within three years from the launch of Project "Jupiter", the BA mainline operation more than doubled the number of long haul aircraft at Gatwick and increased the number of short haul aircraft at the airport by more than half. In addition, the airline's franchisees, notably CityFlyer Express and GB Airways, increased their Gatwick-based fleets as well. During that period the number of BA passengers passing through Gatwick also doubled.
The role BA had assigned its franchisees generally and CityFlyer in particular to make Project "Jupiter" work was to provide feeder services that were expected to be profitable in their own right and enable transfer passengers to connect at ease with BA's long haul services at Gatwick, thereby improving those services' load factors and increasing their profitability. Unlike some of the North American commuter carriers that operate under franchise agreements on the same routes as their mainline partners using smaller aircraft at less busy times, BA's franchisees only operated on routes the company's mainline short haul operation could not serve profitably from Gatwick itself due to its higher cost base.
By the turn of the millennium, BA, the firm's franchisees as well as its subsidiaries and partners in the Oneworld global airline alliance together controlled about 40% of all take-off and landing slots at Gatwick and used a fleet of more than 100 aircraft to serve around 120 destinations worldwide from the airport, more than any other airline from any airport in the UK. Together they carried 8m passengers through Gatwick annually. This accounted for almost 30% of the total number of passengers passing through the airport each year during that period. 45% of the passengers travelling with BA and its affiliated carriers through Gatwick were changing flights there. At the time, CityFlyer Express and the other BA franchisees as well as its subsidiaries and partner airlines at Gatwick accounted for 1,000 of these passengers each day.
Ultimately, BA's attempt to make its Gatwick operation profitable by building it up into a full-scale hub-and-spoke operation failed.
When Rod Eddington took over as BA's chief executive in 2000, he initiated a root-and-branch review of the airline's worldwide operation with the aim of improving profitability after it had incurred its first net loss since privatisation during the 1999/2000 financial year.
This included a review of the loss-making Gatwick operation.
At the time Eddington stated that BA's Gatwick operation alone had incurred a loss of £40mn before allocating overheads, in spite of having £4.5bn of assets at the airport, and that it was destroying shareholder value. (Industry sources estimated that during the aforesaid period the total loss for the airline's entire Gatwick operation was £200mn after allocating all overheads.)
Eddington attributed this loss to Gatwick's failure to attract sufficient high-yield traffic.
These analysts furthermore pointed to the extent and speed of BA's growth in employment at the airport during that time as a major cause of the huge loss incurred by that operation. Within a relatively short time span of only three years, the airline had increased its headcount at Gatwick alone to 8,500. This was more than the entire 7,700-strong worldwide workforce of British Caledonian at its peak during the early part of the summer in 1986. BA had effectively created a miniature version of its Heathrow-based organisational hierarchy at Gatwick, thereby multiplying its overheads and increasing its cost base at the latter airport.
This was part of a new strategy designed to provide services from Gatwick only if there was sufficient demand in the local catchment area and to do it at a cost the local revenue environment could support.
BA therefore decided to move all predominantly business-orientated long haul routes (other than those that had to stay at Gatwick due to bilateral constraints, such as its non-stop services to Atlanta, Dallas and Houston) back to Heathrow. The airline also decided to withdraw all loss-making services from the airport and to simplify its Gatwick-based fleet by reducing the number of aircraft stationed there and operating only two different aircraft types from the airport. Henceforth, all short to medium haul services from Gatwick were to be exclusively operated with Boeing 737s, while Boeing 777s were to be the only aircraft to ply the long haul routes from the airport.
British Airways' short haul reorganisation
Under the franchise agreement it had concluded with BA before being taken over in 1999, CityFlyer Express initially operated as an independent business unit within British Airways serving a number of short haul European and UK regional routes from Gatwick that were completely separate from the services BA's mainline operation provided from the airport.
However, following BA's decision to abandon its hub-and-spoke strategy at Gatwick in October 2000, CityFlyer was subsumed into British Airways' mainline operation at Gatwick in 2001, thereby ceasing to exist as a separate entity.
There were two reasons for fully integrating CityFlyer into BA's mainline short haul operation at Gatwick.
The first of these was operational. Although CityFlyer remained a profitable business in its own right following its acquisition by BA and industry analysts familiar with the company expected it to generate a profit of at least £7mn during BA's 2000/1 financial year, BA found that franchising overall had not been the financial success it had hoped. There were too many franchisees whose administrative and sales support actually cost the airline more than the additional revenue resulting from franchise fees and the connecting traffic its franchise partners generated. Therefore, as far as the bigger picture was concerned, BA's senior management felt that the franchise agreements with its various franchisees, all of which were profitable in their own right, had benefited the franchisees more than itself.
The second reason was related to maintaining good industrial relations between management and the workforce, especially those working for the mainline short haul operation at Gatwick. These workers had always regarded the concept of franchising generally and CityFlyer Express in particular as a Trojan horse. They feared that BA's long-term strategy was to hand over its entire, heavily loss-making, mainline short haul operation to profitable franchisees such as CityFlyer, thereby threatening many jobs and the terms of employment of the remaining mainline employees. They also feared that BA would eventually resemble a "virtual" airline.