Eddington's big gamble

BRITISH Airways chief executive Rod Eddington cannot be accused of pussy-footing. He promised a root-and-branch reform of the airline, and that is what he is delivering. More than 13,000 jobs have been axed in an attempt to cut costs. Now Eddington is hoping to boost volumes by competing head-on with his no-frills rivals.

Figures produced earlier this year from our national carrier showed that the status quo was not an option. Eddington could either cut out domestic services altogether or adjust to the realities of the modern world.

Since last September, BA has been losing tens of thousands of short-haul passengers to low-cost airlines such as Ryanair and easyJet. While they were reporting vigorous growth, BA's popularity was sliding. Planes were 60% full on average and needed to carry more people to earn their keep.

Eddington may have been tempted simply to ditch short-haul flights. But the outcry would have been too great. Instead he must be hoping that higher volumes, incremental in-flight services and increased marketing potential will make the price cuts work.

There is no doubt that demand will surge. Most people would still rather fly BA than with those carriers that have made their name on price alone.

Whether the increase in passenger numbers will be enough to make BA's domestic flights profitable is another question. Today's move is a gamble Eddington had to make. But it is a gamble.

Abbey discord
WHEN Ian Harley became chief executive of Abbey National in 1998, the bank's shares were trading at more than £12. Today they change hands at less than £10. A drifting share price does little to motivate loyalty - and Abbey has had more than its fair share of political intrigue at senior levels.

A string of board directors has left recently and there are suggestions that certain of those remaining are jockeying for position in the hope that soon Harley will be eased out and they can take his place.

The infighting is said to have taken a turn for the worse since the arrival of new chairman Lord Burns two months ago. There has been no public evidence of his leadership so far but insiders claim questions are being asked at the highest level about where Abbey National is going and what it is for.

Until last year, the group's biggest growth area was wholesale banking. But it is now on a lower risk, lower growth path, following £250m of write-offs last year. Meanwhile, the consumer leasing division is not doing terribly well and Abbey has been forced to cut profit margins in its core mortgage and savings markets to boost growth.

The bank spent half of last year defending itself from the advances of Lloyds TSB - having remained independent, it appears to have won the battle but lost the war.

Doubts have long been expressed by the City about Abbey's strategy. Now the doubting voices appear to be coming from within too. Lord Burns will need to stamp his authority speedily on the bank to prevent the murmurs of discontent turning into unseemly rebellion.

Balancing act
THE Bank of England's monetary policy committee has a simple remit. It has to guide interest rates so as to keep inflation at or around 2.5%. As the memory of 11 September recedes, the task becomes more challenging. House prices are rising, people feel rich and are continuing to spend. In manufacturing too, signs of recovery are emerging.

As the MPC begins its interest rate meeting today, it will bear this in mind. Members must consider the impact on industry of possible oil price rises and on consumers of Chancellor Brown's widely trailed Budget tax increases. The economy remains finely balanced. Interest rates do not need to move just yet.