British Caledonian (BCal) was a private independent airline in the United Kingdom that operated primarily from London Gatwick Airport from 1970 until 1988, when a number of factors forced it to merge with British Airways (BA). BCal was originally formed by the merger of Caledonian Airways (CA) and British United Airways (BUA) as an alternative to the British state-owned and controlled airlines British European Airways (BEA) and British Overseas Airways Corporation (BOAC). The Conservative Thatcher government of the time wanted a private-sector carrier to take on BEA and BOAC by providing competing domestic and international services on trunk routes, and BCal thus came to fill the role of the "Second Force" in British commercial aviation proposed by a 1969 Government white paper.
Although BCal eventually became the UK's foremost independent, internationally-scheduled airline, a series of major financial setbacks during the mid-1980s, combined with the airline's inability to reach a viable size, put it at serious risk of collapse. In December 1987, following substantial losses, BCal was taken over by the newly privatised British Airways (BA). The prime causes of BCal's demise can be put down to four broad factors: being based at Gatwick Airport; its compromised route structure; a number of licensing hurdles; and the British Government's conflicts of interest in aviation policy.
Gatwick base BCal operated primarily out of London Gatwick Airport in south-east England, a minimum of 52 miles by road from central London, as compared to Heathrow Airport's 17 miles. This location disadvantaged BCal in a number of ways when compared with other airlines based at Heathrow.The Caledonian punchbag, Flight International, 21 March 1987, p. 33
Catchment area Heathrow Airport has a bigger catchment area than Gatwick Airport because more people live north of the Thames than south of it. Heathrow's catchment area includes about three-quarters of London's population and roughly two-thirds of the population of Southeast England, and London is where most of the demand for air travel in the South East originates.A question of choice, Editorial, Flight International, 25 July 1987, p. 1Share out BA or we abandon Gatwick, warns BCal, Air Transport, Flight International, 12 November 1983, p. 1268Dan-Air: Britain's second airline, Flight International, 21 September 1985, p. 29 In addition, for most Londoners Gatwick was a far less accessible airport than Heathrow in the days prior to the M25, as a result of the airport's greater distance from most parts of London. In those days it took almost two hours to drive there from central London despite the low level of vehicular traffic. The only advantage Gatwick enjoyed over Heathrow in terms of ease and speed of access was its direct rail link to London Victoria station.
The size of an airport's catchment area and its accessibility are of particular significance for the premium travel market. Heathrow's larger catchment area meant that it was able to offer more frequent flights to a greater number of destinations with more conveniently timed connections. This in turn helped attract a greater number of business travellers who were the airlines' most profitable customers, with there being at least four to five business travellers in Heathrow's catchment area for every business traveller in Gatwick's catchment area. This difference in Heathrow's and Gatwick's respective geographic locations, as well as the number of people living within each airport's catchment area, accounted for differences in load factors, revenues, and yields between the two airports.
As a general rule, a full-service scheduled operation at Gatwick with a fare structure that was identical to a similar operation at Heathrow produced a 10% lower passenger load factor. For example, BCal's scheduled passenger load factors at Gatwick rarely exceeded 60% of their aircraft's capacities,BCal strikes cautionary note despite 1980 success, Air Transport, Flight International, 9 May 1981, p. 1292Arabian flights disappoint BCal, Air Transport, Flight International, 8 March 1986, p. 7The Caledonian punchbag, Flight International, 21 March 1987, p. 34BCal loses £14.4m, Air Transport, Flight International, 11 April 1987, p. 8 whereas comparable BA load factors at Heathrow were usually above 70%. Consequently, a scheduled service at Gatwick generated a 20% lower revenue and resulted in a 15% lower yield than a comparable service at Heathrow.Calder, S., No Frills – The Truth behind the Low-cost Revolution in the Skies, Virgin Books, London, 2002, p. 132Aircraft (Gone but not forgotten ... BRITISH CALEDONIAN), Vol 42, No 12, p. 44, Ian Allan Publishing, Hersham, December 2009 BCal tried to compensate for the difference in passenger load factors between Gatwick and Heathrow by being a more cargo-oriented carrier than BA, and as a result cargo accounted for a greater share of BCal's total revenues and profits than for BA.
Lack of a "hub" The disadvantage of BCal's location at Gatwick was further compounded by the fact that Gatwick had few connecting flights during the 1970s and early 1980s, as a result of firstly, the overall regulatory regime, and secondly, the specific bilateral air services agreements the UK Government had negotiated with its overseas counterparts.Scottish DC-10s and B.CAL's wide-body plans, Flight International, 26 February 1977, p. 475 At the same time, Heathrow was the most important point in the world for interline traffic with more passengers changing flights there than at any other airport. Whatever connections there were at Gatwick were mostly provided by BCal itself, at great cost to the airline.
Although the network of scheduled services passed on to BCal after its creation represented the best that BUA's then-managing director Sir Freddie Laker had been able to put in place under the prevailing regulatory regime, BCal's resulting network of domestic, European, and intercontinental long-haul scheduled services from Gatwick was a motley collection of routes, making it difficult to offer sensible connections that could be marketed to the travelling public. This made it difficult to develop profitable streams of transfer traffic using Gatwick as a hub, for it was 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 secondary places in Africa or South America, and an even greater challenge to do this profitably.
At the height of its commercial success in the late 1970s and early 1980s, BCal focused on those routes that carried a very high proportion of profitable, oil-related, premium business traffic.BCAL Atlantic growth, Air Transport, Flight International, 20 September 1973, p. 467 It even managed to become the preferred airline for high-ranking oil industry executives based in Texas by providing convenient, hassle-free connections between Houston/Dallas, Lagos and Tripoli via the airline's Gatwick base. However, this initially successful "oil hub" strategy for Gatwick made the company dependent for most of its profits on a small number of markets whose fortunes were tied to the commodity price cycle in unstable parts of the world.The Caledonian punchbag, Flight International, 21 March 1987, pp. 33/4 Although this worked in BCal's favour when the price of a barrel of crude oil was high during the late 1970s and early 1980s, it worked against it when the oil price collapsed in the mid-1980s, further compounding the firm's growing financial problems at the time and culminating in the financial crisis that led to its takeover by BA.
Route structure The route structure BCal inherited from BUA at the time of its inception was the result of unplanned and unsystematic growth since the early 1960s. The British Government had conducted an aviation policy review in the mid-1970s against a backdrop of huge losses faced by the airline industry in the aftermath of the early-1970s oil crisis,UK aviation policy review: first in a long series, Air Transport, Flight International, 21 February 1976, p. 397 which had effectively eliminated long-haul competition.UK aviation policy review: first in a long series, Air Transport, Flight International, 21 February 1976, p. 398 The resultant 1976 "spheres of influence" policy imposed on both major British scheduled airlines at that time – BA and BCal – left them with fragmented networks, thereby putting them at a competitive disadvantage in comparison with their main overseas rivals. This weakening of BA's and BCal's international competitive strength was of far greater concern to the latter as it was much smaller than either BA or most of its foreign-based competitors, and had a less comprehensive network offering fewer connections than most rival airlines.So in the early years after BCal's formation only very limited opportunities existed for wholly-privately-owned independent airlines to provide fully-fledged scheduled air services on major domestic and international trunk routes.
Restrictive bilateral air-services agreements Restrictions in bilateral air-services agreements between the UK and foreign countries seriously impeded BCal's efforts to successfully build the network of short-haul European feeder services that was essential to providing sufficient transfer traffic for its long-haul routes from Gatwick. These restrictions made it difficult for the airline to offer its passengers a more frequent service on certain long-haul routes that could have attracted more high-yield business traffic. It also left BCal with an incomplete network, which resulted in a weak route structure, a major competitive disadvantage.
Restrictive bilateral air services agreements that had little or no scope for dual designation meant that BCal was effectively kept out of many markets for which it had already obtained licences from the UK's Civil Aviation Authority (CAA).High Risk: The Politics of the Air, Thomson, A., Sidgwick & Jackson, London, 1990, pp. 458/9BCal wins struggle for Milan, World News, Flight International, 7 March 1987, p. 3 Even where the bilateral air services agreement between the UK and a foreign country enabled BCal to be designated as the second UK flag carrier, the airline still faced numerous restrictions in terms of the number of flights it could operate, the number of seats it could sell, or the lowest fares it could offer.
For example, the Anglo-French air treaty did not limit the number of airlines the UK Government could designate on the London–Paris route. However, it stipulated that all British airlines' combined share of the total capacity on that route could not exceed the combined capacity share of all French airlines, and that all capacity increases needed to be mutually agreed by both sides. As Air France was the only airline the French government had designated to serve this route, this effectively meant that BA and BCal were compelled to share the 50% of the total capacity between London and Paris that had been allocated to the UK between themselves.the UK's share of total London–Paris scheduled capacity was raised in 1985 by inter-governmental agreement to 55%, to be shared between BA, BCal and Air UK from summer 1986More to Paris?, Air Transport ..., Flight International, 21 January 1971, p. 82Preparing for Paris, Air Transport ..., Flight International, 29 July 1971, p. 154Three to Paris, Flight International, 11 November 1971, p. 753Airline Profile — Number Forty-two in the series: British Caledonian, BCAL takes its place as Britain's third carrier, Flight International, 3 August 1972, p. 160BA to cut workforce and increase revenue, Air Transport, Flight International, 12 January 1980, p. 70Liberal aperitif, World News, Flight International, 28 September 1985, p. 2