Analysis
By Jeff Randall BBC Business Editor

British Airways has announced 5,800 job cuts and the closure of loss-making routes. But life won't be any easier for the British flag carrier after this overhaul. When you're �6bn in debt, are making annual losses of about �500m, many of your best customers have stopped flying and upstart rivals are chomping into the bread-and-butter end of the air-travel market, doing nothing is not an option.

British Airways is taking tough action to address high costs and a massive imbalance in supply and demand for its services, yet there are fears that its latest plans to save �650m a year are still not enough.

The stock market's initial reaction was negative, lopping 11 pence or 6% off the company's share price.

Short of dismantling itself altogether, it's hard to see how more radical BA could have been.

The 5,800 job cuts, on top of the 7,000 announced in the wake of 11 September, mean that nearly 25% of the airline's workforce has been axed in the past six months.

Waterside, BA's avant-garde headquarters near Heathrow, will lose about one third of its staff.

Bad luck... and more

BA's problem is a combination of bad luck, bad management and the baggage of history.

Whereas street-smart new kids, such as EasyJet and Ryanair, have built businesses from scratch, BA is lumbered with an infrastructure that reflects years of being the dominant player in a market bereft of real competition.

So while the no-frills carriers operate with costs of about 5p a mile, BA's is more than 15p a mile.

In the boom years of the late 1990s, BA was able to subsidise loss-making routes from the fat profits of its transatlantic business.

But after the terrorist attacks on New York and Washington, the aviation industry changed forever. And while there will always be a demand for premium-fare services, business travellers are increasingly prepared to fly low-cost on short-haul routes.

All things to all customers?

BA is now in the uncomfortable position of trying to be all things to all customers. It insists it will be true to its heritage of being a "full-service, network carrier", but recognises that to compete on short-haul routes it must slash prices, not on the basis of special offers, but permanently lower fares.

That involves the pain of bringing down costs so that even bargain basement fares can deliver the airline a profit.

It's not just about slashing staff, BA will also have to utilise its aircraft more efficiently (fly fewer planes for longer hours), transfer a big chunk of its flight bookings to the internet and keep a lid on landing charges.

But history shows that very few businesses have been able to operate successfully at both ends of a market.

Even supermarkets, with a wide offer of products, tend to pitch themselves at a specific segment of the sector (Asda focuses on low cost, Waitrose on more exotic foods).

Market pressure

Having rejected a compromise proposal from the US aviation authorities on a merger with American Airlines, BA's chief executive Rod Eddington has simply got to make his shake-up work.

He says that he sees the latest round of cuts as a line in the sand from which there will be no further retreat. Unless there's another terrorist atrocity, he has promised no more job losses.

It's either brave or foolish to put your neck on the block and Mr Eddington has certainly done that.

I suspect the notoriously impatient stock market will give him until the end of this year to demonstrate a positive return from this overhaul. More than anything now, he needs a little bit of good luck.