20 JULY 2009

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Article from BTNews 20 JULY 2009

COMMENT: British Airways - Where Now?

British Airways and its fate concerns all of us who support what is still the national flag carrier.  In this we must include its staff and its shareholders.

Once ‘the World’s Favourite Airline’ BA’s AGM was held Tuesday of last week in the knowledge that its pilots had voted overwhelmingly to accept a 2.6% pay cut in exchange for other considerations including a share offer. 

Chairman Martin Broughton emphasised that BA was not isolated in its cash-flow difficulties: “The world’s major airlines are now facing up to the need to add more liquidity to their balance sheets to give them sufficient lift to weather the current storm.  We do not believe the timing is right to approach the financial markets for a rights issue, as there are a number of key issues that need to be resolved over the next 12 months,” he said.  Mr Broughton used  the opportunity to attack Sir Richard Branson noting that “he knows quite a lot about subsidies - because he's been welcoming them into his train operations for years”.

Later the same day CEO Willie Walsh said that any merger with Iberia would necessitate BA owning at least 53% of the combined airline.

Last Friday BA officially announced it planned to increase cash resources by UKP600m.  Why was this not stated at the AGM?  It had been well flagged, presumably from within.

It does seem that the once proud carrier is in a nose dive which could prove fatal unless the pilot does something drastic. 

When a ‘plane does get into trouble three things can happen.  Either the captain gets it right, the co-pilot takes over, or the thing crashes.  With BA there does not appear to be a co-pilot and the future looks worrying.

The present British Airways was created from what was essentially a civil service scenario and much of that still lives on.  The massive pension fund deficit is part of that account.  BA has around 145 staff per aircraft, Ryanair 35.  Its efficiency is questioned both inside and outside.

Concorde, heavily subsidised, kept BA on an even keel, Bob Ayling proved out of his depth, and at best Rod Eddington steadied a very rocky ship.  A new manager was required.  In soccer parlance the airline took the Tottenham approach going for someone from abroad and not part of the (football) establishment.  Someone with no top division experience.  With Spurs the appointment finished up getting sacked, replaced by a more adroit and media savvy individual from the UK Premier League. Is there a parallel?  The present Chairman is distinctly low key unlike his predecessor Lord Marshall, a real salesman for the airline.

Let’s face it, the current watch has hardly set the world on fire.  One crisis after the other with the blame always directed elsewhere.  The Virgin Atlantic price fixing case.  BA Connect sold at a loss. Swissair abandoned and now a success (as Swiss) with Lufthansa.  The Terminal 5 fiasco.  The never ending story of Qantas.  BA/KLM failing to materialise followed by a love-in with Iberia that may not be consummated.  UKP50m spend with the 2012 Olympics – is anyone aware? – the planes will be full regardless.  And now another French fiasco with Open Skies, something that never should have happened, the failure predicted by many.  Sir Michael Bishop took one look at the bilateral he had fought so hard for and walked away.

Yes times are very difficult and the problems are with the industry not the airline but it can be argued BA should be doing better.  Whilst the City has been charmed the vital commercial function of the airline seems to be inept.  Time after time an opportunity is lost to hear the voice of BA telling the world of the many good things it is doing.  OK Ryanair may overstep the mark when it comes to common courtesy and taste but the figures prove they are getting it right in their aggression news-wise.  Do the departments of BA talk to each other?

Times are tough. The American airlines are not for the most part generating profits and even Lufthansa, adroitly managed, is making a loss and cutting administrative jobs.  Air France is doing no better, but neither is in a crisis.

BA says that one of the reasons for the performance problems is that premium class passengers are either not flying or down grading.  But by the same token the marginal London City – New York operation is moving ahead competing head-on with BA’s own Heathrow services.  Also making serious progress is ‘First’ believed to be the brand name for the new front cabin.  No doubt a design agency will pick up a large fee for that one.  The Concorde lounge is being retained. Why not 'Concorde Class'.  It has a certain ring about it.  Individual suites one assumes will be part of the upgrade.  At present the only news to leak out is that there will be a new washbag.

Yes it is easy to criticise but where does the airline go?  Unless you are Virgin Atlantic most would want BA to succeed.  Boarding a British Airways plane at some airport around the globe always brings a sense of relief.  And not just with UK nationals.  The airline has a certain ring about it for quality and service.

British Airways was created in March 1974 from essentially BEA (British European Airways) and BOAC (British Overseas Airways Corporation).  Rather like the earlier amalgamation of the railways one company dominated and this time around it was BEA. 

Times have changed dramatically over the last 35 years.  BA no longer competes with the other state airlines in Europe.  Its rivals are a new generation of lean carriers created without the baggage of history.  It is not a level playing field.

With long haul there is a dissimilar scenario.  The complexity and difficulty of running an operation is vastly different.  No intercontinental budget carrier has really yet succeeded. 

Perhaps now is the time to vacate the European theatre?  There will be buyers.  It will be complicated but nobody wants to see British Airways going the way of Pan Am and TWA.  Remember them?


Malcolm Ginsberg

Editor in Chief

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