ANALYSIS: October 8 2009

Crunch time for BA

British Airways hosted a celebratory party last Tuesday in a fashionable London club with the St Kitts Tourist Authority to mark the airline's announcement of a second weekly flight to the Caribbean holiday island.  

As the champagne bottles popped and tasty canapés served to guests who included the St Kitts prime minister Dr Denzil Douglas, another event was unfolding a few miles west at the airline's headquarters near Heathrow.

This was the announcement of the equivalent of 1,700 redundancies among cabin crew. It was accompanied, almost inevitably, by strike threats from the unions which could hit Christmas flights to the Caribbean.

Willie Walsh

The two events seem to sum up BA's year perfectly: good news diluted by bad.  Like the ball in a pin ball game, the airline seems to have bounced through 2009 in varying directions.

The carrier may now be facing a crunch with flights disrupted over the busy and profitable Christmas period - just as the aviation industry is beginning to emerge from what most agree has been its worst ever downturn.

It is understandable that BA has acted unilaterally in announcing the redundancies. Talks with two unions, Unite and the GMB have been going on for months with little progress being made. While the nitty gritty of the talks is not known, the airline appears to have been trying hard for reach a solution,  calling at one stage on the expertise of the UK arbitration service ACAS to find a way through the impasse.

It would be fair to say that it felt no agreement would be reached with the unions whose purpose is not, after all, to negotiate its members' jobs away. The airline's statement accompanying the redundancy announcement made it clear it was currently losing money. The longer the talks went on, the more money that haemorrhaged away.

If there are staff who wish to take redundancy, there seems no reason why they should not. No compulsory job losses have been suggested. The surprise is that it took the airline so long to act. Its ceo Willie Walsh hardly won the reputation of being a soft to touch in his dealings with unions when he ran Aer Lingus.

But the fears about how the airline is being run go deeper than the timing of a redundancy announcement. At the World Low Cost Airlines Congress in Barcelona last week, Dale Moss, managing director of the BA all business class subsidiary OpenSkies, withdrew as a speaker.

The inevitable gossip was he that he wanted to avoid any direct questions as to when this airline would close. Betting men at the Congress were prepared to wager it would be gone before the end of the year.

The Congress also coincided with the launch of BA's new all business class service from London City Airport to New York JFK. This was a grand affair with press and VIPs invited on the inaugural flights. By all accounts it is a good service, much appreciated by the business travellers it is aimed at.

But again the low cost men in Barcelona were deeply sceptical. More than one told ABTN: "32 seats (the maximum number of passengers the re-configured A318 used for the flights can carry) Why bother?" As far as they were concerned, BA was breaking one of the cardinal rules in running airlines nowadays: increasing costs to increase revenue when the real game was to achieve the latter without incurring the former.

There is a perfectly good economic argument for the new service: it aims to attract the lawyers,  consultants and money men based in Docklands if and when the City business of IPOs and M&As picks up.  But many in the industry do not see the point of it.

BA has rightly won plaudits for its scheme in America to offer free flights to get people meeting face to face again. It is a good and successful initiative which has won the airline new customers in the States.

But this is small beer compared with two larger initiatives which could really impact on both its costs and revenues: the merger with Iberia and the approval of the application with the Spanish carrier, American Airlines and other oneworld partners for anti-trust immunity (ATI) to start a joint transatlantic venture.

The first has been dragging on for what seems like years and while BA says it is confident of success, there seems little urgency. Yet other major European airlines have shown that such tie ups can be great economic boosts. 

The granting of ATI is largely out of the hands of BA and the others but it is likely that the carriers will be required to give up slots at Heathrow to allow the application to go through which could lead to further delay. But the longer it goes on, the more headway the two rival alliances will make with their ATI joint ventures on this lucrative route.

All the time the airline is losing money. There was a £401m pre-tax lost for the last financial year and a £148m pre-tax lost for the first quarter of this financial year. It said in its statement on Tuesday that it was "currently not profitable and we expect to record a significant loss for the second consecutive year - the first time that has happened in our history".

It is fanciful to think that BA is an airline that is about go out of business. That is not what is going to happen. More it seems there is a real danger the airline is drifting. While other airlines have acted to put their houses in order and focussed on their priorities, BA seems to have pottered around, dabbled here, dabbled there.

For instance, just how important is the merger with Iberia when Willie Walsh has threatened to walk away if the terms do not suit him but six months on, the two sides are still negotiating and there is still no conclusion in sight.

It is neither one way or the other. It seems to sum up BA's current direction.

Stanley Slaughter