By Alistair Blair, 20 January 2010
At first glance, the scale-free bar chart depicting changing staff numbers on page 16 of British Airways' 2009 annual report shows impressive progress. Judging by the bars, almost half the March 2008 staff had left the payroll by March 2009. But if you squint at the numbers on top of the bars, it emerges that the shrinkage was in fact only four per cent. BA had 43,400 employees at the start of its financial year and 40,700 at the end of it. The base of the bars seems to be set at 36,500 employees. Was this an error by the report's designers? Or was it some impulse of BA's chief executive, Willie Walsh, to set the baseline of the chart at the unspoken target he would like to reach?
The next few weeks will see a mighty standoff between Mr Walsh and his 13,000 cabin crew. He wants to every BA flight to take off with at least one less cabin crew and those remaining to give up some paid rest days in foreign cities. This was of course the dispute that threatened to ruin Christmas for a million BA passengers. The strike was called off when a judge said that the ballot included people with no voting entitlement.
BA and the cabin crew union kicked off the New Year with some more meetings. But these lasted about five minutes and the cabin crew will now be re-balloted. Since the last strike call was supported by 92 per cent of those voting, it seems pretty unlikely that excluding a few interlopers is going to make much difference to the result. If you're planning to go anywhere in March, I suggest you don't plan to travel with BA.
On Monday, Mr Walsh asked his other 27,000 employees to put themselves forward as temporary cabin staff. He plans to spend the next six weeks giving them crash courses in serving drinks and meals. But even if he beats the strikers, he will only have solved half of the problem, because BA's cabin crew earn on average nearly half as much again as those working for other UK airlines. Possibly, you get a nicer class of smile on BA, which arguably you need at the premium end of the market. And on a long haul flight, that smile must be sustained. But paying 50 per cent more is madness. Especially when you're losing £50m a month.
How BA keeps going is a mystery to me. When it comes to problems, BA holds all the aces. It has monstrous fixed costs piled on top of huge gearing, the whole lot smothered in gigantic unfunded pension liabilities and garnished with a current asset deficit of £1bn. One of my colleagues made BA a sell at 126p last year. Well, even with the shares at 200p, he still has my vote.
It is a legendary axiom of investing that airlines have been net losers ever since aviation began. Singapore Airlines and Ryanair are simply the exceptions that prove the rule. British Airways has in fact done pretty well when compared with its rivals. Lord King, Sirs Colin Marshall and Rod Eddington and now Willie Walsh have supplied it with reasonable doses of flair and ruthlessness, which have so far saved it from the lugubrious fates of many other flag carriers. On Tuesday, Japan Airlines - veritably a holder of five aces - filed for bankruptcy protection. Floated at 125p in 1987, BA had enough commercial dominance and plenty of state-owned era fat to shed. These attributes enabled it to prosper for its first ten years as a public company. But the onset of Open Skies undid those gains and a despite a couple of years running up to 2007 making money from flying all those bankers around in its premium seats, it is hard to see how BA can break out of the downward rut it got into when competition really began to bite.
Getting together with Iberia is unlikely to make a difference. Synergy gains have been totted up, but they will take years to come through (the merger itself is still nearly a year away) and the proposed "hub-optimisation" of Heathrow and Madrid which enthused Willie Walsh when he announced the deal, is less than spell-binding. Meanwhile Iberia's cabin crew are at least as bolshy as BA's. The deal may make sense in terms of route networks, but there will be devil in the detail.
Mr Walsh's battlecry against the unions is that he is leading a fight for survival. If investors regard this as mere rhetoric, they may regret it.
ABOUT ALISTAIR BLAIR...
Alistair Blair is a past winner of the Business Writer of the Year Award, and has worked in investment banking and fund management.
You can leave comments or questions for Alistair below, or read more of his comment columns at his IC home page.
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