On November 6th the UK’s oldest airline BA reported their worst-ever loss of £292 million, which was even more than the £252 million forecasted by analysts. This has caused a catastrophe for the company who are currently trying to avoid the rumoured Christmas employee strike.
What went wrong?
‘The Times’ reported that BA’s revenue fell by 13.7% due to poor performance but most significantly due to low demand for seats on the premium airline. These figures are the result of performance 6 months prior to September, which includes the summer period- BA’s supposed busiest time of the year. However, this year saw a different outcome in the summer with revenue down by a all time low compared to summer 2008. One would say that this is the case for any airline operating in the time of a global financial crisis. However for BA, who has cost rich operations, this loss is critical for them. Chief Executive, Willie Walsh commented to ‘BBC News’ that 2009 is the, “most difficult year in history for the aviation industry”. Despite this, I would argue that Walsh’s problem lies beyond the economic crisis, as internally the company obviously has expenditures and HRM issues.
A Christmas strike is just bad timing…
‘The Guardian’ reports that BA are desperately encouraging customers to make their Christmas bookings with the airline, despite the media uproar of the company’s forecasted strike. One would argue that customers will be reluctant to make bookings with the hanging uncertainty of the employee strike. Walsh, on the other hand, commented, “Talk of a strike is premature and there is a long way to go”. Is this enough to secure customer confidence when purchasing with BA for Christmas?
One can only look at BA’s previous poor performance during a strike at Christmas 2007, when cabin crew refused to strike at a time that was too late for the airline to re-gain the customers, who they had already refunded or passed their tickets onto another airline. This is a tormenting situation that surely BA would hate to be faced with again, especially when demand is already down due to the recession.
What is BA doing about it?
‘CNN News’ has claimed that BA already began the process of cutting costs during the summer of 2009 through more part-time employees, reduced overtime and most significantly- voluntary redundancies. These initial price cuts have not been enough for BA who have planned to cut a further 3000 jobs by March 2010, using the winter (low season) as an opportunity. With this in mind, it seems only understandable that employees intend to strike when their jobs currently sitting so unstable. With the aim of Walsh showing his determination to cut costs as a strategy for BA, he revealed in August 2009 that he waived his salary resulting in a personal 8.5% pay cut. This is not the first time Walsh has done this, as in 2008 he also waived his bonus due to the disappointing opening of Heathrow’s Terminal 5. I would conclude that Walsh’s actions against his salary are a positive indication of his drive to “save” British Airways.
Is cutting costs and jobs enough?
Although BA has been keen to share their financial plans with the media as a method of showing their honesty and determination within the airline industry, the growing strength of competitors could be a further threat to them. ‘The Times’ reported that low-cost airline Ryanair posted half-year profits of £376.2 million. Although they are only operating on a smaller scale, the company shows positives signs of growth and a healthy cash flow. Furthermore, Ryanair’s CEO Michael O’Leary told ‘The Times’ that they will continue to grow and takeover BA’s demand, as BA “contracts”.
On the other hand, maybe Ryanair are on their own with regards to performing successfully in the time of recession. This is because other major airlines, such as Lufthansa, have also been forced to cut jobs as like BA in aid of improving fallen profits.
In conclusion BA is in a very “sticky” situation, whereby the external impact of decreased revenue is colliding with the internal issue of a potential Christmas strike. In my opinion, the company needs a new strategy in order to compete against the likes of Ryanair- an airline that was once a minor threat…
http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article6867118.ece
http://news.bbc.co.uk/1/hi/business/companies/8299290.stm
http://www.reuters.com/article/rbssRetailDepartmentStores/idUSNWLA470920091001
http://www.guardian.co.uk/business/2004/aug/23/shopping.supermarkets
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