Financial Times:
British Airways’ troubles
Published: January 25 2007 13:25 | Last updated: January 25 2007 13:25
The challenge of dragging its workforce into the 21st century is not one faced by British Airways alone. All the European flag carriers are grappling with the same Herculean task. Planned industrial action by BA’s cabin crew staff, though, appears to be a big step backwards.
The proposed strikes would be the first official action for a decade, and their financial impact could be significant. BA earns an estimated £20m a day in traffic revenues. Potentially forfeiting at least this for each strike-day will make it more difficult for Willie Walsh, chief executive, to meet his elusive 10 per cent operating margin target.
Rather surprisingly, though, Mr Walsh has some reasons to feel encouraged. The dispute does not seem to centre around the two main problems he faces – reducing the pension deficit, and changing working practices before the imminent move to London Heathrow’s Terminal 5. Instead, BA’s cabin crew, which represents nearly a third of its 44,000 workforce, seems most upset about attempts to reduce sick leave to BA’s target of nine days a year. This is still well above the UK average of seven, and is but one indication of how far BA still has to go towards competitive industry norms. After five years of restructuring, its average costs per employee remain among the highest in the industry globally, and 25 per cent above those of low-cost competitors Ryanair and Easyjet.
Cabin crew staff’s focus on a relatively minor issue, though, shows that Mr Walsh is making some progress. Two-thirds of BA’s workforce have apparently agreed to the changes in working practice necessary to make the move to T5 a success. This is immensely positive for the long term. And shareholders’ ability to weather shocks has often been tested. BA’s shares have risen 64 per cent over the last 12 months. But, at about 12 times 2007 consensus earnings, they are bang on their long-term average valuation. An extended strike, though, would be a severe test of investors’ tolerance.
Copyright The Financial Times Limited 2007