BA in Cruz control in the 'Race to the bottom'
Jul 22, 2016, 2:03 pm
#1
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BA in Cruz control in the 'Race to the bottom'
Back in May Alex Cruz did an interview with BT, where he categorically denied he was going to take the airline down the low-cost route.
https://www.businesstraveller.com/ne.../05/20/428264/
Clearly Cruz has control with a very tight grip on spending with the ever imaginative new ways BA have continued to find continuous ways to cut costs and overall not making it competitive with premium airlines.
Whilst I am sure BA are leading the race to the bottom and with the constant feedback from flyers certainly on Flyertalk referring to BA's position in the race, how much further is there realistically to go?
“My emphasis is not on making BA a low-cost carrier and I think that would be a mistake. It is on making it a significantly more competitive company in the way it works, both within, and towards the way it works outside to clients and customers."
Clearly Cruz has control with a very tight grip on spending with the ever imaginative new ways BA have continued to find continuous ways to cut costs and overall not making it competitive with premium airlines.
Whilst I am sure BA are leading the race to the bottom and with the constant feedback from flyers certainly on Flyertalk referring to BA's position in the race, how much further is there realistically to go?
Jul 22, 2016, 2:17 pm
#3
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I am so disappointed in Mr Cruz he is a good communicator and promised to listen but he only seems to be listening to the accountants we are pleading with him to hear us but we are just being ignored and are feeling worthless.
Last edited by Can I help you; Jul 22, 2016 at 3:42 pm
Jul 22, 2016, 3:07 pm
#4
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I find this quote fascinating:
“I’ve been on the management committee of IAG since 2013 so I’ve seen the evolution of recent decisions with regard to BA and I’ve had to support those decisions because that’s how Willie [Walsh] wants to run the place.”
I wouldn't be so quick to blame Alex.
“I’ve been on the management committee of IAG since 2013 so I’ve seen the evolution of recent decisions with regard to BA and I’ve had to support those decisions because that’s how Willie [Walsh] wants to run the place.”
I wouldn't be so quick to blame Alex.
Jul 22, 2016, 3:41 pm
#6
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Good accountants will present options and let others make the decision.
Take for example the post about new bedding in CW. A good accountant will simply present the options - it will cost X per year to buy the things and Y to launder etc etc
It will then be others to decide if that is good value for money / good for the businss - or not. You might have the customer service people saying 'we've had complaints about bedding', commercial may say 'our competitors are offering this so if we don't we'd lose Z passngers and £££'
In some cases the finance argument will win but that's not the same as them dictating anything.
Jul 22, 2016, 4:21 pm
#7
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For what it's worth, I think that whilst Cruz is doing the dirty work, Walsh is undoubtedly fully behind the strategy in question. There is a treble* problem that BA face, and on which they are engaged in a double crash course in my view:
1) Short haul Y traffic is subject to ferocious competition from low cost airlines. They do not only drive prices down but have also improved service in recent years. The bottom line is that their cost basis is structurally much lower than that of full service airlines which, in effect, can never fully compete on price, so the price battle is a lost one from the onset. They cannot afford to charge too much more than low cost carriers, but crucially, if they fail to offer a significantly superior service to those low cost competitor, nobody has any reason to choose them on those segments: you might want to pay more for a better product, but nobody in their right mind would pay more for a similar product;
2) Long haul F/J traffic is single handedly the biggest contributor to legacy airlines' profit. It is made of two sub-components, a "captive" part, which will always choose based on schedule and convenience alone almost regardless of price or service, and a "competitive" part which wants the best quality for money. BA has benefitted from a larger "captive" part than many competitors for years. London is a hugely desirable destination for premium travellers, the UK economy was strong and focused on sectors which remain largely willing to pay for premium travel for much of their staff (banking, etc). With the widely expected post-Brexit evolution, that situation will most likely change quite significantly, and the fat cows period may well be over for BA, which will be increasingly dependent on the "competitive" part instead. By that, I do not mean that there will be no O/D premium traffic all of a sudden, but that any small change, even 5 or 10% would be enough to make a profitable flight now lose money unless more "competitive" premium passengers can be attracted to BA. Those competitive premium travellers are faced by an increasingly attractive array of offers. Many airlines (not least ME3 and to a lesser extent some Asian carriers) benefit from significantly lower operational costs structurally and can use that advantage to offer excellent service at unprecedented prices. There again, BA is structurally more expensive to run and therefore cannot fully compete on price even if it is now cheaper than ever before. Therefore, again, it needs to be able to offer a quality product if it is to attract some of that competitive market, from its own base, from the rest of Europe, and from the rest of the world. Let's say that you are based in Berlin, Nice, Oslo, or Barcelona. To go to HKG or SIN, there is no major convenience advantage in flying BA, AF, LH, EK, QR or many other, they are all pretty much the same. You'll therefore choose based on price and quality. Good luck trying to match the prices of QR, which occasionally go down to £800 return in J on those destinations, and frequently to £1000. Good luck trying to compete with the exceptional quality of AF F, with what may well be the best F lounge in the world, a truly seamless airport experience and outstanding new cabin and F&B onboard. So if BA is neither anywhere near the cheapest nor anywhere near the best, it needs to offer a combination that is sufficiently seductive to at least retain (ideally increase) a significant part of that competitive premium market. And by the way, the quality issue includes European feeder flights too;
3) long haul Y: so far the most "protected" segment and one BA has done quite well with so far. The problems are currently largely the same as for long haul premium, but increasingly, a low cost alternative (e.g. Norwegian to the US) is entering the market meaning that on that specific segment, BA may be simultaneously attacked on both fronts, which would transform it from most protected to least protected.
So to summarise, while BA needs to reduce costs, if it does so at the expense of service quality, it loses its very reason to be, because it cannot be fully competitive on price anyway and its captive segment will likely suffer in years to come. It thus desperately need a service/quality advantage whilst not being able to increase prices. From that point of view, the BA problematic is very different from the Vueling one because it 1) cannot reach the same cost basis as VY anyway, and 2) has a premium segment to lose unlike VY.
My personal sense is that the way BA is going, it will likely lose ground on all three key segments.
*I voluntarily omit short haul business. I just do not believe that there is money in it. In that sense, I think that BA probably has the right strategy there, having a mediocre product which they try to push people to buy up into. I know some people disagree.
1) Short haul Y traffic is subject to ferocious competition from low cost airlines. They do not only drive prices down but have also improved service in recent years. The bottom line is that their cost basis is structurally much lower than that of full service airlines which, in effect, can never fully compete on price, so the price battle is a lost one from the onset. They cannot afford to charge too much more than low cost carriers, but crucially, if they fail to offer a significantly superior service to those low cost competitor, nobody has any reason to choose them on those segments: you might want to pay more for a better product, but nobody in their right mind would pay more for a similar product;
2) Long haul F/J traffic is single handedly the biggest contributor to legacy airlines' profit. It is made of two sub-components, a "captive" part, which will always choose based on schedule and convenience alone almost regardless of price or service, and a "competitive" part which wants the best quality for money. BA has benefitted from a larger "captive" part than many competitors for years. London is a hugely desirable destination for premium travellers, the UK economy was strong and focused on sectors which remain largely willing to pay for premium travel for much of their staff (banking, etc). With the widely expected post-Brexit evolution, that situation will most likely change quite significantly, and the fat cows period may well be over for BA, which will be increasingly dependent on the "competitive" part instead. By that, I do not mean that there will be no O/D premium traffic all of a sudden, but that any small change, even 5 or 10% would be enough to make a profitable flight now lose money unless more "competitive" premium passengers can be attracted to BA. Those competitive premium travellers are faced by an increasingly attractive array of offers. Many airlines (not least ME3 and to a lesser extent some Asian carriers) benefit from significantly lower operational costs structurally and can use that advantage to offer excellent service at unprecedented prices. There again, BA is structurally more expensive to run and therefore cannot fully compete on price even if it is now cheaper than ever before. Therefore, again, it needs to be able to offer a quality product if it is to attract some of that competitive market, from its own base, from the rest of Europe, and from the rest of the world. Let's say that you are based in Berlin, Nice, Oslo, or Barcelona. To go to HKG or SIN, there is no major convenience advantage in flying BA, AF, LH, EK, QR or many other, they are all pretty much the same. You'll therefore choose based on price and quality. Good luck trying to match the prices of QR, which occasionally go down to £800 return in J on those destinations, and frequently to £1000. Good luck trying to compete with the exceptional quality of AF F, with what may well be the best F lounge in the world, a truly seamless airport experience and outstanding new cabin and F&B onboard. So if BA is neither anywhere near the cheapest nor anywhere near the best, it needs to offer a combination that is sufficiently seductive to at least retain (ideally increase) a significant part of that competitive premium market. And by the way, the quality issue includes European feeder flights too;
3) long haul Y: so far the most "protected" segment and one BA has done quite well with so far. The problems are currently largely the same as for long haul premium, but increasingly, a low cost alternative (e.g. Norwegian to the US) is entering the market meaning that on that specific segment, BA may be simultaneously attacked on both fronts, which would transform it from most protected to least protected.
So to summarise, while BA needs to reduce costs, if it does so at the expense of service quality, it loses its very reason to be, because it cannot be fully competitive on price anyway and its captive segment will likely suffer in years to come. It thus desperately need a service/quality advantage whilst not being able to increase prices. From that point of view, the BA problematic is very different from the Vueling one because it 1) cannot reach the same cost basis as VY anyway, and 2) has a premium segment to lose unlike VY.
My personal sense is that the way BA is going, it will likely lose ground on all three key segments.
*I voluntarily omit short haul business. I just do not believe that there is money in it. In that sense, I think that BA probably has the right strategy there, having a mediocre product which they try to push people to buy up into. I know some people disagree.
Last edited by orbitmic; Jul 23, 2016 at 1:38 pm
Jul 22, 2016, 4:22 pm
#8
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BA does not have to adapt in this way, nor should we have to choose another airline. That smells of victim-blaming. As ticket-holding customers we should expect the service that is advertised by BA and that we have paid for. It's ridiculous to excuse the behaviour of any company that advertises a particular level of service on their website in order to get people to spend money with them, and then doesn't offer it when the customer turns up to use it. Quite honestly, a deliberate attempt to withdraw a service that you've advertised to a customer who's then paid for that service is fraud.
Jul 23, 2016, 1:57 am
#9
Join Date: May 2013
Posts: 6,349
If you want no frills you go for a loco, Easyjet, Norwegian etc even to the USA.
If you want quality you go for Singapore, ME3 etc as the proposition is light years ahead.
That leaves BA operating in the middle ground/mediocrity space. Nothing wrong with that as a strategy, but there will always be costs, maintenance, cleaning etc you can cut to become even more mediocre.
If you want quality you go for Singapore, ME3 etc as the proposition is light years ahead.
That leaves BA operating in the middle ground/mediocrity space. Nothing wrong with that as a strategy, but there will always be costs, maintenance, cleaning etc you can cut to become even more mediocre.
Jul 23, 2016, 2:00 am
#10
Join Date: May 2014
Posts: 7,237
However, I don't quite agree with the excerpt I've quoted. BA can, and has, demonstrated that it can bring operating costs down to a level similar to the ones of its major LCC competitor, namely Easyjet. In LGW, and I have only an interview for internal consumption by Lynne Embleton to back me up, the operating cost of BA has declined from being a lot higher (and at a loss) than EZY to being substantially similar. It's been a rough ride, sure, with the whole under the wing operation outsourced, new contracts (the 2010 ones) introduced for Cabin Crew that do not allow to live in London, similar ones for ground staff above the wing and densification on board, plus quite a cull on management. I've no doubt that the whole lot of stuff that's happening these days is aimed at reducing the operating costs to be able to do price wars versus the likes of Norwegian, Westjet and the usual ME3. Not good news for us workers and you passengers..
All this is my opinion and not my employer's.
Jul 23, 2016, 2:10 am
#11
Join Date: Jan 2010
Posts: 7,464
If you want no frills you go for a loco, Easyjet, Norwegian etc even to the USA.
If you want quality you go for Singapore, ME3 etc as the proposition is light years ahead.
That leaves BA operating in the middle ground/mediocrity space. Nothing wrong with that as a strategy, but there will always be costs, maintenance, cleaning etc you can cut to become even more mediocre.
If you want quality you go for Singapore, ME3 etc as the proposition is light years ahead.
That leaves BA operating in the middle ground/mediocrity space. Nothing wrong with that as a strategy, but there will always be costs, maintenance, cleaning etc you can cut to become even more mediocre.
Although Tesco have started the turnaround.
Jul 23, 2016, 2:16 am
#12
Join Date: May 2010
Location: UK
Posts: 5,380
I wish people would stop blaimign the accountants. A business that only listens to it's finance people won't last very long.
Good accountants will present options and let others make the decision.
Take for example the post about new bedding in CW. A good accountant will simply present the options - it will cost X per year to buy the things and Y to launder etc etc
It will then be others to decide if that is good value for money / good for the businss - or not. You might have the customer service people saying 'we've had complaints about bedding', commercial may say 'our competitors are offering this so if we don't we'd lose Z passngers and £££'
In some cases the finance argument will win but that's not the same as them dictating anything.
Good accountants will present options and let others make the decision.
Take for example the post about new bedding in CW. A good accountant will simply present the options - it will cost X per year to buy the things and Y to launder etc etc
It will then be others to decide if that is good value for money / good for the businss - or not. You might have the customer service people saying 'we've had complaints about bedding', commercial may say 'our competitors are offering this so if we don't we'd lose Z passngers and £££'
In some cases the finance argument will win but that's not the same as them dictating anything.
Jul 23, 2016, 5:15 am
#13
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Join Date: Jul 2007
Posts: 4,477
Anyone think Mr. Cruz would be a good leader for BA should think twice:
Operational Issues at Vueling leading to delays and cancellations
Anyone Has Info On Cancelled Vuelling Flights 21/3
IAG's Vueling 2 Months Without Customer Invoices
Vueling faces fine over flights chaos
'No Cusomer Service' 'flew with a delay o 19 hours' ...
Chaos in Barcelona Airport for Vueling Passengers
Why I will never fly Vueling airline again (yes goes as far as 2010!)
Vueling Check-in Issues (2013)
Plenty of complaints about Vueling on Iberia forums...(mostly 2015)
Flight cancellation continues in 2014
More Vueling nightmares in 2013...
Vueling cancellation 2013 on Tripadvisor
Warnings from 2012 on Vueling on TA
COMPLAINT: Vueling cancelled/rescheduled flight with less than 14 days notice. (2012)
Ian Allison warned us in 2015: Should we worry about Vueling's awful complaints record as BA switches to Cruz control?
It is not only flight cancellations, how abut luggage nightmares
Vueling was so badly ran, people joined online to ask: Vueling - What is wrong with you?
How about this: By far the worst airline I have ever used! They have changed my flight seven times and counting. The reliability of their planes seem questionable. All the other airline companies of Barcelona have no issues just Vueling. My word of advice is don't fly Vueling Airlines!
Conclusion: Mr. Cruz ran an airline successful on numbers, but disaster on customer satisfaction. He even left a really bad run airline and culture which is still haunting its customer today. I can only see a very dark future of BA ahead.
Operational Issues at Vueling leading to delays and cancellations
Anyone Has Info On Cancelled Vuelling Flights 21/3
IAG's Vueling 2 Months Without Customer Invoices
Vueling faces fine over flights chaos
'No Cusomer Service' 'flew with a delay o 19 hours' ...
Chaos in Barcelona Airport for Vueling Passengers
Why I will never fly Vueling airline again (yes goes as far as 2010!)
Vueling Check-in Issues (2013)
Plenty of complaints about Vueling on Iberia forums...(mostly 2015)
Flight cancellation continues in 2014
More Vueling nightmares in 2013...
Vueling cancellation 2013 on Tripadvisor
Warnings from 2012 on Vueling on TA
COMPLAINT: Vueling cancelled/rescheduled flight with less than 14 days notice. (2012)
Ian Allison warned us in 2015: Should we worry about Vueling's awful complaints record as BA switches to Cruz control?
It is not only flight cancellations, how abut luggage nightmares
Vueling was so badly ran, people joined online to ask: Vueling - What is wrong with you?
How about this: By far the worst airline I have ever used! They have changed my flight seven times and counting. The reliability of their planes seem questionable. All the other airline companies of Barcelona have no issues just Vueling. My word of advice is don't fly Vueling Airlines!
Conclusion: Mr. Cruz ran an airline successful on numbers, but disaster on customer satisfaction. He even left a really bad run airline and culture which is still haunting its customer today. I can only see a very dark future of BA ahead.
Jul 23, 2016, 6:27 am
#14
Join Date: Feb 2012
Programs: BA LifetimeGold GGL/CCR
Posts: 1,140
Some people cry out for lower fares. They are amongst others the ones that fly the LCC's. In the past BA has made its profit from the premium cabins, with the income from the economy cabins as a nice extra. BA is now changing its business model to that of the LCC's. Consequently BA has to change its cost model. The appointment of Mr Cruz fits in that policy. He has a very bad track record in term of customer service. Vueling is in a very bad state today. The many enhancements all fit with that new policy : cramped CE seating (less and less rows of CE on many destinations), reduced catering, low cost cabin crew, low cost IT, terrible ground service. That alienates the former cash cow clients, those flying business and First. It remains to be seen if that new BA business model will be profitable and sustainable. I give them slim chances to win the battle against Easyjet, Ryanair and the likes. Let's wait and see. More and more of my travel budget goes to AF now, flying towards the West. Towards the east, it are the ME carriers, SQ and QF, so certainly not all subsidised.
Jul 23, 2016, 11:17 am
#15
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Join Date: Jul 2007
Posts: 4,477
I find this quote fascinating:
“I’ve been on the management committee of IAG since 2013 so I’ve seen the evolution of recent decisions with regard to BA and I’ve had to support those decisions because that’s how Willie [Walsh] wants to run the place.”
I wouldn't be so quick to blame Alex.
“I’ve been on the management committee of IAG since 2013 so I’ve seen the evolution of recent decisions with regard to BA and I’ve had to support those decisions because that’s how Willie [Walsh] wants to run the place.”
I wouldn't be so quick to blame Alex.