Originally Posted by
13901
I agree with most of what you've written, and if I know anything of the BA forum here on FT your post will not really be read in full. Flyertalk is many good things, but unfortunately the economics of running an airline are often missed around here.
Willie Walsh, regardless of what many in and around BA say, has saved the airline. And has built the basis on which the airline has constructed a very profitable future. IAG is perhaps the one European airline conglomerate that works, and the one example of efficient merger. That's definitely thanks to Willie.
Now that I've buttered him up, though, time for the smackdown. He failed on some accounts, and the impact of those failures will be a problem for BA (and IAG to a lesser extent) for years going forwards:
- First and foremost, he prioritised short term gains for long term wins
- This is particularly true for the IT side of BA. It still is beyond me how he could, for instance, first get rid of the people and only after think that the move off on-prem and into cloud could work
- That also applies to some areas in operations, notably LHR
- He selected a very, very, very poor CEO in Alex
- He went for the jugular (in terms of cuts) at the outset of Covid, thus making the recovery a lot harder
- He failed to understand, or did not care, the long term benefits of a well-engaged workforce.
Finally, I think his message is right: to survive and thrive, BA needs to evolve and reinvent itself. Constantly.
1. I can't speak to the IT side at all, I'm not familiar with that so he may have messed up there
2. I'm also not familiar with the highlights of Alex's tenure as CEO of BA (other than labor union conflicts, which is just about obligatory in driving growth in a legacy network airline)
3. That's true, but the only airline I can think of that didn't do that in the legacy / network airline space is United. Delta and American in the US retired a lot of widebodies, while many of the other European airlines have also been scrambling to get back into shape, and Air Canada and Qantas have had their own issues as well. While they probably cut too much during COVID, that's a hardly a mistake unique to WW
4. Fair enough
Originally Posted by
beachmouse
I suspect that a lot of that comes down to different financial regulatory environments that make co-branded credit cards very lucrative for US airlines. The joke about how the typical large US airline is actually a credit card company that just happen to fly planes isn’t too far off and American would be running in the red every year without its credit card arm. Similarly, Delta makes it pretty clear that holding the right premium American Express card is far more important than being the highest level published elite level in their program when it comes to lounge access.
The US airlines also don’t have duty of care rules for domestic flights during weather IRROPS, which has to be a big help in containing expenses since the typical large hub airport here will have multiple cascading issues from weather ground stops every year.
I will say that the thing that blows my mind is that a global airline like BA doesn’t seem to have true 24 hour phone customer service.
Yeah I agree, and also I would bet American sells a lot fewer miles to credit card companies than United or Delta given Citi Thankyou Points aren't transferrable to AAdvantage, while Chase UR and Amex MR are transferrable to United and Delta, respectively (all 3 companies have their co-brand portfolios of course too, but that's not really different between the three). So not only is their actual airline operation the worst of the three, their credit card operation is probably smaller too. Comparing LCCs / ULCCs with network airlines in the same geography is more relevant for sure, but in both Europe and the US, it's clear that LCCs / ULCCs with worse cabin products are more profitable than network airlines, which means the returns on PY / J / F seats, lounges, better catering, pajamas / amenity kits / mattress pads / fancy catering, being driven from the lounge to the plane, etc. and everything else that associated with premium products on network airlines, in aggregate, is negative. That means that customers don't pay enough extra fares to cover the cost of providing those things and a smart CEO is going to cut that back where it makes sense. Customers can complain about lacking those things all they want, but what they clearly don't do is pay for it, so it shouldn't be that surprising to see the product get pared back.
Originally Posted by
HarryHolden68
And therein lies the problem with with Capitalism now manifesting itself across the West. The only reason private companies seem to exist nowadays is to make money. And then next year make even more money, If profits are lower than last year, more costs must be cut, more jobs must go. CEO's measure their worth by increasing the share price through short term thinking. When it comes to staffing, this means getting away with compensation as low as they can get away with rather than as much as they can afford. The concept of well trained motivated workers is an evil doctrine to this short term capitalist. Cheap agency labour means more profit. When it comes to product, give them as little as you think we can get away with. Ditto with equipment. Sod the legroom, cram in those club suites - galleys cost money you know.
This works well in a market with a just in time culture working well, sufficient unemployment to keep the establishment numbers positive and growth coming from rising demand. Now that we are as good as in recession, with more vacancies than people seeking work, demand lower than 3-years ago especially in the lucrative business market, the concept of shareholder first and everything else last is coming home to roost. There are companies surging forward in the post Brexit boom. A Willie Walsh slashed BA is not one of them and that is largely because of the bed wetting cutting mentality of the past 10-years.
Is there a better alternative? Have BA and IAG staring into the edge of bankruptcy and constantly requiring additional state support to stay afloat, or be nationalized again so that the state support doesn't even need to be asked for anymore? See Alitalia, er, ITA Airways, or Air France, which despite having a much more centralized market than Italy, one of the best transatlantic O&D destinations on the European side including the largest inbound tourism market in the world, a lack of competition in home carriers compared to similarly desirable top transatlantic O&D destinations such as London or New York, and a lucrative network of effectively monopoly Africa routes, needs subsidies from both the French government and KLM to remain afloat. Or look at Etihad, which despite being backed by one of the wealthiest states in the world that was actively looking to enhance their country's brand, still had to cut the Residence and First class. Not even Abu Dhabi can afford to subsidize such premium cabins. While BA and IAG are sustainably profitable, it's not like they generate huge profits relative to the amount of investment required in the business, and airlines in aggregate have not made a profit since inception, with clearly a negative return on offering customers a better product. If customers aren't willing to pay enough of a fare premium to justify the added expense of a better product, why would a company offer it? Do you work overtime if your employer doesn't pay overtime and doesn't even notice that you're doing it? Privately-owned airlines that are well-run are seeing the market dynamics and reacting accordingly