MPH1980

It's a genuine question - how far will they take the airline?

BA has a sizable fleet, but a lot of the new planes coming in are leased.
BA has a sizable ground staff, but the outstations are already outsourced
BA has a sizable crew, but has outsourced some to other operations (Titan and now QR for example)

But BA has outsourced a lot (most?) of it's IT, it has outsourced most of it's outstation ground staff, lounge staffing at LHR/LGW has been outsourced for a while, it's outsourced a lot of outstation lounges as well etc.

With this trend we'll find an airline that a) doesn't own it's planes, b) doesn't have any of it's own people or systems selling tickets, c) doesn't have any people actually at airports etc.

I'm genuinely wondering how far people think BA will take it ... will they try an outsource of LHR ground for example ... sell and lease back of the existing fleet perhaps ... a new crew group brought in from some outsourced organisation? Is there a stopping point??

And when, in all this, would BA cease to be an airline, but simply a management organisation defining procedures for other companies?

Oaxaca

I think in prInciple the IAG upper management has no stopping point, the view appears to be that any internal organisation has to compete with possible outsourcing to retain its job. That was, for example, made clear regarding maintenance fairly recently.

in practice, the internal politics and inherent inertia in the organisation when it comes to decision-making may prevent some of that coming to pass, e.g. the full outsourcing of LHR ground. Some areas may get more complex legally when it comes to staffing, such as crew, but I would imagine that nothing is off the table.

FlyerTalker39574

Principal agent relationships will still exist.

Boten

These days almost every airline in the world uses a third party IT system to sell its tickets (or at least host the airline). BA use Amadeus, the world's largest reservation system provider. In fact, most major IT systems in an airline are third party, including, but not limited to:

1) revenue management systems
2) operations control system
3) crew planning
4) revenue accounting

That is not to say that some airlines don't build and host some of these services on their own but almost all do not. That is because the average airline wants to be an airline and not an IT system supplier.

evacboy

Does Nike make shoes?

BrianWBrazil

Yes, from its base in Oregon, it has contracts with factories throughout the world that provide it with shoes. These factories are 100% owned by subcontractors.

flygod

Way back as a teenager in the 1970s, I knew an antique dealer in Glasgow - Muirhead Moffat. He owned a lovely shop in Rose Street.

There was a massive financial crisis, oil price soared, miners were on strike, we had a three-day week, IMF called in to bail-out the UK etc etc.

I asked him: was he worried, being in a discretionary market?

His reply: I own the building and own the stock. I have no debts. All I have to do is sell one item a week to pay for my food!

And with hundreds of antiques in stock, no-one would notice if stock numbers fell a little over a year or two.

My point:

It is all very well being a "virtual" company, but what happens when outside forces - let's say 9/11 - happen and you have to survive?

I know what happens if you are a pilot - or just qualified and looking for a job!

I know the theory is you concentrate on your core, and let others take the hassle/risk - which can include leasing - but I am still old-fashioned enough to think that if you are big enough, it should be cheaper to do it "in house".

When BT sold (and then leased back) all its property, I thought: couldn't BT just have set up an arm's length property company and then kept any profits for itself? Of course, it wouldn't then have had a massive (billions) cash injection.

And if all the assets are gone, it is only the quality of the management that remains. Without looking at current incumbents, there are plenty of corporate examples out there where the wrong people at the top have destroyed a company - and the shareholders' funds.

Ldnn1

Financing arrangements for the fleet are not 'outsourcing'. Airlines use various mechanisms to finance their aircraft but this should not really be of concern to the customer, except to the extent there are concerns about leverage. It's the content and of course the maintenance of the fleet that matters on the day-to-day.

Outsourcing of services like IT, ground handling etc. is quite a different matter.

That said, I take your point about whether BA is heading in the direction of becoming a management company with few of its own assets.

JAXBA

I remember when Bob Ayling sold off Catering and Ground Fleet Services there were murmurs that BA was selling off the family silver and becoming a virtual airline.

That was 20 years ago.

How far will BA keep going? No idea. Has it gone too far? Possibly.

johnaalex

BA, the Uber of the Airways???

SvenAge

As much as possible, given:

a) it's cheaper
b) someone else can be blamed
c) 'it has no impact on service'

FlyerTalker688786

The sad truth is that the new generation would not understand your story. The MBA course taught a decade ago (which the new managers in BA had their knowledge) emphasis on returns and efficiency. While customer retention belonged to last century. Unfortunately the financial crisis was not part of MBA course in that time.

So now airlines does not own its aircraft, its IT system and does not run its own lounges. All been done to release the capital and make efficiency looking great on paper.

There is only one problem: such efficiency is built on the service provider to be honest and financially sound.

Two things can happen to severely destroy current model:
1, Service provider go bankrupt or severely distressed. By that time, BA or airlines like BA would not be able to come up short term decision to salvage the situation. The whole operation could be shut down for days if a major suppliers went belly up overnight;
2, pricing power. Aircraft lease is a good idea as it reduce the capital investment and cash flow is drastically reduced. However, aircraft leasing industry is in consolidation mood. Once the full consolidation is done, and one or two firms dominated the industry, the leasing price will go up and airline will have to pay more. What is worse, if the leasing company at a period retire lots of aircraft to create shortage of aircraft availability, airlines will suffer and may have to pay more than owning its a/c. The same can be said for IT. Currently the GDS is a quasi-monopoly system. GDS hosting and distribution fees will go up as both Amadeus and Sabra is public listed company. There are relatively low competition in this field. Airlines that rely on outside system will ultimately pay more over the years compare with airlines that owns its distribution channel. The reason is that it will take airline months if not years to switch system and it will be a costly exercise. Airlines really have not very much power in price negotiation as providers consolidate and grow its market share.

Hand over your own destiny to others is a short term success but long term disaster. I am intriguing to see what BA would be like 10 years later and whether anyone in current management can survive that long.

Flexible preferences

Well, Virgin Atlantic lease nearly all their aircraft - does that mean they cease to be an airline?

HIDDY

GLA for one couldn't operate profitably under the old 'base' system. BA staff based there were obviously never going to swap their good salary and working conditions for ones not so favourable. So in order to make it profitable in the longer term the only option was to close it down and contract staff in.

Speedbird218

BA got rid of all their IT contractors about 18 months ago. Not to mention ditching their pemie IT staff

Last week got a call from a recruitment agent. BA are back in the market for IT contractors.

It would seem the off shore/out-sourced model is not working and BA know it.

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