Another Failing Chief Executive Flies On

Willie Walsh at the controls of the flight simulator
Image by NATS Press Office via Flickr

Six months ago I commented on International Airline Group’s financial results.

IAG is the company that used to be called British Airways, that took over Spain’s Iberia in 2010.

The results I commented on were for six months, with a loss of €390 million. Within that, Iberia made an operating loss of €263 million, while BA managed an operating profit of €13 million.

At that time, Willie Walsh, the airline’s Chief Executive, commented:

Iberia’s problems are deep and structural and the economic environment reinforces the need for permanent structural change. We are currently working on a restructuring plan for Iberia which we anticipate will be finalised by the end of September.

Well, here we are in February. The full year results are out. IAG made a loss of almost €1 billion, including a €202 million hit for that restructuring of Iberia, and a further €343 million for “impairment of Iberia assets”. It seems that Mr Walsh’s restructuring plan has been expensive, and Iberia’s assets are not now worth nearly as much as their valuation on the balance sheet before.

The overall results include an operating loss from Iberia of €351 million, and an operating profit from British Airways of €347 million.

In other words, Iberia has cost the Group almost €1 billion this year alone. And they’re not out of the woods yet. Iberia’s staff are due to start a wave of strikes on Monday, in response to the Group’s decision to axe 3,800 jobs at Iberia.

The Group had the gall to claim, however, that

savings from the 2011 merger of British Airways and Iberia which formed IAG reached 313 million euros last year, beating a target of 225 million euros.

Last year (2011), the Group made a profit of €503 million, but Iberia again made a loss.

Comments the Telegraph:

The result is likely to lead to further questions about the decision to merge profit-making BA with Iberia in 2011.

Not from the City, it seems. The Group’s shares rose in response to the results.

The Group also bought another loss-making airline, bmi, recently.

In another article the Telegraph quotes Mr Walsh as saying

the group would save €560m by 2015 by combining BA, Iberia and bmi.

Let’s hope those projections are accurate.

All this matters. Thousands of British jobs, not to mention British national pride, depend on British Airways, and it is a tribute to the strength of that airline that it has been able to carry such huge losses from Iberia thus far.

It seems that nobody is thinking to hold Mr Walsh to account though. He has been in charge ever since those heady days in the depths of the credit crunch when he decided to buy Iberia.

It seems that hubris, empire-building and lack of accountability by Chief Executives are not restricted to banks.

The Man with Some Explaining To Do

180412 - Summit - Session 3 -Willie Walsh, CEO, International Airlines Group
Willie Walsh – Image by World Travel & Tourism Council via Flickr

International Airlines Group (IAG) announced its latest results today, for the last six months. They lost €390 million.

IAG is the parent company of British Airways and of Iberia, the Spanish national airline.

When they announced their previous set of results, six months ago, I commented that it was Iberia that was the problem. Two thirds of the losses they announced then came from Iberia. But IAG claimed then that the main issue was fuel costs.

This time, Iberia made an operating loss of €263 million. Meanwhile BA actually managed an operating profit of €13 million – far too small, of course, but a whole heap better than Iberia.

Even Willie Walsh, the hapless Chief Executive of IAG, had to admit that the real problem was … Iberia:

Iberia’s problems are deep and structural and the economic environment reinforces the need for permanent structural change. We are currently working on a restructuring plan for Iberia which we anticipate will be finalised by the end of September.

Well, what a far cry from those heady days just three months ago when Mr Walsh was declaiming

Iberia’s performance reflects the weakness of the Spanish domestic market and industrial action by pilots.

Overall, the figures truly are shocking. Not only did the group make that huge loss, but its costs were up substantially. Fuel costs were up by 25%. (Does that really reflect the world market price of airline fuel, or just less efficient usage of it?) Even non-fuel costs were up 9.5% – a pretty steep increase in a single year.

They are a truly awful set of results. It is abundantly clear that BA’s takeover of Iberia has been an utter disaster for BA. Perhaps if that takeover had not happened, BA would be in fairly good shape today. It was, after all, once a high flyer that boasted it was “the world’s favourite airline”.

But perhaps that merger took place in those heady days before the credit crunch? Those days when mega-mergers were all the rage?

Er…no. BA and Iberia only announced their intention to merge in November 2009 – a couple of years after the credit crunch began. The deal was not signed until April 2010.

At the time the merger was agreed, in November 2009, Mr Walsh was bullish about the amazing cost savings to be made by merging the airlines:

Mr Walsh outlined €50m of annual benefits in the first year, €125m the next, €250m the year after, €375m the following year and €400m by year five.

Well now. The deal was completed in January 2011, so we are now nearing the end of the second year. €125 million in savings this year just gone! Lucky they had those, otherwise their costs would have gone up even more.

€250 million next year of course…but only if those niggling “deep and structural problems” at Iberia can be resolved, presumably.

Those “deep and structural problems” that have, presumably, arisen in the two years since Mr Walsh merged British Airways with Iberia. After all, surely he wouldn’t have merged BA with an airline with such problems, would he?

No, those problems must have arisen over the last two years. Years during which the Chief Executive was…er…Willie Walsh.

It seems to me that Mr Walsh has some explaining to do.

The Real Reason Why British Airways is Stuck on the Runway

International Airline Group (IAG) has announced a big loss for the last three months.

Eh? Who?

IAG is the “parent company” of British Airways, after its merger with the Spanish national carrier, Iberia. It lost a stonking £211 million in Jan-Mar 2012. That loss was more than five times the amount it lost in the same period last year.

BA – sorry, IAG – is blaming fuel costs, which rose by more than £200 million. The article forgets to mention how much extra the airline took from passengers in fuel surcharges, or indeed the fact that its competitors all have the same issue to contend with.

More than two thirds of the losses came from Iberia, including €25 million from a strike. The company itself commented thus:

“Iberia’s performance reflects the weakness of the Spanish domestic market and industrial action by pilots,” said IAG’s chief executive Willie Walsh. “For BA, although the London market and demand for transatlantic travel remains strong, its performance has been affected by rising fuel costs.”

The issue isn’t fuel costs. The issue is that Mr Walsh made the decision to buy basket-case Iberia. Some of us could have told him it would end in tears.

Was it grandiose ambition? Or was it panic as rival Lufthansa steadily built their international empire?

Whatever the reason for that takeover, BA used to be a well run profitable company and now looks like a dog. Unless he can quite rapidly sort out the mess, Mr Walsh is going to run out of excuses.

British Airways and The Unite Union – Can They be Serious?

Industrial Dinosaurs: Derek Simpson of the Unite Union and Willie Walsh of BA

British Airways has won an injunction to stop the strike by cabin crew that was due to start today.

So who is in the right here, management or Union? The answer is clear. Both sides are 100% wrong.

It is obvious that striking against struggling BA is not in the long term interests of the crew. The strike can have only one effect – which is to damage the airline further. That in turn will cause further damage to the company’s ability to pay its staff, and mean that future deals on pay and conditions will be worse than they otherwise would have been.

The offer from BA, which the Union is opposing, contains measures that would be regarded as old hat in most companies.

They include:

  • Reducing the number of cabin crew on long haul flights from 15 to 14. Would those staff really not be able to cope with that 7% reduction in staffing?
  • A two-year pay freeze from 2010. That is now commonplace in many private companies (including the one I work for) and is about to be extended into the public sector.
  • New contracts for fresh recruits and newly promoted staff, which would introduce a single on-board management grade, promotion on merit, no seniority and pay at market rates plus 10%. Frankly, it is astonishing that old-style nationalised industry restrictive practices like seniority and “Buggins’ Turn” promotion have survived as long as this at BA. It is also amazing that the Union have objected to “only” being paid 10% above the going rate.

However, the Union claims it has now reached agreement in principle on all of this with the airline. The sticking point now is travel concessions, which were withdrawn permanently from staff members who took part in a previous strike, and some disciplinary action that has been taken against “more than 50″ union members.

Those remaining issues do not sound to me like major ones that couldn’t be resolved by talking, without a damaging and disruptive strike.

Assuming, of course, that British Airways managers are keen to resolve the dispute. They went to court to stop the strike on a pure technicality. The claim was that the Union did not correctly notify its members of the results of the strike ballot. It is often said that the law is an ass, and in this case, the court provided ample justification for that view by supporting BA. Stupid though the strike is, getting the courts to stop it on such spurious grounds is misuse of the intention of the law, and brings that law into disrepute. BA should be ashamed of itself for that.

BA should also consider the effect on its staff. Eventually the only way forward for the company is for the staff and the management to work together as a single team. One day they will have to do that. Will misusing the law to stop a strike, when a big majority of staff voted in favour, bring that day any closer? Or will it further alienate staff and cause more resentment and ill feeling?

Looking at those industrial dinosaurs battling it out with strikes and retaliation by legal action, while the company faces an uncertain future and long term decline, is profoundly depressing.

I am going to Munich later this year for a holiday. I looked at several airlines for our flights. Easyjet were the cheapest – no surprise there. Lufthansa were only a little more expensive than Easyjet, and the difference was easy to justify based on the additional service you get like allocated seats.

And BA? Their price was 50% more expensive than Lufthansa. Why would I or anyone else choose to fly with them on those terms? Because we like the pretty red, white and blue uniforms?

The Beneficiaries of the BA Dispute

If the Union don’t like the management’s cost cutting proposals, they need to explain how they believe those cost differences should be addressed. And BA management need to explain why they have allowed this lack of competitiveness to fester for so long, when the company has been in the private sector for more than 20 years.

Both the Union and BA management need their heads knocking together. They need to understand that their passengers owe them nothing, any of them. If their airline collapses, nobody will mourn. Their competitors will be happy to take their airport slots, and eat their lunch.

None of us care about the Union’s grievances, or about the management’s macho desire to break the Union. If they can’t resolve their differences, we don’t care. There are lots of other airlines that will be happy to fly us wherever we want to go.

If they want a place in our future, BA and the Union should do a deal and get back to work, together, fighting their competitors for the business of people like me.

Meanwhile, my money will be putting lunch on the tables of Lufthansa’s German crews.

Out, Out Damned Spot

Why Did I ever Get Involved with Those Unions, Sarah?

Gordon Brown has now waded into the row over the proposed strike at British Airways.

He said the strike would be “unjustified and deplorable”.

I would certainly like to see the strike called off myself. Some general comments from Mr Brown urging both sides to negotiate a settlement and avoid the strike would have been in order, given the importance of the company and the impact on the travelling public of a strike.

But Mr Brown should remember that British Airways is a private company. His government has not yet got around to renationalising it. Therefore he most certainly should not be taking sides in the dispute. And I can’t remember him showing any particular interest in other strikes that have occurred from time to time at other companies.

The real reason for Mr Brown’s excitement on this particular strike is its timing. When he says it is “unjustified and deplorable” he means an Easter strike would be an unjustified and deplorable interference with the start of his general election campaign. He is considering the nightmare scenario, for Labour, of headlines about stranded holiday makers just as Labour launch their campaign.

Yes, Labour’s Union paymasters are threatening to destroy their election campaign. Mr Brown’s nightmare of a repeat of the strikes that scuppered Labour’s campaign in 1979 is looming before him like the dagger before Lady Macbeth. The Tory trees are moving up the hill, and Brown’s day of reckoning is almost upon him.

I do hope David Cameron doesn’t choke on his cornflakes this morning through laughing. I don’t suppose he was born by Caesarean, was he?