BA SHOULD STOP BLAMING BAA AND TAKE MORE CONTROL
4 May 2008
Irwin Stelzer says the airline should focus on passengers at a time when it faces more competition than ever.
BRITISH AIRWAYS boss Willie Walsh is a lucky man.
Given the fiasco at terminal 5, the threat of a pilots' strike and the opening of BA's routes to new competition, that might seem a strange statement. But look at it this way: he has Spanish-owned, debt-ridden, monopolistic BAA, the owner of the airports from which his airline operates, to blame for many of his problems.
Long lines at security checkpoints? Blame BAA's failure to hire enough staff and clear enough space for more check-in lines. Terminals in a state of repair that would shame most Third World countries? Blame BAA. Planes late departing? BAA couldn't process crews and baggage handlers through security with the expected speed.
It is a tribute to Walsh that he didn't attempt to put all the blame for the inaugural ills at T5 on BAA: he fired two of his subordinates.
But BAA's failings obscure the basic question of whether the airline is helpless in the face of the BAA outrages. True, BA's special-services team, catering to its most frequent travellers, manages to overcome the cuts in its resources and keep the VIPs reasonably happy. True, too, that Virgin, operating out of the decrepit terminal 3, seems able to keep the smiles on the faces of all its higher-fare passengers by taking on some of the chores performed so badly by BAA.
Virgin boss Sir Richard Branson attempts to control as much of his customers' experience as possible. He has separate facilities for whisking the most desirable customers through a special security line and into a lounge.
Flight delayed? No worry, says Leyre Gonzalez, my personal assistant and a frequent Virgin customer. Have your hair or nails done while you wait. In short, Branson has managed to keep control of more of the total customer experience than has BA.
Unfortunately, those measures are the equivalent of buying rubber gloves because your fountain pen leaks.
Instead, BA should be asking a more fundamental question. Is the existing model, which leaves a large portion of its customers' total travel experience to the mercies of terminal operators such as BAA appropriate to the new, competitive era? Surely Tesco would not outsource the control of its tills to a company with an incentive to maximise its own profits by under-manning tills, regardless of the length of queues. Yet that is the model that BA accepts as inevitable.
Terminal 5 was seen as the solution to this problem, but experience suggests that as long as control is left in the hands of a company with every incentive to maximise the space allocated to shops at the expense of space allocated to security clearance facilities, and to save money by under-manning checkpoints, BA passengers will make every effort to find some other means of getting from here to there.
Heathrow is not the only European hub, as an increasing number of business travellers are discovering.
This willingness to forgo control of part of the customer's experience is only one part of BA's long-term strategy that might be worth another look. Walsh is planning a new subsidiary, Open Skies, to begin service between New York and Paris some time this summer, competing with Virgin, Air France and we don't yet know how many other contenders for business traffic. Unless, of course, his pilots, fearful of a threat to their generous pay, perk and pension packages, shut down the entire BA system in protest. Clearly, this decision will cause serious problems for BA, add to the managerial burdens of staff unable to cope with the problems they already face, and throw BA into a competitive arena in which its lock on slots and gates at Heathrow will not matter.
Moves such as this are not unknown in large companies. Economists have long recognised that while shareholders are interested in maximising net profits, managers often prefer to maximise the size of their companies.
William Baumol, one of America's most distinguished academics, has pointed out that the multiple goals pursued by the managers of companies may include - in addition to profit - personal compensation, the enjoyment of perquisites ("perks"), professional and social recognition, the exertion of authority and control over human and physical resources, and the pursuit of commercial growth. BA management and its board might just be falling into that trap, forgetting that bigger is not always better.
It seems reasonable to question whether BA is wise to enter an area far more competitive than any it has ever coped with, at a time when fuel prices are rising, the business and first-class traffic on which its profits depend is likely to be hit by layoffs in the City and on Wall Street, and American carriers are planning to divert more of their capacity from profitless, domestic routes to the more profitable transatlantic route. And for good measure, to initiate a business-class service from London City Airport to New York, with a refuelling stopover along the way, when two of the three participants in that market have filed for bankruptcy.
Finally, there is a real question concerning the wisdom of Walsh's cost cutting strategy in pursuit of the short-term profit margins he has promised the City when competition for high-fare passengers is rising, especially from Middle Eastern and Asian airlines renowned for their luxury service.
That strategy forces Walsh to regard amenities as costs, rather than as inducements to travellers to fly BA. The airline's hand towels now consist of bits of paper that disintegrate on contact with damp hands. Macadamia nuts have been diluted with cheaper varieties, and are stale to boot. Bulbs have been removed from the double-light fixtures over seats, leaving passengers to strain their eyes if they prefer reading to the antiquated entertainment systems. Tattered carpets in tired 777s are left in that condition.
These are little things, but little things mean a lot, as the old song goes. One can't help being reminded of Gordon Bethune, the former head of Continental Airlines, and the man generally credited with turning that airline around by smoothing relations with employees and refusing to reduce the quality of his airline's service.
Commenting on his rivals' emphasis on cost-cutting, he noted that there comes a point when you shave so much cheese off the pizza that people won't buy your pizza.
None of this means that BA will inevitably find itself sharing the fate of other industry dinosaurs. It still holds a dominant share of Heathrow's slots; it still retains the brand loyalty of many long-time customers; it still knows how to treat its very best customers (including yours truly); it still has flight crews who want to do a good job, often to offset the sourness of the ground staff. And it might even figure out how to get passengers and baggage to the same city at the same time, especially if management concentrates on improving service rather than finding new skies to conquer, and the board eschews the pleasurable diversions that too often preoccupy it.
But it has a long way to go to regain its standing with its customers. A poll for The Times by Populus reveals that nearly two-thirds of the public think Walsh's head should have rolled after the terminal 5 disaster, and 57% say they are unlikely to fly BA again.
That would suggest that Willie Walsh, like Wee Willie Winkie of the Scottish nursery rhyme, will be "a wakeful little boy" for the foreseeable future.
BA PLOTS ALLIANCE WITH AMERICA'S CONTINENTAL.
UPHEAVAL in the American airline industry has dragged British Airways into its first serious negotiations with a new US partner in a decade. BA has a complicated history with American carriers. It once had its heart set on US Airways, owning almost 25%, then fixed on United Airlines, until alighting on American Airlines (AA), which became its partner in the Oneworld global alliance. BA tried to go further with AA. It asked the competition authorities to give the tie-up immunity from the US's swingeing anti-trust laws, allowing the airlines to set up a transatlantic joint venture. It was not to be. The British and American authorities said yes, but only if BA gave up a big part of its operations at Heathrow. The price was too high and BA retreated.
Last week, the stalemate broke. BA confirmed it was talking to Continental, which is on the prowl for a partner after realising it is probably surplus to requirements at Skyteam, another airline alliance. Continental would be a dream match for BA, which relies on the London to New York route for most of its profits. Continental is the dominant player at New York's Newark airport.
(C) Times Newspapers Ltd, 2008
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