An early shout from IAG, the ultimate owner of BA, claimed it had the cash reserves to weather Covid-19 and the dramatic decline in traffic. Warning shots to others that government support would distort competition are certainly valid on a global basis. Some airlines will be artificially stronger in the new world as a result of support not offered to others. But such comments can also force your hand, or indeed 12,000 redundancies.
Since the Willie Walsh era, BA has been ruthless in its business management. It has always acted in the interest of its shareholders and made all of those horrible tough calls ahead of others; that is why it has been so profitable in recent years.
Yesterday’s announcement may be seen by many as too early a call but if maintaining shareholder confidence is important, especially if you need to seek access to cash, then it is a huge statement of intent. It is also of course a major warning ahead of any support that may (or indeed may not) be offered to other UK airlines.
Quite how this will play out for BA will be interesting. The continued operation of the B747-400 and A380 has to be under threat; the B747 fleet was already slated for retirement in the next few years. The network “jewel” of transatlantic services will certainly be protected but some short-haul markets from Heathrow may be lost.
As for Gatwick; the long-haul programme could backfill those slots vacated at Heathrow and the Gatwick short-haul programme be completely dropped. It’s a serious option for consideration. A by-product of that could see easyJet ramping up its Gatwick position at the expense of Stansted as well; everything is up for grabs!
The bigger issue is of course, the expected 12,000 redundancies. Skilled valuable resources such as those likely to be released, would in normal times snap up roles almost immediately. For flight deck crew, vacancies in major Asian airlines will become available in time; there are always adverts for such roles in normal times. The problem is that these are not normal times and those skills could just be lost. This would be a huge blow to the wider concept of the UK as a centre of aviation excellence.
BA and IAG will not have made this decision lightly, the tone of the letter from Alex Cruz to his staff yesterday was that of a man letting his team down; he is actually a decent guy doing a decent job with quite frankly a crap set of cards to play at the moment. What he is doing is saving the long-term business at the expense of the short-term damage; that is what a CEO has to do.
My only slight doubt is if he and BA have jumped too early. No one knows what the full long-term damage will be, no one knows how demand will ultimately pick up and I’ve seen some quite encouraging sentiment around travel in August and September.
Iata’s recent sentiment survey suggests 61% of those surveyed would travel within two months of travel and 89% would wait six months or so. It just maybe that British Airways has jumped the gun a bit. But as I said, BA is ruthless at times such as these, however hard that is for everyone concerned.
Similar actions could well follow across other major European carriers in the next few weeks, after all, BA has always claimed to be ahead of the competition.
Sad times indeed.
John Grant is partner at MIDAS Aviation
