British Airways in distress: Whose head should roll?

Customers come last…

The concerns of passengers, who are loyal to British Airways like this writer, will have minimal hearing in the next few days. The bigger issues of the day will be how British Airways will be posturing to take on the unions in trying to settle the potential strike which has been announced to hit the holiday traveller over Christmas and New Year.  ‘Big business’ wrangling is going to become very big, when the problem is actually quite small.

As early as August this year, there has been a slow build up of concerns and more information has been made available to the business Press about BA’s woes in the current economic recession. It goes without saying that the economic downturn can either be treated as the cause of the airline’s current problems or the excuse for not taking timely action in the past. In large scale asset hungry businesses such as airlines, costs do not escalate overnight. The number crunchers in British Airways’ finance team must have known how much of a downturn would be ‘needed’ to bring the airline on its knees. They would have almost certainly prepared projections of falling demand and escalating costs curves which would bring the airline closer to high levels of risk if not disaster. But at a time like this, the choice of vocabulary has to be closely guarded just as the mudslinging between the airline and union needs to be curtailed. The blame game may turn bitter and powerful negotiating ploys may be used to achieve temporary ‘advantage’ as far as managing the image of the airline as well as the union is concerned.

Customers are more interested in seeking an early resolution and but should their loyalty not come with a price? It seems that a six monthly revenue downturn of 13.7% up to November was enough to create a serious situation for BA even when it had set June as the deadline for taking firm action. It is not clear why the last few months have not sent serious signals to British Airways’ management to take firmer action. This is not to suggest that they have been complacent.  But they seem to have ignored the fundamental and some of the most basic rules about cost containment:

• Costs are dealt with as a problem only when they are seen to be a problem. How does the airline communicate with its staff and how effective is its strategy for ensuring that staff is able to recognise that serious turbulence may lie ahead? Airlines, like banks, tend to acquire a ‘dream world scenario’ that life will always remain cosy and that the problem is far too big to affect them in their simple lives. ‘They’ meaning the management and even Government will always find a solution. Has this been the case at British Airways?
• Costs can only be contained at the level at which they are incurred. So, much of the cost burden, which is high fixed cost is created by management working under various assumptions relating to risk. Considering the access to resources and vast amount of professional expertise at their disposal, the finance managers at BA must have seen the problem coming assuming that they were committing time to preparing business models under various conditions of certainty and risk. They weren’t? Is that really so?
• The third rule of cost improvement is that they have to be ‘managed’ rather than ‘reduced’. Cost management implies control and confidence in dealing with emerging costly scenarios. Cost reduction suggests that hatchet-men ( these days there are also women) are on the warpath again and that under certain conditions, they prefer not to talk to anyone except senior bosses and boardrooms who expect to hear good news as soon as costs have been slashed. This is clearly a simplistic view but it remains to be seen when BA started to manage its costs and at what stage it drew out the hatchets from their armoury.
• The fourth rule for cost management is that people should be held accountable for cost. It should be clear in their job descriptions that they have serious responsibilities for managing costs at a time when realistic solutions are possible to identify and implement. However, it is also clear that as investors seek higher returns and greater recovery rates from their investments, they could well be the very people who place their own funds at risk. Managements then get caught in frenzy and more and more risks are taken assuming that the dreadful reality will stay away. Did the cost managers at BA stand up to senior management and fulfil their own accountability for cost? Indeed, is cost control a key accountability in every budget-holder’s job description at BA? How is it enforced? Do they get relevant information in time and in a form that they can understand?
• Professional top managers seek help from organisation developers. Today, many would consider this to be ‘old school’ when the advance of the accountants and information technology specialists has tended to divert attention away from specialists who understand the behavioural process which underpins management decision making and secure company-wide consensus to managing change. After all, people who know how to swim against the tide are also those who help chief executives to develop consensus in the organisation and sell the consensus through successful action in bringing about the transformation.

If you have been reading this so far, you will want to know how the problems are going to be resolved. One interesting way is the approach taken by Japan. In its analysis of the situation at British Airways, the BBC reported on the approach taken by Japan’s “Enterprise Turnaround Initiative Corporation which buys the debt of companies in trouble and sends in turnaround specialists to help them restructure their operations.  The body, established a few months ago, operates like an investment fund and initially has been authorised to release up to 1.6tn yen in state-guaranteed funding to companies” said the BBC in last month.

The second way of resolving the problem is probably even too early to contemplate. The present dispute must be sorted out without too much pain to staff and customers. Just before my family uses British Airways again in January next year, hopefully well after the strike will have come to an end, I will nominate the people or the group who should be removed from British Airways for a new start to be made. It will not be Colin Walsh. That would make the solution too simple and predictable.  Customers like me will continue to support BA but our support must come at a price.

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