"The World's Favourite Airline" might be a catchy slogan for an airline, which is the largest by neither turnover nor total traffic - even if its profits make it the darling of international stock markets. British Airways (BA) will be a little less of a favourite this month with some employees, however, as it moves to shed 5,000 of them -mostly from its ground operations in the UK. The airline says it is shrinking in order to stay ahead; its competitors that it is shrinking in order to catch them up. Whoever is right, the harder question to resolve is, if the world's most profitable airline is having to cut this hard, what will the rest have to do?
In the week in which, BA announced its cuts (less drastic than had been rumoured, but still near 10% of the workforce), United Airlines chairman Gerald Greenwald was chiding his UK rival for its high costs, and attributing much of its financial success, to the artificial shielding it receives from an outmoded US/UK bilateral agreement. There may be some truth in those charges (employee-owned United is leaner than most majors) but, also a little envy - United is one of those which consider themselves most disadvantaged by the current US/UK agreement.
On the most recent available figures as compiled by our sister journal Airline Business, BA even with its existing staff numbers produces far better turnover and operating (roughly double) and net profits (roughly treble) per employee than do either American or United Airlines. (Its nearest European rival, Lufthansa, is in the same league on turnover per employee, but is down with the Americans on profits per employee.) Losing almost 10% of its staff would make BA even more dollar-competitive with its proposed partner (American) and principal opponent (United). That, however, is not the whole story.
As European Union transport commissioner Neil Kinnock keeps emphasising, air fares in Europe remain much higher than they are in the USA for similar routes, and by other measures, BA does not come out with such an apparent competitive advantage. BA produces 15% more revenue-passenger-kilometres (RPK) per employee than does American and 33% more than does Lufthansa. It produces 21% fewer RPK per employee than United, however - and even after shedding 5,000 people would still produce 12% fewer. (Amongst its eastern competitors, Cathay Pacific now produces 28% more RPK per employee; All Nippon 43% more.) On that basis, BA has more catching up to do than it has staying ahead to enjoy.
The advantage that BA has over so many of its competitors in these leagues is that it has been consistently, profitable. It has the comparative luxury of being able to cut while the industry is at one of its cyclical peaks without encountering too much of a backlash from its unions. It is much more difficult for its state-owned competitors in Europe to push through cuts while they are experiencing rare profits, or even reduced losses.
Their cuts, increasingly, must come from the difficult area of non-flying staff (the technical revolution in airliners has already accounted for thousands of flight-engineer jobs, and bigger aircraft need fewer flying staff per passenger). Even so, even as it shrinks BA is looking to hire more of the type of staff it will need in the future.
Many of those ground staff now targeted owe their existing jobs to the historical vertical integration of airlines, where every aspect from check-in to engine-rebuild was handled by direct airline employees. At the time, that was thought to be the only way of maintaining quality standards and control - now seen as less of a problem even in the light of experience with some of the low-cost US start-ups.
BA led the way in disposing of some of its engineering functions, but still has a long way to go to match the vision of prospective partner Robert Crandall of American, whose "dream" airline would apparently own little more than its own reservation system, and lease or subcontract out virtually everything else.
Even with the limited outsourcing which BA seems to be embracing at this stage, though, it is moving the goalposts of the European airline game a long way - which won't earn it any "favourite" status with its local competitors.
Source: Flight International
