British Airways struggles in the competitive world of airline travel

August 12, 2013

Airlines around the world are competing fiercely for business. Creativity, robust business models and effective leadership will be required to survive

Unsurprisingly, airlines have become one of the favourite sources of business school cases. The American Southwest airlines has been studied for its innovative “no frills/customer care” approach. LWD has looked at Emirates for its complex business model (is it more a vehicle for fulfilling Dubai’s development aspiration?). We have also commented on the often egregious leadership styles exhibited by airline CEOs, such as Willy Walsh of British Airlines.

Why Southwest is a dangerous case to study

I have listened to many student presentations lauding Southwest over the flailing giants of the industry which in comparison show financial vulnerability. One point that is rarely mentioned is that Southwest, a fine example of strategic leadership, is also a relatively simple business to study. [Compare its number of destinations, fleet size, freight business and scheduled passenger distances for example with Delta or even British Airways. However, the case helps Professors make the kind of glib generalization I offered for it above]. Southwest has pioneered the so-called peanut airlines which have replaced meals by peanut snacks. Even within the peanut lines the business models must not be assumed to be identical. Ryanair sees Southwest as its inspiration, but has approached customer satisfaction in a completely different way.

Dilemmas for old and new airlines

The old airlines struggle with older fleets. With a strong business model this may eventually turn out well. The newer airlines have the advantages of the technological advances in the new generations of plane. They also have the disadvantages of untested glitches that beset new models.

Just an opinion

This weekend, I read of the problems encountered by passengers on a British Airlines flight attempting to travel on the Boeing 747 to London from Riyadh, Saudi Arabia [7 August 2013]. After a forced return to Riyadh, believed to a problem with the wing flaps, the plane set off and turned back again.

On my last British Airways flight in July, from Heathrow to Manchester, the plane sat on the runway for nearly two hours. The first announcement said that the safety checks had not been carried out overnight. The second announcement said that a toilet needed fixing, the third announcement that a piece of equipment was being brought to fix a wing flap.

Personal opinions make poor business analyses. I do not suggest from these two episodes that British Airlines is a bad or dangerous airline. I still like its service, and of course its safety record and will continue to use its services. The anecdotes indicate the increasing operational pressures that accompany extremely competitive businesses. I hold a similar view over BP and the factors contributing to the Deepwater Horizon disaster.

Stop Press: BA and the leaders we deserve

A curious little story from Sri Lanka of a British Airlines fight and a political leader who tried to get out while the plane was in motion. OK, so I was attracted by the title of the piece “The Leaders We Deserve”.


The Qantas lockout: What is it with Leaders of Airlines?

October 31, 2011

Qantas announces a lockout of its employees in a move reminiscent of recent British Airways disputes. The so-called legacy airlines seem to be prone to legacy labour relations

With no prior warnings to passengers, the long-running dispute at Qantas erupted into a world-wide lock out over the weekend [Oct 29-30th 2011]. All flights were grounded, leaving many international passengers stranded.

The Leadership decision

As the fury of employees and stranded passengers grew, CEO Alan Joyce defended the need for the action as a response to a protracted industrial dispute with its employees. Hopes for an early return to the air rested with an industrial tribunal hearing at Fair Work Australia (FWA). Richard Woodwood, Vice President of the Australian & International Pilots’ Union, described the decision to lockout all pilots as insane and arrogant.

Fair Work Australia intervenes

The independent arbitration authority, Fair Work Australia (FWA) quickly ruled against the lockout:

On the surface of things, the [FWA] ruling looks like a humiliation for Qantas CEO Alan Joyce as his airline is ordered back into the skies – having been unilaterally grounded by the airline’s management. But it could in fact be a strategic victory [for Mr Joyce]. Having failed to get the main unions at Qantas (baggage handlers, engineers and pilots) to engage in meaningful talks since a massive restructuring plan was announced in August, Qantas’s warring sides have now been ordered by the FWA tribunal to do exactly that.

FWA has in effect locked the company and its unions in until such time as they come up with a long term solution to their awful industrial relations record. While it may be a strategic victory, it certainly won’t be a financial one for Qantas. Each day that the planes were grounded cost it £13m. That’s on top of the £48m that the strikes since August have cost. But the reputation damage inflicted by this dispute on Qantas could be very profound and way more expensive.

The strategic direction of Qantas remains towards East Asia. Its wholly owned subsidiary Jetstar, based in Vietnam and Singapore, is the model for future growth. Jetstar is more profitable per customer than Qantas.

The British Airways disputes

In leadership style there are similarities with dramas played out at British Airways which Leaders we deserve posts have tracked. These also involved industrial disputes and confrontation between CEO Willie Walsh and the company’s unions.

Airlines new and old

Commentators have labelled the troubles at BA and Qantas as Legacy difficulties. Older State airlines such as BA and Qantas have been unable to restructure and negotiate with employees in a way that retained competitiveness against younger market entries such as Emirates.

The problems with ‘tough’ leadership

‘Tough’ leadership has tended to be the strategy of choice. Willie Walsh was brought in to BA to apply just such an approach based on his previous track record. The dilemma facing such leaders appears to be one which requires such a leadership style to avert economic ruin from continuing with an uneconomic business model. Incidentally, there are more similarities between the backgrounds of the two leaders, both of whom have Irish roots, and cvs showing links with the Irish airline industry. It takes only a leap of imaginatiuon to presume that Willie Walsh may have been directly or indirectly approached during the head-hunting prior to the appointment of AlanJoyce.

According to game theory, the leaders of Qantas and of its employee unions seem to be locked in, not out, to a mutual destruction strategy.

Leadership theorists point to the dangers of such ‘either-or’ thinking, and by implication the need for more creative behaviours.


BA’s Martin Broughton battles against US security practices

October 27, 2010

Last week Martin Broughton as chairman of Liverpool FC came to public awareness in the club’s battle against its American owners. This week as chairman of British Airways he springs into action against the practices of the US Transport Security Administration

The BBC reported his speech [October 27th 2010] to the UK Airport Operators’ Association annual conference. Mr Broughton argued that:

Some “completely redundant” airport security checks should be scrapped and the UK should stop “kowtowing” to US security demands. Practices such as forcing passengers to take off their shoes should be abandoned, and he questioned why laptop computers needed to be screened separately. He also criticised the US for imposing increased checks on US-bound flights but not on its own domestic services. The US stepped up security in January in the wake of an alleged bomb plot. “We should say, ‘we’ll only do things which we consider to be essential and that you Americans also consider essential’.”

A spokesperson for The US’s Transport Security Administration said it worked closely with its international partners to ensure the best possible security and that they “..constantly review and evolve our security measures based on the latest intelligence.”


The Battle for British Airways

February 4, 2010

Willie Walsh

Willie Walsh was brought into British Airlines with a justified reputation as a tough negotiator. His toughness has been met with robust rejection by the UNITE union. What’s going on at BA?

The global credit crunch has affected every international business. While there are strategic opportunities, threats are easier to see. According to a recent Business Week report:

Some observers question whether BA will shutter or try to sell (good luck in this environment) the BA OpenSkies subsidiary, which runs flights from Paris and Amsterdam to the U.S., just a year after it was created.

Further stoking investor fear, Virgin Atlantic founder Richard Branson said that he had looked at making a bid for BA but that “the airline wasn’t worth much anymore.” Branson then urged the British government not to intervene to save BA. “It would be better to wait for its demise,” he told the BBC.

At first sight, the news seems unfathomable. It seems that an e-mail had gone out to 30,000 UK employees [June 17th 2009] asking them to volunteer to take up to a month’s unpaid leave, or unpaid work. Such an appeal for loyalty seems unlikely to succeed in a situation where the leader’s style is noted as a rather enthusiastically confrontational one.

The story followed news of a personal gesture by Mr Walsh to work for a month unpaid. But this is too easy to dismiss by workers as being alright for someone like their well-heeled leader. Nor would the new offer be helped by the news that an offer to pilots has been made of shares in the company for a new deal.

According to the BBC

Mr Walsh said BA’s drive to save cash was part of a “fight for survival ..I am looking for every single part of the company to take part in some way in this cash-effective way of helping the company’s survival plan

Strikes averted, strikes threatened

The tough stance cut no ice with the unions. A strike over the Christmas Holiday period was overwhelmingly supported, and narrowly averted through a High Court action by BA. But the Unions continued to plan strike action, probably for the next major Holiday period in the Spring of 2010. In February, The company response was again to take a tough line.

In a ­letter to BA’s 38,000 staff, Walsh offered the opportunity to become “volunteer cabin crew”. He said: “I am asking for volunteers to back BA by training to work alongside cabin crew who choose not to support a strike, so we are ready to keep our customers flying as much as we possibly can if this strike goes ahead.” BA is confident that staff can be trained and certified by the beginning of March 2010, which is the earliest possible date for a cabin crew walkout if, as expected, about 12,000 employees vote for industrial action over staffing cuts.

Discussions between Unite and BA have failed to reach an agreement so far and both sides broke their silences today to cry betrayal. BA said Unite had misled the airline by organising a strike ballot while holding peace talks while Tony Woodley, joint general secretary of Unite, said BA was attempting to break a walkout with “scab labour who have had minimum training”.

A leader’s bid for cooperation

When a leader makes a bid for cooperation, reputation is likely to play a part in its reception. An earlier post in LWD was highly critical of the BA leadership style under Willie Walsh. The outcome may help throw light on the old question of situational leadership.

Creative ideas needed

As often happens, a crisis can drive creative thinking out of the window. But are there opportunities for trying out new ideas to avoid the company sliding into further decline?


Willie Walsh makes a work-for-free plea to BA employees

June 19, 2009

Willie Walsh

Willie Walsh was brought into British Airlines with a justified reputation as a tough negotiator. He now offers an invitation to employees to work for nothing to help the airline out of its short-term financial problems. What’s going on at BA?

What happens when a business faces severe problems in short and long term? The aircraft industry is suffering at present with both direct and indirect impact of the global credit crisis.

Each individual case is being scrutinized by business school students around the world. The wider issues are shared, but a more careful attention to specifics is also necessary.

The wider global credit crunch has affected every international business. While there are strategic opportunities, threats are easier to see.

According to a recent Business Week report:

More recently, some observers question whether BA will shutter or try to sell (good luck in this environment) the BA OpenSkies subsidiary, which runs flights from Paris and Amsterdam to the U.S., just a year after it was created.

Further stoking investor fear, Virgin Atlantic founder Richard Branson said over the weekend in interviews to promote his airline’s 25th anniversary that he had looked at making a bid for BA but that “the airline wasn’t worth much anymore.” Branson then urged the British government not to intervene to save BA. “It would be better to wait for its demise,” he told the BBC.

At first sight, the news seems unfathomable. It seems that an e-mail has gone out to 30,000 UK employees [June 17th 2009] asking them to volunteer to take up to a month’s unpaid leave, or unpaid work.

Such an appeal for loyalty seems unlikely to succeed in a situation where the leader’s style is noted as a rather enthusiastically confrontational one.

The story followed news of a personal gesture by Mr Walsh to work for a month unpaid. But this is too easy to dismiss by workers as being alright for someone like their well-heeled leader.

Nor would the new offer be helped by the news that an offer to pilots has been made of shares in the company for a new deal.

According to the BBC

Mr Walsh said BA’s drive to save cash was part of a “fight for survival ..I am looking for every single part of the company to take part in some way in this cash-effective way of helping the company’s survival plan

A leader’s bid for cooperation

When a leader makes a bid for cooperation, reputation is likely to play a part in its reception.

An earlier post in LWD was highly critical of the BA leadership style under Willie Walsh

I couldn’t help noticing one further remark in the BBC’s report. It seems that negotiations are on-going, as might be expected at such times.

Details of a large pay and productivity deal are expected to be announced on Wednesday [June 24th 2009]. Ah! So maybe the story is part of a bigger game going on off stage. Maybe we are just witnessing a rather crude ploy by BA strategists in advance of those negotiations closing. Negotiations which may or may not be taking place in a spirit of cooperation on all sides. This issue calls for careful analysis.

The outcome may help throw light on the old question of situational leadership.


BA: Musings on mergers, marriages, partnerships and takeovers

August 16, 2008

BA announces a new partnership with American Airways and Iberia. It raises the old question of the nature of business alliances

BA has cooperated for some time with American Airlines. Any joint venture seems likely to tick one important box, namely that the partners seem comfortable with one another. So there is at least the possibility that the cultural chemistry is not going to be a problem.

That is not to say that cross-cultural issues can be safely ignored, just that many of them have been thoroughly tested in practice over a period of two decades by the two airlines.

Even so, a global alliance presents global problems (or challenges as the remorselessly upbeat business speak encourages us to say). Business Schools prepare the new case for analysis. This one has another layer of complication. The deal is the more complex by the presence of Iberia. Hard enough to get a grip of a bi-party deal.

Oneworld

Where to begin? American Airways places considerable emphasis on its role as partner (and co-founder) of the global oneworld® Alliance,

…which brings together some of the best and biggest names in the airline business, enabling them to offer their customers more services and benefits than any airline can provide on its own. Together, its members serve more than 600 destinations in over 135 countries and territories.

Such alliances have increasingly and rather unobtrusively making air travel a little more joined up Less frequent fliers like myself increasingly find themselves going with the flow and discovering that the short-haul or regional leg of their journeys is being managed on behalf of a larger and more familiar name.

The alliances fit with the messier business world in which cooperation and competition co-exist. Incidentally, it is a world which poses further ‘challenges’ for traditional arguements regarding the ultimate economic virtues of competitive markets. It will be interesting to read the take on all this from that intelligent newspaper The Economist.

According to OneWorld

The oneworld global airline alliance has warmly welcomed and strongly supports the application for anti-trust immunity filed on August 14 by its members American Airlines, British Airways, Finnair, Iberia and Royal Jordanian. .. The filing was made as American Airlines, British Airways and Iberia signed a joint business agreement covering their flights between North America and Europe and unveiled plans for further co-operation.

John McCulloch [oneworld spokesman] said: “oneworld has for many years been the only global alliance without the benefit of anti-trust immunity between its key transatlantic partners. This has put oneworld at a considerable disadvantage. We’ve had to work a great deal harder and smarter than our competitors [Our rival alliances SkyTeam and Star] have grown much bigger and the anti-trust immunity they enjoy has been extended far more widely to deliver the alliance services and benefits that our customers have come to appreciate so much.

Richard Branson’s response

Richard Branson leading from the front for Virgin, enters the fray with a typically high-profile response.

Sir Richard Branson went on the attack yesterday against his old adversary British Airways to try to block plans by the UK flag-carrier to join forces with American Airlines and Spain’s Iberia across the North Atlantic. The three carriers, all members of the Oneworld global airline alliance, said they had signed a “joint business agreement” covering flights between North America and Europe.
They intended to co-operate commercially on flights between the US, Mexico and Canada, and the European Union, Switzerland and Norway while continuing to operate as separate legal entities. They would share revenues but not profits.
Sir Richard, president of Virgin Atlantic, said a BA tie-up with AA would “create a monster monopoly that would push up ticket prices and substantially reduce competition on the busiest air corridor in the world”.
But other opponents to closer ties between the two airlines, such as Continental Airlines, are likely to tone down their lobbying efforts, as they await regulatory approval for their own proposed partnerships.
BA and Iberia have recently begun negotiations to merge.
It is the third attempt by BA and AA in 11 years to gain antitrust immunity for their alliance. Heathrow, BA’s global hub and the Europe gateway for travellers from the US, had been opened to full competition for EU and US carriers since the end of March [2008].

This is the way in which Virgin Atlantic has developed such a positive brand identity and reputation.

‘This is not a marriage’

Stephen Beard argues in Marketplace that this is not a marriage.

At a time of crisis in the airline industry, [BA and Iberia] want to huddle closer together. They want to cut costs, coordinating flights and fares, perhaps running a joint frequent flyer program. The two airlines feel at a disadvantage. Lufthansa and Air France both operate very closely with U.S. carriers. BA and American need to be allowed to do the same .. American have tried this before, but failed to win the support of regulators. This time, they believe they’ll succeed, because the Open Skies Agreement has opened up competition in transatlantic air travel.

What happens next?

Some more turbulence of shareprices. Further informal collaboration between the one world partners. Maybe a full- blooded merger between BA and Iberia. (My blink view is rather cold on this one. But whatever happens, I would not rely on a two-second judgment, if I were into BA speculation). Even more Business School attention on the nature of global alliances. Richard Branson in need of more strategic initiatives to protect the future of Virgin Airlines. We will hear a lot more over the next few months [August 2008].

Note: For a full account of Richard Branson’s statement see The Wall Street Journal


The Search for a New leader: Now its BA and Willie Walsh

May 15, 2008

Update: The post below [May 15th, 2008] was updated [December 16th, 2009] as British Airways faced a highly damaging strike of Cabin Crew over the Christmas holiday period. Original post follows:

When a company starts looking for a new leader, rumours about the incumbent are bound to arise. The most recent case is that of British Airways and its CEO Willie Walsh. Students of leadership succession should keep a close eye on unfolding events.

The duty of a corporate board is to safeguard a company’s future viability, and that must include monitoring of its leadership. While secrecy is desirable, it may suit pressure groups to bring matters to public attention. For example, shareholder activists seek advantage for their narrower interests, which would include getting the best short-term deals on investments, but might also include the possibility of becoming king-makers for a change of leadership.

The Independent reports that

[British Airways] has appointed the recruitment consultants Whitehead Mann to find a new chief operating officer and possible successor for its embattled chief executive Willie Walsh.

The successful candidate will fill a newly created role, devised after the recent Heathrow Terminal 5 fiasco. Both BA’s director of operations, Gareth Kirkwood, and head of customer service, David Noyes, parted company with the group last month [April 2008] . The two roles will now be combined to create the position of chief operating officer.

The airline, which will publish its full-year results on Monday, is believed to have instructed Whitehead Mann to find a senior level candidate who could be considered for a position on the board within two years, and could also be a potential replacement for Mr Walsh within five years.

Opening Sacrifices?

For ‘parted company’ read sacked. Gareth makes an opening sacrifice in BA’s attempts to allay criticisms for a wave of customer service reactions. David will do for the time-being for operational failings, as Terminal 5 lumbers into action.

Later, [May 13th 2008] BAA, Heathrow’s operating organization announced the departure of Mike Bullock, its Managing Director at Heathrow, another victim of the Terminal 5 opening (or non-opening, if you prefer). At least the BBC announced it, beating the BAA web-site to the news.

The departures at British Airways seem more in the nature of opening gambits, if we want to puruse the theme of chess as a metaphor for corporate strategy.

The Times has reported that public sentiment strongly in favour of BA finding a replacement for Willie Walsh.

However, Richard Northedge argues that

Walsh ..is directly culpable too [for the recent Terminal 5 opening fiasco]. Unfortunately, BA cannot afford to lose him. It has other problems that require solutions – from its pension deficit to its industrial relations – and Walsh is the best man it has. But stakeholders require some recognition that Walsh’s acceptance of responsibility is not just hollow words: it would be appropriate if, when the remuneration committee considers bonuses, it acknowledged the need to punish Walsh.

The Walsh Legend

Mr Walsh arrived at British Airways in 2005 already as something of a celebrity. His reputation had been secured as a former pilot who aspired to leadership. He had risen through the ranks at Aer Lingus to be acknowledged as a transformational figures for the fortunes of that company.

Stories accumulated about his hands-on style, and were used to sketch his operating methods.

He was known for negotiating toughness. Successfully reinventing Aer Lingus as a profitable no-frills airline, while other established European flag carriers went to the wall, he slashed costs by 30% and shed more than a third of staff. [saying]”we make no apologies for focusing on profit” … [and that] “a reasonable man gets nowhere in negotiations”.
He is renowned for not driving an expensive car and choosing not to take on a secretary, instead writing all his own letters and answering his own phone.

Mr Walsh’s obvious toughness and eye for increased profitability no doubt caught the attention of BA’s board. After the UK airline’s long history of staff disputes, most recently the wildcat walkouts in August 2005 in support of sacked workers at the airline’s main caterer, he must have seemed ideal.

Be careful of what you want…

‘Be careful of what you want. You might get it’ runs an office-wall summary, capturing the myth of the Faustian pact. Maybe that is another version of getting the leaders we deserve. The appeal of a tough leader for BA was obviously appealing, not just to the Board, but to its major shareholders.

Students of leadership succession should keep an eye on events at British Airlines. We will continue to watch Willie, at Leaders We Deserve.

To go more deeply into succession planning

We touched on British Airways in the context of Mandrill Management .

Travolution is a useful site for wider issues of the industry

The Post Office/Royal Mail leadership succession activities were noted including attempts to have a fall-back plan if Allen Leighton were to leave.

Times Warner’s appointment of Jeff Bewkes also makes an interesting succession story.

EADS strategic issues under Louis Gallois
and also its leadership challenges have been covered.

There have stories of the rise and fall of varous sporting leaders. When Liverpool owners approached Jurgen Klinsmann, the story blew-up as a scheme to get rid of the popular Rafa Benitez.

England’s Rugby Football Union eventually appointed Martin Johnson and relegated Bryan Ashton to the bench.

Numerous posts covered the stories the longest leadership succession saga of modern times.

The transition from President Vladimir Putin to Dmitry Medvedev is offering further insights into succession issues in internationally important arenas.

Overall, the events covered in these posts indicate recurring themes within recent leadership succession stories. A thorough examination might produce a valuable contribution to understanding of the dynamics of leadership succession. They may also hint at the likely outome to the story of Willie Walsh at British Airways.