Summary
Trading conditions may be bleak, but thats the same for every airline. Instead of talking about the challenges, BA must now face up to these challenges and address them.
Analysis
Robert Ayling.
Roderick Eddington.
And now Willie Walsh.
All three have had to grapple with British Airways' (BA) woes while navigating through an air of challenges presented by the wider industry.
"We see absolutely no signs of recovery in any of the markets we're operating in today," said Walsh in an interview with the BBC.
A quick retrospective look at BA points to the airline's past successes to rise and meet these challenges - this in itself indicates that from the top downwards, BA has the right ingredients it needs to plot a course toward a meaningful rebound. Back in late 1990's and early 2000's when first Ayling and then Eddington were at the helm, the cost cutting programmes in place worked well, albeit the chorus of "summer strikes" had invariably undone some of that hard work.
Walsh has already seen off a pilot revolt at BA, and let's be honest, a change in management is not going to solve the airlines underlying problems that caused the substantial loss that it announced last week.
With the innocuously phrased "credit crunch" biting every line of finance there is, the pensions black hole, outstanding debt and tumbling traffic figures each month and you get the impression that BA will be stuck in its darkest days for a long while.
Just examine one key point - yes, premium traffic has been careering off the charts for several months - critically, the biggest declines in that yield chasing sector has stemmed from the Asia-Pacific Rim region. Naturally, one month doesn't set a trend but last month BA saw an increase in traffic of 2.2% to the USA over the same period last year.
Now look at Asia-Pacific and you'll see virtually double-digit passenger volume drops since last December - even revenue for the same period was just as abysmal.
Parking sixteen jets will help BA's drive to cut capacity, while the first of four new Boeing 777-200ER's it has taken delivery of do not have a First Class Cabin, despite one journalist wrongly dressing up BA's news as if it had ditched the First Class product altogether!
(Perhaps for another discussion, but Boardroom banter about the wisdom of the Airbus A380 purchase has come into question, particularly at a time when both passenger/freight traffic tumbles.)
Critically, no one can say with certainty what oil prices will be like for the second half of this year - particularly as it was this component that damaged the airline as its biggest source of expenditure. The headline figure nearly £3bn is just as bad as the reverse of over £1bn from last years profit to this years loss - but BA isn't the only victim of fuel price fluctuations.
Passengers have become price-sensitive, wanting more "bang for their buck". BA is fortunate it has an excellent premium economy product to give offer is customers.
Unfortunately air travel demand is not inelastic and BA knows that only too well.
It is also evident that the management understands that cost-cutting measures are only a finite solution in an industry that has seen a rapid u-turn from boom to bust.
BA's ambitions of a turnaround not only require a macroeconomic recovery, but it also has to be the catalyst itself toward that end and draw passengers back onto its jets.
With a commanding hold at Heathrow and the key to the city of the UK, expanding its partnership with American Airlines is perhaps the best way to do this, even if it means pausing the merger with Iberia. BA has the power to offer what many other airlines at Heathrow cannot - a slew of flights to a plethora of destinations. However, it has to face reality and cut back those routes which are not doing well - particularly Asia, and focus on other markets where it has coped and done well like Africa and the Middle East.
Before Open Skies, before the swathes of mass-transit driven flights on a few key hub-to-hub operations - BA had cornered a market based on its global reach. In this day and age, no carrier now can afford to take that financial risk without sharing it. The AMR group has seldom been quiet about its desire to be with BA. After over 13 years since BA and AA talked up this partnership, Walsh will ultimately be judged on whether he can deliver on this deal to ensure he builds on the economies of scale both BA/AA can see but are unable to yet reap pending anti-trust immunity.
Only then will we see the turnaround in BA - Walsh's view that he sees no recovery on the horizon is certainly true, much of that will depend on whether he is proactive or reactive to the challenges of 21st century BA.
