Thursday, 21 May 2009

Why BA must not merge

It should surprise no-one that pensioners’ main concerns about the possible merger between BA and Iberia (and the additional possibility that BA becomes a Spanish company) are the effect such a change will have on their pensions and whether the change in nationality will place the pension schemes in jeopardy. The Pensioner Trustees are reported to be investigating the question but nothing official has yet been published except that the Chairman of Trustees (who, quite amazingly, is also the man leading the merger negotiations) won't answer the question.

But step back. Why does BA really want to merge? Forget all the spin, the reason is that the airline has abandoned the basics of trade in a free market and seeks only the refuge of failure.

The fact is that since BA has abandoned any pretence of a sales force, the only tool it has to affect its sales performance is the Easyjet/Ryanair tool - seat price - conveyed via the Internet.

So what happens when selling gets tough? BA has so denuded its trading arsenal that it has only three options, 1) spend money on advertising (which is only a promotional tool, not a selling one), 2) spend money on PR (trying to get more favourable mentions in the "free" press - another promotional device), or 3) reduce the price of its product.

As a result, BA’s sales performance in recent years has been pathetic and the airline has declined in every respect except its own self-praise. How many major cities in Australia and New Zealand does the world's favourite airline serve? For those with long memories who recall services to Auckland, Perth, Melbourne and Sydney think again. BA serves just Sydney. If you want to fly from London - and a handful of other cities around the UK - to Australasia, Emirates offers you flights to Sydney, Auckland, Christchurch, Brisbane, Melbourne and Perth. What commercial potential does Emirates see in serving all those cities that BA doesn't?

Recently I travelled to Korea. British Airways doesn't even serve one of Asia's dynamo economies. My flights on KLM and Air France were full. On the same days, BA to Hong Kong, Beijing and Tokyo (the nearest BA connection points)had seats to spare, especially in Club class.

Take yet another example. Last year BA abandoned its last non-London route to the USA - Manchester to New York. Its "excuse" was that the route was "too competitive". The result is that now American carriers have a monopoly on the routes.

In this situation, since it has discard the means to compete, the only other option BA has is to reduce the competition - which is the real reason it is desperate to merge with Qantas, American, Iberia and practically any other airline that will consider taking on its Pensions Black Hole - now reputed to be £3 billion! If that is so, what assets does BA have that exceed that liability in value?

Be clear, this has absolutely nothing to do with improving either the cost or quality of air travel for the customers, though it might mean a legal regime less favourable to the interests of pensioners.

Unfortunately for BA and the other carriers involved, laws exist in many countries to stop big companies ganging together to fix prices and the supply of the product - which is what the airlines want to do and why they are seeking to have those laws, which are there to protect consumers’ interests, waived or relaxed in their favour.

Throughout the present financial crisis, the press and TV have been inundated with comments from businessmen, financial NGOs and members of the public who did more than a school term of Economics without the prefix "Home", who are demanding that the governments start behaving like ordinary people and not profligate gods.

The same should be demanded of companies working in the open market, as BA is supposed to have done since 1973.

That means matching your product and price to the market’s needs (the classic definition of marketing), advertising and promoting the product to the buyers (the classic definition of Sales Promotion) and selling more of it at the highest achievable price using the most effective means available (that’s Sales).

What that doesn’t mean is giving it away at a lower price than your competitors (and trying to make up the shortfall by stealth, charging for baggage, food, drink and access to the toilets).

Selling, especially to the business market which is identifiable and accessible, (a market BA is evidently incapable of reaching since its Premium class service is suffering most at present) is done by presentation, persuasion and personality. But of course, BA doesn’t have a sales team.

Instead it tries to hide amongst the woes of the industry - pointing out that no-one's doing better etc etc. Rubbish. What BA needs is a leader who can inspire in the way that George C Scott playing Patton in the eponymous film does in the opening sequence. BA must go out and make sure it's Air France, Iberia, KLM and all its competitors that fail and BA that succeeds. But where is that person?

And until it finds him or her we should all worry about our pensions.

What BA must definitely NOT be allowed to do is to merge with other carriers unless it can show by more than a PR-spun release from "our Willie" that it is in the customers’ interests that it should be allowed to take place. And regardless of any blarney emanating from Waterside, that means not waiving any anti-trust or anti-competition law. Allowing BA to merge May keep Mr Walsh in a job but it won't solve BA's long-term problem.

What BA must remember - as the UK car manufacturers had to learn the hard way - is that it doesn't have a god-given right to exist. If BA cannot find someone to lead it out of the malaise the present management has taken it, then it should be sold to a business and management with sufficient energy, expertise, ability and basic nous that can. If that means that our main carrier isn't British then we shall get used to it - just as we've got used to driving cars made by foreign companies.

1 comment:

  1. They have now announced dropping Gatwick New York from October after a year's operation. The aircraft to be used on Maldives and Sharm el Sheikh! Another scheduled service to a major destination given up without a fight. Hazel, retired cabin crew