The three months to June are usually some of the most lucrative in the BA's calendar, what with the holiday season getting under way and all. But this year business has been pretty thin on the ground, with revenues down 12.2% to £1.98bn and a pre-tax loss of a whopping £148m.
Nonetheless, the fact revenues would have been even worse had it not been for a bit of help from the exchange rate, and that its operating loss of £94m for the period was marginally ahead of expectations, seems to have been enough for the market: BA shares are up 3% this morning. Just don’t ask us to explain why.
Of course the firm is no stranger to hard times, and has been battered throughout the recession as transatlantic business class passengers – on which it relies for much of its income – have been in terminally short supply.
Boss Willie Walsh continues to strike a resolutely pessimistic note, saying today that: ‘Trading conditions continue to be very challenging, with underlying revenues down 16.8% and no visible signs of improvement.’
He has already cut the equivalent of 1,450 full time jobs since March, and there are more to come. Staff are being asked to work some of their hours for nothing, and free meals will no longer be served in economy on short-haul flights (saving some £22m). Capacity is coming down, to boot. By winter 2010, BA expects to have grounded 22 aircraft, and is delaying delivery of new planes, including its first A380 Superjumbos.
So just how bad is the prognosis for BA? Well, its pension deficit is expected to double to over £3bn, more than the company is worth at present. Even more pressing, it is burning through cash at a rate of some £2m a day. Unless something changes, at that rate it will eventually run out of money. Walsh knows this and so do his shareholders. Some elements of BA’s workforce now realise it too – pilots and engineers have indicated that they are prepared to negotiate, but cabin crew are the sticking point.
BA cabin crew are some of the best in the business, but over the years they have accrued remarkably generous benefits – how does £60k a year for the very highest earners sound? In an industry dominated by low-cost airlines, which pay cabin crew only about a quarter as much, that kind of money is increasingly hard to justify - however good the staff.
Walsh can’t tackle this without risking industrial action, which could be calamitous. But neither can he afford to ignore it. It’s going to be one of the trickiest and most important negotiations of his career...
In today's bulletin:
Government's bank reforms are a waste of space, say MPs
BA plunges to £148m loss - can Walsh stop the rot?
We need a longer-term lending solution, says FPB
Are directors too cowardly about executive pay?
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