What has led to the descent of the 'world's favourite airline' to one of the world's most frustrated? The share price of British Airways has been in a long, slow dive as the City reacts to its declining fortunes, and morale is at ground level among many of the staff at the once proud flag carrier. One employee tried to sum it up with an unpleasant scrawl on a wall at Heathrow Airport: 'First we had a King, then we had a Marshall - now we are just Ayling.' Too simplistic by half, but telling in the way it depicts the feeling of those in the City and at BA who have had enough of the airline's present chief executive.
The king is a reference to Lord King, the grand old president of British Airways who was entrusted by Margaret Thatcher with the job of privatising it in the mid-80s. The marshall is Lord (Colin) Marshall, who carried on that work first as chief executive and now chairman, turning the airline into one of the world's most successful. And then we come to Bob Ayling, the shy and still boyish Londoner who has been at the controls as BA has plummeted from the heights of comfortable profitability to what could be a loss of between pounds 100 million and pounds 220 million by March.
The world has more airlines than it needs. They offer more seats than the current pool of passengers can fill and, in Europe, what was once a nightmare trip with Alitalia or Iberia is now surprisingly agreeable.
The competition is privatised and getting better quickly and the glut creates good deals for travellers who are flying in record numbers as airlines cut fares to attract business. But the selling of cut-price tickets barely covers costs, which means shareholders lose out. BA is no exception to this trend and its fall from grace is being accompanied by much sniping from within.
BA's problems are deeper than just those of a company facing intense competition, particularly on its North Atlantic routes which have aroused keen interest from other carriers forced out of the Pacific rim by the collapse of the Asian economies two years ago. BA has been rightly regarded as one of Britain's blue-riband companies and it remains a world-class airline with a global reputation - just compare its fairly human customer service with the cold equivalent of Lufthansa. But it has been steadily losing ground in its former perception as an organisation determined to do everything for its customers, a change Bob Ayling himself has experienced first hand.
It was in September 1998 that Ayling joined the inaugural flight of BA's latest Boeing 747 from Heathrow to Denver. As the passengers sat comfortably waiting for takeoff, Ayling was in first class, working on a speech he was to make the next day to several hundred business people in Denver.
But there was a problem: the cabin audio equipment wasn't working and no one on board was qualified to repair it. Ayling fumed silently in his seat, not daring to reveal his identity to his fellow passengers who had to endure the 4,000-mile journey without films or music. Only a few months earlier, a BA flight from Milan to Heathrow crossed the Alps with its undercarriage down and had to land at Geneva. As the aircraft came to a stop on the runway, smoke rose from beneath it and passengers were ordered to exit via emergency escape chutes. Terrified, they then scattered in all directions, unaware they might have run into the path of an approaching aircraft. They were not given the opportunity to meet BA staff and eventually completed their journey to Heathrow on other airlines. Again, no BA staff were on hand when they landed to apologise for their dreadful experience.
A few weeks later, those who had complained received a half-hearted letter from customer care. While disasters like this befall every airline, they are particularly galling for BA.
Ayling, belatedly, has re-introduced a 'putting-the-customer first' programme under which staff attend brainstorming sessions and exchange ideas on how to improve services. In the past, many of BA's innovations have come directly from these sessions and have been used to improve the company's image.
Now aged 53, Ayling has been in the job for four years, although he has had a strong hand in guiding BA's affairs for almost two decades. A lawyer by training, his first dealings with the airline industry came at the Department for Trade and Industry in the early 1980s when he helped write the legislation for privatising BA. Lord King recognised his talent and brought him into the company where he was put on the fast track that ultimately led to the top job. He is master at learning a brief quickly and his advocacy skills, when arguing with EU or US authorities, are beyond question. He claims he was not involved in the 'dirty-tricks' campaign waged against Richard Branson's Virgin Atlantic in the early '90s when BA tried to take business away from its nearest rival and ended up being ordered to pay millions of pounds in compensation, and he has certainly tried to fly a less confrontational line with Branson since becoming chief executive, apart from the inevitable commercial spats over new routes or proposed alliances with other carriers, most notably the link with American Airlines.
On his arrival in the BA chief executive seat, Ayling slimmed down the company's top-heavy executive team to 14. The cuts were not welcome within BA, but Ayling wondered whether he had been ruthless enough. He has since reduced the executive team to six in a move designed for quicker decision-making at the top of a company that in five years has grown by about 5,000 to 63,000 but which will soon be shedding numbers.
Staff criticisms of Ayling include that he is awkward and aloof, unlike his predecessor Marshall who is said to have made a point of 'walking the floor' mingling on aircraft with captain, cabin crew and passengers alike. The fact is, Ayling is shy and somewhat reserved and functions best in small groups where he appears more relaxed. He can't change a tyre on a 747 or remember which drawer the hot towels are in - neither could Marshall or King - but still the staff hold it against him more.
It has not helped in his dealings with staff and has contributed to the hostility among them. Nor has it gone down well in the City since his ill-judged dispute with cabin staff in the summer of 1997. That disastrous confrontation bore an uncanny resemblance to the dinosaur-type strikes of the '70s, a relic of militant trade unionism set against obdurate management and it cost BA pounds 125 million in lost revenue, the beginning, in fact, of the decline in its profits.
The dispute brought Ayling into his first serious test with the BA board, an experience he survived in spite of reports in the City that Marshall was set to lead a boardroom revolt against him. In reality, Marshall has so far publicly kept faith with his prodigy. So, too, has BA's deputy chairman, Sir Michael Angus, who has been a non-executive director since 1988. While somewhat lukewarm about Ayling's achievements, he has described the outside members of the board as being 'generally supportive' of the chief executive. 'We have a problem with the company's performance which is clear for all to see. But Bob has shown himself to keep a cool head in a very difficult situation and has embarked on a programme of cost-cutting which he's done very courageously.'
A test to the relationship between Ayling and Marshall came early on.
In the spring of 1995, BA reviewed its 13-year-old relationship with Maurice Saatchi, who had masterminded the airline's advertising campaigns throughout the previous decade - and had memorably dubbed the company 'the world's favourite airline'. While Saatchi's relationship with the firm hung in the balance, Sir Colin (as he then was) and Ayling were rumoured to disagree about the future marketing of the airline. Saatchi kept the contract, but the internal debate at BA was heated.
A considerable amount of Ayling's time at the helm has been spent on the abortive attempt to bring about an alliance between BA and American Airlines (AA), which would have given them control of 70% of the flights across the North Atlantic. It has failed in the face of opposition from industry regulators and from other airlines, notably those in the US, and, of course, Virgin. At BA they feel very sore that they've had a lousy deal from the European authorities who stood by and allowed vast sums of sometimes illegal money to be pumped into ailing nationalised competitors such as Air France. But perhaps the crucial issue was BA's rejection of the condition for the alliance laid down by the European competition authorities, that BA would have to share out more than 250 precious flight slots at Heathrow with rival carriers. (The British Midland deal with Lufthansa has turned the screw on them even more.) At worst BA appears to be on the back foot the whole time, reactive and demoralised. Even its Millennium Wheel glory was temporarily tarnished when its lift to vertical position was delayed by technical glitches. Branson flew an airship overhead with the message on the side: 'BA can't get it up.' But, for once, BA seems set to have the last laugh as the Wheel looks certain to be a big earner for the company.
At one stage in the alliance talks, Ayling and AA believed they could reduce the price of transatlantic flights to pounds 100 return, a target they will never be able to realise. Ayling's efforts to make the deal were monumental, but they diverted him from other matters and while he was travelling regularly between the UK, Europe and America, BA's profits began to slip towards the disappointing figure of pounds 240 million in the six months to the end of September. It was in this period that Ayling and his team became painfully aware of how the big carriers across Europe were struggling with the new economics of overcapacity, rising fuel prices and competition from low-cost rivals, a threat Ayling has partly seen off by setting up BA's own low-cost airline, Go. It is still losing money but hopes to be in profit within two years.
Ayling is critical of rival carriers who, he says, frequently increase their supply of seats far faster than demand is rising. BA, moreover, is in a particularly bad space because of its heavy emphasis on the highly competitive North Atlantic routes and because of the strong pound which cuts its return on foreign ticket sales. So out comes BA's new strategy, aimed at cutting losses by refocusing the fleet on smaller aircraft, providing frequency but reducing the number of empty seats. The emphasis will be on high-paying business passengers with less room for economy travellers who, while constituting 80% of the airline's business, do not make money.
BA has started in earnest by taking delivery of its last Boeing 747 for the moment, replacing it with a series of smaller Boeing 777s. Within six years, it will have almost as many 777s as 747s. But Ayling points to an increase in premium traffic, a leap of almost 10% compared to BA's overall drop in traffic of 0.2%. The yield per seat is the most important thing in this industry and perhaps the strategy is beginning to work.
Sipping coffee after hours in the staff cafe at BA's almost deserted Waterside complex near Heathrow - possibly the only corporate headquarters with a stream and a cobbled street running through it - Ayling shrugs and observes that there will always be a 'black economy' in the growing trade of sniping at the performance of chief executives. 'I prefer to salute the performance of our staff and say they are doing a magnificent job.'
Ayling commands a rare position in British industry, running both a prestige private company and a nationalised organisation. The first we all know about. The second is his chairmanship of the New Millennium Experience Company, which operates the Dome at Greenwich. He was approached to do the job by the Conservative government when it was looking for a high-profile businessman who could knock heads together. Ayling accepted readily.
The fact he was a Londoner helped and he was excited by the prospect. 'Britain is spending more money on the Millennium than any other country and yet people criticise what we're doing. It's sad really, because it's a terrific project and will bring many millions to London.' And, as Stephen Fry asked recently, where do the detractors expect the British celebrations to be held? 'Ashby-de-la-Zouche?'
When it appeared likely that Labour would form the next government, Ayling lobbied hard for the project to be maintained. It may have been this which helped bring him to Tony Blair's attention, because well before the election, the Labour leader included the BA chief among the number of senior businessmen he most wanted to meet. Ayling said of Blair: 'I like him a lot. He is an unusual politician of conviction, the type who gets an idea and presses it through until the end.'
These days Ayling is more guarded about his relationship with Number 10. (On a personal level, he remains close to Jack Straw who is a neighbour and with whom he shared a 50th birthday party.) His mishandling of the strike two years ago did not impress the Government and it may have prevented or delayed the prime minister honouring him with a knighthood. At any rate, after Ayling had looked like a businessman on the fast track to political promotion, the incident set a distance between them and Ayling says now: 'I don't see the prime minister very much these days, but I think if I were to write to him I would get a reasonable hearing.'
The metaphorical cross that Ayling has had to bear at BA has been the inheritance of a pounds 1 billion efficiency programme that was completed at the end of the year, and to which has been added the task of saving a further pounds 225 million by the end of March. This sudden addition came as BA's profits continued to fall and before any impact had been felt from the company's move towards offering smaller, more frequent flights.
With it has come the announcement of further redundancies, 1,000 by next March and, more recently, an admission by Ayling that hundreds more could follow. These are uncertain times at BA and are not helped by Ayling's tacit warning about job losses, even though it is said these will not come from front-line troops.
Indeed, the usually confident Ayling has even said that he could himself be a victim in any of the job cuts taking place. 'We will be looking at all our overheads over the next two to three years,' he says. 'And that means 15,000 people. Every one of us, and that includes me, has got to prove themselves, that they are adding value to the company.'
The fact is that while the board may be unhappy with some aspects of Ayling's performance, it may also be ready to forgive him if he can successfully pull the company through the upcoming months. The limit that was set to herald a real crisis and propel Ayling out of the door was if BA's shares were to fall below pounds 2.75, but they have now been hovering above pounds 3 for a few months without antagonising the City, which appeared ready to accept Ayling's tactics, or at least put them on trial. Meanwhile, BA's directors were unlikely to feel any direct pressure from shareholders wanting to shake up the airline, because the vast majority of shares are owned by private investors, including many BA employees (doubly depressed that their nest egg is shrinking fast), rather than by investment institutions.
Also, the institutional investors in BA would be reluctant to challenge the board without clear signals that they would be supported from within.
Branson, who has been mischievously watching BA's contortions, says he was considering whether or not to take a 10% stake in the company. On balance, he has preferred to stay his hand and continue to play out a thumping public relations battle with Ayling.
But, if Branson were to take shares in BA, it would almost certainly strengthen its overall position in the market and increase its market value which means Branson is reluctant to move against his old enemy.
Ayling says that recent changes in his executive team, such as his decision to appoint Carl Michel, the former chief executive of Deutsche BA, as head of commerce have not been made to protect his own position. Whereas some people within the company have seen this as a move by the redoubtable Bob to hand-pick his successor, Ayling rejects the accusation. He is nevertheless building up a hand-picked team of sharp-suited thirtysomethings, most with glowing MBAs from Harvard Business School. The most notable departure from BA's hierarchy in the shake-up was that of Charles Gurassa, who lost his title as director of passenger services. He has become the chief executive of the Thomson travel group and contends there were no bad feelings on his departure, a point underlined by Ayling: 'We were sorry to see Charles go and we did offer him several senior appointments, but he did not want to accept them.'
Several others have been mentioned within BA as possible succession candidates.
One is Peter Owen, who has resigned as board director of Sun Life Provincial, the insurance group controlled by Axa of France, saying it was time to move on. There are ample grounds for speculation about his return to BA, where he began his career in 1969 and was closely involved in its privatisation. He rose to become operations director then left for a time to become a venture capitalist, before being parachuted into Aer Lingus in 1994 where he was given credit for reviving the company's fortunes.
Another name in the pot is that of James Strong, chief executive of Qantas, the Australian carrier, in which BA has a 25% stake. Strong is popular in his own organisation and well-regarded within BA. It would also be unwise to rule out Rod Lynch, currently performing heroically in Athens trying to turn round the Greek national airline Olympic (see the accompanying article on the following pages). But unless Ayling falls to a swift palace revolt, age may tell against all three, as they are all in their mid-50s.
Although it is officially denied, Strong voiced doubts in 1997 about Ayling's strategy to replace BA's 'Union Jack' tail fins with a plethora of international designs at a cost of pounds 60 million.
The backlash against them occurred at the height of Ayling's unpopularity with staff, soon after the strike, with the strongest voice against coming from the US where misinformation circulated widely that they were confusing to air-traffic controllers.
(The rumours that airport ground control staff could not recognise the aircraft as they taxied about were a mischievous nonsense.) Lady Thatcher then weighed in, expressing her disapproval. But apart from minor modifications, Ayling says they are here to stay until BA's next corporate revamp. It was a regrettable cock-up - a forward-thinking and subtle new corporate identity that showed how BA was thinking about the 21st century. But it was poorly executed and ultimately done for by the Daily Mail.
Unruffled and relaxed, Ayling has spent most of his time as chief executive fending off imaginary devils and phantoms that have not cost him much sleep. The more the criticism, the more relaxed he appears to be. With a salary of pounds 494,000, but no bonus this year due to the poor results, he could easily walk out and into another job in business or politics.
BA has maintained its dividend at 5.1p per share and each board meeting has passed without the crisis that some in the City expected. In fact, barring a BA share-price collapse, he looks to be safe at least until after the annual results come out in March. And it seems unlikely politically that, after heading the Millennium project with some style, he would face the sack just as it opens and as the giant ferris wheel on London's South Bank, into which Ayling has sunk a pile of BA money, has begun to spin.
Ayling rejects assertions from within BA and from rivals that his plans are half-baked. Indeed, a survey last month ranked BA as one of the most highly regarded companies in the world. Over the first months of the year he will go on the offensive, unveiling his chair-beds for business travellers and upgrading the economy section.
Despite the infighting, and his own admission that his job is on the line, Ayling feels positive. 'I'm not the least bit nervous. I am employed until I'm 60 and I have no intention of taking early retirement.'
Keith Harper is transport editor of the Guardian
< may="" 1996="" ba="" makes="" record="" profits="" of="" pounds="" 585="" million,="" but="" faces="" a="" strike="" by="" 3,000="" pilots="" june="" 1996="" ayling="" and="" american="" airlines="" seal="" their="" deal,="" which="" will="" make="" ba="" and="" aa="" the="" most="" powerful="" global="" alliance="" in="" the="" world.="" more="" than="" three="" years="" later,="" they="" are="" awaiting="" regulatory="" approval.="" ayling="" is="" made="" chairman="" of="" the="" new="" millennium="" experience="" company="" september="" 1996="" ayling="" announces="" 5,000="" job="" cuts="" over="" 18="" months="" to="" be="" achieved="" voluntarily="" june="" 1997="" a="" pr="" disaster="" after="" ba="" goes="" global="" with="" new="" tail-fin="" designs.="" 'why="" can't="" we="" have="" british="" designs?'="" sir="" denis="" thatcher="" asks="" june="" 1997="" ayling="" threatens="" to="" sue="" 12,000="" cabin="" crew="" if="" they="" go="" on="" strike.="" they="" ignore="" him.="" the="" dispute="" is="" settled="" after="" a="" costly="" union/="" management="" stand-off="" july="" 1997="" first="" calls="" for="" ayling="" to="" be="" sacked="" at="" agm="" may="" 1998="" ayling's="" launch="" of="" low-cost="" carrier,="" go,="" is="" invaded="" at="" stansted="" airport="" by="" easyjet="" chairman="" stelios="" haji-ioannou,="" offering="" passengers="" free="" flights="" september="" 1998="" ba="" launches="" 'one="" world'="" global="" alliance="" with="" american="" airlines,="" canadian="" airlines,="" cathay="" pacific="" and="" qantas;="" the="" alliance="" coordinates="" flight="" schedules="" and="" cooperates="" on="" frequent-flyer="" programmes="" may="" 1999="" ayling="" cuts="" 20="" short-haul="" european="" routes="" as="" annual="" profits="" plunge="" to="" pounds="" 220="" million="" july="" 1999="" ba's="" speedwing="" arm="" takes="" control="" of="" the="" greek="" airline,="" olympic="" september="" 1999="" ayling="" cuts="" executive="" team="" from="" 14="" to="" six="" and="" agrees="" to="" save="" a="" further="" pounds="" 225="" million="" by="" march="" november="" 1999="" analysts="" forecast="" that="" ba="" could="" lose="" pounds="" 200="" million="" by="" next="" march,="" a="" fact="" ba="" repeats="" in="" its="" staff="" newspaper="" december="" 1999="" the="" london="" eye,="" ba's="" millennium="" wheel,="" proves="" a="" great="" success="" with="" advance="" sales="" of="" over="" half="" a="" million="" trips="" even="" before="" the="" ticket="" hotline="" opened.="">