Willie Walsh has plenty of experience of pulling a plunging airliner out of a terrifying spin and guiding it down, fully loaded, to safety. He grabbed the controls at Aer Lingus in 2001 when much of the airline industry was imploding after the devastating impact of Sept 11 and its considerable aftershocks. He slashed costs and ticket fares, particularly on business class, sacking more than a third of Aer Lingus’ workforce and re-branding the Irish carrier as a low-cost carrier equal to his new rivals Ryanair and EasyJet. And his excess baggage formula worked. No wonder BA promptly signed him up as worthy successor to Rod Eddington in May 2005.
Since then Walsh, 47, has tackled head-on several troubling problems – company pensions and the disastrous opening of Terminal Five operations, which humiliated much of the UK’s airline operators. BA’s stupendous pension deficit – more than £2 billion – has threatened to shatter investment in a new aircraft fleet. But Dublin-born Walsh negotiated closely both with unions and trustee agreeing a funding plan that banished the deficit for the following 10 years. More recently, he persuaded 40,000 staff to work for free for up to four weeks in order to help the limping airline survive.
Work hard, play hard, argue hard
Willie Walsh, who lives in Twickenham, West London and has to put up daily with that borough’s Heathrow flight path, has huge capacity to charm, inveigle and, most importantly, convince and command. Much of this capacity to persuade goes back to his role as a union agitator while working as a pilot at Aer Lingus more than twenty years ago.
His financial grounding came from a 1992 financial services MBA from Ireland’s Trinity College. But any idea that Walsh has negotiated his way with consideration and sweet reasonableness to others is misguided. Though Walsh has consistently denied it, the quote “A reasonable man gets nowhere in negotiations” has somehow stuck to him. Walsh is not a reasonable man. He’s a fighter. “One analyst describes Walsh as a ‘small bull’,” wrote writer Karina Robinson in a Walsh profile from The Banker in 2007. “He does not take offence at this because he prides himself on his determination.”
Despite the considerable changes he made at Aer Lingus, and now at BA, not all of them have been successful. The contacting out of Aer Lingus aircraft cleaning was a rare misjudgment, leading to large payments to a private contractor while Aer Lingus staff carried out the graft work. But most of Walsh’s changes – wiping out costs, upping internet sales, introducing new routes rather than relying on old legacy ones, and a promise never to leave customers stranded – have worked.
Posh passengers wanted
So just how serious are Walsh’s problems at BA? The airline is suffering because the global economy has wrought havoc on a business that survived in part due to once-healthy profits from its business class operations. Pre-tax losses plunged to almost £150m in the last quarter. “The biggest challenge for Walsh,” Thomas Lawton, professor of strategic management at Cranfield School of Management told European CEO, “is persuading business passengers to return. If you were to go into a BA lounge at Heathrow today you would see a lot less people in it than two years ago. Much of the drop-off has been due to the collapse of The City and Wall Street. Traditionally, BA’s most lucrative routes were the long-haul ones between large industrial capitals. That’s where the profits came from. Lufthansa is in a similar position. The business passenger market has dropped by about 30 percent and BA’s numbers are down closer to 40 percent.”
The airline lost a massive £401 million in the year to March, and Walsh is known to want to slash the best part of 4,000 more jobs still. Meanwhile, BA has still to persuade the GMB and Unite unions to accept that big job losses are necessary. Both unions accept a pay freeze and unpaid leave for many staff – though the pilots union Balsa has agreed to accept a pay cut in return for shares in BA. Much of BA’s existing problems, says another industry analyst, are about legacy costs that have never really been properly confronted. “Pension obligations are hugely expensive, especially in an industry when people retire from work earlier than in other jobs. The general terms and conditions in an industry that has never really re-evaluated them is also hurting BA. That’s why Walsh needs to change things around.”
Fasten business class seat belts
Walsh, for the time being, is unlikely to go begging to the government for a hand-out for the struggling flag-carrier. He’s been boosted with £330 million after pension fund trustees agreed to forgo the money in guarantees, plus institutional investors have agreed to raise an additional £350 million through a convertible bond (though it’s an expensive move – holders may exchange in three years time into BA shares but at a 38 percent premium to the current price). Although the pension fund move is, on the face of it, risky, trustees were persuaded it was better for the airline to secure its future, rather than face even more financial crosswinds.
Meanwhile, BA is doing its best to fly the flag on long-haul flights. Walsh recently announced BA’s first long-haul Club World service from London City Airport this September to New York’s JFK airport, a business service that will be fitted out with just 32 seats. “There is real enthusiasm from our customers for this project,” gushes Walsh in a press release, acknowledging that the new schedule is adopting the airline’s most prestigious flight number, BAOO1, previously used by Concorde. “This is BA at its best – stylish, British and ahead of the game. Reviving the BA001 flight number for the first long haul route out of London City could not be more appropriate. Every aspect of this service has been designed to maximise convenience for customers to fly between the world’s two biggest business centers – Wall Street and London’s extended financial district in the City and Docklands.”
There’s no doubt Walsh is the right man in the right place. With an upturn in the economy by the end of the year, Walsh could have lifted clear of the current turbulence. But he still has to tilt the business model his way – and persuade upwards of 14,000 cabin crew that there’s the need for more change. If anyone can bring them on board, it’s probably Walsh.
Could BA do a Ryanair?
It’s unlikely. BA relies on first and business classes to effectively subsidise its economy ‘back–of-cabin’ operations. Ryanair and EasyJet have managed to survive the recession because their business is not built on the backbone of premium seats – quite the opposite, in fact. Also, both Ryanair and EasyJet were able to launch without a history of constricting staff terms and conditions, allowing them to slash costs from the beginning. No legacy costs existed. Also, much of BA’s reputation is built on high levels of personal service, something the budget airlines don’t major on. “BA has to increase productivity,” said one analyst, “and reduce the number of flight attendants – which are considerably higher than those on a budget airline flight while also retaining their service and quality.”