British Airways Union Standoff. Could It Be A Fight To The Death?

Airlines the world over are struggling with the challenge presented by the Covid crisis. Jobs are being lost, employees are being asked for increased productivity and more flexible working. British Airways is no different.

Yet despite the severity of the external crisis it finds itself in a battle with unions who question the methods and need for permanent change. I have 37 years of industry experience and I have worked for BA, I understand the drivers of its business so I offer an independent but informed view of the standoff.

Parent group IAG, has just announced losses of 1.4 billion euros ($1.6 billion) for the quarter to the end of June, BA itself accounted for around half of the loss at £711 million ($930 million). This is all the more dramatic as, until the Covid crisis, IAG has been one of the most profitable airlines groups in the world. It is now bleeding hundreds of millions of dollars per week since being 95% grounded since April.

Largest ever loss for BA

This quarterly loss massively exceeds the £187 million ($244 million) that the company lost in the quarter after the 9/11 attacks or the £309 million ($404 million) lost in the quarter after the 2008 financial crisis. Yet it finds itself locked in a bitter standoff with unions representing many of its cabin crew and ground staff.

The Unite union specifically has successfully orchestrated a campaign under the banner "BA Betrayal", accusing the airline of planning to "fire and rehire" its staff. It has garnered the support of many MP’s and public figures.

British Airways argues that it needs to make permanent change in order to confront a structural shift in the airline market whilst Unite believes there is need for a temporary response to a temporary problem. For over two months it has refused to engage in negotiation.

Pilots union takes different approach

By contrast the union representing BA pilots, BALPA, has reached an agreement and has succeeded in negotiating a substantially smaller number of job losses from the 1255 posts originally proposed by the airline down to 270 posts.

It has also reduced the impact of pay cuts and protected the future prospects of its members, in what is an extremely difficult set of circumstances.

Redundancies and potential job changes are now coming through for Unite’s members so is BA abusing the crisis to force unnecessary change? Is it using what Unite describes as a "temporary" problem to achieve permanent restructuring?

If we examine what is at stake for British Airways it faces some massive uncertainties which, in my view, are likely to have a profound long term effect on its business. The North Atlantic market is core to the airline’s profitability but to all intents and purposes this is closed for the foreseeable future due to border closures and quarantine restrictions.

Other important long haul markets are currently off limits too. They will come back at some point, but with many uncertainties surrounding when exactly. The industry consensus, with which I concur, is that the timescale can be counted in years rather than months.

Unless a vaccine is found, which is neither certain nor likely to be quick, the ongoing need for social distancing alone, will continue to impact both airline capacity and demand for travel.

Return of business class traffic in serious doubt

These factors would result in an ongoing cash drain for British Airways were it to take no action in cutting capacity and shedding jobs. This is certainly not a quick patch up job to get through a few difficult months.

However, perhaps a greater concern that I have is British Airways’ reliance on highly lucrative long haul business traffic. Even if total demand does return to previous levels some years down the line, there is a significant likelihood that the number of people willing to pay top dollar to fill business class seats will be structurally lower by a considerable margin.

Not only has the Covid crisis resulted in business travel melting away for both economic and health reasons, but it has proven the ease of extensively using video conferencing in place of physical meetings.

In my view, whilst face to face meetings will always have a role, I see many businesses cutting their travel budgets and proving their green credentials by flying far fewer executives in long haul business class comfort. This will hit British Airways right where it hurts, at the core of its profitability.

Drastic moves-BA’s entire 747 fleet withdrawn immediately

It is evident that the airline is taking these risks extremely seriously, having announced the immediate retirement of 31 Boeing 747’s. That represents a very big chunk of total capacity. Not only are these the largest aircraft in BA’s fleet, with the exception of 12 Airbus A380’s also currently grounded, but they have the largest number of business class seats.

They are now gone forever and will be replaced by smaller aircraft, though not immediately, as a large number of new deliveries are also being postponed.  Thus, the fleet shrinks dramatically, taking jobs with it.  I am sure that BA is evaluating, but will not yet know, what typical size of business cabin they will require for the future. My bet is that it will be smaller.

Fundamental to BA’s business model

This element is so fundamental to the airline’s business model that any significant loss of this profitable traffic leaves it very exposed financially, essentially its high service, high staff intensity, service concept will no longer be sustainable. It is imperative that it seeks to reinvent itself with lower costs and greater flexibility.

It has already been more successful than its peers, Air France KLM and Lufthansa, in responding to the threat of the large low cost carriers on European short haul flights. Some, like Wizzair and Ryanair, are still growing strongly, even in this crisis, so that pressure will increase on BA. To now face a prolonged reduction in demand for long haul travel and for business class in particular, really rachets pressure up.

Competitors circling

With aircraft groundings and less flying, others are eying up the opportunity to come and compete with BA on some of its most profitable long haul routes. JetBlue, for example, has not been shy in saying it would like to commence London services from both New York and Boston at considerably lower prices in business class. The Covid crisis could provide it with an ideal opportunity to land on BA’s home turf at Heathrow.

Drawing on my long experience in this industry, it is my assessment that the permanent grounding of aircraft, the delaying of new deliveries and the shrinking of the business is not being done lightly by BA’s management.

There is no logic in giving a helping hand to competition, but the grim reality is that they are painfully aware of the factors which I have described here and recognise that they cannot afford to sit back and just hope it all comes good in the future.

Have unions made the correct judgement?

BA’s pilots union BALPA has assessed the seriousness of the situation and has engaged in a tough negotiation to mitigate the fall out for its members.

I’m a believer in balanced industrial relations but I really think there have been some enormous missed opportunities for valuable negotiation on behalf of BA’s other worker groups. Regrettably much time has been lost and for some of these employees it is now too late.

The "BA Betrayal" campaign could lead to the loss of future business and calls by unions to take slots away from the airline really would be a further nail in the coffin. On top of this, industrial action is now proposed. I don’t see any other airline waiting in the wings who could credibly take up services vacated by BA or providing work on similar terms to any displaced employees. It all looks more like a fight to the death rather than a strategy to engage, to thrash out an agreement and to protect the livelihoods of so many employees.