Private Investor: Why I'm taking the long-term view with BA
Saturday 19 April 2008
They say that moving home is the second most traumatic experience you can have, next to bereavement. It certainly seems to have been unsettling British Airways, as the airline tries to make Terminal 5 work.
As a shareholder of some long-standing I'm not really that bothered if Willie Walsh, the chief executive, gets the sack for this colossal foul-up. He's sacrificed a couple of senior managers, which is something, but not really that big a deal. I mean, if they'd lost my luggage or cancelled my flight to the US to get to a wedding (as they did on an acquaintance of mine lately), I wouldn't be greatly appeased by the loss of two bosses from the board. I don't suppose the fact that Gareth Kirkwood, the airline's ex-director of operations, and David Noyes, ex-director of customer services are currently looking for fresh challenges helps you in any practical sense if they've left your bag in Milan instead of Houston. I dare say these execs will find a nice berthing somewhere.
No, my beef is with the share price, which has taken a real hammering. I wonder whether Mr Walsh or any more of his colleagues are prepared to fall on their swords because of the shareholder value they've destroyed? They ought to, because this is about more than mere gestures.
A few more senior sackings might actually help the share price recover, if the market could be convinced that BA now has some effective management at the top.
If Mr Walsh had done what he did on The Apprentice, I think, as "team leader", Sir Alan Sugar would surely have fired him – Sir Alan wouldn't tolerate watching the value of his investment more than halve in a year.
The simple fact is that last summer BA shares were flying high at £5 and now they're closer to 200p. That is an abysmal performance, at a time when the airline should be reaping the rewards of new competitive advantage. What's that? Terminal 5, in case you'd forgotten. They clearly have.
We haven't had any major terror attacks, and there are no excuses. I agree that the ramping up in oil prices and the credit crisis will do the transatlantic and leisure flights business no good, and that has to be reflected in the share price. That's fair. But too many of BA's problems seem self-inflicted.
They don't seem to be doing enough to counter the increasing threat to the airline from ambitious opposition either.
BA reached its peak as the world's favourite airline because it was privatised, lost its complacency about business long before its counterpart state-owned flag carriers and generally got things right. All the management seem to spend their time doing now is beating up the cabin crews. They may or may not have a point there. But it looks a crude approach to getting the business right. They should be beating up Delta and EasyJet instead.
So what's the BA story? It's in a tough industry, prone to crises, volatile, but it is a player whose reputation and skill can still deliver returns, long term. Like the captain looking around the cabin at the array of instruments, you need to see where you're going long term as well as short term.
One day, perhaps not very far away, the Terminal 5 fiasco will be a memory and they will make it work – because they have to. One day, BAA, who own Heathrow, will be broken up and competition between Gatwick, Stansted and Heathrow will help the airlines (and passengers too). One day the war on terror will be over. One day. And for that day BA should still be a worthwhile investment. Investing is for the long term, and you definitely need to take that view with BA.
The final point on BA may be an odd one. With the shares down to 200p, it is probably worth buying the 200 you need to own to qualify for the shareholders' 10 per cent discount – very possibly the only shareholder perk on the market that is worth having. Mind you, I wouldn't book any flights until we get some more positive "news flow" out of Terminal 5. "Baggage backlog cleared" would be the headline to aim for.
By the way, and by way of contrast, I ought to congratulate the management at Tesco for delivering another set of fine results. All the speculation about the "problems" they were having in their new American venture turned out to be just that. Maybe the brokers who said it was failing can now explain themselves. I'd be interested to hear their alibi.
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