Business Comment: BA needs to boost its efficiency programme

British Airways management has spent a good deal of time circling around in the hope of burning off staff opposition to its business efficiency programme but sooner or later it had to crash land. The pounds 125m bill BA has picked up following last month's three-day stoppage by cabin crew demonstrates that it is not just the airline's employees who are in for a bumpy ride if BA is to achieve its target of saving pounds 1bn by the end of the decade.

It is extraordinary how quickly the costs can mount up when staff vote with their feet - or rather their sick notes - and passengers decide to check in elsewhere. The strike costs are significantly above analysts' expectations. Together with a warning that the strong pound could leave a further pounds 200m dent in profits this year, it was enough to send the shares spiralling down another 30p, making for a near 20 per cent retreat since its full-year results back in May.

Admittedly, BA has been buffeted by more than just poor employee relations. The continuing failure to receive regulatory approval for the alliance with American Airlines and the damage caused by the strength of sterling are at least as bad for sentiment.

But if BA is to repeat the success it achieved in the first decade after privatisation, then the business efficiency programme will be the key. One-off costs of pounds 125m are small beer in comparison to potential benefits of pounds 1bn.

The difficulty for BA is that as soon as it finds ways of saving money, new opportunities to spend it pop up. Although the efficiency programme is now two years old, the staff bill is rising, not falling or remaining static.

Launching a low-cost airline is not really the answer. BA has effectively been carrying out just such a policy by franchising out the name, livery and flight code to other airlines. Yesterday, but for the skill of a pilot, the dangers inherent in that strategy could have come home to roost too.

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