David Prosser: BA staff must strap themselves in for serious turbulence

Outlook: The message from British Airways to its own staff could not have been much clearer yesterday: the 2,500 job cuts the airline made last year are just the beginning, whatever the consequences for industrial relations turn out to be. Make no mistake, however, there certainly will be consequences.

Trade union power may have been eroded across much of British industry, but there are certain sectors where it remains and the airline business is at the top of the list. Indeed, the BA boss Willie Walsh would do well to remember the words of one representative of an Irish pilots' union, who famously told colleagues and management, "a reasonable man gets nowhere in negotiations".

Actually, it is unlikely that Mr Walsh will have forgotten the remark, since it was he who made it in a previous life as a staff representative at Aer Lingus. In fact, Mr Walsh's initial attempt to at least appear reasonable came yesterday afternoon, when the airline announced that its chief executive would work for no pay in July, in order to prove that he too is prepared to make sacrifices as BA works to return to profitability.

The unions, naturally, are unconvinced, firing a warning shot across the airline's bows before the day was out. And while Mr Walsh has demonstrated several times, both at BA and Aer Lingus, that he is prepared to take the unions on, this may prove to be his toughest battle yet. Not only has the speed of the deterioration of BA's trading performance been dizzying, but there is no improvement on the cards for the foreseeable future, which spells savage cost cuts.

Back in February, BA forecast an operating loss of £150m for the full year. The figure eventually came in at £220m and the airline is now so worried about the uncertain outlook for the coming year that it is offering no guidance at all about trading prospects.

For now, trading is getting worse not better. BA's biggest problem last year, leaving aside the one-off effect of soaring fuel costs, was a 13 per cent decline in premium traffic. The figure for April, the first month of the new financial year, was 17.7 per cent and in a newly cost-conscious business world, particularly in financial services which once accounted for almost half of all premium travel, improvements are not likely until well into the next economic upswing.

And then there is the small matter of competition. The tie-up announced this week between Air France, KLM and Delta – covering 25 per cent of transatlantic traffic – piles the pressure on BA to get agreement about the various alliances on which it is working. Getting anti-trust immunity for the tie-up with American Airlines and Iberia is key – and there are no guarantees it will happen, despite Mr Walsh's self-professed confidence – while the merger with the Spanish airline is taking forever to agree, not least because of its concerns about BA's worrying £3bn pensions deficit.