Outlook: In the end, Ayling may have to take off

Outlook nn delays to BA's american link, ionica's problems and why newcastle's head-hunting will be hard

BOB Ayling thinks that the staff turnover at British Airways is too low so he wants more people to leave the airline. In case you were wondering, he is not about to take his own advice and quit the chief executive's post for a plum job in the Government. He may be a fan of Tony Blair but right now he likes BA more and he has reassured his chairman of that.

Most of us would reckon that a company which cannot hang on to its staff is a poor one whereas the company that no-one wants to leave is a good employer. And so BA is. It's just that Mr Ayling thinks it can be made even better if he can just ease out the people he no longer wants and bring in those he does. It is a familiar story.

In order to achieve its target of recruiting 15,000 staff into customer friendly jobs over the next three years whilst limiting the net increase in the workforce to 7,500, BA will have to roughly double its rate of natural wasteage from 2 per cent to 4 per cent.

This is a tall order for a business where the perk of free flights goes a long way to encouraging staff loyalty. But BA is resigned to throwing money at the problem and those who can be prised away by early retirement schemes can expect very generous settlement terms.

Unfortunately, this process of shrinking the airline while simultaneously growing it is an expensive business. Thus BA contrived to report a 10 per cent fall in profits last year despite achieving pounds 250m worth of savings through its Business Efficiency Plan.

BA says the decline in profitability was due to currency losses and one- off strike costs. But it rather makes the point that running in order just to stand still is not enough when external turbulence can still knock you badly off course.

The City wonders when all these efficiency gains are going to start falling through to the bottom line. In the meantime the shares continue to underperform and the goal of pounds 1bn in pre-tax profits to match the pounds 1bn of efficiency gains BA has promised looks as far away as ever.

There is, of course, one way that BA's profits could lift off and that is if it finally gets regulatory approval for its alliance with American Airlines. Forget all that talk about increased competition across the Atlantic squeezing BA's margins. Even if BA/AA do sacrifice 300 slots, their combined market dominance will produce big profits.

However, the alliance is still not a done deal. BA and AA are about to celebrate the second anniversary of signing the deal and even with a following wind it could not now be launched until summer, 1999. If the alliance is not cleared for take-off this autumn, Mr Ayling may well be on the telephone to Mr Blair.