BA needs to woo its staff, not the City

Angry British Airways workers could blow its low-cost plans out the sky

Opening a meeting last week intended to convince investors that British Airways had put the bitter summer cabin-crew strike behind it, chief executive Bob Ayling was upstaged by an irate Scottish flight attendant.

Showing off a new in-house television information channel, Mr Ayling told City analysts he might be surprised by what might appear because it was staff-controlled.

He got an earful.

Interviewed on the closed-circuit channel, the flight attendant tore into what she called top management's poor handling of BA's decision this year to drop its direct trans- atlantic services from Scotland to the US

"It's disgraceful," she said, adding that the London-based executives who made the decision should have come to Scotland to tell employees themselves.

While some analysts who attended the meeting said BA's decision to show the tape reflects a willingness to heal wounds through open dialogue, others said it only underlined their fears that internal dissent threatens the airline's prospects.

They said lingering discontent after the cabin-crew strike, which forced net profit down 44 per cent in the third quarter as customers defected, could slow BA's recovery and handicap the airline as it seeks ways to meet growing competition from low-cost start-ups such as Luton-based easyJet.

While BA has confirmed it is looking at setting up its own low-cost service, giving it the cheaper feed it needs into its lucrative long-haul business, analysts warned that opposition from employees could ground the plan before it gets under way.

"The industrial relations implications of starting up a new low-cost carrier could be serious," said Chris Avery, an analyst with Paribas Capital Markets. "Employees could only see it as diluting the main airline's traffic."

Union representatives said BA needed to consider the issue carefully before moving ahead. One said a low-cost carrier risked damaging BA's reputation for solidity, already tarnished during the three-day strike in July and a series of unofficial walkouts.

"If British Airways were to devalue its brand image, it would be madness," said Gordon White, national secretary of Cabin Crew '89, a 4,300-member union. "It would be like Marks & Spencer selling bad cakes."

A bizarre internal newsletter that surfaced on Friday, which BA dismissed as a "juvenile" joke, showed the unease among at least some staff. It called on crew to poison pilots before flights, throw feathers into engines during inspections and take other steps to sabotage the airline.

"It's not in any way representative," Mr White said, "but there are problems in British Airways - one can't pretend there aren't."

Mr Ayling would not speak in detail about BA's plans, saying only that a low-cost carrier is among the options it is considering to bring down costs as deregulation of European air routes brings new entrants such as easyJet and Debonair into the market.

Just 15 years ago BA had a monopoly on flights between London and Scotland. It now faces competition from British Midland and easyJet, among others, and BA estimates that their costs are as much as 20 per cent lower than its own. Their fares are as little as one-quarter to one-third of BA's for similar flights.

So far, BA has responded by signing up a series of smaller partner carriers to operate some of its short-haul European routes under the BA brand franchise. It needs the agreements to lower costs for its European operations, which typically lose money or turn only a small profit.

Long-haul operations, by contrast, are hugely lucrative. Some industry executives estimate that BA makes almost all of its profit from about 20 long-haul services, which attract fewer competitors because of the large investment in aircraft and other equipment needed to fly them.

While agreeing that BA needs to bring down its costs on European flights, analysts are unconvinced that starting up a low-cost airline operation is the right solution, or that BA can match the agility of start-ups like easyJet, which boasts that it offers only peanuts on its flights.

"If you're going to start a low-cost carrier, the low-cost approach has to be intrinsic to the whole operation," said Keith McMullan, the director of London consulting firm Aviation Economics. "I don't think BA can do that."

Others questioned whether a low-cost carrier would offer solid returns. They said even if it were set up at outlying - and cheaper - Stansted Airport rather than at Heathrow or Gatwick, as BA executives have hinted, it would still "cannibalise" passengers from the main airline.