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The chief executive of British Airways today admitted his gamble to focus on high fare-paying first and business class passengers has spectacularly backfired into a worse-than-expected £401 million loss.
The extent of BA's losses and the admission that he had followed the wrong strategy over the winter will heap pressure on Willie Walsh, whose three-and-a-half years running the airline has put it in permanent revolution, to deliver his pledge to make the carrier sustainably profitable.
In a statement blaming BA's woes on the global economic crisis, Walsh conceded: “We changed our focus during the fourth quarter [January to March] from driving yields to securing volume as customers became more price sensitive.”
The comment is a significant admission from Walsh that his high-risk policy of concentrating on keeping up yields — charging BA passengers more for their tickets — has not worked.
This afternoon, Walsh and finance director Keith Williams announced they will work for no pay in July as part of BA's cost-cutting programme.
The news came after BA offered staff the option of taking unpaid leave or working part-time following today's £401m record losses.
Mr Walsh said: "I want everyone seriously to consider these options. Personally, I do not want extra leave or to work part-time.
"But I certainly want to make a contribution in recognition of the extremely challenging position we face. This is no stunt. I do not easily give up anything I have earned."
Mr Walsh is paid £735,000 a year and Mr Williams gets £440,000.
However, when asked earlier whether his position was becoming untenable, Walsh said: “It's rock solid.”
He had aimed to keep BA's fares high, especially in first and business class, the cabins that contribute the majority of the airline's profits.
BA executives had justified the high fares at the half-year results in November, saying the flag carrier offers a premium service compared with other airlines, augmented by facilities at its new home — Heathrow's Terminal 5.
The number of passengers flying at the expensive end of the plane has plummeted, however, down by 17% in recent weeks. Now, says Walsh, BA is prepared to lower its prices to secure more passengers but at a less profitable margin — a volume-driven business model which has made budget airlines like Ryanair and easyJet so successful.
BA's figures for the year to the end of March reveal the extent of the decline at the airline. Between January and March, the airline accumulated quarterly losses of £309 million which equates to losing more than £100 million a month or £3.5 million a day.
A year ago BA made a record £95 million profit in the January-March quarter sending full-year pre-tax profits to an all-time high of £922 million.
That saw BA's profit margins hit 10% for the first time since privatisation two decades ago and prompted it to pay its first dividend since 2001 when shareholder payouts were scrapped because of the post-9/11 crisis — the year BA made its only other annual loss.
However, BA said today the dividend has once more been scrapped.
The depth of the crisis has also prompted BA to give no guidance on the current financial year. It had previously said it expected to make £150 million of losses in the year to next March.
But today it said: “The industry continues to face very difficult trading conditions with considerable uncertainty over the likely timeframe of the global economic downturn.
“Current levels of traffic volume and yield have not improved over the last quarter of last year. We have decided not to issue any new guidance for the half year or the full year because of the difficulty in forecasting revenues.”
Reader views (30)
He has to go and now before its too late
- Pabs, Godalming UK
Focussing on business customers would be fine, so long as prices were competitive and customer care exemplary. That’s the way to retain customers.
BA fails on both counts: BA is losing customers. Go figure, Mr Walsh.
I fly business class to the Far East at least once a month. The BA fare is, if not the most expensive, consistently in the top quartile, for tickets that are much less flexible than those of BA’s rivals.
Pricing would not of itself be a deal-breaker but the level of customer care is *absolutely* shocking. Not so much in the cabin (can be wonderful, can be woeful); but groundside in the systems: ticketing, baggage handling and - most abysmally - in handling complaints.
Rather than invest in goodwill - the pre-requisite to customer retention - its attitude to complaints is “We are BA and you are scum”. That’s an endemic corporate culture – even with this Emerald (BA Gold) cardholder who spends £30,000 a year on flights.
I don’t spend £30,000 a year with BA anymore. Cathay, Virgin, Qantas: any carrier but BA. A formerly loyal BA flier, I now *loathe* the brand.
Not a very clever way to run a business.
- Angry Man, Angrytown, UK
Any Airline that instructs staff to lie as a solution to reducing passenger inquiry lines, as in the February snow closures at Heathrow, is doomed, irrespective of pricing stratagies.
- Bruce B,, Sydney Australia
Walsh says " Jobs Safe" is this everybodys jobs or just his?
- David., Chertsey.UK.
BAC economy service 20 years ago was substantially better than business class service now. That's saying a lot. I was a big fan 20 years ago; these days I'll book anyone OTHER than BA.
- Marianne, SW France/London
Walsh's strategy was to keep ticket prices high when everyone else could see a recession coming. For a 'Chief Executive' he is more than a little backward.
- Michael C, London Uk
The price you pay for the service you receive is an equation that BA seems to have become progressively confused about.
I'm a BA 'loyalty' card holder yet would struggle to believe it based on the service I've received time and time again.
In the days of Ayers as Chief Exec an BA employee told me "morale among BA staff has never been so low". What halcyon days they must seem to those I encounter on my travels now.
Truth is BA is a comprehensively mismanaged business and the shame of it is the inherent strength of the brand is being allowed to disappear down the plug hole.
Times 'is hard' but what an opportunity is being wasted. Get your basic proposition sorted out Mr Walsh (I think that's what your former employer was good at and presumably why you got this job) or leave with your pay off and be gone.
- Tony Lee, Malaga Spain
Julian - My family stopped using BA as BA economy class is unbelievably awful. I know they are not interested in us cattle-class pezzies but I need to be comfortable and happy on trips back to UK. They cannot match the likes of Singapore Airlines, Cathay and Emirates service. Please note I wouldn't use Qantas economy either for the same reasons.
- Mr Pastry, Brisbane
I think I'm right in saying that company was bought by "BRITISH AIRWAYS" from the Government for the sum of £1.
Then after buying they went on to make the worlds biggest airline and then they got rid of one of the most iconic aircraft that made there company the envey of many ... Concord.
This aircraft was built buy the British Tax-payer and cost millions just to be mothballed.
Over the last year T.5 has caused many problems and payouts by B.A. and yet they still want a third runway .... with losses being made why?.
They say there gamble did not pay off to give more input to business class, well we all arn't rich, and to fill your aircraft everytime just look at the scope around you, bring your prices down to a level where the service standards are high and in return the volume will build because of a fair ticket price. Keep putting up prices will make people turn to low cost carriers and once again Mr Walsh you will miss out.
Money may be tight at the moment, but out there,there are many who have money and want a fair deal on price ... give it and get the reward ..... profits?.
- John L., Scarborough North Yorkshire, U.K.
Rewarding failure--AS USUAL ! What are they thinking of.
- Ruckus (Ex-Pat), Myrtle Beach USA
I wonder if there are any others like me who stopped using BA a number of years ago. I've nothing against the aircrew and cabin crew, but the management and it's various dirty tricks and dubious business practices over the years have left me to believe this is not a reputable company. I will not use BA under any circumstances.
- Julian, London
I always said it was a dredful airline. I don't know why you lot bother with it.
- Mel Barrows, Tenerife. Canary Islands.
Roback Rock ferry posted:
"Well done, heres £20 million bonus for being a failure, oh yes and 100,000 shares and double your pension. Systematic failure we Brits love not to succeed. Why not be a labour MP you are that useless"
I thought the British loves an underdog. Well they need to spread a lot of love as there is an underdog in aspects of English life.
- Shakeel, London
I do a lot of EU travel. I always find them expensive. Further that Plastic sandwich they provide will put any one off flying. The air hostess look tired.
- Shakeel, London
I travel once every two weeks on a number of airlines. By far the worst for customer service is BA. They seem to not know that clients have a choice. When they lost my luggage a couple of years ago, i had to make over 100 phone calls to track it down. Not one apology. All i kept getting was being told how big and important BA was. Well maybe now they will shrink and learn some humility.
- Jack Jax, London, England
Well done, heres £20 million bonus for being a failure, oh yes and 100,000 shares and double your pension. Systematic failure we Brits love not to succeed. Why not be a labour MP you are that useless
- Robak, rock ferry uk
once more something beginning with British is a complete shambles; how so?
what is it about trading with the British prefix that is so disastrous?
British gas; British telecom to name but two.
- M.O'Brien, london.uk
I have been a regular BA customer for several years. In March I went to Singapore by Qantas because of the cheaper fare in Business Class. I am flying to Abu Dhabi next month, BA's Business Class fare is TWICE that of Etihad!
I used to travel First Class, but has downgraded to Business Class. How can BA maintain such a strategy in the current climate?
Will BA be around much longer?
- V Tan, London
many people dont know whos making money from ba this is true story ba excuslive agents for saudia routes 1agents get fare thay making money ba appointed agents another one agents india routes travel agents making money many sale rep from ba give them monopolly and same time sales rep/manegment take part of this game if why ba give saudia routes 1 agents if we book online thay advice go to this travel try book lhr/jed on ba routes and agents name came it s all by game play by ba manegment and travel agency must take notice
- Yusuf Seedat, bradford
About one and a half year ago i flew first class from Singapore to London. The stewardess kept forgetting me from departure untill arrival. I asked for a complaintform, mailed it to BA and never got any answer. Only if there are no alternatives this is my last time at BA.
- Francesco Luiken, Rotterdam, The Netherlands
Another 'resignation'/elbowed in the offing... another multimillion-pound payoff for failing spectacularly at your job and losing your employers a fortune. Why would anyone expect anything less? This country's burgeoning rewards-for-failure culture marches ever onwards.
Whatever next - promotion to the Premiership for the team that finishes bottom of the Championship?
- Paul Andrew, London, UK
Willie Walsh has been bad news for BA and bad news for passengers. I am a very frequent Business Class BA passenger and I can assure Mr Walsh that his strategy of keeping business class fares high for an ever lessening standard of service in return is a failure and has discouraged me from booking BA as much as I used to. Walsh ruined Aer Lingus and is now ruining BA. Time to go Willie!
- Matt, London, UK
With so much competition I always wondered why British Airways cut so much. Right at the wrong time. They used to be a very good innovative service led airline but no more.
- Steveo, London NW1
from Terminal 1 to Terminal 5 a fiasco; so may be its Terminal Mr. Walsh
- Billy Hirst, Tbilisi Georgia
well, I always try to avoid flying BA business as it feels very cattle style. It is the flag carrier and they show a lack of dedication, lots of complacency. When is the next strike? I´d fly any Asian carrier anytime, Thai, Singapore...
BA is almost as bad as US carriers, which says a lot!
- S K, Londom, UK
If it wasn't for their poor service levels and cutbacks they made over the last 2 years things could have been better. Especially on-board staff looks disinterested and just plain rude often. Their staff needs more service training. It now comes to haunt them when they need their clients most...
- Georgie, Islington, London
To focus on First and Business pasengers in this recession - a remedy to falling revenue? Difficult to imagine any result but the catastrophe just reported. Think again, Mr Walsh - shareholders will.
- Andrews, Malaysia
If ever a company epitomised the waste in britain, this is it ! So Willie Walsh, whose strategy went so spectacularly wrong, should to all intents and purposes resign or be thrown out by BA shareholders. Instead, this man with absolutely no concept of running a service company like an airline, intends to simply slash more jobs to add to the 25,000 or so lost under his tenure alone, even before the recession, and chase volume by cutting prices. Really Willie (and the sycophantic analysts who merely echo the planning of third rate leadership), it's that simple is it ?
Another recipe for disaster await unless BA shareholders act now because unless BA offer something discernably different and better than Ryanair or Easyjet, I cannot see how cut cut cutting, is going to prise customers away from low cost airlines who already have a highly durable business model, and yet offer value for money ?
- John Bloomfield, Twickenham
My experiences on BA have been so poor over the last year that I now choose not to fly with them where possible. To name a few - dirty cabins, filthy toilets, broken seats and appalling food to outline my recent experiences. No wonder many passengers choose the no-frills airlines. Cheaper and more reliable.
- Cf, Wood Green, London
Can't wait to see how much of a bonus this incompetent awards himself!
- A. Cameron, Liege, Belgium
