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Crisis-stricken British Airways is to drastically cut back on business-class seats, and could scrap them on some flights.
The news came as the airline admitted it is looking to tap the City for new funds, likely to be hundreds of millions of pounds, as it further conceded its pension-scheme deficits are running out of control.
Chief executive Willie Walsh, who has continually told staff and shareholders that the flag carrier is in a "fight for survival", admitted today at the company's annual meeting in London that the aviation industry recession is likely to last until 2012, and that many of its lost business-class passengers will never return.
At a briefing after the meeting, Walsh said the airline, which has been losing more than £3 million a day, is implementing plans to cut one in four business-class seats on some its long-haul services, traditionally the cash cow of the airline.
Analysts believe that with BA's so-called premium-paying passenger numbers down by 16% this year, the airline could axe business-class seats altogether from its loss-making short-haul services.
Walsh said that will not happen on its Heathrow flights but conceded it might happen on other services. Asked specifically about cutting short-haul business class on Gatwick flights, Walsh said: "It is a possibility."
He refused to comment on how much money the airline will have to raise from City investors after chairman Martin Broughton said it is looking to raise cash via a convertible bond issue.
Broughton ruled out a rights issue because of "a number of key issues that need to be resolved over the next 12 months".
Walsh said the airline would be able to get away a convertible bond - debt which can convert into shares at a later date - irrespective of fears over summer strikes, whether BA advances on its attempts to merge with Spanish airline Iberia, or its pension fund deficit.
The black hole in BA's pension funds is now reckoned to total £3 billion.
"The deficits are huge and in the current climate the company will not be able to afford to increase its contributions," said Broughton.
"To make up the shortfall the company and the trustees must agree a revised funding plan."
Walsh was pilloried during the shareholder meeting for his "failed strategy" and for "talking down the airline".
He arrived to be greeted with workers' placards stating: "Willie, time to head to the departure gate."
Reader views (13)
Michelle McGregor Smith, chief executive of British Airways Pension Investment Management, saw her pay rise from £353,909 in the 2006-07 financial year to £514,254 in 2007-2008. Hmm! Another fat cat scenario perhaps?
- Len, Camberley, UK
There is nothing wrong with the airline its the managers that are useless.
- Mr S.Port, London
Walsh! Party, Run Couldn't, Brewery!
Apart from his gaffs and absolute betrayal of any executive trying to look good in a suit then perhaps he should look closer to home for some serious cost savings.
While much has been said about the costs of BA crew, I feel it is only fair that some points regarding the true spending within the corporation are made known.
A brief walk through the headquarters at BA's Waterside may give some insight as to where some serious cost savings could be made.
A beautiful indoor, tree-lined setting with a trickling (man-made) brook through a cobbled street with plants a plenty along with the numerous coffee bars interspersed along it's length. It is more what you would expect from the likes of an extremely successful IT company like Apple or Microsoft but no, it is for airline managers.
It encompasses a branch of Barclays bank solely for their use, the Waitrose supermarket and newspaper shop, the soup and sandwich bars, the Art Gallery, the hairdressers, the nail bar, the In-Flight shop where they can purchase duty free goods without leaving the country, the fully equipped gyms on the lower floor, the rooms adjacent for workout with their own personal trainers, the subsidised restaurant overlooking the lake and manicured grounds together with the healthcare and dental facilities.
This together with the healthcare plans that many enjoy, together with their 1ST class travel privileges are surely a starting point for savings!
- Ronnie Mangolis, Slough
Confused about axing the short-haul business class from Gatwick. The only difference between economy and club, apart from the moving curtian, is better drinks/food. The seats are the same! Why would converting expensive seats into cheap seats improve the finances?
- Tony, Fleet, Hants
Can't BA ask the City to work for nothing for a month?
- Mickinlondon, london.
I swore I'd never fly BA again after my last flight with them. I'd rather fly Easyjet or Air Fungus. BA was expensive, the flight chaotic and the staff had a wonderful "couldn't care less attitude". The worst flights I've ever experienced have all been BA flights. As such I refuse to fly with them. If there's no alternative I look for flights from Amsterdam instead.
If BA is going to fail then let it. There are plenty of other carriers. Propping up BA would be a mistake.
- Mike Of Epworth, Epworth
BA made a wrong call: focussing on business class just as the economy was tipping downwards. Such unforced errors can bring down mighty institutions - it's just the luck of the market.
- Neil, London, London UK
Tim presumably was flying Concorde - a plane that never paid back its costs. T5 is generally excellent - can Tim name a new airport anywhere that has opened in the past 10 years without problems? Interesting he is rubbished for his management at Aer Lingus by a governement terrified to sell to O'Leary. And, Malcolm, the net time for the buiness only flights to New York is better than just the flying time. And can anyone else claim a better strategy for a privately run airline left with legacy pension issues - unlike Lufthansa or Air France
- Peter Bench, London
Walsh is credited on the pilots' website with wrecking Air Lingus, and he seems to be making a hash of BA. Time for him to go, or can this posturing little martinet not see the writing on the wall?
- A. Cameron, Liege, Belgium
I am a huge fan of BA and a regular flyer in the premium cabins, even now. However, sadly the BA workforce face a question all private sector employees must face up to, are they prepared to recognise the true cost of their pension? Sadly this is not the fault of the company but of Gordon Brown who as over the last 12 years destroyed private sector pension provision in this country whilst continuing public sector scheme which are presently 1.1 Trillion in deficit (i.e. greater than the whole of the national debt). Ultimately the UK economy will only be able to recover once final salary pension schemes are scrapped for both private and public sector.
- Ian, London
Just to prove how incompetant Willie Walsh and Martin Broughton are, BA's answer to the problem of falling revenue due to drastically reduced corporate travel budgets, is to introduce a new premium business service from London City Airport to New York on 38 seater planes which take longer than any scheduled flight from any other carrier. Great business plan.
This is yet another manifestation of failure at the highest level of management which will no doubt be handsomely rewarded in the usual manner.
Walsh has been a disaster since he was given the top job at BA, having previously been responsible for bringing Aer Lingus to it's knees in the hope of benefitting handsomely from a proposed share flotation, which thankfully, the Irish Government subsequently saw through as an attempt by Walsh and his chums to make a substantial personal profit at the expense of both the company and the staff.
BA should kick this useless CEO into touch before the company goes out of business.
- Malcolm, London
And another no doubt to be bailed out by taxpayers while CEOs earn £millions
- Mike, London England
Willie Walsh.... more like Louis Walsh! Why does everything that Willie Walsh touch turn to mud so quickly??!!!?
I remember the days when it took only three and a half hours to cross the Atlantic and that was without using the baggage syatem at T5.
Time for him to go.
- Tim, London
