European Airline ProductivityBack to Forum
Anonymous11 Apr 2013
CAPA provided (9th April) an analysis of the relative standings of 19 European airlines.
“European airline labour productivity: CAPA rankings”
Couple that to today´s(11th April) article about British Airways capital expenditure……….
“Does British Airways’ 787 option conversion signal a return to a more expansionist capex policy?”
………………and you see how BA has managed to keep its head above the water in the last twelve years.In the last paragraph it says…
“……..it seems that its conservative policy, focusing smaller sums on cabin refurbishment and product updates, rather than on new aircraft, met with some success over the past decade. It almost certainly also saved BA from bankruptcy.”11 Apr 2013
transtraxman, I am glad that others read CAPA’s excellent analyses. As you point out, they provide some interesting data with respect to the performance of BA, set alongside that of rival European carriers.
It should now be much clearer to BA detractors why the airline appears to be dispensing with those real deal-breakers in service – marmalade with breakfast (Gatwick only), individually-packed toothpicks in CW, port after dinner……. the list is endless. As the late grocer’s daughter from Grantham might have argued, add all these savings up and, lo and behold, before you know it, you have enough accumulated in the piggy-bank for a brand new 787.
“Mind your toothpicks and your A380s will take care of themselves” as my grandmother used to say……12 Apr 2013
Except, Tom,it isn’t quite as simple as your last sentence.
BA has allowed it’s aircraft assets to depreciate and thus removed financing pressure, which is reflected in a healthier P&L than would other wise have been the case, in the eyes of CAPA saving the company from bankruptcy. In that context, a successful strategy.
Now, the crows are coming home to roost and allowing the fleet age to rise more is no longer a realistic option, as many aircraft near the end of their economic lives. BA was able to follow its strategy as it had a younger than average fleet age due to investments in the 1990s, but it is no longer the case and BA’s average fleet age is pretty high (this is not a safety issue, but it does mean that the costs of fueling and maintaining some less efficient aircraft is higher.)
It is not mentioned overtly in the report, but quick analysis shows that BA also ran down aircraft leases, which was a sensible course of action under this strategy, as it also removed pressure from the P&L, sweat the owned assets and reduce leasing opex.
So BA now must take the reins off capex and invest heavily to renew the fleet and this means they the company can no longer rely on low capex/associated costs.
Will the airline be able to re-vitalise itself to compete aggressively, after such a long period of cost cutting focus?
If you look on the CAPA website, you will find an interesting article anallysing airline employee productivity which contains some inconvenient truths for a number of airlines.12 Apr 2013
I didn’t read it that way, to be honest.
Wizz and Vueling fared better in some indicators, but Ryanair seemed to have the cost leadership position sewn up overall.
I agree about Flybe, but Ryanair are so big these days, that it’s hard to see anyone challenging them per se. (305 aircraft and more on the way.)
Of course, one of these days there could be a business environment change that impacts them severely, but I’ve thought that for 15 years and drawn a blank, so far 🙂12 Apr 2013
@ FormerlyDoS – 12/04/2013 08:10 GMT
Fair points. You can only flog a dead horse for so long before either it croaks and/or you have to get yourself a new one. It would appear that BA bought themselves time by their low capex régime but, as the UK’s lamentable recent economic history shows (and will show), unless you have invested for the future, there simply isn’t one.
With UK plc overwhelmingly dominated by bean counters, their conception of management has largely been one of “how much and where do we cut….?” The experience of growing their businesses out of trouble is largely alien to them because it would involve grappling with concepts such as “strategy”, “risk” and “investing for the future” (rather than simply extracting cash from the here and now) with which they are distinctly ill at ease.
How far is BA management prepared to buck this defeatist tendency?12 Apr 2013
Your second para is precisely the challenge I see for them.
It involves a considerable change in mindset and then competencies.
I hope it works, though, as I’d like to see the airline improve and use them more. At the moment, my reaction tends to be ‘oh no, I have to use BA’, where I’d like it to be ‘great, BA is a good outcome.’12 Apr 2013
I would like to have seen the comparisons against like for like operators, not just European…….
BA against Easyjet and indeed AF/KL doesnt match up….
Also noticed BA & IB are seperated but AF & KL are not…..although they do include IAG……
Totally agree with AD, BA has rested on its LHR laurels….if it hasviable competition it begins to struggle…..
The whole BA family had better beware, that if service levels do not improve as the new aircraft come on line, they will be financially dead in the water……
If I board a brand new BA 380 or 787 and still recieve the CW experiance I got across the to YVR, there will be no more 2nd chances! My business will go else where..
Bean counters do not bother about the ultimate killers of a business…CHURN12 Apr 2013
@ FormerlyDoS – 12/04/2013 11:30 GMT
Dunno whether you’re an FT subscriber but if so, another very interesting article by Martin Wolf:
“Britain should not go back to the future”: The UK has been left an economy with a remarkably late-19th century look.
MW makes some extremely cogent points about the short-termism of the City which would prohibit funding the establishment of a company such as Rolls-Royce (that’s the aero-engines business rather than the carpentry and joinery one at Goodwood). Just how realistic are the City fund managers going to be about BA’s long-term capex requirements?12 Apr 2013
Why was BA dealt with separate from IAG, or in duplicate?
AF, also weighs down KLM, so perhaps they should be analysed in the same way?
These two factors affects the validity of the non low cost Airline results…13 Apr 2013
I’d love to see a breakdown of AF/KL into a separte sheet for Air France and for KLM. Information from within KLM suggests that Air France is in bad shape and weighed down by political influence from Paris. KLM seems to be what keeps them afloat.
Strange as during the merger process KLM was seen as the company that needed a strong partner. Have the Dutch been squandered by their management? A nice case after all these years together for some investigative journalist together with economists to assess the real value of mergers like this. The same case should be made for BA/IB in a couple of years time.13 Apr 2013
I agree Edski.
From an experience point of view, i go through Schiphol at least once a week on EU flights, and quite a few long haul during the year with KLM.
Their flights are always full in every cabin.
Yet in the last 12 months, I have been on several EU flights with AF, and they have been 1/3rd full only. Apart from everything to do with the flight being poor, ground services included compared to KLM, i think KLM is doing far better.
It is n army of KLM ladies (mostly) that run Schiphol services as their hub, and it is remarkably efficient, and customer responsive.
Their Cargo really is on the floor with some 64% occupancy only i read. But, in terms of cargo, is this purely dedicated cargo aircraft, or does it include the hold capacity of an Aircraft on passenger services?
Flights within the EU would not have a good take up if so, compared to flights intercontinental, say to Asia HKG, BKK, where the need and demand remains strong?
BT, How does an Airline calculate its capacity, and take up of cargo?13 Apr 2013