WHAT’S HAPPENING TO IAG & BABack to Forum
Anonymous11 May 2013
I have just finished reading an article stating IAG & BA posted losses of £566m for the last quarter. This was “deeper-than-expected” after taking a hefty charge trying to revive Iberia.
Have any loyal BAEC ONE WORLD members any comments and reasons why this is happening? When CP was a member in the BAEC, I was a “Gold” member & swore by BA. However, as you know CP failed and AC bought them out. However, now what is happening to BA & I see there is a new thread asking when the next BA sale is starting. In the past there were never “sales”, just normal price tickets. When one saw BA in a distant far off airport, it brought “pride” to all British people. IAG shares fell 4%, making it the worst performer in the FTSE 100 index!11 May 2013
Many airline finances are highly seasonal: they make fewer profits during the winter season, and larger profits during the summer. This is very much the case with BA.
British Airways made a modest £58m loss in the first quarter; about £38m of those losses were related to exceptional items connected with the bmi takeover.
So BA itself remains – even in the lowest quarter – only modestly loss making (down £20m – hardly anything compared to turnover), and over the year will post an operating profit.
At Iberia, IAG is using experience its management have gained turning around BA to initiate a restructuring plan which will deliver profitability – and this is also already happening at bmi. The recent purchase of Vueling also increases cashflow. However, the Spanish economy is something of the determinant here, and it has suffered more than most foresaw in recent years.
It will, however, improve, and the restructuring plan is the right approach to turning the airline around and generating value and future profits; it’s easy to see the upside when things are in the current state.
Finally, in the decades I’ve been using BA, it has always held regular sales (branded as “World Offers” in the 90s) and especially in a recession this is good practice; you’ll have seen recent threads on Cathay’s sale, Singapore Airlines’ sale amongst others. There are some great deals to be had, but those are fewer than was the case a few years ago, suggesting prices are holding up.
BA sale fares are largely leisure in focus and fill seats around what would otherwise be quieter holiday periods when fewer people are travelling on top whack business fares. The upcoming sale towards the end of May drives sales over a Bank Holiday weekend for the summer season; it’s not normally the best “sale” of the year because that period is busy.
Just take a look at BA’s 777 seatplan to understand just how much floorspace on its aircraft are dependent on premium cabins when compared to many other airlines:
…just 13 rows of economy, and that cabin starts well behind the wing.
BA still maintains margins, and is able to command some impressive fares for its premium cabins, while at the same time pricing keenly enough for volume to keep large corporates flying the airline.
While taking a snapshot of last week’s 4% loss might lead to concern, it would be more reasonable to look at the 66% share price rise over the past year as evidence that the current strategy, though not without its challenges, is being viewed positively in the long term by the City.11 May 2013
Thank you for the detailed explanation. When it comes to the financial ins/outs of Airlines, I am a “layman”. BA was always an airline to be respected in the 70s & 80s, and it should remain that way. Like many people on this forum, I remember the day the late “Maggie” draped a scarf over the tailplane of a model BA aircraft. The original colour scheme was recognised world-wide,and it did not become BA to look like the “flying colors of a well known American carrier”.11 May 2013
It’s an interesting perspective; in the 70s and early 80s BA was a State-owned carrier, often providing the only service available to far flung part of the world.
It was respected, but it was hugely inefficient.
BA was the first of the legacy carriers to be privatised and despite some hiccups along the way, it has I believe, maintained a position which is to be respected.
Particularly with its introduction of the first fully flat convertible bed in F (Aer Lingus and Philippines had proper beds on their upper decks prior to this)and the Club World bed, which was market leading for a decade and still packs a punch.13 May 2013
Yes I wouldn’t dispute BA have at various times been innovators. I was a Gold Card holder until 2006 and used them every month to Johannesburg (and often onwards on Comair). Club World was at that point a leading product, good food etc.
However times move on, and I felt they started to fade, increasingly dated aircraft, products trailed as ‘new’ that seem to take ages to implement and with my business focus switching to ME and Africa combined it makes more sense to use the Gulf carriers now.
Time will tell whether this can be reversed or whether IAG will be forced to break itself up to deliver shareholder value.13 May 2013
Once again, more negativity.
The “increasingly dated aircraft” is hardly BA’s fault – the A380 was ordered in 2007, for delivery dates well in advance of the current timetable, prudently ensuring that it will receive the first of the new version with increased capacity (MTOW) and avoided the travails which afflicted Qantas and others in the early days.
BA has been energetically replacing its fleet in other areas….ongoing replacement of the airbus shorthaul fleet, 777-300ER sub fleet, entirely new embraer fleet at LCY and the hugely delayed A380 and 787s arriving from this summer…….alongside entirely new F cabins, new J cabins in existing aircraft and redesigned WT+ and WT cabins installing in the coming years.
All this on a fleet which is 200+ aircraft. It can’t happen overnight, and especially in a recession, would you rather leak further cashflow by outsourcing the work away from the existing maintenance bases?
All too easy for the armchair CEOs to criticise – but then if the cabins were all converted quicktime, they’d simply complain they were outdated the second the cabins were installed, and further would criticise the cost incurred to deliver the new products so quickly.
There’s no pleasing some people!13 May 2013
You do seem to be very touchy with anything that doesn’t suit your agenda VK.
Whose fault is it then that BA is so far down the queue for A380s. I take you point about early ‘travails’ but over 100 now in use and not a single one at BA?? Sounds like a follower to me. The very aircraft that are eating up BA’s market to Asia, Australia and so on.
And on 787 – behind even Thomson and the bucket and spade brigade.
Of course it’s a balance between cost and revenue but the reality is that where once BA was a leader, now it’s a follower.
Oh and by the way it’s not a criticism, it makes no odds to me really, we all have a choice of carrier these days.13 May 2013
Nope, not touchy – it’s you who personalise the argument, not me, and there’s no need to address your comment to me specifically.
BA has been burned in the past by being an early adopter. I don’t think they had the cash for a major order prior to 2007, anyway, which was probably also a contributory factor.
By ordering later, BA was able to securethe MTOW variant which will suit BA’s route network better.
BA has in the meantime been very successfully introducing the 777-300ER to its network (I think there are six now, with more on the way), and invested to replace its airbus shorthaul fleet.
In many ways, adding capacity on the scale of a the A380 at the start of a recession would have been seen as a negative, so with capacity being added now just as the recession closes couldn’t be better.
Also, BA avoided all the wing spar crack issues and engine problems which so nearly blighted the programme.
I don’t think the A380 has anything to do with eating in to BA’s market to Asia and Australia; BA concentrates, for the short/medium term rightly in my view, on US traffic and is very profitable on such sectors with its current fleet. If it could drop SYD it would do; it’s only there for historical/political reasons.
Increasingly close relations with Qatar should allow a continuation of the Kangaroo route post-Qantas.
Again, same arguments hold for the 787.
BA leads in many ways, and indeed in the distant past was THE leading airline as there simply wasn’t much competition out there.
There is competition now and lots of it and BA simply cannot lead in every arena; despite that it has lead in introducing iPads, all business class STOLport services, has a market leading website and App (compared to others I have used), and still maintains a global network with First Class to the majority of longhaul destinations and a Business Class flat bed which still holds up against many carriers.
It does this while maintaining legacy crew contracts most other airlines have thrown out long ago, yet receives nothing but opprobrium for not being profitable enough from the very same people who resist necessary changes which increase job security for the majority.
I would ask you to argue the points, and not address me should you choose to reply; I am not BA and am not that bothered what strategy the airline deploys, but don’t like seeing things misrepresented on here.13 May 2013
Whilst growth in the future will probably come from Asia, I believe the BA strategy of focusing on the Trans-Atlantic business is wise. Unless the EU would allow a free-for-all on 5th Freedom flights from anywhere within the Union to North America, I have a hard time seeing the true competition these days namely the Middle Eastern carriers eat away business, because I know few, if any that travel to JFK via DXB.
The US carriers have the distinct advantage of Chapter 11, and in combination with recent M&A activities finally have the house in order to compete. I’ve been pleasantly surprised by my last couple of AA flights, and their new kit on the B777-300ER (B77W) looks promising.
In many ways, BA seem to have aligned their cost base with the reality. However, they sure need to free up cash flow with the scheduled deliveries. My understanding is that even with off balance-sheet financing, each new aircraft require 20% upfront payment from the carrier.
The real issue is what to do with Iberia. Yes, its network to South America is an opportunity. However, the cost base mus come in line with the market.
Innovation is not only about technology or having the latest kit. A perfect example from my industry is Dell. They never invented anything from a technology perspective. They did however, innovate a successful business model that allowed them to lead the market for close to a decade. Yes, BA doesn’t have the latest kit and yes, they are not first to market with A380s or B787s. However, they seem to have a knack of creating value from older kit 🙂13 May 2013
Dell may not have been technology innovators, but they were highly innovative in two areas of functional superiority
1 – on site servicing
2 – build to order
Although commonplace today, these two capabilities were revolutionary at the time and thus I’d assert that Dell’s core competence rapidly developed as a B2C service company, who happened to sell a tech product.13 May 2013
FormerlyDoS, exactly my point and I find sometimes that Innovation is often (only) associated with developing new technologies. For this particular industry in question, the aviation industry, the equivalent would be first to market with new aircraft or first to market with a new Business or First offer. There are other innovations to be had as well.
Going back to Dell; once the market shifted to portable computing, the supply chains moved to China from near-shore. The full advantage of Build to Order (BTO) or Configure to Order (CTO) was completely dissolved as the three major OEMs/ODMs (ComPAL, FoxConn and Quantal) were delivering to all brands and the true differentiation came from Intel and Microsoft.13 May 2013
I agree Senator, the north Atlantic seems to be a logical earner for BA and by all accounts a market where they have done well in the past.
However whilst you are right that no-one would logically fly to JFK via Dubai, the reality is that Qatar will soon be flying from Athens to JFK and EK from Milan to JFK. So if fares were sufficiently attractive they could easily start to pick up business from UK, on the same basis that some users of this forum are willing to tack on an additional flight to Europe to access cheaper fares.
I’m not sure that a free-for-all will result, however it isn’t hard to see other European countries allowing such flights if there were economic benefits to doing so and capacity available.
In relation to VK’s post it appears that BA really are currently on a hang on in there strategy. Time will tell where this leaves them once the Iberia mess has been sorted out, and the cashflow effects of new planes take hold.13 May 2013
The reality is that the strategy is suffering. Walsh has admitted very belatedly, that he got the IB merger wrong and it should have been delayed – he chose to ignore the signs obvious to most laymen let alone pundits.
One would have hoped if there had been a delay then the BA shareholders would not have been fleeced as they undoubtedly were.
The Spanish economy goes from bad to worse indicating it will be a long time before there is a positive ROI
It is a great pity BA merged with a corpse, the lost opportunity cost has been huge. Bypassing the corpse and buying Vueling direct would have been the smart play, giving BA a loco partner, based in the only affluent part of Spain, with excellent connections to southern France HS rail. As IB would be in its self imposed death throes Vueling could have picked up the traffic and pace. A great opportunity lost.
Some posters have complained that there is a anti-BA bias yet little is said about BA direct long haul having deserted a large tranche of the country. The strategy of exiting the UK regions has resulted in it becoming more London Airways than British Airways and has opened the door, in the regions for mid-east carriers et al to grab long haul market share previously taken by BA.
Take Manchester Airport for example – it serves nearly 200 foreign destinations with direct flights from Las Vegas to Lahore, Calgary to Cancuun. See if you can find BA operating any!
I hope and expect BA will continue to prosper, however this will be mainly down to its highly privileged/protected position in a constrained Heathrow as opposed to any leadership strategy no matter how poorly executed.
[Edit – the first part of this post was in response to an inaccurate post concerning IAG strategy by VK which on 18/05 was deleted]13 May 2013
BigDog, the reason why BA doesn’t operate point to point World wide destinations from other airports outside of London is because their is very little return. There isn’t sufficient traffic that wants to go to these airports or to these cities to justify that. You might be able to get some services. You are not going to be able to get a regular frequent service to multiple cities. The only way you can do that is through a major international hub airport, where you can supplement the direct demand that exists with transfer traffic.
BA’s long-haul aircraft are typically configured in what they call a “premium rich configuration” as there is large demand for this type of product in London. The demand for premium product outside London is smaller in comparison. The premium market in London is twice the size of Paris. Paris is twice the size of Frankfurt and Amsterdam. It is 10 or 20 times the size of the market in other UK airports. They would have aircraft configured in a way that is extremely inefficient for airports other than the London airports that they fly from. It just wouldn’t make sense for their business.
They could have a dedicated fleet of aircraft configured for these airports, but that adds complexity and cost. If they felt that they could do that and make money doing it, then they would certainly would look at that. But, historically, they have not been able to do that and is not something that fits very well with their business model. There are other airlines that can do it better, typically the LCC and that’s why you see the growth coming from airports outside London.13 May 2013