Case Study On British Airways Management Essay
British Airways is the largest airline in the UK and was considered the largest airline of the UK, by passenger numbers, from its creation in 1974 until 2008. The formation of Richard Branson’s Virgin Atlantic Airways in 1984 began a tense relationship with BA, which led to “one of the most bitter and protracted libel actions in aviation history”. In 2008 the management of BA began to plan a merger with Iberia Airlines; a preliminary agreement to merge was announced in November 2009. The combined airline will become the world’s third-largest carrier (after Delta Air Lines and American Airlines) in terms of annual revenue. On 8 April 2010, it was confirmed that British Airways and Iberia had agreed to a merger, forming the International Airlines Group, although BA would continue to operate under its current brand.
Pre event analysis of issues
Thumped by a global depression, firms just about everywhere have gone to town on staff costs in recent months, from salary cuts to mandatory unpaid leaves. But BA is going further. Volunteers can sacrifice between a week and one month’s worth of salary, or else spread the pain by taking a reduced salary for three to six months.
Demand for the airline’s passenger seats and cargo holds fell by 4.3 per cent to 33.1 million during the last financial year. British Airways also made a Â£401 million loss in 2008 which was its biggest in 25 years, while its fuel bill rocketed to almost Â£3 billion ($4.7 billion).
There was also the issue of the strong dollars that would increase costs overseas. The company also had to deal with a huge unfunded pension liability of Â£3.7 billion, with a Â£150 million charge to service their pension obligations, on top of its extensive interest payments. The year before, British Airways made $1.5 billion.
Based on the prolonged nature of the global downturn, there seems to be no sign for recovery in the industry as people are not keen to spend.
“In 30 years in this business and I’ve never seen anything like this. This is by far the biggest crisis the industry has ever faced,” said Willie Walsh, British Airways’ chief executive.
Coaxing staff to work for free is only the airline’s latest effort to reduce costs. British Airways plans to reduce capacity by 4 percent next winter by parking up to 16 aircrafts which adds to cost reduction. Management bonuses have also been shelved. Talks with unions are continuing over how to squeeze staff costs still further as the airline, which is burning through cash at the rate of Â£3m per day,
British Airways conceded that unpaid work would be that which amounts to as much to accepting a cut in pay, which Willie Walsh, the chief executive, is keen to negotiate across the airline in what he calls the “fight for survival” He also added that the survival of British Airways depends on everyone contributing to changes that permanently remove costs from every part of the business.”
“Of the 40,000-strong workforce, 6,940 employees had volunteered for unpaid leave, part-time working or unpaid work, which will save the company up to 10 million pounds.
The only thing more surprising than the idea of British Airways daring its employees to work for nothing is the fact that many of its workers have already volunteered to do so.
There are only two reasons this could be the case, according to David Guest, professor in organisational psychology at King’s College London.
“Either they have high levels of commitment to the firm,” he said, “or they have high levels of insecurity.”As Walsh has refused to rule out compulsory redundancies at the airline, you don’t need paying to work out which of the above is the most likely motivator.
British Airways has said that hundreds of staff responded positively to the request. However some employees and unions have condemned the plan, saying improvements in the management of the airline were a bigger priority.
Ethical/governance application and analysis
“While some options may seem unattractive, particularly where they involve reduced income, many employees will conclude that the alternative of losing their job looks bleaker,” said Mike Emmott of the Chartered Institute of Personnel and Development (CIPD)
There is evidence, the employer’s body the Confederation of British Industry has now said, that the recession is creating more engagement and bringing employers and managers closer together.
“While pay and recruitment freezes should disappear as the economy recovers, the spirit of flexibility and the willingness of many staff to engage positively with employers on these issues will hopefully be a more permanent benefit of the UK economy,” said the John Cridland, CBI deputy director-general
Why British Airways’ ‘no pay’ request is crazy
Unions at British Airways have reacted angrily to a request by chief executive Willie Walsh that its 40,000 staff should work without pay for a month.
Many companies have asked their staff through these difficult times to work part time or take unpaid leave. Some have even asked staff to take a pay cut with the promise that they will “make good” in better times.
More often than not, the staff has been happy to comply. Intrepid Travel’s Darryl Wade told me that in the last recession employees agreed to have their pay cut; they eventually were paid back and given a bonus for their loyalty. Often in this situation they feel good about helping the company and are confident they will be rewarded in better times.
But the struggling British Airways appeal to staff to work for nothing for one month crosses a line.
Yesterday chief executive Willie Walsh told staff he would forgo a monthly pay packet (he earns $1.5 million a year) and asked them to do likewise or at least work for nothing for between one and four weeks.
He wants every part of the company to help cash up the airline which lost $800 million last year. “Our survival depends on everyone contributing to changes that permanently remove costs from every part of the business,” he says.
The mistake he has made is that paying staff is not optional. It is not a cost that can be waived. Employees are the business. And if you can’t pay your staff you haven’t got a business.
All this request will do is antagonize staff when you need them working as efficiently and effectively as possible and delay the inevitable: a major restructure.
And what fodder for the media: the cabin crew who are paid $22,000 a year asked to help cash up the airline that is losing millions a week.
And of course it just shines the spotlight on the BA executives’ high salaries and bonuses. Many companies are showing restraint and respect for employees in these difficult times.
f all firms started paying their staff for less of their time, a deflationary spiral would be the result, something which would endanger the little life that remains in the economy. But for many individual companies – including BA, which posted a loss of Â£401m last month – trimming pay and hours may be the only alternative to simply sacking staff. Workers will, quite reasonably, rail at any talk of giving their services for free, but part-time working and unpaid leave – two of the other voluntary options being put to BA staff – are in truth less brutal ways to share the pain than punishing a luckless minority with outright unemployment.
The rational response to economic pain must involve sharing it out. But the strained social fabric of unequal Britain makes effective collective sacrifice particularly hard to pull off.
t’s not only the unemployed taking on free work. Some employed people are being asked by bosses to go without pay.
British Airways last month asked its British-based employees to volunteer for up to a month’s unpaid work. Some companies and U.S. state and city governments have made staff take unpaid furloughs, but some employees still work anyway to keep up or because they are worried about losing their job.
Ross Eisenbrey, vice president of the Washington D.C.-based Economic Policy Institute, warns that while people can volunteer time for non-profit groups and government, it is illegal for commercial companies to not pay workers.
“It’s not just a bad idea, it’s illegal,” Eisenbrey. “The law says (companies) may not suffer or permit employees to work for less than the minimum wage.
“The more desperate people get, they will do things like this to try and make themselves more appealing to an employer,” he said. “The short-term prospects for most of the unemployed are very bad. They aren’t going to be made much better by working off the books or working for nothing.”
BUILDING TALENT PIPELINE
Job seeker Lin started working with Jobnob.com, a website that tracks salaries, after the company held its first so-called “happy hour” — to link unemployed people with mostly start-up businesses that have work but are unable to pay.
“The job seekers have time,” said Julie Greenberg, co-founder of Jobnob.com. “It’s really dangerous for them because once you are unemployed for a few months, there’s this proverbial white space on your resume that’s growing.”
“They immediately see the benefits, they need references, they need to keep their skills sharp, a lot of people are learning new skills,” she said. “I don’t think there’s anybody who feels taken advantage of because they understand that … we wish we had revenue, we wish we could pay you.”
Greenberg said more than 300 job seekers attended the first two “happy hours” and more such events have been planned.
Alexandra Levit, workplace expert and author of “How’d You Score That Gig?” recommended volunteering at non-profit organizations to gain or build experience.
“I think you have to be careful that you’re not undervaluing yourself. If you do have the experience, then you should be paid for it,” Levit said. “I absolutely think companies are taking advantage.”
Madeline Laurano, principal analyst at workplace research and advisory firm Bersin and Associates, argued that the recession-spurred trend of working for free is a great way for companies to build a “talent pipeline” to tap when the economy recovers.
“Employers need to think about the same strategies that they would if they were hiring someone who was getting paid. You still want a quality person,” Laurano said. “Job seekers also need to think the same way, ‘I still want to invest my time in a company I believe in, that I can grow and learn from.’
“The argument that people are making is, is it desperation or dedication,” she said. “It’s not necessarily volunteering at a homeless shelter, but it’s contributing that might also bring you Would you work without pay?
The knee jerk reaction to this type of question is “hell no!” And that is an understandable reaction. But this question does not always have an easy answer. There have been many stories in recent months of workers taking voluntary pay cuts or volunteering to work off the clock for a short time period to help companies save funds and prevent layoffs.
There are many factors I would consider before I would work for free. I would be much more inclined to volunteer my hours without pay if I worked for a small business that was struggling due to a poor economy, and not due to mismanagement. I would be less inclined to work for free for a large corporation that was trying to appease shareholders because they were losing money.
Could you afford it? It’s a hard to ignore the fact that your paycheck would be lower or non-existent the next time it rolls around. Not many people can afford to go without their regular paycheck once, much less up to a month. How long could you go without a paycheck?
Corporate culture and peer pressure play a large role. It could be difficult to look my peers in the eye if each of them volunteered to work and I refused. Rightly or wrongly, these kind of things are remembered and could affect how you are treated in the future, or even affect your performance reviews (though that would never be stated as the reason for a poor review).
How far would you go for your company?
What about unpaid leave and no work? Thankfully, this question hasn’t come up where I work. But if it did, I would be more inclined to take voluntary unpaid leave and stay at home with my family. I don’t feel like there is ever enough time off as it is, so it would be worth trading a week’s pay for a week of family time. But unless it meant the possible fall of the company and everyone did it, I don’t think I could bring myself to take a week or more of unpaid leave and still go in to work (note: I work for a large corporation; my answer would probably differ if I worked for a smaller company).
benefits in the long run.”
Post event analysis of issues
The appeal by British Airways (BA) to its 40,000 employees to volunteer for up to a month’s unpaid leave, or even unpaid work, marks a new stage in the efforts by big business to impose the burden of the worsening economic crisis onto the working class
What happened after the request was made?
Numerous reports gave expression to the anger aroused amongst British Airways workers. The anger was only fuelled by Walsh and Chief Financial Officer Keith Williams having announced they too would work for no pay during July.
Walsh earns Â£735,000 a year, while Williams earns Â£440,000 a year. Forgoing a month’s salary costs Walsh Â£61,000, leaving him to get by on Â£674,000. Most British Airways workers earn between Â£13,000 and Â£18,000. The best paid, cabin staff, average Â£29,900.
One airline worker said, “The bosses are millionaires and a month without pay means nothing to them. But it’s everything for the majority of us.”
The trade union bureaucracy also feigned indignation. Unite’s Ciaran Naidoo complained, “It’s all well and good for Willie Walsh to say he’s prepared to work for free when he earns four times in a month what they do in a year.”
The liberal media joined in, with Nils Pratley writing in the Guardian “the task of management is to find a way through the problem. If that means reducing payroll costs (as it surely does in BA’s case), then put a proper proposal on the table
Days later, it was revealed that negotiations with the trade unions on a “proper proposal” had already borne fruit for BA. The British Airline Pilots’ Association (BALPA), representing 95 percent of BA’s 3,200 pilots, accepted pay-cuts of around Â£4,000 a year, 78 voluntary redundancies, and cut-backs on allowances and perks amounting to an annual saving of Â£26 million. A pilot earns around Â£80,000.
In return, the BA pilots will be given a worthless promise of a Â£13 million shareholder stake in the company, a stake that will only be offered in 2011 and only if “certain company targets” are met.
Thanks to the collaboration of the trade unions, pay cuts, and reductions in hours are now commonplace-affecting more than half the UK workforce, according to a June survey by the Keep Britain Working campaign. The survey found that over the last nine months 27 percent of UK workers have had their pay cut, 24 percent have had their hours reduced and 24 percent have lost benefits, the survey found.
The campaign, which has the backing of Labour, the Conservatives and the Trades Union Congress, claims that to save jobs half of all respondents would accept short-time working, 29 percent would accept a pay cut without reducing hours, 31 percent would lose benefits, 6 percent would accept a 3-month unpaid sabbatical, and 19 percent accept a sabbatical on 30 percent pay.
Keep Britain Working was set up precisely to advocate such sacrifices by workers of their wages and conditions, so its figures should not be taken at face value. But they cannot be dismissed either. There are far too many examples of workers being told to accept pay cuts of over 10 percent or face job losses-as is currently happening at Axa Healthcare.
The trade unions are complicit in every case. In regard to British Airways, an Airline Pilots’ Association declared, “We have always said that as a union we would share the pain if our members shared in the gain.”
There is no mutual interest between the capitalist class and the working class. If sacrifice is called for to ride the recession, the pain will be for the workers alone to bear. The gain will be for the shareholders and the corporations to take. Every concession will only whet their appetites for more and disarm the working class in face of an onslaught that the employers have no choice but to carry out-with utmost ruthlessness.
We are entering into a period of explosive class struggles. And the working class must recognize this and make that recognition the basis of its own response to the worsening economic crisis. It is not a question of saving capitalism, but of mounting an industrial and political struggle independently of the trade unions and based on the fight for a socialist alternative.
As thousands of BA staff volunteer for unpaid work, the airline’s share price has rocketed.
The airline asked staff to volunteer for early retirement, part-time work, working for free and taking unpaid leave. Talks between BA and the union Unite have failed to reach an agreement thus far, with 81% of voters supporting industrial action for a highly anticipated ten day strike during the Easter holidays, which could ground several flights and cause huge disruption.
Despite the ongoing feud with staff, costs have been reduced by 10% and this contributed towards a surprise operating profit, which was the first for five quarters. However, the airline remained on course for its worst ever full year performance.
Recommendations for management and policy makers with justification
As well as seeking the above assurances from BA itself, the Unions may find it worthwhile to approach major shareholders directly or indirectly to seek their views on BA’s senior remuneration policies. Lobbying corporate governance groups (ie the people who recommend how shareholders vote on AGM resolutions) gives good coverage for little effort. Rather than being “the enemy”, shareholders’ views may well be quite closely aligned with staff on this one.
This approach can be used as an attempt to protect the rights of new people joining the organisation to share the benefits that is expected to be enjoyed.
Could this financial situation have been prevented?
We saw the downturn coming and back in August or September, Willie Walsh [talked] about re-structuring the business. What we have to learn is to make sure whenever we are going through a downturn that we concentrate on excellent customer service and that our costs are well managed. These are the worst trading conditions since the 1930s; we have to make sure we are doing the right things as best we can.
Passengers face the threat of a summer of strikes as the airline goes into battle with unions this week for a deal to slash costs and sweep away what it sees as
restrictive practices. BA is understood to be seeking up to 4,000 job cuts – one in ten of the workforce – including 2,000 voluntary redundancies among the 14,000 cabin crew.
The call for unpaid work is set out in individual letters to staff, and in the BA in-house newspaper British Airways News under the headline Action Time.
Following the recent update, Standard & Poor’s Ratings Services downgraded British Airways further into junk territory. S&P expect only gradual improvement in the sector over the next two years, with the potential of continued labour issues and uncertainty surrounding the pension.
They now rate British Airways at BB-, which is three steps below investment grade and the ratings outlook is now negative, meaning that further downgrades are possible.Order Now