Global Economics

British Airways Averts Strike


London court halts cabin crew strike but CEO Willie Walsh needs to push through staff cuts to restore profitability

By Steven Rothwell and Howard Mustoe

(Bloomberg) — British Airways Plc (BAIRY) Chief Executive Officer Willie Walsh, who won a court ruling yesterday to thwart a planned holiday-season strike, may have little time to force through the staff cuts he's seeking to help restore profit.

London High Court Judge Laura Cox invalidated a strike vote and prevented a 12-day walkout by the Unite union, representing 13,000 cabin crew. The dispute centered on Walsh's move to cut one attendant on each long-haul flight, and he was prepared to risk BA's first labor stoppage since 1997 rather than back down.

Walsh may not have the advantage for long if the union leadership pushes for another strike early in the new year. London-based British Airways, Europe's third-biggest airline, needs to reduce spending to survive a traffic slump that pushed it to a record 217 million-pound ($351 million) first-half loss.

"Willie has to get concessions now from the union, otherwise he's not going to get any," said Nick Cunningham, an analyst at Evolution Securities in London who recommends buying British Airways stock. "You'll only get the structural changes at the bottom of the cycle, so you have to be tough."

British Airways fell 0.4 percent to 191.4 pence in London trading as of 3:15 p.m., after trading up as much as 1.8 percent earlier in the day. The stock, which declined 2.4 percent yesterday, has added 6.4 percent this year for a value of 2.2 billion pounds.

Fresh Vote

Unite had scheduled the strike to start on Dec. 22 after saying on Dec. 14 that 92 percent of flight attendants voting backed a walkout. Cox voided the ballot because it included people who had already agreed to leave the airline. Unite, which said it plans to stage a fresh vote, must poll cabin crews worldwide and give at least a week's notice of any strike, making a walkout before early next year unlikely.

British Airways and labor representatives, already in talks on resolving the dispute, hadn't yet scheduled a new round of discussions following the court judgment, said Pauline Doyle, a Unite spokeswoman. The union hasn't ruled out an appeal, though it favors a second ballot to a "protracted legal process," she said today.

"I think the talks now will be constructive," said Douglas McNeill, an analyst at Astaire Securities in London with a "buy" recommendation on British Airways. "Both sides have been to the brink and I don't think it's been an enjoyable experience for either."

Airlines' losses next year will total $5.6 billion, 47 percent wider than an earlier forecast, as an increase in fuel prices compounds the effects of lower fares, the International Air Transport Association said on Dec. 15. Carriers globally are likely to lose $11 billion this year, the association estimated.

Iberia, American Ties

British Airways plans to merge with Spain's Iberia Lineas Aereas de Espana SA and is seeking closer cooperation on North Atlantic routes with AMR Corp.'s American Airlines to bolster an earnings recovery.

Walsh, seeking to cut as much as 140 million pounds in flight-attendant costs, imposed reduced staffing levels last month. After securing the equivalent of 1,700 job cuts through voluntary departures and part-time working that were negotiated without Unite's involvement, the airline scaled back the number of flight attendants on Boeing Co. 747 jumbo jets to 14 from 15.

Civil Aviation Authority figures comparing spending on flight attendants at 10 U.K. airlines showed British Airways crews to be the priciest in 2008, costing twice as much in average pay as counterparts at London-based long-haul competitor Virgin Atlantic Airways Ltd.

'Competitive Environment'

"Whilst the cost savings they are trying to achieve don't sound like a big number compared to its revenues, it's more about how managers are trying to transform how the business is run in the more competitive environment that is not going to go away," said Jonathan Wober, an analyst at Societe Generale with a "hold" recommendation on British Airways.

Unite will probably carry out a second strike ballot "as quickly as possible," Derek Simpson, the union's joint general secretary, told reporters outside court following the ruling. The only way for the airline to avoid a walkout would be to reach a compromise with employees, he said.

"They shouldn't rejoice in this," Simpson said. "They should understand that they've still got a massive problem."

To contact the reporters on this story: Steven Rothwell in London at srothwell@bloomberg.net; Howard Mustoe in London at hmustoe@bloomberg.net.


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