LONDON, England - I always look forward to interviewing British Airways CEO Willie Walsh. No matter how much doom and gloom there is in the industry, the Irishman has a smile on his face and also has a positive spin on his airline going forward.
That was the case again early Friday when he did his normal round of recorded interviews in London as BA announced their latest results.
Yes, BA recorded a record pre-tax half-year loss for the six months to September, yes the airline faces possible strikes by cabin crew, yes oil prices are going up again, yes premium traffic is being hit hard, yes airlines make little money from the majority of those passengers that sit in the back half of the airplane - but Walsh still appears more optimistic then the heads of the other European legacy carriers.
Why, you ask. And with good reason: BA is in the midst of drastic cutbacks. It's mothballing planes (if only temporarily), cutting thousands of jobs (3,000 more announced Friday), delaying the delivery of new airplanes, wringing out hundreds of millions of dollars in costs.
Walsh says these aren’t just steps to get through the recession. He says short haul premium traffic has changed, for good, and BA needs to make "structural changes" to reflect that reality. If you have ever flown from London to Edinburgh or Paris to Amsterdam and wondered why people paid triple for the privilege of sitting in a seat no bigger than those in the rest of the single-aisle plane, companies have asked the same thing and decided to cut back. BA says that will not return.
What seems to be on the rebound is premium traffic yields (average price per passenger per mile). That is where BA makes its money. Of course its just recorded a record loss, so there is a long way to go, but if companies are willing to pay just a little more for a flexible business ticket, then as Walsh says, BA may be "bottoming out."
This, of course, could all go horribly wrong if cabin crew go on strike just before Christmas, which is entirely possible. Walsh didn’t smile when he reminded me that the union has not yet even balloted for a strike, much less announced a date to walk out (all because, believe it or not, of BA’s plan to cut the number of cabin crew on long-haul flights from 15 to 14).
Walsh has a challenging time ahead.
BA is known for its decent service, great Web site and friendly enough staff, but has to compete with the incredibly well managed and well financed Middle East airlines that are ever expanding.
On the other side, Ryanair is driving hard towards its goal of being Europe’s biggest airline that charges peanuts for flights, many of which compete on BA routes.
Meanwhile, Walsh has to battle unions, cut more costs, and deal with a huge pension deficit while trying to grow the business through its never-ending attempt to merge with Iberia and by increasing an alliance with American Airlines.
Can he keep smiling?
Warren Buffett voted with his pocketbook this past week, investing $26 billion to purchase Burlington Northern Santa Fe. It is one of America’s oldest railroad networks and the backbone that helped build the country.
The Oracle of Omaha - as Buffett is fondly referred to due to his Mid-Western roots in Nebraska - is also big on animal instinct. The concept is simple: we all need to be aware to both survive and smell opportunity when it beckons.
In that spirit, Buffett is probably letting economists debate the merits of whether this is a V shaped recovery, a sharp downturn and straight line back to growth or a recovery that reflects a W, where the economy recovers, dips and bounces up and down for a few years.
Maybe I am a child of the 1960s, but my fond recollection of those letters has more to do with the VW Beatle that headed to the beaches of California, not illustrations to guide economics.
In October, my three visits to the Middle East, which included Dubai, Qatar and Abu Dhabi during the Formula One festivities and the launch of our regional hub in the UAE capital, led me to put aside traditional economic research.
Instead, I relied entirely on animal instincts and, going back to my Greek roots, I used the agora to get the latest reading of what was happening. Bankers confidently said that the road show to raise $6.5 billion in Dubai would be well received. The first portion of that offering was three times oversubscribed.
Businessmen noted that they felt the worst was over in the local property market and that foreign buyers had started to show interest again. Colliers International released figures this week indicating that prices rose 7 percent in the third quarter, although they are down 47 percent on the year. Again, the figure does point to a bottom being reached.
In Qatar, despite the bottom following out of the natural gas market (trading one-fourth the equivalent of crude prices right now), the economy is hardly suffering amid the “recession” as growth has reached 8.5 percent this year. The greatest challenge is completing projects on time and allowing the market to catch up with all the construction.
Finally, the Formula One race looks to be only a starting point for Abu Dhabi. I was surprised enough at the $40 billion officially spent to build up Yas Island and the infrastructure around it to host the circuit. According to Economy Minister Sultan bin Saeed al Mansouri that is only the beginning.
He says that the Yas Marina complex will be a blueprint for future developments with an eventual commitment of $1 trillion dollars - for roads, power plants and rail links. That is an eye-popping number that others within the government were, shall we say, shy to commit to, but it does give a sense of how the old economy will help build the new one and how the future won’t be measured by a V or a W in the region.
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