Hollow Victory

On the face of it, BA bloodied the nose of Unite union yesterday in the court ruling on the validity of the staff ballot to strike, making the planned 12 day stoppage over Christmas illegal.

While that may save Christmas for many BA passengers who had booked up with the airline, it is a hollow victory for the management. The staff had voted 9 to 1, that's 92%, in favour of strike action. BA's staff is overwhelmingly dissatisfied with its management to the extent it has taken the unusual step to strike. The warning bells are there that BA's tactic may seem like a victory in a battle but the war-proper has only now begun.

The union has quickly struck back to say they will re-ballot and put the case once again, properly, to the staff and now BA has the longer term uncertainty of when the real strike will begin. For BA passengers, there is now a hiatus and uncertainty - who would bother booking up new flights with BA when they don't know when the strike will be?

In fact, an argument could have been that at least management knew when the strike would be and they so could act to contain the damage - indeed, it could have worked the emotional blackmail of stranded passengers and disrupted Christmas's for many people to its advantage. But no, it just had to take a swipe at the union. In doing, so they have once again bashed the face of the staff who are so incensed at the company's actions that they were willing to kill Christmas for many customers.

BA don't get it - the staff are furious and want a compromise. BA just seems hell bent on killing its own business. As Robert Peston points out on his blog today, there are many serious issues which BA faces, not least that the hole in its pension fund is now valued higher than the worth of the company - and so it focuses on disenchanting its staff and compromising its revenue stream. They could not be in a worse place as they attempt to buy and integrate another failed airline, Iberian.

I have said it before and will bore you with it again - this is a management in no-man's land. It is killing its own business and seems to think that is a good thing. Change at the top is very urgently needed instead of the dreamer who runs it now.

Working Nine To One

Willie Walsh, CEO of BA, is a perennial target of mine but, in fairness, he makes that easy.

I have described BA as a strategically lost company before and there has never been a worse moment for what was once the 'World's Favourite Airline'. It is being squeezed by low budget airlines at one end who consistently out perform expectations in terms of profit and by higher service airlines at the other end who focus on their niche market and make enough to survive. BA's two major 'strategic' moves in the last year have been to make a series of reactionary, 'knee jerk' slashes of its costs, with no real impact or direction, and then make arguably its biggest blunder, to buy another airline in the same strategic 'no man's land', Iberian.

In all of this, the backbone of the company has stuck with Walsh until yesterday when the staff who man the airlines voted nine to one in favour of a strike action, to leave the course of action in the hands of the union, Unite. Walsh seemed to suicidally want to fight his staff, having asked them to make sacrifice after sacrifice to the point when they finally made their stand over the 'dumbing down' of their roles. The company now faces a 12 day period of strike action over one of the busiest travel times of the year - Christmas. It could not have been a worse result for BA - it could not have been a more stupid move by management.

The recent BA history is a litany of business cock ups. Terminal 5's opening was about as inspiring as it got as a superb terminal was project managed in a schoolboy fashion, stress testing the unprepared systems with hordes of real passengers. Then we had the series of staff cost cuts that played with the fantastic loyalty of the staff only to shaft them by trashing their worth in the latest move. In between were two attempts to buy a dying airline in Spain, the first ending in farce as BA's market worth fell below that of their target at the crucial moment, and the launch of a business class only airline out of the City Airport with a capacity of just 32 seats which pandered to the whims of rich bankers when two similar services to the US had failed less than a year earlier.

The message in that service alone could not have been worse to staff, the shareholders and the public - BA was prepared to service rich bankers ahead of paying its staff with a service already proven to be unprofitable by two other companies.

I don't know what the shareholders think of Walsh as they seem to support him grimly, but we now know what the stakeholders think. The once highly vaunted air crews of the once great airline have voted categorically to fight him - and you know instinctively that he has lost his best weapon to survive because he has undervalued and disrespected it.

It's not as if you could not see this coming. It has been a quick process of losing the confidence of the staff and laying a scene for the battle. Walsh calls the action of the union 'cynical' but that's what you get when you lose the support of your staff. From a union's point of view there is no point striking when the airline does not fly - their tactics are generally to hit you were it hurts most as it quickly sparks negotiation, at a battlefield very much with the terrain in their favour. There are no surprises that this is exactly what has happened and it was about as obvious as the cock up at Terminal 5 as it all unravelled.

BA seems to be managed by fools. The strike action is not at all helpful. We can see the Royal Mail happening all over again with the one tragic ingredient for Walsh - the customers do have a choice. There are other airlines to fly - in fact, to Walsh's edification, the skies and airports are full of them. His strategic plan has been a series of schoolboy responses to a business game exercise.

I would say that BA needs a rapid change at the top to survive.

Take Off or Landing?

It's taken two years and arguably when it all started it seemed like a good idea, but the merger between BA and Iberia Airways has finally been agreed. Willie Walsh, CEO of BA, has hailed it as 'Good news for passengers'.

In the last 18 months of intense European travel, the two airlines I personally rate the worst for service are BA and Iberian so it could be said this the merger of two airlines who have lost their way and have resorted to the old adage of 'two heads are better than one'. Both companies made whacking great losses, with BA clocking up £292m in the last six months and Iberia €182m in the last nine months as they competed to be the airline who could clock up the most losses in the shortest time - it looks like a dead heat. The interesting thing is that passenger numbers are similar with BA at 33m and Iberian at 28m yet BA operate 246 aircraft to Iberian's 174 which suggests a disparity on loads. Also, the overlap on destinations means that both airlines get benefits but that creates a problem - how do you drive the kinds of savings you need to get any benefit and keep the same number of routes operating?

This is the real problem - the estimated £358m of savings nowhere near covers the combined loss and it is not clear how the savings will come about. The new headquarters will be in London and Walsh will be the new CEO - none of the news so far is actually very encouraging.

Ryan Air sees this as 'Two drunks propping themselves up' and for once they are spot on and not being loony. On the face of this it is exactly that - two airlines who had run out of ideas and strategy think that combining two worthless strategies and ailing businesses, led by donkeys, will actually solve their problems. It really is a merger devoid of inspirations, carved out of a desire first dreamt up in better days. While big can be beautiful, the merged companies are going to spend the next two years arguing over cuts and who does what as the industry emerges from recession. A really clever move by two companies that have hit the recession with no real idea what the core strengths of their airlines are.

Walsh's only victory seems to be that BA will be the dominant company with the HQ in London and 55% of the shares owned - and he is CEO which seems to be a sad indictment of the combined management talent of the two companies. BA has been particularly rudderless and idealess during this recession with an emphasis on lack of strategy and daft ideas on cost cutting, while their low cost competitors have thrived. As fuel prices came down to help costs, BA fared worse than before and the underlying profitability of the business is virtually broken. BA and Iberian are caught in the no man's land of European airline strategy and the combination of the position does not actually help them with such poor leadership at the top. No wonder the staff look to the HQ and ponder what will happen next.

One thing is for certain, two huge clouds hang over this merer long before they try to get any strategic or operational benefit - 1) the impending action by a once loyal staff against the suicidal efforts to cut costs and dumb-down jobs and 2) the enormous hole in BA's pension pot. The latter may yet scupper the deal while the former will blight it at every step because it is an issue that will only grow as the combined airline will strive for even greater cuts and efficiencies.

On thing is for certain, the worst news is that Willie Walsh has won the top job. It's the equivalent of asking a passenger to fly the plane.

When Savings Got A Bad Name

When I was young, my parents and grandparents drummed it into my head that I should always save some money. I followed their advice when I could, starting my first bank account as early as possible and setting money aside.

Their advice certainly helped me buy my first home soon after I started work as I had plenty for the deposit. Bizarrely, I followed the advice of a rugby playing mate and went for a 100% mortgage and a whopping life insurance policy on an interest-only mortgage despite being single - his advice was to blow my savings on material things that had no long term value. Later, after meeting and marrying an Independent Financial Adviser (IFA), I got things back in check. But it was only when she opened my eyes to what I would need in retirement without the buffer of one of those super company or public service pensions that I started to really save.

Over the last 10 years or so, there has been a huge focus on getting credit in Britain. Banks and credit card companies have fallen over backwards to literally throw cash at us, not just to buy homes but to fund a fantastic lifestyle of flashy cars, superb holidays, up to date whizz gadgets and big TVs and much more. We have never had it so good as we used our own financial instruments to supplement our dwindling (on average) household incomes. In the meantime, our level of real savings has been negative. It was almost crazy to save, in fact, so cheap was the money thrown at us.

Pensions probably fared worst but savings generally have been negative in comparison to our monthly income. Beyond my pension, my wife and I save with ISAs regularly and this year we cashed some of those in at a lowish point and then bought back in using a scheme I had no idea existed called OICs. By doing this we have fared very well and the OIC alone has increased nearly 40% so we have not lost anything during the crisis and our savings are still tax free.

It struck me though, that savings seem to be the last thing on everyone's mind. Although the level of debt on credit cards has actually come down by the odd percent for the first time in ages, outside mortgages, Britons have over £1 trillion of unsecured loans. In trying to kick start the economy, one of the first things that was focused on was rekindling the 'Asset Backed Security Market', or housing markets to us mere mortals. While it made sense to get money into people's pockets in the short term by leveraging their assets, it was clearly exactly the same plan that had got the nation into a financial mess. So long term, there has to be a plan to get Britain saving more.

The problem is that it is not as easy as it sounds - we all know the score. Just when I think I'm on top of things, the washing machine breaks down or the carpet gets stained, the floor needs repairing, the lounge suite is suddenly wearing. With all the juicy sales on all year round these days, there is a temptation to think we are getting a bargain all the time and if we don't spend we will miss out. Saving in a disciplined manner is a hard task in our current environment of materialism fuelled by cheap credit. At least when interest rates were high we could see our savings grow and we borrowed less. Now, my Halifax building society account offers zero interest on our balance and we have had to go elsewhere to get something for our small monthly savings - it's crazy.

The whole market seems geared against savings. There is little focus nationally on pensions and saving for retirement and my wife's IFA business has changed dramatically over the years with structuring and restructuring credit as being her main business versus investment and retirement planning. She firmly puts this down to the attitude of Government, banks and people - it cannot be any one of those alone, it has the right combination and time. At this time, saving for the future is not a priority generally and the whole market is geared toward lending more.

In her opinion, as it is mine, the whole credit crunch was an accident waiting to happen.

Warren Buffett calls it 'capitalism overshooting periodically'. At the height of the crash he invested $5bn into Goldman Sachs and is now sitting pretty. My meagre funds went into the OIC. I am no Buffett but thanks to equally sage advice I have ridden out the storm well. Like Buffett, my pension is down around 25% still, as are his overall assets, but in reality my whole financial situation is as good as it could be in the face of what we have experienced and my pension is clearly for the long term. I am now focused on saving as much as I can. We reduced overall credit card debt to zero by releasing our Halifax savings to make sure we paid no interest while I have been putting as much as I can into my pension.

But how many others have done the same? In fact, the whole panic that has gripped us has seen the focus shift toward getting credit back to previous levels. Britain will soon get back to borrowing more and saving less. Surely, at some point that vicious upward spiral has to end and let's hope it is not as spectacular as last time.

My point here is not a swipe at the Government who have their share to blame. It is not even at the banks who fuel their cash by lending more in their bizarre world of finance. It really is a swipe at us, the public. It really is time to save and invest as the future could get nasty if we don't. Pensions should be brought to front and centre for every working individual and, personally, I don't think retirement planning should be voluntary. I think there should be massive tax incentives to save, instead we get tax on pension dividends, I think insurance premiums should have no tax attached, I think there should be no tax on savings generally.

Realistically, the Government should plan long term - the more we save, the less we will burden the state in our old age. It just makes sense.

Current finances in the country are a mess and it will take a bold Government that thinks long term in this way. However, it really is not rocket science. The more we all save today, the less vulnerable we are to downturns, the less of a burden we will be on the State and the less the system will incentivise us to borrow as banks will see the profit in investments over debt in the end - hopefully.

I have a feeling that pigs may fly first, but I live in hope.