No Flying Sandwiches

It is a dark day when BA announces that it is banishing the free meal from its short haul flights.

I use the term 'meal' loosely as I am referring to the dreaded BA sandwich. I mean, it wasn't as if it was gourmet fare anyway but to take away perhaps the last bastion of differentiation between the national carrier and low-cost, no frills airlines is close to rock bottom. It seems also to be the limit of the creative thinking of an increasingly beleaguered CEO, Willie Walsh.

True, by banishing the rather poor sandwich and chocolate tit bit from flights after 10.00am (fear not, breakfast on flights before 10.00am remain reassuringly unaffected by this callous measure) that last less than two and a half hours saves the struggling airline £22m which cannot be overlooked. However, when passengers start making comparisons with other or low-cost airlines you have to start thinking, what is the difference?

I have to say I am no fan of Ryan Air. Until recently, you had to queue endlessly at Stansted in order to get checked in but they have now introduced online and electronic check in at the airport. Somewhat strangely, but typical of Ryan Air, you pay for the privilege of checking yourself in. In fact, you pay for everything. By the time you have added the whole thing up, if the bare fare was not as low as £3.99 then you may as well book a flat fare with BA.

You think I'm kidding? No way.

If you travel with a bag to check in and particularly if the bag carries more than a toiletry bag and a few items to wear, then you are looking at excess baggage charges which themselves are excessive. You can easily start paying Ryan Air some distance over a BA airfare. When you start adding in the fact in most cases you get rained on when walking to the aircraft because they are too stingy to afford renting jetways and that you cannot get the seat you want unless you pay more for the most idiotic and useless 'priority boarding' system which is policed by nobody, then you start to realise why O'Leary and his shareholders are making such excellent profits.

The trick for low-cost airlines is simple volume. There is no point in buying and flying expensive aircraft if you cannot utilise them to the full. So each plane is flown as many times a day as it can fit in, so the shorter the distance of the flight, the better. And it is turned around as fast as it can at each destination while the number of seats occupied each flight should be as high as possible, which is where the price gimmickry comes from. It is a recipe for over crowded planes and low service levels but 67m will fly Ryan Air alone this year which is 15% up from last year. And they are not alone with Easyjet in hot pursuit.

The key to success is the explosion of routes. Between Easyjet and Ryan Air, the number of interesting new places to visit has grown enormously over the last 10 years. We may laugh that we often get our imaginations stretched as to what constitutes a flight to Stockholm or Brussels but by and large the routes are superb. Take flying to Valencia as an example. It is one of the largest cities in Spain, just 100km from the northern edges of 'Britville' holidays, it hosts some of the biggest conferences in Europe, the Americas Cup in 2007 and in a few weeks time it will host the F1 Grand Prix of Europe on a superb street circuit - it is also home to one of the best football teams in Europe. Try flying there by either BA or its partner, Iberia, and you are looking at a two flight hop costing a minimum of £700. Or you can choose a direct flight with either Easyjet or Ryan Air. Even when you get to the low-cost airlines, choice is crucial. Easyjet was almost twice the cost of Ryan Air, and it only flies once a day to the destination. Ryan Air won hands down.

This year, as a supporter of London Wasps rugby club, I hope to take in at least one of their away European games. I have been to Paris, Biarritz and Treviso to support them in the past but they have also played at several southern French and northern Italian towns only accessible by low cost airlines. Then there are the people who either buy or rent holiday homes - imagine the ability to simply hop for a long weekend to a home near Perpignan?

And there is the business element. With premium cabins like Club Europe faltering, I cannot think why I would choose BA to fly short haul these days. Luton Airport is just 25 minutes up the road from me, the parking is cheaper and the terminal is fine. Easyjet and Ryan Air fly regularly to Paris, Dublin, Edinburgh, Glasgow, Aberdeen, Manchester and Amsterdam as well as a variety of other major cities combining convenience and low-cost for the business traveller, particularly if you are away only a short time. Stansted is not bad either - apart from places like Valencia, it was my only access point to fly to Montpelier when working for a company with an HQ down there previously. Heathrow, for anyone north of London is almost inaccessible with the M25 widening roadworks set to be with us for the next 3 years (yes, I am serious) and then short term parking is so costly and far away from the terminals to render the whole process a nightmare.

The formula for budget airlines may indeed be spartan but you have to admit they have seriously taken BA to task. The stuffy, backward airline pinned so much of its hopes on Terminal 5 only to see all the access it has built to the terminal bottlenecked by a seriously congested motorway network. And then, what the hell happened to the airconditioning at Terminal 5? It is is built with so much glass that it's like a greenhouse whenever there is more than a few rays of sun, making the whole travel experience a rather unpleasantly sticky affair. Also, knowing what we now know about airport security and the time, hassle and inconvenience it adds to a journey, why on earth did they plan the entrance into the airside area of the new terminal so badly? I am even leaving out the most disastrous piece of project management I have witnessed in a while when they actually commissioned the new terminal.

Yet on soldiers Willie Walsh. I don't know what photos he has of Board members and big shareholders, but they must be pretty compromising for him to still be in a job. He has happily presided over the most incredible swing of profitability to major loss in a single year that has been seen in the UK. In that time, all the major and minor flaws of the airline have been exposed and rather than making a huge shift in strategy and tactics at the airline, we are seeing it respond by imploring its staff to take salary holidays and axing the meagre meals on short haul flights. In small business terms, this is the equivalent of not buying fresh flowers once a week for reception or axing the monthly staff pizzas - both of which I have personally done in response to poor performance and in both cases I saw a disproportionate drop in staff morale and a decrease in my managerial credibility as a result.

Willie Walsh has a further problem. Getting rid of the monthly pizzas for me got me bad press within my company - for Walsh, this is national news. Many years ago as a trainee salesperson at Hewlett-Packard, the free biscuits for staff were rescinded as part of a global cost cutting measure. You may as well have asked staff to take a pay cut or axe the annual staff bonus - it was taken that seriously internally. But Walsh's actions are public and customer facing. Taking away the motley sandwich was part of the service and cost of a ticket. By saving £22m publicly he is not taking the same amount of the price of tickets. He is also announcing that the cost of the sandwich was trivial compared to the price of the ticket as £22m spread across each ticket sold is pennies.

We were paying a premium for this particular sandwich, and now Willie Walsh has told us just how much of premium.

And that had been BA's flawed business model for some time. Without the profit at the front of spaces on the aircrafts, as premium passengers watch the pennies in these troubled times, the whole business of flying anybody from A to B becomes loss making to an airline like BA with such a massive cost base.

Cutting a measly sandwich is one of the few responses to the crisis of an idealess CEO. It also sends the worst possible message to its customers - "We were ripping you off for the cost of a sandwich".

BA needs far more than this to be a credible force of the future. Once, it dominated the landing slots in the UK and so stifled competition by being big. Virgin chipped away at that and brought innovation and service as well as price competition to BA at its two main hubs. Then the budget airlines came from left field. Instead of competing for slots at the national hubs, they picked off the subsidiary airports who were hungry to compete with Heathrow and Gatwick and there was no shortage of investment to support this - and certainly no shortage of customers to justify it.

In fairness to Walsh, the rot set in on BA a long time ago - and was compounded when they capitulated their own low-cost airline, Go, to Easyjet. But his woeful performance under pressure has contributed badly to the past mistakes and could possibly see BA lose its national carrier status in the not too distant future.

It will take a great deal more than losing a sandwich to make a difference at BA and far more focus will go on how they properly spend the extra £600m of cash they have recently raised. I would wager it will be the making or breaking of Willie Walsh in short order and, frankly, on his performance so far, I don't give him a chance.

Is Ryan Air In Dreamworld?

Low cost airlines like Ryan Air have done a lot to broaden our travel habits - and that's a good thing. But, boy, can they be bad, bad people when they want to be.

Although my first experience of what Ryan Air loosely called 'Stockholm Airport' was irksome - we landed at an old Air Force base some 100km from the outskirts of Stockholm and the lady picking me up was furious as she had travelled for ages to get there. The way back was even better - a bus from Central Station was the only way to get there. It cost a fair bit and there was only one bus, so passengers, luggage and whatever clogged all the seats and the aisle to bursting point and still left stranded passengers at the Station who never made it to the flight. Incredibly, not one of them got their money back.

We all know about the madcap plans to charge a) for using the toilet and b) by weight of passenger, but here is something even more loony and irrational.

We are flying to Valencia with some friends in a short time. They are a couple with a small child under 2. They booked their flights via Ryan Air today and got the adult seats for £17.99 each one way and £7.99 on the way back - sounds great. In a bizarre twist, the price for the small child, under 2, weighing little more than a feather, is £20 each way - more expensive than any of the adult seats.

Here's the rub - when on board, the air staff will insist that the child is seated on an adult's lap and strapped in. The more expensive fair for a young child does not even buy a seat - it actually subsidises one for another adult.

Micheal O'Leary says it's all about choice. That has little to do with choice, that is deliberate prejudice and discrimination against passengers with a young child. Ryan Air has form on picking on specific groups as we know if you are disabled or need assistance in anyway. They see disability and young kids as profit opportunities. That the child fare does not even buy a seat despite being more expensive than an adult seat is just outrageous.

Blinding With Science

Stelios and O'Leary always answer any criticism with elaborate mumbo-jumbo about load capacities and demand but the reality is that every seat on the flight is equal and there are no compartments for other classes. Getting on is largely on a first come, first served basis. So there is absolutely NO EXCUSE for charging more on the same flight for a child under 2 who does not even get a seat.

Let me run that by you one more time - NO EXCUSE. Some fancy lawyer will no doubt select the right part of law that governs the rights of the consumer, the individual, the human even if they are under the age of 2, but in my book it is outright discrimination and profiteering.

'Ryan Air, the low cost airline' should be replaced by 'Ryan Air, the high profit airline'.

Can or Should We Choose How Much Tax We Pay?

I got into an argumentative discussion on the IOD Linked In discussion group recently with a tax adviser/accountant who asserted that 'We have the right to choose how much tax we pay.'

Firstly, I was pretty miffed at the use of the royal 'We' as I certainly do not choose how much tax I pay. Secondly, there was not just an implication but a direct argument in the discussion that people have the right to not pay the correct amount of tax they owe. If they want to not pay it, they can. He claimed also that this is perfectly legal under the statutes governing tax.

The Royal 'We'

What the chap meant was that the 'We' he was referring too were those rich enough to afford the fees and special mechanisms in the murky world of 'Tax Mitigation' (heaven forbid we call it 'Avoidance'). As he was using the Linked In IOD Forum he was referring to the 'We' as those who are members of the IOD. This meant me.

He was wrong there on two counts - 1) I cannot afford such fees and suspect mechanisms and 2) I would not want to participate in any of them.

Of course, as much as the next person, I don't want to have to pay all the tax asked of me. I will use up as many allowances as I can like ISA, capital gains, some dividends from my company etc in but I am very opposed to going beyond the statutory allowances - I believe in paying my way fairly. If I don't like it, and I am opposed to the new taxes proposed, I will lobby and vote against it whenever I have the opportunity, but I will pay it if I have to.

A gaggle of directors I overheard this morning were discussing how they could take their earnings above £150k as 'fees' into limited companies thereby enabling them to not draw a salary and pay themselves in dividends which are taxed a great deal less and neither the company nor the 'contractor' pays National Insurance. They were worried about the VAT implications - I would be more worried about explaining to HMRC what their company does and why they only have one client. Of course, there would be an added benefit to the company, as they would not have troublesome Industrial Tribunals if they just terminated their contracts and wouldn't have to pay a bean in any compensation or redundancy money, nor any pension contributions or fringe benefits. Hey, why don't we all do it!?

The royal 'We' here, of course, would get found out by HMRC in an instant. From my perspective, and I have a limited company, I contract to several clients at once and not one occupies my time fully. The specific legislation on IR35, as it is known, is an area fraught with danger. It effectively says any contractor must form a legal limited company and take fees but they should show that over time they are not just working for one client - otherwise it is deemed to be a 'scam' to avoid paying the taxes associated with being an employee. Most contractors will show, even if they have a few long contracts, that over time they work with several different companies on different projects.

The royal 'We' might have a bit of difficulty on all that. What they hadn't considered would be what happened to their stock options and other goodies but as usual they were just focusing on their current pocket.

Dividends vs Salary

It was always a neat scam, even as a contractor, to pay yourself a small salary and then take whacking great dividends and save all the associated employee taxes. Naturally, HMRC became wise to that, as usually the dividends spookily equalled the amount of salary the person would have normally earned and, moreover, seemed to be paid monthly like clockwork, exactly when the client paid their invoice. In fairness, some contractors who get paid agency or commission fees based on the sales they generate can easily justify their small salary and high dividends - they cannot predict when they are going to earn their next cheque. Even so, HMRC is pretty dubious and sceptical on the whole thing and err on the side of stopping the practice even if it is justified.

You see, the ideas my director friends had were the obvious ones that the tax adviser would have paid only a single charge for telling them as there is no ongoing knowledge to impart. What the tax adviser would be doing for the royal, and very royal, 'We' would be to tell about how to pay no tax on very big amounts of money.

The Big Scams

The richer you are, the less tax you pay. That's the simple rule of thumb. It's convenient to marry someone who might be able to claim they are a non-domiciled person. But for good effect, it's best to own a 'primary' residence outside the UK and in a place where there are pretty low personal taxes. Places favoured by the rich are Monaco, the Channel Islands, Isle of Man or Switzerland. To boot, they are all nice places - no riff raff, generally speaking, and one has the advantage of having a decent football team. Having played cricket on Jersey, I can recommend it highly and we even bumped into 'Charlie Hungerford' from Bergerac fame once and gave him an exploding cigar. I digress.

The very rich basically siphon all their money into these domains. But this is for the F1 racing drivers, popstars and big swinging whatevers from business like Stelios or Philip Green. When you have such a set up, you can choose how much tax you can pay, alright. In the case of Philip Green he paid himself a single dividend of £1.2 billion and did not pay a penny of UK tax on any of it. The money wasn't really even earned by his company, it was a bank loan. By paying it to his wife, who was a qualified non-dom, he made doubly sure no-one could chase him. All he makes sure of is that he doesn't spend more than 90 days in the UK in any single tax year - although the days on which he travels either there or back or through, do not count. If you are rich enough, that is not an issue. Mind you, if you own your own budget airline, the last thing you want to do is go on it even if it flies to Nice. It's not exactly a company perk then, is it?

Some years ago, the fashion was to hold the shares in your company in an offshore Trust. These were lovely and expensive to set up and 'administer'. Famously, Lords Sainsbury and Levy operated these for at least a while, which meant that they took zero earnings in the UK but lived off the dividends generated by the shares in the offshore Trust which were miraculously tax free. I am, not sure if that particular avenue has been closed down now, but it was a belter.

Of course, the wise thing to do if you are mega-rich is to register your company offshore. Not the one that generates all the profit mind you - leave that on British soil, just make sure that the entity is owned by another and charges it a management charge exactly equal to the profits made or a few quid less to be on the safe side. Many of these rich fellows don't take much in the way of salary. Between expenses and dividends they are well cared for and most of these will be taken outside of the country and wrapped up as capital gains, carry forwards and other complex 'cheats' to make it look as though they earn nothing taxable but are actually taking millions or billions.

This is the royal 'We' that adviser was on about. Of course, there are some mini-scams for the not so filthy rich which helps make sure that very little of the tax Brown and Darling are aiming to get their hands on will actually be collected and thanks to giving everyone a year's heads up, there is plenty of time to pay the advisers for their advice and get round it. As always, it will be those just getting enough to qualify for the new tax but not enough to afford the advice and complicated instruments of 'avoidance' who will really get hit. Already, HMRC has indicated it will hammer down on 'salary sacrifice' which is the idea of giving up the portion of your salary above £150k and taking it as an employer's contribution to your pension. It means it can't be spent yet but at least you get your tax back. Not anymore - the proposal is a tapering tax which starts at 20% of the employer's contribution for a £150k earner and rises to 30% for those earning above £180k.

HMRC has already indicated it will be watching out for those earning around these thresholds who suddenly elect to 'sacrifice' part of their salary or bonus and take is as a employer pension contribution. But then again, they have a year to sort all this out.

Sympathy

It is those who earn around these threshold levels who I actually feel sorry for and it is where Darling is aiming. Just as the majority of law abiding citizens, who do not cause accidents or kill people on the roads, are the ones targeted by police with speed cameras as they are the ones who will pay however much they may not like it. The people who kill or have accidents are usually the ones who don't bother paying or can afford fancy lawyers to get them off on technicalities. The same is true of tax. Morally, it is corrupt.

The Government has blown a lot of money in the last year on this whole financial crisis and we are going to be paying for it for an awful long time - out until 2032 is the estimate on some £1.3 trillion of borrowing. The one thing you can be very sure of is that these will not be the only unpopular taxes introduced. You can also be sure that it will not just be the rich who get fleeced - ordinary, middle grounders and lower paid people will be disproportionately targeted through things like fuel tax or alcohol duty and will collectively pay more. Why? Because we will pay as we have no choice.

Tax 'Mitigation' or 'Avoidance' is one of the luxuries of being rich.

How To Avoid Tax - Get Rich

At last a credible figure in the world of celebrity has come out and identified the need for greater transparency in the tax system (should have mentioned public servants' expense accounts but maybe that's for next week). None other than Dragon Den's star, Duncan Bannatyne, in his column in Today's Telegraph identifies that super rich people are the ones who most easily avoid paying tax in this country - sometimes none at all.

Lord Levy and Lord Sainsbury famously paid naff all tax at least one year and then became Government Ministers. Now we have the raft of bankers, and board directors of conglomerates who either award themselves large tax free entitlements like pensions or some other form of cleverness. At least two people knighted by this Government use the 'non-dom' status to avoid paying huge sums in tax - Easyjet's Stelios and Arkadia's Philip Green are the culprits. Green sets a bit of a record having one single bank loan converted into a £1.2 billion dividend which was paid to his wife, who happens to qualify as 'non-dom'. Neither paid a penny of tax on it, and he is so proud of himself.

It's frankly disgusting. Why on earth we allow it is beyond the wit of sane individuals but, as always, the richer you are the less tax you will pay because you can afford to find ways not to pay your fair share. It has to be stopped - the burden of tax is getting heavier and much of it is thanks to the greed and senseless actions of the richest people in the world who caused this financial meltdown.

Yet they seem to treat Britain as a slot machine with a fault - it always pays out for every go, tax free.

Bannatyne makes a very important point from a business perspective also. Such super rich, tax free people have a competitive advantage over those who cannot claim 'non-dom' status and who pay their fair share of taxes as these people have more of their profits taken by the Government which cannot be re-invested in their businesses. The super rich use this competitive advantage to leverage even greater amounts of money from banks and funds to acquire more businesses and make even more money - and at each turn they cover their tracks carefully.

This Government has granted special tax status to such people and we must stop it. In particular, private equity people are doing more harm than good and the argument they are saving businesses and jobs does not stack up. Every business attempts to do the same thing and has to pay taxes. They have special status for doing so and making vast profits - and in many of the cases their gains are short term as the companies they buy and sell are left to whither.

Yesterday was a chance missed yet again by Brown and Darling. When will we make sure that everyone who makes profits in doing business in this country in whatever form pays the same level of tax as everyone else?

Festival of Media 2009, Valencia

I find myself in a hotel in the wonderful City of Valencia surrounded by luvvies and advertising types who tonight will host their industry 'oscars', having played on the town last night and 'networked' late at the Ghecko Bar.

Some people's idea of 'networking' might be murmuring over a beer at such a bar, for some it is bellowing to be heard in a private conversation in an empty room as they like the sound of their own voice but I think the person in the next door room in my hotel went a step further than most. At first I thought they had found the porn channel on the TV and accidentally sat on the volume button but the rather enthusiastic sounds became a little more human as time went on. They were the unmistakable sounds of either someone trying to impress or who has been paid for. I decided on the former as it started up again with gusto at around 3am before the door slammed and someone left. No names, no pack drill.

So The Festival of Media 2009 is no different from any other event, I concluded.

The Good and The Famous

It is a bit of a marketing coup in that the only direct flights from London to Valencia are via Easyjet and even David Puttnam took the same route as Iberia goes via Madrid or Barcelona at £700 a pop while BA doesn't go there at all. Stelios will be pleased in his nice apartment in Monaco where he hides from our taxman but enjoys his knighthood alongside Philip Green - for him every penny counts.

Online marketing is one of the few industries to have thrived in this recession and it was plain to see amongst the throng of people who had spent £1,800 a head to participate that they were doing well. Stress was eased by copious biscuits, ice creams, glasses of Rioja and free massages on the Adconion Stand, who along with Microsoft Advertising, Orange and VivaKi were the principle sponsors of the event which was organised by C Squared.

There were also many 'Thought Leaders' at the event who had clearly paid significant sums for the privilege of 'Thinking' while a tiny smattering of exhibitors had small but natty stands - including a scaletrix set on the Eurosport stand which I assume was a scaled down model of the Grand Prix to be hosted on the streets of this city in August this year. As it happened, there were all sorts of 'Partners' at the event who vied to sponsor tags to press rooms, to VIP lounges to media to news - you name it, and someone sponsored it. Such is the way in the media, so I'm told.

I met a nice guy on the first night, Phil Cooper who is the CEO and founder of Utarget and who had recently sold a majority stake of his company to Fox. He was busy preparing his talk for the next day but he wasn't bellowing loudly in an American accent to make sure everyone heard him in an empty room nor, to my knowledge, was he the person in the next door room. Dare I say it, he seemed quite a regular guy.

Day One - Transitions

The theme of Day One was all about transitions which was to remind us how media was changing in terms of presentation and how we could all spend more money than before on marketing. It's true that internet marketing has brought a sea-change in the possibilities of not just targeting people but analysing the results too. But the industry needs to get rid of this cliquey 'scam' image of people passing one click to the next and amassing enormous clicks and revenues very quickly for few discernible results. For every piece of content you produce, someone, somewhere can earn money by passing it around and promoting click throughs which most would dispute actually occur and certainly have little to do with the advert and product. It seems that automated click throughs are at the heart of the whole set up and there is a great deal of money to be made on this. Just ask Google.

The Power Play of the day came from eBay and Doug McCallum, VP of eBay EMEA, who was kissing goodbye old models and extolling how eBay was changing to get diversified revenue streams. This is a point in question - eBay is one of the chosen platforms for scammers and it is too easy for them to play the game while eBay itself has moved away from its roots of 'stay at home' millionaires, ditched the smaller traders and focused on big-spending corporates who want to buy and sell on its platform. The trouble is, until it shakes free of the scammers then people will not trust it too well, no matter how much the nice words sounded.

So I settled for the talk entitled 'Are you a re multiplier' and found that if I wasn't, the person in the next door room probably was.

Day Two - Recession and Innovation

From 'Can clients understand IP?' to 'Seriously Social Media' it was all about pioneering communication change and online advertising. The recession has been a bad time for traditional advertising but it has been a great success for online stuff - the industry grew this year at a very sharp rate. The JC in JC Decaux was at the event to augment this fact and how their bus stop and billboard ads are no more and how it will all be online soon - but not yet. After all, we still like to see black and white pictures of Posh and Becks peering at us through the tattoos, Armani underwear and labelled perfumes on the streets of Milan. Tradition cannot change overnight but it can certainly increase spend.

There were some good talks on 'Determining media value in a recession' and 'The Future of Targeting' - all very relevant if you are watching the pennies. But the over-riding message was that the only way out of a recession was to spend more on your brand and more on social media and more on everything, in fact. There is a good logic here - there is no point in stopping spend on marketing in a recession but there is also a profound message about getting value for what you pay for. That has yet to be determined in some quarters but that is always the beauty of the media industry.

Numbers count and science has little to do with it, darlings. Just sup the free drinks and lunches and they will do the rest.

The Oscars

Which brings me neatly on to the 'Industry Oscars' tonight which I shall sadly miss. But when we get awards for 'Best use of the digital landscape' and 'Award for branding bravery' I think it's time to beat a path to the airport. However, I should point out that the Dove Pro-Age campaign is short-listed in the latter but then again so is 'India votes: To shave or not'.

I leave you with the advert on the back page of the Delegate Book from Advertising Week who have a show in New York in September - 'Kudos to the Festival of Media 2009 for progressive leadership and vision.' It did not slip my attention that the advert was placed before the event.

Book up early for next year, luvvies. At £1,800, you know it's worth it.