Wednesday, 1 August 2007
British Airways and Heathrow related fiasco's
BA's fines of up to £350 million today are truly staggering. That Virgin get off without a fine is lucky for them, or else they might be bankrupt. I was amazed to see the OFT following the US lead and imposing a fine, as I wrongly thought this was a US case that only they would follow.
My take on this is to actually feel quite badly for the BA CEO, Willie Walsh. This happened so early on his watch that I don't think much blame can be laid at his door. The now ex-commercial director Martin George (who fancied himself enough to go for CEO of the Football Association) is to blame, along with lower management at Virgin. Sir Richard would not have condoned this either in my opinion as it would hurt the brand too much, which is always his primary consideration. Both companies have been brought low by relatively junior staff. As for the cargo cartel, it seems that their is more of a case for BA to answer.
As well as this news today, there is Ken Livingstone, Willie Walsh and many others joining in the condemnation of Heathrow. Ken is in full marxist fantasy mode when he thinks that state ownership would be better for BAA. BAA has invested fortunes since it was privatised and all the money it makes from retail has saved taxpayer money.
With terminal 5 due online in a few months, things will improve at Heathrow in the short term. A lessening of Government security restrictions would also help the passenger experience.
On the other hand, Ferrovial (the Spanish owner) is in a deep hole. They borrowed a fortune, taking advantage of Spanish tax breaks for large foreign take-overs, to buy BAA. Now they have it they are struggling with the level of capital investment needed and the need to pay down the debt. Their latest idea of selling the retail unit, World Duty Free is just pure madness as it is a cash cow and shows how deeply they have misunderstood the business model. UK Private Equity houses will have BAA in their sights by next year is my bet.
Posted by CityUnslicker