20 July 2000
The opinion didn’t exactly come free – British Airways gave its former chief executive a huge pay-out when it sacked him two months ago – but Bob Ayling’s words would have struck home with British airline.
Speaking on the day that shareholders at BA’s annual meeting were heckling chairman Lord Marshall for describing Ayling’s efforts with the airline as “considerable”, the former CEO was delivering a reality check on the state of the industry.
“Economics are pulling us all to deliver more to passengers, but the political environment is holding us back,” said Ayling.
“There is a real risk we will be torn in two. Prices are not going down. They are collapsing.”
It was now cheaper to fly from London to New York than to take a train from London to Manchester, he said.
“Unless airlines are allowed to merge across national boundaries, they will never be efficient enough to make a significant profit,” he added.
Ayling’s assessment of the global airline industry follows recent concerns from IATA that although airlines’ ticketing, sales and promotional costs fell by 6.2 percent in 1999, profit margins continued to shrink.
Distribution costs accounted for 15.7 percent of total airline operating costs last year. Five years ago distribution costs were about 22 percent of operating costs.
A net profit of US$1.9 billion gave IATA airlines their sixth consecutive year in the black in 1999 but a margin of just 1.3 percent is well below what is needed for airlines to attract new investment.
Against this background, Ayling suggested that his successor, former Cathay Pacific and Ansett Australia boss Rod Eddington, might struggle to turn the airline around. “We saw huge success, and we also saw how – despite success – huge and continuing change is necessary to survive,” said Ayling of his time in charge at BA.
Ayling, 53, stepped down weeks before BA announced its worst financial result since privatisation. He was awarded £1.98 million (US$3 million) on top of his £500,000 salary, and will receive an annual pension of £260,000.
Speaking to airline managers at the Millennium Dome, Ayling defended his record at BA, insisting he had done his best “with the cards I was dealt”.
He said the position he inherited at BA in 1996 involved an elderly aircraft fleet that had “done its time” and a route network with much less genuine competition than had subsequently emerged.
“Overall, looking back, we did the right things: to face up to what had to be done and take the lead from the front. We had a cost restructuring and fleet renewal of magnitudes never before undertaken, and a cultural change within the company.”
Eddington, who took over in May as chief executive, told shareholders at BA’s annual meeting that there was “no instant fix, no magic wand” that would reverse BA’s financial losses. Yields, however, were improving, he said.