British Airways Weighs Cost of Compromise Against 20-Day Strike

British Airways Plc Chief Executive Officer Willie Walsh must decide whether to stand his ground against cabin crew workers and ride out a strike that may cost the equivalent of 75 percent of projected annual profit.

The Unite union, which yesterday called four five-day walkouts starting May 18, says the carrier must reinstate free travel and take back fired workers to win consideration for a pay plan that’s “an improvement” on previous offers. British Airways said the pay offer is “very fair.”

The strike may cost 150 million pounds ($223 million), including business lost on the single days between walkouts, based on the 45 million-pound expense of seven days of stoppages in March. Analysts estimates are for a 205 million-pound operating profit in the fiscal year that began April 1.

“As a hit to profits it’s painful, but as a drain on cash it’s manageable,” said Douglas McNeill at Charles Stanley Securities in London. “It would be treated as a one-off, so I think investors would be tolerant.”

British Airways has a cash balance of 1.6 billion pounds, Chief Financial Officer Keith Williams said in February.

British Airways fell 1.8 percent to close at 200 pence in London trading. The stock has declined about 5 percent since Feb. 19, the last day of trading before Unite announced the first strike.

Photographer: Frantzesco Kangaris/Bloomberg

Willie Walsh, chief executive officer of British Airways, speaks during an interview in London. Close

Willie Walsh, chief executive officer of British Airways, speaks during an interview in London.

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Photographer: Frantzesco Kangaris/Bloomberg

Willie Walsh, chief executive officer of British Airways, speaks during an interview in London.

Airline shares have also been hurt by repeated shutdowns of the Europe’s airspace following the eruption of Iceland’s Eyjafjallajökull volcano on April 14. Traffic at British Airways fell 22 percent last month, with dust disruption likely to cost the company about 100 million pounds, according to Williams.

‘Witch Hunt’

About 81 percent of cabin crew voting in a ballot on the latest pay offer followed Unite’s advice to reject the deal, the union said last week. British Airways made no new proposals over the weekend, the union said yesterday, adding that there can be no agreement “while management victimizes trade unionists and uses disciplinary procedures in a witch hunt.”

Unite is open to further talks, spokeswoman Pauline Doyle said today in an e-mail. “Our door remains open,” she said.

London-based British Airways, Europe’s third-biggest carrier, said in a statement yesterday that it is “saddened but not surprised” by the new strike call.

Pilots to Work

The British Airline Pilots’ Association said yesterday that it would work normally through any strike, adding that “it is for all groups within BA to make a contribution.” The labor group last year reached a deal with British Airways which it says gives the company annual savings of 25 million pounds.

Walsh cut cabin crew staffing levels in November without union approval in an effort to save 127 million pounds after the global recession hurt demand for air travel. While business trips have picked up in recent months, British Airways may suffer a record 600 million-pound pretax loss for the year ended March 31. The company is due to report results on May 21.

Andy Harrison, CEO at EasyJet Plc, Europe’s second-largest discount carrier, said on a conference call with reporters today that his airline may benefit by a “few million pounds” from the British Airways strike as customers switch flights.

“Things are improving, but it’s important that all airlines come out of this crisis more efficient than when they went into it,” said Stephen Furlong, an analyst at Davy Stockbrokers in Dublin with an “outperform” rating on British Airways stock. “BA crews are still less efficient compared with many other airlines.”

Lufthansa Dispute

British Airways is not alone in facing labor unrest as it seeks to renegotiate contracts with its staff.

Deutsche Lufthansa AG, Europe’s No. 2 carrier after Air France-KLM Group, is in talks with the Vereinigung Cockpit pilot union after a walkout grounded flights in February. An agreement on the deployment of lower-paid crews is “realistic” in coming weeks, union spokesman Joerg Handwerg said today by telephone.

British Airways says London’s Gatwick and City airports will operate as normal during the coming five-day strikes, which will also run from May 24, May 30 and June 5.

The carrier also aims to provide a “substantial part” of its long-haul timetable from London Heathrow, together with at least some daily service to short-haul destinations. That will once again involve leasing in planes and crews and booking thousands of customers onto other airlines, it said.

“I very much doubt that Unite can stage a successful strike of this duration,” McNeill said. “Asking cabin crew to forfeit a month of wages seems to me to be a big ask.”

To contact the reporter on this story: Steve Rothwell in London at srothwell@bloomberg.net

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