Yesterday Alex Cruz, Chairman and CEO of British Airways, appeared before the House of Commons Transport Select Committee to give evidence on ‘Coronavirus: Implications for Transport’.
This is the second time this year that British Airways has been grilled by MPs this year. In May, former IAG CEO Willie Walsh gave evidence in front of the same committee on behalf of British Airways.
It’s not clear why Walsh put himself forward at that time, given that the majority of questions were regarding British Airways and not IAG as a whole. This time, Alex Cruz was on the line and to respond to 2.5 hours of the committee’s insightful but occasionally meandering questioning.
Much like in May, Alex Cruz had one particular message that he wanted to get across: that securing the future of British Airways would secure tens of thousands of British jobs.
The majority of his answers were framed in respect to one uncontestable fact. British Airways is currently operating at between 25% and 30% of 2019 capacity.
Last week, 187,000 passengers flew versus just under one million last year. Weekly changes to the travel corridors list, no testing solution at airports and APD were all ‘quite challenging’ for the airline. Cruz does not predict the ‘short term return of our passengers’ whilst these problems remain.
Fire and rehire off the table
Back in May, Willie Walsh steadfastly refused to respond to questions about the ongoing consultations with staff. Alex Cruz had a lot to say regarding potential redundancies at British Airways.
Whilst initial Section 188 paperwork indicated the potential for up to almost 13,000 staff redundancies, Cruz hopes it is closer to 10,000. 7,200 people have already left in July and August.
The good news is that initial proposal of ‘fire and rehire’ appears to have been avoided. Since the initial notification, progress has been made with the trade unions on changes to existing terms and conditions.
Cruz gave the impression that legacy and Mixed Fleet cabin crew will remain on separate contracts rather than becoming a unified fleet, although with far more similar terms and conditions than previously.
(One rumour is that legacy crew will NOT have a ‘stand down (with no pay)’ clause in their contracts – unlike Mixed Fleet – which means that Mixed Fleet will lose out if temporary working is required.)
This was welcomed by the committee. although ‘fire and rehire’ was likely only ever a worst-case scenario that BA used as a blunt instrument.
Alex Cruz said that the new agreements will have a maximum pay reduction of 15% for legacy crew when taking into account basic pay and allowances. This is significantly lower than the 70% pay cuts that Unite and GMB said would be the case for some staff in their very public BA Betrayal campaign.
The majority of these changes have either been agreed or are currently out to ballot.
Permanent changes to contracts
When questioned whether permanent changes to pay, terms and conditions were necessary versus temporary solutions, Cruz insisted that the only way to guarantee the survival of British Airways – and therefore British jobs – in the long term was to make permanent changes to staff working conditions.
This is on the basis that the Covid-19 pandemic is significantly more severe than both 9/11 and the 2008 financial crisis, from which business travel still hadn’t recovered by 2019.
Cruz argues that “all the data points to permanent changes” in the aviation industry and that temporary pay cuts would simply be kicking the can down the road.
Management have also taken haircuts, with 5% to 20% pay cuts depending on seniority. Cruz himself took a 33% pay cut and has not received a performance bonus for 2019, with likely ‘no bonuses for many years to come’.
Cruz DID manage to avoid answering the question of whether management would face permanent changes to their pay and conditions.
No decision has been made about Gatwick yet, with British Airways taking a ‘wait and see’ approach to demand. At present a limited number of Caribbean flights are taking place, with short haul consolidated at Heathrow.
Travel corridors, testing and APD
Looking to the future, Cruz singled out three specific issues that are extremely disruptive to rebuilding the British Airways network. The lack of significant regional considerations was also a problem, although the Government did give regional guidance for seven Greek islands last week.
In particular, a regional approach to testing would be necessary to re-open travel with BA’s largest market, the United States. “We cannot wait for the last US state to reach the correct levels”.
As expected, Cruz called the last minute changes to travel corridors “incredibly disruptive” and called on the Government to implement a testing regime for arrivals in the UK.
He said that British Airways would be willing to help in any way it could to set up test trial between London and New York, the most profitable airline route in the world.
BA has been lobbying Government with other industry bodies to move towards a scheme involving two tests: once on arrival and once five days later.
Regarding APD, Cruz suggested it was not right that a domestic flight was taxed more highly than an international flight due to Air Passenger Duty being levied on both legs.
There was also some discussion regarding the rollover of the slot waiver into the winter season and whether this would simply encourage slot-sitting.
British Airways is currently using around 20% to 30% of its total slots, or 12.5% of total Heathrow slot capacity.
Cruz is hopeful for slot relief this winter and “possibly for the summer season next year” which is further in advance than most of the discussions I have seen on the issue.
Fundamentally, however, Cruz defended BA’s slots by arguing that if the Government were to strip the airline of some of its slots it would effectively be destroying British jobs.
Cruz cited the fact that 95% of slots re-allocated in the last 3.5 years have gone to foreign airlines, with 83% going to Chinese carriers. The implication was clear: protect British Airways and British jobs or risk surrendering UK routes to foreign carriers.
Whilst the heat regarding refunds has begun to subside, the committee did briefly delve into the subject.
As of last week, British Airways has processed a total of 2.1 million refunds and 1.6 million Future Travel Vouchers.
When grilled why refunds could only be processed over the phone, Alex Cruz argued that “complex itineraries” meant they could not automate the process: “the only way we can do that is face to face or over the phone”.
To be perfectly honest, it would have been good to see the MPs grill Cruz a little harder on this topic rather than let him get away with this lazy and deceptive answer. The BA website had no difficulty in processing refunds before March 2020.
There was very little that was new here, despite 2.5 hours of discussion. It was a more conciliatory session than the one with Willie Walsh, which is more in keeping with Cruz’s own personality and approach.
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