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Monday, 6 September 2010

Walsh: it gets worse

Iberia was always one of the most incompetently run airlines. Believe me, I have dealt with them at board level, and I would have expected more business "naus" from the owner of a West Midlands chip shop. But it seems their merger with BA is now a merger of equal incompetents.

According to press reports, Willie Walsh, British Airways’s chief executives, and top Iberia executives have drawn up a list of 12 candidates to buy or merge with once their own tie-up is finalised. The 12 targets, pared back from an initial list of 40, includes budget airlines as well as larger full-service carriers in several countries, including fast-growing emerging economies such as Brazil, India and China. Walsh will drive the combined group’s strategic direction, assuming the deal is completed by the end of this year as planned, and has already made clear that the new group would look at further consolidation.

So we have two groups that have gone backwards in the last few years (while the aviation industry as a whole has expanded). The decline of both airlines has been due to a failure to match or respond to low-cost airlines (a classic failure of strategy), forcing the two flag carriers into each others' arms to save costs through rationalisation.

At this stage you would expect them to be on the back foot and acting defensively. But no, Mr Walsh and his amigos have decided that the easiest way to turn their merged businesses back into the black is to take what is left of shareholders' cash and blow it on airlines operating on the other side of the world. Given Mr Walsh's lack of success in motivating his Anglo-Saxon workforce, I dread to think how he will deal with fractious bag handlers in Bangalore or Shanghai.


Demetrius said...

It seems that their autopilot is taking them in the direction of the Himalayas. Unluckily their flight capability only goes as high as 15,000 feet.

Alex said...

Walsh is running BA like one of those business school simulations and he looks like he is going to be the player that runs out of chips first.

Hired to run one of the better run flag carriers, Walsh decided that low cost airlines were the way to go (because that was what everyone else was doing) and slashed the number of UK routes operated by BA.

He then decided that wasn't working out and so he tried to merge BA with Qantas which didn't go through, and by which time he was getting desperate and merged with Iberia.

So this was going to be an English speaking or a Spanish speaking retail service industry - I think it is plain that they got that wrong from the start.

Then Walsh decides that the reason for the merger is because the place to be investing is not actually Spain or Europe, but somewhere on the other side of the world .... because there is going to be growth. Could be India, oe China ... or Brazil.

The only trouble is

1. The rest of the world knew that years ago and still chooses not to invest too fast.

2. Neither Walsh, BA nor Iberia know about growing new businesses; BA and Iberia have been stable or declining for years, and all Walsh has done is run Aer Lingus and BA into the ground.

3. Walsh knows nothing about China, India or Brazil. If investors wanted to put their money into those countries, they would go with someone who did. Aircrew, ground staff and ticketing staff can be hired in, but local management with good political connections are crucial, and BA doesn't have that.

4. If you are in charge of big businesses, you can't go off punting on new businesses unconnected to your existing business. the growth in India, China or Brazilian flights are domestic or regional. Not many of them are trying to get to Milton Keynes. Ignore your main business and it will collapse.