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Those British Airways strikes

March 29, 2010 4 comments

While there’s been a lot of commentary on the British Airways strikes, the analysis (whether pro-company or pro-union) tends to miss two major points.

The business model is unsustainable – but that’s the management’s fault, not the unions’

BA’s model before the global financial crisis was to charge a fortune for excellent service in Club World and First, while matching its competitors’ prices and service levels in World Traveller. Together with BA’s massive global coverage and its excellent connections between the financial boom centres of London, New York and Singapore, this business model allowed BA to attract a lot of passengers and make a lot of money.

This was lucky, as BA’s cost base is and remains far higher than that of its competitors. Not on planes, or marketing, or even management – but on staffing. At the time, the money that bankers were willing to pay to fly to Singapore in a bed whilst being served champers by reassuringly camp gentlemen was so vast that BA could get away with paying long-serving cabin staff double the national median wage.

However, this wasn’t a sustainable business model unless you believed the boom times would never end. BA should have taken advantage of the good times to stuff its current crews’ mouths with gold (pay rises, massive early retirement packages, one-off bonuses), in exchange for permission to hire new recruits under less generous contracts so that the long-term cost base was more sensible. Virgin Atlantic pays new recruits gbp15,000 ranging up to about gbp30,000 for senior crew, and anyone who’s flown on Virgin will confirm that this is enough to attract motivated people who provide excellent customer service.

Unfortunately, BA’s CEO for most of the boom – Rod Eddington – had approximately no aptitude for long-term strategic thinking, so kept with the status quo for an easy life (my assessment of his aptitude is supported by his report on UK transport policy two years ago, which managed to miss out high-speed rail completely. I’ve only just discovered via Google that he’s done much the same half-arsed job in Melbourne). Willie Walsh has a better track record, but by the time he’d taken over and settled in, the recession was already imminent. Now, BA has to cut costs for long-term survival, but doesn’t have the money to bribe its staff to accept the cuts.

The unions are in a far stronger position than most commentators realise

BA’s enterprise value – the amount that its assets plus goodwill are worth, before taking into account its financial liabilities – is something like GBP7bn. The reason its market cap is only GBP3bn is because it also has a GBP4bn pension deficit. In other words, money that BA owes to its workers and former workers accounts for more than half of the company’s total value.

This has two policy implications.

One is that Red Tory Philip Blond’s suggestion that the government should mutualise BA isn’t quite as insane as it looks – more than half the company is already owned by the workers, and if things were to get worse then the pension fund has priority over the shareholders as a creditor. A deal like the one the US government brokered for GM, leaving the workers as majority shareholders, isn’t totally implausible.

The other consequence of this ownership pattern is something which should make BA shareholders rather nervous.

If the industrial action were to turn into a major, long-term dispute that drove down passenger numbers and revenues to such a severe extent that BA had to go into administration, then the pension fund would have priority over BA’s assets (including not only its physical assets, but also its brands, goodwill, systems, etc). It’d be hard work to rebuild BA as a global brand after that kind of collapse, but it wouldn’t be impossible – particularly with worker ownership ending the company’s labour crisis overnight. The shareholders, however, would lose everything.

So while the “nobody backs down” outcome isn’t good for either side (as the workers lose salary in the short term, and in the long term their pensions end up secured on a much less valuable asset), it’s a lot more optimal for the workers than it is for the shareholders. This makes negotiations, erm, challenging.

Conclusions? None really, except that I wouldn’t want Willie Walsh’s job, and Rod Eddington shouldn’t be put in charge of the strategic direction of a whelk stall (although he’s probably competent to administer one day-to-day).

**********

Update: another conclusion is that if you blame the strikes on Gordon Brown’s ‘weakness’, you’re so utterly clueless that you shouldn’t even be allowed to assist Rod Eddington at his whelk stall…

Update 2: Jim notes that BA’s business model is also unsustainable in the sense that the oil’s going to run out. This is true, and worth a read (I’m not yet totally sold on Jim’s view on precisely when the oil’s going to run out, but that’s mostly based on sheer incredulity that if the oil’s really going to start running seriously short by 2015, governments and large companies haven’t done more to mitigate that. The GFC highlights that this may be over-trusting of me…).

We love Admiral Scrumptious

March 12, 2010 6 comments

Lord Adonis‘s retort to Boris on the Tube Lines PPP arbitration is quite superb:

Under devolution, it is for the Mayor and TfL to deliver the Tube upgrades within their generous budget – not for me to bail them out if they fail to do so.

If Boris wants me to take charge of TfL then he should say, and I would start with more sensible priorities like not cancelling the Western congestion charge zone and not replacing a modern bus fleet needlessly – both of which are costing Londoners hundreds of millions of pounds which could be spent on upgrading the Tube.

At some point, I’m going to post on why Tube PPP was a Good Thing (at least, given 2000s capital market conditions – it’s possible that credit availability over the next 10 years will mean that PPP/PFI is no longer as good an idea as it was during the Blair years). It boils down to “the government is committed to paying the money whether it wants to or not, rather than buggering about with the budget year-on-year as happened from 1945-1997″.

(yes, this kind of long-term commitment sacrifices democratic decisionmaking in favour of efficiency. As regular readers will hopefully have picked up, this blog has no moral attachment to the concept of democracy, or “rule by a mob of ignorant idiots”; the only reason I’m not actively opposed to it is the empirical one that other means of governance generally seem to turn out even worse.)

Disappointing bureaucrats

March 10, 2010 4 comments

In general, the New South Wales drivers theory test is a Bumper Book of Common Sense. However, I’m disappointed by question FD035:

FD035 – Fatigue and Defensive Driving RUH
You are driving an older relative for an appointment and are running late. They ask you to go faster to get there on time. You should –
a) Choose a safe speed and say you will not go any faster
b) Take the advice of a more experience driver and go faster where you can.
c) Drop them off at the train station.

According to the Bumper Book of Common Sense, a) is the only permissible answer.

This is bad and wrong. When some silly old sod is hassling a kid (since 95%+ of Australians learn to drive in their teens) to drive dangerously, “here’s the train station, now piss off” is clearly the most appropriate response…

Mmm, tempura morays

December 2, 2009 Leave a comment

From Ars Technica, enlightening the ‘net neutrality’ debate, a piece on the corrupt institutions and robber barons who hijacked the Victorian equivalent of the Internet.

This digression was interesting:

The result was the infamous Credit Mobilier scandal of the 1870s… Rather than license the construction of the Union Pacific railroad to an independent contractor, its Board of Directors farmed the work out to Credit Mobilier, a company that was, essentially, themselves. In turn, Credit billed the UP vastly more than the actual cost of the project. To keep Congress quiet about the affair, the firm offered stock in itself to Representatives and Senators of any political persuasion at bargain basement prices.

The piece compared the scandal to Enron. But for some reason (and I’m struggling to work out why the thought hit me at this point), I started to wonder whether any Treasury politicians or officials in place in the early 2000s were granted generous share options or shares in Atkins, Balfour Beatty, Bombardier, EDF or Thames Water…

British negativism versus reality

August 5, 2009 1 comment

From CiF:

We managed to add a 5th terminal to Heathrow without too many problems – apart from some lost baggage in the immediate aftermath; which, while tiresome, was hardly a showstopper. Trouble is, with our infinite capacity to see the negative, this was seen as some kind of apocalyptic proof of how useless we are at infrastructure.

The French built a new terminal at Charles de Gaulle airport a couple of years before Heathrow terminal 5. It fell down.

Must… not… like… pretend… buffoon

July 31, 2009 6 comments

In the last couple of weeks, Boris Johnson has done three good things that I can remember:

* Allegedly had a row with David Cameron about Crossrail, taking London’s side
* Endorsed cycling home after a couple of beers
* Supported restarting tours of London’s disused Tube stations

Meanwhile, I can’t think of anything bad he’s suggested over the same time. And yes, I know the whole point about the probably-manufactured Crossrail row is to do a ‘moderate’ act, and I know the latter two points are irrelevant identity statements with no serious policy implications, and this kind of thing still isn’t going to make me vote for him.

And yet… and yet the latter two are identity statements that I approve of. The public admission that having a few drinks isn’t a problem, and doesn’t impair your functionality to the extent that you can’t ride a bleedin’ bike [*], is both entirely true and against the mood of these curmudgeonly times. And tours of disused Tube stations will make existing geeks happy and help recruit new ones – and were done without any problems until 2000, so clearly could be restarted without causing any major harm. Indeed, both are the kinds of things that humourless pseudo-experts rail against, whilst not causing any major harm. They’re the opposite of the showcasing, ‘let’s ban stuff that doesn’t do any major harm but that we don’t like to send a message’ side that makes the current government so loathsome [**].

And yes, I know that Boris’s tube-booze ban is the ultimate example of a spurious ban, second only to the Tory plans to turn back the licensing laws to the absurd WWI-dictated situation that prevailed previously [***].

So, can we have someone on the left who’s prepared to stick up for Fun Stuff over Spurious Bans? Hell, someone on any official side would do. Then again, since the target audience at this election apparently consists of middle-aged nurses who’re afraid of everything, probably not.

[*] Car comparisons are spurious. We allow kids to ride bikes, fercrissakes.

[**] I might, through extremely gritted teeth, vote for them this time round as discussed. But my God, they are.

[***] The licensing laws are an excellent example of lobbying from big business creating an unalloyed improvement that neither party dared to or wanted to bring about in their own right. Since the public mood at the moment still seems rather puritan, I’m thanking all deities for the fact that the booze industry has deep pockets and political influence.

Our aviation correspondent writes in

July 14, 2009 5 comments

Following this research into GE-made Airbus engines cutting out in ice, he say:

So far as the GE-powered AF 447 is concerned, the potential woes go on mounting:

* Dodgy AF training for weather
* Failure to change course for weather
* Sensors buggered by extreme temperature and/or turbulence
* Avionics gave up – handed control to pilots
* Who were probably asleep when the woes started
* And probably were only two junior officers (captain on rest break)
* Engines vulnerable to flame-out
* Plane previously damaged
* etc., etc.,

I’m continuing to avoid AF.

I also note that the French authorities leading the search failed – despite having a nuclear submarine easily capable of deep-water searches – to find the black boxes that would have shown whether the crash was the fault of the French national airline, the French national aircraft manufacturer, or something mysterious and improbably neither-of-the-above. This is my ‘shocked’ face.

Update: Air France has great deals in international flights right now. See also: hotels in Xinjiang, greased-pig-racing weekends, Labour prospective candidatures, etc.

Old Crow from the archives

June 11, 2009 6 comments

I think pretty much everything in my RMT piece from last summer still applies today.

Note in particular: 1) Low turnout and non-spectacular majority indicating this is a Crow effort not grassroots; 2) Tories using the RMT’s intransigence to lobby for (even) more draconian public sector anti-strike rules; 3) DLR, Thameslink, Overground are all working (as would be ELL, extended Thameslink and Crossrail, if they were built yet); 4) absolutely no support from Aslef and TSSA, leaving many Tube lines running too; 5) reports of RMT drivers blacklegging.

Categories: Transport Tags: , , ,

Generic response to generic ‘oh no, the trains are so expensive’ wittering

November 24, 2008 23 comments

Inspired specifically by this piece, but more generally by the dozens of such pieces, left and right, which perpetuate ludicrous myths about the cost of travelling on the trains.

The fact is, in Great Britain, train fares rise at a couple of percentage points above inflation every year. This isn’t surprising – most of the cost of running a railway is that of paying people, and (at least when the economy’s growing, as it was for the last 10 years) people like to be given pay rises above inflation every year too.

So every year, trains get slightly more affordable to the average person (because the average person’s income rises by 2-3% above inflation), but slightly more expensive in cash terms, than they were the year before. Like sandwiches, or pies, or haircuts, or pretty much any other consumer service that can’t be imported from China.

(since such stories are rarely complete without a questionably chosen anecdote about outrageous prices – I went from London to Birmingham and back at the weekend, heading out in the Friday rush hour, with a £30 return ticket bought on the day. That works for me…)

Categories: Transport

Evidence-based policymaking

October 21, 2008 1 comment

Quoth our illustrious mayor (via):

I am informed that, thankfully, there have been no fatal accidents arising from collisions between cyclists and articulated buses in London since the introduction of articulated vehicles.

Serious incidents are defined by TfL as those where a cyclist may have required treatment, including in hospital. There was one serious incident involving a cyclist in each of the years 2005/06 and 2006/07, and two in 2007/08.

In other words, the data collated by TfL and accepted by the mayor clearly shows that bendy buses are not dangerous for cyclists.

As Tom from Blairwatch says,

At this point you checkmate him by pointing to the reams of documentation on gyratory systems and perceived cycling safety, particularly referring to Parliament Square, Elephant and Castle, Aldgate etc.

Indeed. The mayor isn’t pro-cycling; if he were, then he wouldn’t be adjusting the traffic flow to make cars faster and more dangerous, or pretending that something completely harmless to cyclists is a threat to them. He’s a traditional Tory ideologue, who hates public transport, urbanites and the poor, and loves cars, suburbanites and the wealthy, wearing an extremely skimpy green veil.

The implications for the next Westminster elections are pretty obvious. I can understand wanting to get the current lot out, and I can understand the argument that a Tory government might be less bad than the plausible alternatives. But if you’re voting Tory, don’t delude yourself they’re some kind of NuLabLite and that all you’re opting for is a change of leader – they’re still the party of Michael Howard and Mrs Thatcher, and a vote for them is an endorsement of the whole Thatcherite project.

(I might be being unfair – it’s just about possible that the mayor has no understanding of evidence-based policymaking, and genuinely doesn’t realise that the statistics are a bloody good reason to cancel his hare-brained scheme. I’m not sure that hoping the future PM is merely an idiot rather than a dishonest ideologue is a wonderfully optimistic position to be in, though…)

Categories: Bit of politics, Transport