BA faces fresh summer of discontent

Chief executive Rod Eddington encounters first staff resistance to £1bn cost-cutting plan

It is high summer at Heathrow and quite out of the blue British Airways is brought to a shuddering halt by strike action, leaving thousands of passengers stranded and hundreds of flights cancelled. The cause of the industrial unrest is a swingeing programme of cost-cutting designed to restore the country's flag-carrying airline to financial health.

The year in question is 1997 and the man in charge of BA is Robert Ayling who was eventually to be forced out as chief executive. Fast forward six years and his successor, Rod Eddington, finds himself confronting a not dissimilar crisis after the first strike under his leadership.

There are some differences between 1997 and 2003. Then it was the cabin crew who went on strike. Now it is check-in staff. The industrial action six years ago was an official dispute which followed a staff ballot. Last weekend's chaos at Heathrow was the result of a wildcat strike which took the unions as much by surprise as BA.

There is, however, a common thread linking the events of six years ago and those which caught BA so badly on the hop last weekend. In 1997, Mr Ayling was struggling to cut costs in the face of an economic downturn in some of BA's key markets and came up with his Business Efficiency Plan - an attempt to take £1bn out of the airline's cost base.

Six years on, the personnel may have changed but the same old challenges remain and it is Mr Eddington who is seeking to achieve savings, again of £1bn, this time through something called the Future Shape and Size programme. BA is already on course to achieve annualised savings of £650m by next March and has now identified a further £450m in savings by March 2005.

BA's staff have as much reason today to fear that the cost savings will be achieved at their expense as they did back in 1997. Of BA's £7.2bn in annual operating costs, wages eat up £2.1bn or 29 per cent - by far its biggest expense.

Last weekend's unofficial action at Heathrow involving about 500 check-in staff was sparked by BA's decision to introduce a system known as automated time recording. This is an electronic form of clocking on which requires staff to swipe an identity card when they arrive for and leave work. It is due to begin today.

BA says that the system, which has already been introduced in other areas such as baggage handling, engineering and ground transportation, is merely designed to allow it to measure the peaks and troughs of activity on check-in desks. The airline also argues that in this age of heightened security, it enables management to know exactly who is on site and when.

Staff, on the other hand, fear that BA could use the information either to dock the pay of those leaving before their shift officially ends or to introduce "annualised hours" contracts giving management greater flexibility to call up staff at peak periods such as summer weekends and stand them down when it is less busy.

Although "unofficial", BA executives are in no doubt that last weekend's action was also orchestrated. "Walk outs by 500 staff in two terminals don't just happen like that," said one. "It was always going to be challenging to implement Future Shape and Size in some areas. We knew it would be a bumpy ride."

But it is not just check-in staff who are upset. Last week Mike Street, BA's director of customer service and operations, managed to antagonise cabin crew by suggesting that employees throwing "sickies" was the reason behind the acute staff shortages that have affected the airline recently. Two weekends ago, BA was forced to hire aircraft and crew from another airline, Air Atlanta, to operate scheduled services to Cairo. It has also had to close first-class cabins on aircraft serving a number of long-haul routes including Hong Kong, Dubai and Cape Town because there were not enough crew to man them.

The staff shortages are themselves the result of Future Shape and Size, part of which has involved a big increase in the number of cabin crew employed part-time. Almost half BA's 14,000 cabin crew are part-timers, who, as Mr Street, observed, are more difficult to manage.

To his credit, Mr Eddington has so far largely carried the BA workforce with him, unlike his predecessor. "Eddington has got much more done before meeting the level of resistance that Ayling encountered," says Chris Avery, aviation analyst with JP Morgan.

BA is well on the way to achieving the 13,000 job losses it targeted by next March and Mr Eddington has got rid of peripheral businesses like Go and Deutsche BA and Air Liberté in order to concentrate on the core airline operation.

In a people business like airlines, it is also important to get on with your workforce and, in this respect, Mr Eddington's bluff Aussie charm has gone down a whole lot better than Mr Ayling's dessicated mangement speak. "If you talk to BA staff there is no hostility towards him, yet, whereas the hostility towards his predecessor was tangible," says Mr Avery.

Nevertheless he detects the first warning signs in the air. "BA has had a decent run of industrial harmony but lately there has been evidence that it is walking on eggshells when it comes to labour relations."

It is almost certainly fanciful to suggest that the same fate awaits Mr Eddington as befell his successor. For one thing, he has avoided self-inflicted wounds such as Mr Ayling's ill-fated decision to repaint BA's tail fins and his time-consuming but abortive attempt to merge with American Airlines.

He is also operating in a markedly different economic climate. In 1997-98, the year of the cabin crew strike, BA still turned in a profit of £580m. This year BA is heading back into loss after last year's £135m profit. It was already forecast to lose £150m and last weekend's strike has probably added a further £10m-£15m to bottom line losses. "Whether BA is in for a new period of militancy, I am not sure," says one analyst. "This does not feel like the right time for the workforce to mount a sustained challenge to BA's management."

Nevertheless, it is a stark reminder that it does not take militancy on a massive scale to inflict serious damage on an airline like BA. That bumpy ride may be about to get bumpier.