s clear that British Airways (BA) chief executive Willie Walsh always likes to keep his foot hard on the pedal.
The Dublin-born airline boss is in the middle of a bitter 18-month dispute with his cabin crew, and only a few weeks ago received US and European regulatory clearance to pursue a transatlantic tie-up with American Airlines and a full-blown merger with Iberian.
But even though the details of these deals have still to be formally passed by shareholders, he last week admitted to have already drawn up a hit list of up to 12 other airlines around the world he would like to merge with or buy.
Walsh, a combative and energetic 48-year old, puts it clearly: “The ambition is to pursue further consolidation. And we hope that this will lead to us becoming the biggest airline in the world.”
A trim, alert Walsh is sitting in the first-class lounge in Mumbai’s Chhatrapati Shivaji International Airport at one in the morning. He is about to board a flight to Heathrow at the end of a lightening two-day tour of India’s commercial capital. He flew into the city in BA’s new longhaul Boeing 777-300ER, the first plane in the airline’s 240-strong fleet to carry the firm’s latest first class, business, premium economy and economy cabins.
He also unveiled a codesharing agreement with one of India’s largest players, Kingfisher Airlines. India is the airline’s second largest market after the US, with 45 flights a week to five cities.
Leaning forward in his easy chair in the Mumbai lounge, Walsh explains why consolidation is good for the industry and for passengers. He says: “A well consolidated business in this industry translates into two things – lower fares and greater profitability. We want to create a platform that like-minded airlines would like to join.”
Walsh will not be drawn on who is on his hit list, but points out that “there is a lot of passenger growth in Asia and Latin America.” And a source close to BA adds that central Europe is an area in which the enlarged airline will be weak. Observers believe that Australia’s Qantas, Hong Kong’s Cathay Pacific, Air Berlin and Chile’s LAN Airlines may all be targets.
Walsh adds: “We will concentrate on airlines that are healthy. We are not looking to do a basic restructuring of an operation. We want strong brands in their respective markets. We want a collection of brands that are efficient. Consolidation is about being better, not just bigger.”
The airline boss aims to grow faster than larger rivals such as Germany’s Lufthansa and Air France-KLM, as well as fend off competition from fast growing Middle East players such as Emirates and Etihad. Sources close to the UK flag carrier say it will choose from a range of options to fund this expansion – such as using cash from operational savings, raising debt and all-share mergers.
BA and Iberia plan to merge by the start of next year, under a holding company called International Airlines Group (IAG). But before that a number of things must happen. The Iberia board must vote to approve BA’s plans to shore up its £3.7bn pension deficit when it meets on 30 September. And then investors from both airlines must approve the merger at shareholder meetings in mid-November.
This will then allow IAG to be set up, with both airlines operating underneath it. The new structure will see Walsh move from BA to become chief executive of IAG, while Antonio Vasquez will move from chairman of Iberia to become chairman of IAG. BA finance director Keith Williams will become the chief executive of BA.
Walsh says his first task at IAG will be to ensure the enlarged group will save €400m (£329m) a year within five years. The airline chief adds two-thirds of this cash will come from cost cutting and one-third from boosted sales.
Walsh explains he plans to get these savings by closely coordinating the new network. He says he wants to “take advantage of Iberia’s strong links into Latin America.” He also wants to offer an hourly service between New York and London at peak times. Last but not least, the airline chief adds that he also wants to cut supplier costs through joint procurement, and the use of fewer third party agents at the various airports it uses.
Walsh says IAG will employ only 90 people and will “coordinate and control the finances of the network at the centre.” Any significant spending that BA, which employs 40,000 people, or Iberia, which employs 22,000, feel is necessary will have to be approved by IAG.
The CEO thinks he will be a position to look at acquisitions in about 18 months time. But he adds that he “will look at any opportunity that arises” before then.
Among all this Walsh is also dealing with a cabin crew dispute over pay and conditions that first erupted last February.
The Unite union say the dispute is solely about restoring the travel perks of the 5,000 crew (in total BA employs 13,500 cabin crew) who have so far gone on strike for 22 days this year, costing the airline £150m. But Walsh says this is “absolutely not” the case. He says Unite’s British Airways Stewards and Stewardesses Association (Bassa) branch, which is based at Heathrow “will not embrace change and recognise that the industry has become brutally competitive.”
The new contracts that Walsh has introduced in recent years for the rest of his cabin crew saw staff numbers fall by one person on shorthaul and longhaul flights, and will see the basic salary of a senior crew member fall from £50,000 a year to £35,000 in line with pay structures in the rest of the industry.
Walsh has offered to ring-fence Heathrow staff from these reforms. The strikers do not want to accept these changes because they fear that they will be used less on lucrative longhaul routes, which have greater cash allowances (they can add up to 40 per cent to a crew member’s basic wages).
Last week Bassa called on Unite national executive to hold a strike ballot in the run up towards Christmas. However, Unite’s leadership plans to hold further talks with BA later this week.
Walsh says: “The problem is that Unite is a dysfunctional trade union that is split into two sections who will not talk to each other.”
He adds: “I can do a deal with Tony Woodley [Unite joint general secretary] today. We get on well. We respect each other, although we argue. But the behaviour of Bassa is completely unacceptable. They have tried to personalise this dispute, but they have failed. People aren’t training as cabin crew because they believe in Willie Walsh; they are doing it because they believe in BA.”
Walsh says he is determined not to backtrack on the changes he has made to cabin crew contracts.
After BA’s two worst years of losses in its history – thanks to the financial crisis, which saw the airline lose £531m last year and £401m the year before – Walsh says the carrier is showing signs of recovery.
The airline posted a first quarter loss of £164m, larger than the £148m it lost in the same period last year. But it put much of this down to strike action and disruption caused by the Icelandic volcanic ash cloud. And by the end of the year the airline forecasts it will break even in terms of profit before tax as key business and first-class customers return.
The BA boss says: “We are not seeing anything that suggests a double dip recession. So far the recovery is going a little faster than I’d excepted.”
As a sign of how things are improving Walsh points to his year-old all business class route from London City Airport to New York’s JFK.
He says: “This route has exceeded our expectations. We are now looking at adding capacity to this route and introducing new cities, like Boston and Washington, to this service.”
With that one of Walsh’s senior men at Mumbai airport reminds his chief he has a plane to catch. So after a few pleasantries, the airline chief dashes off, at quite a clip.
Over the next six months Walsh will have to bed in two mergers, deal with a strike, streamline a network, implement crucial cost savings, boost his bottom line while keeping a close eye on new targets. Investors will hope that Walsh, a trained pilot, still retains a captain’s ability to remain calm in uncertain weather.
CV | WILLIE WALSH
Working Week: In the office “from 7.20am to around 7.30pm. Then two nights a week I am out on work business.”
Career: Aer Lingus cadet pilot at 17, co-pilot at 19. Switched to management at 27. Became Aer Lingus chief executive in 2001. In three years at the airline he halved the workforce.
In 2005, he became chief executive of British Airways.
Education: Ardscoil Ris secondary school, Dublin; MBA from Trinity College, Dublin
Family: Married, one daughter. Lives in Twickenham, under the Heathrow flight path