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Taking a punt on industrial strife can be a winner

Kathleen Brooks
THE High Court may have helped restore Christmas cheer for passengers of British Airways by ruling that the proposed 12-day strike by the airline’s cabin crew was invalid, but investors should arm themselves with trading strategies for a 2010 that could be rife with industrial action.

But the dispute is far from over. After the High Court’s ruling Unite, the union representing BA staff, said it would re-ballot its members about taking industrial action in the New Year.

BA’s rivals such as Virgin said they would increase the number of seats available in the case of a Christmas strike at BA. They are likely to pick up the slack and scoop up the extra revenue if there is further disruption to services next year.

“A strike will be very damaging for BA in the short-term,” said Commerzbank strategist Peter Dixon. “It will also raise major question marks with regard to the company’s image in the long-term, which ought to be reflected in its share price relative to its peers.”

Taking a short position in those airlines exposed to damaging industrial action – like the big national or legacy carriers – and taking a long position on low cost carriers where unions have less of an influence, offers short-term gains.

UK PLC TAKEN HOSTAGE
Airlines are not the only sector facing a new year of tumultuous relations between management and staff. Lacklustre economic growth means that the prospect of unions successfully negotiating pay increases for their members sharply diminishes. The Post Office and the National Grid have already threatened strike action while the highly unionised manufacturing sector is also at risk of industrial action if employees’ wages remain stagnant next year.

If unions hold UK plc hostage the broader economy will also suffer. In this scenario a short UK long US trade could be a good move for spread betters since the US is far less unionised than the UK.

In 2008, 12.4 per cent of all employed and salaried workers in the US were members of a union, according to data published by the US Bureau of Labor Statistics. This compares with the UK where the Department for Business, Innovation and Skills reported that union membership was 27.4 per cent last year.

Due to the macroeconomic implications of hostile union-management relations in 2010, it is more effective to trade this theme using currencies: sell sterling short and go long the US dollar, or using equity indices such as a short position in the FTSE 100 and go long on the S&P 500.