Part 1 Research Report- The BA Dispute

1.1: Introduction

The issue of managing organisational change is of significant importance within management theory and practice. Therefore the purpose of this report is to analyse the British Airways (BA) change program, which resulted in long-running industrial disputes between its management and crew members in 2009-2011. Additionally this reports objective is to provide accounts on the following areas.

1.2: Internal and external contextual factors, which influenced the introduction of strategic changes at BA

It is important to note that change is a significant process with any organisation in order to survive and grow in today’s global economy, without introducing change, organisations such as BA run the risk of becoming stale and unresponsive.

Both internal and external contextual factors affected BA leading the organisation to implementing change within the workforce. For a premium, semi-luxurious airline such as BA, low global economic growth otherwise described by the former BA CEO, Willie Walsh as the “harshest environment the airline had ever faced” (Walsh, 2009) resulted in a dampening demand for airline travel. Therefore customers including business travelling customers who were known as BA’s traditional core customer, their loyalty switched towards low-cost airlines such as Ryanair and Flybe, who remained competitors to BA through that time, especially during the volatile conditions of the recession.

However, airlines in the same manner as BA are particularly vulnerable not just to global economic conditions, they are also equally affected by external events from 9/11 style terrorism to ebola to the Iceland ash cloud and especially fluctuations in oil prices. A dramatic increase in oil/jet fuel prices is usually associated with a recession; therefore the fluctuations in oil prices had a heavy influence on BA’s decision to implement change. As in 2011, the oil prices increased to $110 (£71) per barrel. These increases in jet fuel prices have a massive downward effect on BA’s cash flow. Below the figure illustrates the fluctuations in oil prices from January 2009 to March 2011. The graph presents its findings according to price of oil in dollars per barrel of oil equivalent. While oil prices remained high throughout 2009-2011, customers had less disposable income to spend on holiday travel, therefore the demand for airline tickets fell as stated previously. This in turn majorly affected all airlines including BA.

Figure 1:

(Chukwuemeka Obiago, 2012)

With oil price increases affecting the airline, job security was an apparent issue for all employees at BA. Job security in turn was a result of the change in corporate culture. The insecurity of jobs left the employees opposed to change of the corporate culture and it stimulated resistance and conflict.

BA also faced enormous pressure from their employees, as the cost of living within the UK in 2009 was increasing 4% (inflation rate), this was in stark contrast with employee’s income of 2.3%. Therefore BA encountered pressure from employee’s requirements of wage increase.

Due to these internal and external factors, which had a major impact on BA, these factors led the organisation to implement crucial changes.

1.3: Details and evaluation of the strategic changes at BA

In the interest of BA’s survival, the organisation had no other option but to cut major costs. BA had to implement immediate action in order to realistically achieve this goal. The first course of immediate action that BA implemented were the severe job cuts in October 2009. BA announced on 6th October 2009 that they would be cutting 1,700 cabin crew jobs from their strong 40,000-member workforce. They also revealed their plans to introduce a two year pay freeze which would begin at the start of 2010, this was in order to save 63 million of Euro per year.

BA also decided that ‘eight or so’ routes regarding their current flight timetables would be cut, however, the valuable routes to India would remain. By cutting this amount of routes it was inevitable that another round of redundancies would have to take place. In a bid to cut costs, BA offered staff to work without basic pay for an undisputed amount of time (however, it was insinuated that this would last between 4-6 months), unpaid leave or finally the option to switch from a full-time position to a part-time position. In addition to the 1,700 jobs cut, a further 800 were cut. From the total of 2,500 roles cut, a total of 800 members of staff ‘allegedly’ volunteered to work without basic pay. A total of 4,000 employees agree to unpaid leave and finally the remainders of 1,400 staff members were prepared to switch from full-time hours to part-time hours. As well as employees facing major cuts in pay and job security, CEO at the time, Willie Walsh offered to forgo his monthly salary of £61,000 for the month of July, and similarly Keith Williams the financial officer also offered to work unpaid in order to achieve the overall cost savings.

In order to further cut costs the management team at BA had to forgo bonuses and BA also could not afford to offer dividend payouts to shareholders under a drive to offset BA’s trading troubles.

Regarding the customer aspect of the changes which had to be implemented BA had to offer cut-price discounts to keep non-premium travel broadly flat over the year, the organisation then went on to launch and introduce it’s first two-for-one offer to help fill planes. This was the only option BA could see fit concerning the drastic drop in airline tickets, the organisation were failing to fill planes due to cheaper budget airlines offering the same route of flights yet for extortionately lower prices.

While BA had been offering these options to their employees, the trade unions rejected these proposals and offered their own package of cost savings. This package evidently received a lot of support from the BA employees. The package included a two-year 2.61% pay cut for cabin crew which in turn mirrored that agreed by the pilots, an immediate general pay freeze and finally voluntary reductions in working time.

In December 2009, BA’s cabin crew then announced a 12-day strike, this was after thousands of employees supported the trade unions package and demanded for action. Tension and pressure grew enormously throughout 2009 and 2011 as over 22 days of striking had occurred over this period. The strikes, a classic example of resistance to change from the employees affected not only the organisation as a whole but also affected the customers who were caught in vast conflicts regarding their travelling. However, even from the announcements and implementation of strikes BA still managed to produce a total annual loss of £531m.

1.4: The change management strategy adopted to execute the strategic changes

Time was a crucial factor in this matter of implementing immediate vital changes to BA’s complete restructure and reduction of costs. Therefore this led BA’s management to employ an almost drastic and severe style of direction rather than a collaborative style.

Len McCluskey, Unite's assistant general secretary and chief negotiator commented on how BA introduced and executed the changes, ‘Change is not the issue. How it is implemented has been the difficulty from the beginning. BA has tried to impose radical changes on skilled, loyal and professional employees’.

The main reason behind why these employees resisted to the change was due to the lack of structure in the approach taken by the management team when initially introducing the changes, this in turn led to a difficult transition for the employees to adopt a certain behaviour to then be rapidly thrown into another behaviour. The underlying time factor also did not help throughout this period. As it is the responsibility of the management team to introduce the changes and identify the behaviours and processes it is evident that it was a top-down change due to the reaction from the macro-environment at the time.

As BA primarily focused on the epic changes they would need to employ which initially began cutting job roles and pay the strategic change strategy was indeed a retrenchment strategy, due to the curtailment of expenditures.

1.5: Challenges and difficulties experienced by the BA management team in managing these changes

As the management team failed to assess the estimated reactions of the employees BA faced major challenges and difficulties. The management also failed to offer support to the staff. This in turn presented many issues, as employees did not accept the changes and obviously did not transition and adjust well to them; therefore strikes were employed as an example of resistance. Due to the curtailing in staffing levels, cabin crew members evidently felt a great sense of danger regarding the security of their jobs.

With the rigorous style of change management BA also presented an extremely poor service reputation and had gained the image of being a major international airline providing the worst customer service, this in turn brought its own problems as BA were now suffering from a crippling brand image. The ramifications that come with a damaged brand image are difficult to avoid.