BWIA: In a sea of red

“BWIA is flying in the face of the international airline industry by showing a profit in a sea of red,” Bourse Securities said after the posting of the September 2001 BWIA figures. The company’s recommendation was to buy. This statement did not continue to hold at the end of December 2001 and became even more irrelevant at the end of 2002.  As at December 2002, the company  reported a LPS — Loss Per Share of US$0.74 down from a LPS of US$0.03 in 2001. This reflects a loss of US$34.4M in 2002, a decline from the 2001 loss of US$0.7M.   The loss from ordinary operations of US$11M increased because of :

1) A one time write down in aircraft assets — US$14.3M
2) Provision for separation costs — US8.2M — for the “adoption of the New Business Model that will position BWIA on a lower cost basis.” Forced low rates that were necessary to stay competitive on the market “constrained the availability of resources to do battle for market share in the shrinking market pie.” While the Maintenance and Engineering areas boast an “average dispatch reliability of greater than 98.76 percent across fleet types,” this department returned aircraft to the lessors. In the Chairman’s (L Duprey) view, the “management at BWIA performed to a higher level than several other larger airlines in this hostile environment.”  His sentiments are supported by the then CEO Conrad Alleong who reminds us that “in 2002, practically all carriers suffered historic losses with the total industry losing US$23 billion for 2001 and 2002, that is, wiping out all the profits produced by the industry since 1945. BWIA found itself in this same financial crunch and had to adopt the same strategy of cost reduction for survival.” BWIA’s objective is to reduce its operating costs to US$0.08 cents in terms of cost per available seat mile (cost/ASM). This would allow the airline to be extremely competitive as the benchmark set by the low cost star “Jet Blue” is US$0.073 cents /ASM. The new policies for reduction will only be successful by the diligence and commitment of the staff, union  and management to ensure that all their actions and decisions are in tandem with these goals. Financial considerations apart there will be a further restructuring of BWIA as the calls for a regional initiative to provide regional air links that will mitigate the dependence on external sources grow louder.  The sharing of key services with LIAT that allows passengers seamless travel through the Caribbean, from and to North America and the UK may be extended to incorporate the other three regional airlines in the region. (Air Jamaica, Bahamasair, Cayman Air). 

The cost reductions to be derived in sharing administrative and operational functions both within and outside the Caribbean regions will assist these airlines in achieving better bottom lines.  The way forward is clear, the reliance on governments and by extension taxpayers must be diminished.  This can only be done when regional airlines of the region begin to generate profits and management continues to look for ways to manage costs.   The responsibility for cost reduction at BWIA is throughout the organisation.  The reluctance of BWIA staff to “eat little and live long” and the management’s small offerings for salary cuts does not auger well for the organisations ability to achieve real cost cutting methods and the belt tightening initiatives that are necessary to achieve the targets. The union’s acceptance that the division of labour will be consolidated and that employees will be asked to multi task outside of the job specifications stated in their employment contracts will ultimately determine success. Management’s and the Board’s ability to maintain transparency and make decisions that put the company first will go a long way in making it easy for the union to accept such proposals.  The first round of cost cutting is always the easiest.  Most organisations have some fat and this is easy to trim.  The lease and outsourcing options have provided  real cost savings in various industries and are not innovative solutions.
 
Innovation comes from scrutiny of the way things are done and devising new methods of doing them and rewriting policies to support the new methodologies.  If BWIA is serious about cost cutting then we expect to see a new organisational structure, new job functions that result from the merging of present functions, new policies and procedures to support the cost reduction initiatives, a greater and more responsible involvement by the union in real decision making, new attitudes and service levels by cabin staff and more complimentary press articles about the company. Management seems confident that they have started a turnaround and the level of restructuring completed thus far are in a position to take advantage of any upturn in market conditions. According to then CEO Conrad Aleong, “ A BWIA with its enviable routes, two A340s, nine B737-800s, smaller focussed workforce of skilled professionals, new self-service technology, and a regional feeder partner will be unbeatable.” We will have to wait to examine the validity of that statement.
Maxine Attong is a financial and management consultant.
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