Yesterday’s announcement that BA pre-tax loss amounts to £401m didn’t come as a surprise to me. While BA attributes this loss to a weak pound and higher fuel costs, I wonder how much of £401m belongs to the self-inflicted problems manifested through extremely high number of disruptions.
During the last five years BA punctuality dropped from 81% in 2004 to 63% in 2008 (Group results), indicating serious planning and strategic weaknesses. The fact that BA operates diverse fleet from one of the world’s most congested airports suggests that good amount of losses may have their origins in disruptions.
Industry experts estimate that disruption related costs of network airlines amount to 10-20 % of total operating costs shared between precalculated trade-offs, unforeseen events, and internal weaknesses. It has been estimated that the top-ten European carriers with on-time performance at around 75% experience between €100 and €400 million in annual delay costs and even more in loss of passenger loyalty. It is hard to say how much more delays can cost an airline with punctuality much below this level. It is often obscured by investent in spare aircraft and other unproductive costs.
This calculation can be applied to any ‘mega’ carrier with complex organisation, hub-and-spoke type network, diverse fleet, and aged aircraft. It’s been already proved through practice that such systems are difficult to manage and control. If the answer to the cost efficient and punctual operations is in business simplification, than further mergers and acquisitions won’t work towards this goal.
