Has BA lost the plot?
Thoughts on brand decline
So British Airways cabin crew are to go on strike (again) from July 1st for two weeks just as many of their customers are taking their long-awaited summer holidays. This comes on top of the recent IT glitch that saw 75,000 passengers stranded and subsequently cost the airline an estimated £100m in compensation. Anthony Hilton, writing in the Evening Standard, said it was arguably: “the airline’s worst self-inflicted crisis since it was privatized 30 years ago”.
“The magic of management is to balance the interests of customers and shareholders and employees.”Andrew Lobbenberg
As if this wasn’t bad enough, Skytrax, the airline research firm, recently said that BA now compares unfavourably with Aeroflot, the Russian state-backed carrier, once infamous for its poor safety, awful food and rude staff. As a result, BA’s rating being downgraded from a possible five stars to just three, puts it on par with the likes of Uzbekistan Airways and Ethiopian Airlines.
How did BA come to be in this dire situation? There is no doubt that the airline needed to change radically to remain competitive, as it has come under considerable pressure from the likes of lower-cost and rapidly improving competitors like Ryanair and easyJet. Willie Walsh, Chief Executive of International Airlines Group (IAG), the parent of BA, earned his nickname ‘Slasher’ from his days at Aer Lingus when he embarked on a cost-cutting drive. He bought his approach with him first to BA, and then to IAG. He appointed Alex Cruz as Chairman and CEO of BA, a man who shares Walsh’s penny-pinching ways, and it is this philosophy, which is believed to have contributed to the recent IT meltdown and the dispute with the Cabin Crew.
“Are they bovvered?” as comedienne Catherine Tate might ask. The answer is, not much. It took Alex Cruz two days to address customers during the IT meltdown and Willie Walsh has been steadfast in his defence of his direct report. The market has been pretty untroubled too with IAG stock falling just 3% during the crisis. This is a mere blip because under Walsh’s tenure IAG has seen profits rise from €503m in 2011 to €2.5bn in 2016 and investors have seen the share price climb by 120% in four years.
So what can we conclude from all of this? Has Willie Walsh done a great job in turning around a declining dinosaur and creating a healthy return for investors or is he the executioner of what was once a loved-brand that had a loyal following of customers? The answer, in my opinion, is both. If I still owned BA stock, I would be selling it because any brand that loses both the loyalty of its customers and its employees can only go in one direction. BA’s motto is ‘To Fly To Serve’ and in an earlier blog I suggested that management has lost sight of that purpose and, as a result, would lose the goodwill of its customers and employees. That has clearly come to pass.
In our recent book, ‘On Purpose – delivering a branded customer experience that people love’ Andy Milligan and I argue that the primary purpose of any brand must be to serve the needs of its customers. If it does that well and is efficient in doing so it will also create returns for shareholders and fulfil its commercial purpose. And if it does that in a way which is socially acceptable and meets the expectations of its employees and the communities in which it operates it will be able to sustain that in the long term. In my view BA has been successful in meeting its commercial purpose but this has been at the expense of its brand and social purpose. The trade-off has been too severe and I doubt that it will be able to sustain its growth unless the balance shifts back towards customers and employees - even if this means compromising on its earnings.
Now I am not saying that BA should go all soft and fluffy and stop thinking about the bottom-line. Mark Ritson, whom I admire above all business writers, makes this point eloquently in his recent Marketing Week article, ‘Heineken should remember marketing is about profit not purpose’ in which he takes Heineken’s recent ad campaign to task for failing to be sufficiently brand focused. I agree with his point but think his title overstates it: I don’t think it is one or the other; it must be both, and the very best marketing achieves that.
I have spent many happy minutes waiting for my underground train reading the brilliant copy on a Jack Daniel’s Whiskey ad poster. The various stories invariably tell you something about the brand and what it stands for, they tell you about the employees and the people of Lynchburg Tennessee, but most importantly they tell something about the product and how it is made which just makes you want to try it. They blend purpose, people, product and the profit motive perfectly.
So what does this mean for the average business?
I think there are a number of lessons that organisations can take from this:
1) Be clear about your brand purpose. What is it that you can do better than your competitors? What will make your employees feel proud to deliver and your target customers value and be willing to pay for? Disney’s ‘Making people happy’ is a case in point.
2) Be clear about your internal value chain. What is it that you need to invest in to deliver that value to customers? Is it better-trained people? Smarter technology? Better quality products? Invest in those things and fund this by cutting costs in the areas that customers don’t value as highly. So for example, Premier Inn invested in expensive Hypnos beds and funded this by introducing self-serve registration kiosks thus saving costs.
3) ‘Keep the main thing, the main thing’. Keep focused on your brand purpose and never compromise that for short-term gain. Your purpose is your promise. Smoothie maker, Innocent’s, purpose of ‘Taste’s good, does good’ has fuelled its success in a market that is crowded with ‘me-to’ beverages and it continues to supply the homeless with its products.
Every organisation has to transform itself from time to time, and that requires bold leadership and tough decisions. And yes, that sometimes requires actions that may not be welcomed. However, if the loyalty of customers and employees is sacrificed on the altar of shareholder returns then, don’t be surprised if the gain is short-lived. HSBC aviation analyst Andrew Lobbenberg was quoted in the Financial Times saying: “The magic of management is to balance the interests of customers and shareholders and employees”… Whether BA have got this balance right is a valid question.