The modernisation of British Airways is essential, but the timing and method of its implementation has dealt the airline a severe body blow

Until last week, British Airways chief executive Rod Eddington could be forgiven for believing he could walk on water. After succeeding Bob Ayling in 2000, the amiable Australian was quickly able to restore the staff's beleaguered morale, and he set about restructuring the airline with their full support.

Eddington was seemingly able to implement his Future Size and Shape cost reduction plan last year, which included significant redundancies, with the support of the shop floor, as he sought to counter the onslaught from low-cost carriers. The staff have also stood firm with Eddington over the emotional decision to retire Concorde -a move that would have been less well supported if implemented by certain predecessors.

So the walk-out by ground staff at London Heathrow that brought BA to its knees must have come as a shock. The stoppage has also dealt a severe body blow to the heart of the airline's current marketing theme, which emphasises the passenger care and lack of disruption that a full service airline like BA offers compared with the no-frills carriers. For more than 90,000 of BA's passengers, that particular claim is now shot to bits, and many other potential customers are probably reconsidering their booking plans.

The airline has slashed air fares over the past 12 months to compete with local low-cost competition from EasyJet and Ryanair - not to mention its full service rival BMI British Midland - increasing the pressure for cost reductions. Modernising staff clock-on procedures with the introduction of the controversial cardswipe system is one example of the airline's efforts to bring itself into the 21st century, by providing it with a better way of monitoring and controlling costs.

While there is no question that Eddington's intentions were sound, the method and timing of the swipecard implementation leaves something to be desired. The decision to take on Heathrow ground staff during the busiest period of the year seems bizarre in the extreme.

But Eddington faces the same dilemma as his predecessor: how does he resolve long- term structural cost issues without disrupting the day-to-day business. Ayling found out the hard way when a new pay and conditions package for cabin crew in July 1997 resulted in a three-day strike that cost the airline £120 million. A year earlier, Ayling's battle with the airline's pilot community resulted in a vote to strike but no stoppage, although it still proved extremely costly to the airline.

BA management perhaps takes a robust view towards its employees, as it knows that if any of them decide they have had enough, new recruits would be queueing around the block despite the claims of low pay and long working hours. It also knows that it is time for the talking to stop about the need to eliminate the "baggage" carried by an airline with pre-Second World War origins, and the action to start. As Eddington says: "If we don't we won't be around in two years' time." But a quick and decisive resolution to the industrial unrest is essential to prevent it gathering momentum and leading to a "summer of discontent".

BA's continental European rivals should take stock of BA's current crisis and learn. The huge amount of home-grown low-cost competition has forced BA and BMI to slash fares, which has led to a structural change in tariffs. According to an American Express survey, UK economy fares declined by an average of 30% last year, while intra-European economy fares from the UK are 25% lower than the European average, on a per-kilometre basis.

Although analysts believe that the trend for average fares to fall is not likely to be reversed, some European rivals still dismiss the seriousness of the long-term threat from low-cost airlines. Although it now offers a percentage of its seats each day at competitive low prices, Lufthansa contends that the no-frills rivals are not a major concern as generally they do not operate into its primary hubs.

But having restructured their fares to compete with local competition, the UK full service carriers are taking the low-fare battle directly to the front door of Air France, Alitalia, Lufthansa, Swiss International Air Lines and others. So the great irony is that it is the full- service carriers, rather than the no-frills airlines, that are forcing the change on the mainland that has already occurred in the UK.

The message then to the airlines and their employees is clearer than ever. Restructure or die, and don't delay. The smouldering ruins of Belgium's flag carrier, and the pains being endured in Zurich, surely bear witness to this.

Source: Flight International