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By Gavin Stamp
Business reporter, BBC News
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Willie Walsh's decision not to accept a bonus is likely to be well received
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Read at face value, British Airways' (BA) annual results indicate that the airline had a very good 12 months. It announced profits for the year to 31 March of £883m ($1.72bn), up 45% on the previous 12 months. But this result only tells a fraction of the story about the turbulence affecting BA and the problems it faces in the future. March's bungled opening of Terminal 5 at Heathrow was an acute embarrassment for the firm, for which two of its senior executives have since paid with their jobs. Chief executive Willie Walsh took personal responsibility for the costly fiasco, which forced BA to delay the transfer of the bulk of its long haul flights from Terminals 4 to 5 until June. Mr Walsh has insisted the "buck stops with him" and is now under extreme pressure to ensure there are no more problems at the new £4.3bn terminal, and to make sure customer confidence in the airline - severely damaged by the baggage chaos at T5 - is gradually rebuilt. This tough firefighting job is taking place in an increasingly hostile economic environment. Fuel for thought The profits BA have been making are the sort most airlines can only dream of, but they are unlikely to mollify analysts who are more worried about the firm's future. The airline's performance in the 2007 calendar year, when the benefits of the weak dollar helped offset rising fuel costs, was undeniably impressive. But conditions have got much tougher in the past four months, with oil prices spiralling to previously unthinkable levels near $130 a barrel.
BA recently pushed up its fuel surcharges, with passengers on return flights of more than nine hours now having to pay £158 and those on shorter long haul services paying £126. Mr Walsh admitted that fares were likely to rise in the near future as the airline sought to recover some of its increased expenditure on fuel. "The era of very low fares is behind us," he told the BBC. "Fuel prices remain at record levels and there are no signs of these reducing." "It is clear that there are many airlines out there which are struggling today to survive with oil prices the way they are." All this at a time when a likely US recession and consequent global economic slowdown is forcing people to tighten their belts and hitting demand for long haul travel. "It is all about the outlook," says Stephen Furlong, an analyst with investment firm Davy, about the importance of the firm's prospects going forward. "Willie Walsh can hardly be blamed for the oil price. The question is whether BA can make any profit at current prices." Irrespective of BA's financial position, the harsh media glare will remain on Mr Walsh ahead of what is bound to be a difficult summer. T5 legacy BA will only begin the move from Terminal 4 to Terminal 5 in June, and speculation has increased about Mr Walsh's own position after it emerged that the new chief operating officer BA is currently recruiting may one day be considered for the top job. The departures of operations director Gareth Kirkwood and customer services director David Noyes last month may have bought Mr Walsh some time after the torrent of criticism over T5, but he knows that any more mistakes could prove irrecoverable.
The delay to long haul services moving to Terminal 5 angered other airlines
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Davy's Stephen Furlong says he expects Mr Walsh to still be in his job in a year's time although the BA boss is in a "difficult situation". "Willie Walsh was liked by shareholders before the T5 debacle," he says. "The T5 thing will blow over if it starts to work, but if something else happens down the road, people who gave him the benefit of the doubt now probably won't." The BA hot seat is one of the hottest in British business as Bob Ayling, who was forced out in 2000 after the firm's profits fell sharply, can testify. Mr Walsh, who took the top job in 2005, has withstood a series of problems including a damaging strike by baggage handlers, the fallout from the 2006 bomb scares, a price-fixing scandal and fog-induced chaos at Heathrow. Bonus calculations An early indication of continuing shareholder backing for Mr Walsh is related to the controversial question of whether he should be paid a bonus. Mr Walsh was entitled to a maximum bonus equal to his basic salary - currently £700,000 - after meeting performance targets in the year to 31 March. The criteria included achieving specified profit margins and delivering on customer satisfaction, punctuality and employee involvement.
Many BA staff were unfamiliar with Terminal 5 before it opened
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But he has opted to waive the bonus following the T5 move, which was a public relations disaster for BA - even though it took place only three days before the end of the past financial year on 31 March and had a limited impact on the firm's trading performance. Although Mr Walsh said his decision was not influenced by the possibility of a media and public backlash, the move is likely to be seen as a shrewd one. From his days as head of Irish carrier Aer Lingus, Mr Walsh has cultivated an image as a tough, no-nonsense operator.
So despite the strong rise in profits just announced and the "sacrifice" of turning down a bonus, the former pilot will know that he still has a real fight on his hands.
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The T5 thing will blow over if it starts to work but if something else happens down the road, people who gave him the benefit of the doubt now probably won't
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