Survival strategy: stay lean and focus on the business customer

British Airways Matthew Lynn says Willie Walsh faces sky-high fuel costs and green taxes as well as aggressive competitors and inadequate airports. But the wily Irishman could still emerge as BA’s best leader yet

Willie Walsh could be forgiven for feeling quietly satisfied with himself. In early May, the jocular Irishman, who was headhunted to run British Airways from the far smaller Aer Lingus, unveiled a doubling of profits. It was a vindication of his strategy. After taking charge of BA in late 2005, Walsh immediately embarked on a round of cost cutting aimed at seeing off the challenge of the low-cost carriers and preparing the airline for an escalation in the oil price.

By this year, it looked to be paying off. In May, BA announced record profits of £680 million. The airline had its widest-ever profit margin, a juicy 10 per cent, and was able to pay its shareholders their first dividend since the 9/11 terror attacks on New York. On the day the results were announced, the shares rose more than 7 per cent. For a man who faced calls from investors to quit following the fiasco of the opening of the new Terminal 5 at Heathrow, it was no doubt a moment to be proud of.

In many ways, Walsh could be shaping up to be the most formidable BA leader since the duo of Lord King and Colin, later Lord, Marshall, led the airline during the turbulent 1980s. He has more flavour to him than the rather bland if efficient Australian Rod Eddington. And he is a big improvement on the catastrophic Bob Ayling.

And yet, for all its success in the past year, BA now faces challenges as testing as any in its history. The airline has to contend with soaring fuel prices that are plunging its entire industry into gloom. It has to steer its way through the climate change debate. Its key London airports are run by an operator, BAA, which is widely viewed as both greedy and inept. ‘Open Skies’ agreements are bringing fresh competitors to its most profitable routes, and its less profitable ones are being stolen by low-cost rivals.

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