Rolls-Royce and Qantas count the reputational cost
When a Rolls-Royce engine on a Qantas jet blew up last November, the engine-maker and the airline joined Toyota and BP in a list of companies fighting to repair damage to their global reputations.
But the Rolls-Qantas incident was of a different order and degree from the Toyota car recall and the BP Deepwater Horizon explosion. The settlement announced on Wednesday seems to reflect that.
British Airways: Will the strike sway voters?
A bust-up between British Airways and trades unionists is a top business story in the UK this morning. What makes the dispute cat nip for news journalists is its political dimension. The ruling Labour Party and the opposition Tories are neck-and-neck in the polls as they head towards an anticipated May 6 general election. Looming strikes – and ministers’ responses to them – are therefore seen as potentially swaying voters.
EADS: Highlighting a broken business model
EADS was meant to be the model European company. That long ago ceased to be the case, unless the model it was highlighting was a feeble, if not to say broken, one.
But the company still holds up a mirror to the continent and the flurry of news in recent days makes uncomfortable reading for European business.
Enterprise stakes out a place in space
My FT column this week is on Richard Branson and space commercialisation.
Branson wants to fly customers to the moon
Richard Branson is an ambitious man. Ask him about the potential for his Virgin Galactic business – as I did at the unveiling of his space capsule in the Mojave desert in California on Monday – and he does not hold back.
Virgin Galactic has ordered five vehicles that can take six passengers into sub-orbital flight about 110km above the earth’s surface at a time. But Sir Richard thinks that, in 10 years’ time, it could have 40 of the six-passenger craft flying twice a day each.
And that is only the start:
“Anything is possible, which is what is exciting. At the right price level, there will be enormous quantities of space ships and space ports around the world. We need to start dreaming about intercontinental travel, going out of the earth’s atmosphere and down again.
“I dream about Virgin hotels in space, about getting little spaceships from those hotels to go around the moon and back at night. That is a lot easier than landing on the moon.”
That is plenty to be going on with. But before any of it happens, Sir Richard needs to ensure that all of his pioneer space travelers return safely from what is a risky endeavour.
Sir Richard’s spacecraft are being built for Virgin Galactic by Scaled Composites, the company that won the Ansari X-Prize in 2004 for sending a craft into sub-orbital space, 110 km above the earth’s surface.
Burt Rutan, its founder, said at the launch event that developing the commercial space vehicle had been harder, and taken longer, than he had anticipated because of safety demands.
Instead of 4 per cent of astronauts dying – the average rate for government space programmes – he hoped to make Virgin space travel as safe as “the early airlines”.
That still sounded risky to me and Sir Richard told me he would wait until the programme reached a higher level of safety, which he estimated would take 18 months to two years.
“I think technology that is being been developed will be safer than Burt says. As commercial spaceship company we need to bring everyone back, so we are in no hurry. We want to be absolutely sure that everyone gets a return ticket.”
Yes, a return ticket would be a selling point.
The medical advantages of private jet travel
Add one more item to the advantages of owning a private jet, or having access to one. The New York Times points out that Steve Jobs, chief executive of Apple, could have registered on several waiting lists for liver transplants around the US because he was able to fly on short notice to any city.
In practice, we do not know why Mr Jobs ended up having a liver transplant in Tennessee – or indeed why he had one at all, although it presumably relates to the bout of pancreatic cancer for which he had surgery in 2004. Nor do we know how he got to Tennessee from California.
Organs are allocated to sick patients on the basis of need but there turn out to be advantages to being able to fly around the US, or the world, at will:
It is even conceivable that someone could go to the time and expense of registering for the waiting lists of several transplant centers around the country.
“If you had access to a jet and had six hours to get anywhere in the country, you’d have a wide choice of programs,” said Dr. Michael Porayko, the medical director of liver transplants at Vanderbilt University, one of the Tennessee centers that has said it did not treat Mr. Jobs.
Mr Jobs appears to have recovered well enough to return to Apple a few days ahead of schedule. He has the successful launch of the iPhone 3GS to aid his convalescence.
When not cutting prices becomes a luxury
My column in the FT on Thursday is about luxury and premium good in the downturn:
The harder they come, the harder they fall, one and all. The decade of decadence, of affordable luxury and premium everything, from expensive spirits to fashion label clothes and first-class air travel, is over.
It was, of course, an illusion to imagine that the business cycle had gone away in historically cyclical industries such as airlines and luxury goods. But the years of expansion carried on long enough, with only a brief interruption in 2001, that a lot of people came to think so.
They have changed their minds. Virgin Atlantic expects to lose money in this financial year. Giancarlo di Risio, chief executive of Versace, is to step down after falling out with the family amid a 13 per cent fall in revenues in the first quarter.
Double-digit falls in demand for luxury and premium goods and services are common in recessions but this hangover is especially sharp. Big airlines suffered a 35 to 40 per cent fall in revenues from international first- and business-class passengers in the year to March.
So what should such industries do when faced with a slump in consumer demand? The textbook answer is to cut costs, curb output and do everything possible to adjust – apart from slashing prices.
“You must accept that you will sell less but the biggest mistake is to cut prices across the board and ruin your brands. People are not refusing to buy because prices are too high, but because they are frightened and are hoarding money,” says Hermann Simon, chairman of Simon-Kucher, a pricing consultancy.
There is logic to what Mr Simon says. Even for non-premium industries it takes three to five years to get consumers to pay the full price again once you have started discounting. As for luxury goods, price-cutting rips apart the industry’s artfully constructed image.
Discounting can exact a terrible price, as the imminent bankruptcy of General Motors shows. The company was the king of cheap finance and price-discounting even in the good times; it was left with thin to non-existent margins, having put its brands through the crusher.
But the reality for many companies (happily for consumers) is that they have no choice. Luxury and premium brands have grown so much – and reached so far into the mass market – that their owners cannot choose from a menu of cutting costs, output or prices. All are required.
You can read the rest here and comment below.
Blogging on my flight to New York
Well, I realise this is old hat for some but it is new to me.
I am writing this 35,000 feet up in the air on an American Airlines flight from San Francisco to New York, thanks to the inflight internet connection (which costs $12.95). Compared to the $10 the cabin crew are charging for a sandwich, I do not think that is bad.
It does mark the intrusion of the outside world into one of the last places on earth where one is more or less uncontactable, but there we are. It is not as bad as mobile phone access.
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John Gapper is an associate editor and the chief business commentator of the FT.
He has worked for the FT since 1987, covering labour relations, banking and the media. He is co-author, with Nicholas Denton, of All That Glitters, an account of the collapse of Barings in 1995.
Andrew Hill is an associate editor and the management editor of the FT. He is a former City editor, financial editor, comment and analysis editor, New York bureau chief, foreign news editor and correspondent in Brussels and Milan.
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