The British Airways pilots union Balpa has said that the current mismanagement at Heathrow’s Terminal 5, indicates an urgent need for a change in management style at British Airways (BA). BA fell flat on its face when the much touted and publicised Terminal 5, opened amid massive confusion due to the malfunction of the terminal’s baggage transport system. The baggage backlog was a staggering 28,000 which led to the cancellation of hundred of flights.
Balpa believes that this has terribly undermined BA’s credibility and has made it a “laughing stock”. They think that although changing the heads at BA may not be the solution, a new approach to management may be key to bringing about a turn around. Balpa believes that BA is being bogged down by poor punctuality, falling standards, and an ever increasing amount of misplaced baggage problems.
British Airways have expressed the will to resolve the teething problems that they have faced as a result of the move to Terminal 5.
Balpa has already been in the midst of a fall out with British Airways, over BA’s intention of starting a new airline BA OpenSkies, which will not recruit existing BA pilots. Balpa was all set to call for industrial action but were stopped when BA applied for legal injunction to prevent such action.
Thomas Cook has acquired UK-based luxury travel company Elegant Resorts, after paying an undisclosed sum of money. Elegant Resorts, formed in 1988 by Geoff Moss and Barbara Catchpole, is a Chester-based travel company that provides perfectly planned, exotic trips to the Caribbean and to Africa. It organised trips for 20,000 holidaymakers in 2007 itself. Its total gross assets amounted to ₤22.3 million.
Thomas Cook has made this acquisition from existing cash resources and they intend to run Elegant Resorts as a stand alone business, without changing the company’s current management team. Thomas cook’s chief executive Manny Fontela-Novoa said, “We are delighted to have secured this acquisition, which allows Thomas Cook to further enhance its position in this lucrative and growing segment of the leisure travel market. Elegant Resorts has a very strong brand name, associated with luxury, style and bespoke holidays and fully supports our strategic aim to become a leading independent travel provider.”
Thomas Cook had already bought over hotel booking website Hotels4u.com, earlier this year, in a deal amounting to ₤22 million. Thomas Cook itself already provides high end holiday solutions, like the one provided by Elegant Resorts, through its own brands Latitude and Thomas Cook Signature.
Adding onto the already weak financial times and slumped housing market, comes the decision by Britain’s biggest mortgage lender, Halifax, to raise its mortgage rates for small deposit paying customers.
HBOS, owners of Halifax, have selectively increased the interest rates from 3% to 5% for customers who are paying a deposit of less than 25%. However, Halifax is quick to add that its new rates are going to be beneficial for nearly 70% of their customers, who lay a deposit of more than 25%, as rates for these customers will get cheaper by 0.1%. Those depositing between 10 to 25%, on the other hand, will have to pay on an average 0.14% more.
Similar changes may well be seen being enforced by the Bank of Scotland and Intelligent Finance mortgage brands. Thousands of mortgage products have been withdrawn from the markets and big rivals such as First Direct have stopped handing out mortgage deals to new customers completely.
Halifax has got three mortgage products on the market now. These include three loan-to-value (LTV) bands- 0-75%, 75-90% and 90-95%. These are now to take the place of the 0-90% and 90-97% bands that were prevalent before. Halifax is also set to launch newer, product ranges that may prove to be better for first time buyers, next week.
UK-based investment group, Hermitage Fund, has been caught in a snarl in Russia, when three of its Russian based companies were seized from it, last year. Hermitage is now in the process of trying to win these companies back.
Hermitage’s three companies were seized from the group when the head of Hermitage Capital Management, British citizen, Bill Browder, had been charged for tax evasion by Russia’s Interior Ministry. A police raid ensued as a result of these charges, as a part of the criminal tax evasion investigation, which resulted in the confiscation of a number of important files and computers. Hermitage alleges that ownership of the three companies in question has since been re-registered without its consent. All though this is nothing new for Russian companies, this is the first time this has occurred to a foreign company.
Bill Browder has been denied entry in Russia since 2005. The Russian media believes that these investigations are targeting Russian companies that were somehow associated with Hermitage, as they paid out profits to over-seas entities based in Cyprus, especially a firm by the name of Kameya. It is believed that Kameya was buying shares of Russian energy firms including gas exporters Gazprom, during the time when trade in Russian shares was limited. This enabled these foreign companies to cash in on the enormous price variation between Gazprom’s Moscow and London shares. This method was the common modus operandi employed by non-resident investors until Russian dealings were liberalized in December 2005.
Woolworths, UK retail giant, has posted pre-tax profits of ₤28.3 million for the year ending February 2nd 2008. This is a massive 30% hike from last year’s figure of ₤21.8 million.
While this appears to be a good sign, a closer scrutiny reveals a drop in like-for-like sales by as much as 3.2% as compared to the preceding year. The main areas hit were the highly competitive computers and electronics sectors.
Woolworths has decided to reduce its annual dividend pay out by nearly two-thirds as a precautionary measure against the troubled financial atmosphere. Woolworths will make a payout of 0.17p per share to make a total of 0.6p, as compared to 1.77p last year. This, they believe, will provide the much needed balance between giving their investors their due return and giving them ample economic resources to run the business successfully.
This is not the only change they have in mind. They plan to cut down the excess space in 80 of their 800 stores by sharing parts of their bigger stores to retail chains such as JJB Sports, along with focusing on the expansion of their own-label products.
The company believes that the main reason their like-for-like sales suffered was due to a decision they made not to chase unprofitable sales in the highly competitive computers and electronics segment.
First Direct, a sub-division of HSBC, has decided to put on hold offering new mortgages to non customers temporarily. This will allow them to clear the crushing administrative backlog that they face in the mortgage deals they have already approved.
First Direct is a relatively small bank and faces an unprecedented demand for mortgages because the global credit crunch crisis has forced the bigger banks to drive up their interest rates. First Direct themselves have to currently deal with five times the demand that they usually face.
First Direct have been forced to take this extreme step so that they can avoid hiking interest rates. They re-iterate that this condition is only temporary and that they should be back in normal business soon.
This situation could easily have been seen coming as a result of the extremely high interest rates that banks have had to resort to while lending money to each other, a lot higher than that offered by the Bank of England. This has made it unfeasible for banks to continue with their extensive mortgage offers. Also, a record number of mortgage requests are being turned down. In February itself, mortgage lending was already 39% lower than that in January. Even a cut in rates by the Bank of England will probably have no impact on market rates as there seems to be a near disconnect between the rates offered by the Bank of England and the other banks.
First Direct is the first bank to have actually pulled the plug on mortgages, albeit temporarily, although building societies such as Bath and Earl Shilton had resorted to similar measures last month.
A large number of people are reaching the end of their short-term fixed rates and may be shopping around for better deals. This has exacerbated the mortgage demand situation further, aided amply by the collapse of the Northern Rock.
First Direct had been one of the best deals in the market for a while and had a huge demand surplus and thus had to resort to this drastic measure.
The current market upheavals could take the finance sector job-cut toll up to 10,000 in just the next three months.
The Employers’ Organisation ran a quarterly survey that believes that this ebb in the credit scenario would worsen over the next six months. The report although stating that the UK may get away from actually being dragged into recession, financial jobs are still going to face the axe. The credit crunch started roughly six months ago and has taken the financial sector including banking, housing markets and insurance companies down along with it. It is believed that this may be the worst economic depression since the Second World War and may actually continue for quite a while more.
This financial crisis occurred mainly due to the huge losses that banks bore due to the collapse of investments backed by U.S. mortgages, which have led to a crash in markets worldwide as a by product of globalization.
Northern Rock, newly nationalised to deal with near bankruptcy, has pledged to return the ₤24 billion state loan, by the year 2010.The bank however is certain that they would not break even for the next three years. They are sure of making losses in 2008 following a pre-tax loss of ₤167.6 million in 2007.
Northern Rock was brought ashore by the Bank of England after being hit hard by the global credit crunch which has resulted in a crash in US property markets. Northern Rock lost most of its finance sources when banks stopped lending money to each other in an effort to tide over this tricky situation.
The bank has disclosed that they would pay former chief executive Adam Applegarth a package of ₤785,000 as part of his severance agreement. This package will consist of ₤760,000 in cash and ₤25,000 in other non-cash benefits. Though this is well below Mr. Applegarth’s contractual agreement, this decision has still received a lot of criticism from shareholders. Mr. Applegarth has been criticized in particular, along with the bank’s former management, by shareholders, for their tendency to borrow too much money from the financial markets to fund Northern Rock’s business along with their pushy lending policy. They believe that this along with a lack of fore-sight led to Rock’s current plight and a reduction in the value of their investments.
Northern Rock’s business model relied upto almost 60% of its total lending on borrowed money, with savers’ assets accounting for the rest of the money. This was almost double of market standards, as most banks prefer to depend more heavily on money put in by savers.
Northern Rock intends to make its way back by cutting costs by 20%, down-sizing and shifting towards smaller business. This will prompt a downwards shift of their balance shift from their current ₤107 billion to the range of ₤50 billion. However, it is believed that all is not as bleak as it appears. After considering the exceptionals, write-downs and rare charges, the pre-tax profits made by Northern Rock in the year 2007 amounted to ₤240 million, which although a lot lower than 2006, still indicates some future.
Terminal 5, which opened at Heathrow Airport, amid talk of being the best facility in the whole world, has already become cause of financial drain to British Airways. Baggage Handling snarls may cost British Airways up to an astounding 25 million pounds.
Approximately 250 flights have already been cancelled since the new Terminal began operations, only last Thursday. Thousands of bags were left abandoned in the elaborate baggage system after the system developed snags.
Analysts state that the financial impact of these problems will prove to cost dearly, with an estimate at around 15 to 25 million, based on daily revenue of 23 million pounds. Baggage disruption costs on an average 100 to 200 pounds per passenger. Most likely to bear the brunt of this situation, is the staff at British Airways. In order to cut losses, British Airways will mostly cut down the bonuses that will be handed out to its staff.
Terminal 5 was inaugurated by the Queen of England and is an impressive 50 football pitches big and cost 4.3 billion pounds to construct. BA states that it is still too early to draw any conclusions. The airlines plans to disclose its March Traffic Statistics on Thursday and it is only then that they may comment about the situation, based on the strength of its future bookings.
After making an official offer to troubled UK Insurance Company, Friends Provident, last Thursday, JC Flowers have been rejected. JC Flowers, a U.S.-based private equity firm, was keen to take over Friends Provident and had made an offer for a 3.5 billion pound cash take over.
Friends Provident however did not seem too eager to take up this offer as they believe it did not value the company correctly. At 150 pence per share, Friends believed that were being seriously undervalued. What was worse was that this amount would have been further reduced if Friends Provident had paid their shareholders a dividend of 5.3 pence a share for the year 2007, as was planned. Friends’ shares closed on the Friday market at 120 pence a share.
Friends Provident would have preferred a bid closer to their actuarial value, in the range of 160 pence a share.
This is a second take over bid for Friends Provident that has run afoul. A merger with Friends’ rival- Resolution was on the cards last year, but that deal too fell through. After the Resolution bid, Friends has been in the process of overhauling their strategy. They have been dogged by several setbacks, including grave financial losses and the exit of their chief executive.
Although Flowers had announced their intent for a takeover way back in January, they made their official offer only on last Thursday.