Ba Strikes, Catering, Outsourcing, Contracting

Lynne Kiesling

Yesterday, while under the gun to finish some edits and a referee report, I listened to BBC Radio 4. One memorable interview was with a union organizer discussing the recent BA sympathy strike with the fired workers from caterer Gate Gourmet.

One of the contentions in this situation is that in the market for caterers large enough to serve BA at Heathrow, it’s a duopoly: Gate Gourmet and Sky Chefs. Here’s what I don’t understand: why don’t they hire multiple caterers? If the pricing/reliability benefits outweigh the economies of scale, they should be willing to hire different caterers. They can have them specialize in different terminals, or hire one caterer to do meals for flights to Asia, one for Middle East, one for Europe and US, etc.

Then, even if you are still facing a duopoly, at least you contract with both of them and you increase your probability of getting a Bertrand outcome.

Either I’m missing something, or they’re not thinking very strategically. Which is it?


3 thoughts on “Ba Strikes, Catering, Outsourcing, Contracting

  1. I think this is indicative of the competence level in the air travel industry.

    United is running at high levels of utilization, losing money on each ticket, and advertising like mad in Chicago.

    Neither United nor BA are competent enough to run a competitive business, thus they are in airlines business.

    JBP

  2. Why not hire two caterers?

    One area of aviation that I’m not too familiar with is the process of airline catering. In light of the catering strike at Heathrow that crippled British Airways, Lynne Kiesling asks why airlines don’t hire multiple caterers. If the pricing/reliability…

  3. For BA to hire additional caterers, the caterers would have to be (a) large enough to justify the transactional difficulties for BA (new contracts, new arrangements at the airport, security clearances for the catering staff, etc) AND (b) large enough and experienced enough to satisfy BA that they would be reliable, AND (c) based close to Heathrow, BA’s main hub; airline food is a perishable good, and needs to be produced near to the airlines which purchase it.

    But, Gate Gourmet began life as part of BA, and many airlines are still vertically integrated in this way. Thus, where would other large airline caterers come from? And who else would they currently be doing business with? It is likely that there are no other large airline caterers with bases near Heathrow, and so BA has little choice in the matter.

    IME (2 decades in management consulting), it is extremely rare for managers of large organizations to take collective decisions which are completely stupid. Whenever we on the outside think that a management team is acting irrationally, it is because we do not know the full story.

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