BA needs to lose weight

Anyone fancy investing in the airline industry? Thought not. Airlines face a double whammy of ailing consumer confidence and sky-high oil prices. British Airways reports its September traffic numbers this week in an atmosphere of scarcely concealed panic among investors on both sides of the Atlantic. But is it all bad for BA?

Although City analysts will have to rip up their forecasts if oil stays at $50 or higher in 2005, BA can console itself that its competitors are in a far worse state. Alitalia would have sunk had it not been for a rescue package put in place by Prime Minister Silvio Berlusconi. Sabena and Swissair have already failed, while Lufthansa has been forced to scale back its ambitions.

And life has never been tougher for budget airlines: Ryanair and Easyjet are competing against 60 no-frills carriers in Europe. As supply and demand grow increasingly out of kilter - and the oil price heads north - casualties are almost certain. Ryanair's boss Michael O'Leary has spoken of 'a bloodbath' in the winter, when sales traditionally fall off, and he is probably right.

But BA is hardly on its knees: chief executive Rod Eddington deserves credit for turning round the short-haul business and bringing the company back into profitability. There is even talk in the City of a return to the dividend list after a gap of three years.

However, despite the sale of its Qantas stake for A$1 billion, not to mention 13,000 job losses and a host of other measures, BA still needs to cut costs. According to its own projections, the company must save another £200 million by 2006. To achieve this, it must confront unions over 'costly' Spanish working practices.

Funnily enough, a high oil price could work to Eddington's advantage. As the woes of the US industry have demonstrated, reforms are more easily pushed through when employees recognise that the sword of Damocles is hanging over their heads. At $50 a barrel, we are nearing the danger zone.

Daniels in the City lions' den

Lloyds TSB and Abbey National have more in common than meets the eye. Abbey, the crumbling mortgage bank which got its fingers burnt through its exposure to junk bonds under former chief executive Ian Harley, is being sold to Spain's Santander.

Eric Daniels, boss of Lloyds, is in charge of a national banking franchise which, like Abbey, has seen better days. And, again like Abbey, it is trying to up its game in a market dominated by giants such as HBOS and Royal Bank of Scotland in a bid to build market share after being beaten up by competitors.

Lloyds is finding the going tough, and, like Abbey, it could also eventually be sold to a foreign predator. Citigroup, Deutsche Bank and Bank of America have been cited as potential buyers.

But investors have given Daniels a year or so to improve performance before making a final judgment about whether Lloyds needs to pair up with an overseas sugar daddy (though, naturally enough, they would expect him to take an approach seriously, should one come ahead of time).

But the comparison with Abbey can only go so far. Lloyds has never recorded the huge losses Abbey saw two years ago after its disastrous foray into wholesale banking. Neither has it been forced to part company with its chief executive and a host of other senior directors in the teeth of widespread shareholder anger. Bluntly, Abbey is in worse shape.

But the backdrop for Lloyds is one of scepticism and angst. In the past, the bank has been slated for lack of direction, a fruitless search for overseas acquisitions, apparent listlessness prior to the arrival of Daniels and lack of commercial nous. While Lloyds dilly-dallied, Fred Goodwin of RBS and Sir John Bond of HSBC were breaking out of Britain's difficult domestic market and storming the United States.

Recently, Lloyds has shown that it is rebuilding market share in Britain, but this has not yet translated into an increase in the value of sales; and lending margins are being crimped more than the City would like.

Critically for Daniels, the purchase of life insurer Scottish Widows has never lived up to expectations; its performance under Dan- iels will be a litmus test of his leadership. He has time, but without significant improvements by the end of 2005, Lloyds, like Abbey, will come under intense pressure to sell to the highest bidder.

Cable & hopeless retreats in Japan

More evidence of managerial incompetence and imperial overreach at Cable & Wireless. In 1999, it acquired Tokyo-based operator IDC after winning Japan's only hostile takeover. Now it is considering selling it. Few companies have cracked the Japanese telecoms market (even Vodafone is struggling) and C&W certainly hasn't - IDC has lost millions.

Former C&W boss Graham Wallace was the man who tried and failed to turn C&W into a global, internet-based telecoms empire and must bear responsibility. His successor, Francesco Caio, is trying salvage something from the mess. But selling IDT for less than Wallace paid for it is hardly cause to celebrate. And Caio's recovery plan is no clearer.