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Business News/ Companies / BA posts surprise Q3 operating profit, costs fall
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BA posts surprise Q3 operating profit, costs fall

BA posts surprise Q3 operating profit, costs fall

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London: British Airways posted a surprise third-quarter operating profit, helped by heavy cost cutting, but said it was still in a worse position than last year, despite attempts to adapt to the realities of global recession.

The British flag-carrier on Friday reported an operating profit of £25 million ($39 million) in the three months to the end of December, well ahead of analyst estimates that it would post a loss of loss between £90 and 100 million.

“The result was a pleasant surprise and is a remarkable turning of the corner," said Evolution analyst Nick Cunningham.

Employee and fuel costs fell 10.2% and 22%, respectively, in the third quarter, while engineering and selling costs also dropped significantly, the airline said.

“These results highlight the impact of permanent changes across the company on our costs," BA chief executive Willie Walsh said.

“Those changes, combined with capacity reductions and external spending cuts, mean operating costs are down by 10.5% and show that we’ve adapted quickly to the new business realities created by the global recession."

Shares in BA, which jumped 2.3% in early trade were 1.0% lower at 218.9 pence by 1048 GMT, valuing the airline at around £2.5 billion pounds.

“BA said the year-on-year improvement in fourth quarter operating profit is likely to be similar to the third-quarter so 76 million pounds better year-on-year ... but the focus remains on costs," said Societe Generale analyst Jonathan Wober.

Rival Air France recently said business was stabilising but the chief financial officer of Deutsche Lufthansa last month said some analyst estimates for 2010 were too high.

However, Finnish national carrier Finnair on Friday reported wider fourth-quarter losses and said it expected to make a loss in the first quarter this year.

BA’s operating loss came in at £86 million for the first nine months of the year, sharply down from a profit of £89 million it made in the same period a year ago, while revenues fell 12.9% to £6.14 billion.

BA is expected to report a record full-year pretax loss of £627.76 million, according to the average from a Thomson Reuters I/B/E/S poll of 17 analysts.

Tough 2010

The International Air Transport Association (IATA) last week said the aviation sector would face a tough 2010 making up for the lost demand in 2009 and handling new security demands.

BA said its yields — the revenue it makes on each passenger for every mile travelled — fell 8.8% in the third quarter, reflecting lower surcharges and cabin class sales.

Yields were 11.9% up in the same quarter last year.

“Long-haul premium yields have recovered to 2007 levels and show recovery. Yields in non-premium cabins have some way to go before they recover and short-haul yields have not recovered to the extent we have seen elsewhere," said Walsh.

The airline said it carried 7% fewer passengers in January year-on-year. The number of its premium, or business class, passengers fell 2.1% year-on-year, while non-premium traffic fell 7.9% on the same month last year.

“Premium is better than overall traffic, which shows business travel is steadily improving, but the domestic recession is still going on and unemployment is high so economy is not back to its best," said Evolution’s Cunningham.

The carrier, which said its merger agreement with Spain’s Iberia would be finalised by the end of the year, added that it was confident of receiving regulatory approval for its proposed transatlantic tie-up American Airlines and Iberia.

BA’s Walsh said the company was working to address its £3.7 billion pension fund deficit and was discussing “a range of changes" to future pension benefits.

Low-cost rivals easyJet and Ryanair recently raised their profit forecasts and said they were still taking market share from leading flag carriers such as BA and Air France-KLM.

BA is currently in court fighting a union bid to overturn changes made to cabin crews’ working arrangements, with a ruling expected later on Friday.

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Published: 05 Feb 2010, 04:22 PM IST
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