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British Airways posts Q1 operating loss

British Airways posts Q1 operating loss
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First Published: Fri, Jul 31 2009. 12 54 PM IST
Updated: Fri, Jul 31 2009. 12 54 PM IST
London: British Airways PLC warned there was “no visible signs of improvement” in the recession-hit airline industry as it posted a record £94 million ($155.5 million) loss for the first quarter on Friday, despite noting a seasonal uptick for the summer.
BA said it would continue to focus on stripping costs out of the business as consumer demand for flights remains weak, reporting that its efforts so far have resulted in a 6.6% reduction in operating costs since October.
The airline is seeking to slash some 3,700 jobs from its 40,000-strong work force and freeze pay for several years. It has also taken 5% of its winter flight capacity out of service and even dropped meals on short-haul flights as it struggles to cope with the adverse economic climate.
The first quarter operating loss is the first time since BA was privatized in 1987 that it has recorded a deficit at the beginning of the fiscal year, which is usually the second strongest earnings period after the summer peak — the airline earned a £35 million profit in the same period a year ago.
Revenue in the current first quarter fell 12% to £1.98 billion, from £2.25 billion.
The airline did not provide net profit details in Friday’s trading update.
With the operating loss and revenue flagged up by the carrier ahead of the announcement, BA stock received a boost from the positive news on costs and a reduction in its debt, opening up 1.3% at 136 pence.
Chief executive Willie Walsh said that while traffic volumes were down, they had stabilized during the quarter and showed some signs of improvement for the peak summer months.
However, he added that yields, or average fares per mile (kilometer), “remain volatile,” leaving the airline wary of providing revenue guidance for the full year. Yields dropped 9.7% in the first quarter and Walsh said he expected a greater fall in the second quarter.
“Trading conditions continue to be very challenging ... and no visible signs of improvement,” he said.
Other carriers have also succumbed to the market downturn, with Air France-KLM reporting a 20.5% fall in first quarter revenue to €5.2 billion and Lufthansa posting an almost 20% drop to the same level on Thursday.
Even the normally more robust budget carrier Ryanair Holdings PLC spooked the market earlier this week by scaling back its full-year profit forecasts to the bottom end of its forecast range of £173 millionto £259 million.
Walsh has been one of the most pessimistic airline industry executives about the sector, warning that BA is in a “fight for survival” and that the carrier’s key first- and business-class traffic may never fully recover.
He said Friday that while BA’s efforts to cut costs were bearing fruit, “with revenue still weak, there is much more to be done,” suggesting the savings plan would last years.
His plans to slash 3,700 ground staff and cabin crew positions have met with resistance from unions. BA recently called in a government-backed mediator in an attempt to reach a deal and avoid crippling strike action. Walsh said Friday that both sides are currently in a “cooling off” period with talks halted.
The carrier’s engineers and pilots have accepted a separate deal.
In other cost-saving measures, BA has stripped capacity out of its flying schedule, with plans to park 22 aircraft over the winter. It has also extended its planned delivery of six new superjumbo Airbus A380 aircraft by an average of five months. A second round of delivery of six more aircraft will be delayed by an average of two years.
Walsh declined to comment on the status of talks with Boeing Co. over the 24 Boeing 787 jets it ordered in 2007, following a report he was seeking to renegotiate installment payments.
“Talks are ongoing and confidential,” he told reporters on a conference call.
In more positive news, BA said it expected its full year fuel bill to be between £450 million and £500 million lower. It also said that its debt had fallen slightly to £2.3 billion.
Walsh also played down reports that BA is planning to gearing up to sell control of the trans-Atlantic premium subsidiary Openskies, which last week dropped its service between Amsterdam and New York, leaving just one route between Paris and New York.
Wals told reporters he had nothing to add to existing public comment by the airline that it is “reviewing all aspects of its activities.”
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First Published: Fri, Jul 31 2009. 12 54 PM IST