British Airways has reported a 20 percent rise in first-quarter profit helped by fuller planes. But its shares have fallen as it warned of a tougher second half and higher-than-expected labour costs.
British Airways today reported a pre-tax profit of £195million (2005: £124 million profit) for the first quarter to June 30, 2006.
The operating profit for the first quarter was £211 million (2005: £176 million profit) delivering an operating margin of 9.1 per cent (2005: 8.5 per cent).
Operating cashflow was £475 million, an increase of £126 million from last year.
Willie Walsh, British Airways’ chief executive, said: “These are good results driven by strong revenue as a result of record seat factors and better cabin mix. Total costs are up with fuel up 44 per cent at £512 million. Employee costs are up 7 per cent and reflects increased pension costs as a result of the £2.1 billion accounting deficit in our New Airways Pension Scheme
“Our customers continue to see the benefit of investments in products and services with the introduction of our upgraded in-flight entertainment system. Our new Club World bed will be launched soon. We have announced new services to Calgary and an eighth daily service from London Heathrow to New York JFK. We are also increasing flights from London Heathrow to Sao Paulo in Brazil from seven to 10 each week from
December 3, 2006.
“On shorthaul our new low fares have been a big success. While competition in this market is brutal I am delighted to see we are winning customers with record seat factors. We’re now even more competitive on price whilst keeping ahead of the game by offering full service flights, more frequently to more convenient airports.
“We continue to make steady progress on changes to working practices. We recently agreed a deal with two further groups of staff including dispatchers and loaders ahead of our move to Terminal 5. This comes on top of agreements with our aircraft movements staff, equipment services and ground transport services and the new single cabin crew fleet agreement at Gatwick.”
Martin Broughton, British Airways’ chairman, said: “Strong revenue is expected to continue, supported by significant promotional activity driving seat factors in all cabins. For the year to March 2007, total revenue is expected to improve by 6-7 per cent up from previous guidance of 5-6 per cent. Capacity growth in the first half of the year is expected to be about 4 per cent slowing in the second half of the year to achieve a full year increase of 2.5 - 3 per cent.
“Fuel costs for the year are now expected to be £550 - £600 million up on last year. Costs excluding fuel which were previously forecast flat, are now expected to be slightly higher this year as pension costs are driving employee costs up.
“We continue to focus on our move to Terminal 5 in 2008, investing in our products for our customers and driving a competitive cost base to make our company fit for growth.”
Revenue in the quarter, at £2.3 billion, was up 12.5 per cent.
Traffic measured in revenue passenger kilometres (RPKs) was up 7.7 per cent on a flying programme measured in available seat kilometers (ASKs) up 4.1 per cent. This delivered seat factors up 2.7 points at a record 78.3 per cent in the quarter. Yield measured as pence per RPK increased by 6.0 per cent.
Cargo revenue was up 11.6 per cent compared with last year, with yields up 7.2 per cent and increased volumes, measured in cargo tonne kilometers (CTKs), up 4.1 per cent. The flying programme was 3.7 per cent larger in available tonne kilometers (ATKs).
Total costs were up by 11.8 per cent. The rise was largely driven by a 44 per cent increase in the cost of fuel and a 7 per cent increase in employee costs due to increased pension costs, severance and pay awards only partially offset by manpower reductions. Unit costs were up 7.9 per cent in the same period.
British Airways has also been nominated this year for a
World Travel Award as World’s Leading Airline.