British Airways Q2 profits fall

British Airways has posted a fall in second-quarter profits. The suspected terrorist plot to target airports cost British Airways £100 million, cutting into the flag carrier’s profits.

 


“It is not much bigger than we thought it would be…the impact to our bookings was noticeable [and was]...very disappointing,” CEO of British Airways, Willie Walsh told BBC Radio 4.

Walsh said that its premium long-haul business, and premium short-haul sector were the areas most affected with the tightened security arrangements thatlimited hand luggage.

BA said its operating profit for the three months to end-September fell eight percent to 240 million pounds ($458.2 million), down from 261 million pounds a year ago.

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British Airways has also trimmed its full-year revenue growth forecast, but said its fuel bill would be lower than expected after oil prices fell.

“The pension issue is very serious, we have a deficit of £2 billion we have to reduce it,” Walsh reiterated.

Full statement

British Airways announced its second quarter results ended September 30, 2006 including a one-off write down of the group’s investment in its regional subsidiary BA Connect of £106 million.

This resulted in an operating profit of £134 million for the quarter (2005: £261 million) and £345 million (2005: £437 million) for the half year giving an operating margin of 5.8 per cent and 7.5 per cent respectively.  The pre-tax profit was £176 million for the three months (2005: £241 million) and £371 million for the half year (2005: £365 million). 

Excluding the BA Connect write-down, the operating profit for the quarter was £240 million and £451 million for the half year giving an operating margin of 10.4 per cent and 9.7 per cent respectively.  The pre tax profit was £282 million for the quarter and £477 million for the half year.

Willie Walsh, British Airways’ chief executive, said: “Given the significant impact of the security disruptions, estimated at a cost of some £100 million, these are good results. Despite the extremely difficult operational environment, we have delivered improved revenue.

“As part of our continued efforts to improve the profitability of shorthaul we have today announced that we have reached agreement in principle to sell the regional business of BA Connect to Flybe. Point to point regional operations are not a strategic part of our business and we believe that such activities are better undertaken by a regional low cost airline.*

“Our focus on costs is working and has helped offset the revenue impact of recent weeks.  Fuel costs in the quarter increased by nearly a third. Underlying unit costs, excluding the BA Connect write-down and fuel, were down 1.1 per cent.  Costs will continue to be our focus as we work towards achieving a 10 per cent operating margin.


“This is an exciting time for our customers with the rollout of our next generation Club World flat bed later this month.  We are also enhancing ba.com to make it easier for our customers to book and get information about their travel plans.  It was an invaluable tool during the disruption in August because it gave hundreds of thousands of our customers quick and easy access to the very latest news. 

“As we have previously announced we have taken the first steps in the process towards expanding and renewing our fleet with the launch of a competition between aircraft and engine manufacturers.  However, we must first tackle the £2.1 billion deficit in the New Airways Pension Scheme (NAPS). Negotiations are progressing with the trustees and we continue to consult with our trade unions.
I remain confident that we will resolve this issue.”

Martin Broughton, British Airways’ chairman, said: “Overall market conditions are broadly unchanged. Longhaul premium transfer and shorthaul premium traffic, although recovering, continue to be affected by the tighter security arrangements currently in place.  As a result, total revenue is now expected to be 4.5 per cent to 5 per cent higher than last year, down half a per cent from our previous guidance.

“We expect that total costs, excluding fuel, will be flat compared to last year. Total fuel costs net of hedging for the year are expected to be some £400 million higher than last year, based on current prices and sterling dollar exchange rates.”

“We welcome the governments announcement yesterday on the re-introduction of liquids in cabin baggage which brings the UK into line with the rest of the EU.  We will continue to support the BAA as they work to improve the customer experience across London’s airports.”

Group turnover for the second quarter was £2,313 million (2005: £2,205 million), 4.9 per cent up on a flying programme 1.5 per cent up, measured in available tonne kilometres (ATKs).  Traffic volumes, measured in revenue passenger kilometres (RPKs), were up 3.6 per cent.  Seat factor was up 0.1 points at 79.7 per cent on capacity 3.4 per cent higher in available seat kilometres (ASKs). Yield measured in pence per RPK was up 2.2 per cent.

Reported unit costs increased by 10.5 per cent on the same period last year. Unit costs excluding the BA Connect write down and fuel, were down 1.1 per cent on capacity 1.5 per cent higher in ATKs.

Fuel costs increased by 30.2 per cent to £534 million due to the increase in fuel prices.  Employee costs were up 1.4 per cent due to increased pension costs partially offset by management headcount reductions.

Operating cashflow for the six months was £439 million (2005: £530 million).  Including current interest bearing deposits, the cash position at September 30, 2006 was £2,633 million, up £193 million compared with March 31, 2006.  Net debt was £1,125 million, down by £516 million since the start of the year.
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