BA profits hit by weather, fuel costs

2nd Feb 2007

British Airways has posted lower third quarter profits. This comes amid rising fuel costs and weak sales growth due partly to weather related cancellations.

The airline also trimmed its revenue guidance for the full year.

British Airways today reported an operating profit of £129 million for the three months to December 31, 2006 (2005: £176 million). For the nine months, the operating profit was £571 million (2005: £596 million). The operating margin for the quarter was 6.2 per cent,
2.4 points lower than last year.

Pre-tax profit for the quarter was £113 million (2005: £166 million).  For the nine months, pre-tax profit was £584 million (2005: £518 million).  These results have been restated to show the business on a continuing basis, excluding BA Connect, following the decision to dispose of the regional business to Flybe.

Willie Walsh, British Airways’ chief executive, said: “These are mixed results with costs up 3 per cent reflecting higher fuel costs and revenue up 0.5 per cent to £2.1billion.


“Our drive on costs continues ahead of our move to Terminal 5.  Fuel remains a significant burden with costs in the quarter up 11.2 per cent.  We remain committed to achieving our cost reduction target of £450 million and a 10 per cent operating margin by March 2008.

“Revenue has been hit by a raft of external factors.  These include the continued impact of the August security measures. Common EU baggage standards on liquids were not agreed until mid-way through the quarter and more restrictive rules on hand baggage continue to apply in the UK.  As a result, transfer volumes at Heathrow are still down.  The baggage system operated by the BAA at Heathrow’s Terminal 4, failed twice in December and severe fog led to the cancellation of 800 flights in the pre-Christmas peak period.  The impact of all these external factors in the quarter is estimated at £40 million.

“The patience and loyalty of our customers has been tested and I want to apologise for the inconvenience they have suffered during this period.  The uncertainty caused by the threat of recent industrial action has added to this but we have reached an agreement with the cabin crew branch of the T&G over a range of issues which I am confident forms the basis of a good relationship in the future.  We are now re-focusing on customer service to win back the confidence and trust of our customers.

“On pensions, we are delighted that the BA Forum, which represents British Airways’ unions, recently issued a statement recommending acceptance of the changes in benefits to tackle the £2.1 billion deficit in the New Airways Pension Scheme (NAPS).  This is a major milestone and we can now move forward on our plans for fleet renewal and replacement.

“We are now flying our new Club World on four aircraft and the embodiment programme is on schedule for completion by summer 2008.  Feedback from our customers has been fantastic.  They love the extra comfort, space and flexibility of the new flat bed and our greatly enhanced in-flight entertainment system.”

Martin Broughton, British Airways’ chairman, said: “The market continues to show good demand in premium cabins. The weakness in some non-premium segments is also still a feature. The revenue outlook for the fourth quarter has been impacted by the threat of industrial action. While the strike was averted, the estimated revenue loss is still some £80 million. Revenue guidance for the full year is now 3.25 - 3.75% growth.

“While cost control remains strong, full year costs excluding fuel are expected to be some £50 million higher than last year.  This reflects higher costs in the first quarter. Our full year fuel guidance has been revised down by £40 million reflecting the reduction in fuel prices. The fuel bill will now be accounted for on a continuing operations basis, and is expected to be some £1.95 billion.”

Group turnover for the third quarter at £2,068 million was up 0.5 per cent on a flying programme 1.8 per cent smaller measured in available tonne kilometres (ATKs).  Passenger yields were up 1.9 per cent, measured in pence per revenue passenger kilometres (RPKs). Seat factor was down 0.5 points at 74 per cent on capacity 0.8 per cent higher measured in available seat kilometres (ASKs).

For the nine month period, turnover improved by 6.5 per cent to £6,560 million on a flying programme 1.5 per cent higher in ATKs.  Passenger yields were up 3.7 per cent with seat factor up 0.6 points at 77.6 per cent on capacity 3.3 per cent higher in ASKs.

For the quarter, unit costs were up 4.9 per cent on the same period as last year reflecting total costs up 3 per cent and capacity 1.8 per cent lower in ATKs. Excluding fuel, unit costs were up 2.6 per cent.
Total costs were up, driven mainly by higher fuel and employee costs. Fuel costs rose by 11.2 per cent due to the increase in fuel price net of hedging. Employee costs were up by 2.0 per cent due mainly due to increased pension costs.

Operating cashflow for the nine months was £608 million.  Including current interest bearing deposits, the cash position at December 31, 2006 was £2,643 million, up £203 million compared with March 31, 2006.  Net debt was £866 million, down by £775 million since the start of the year.


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