British Airways has issued a bleak near-term outlook as fear of war and economic uncertainty deal a severe blow to passenger bookings, and analysts expect similar downward adjustments for Europe's other major airlines.
BA warned that the year ahead will be tougher than 2002, in a third-quarter results announcement last week that saw the UK flag carrier predict flat revenues into 2004. Although the carrier demonstrated it is in strong financial shape, analyst Chris Avery of JP Morgan says: "The figures were very good. It was the outlook that was shocking."
Fear of an impending Gulf war has driven bookings for February and March down, and the effects of a war would be imponderable - the airline refuses to predict the possible effect, as do analysts.
"With a war, who can say whether revenue will drop 30% or 50%? It will be an additional step down, but we don't know how far down or for how long," says Avery.
A near-term recovery is seen as unlikely, with Avery predicting only just over breakeven profits for the airline in the year ending in March 2004. This is well down on previous expectations - and he warns that "similar revisions [are due] for all European network majors". However, he adds that BA's strong cash reserves, now at £2.2 billion ($3.6 billion) should allow it to survive "almost any conceivable scenario".
BA chief economist Andrew Sentance says that the problem is deeper than simply low passenger numbers. "Premium traffic has been more affected by the downturn...we should see a lag between economic recovery and business travel recovery".
Meanwhile, analysts are warning that finding a buyer for BA's Birmingham-based, loss-making franchise carrier, the UK arm of Denmark's Maersk Air, might prove difficult. Acquisition by BA or a management buyout may be the only options for the airline.
Its owner, Maersk Air Group, part of the Danish AP Moller/Maersk shipping and engineering group, has put the division up for sale after suffering sustained losses. Maersk Air Group, which consists of the Birmingham-based carrier and mainline arm Maersk Air based at Copenhagen, lost DKr365 million ($53 million) in 2001 from sales of DKr3.2 billion, and losses continued in the first half of last year.
Source: Flight International
