ALEXANDER CAMPBELL / LONDON
Flag carrier insists that it is well positioned to benefit from the inevitable streamlining of an industry in distress
British Airways tried to put a brave face on its second quarter results on 6 November, claiming that the same economic slowdown that almost pushed the carrier into the red would create new takeover opportunities. Pre-tax profits plunged to £5 million ($7.3 million) compared with £200 million over the second quarter of 2000.
Things are likely to get much worse for the struggling UK flag carrier, with chairman Lord Marshall predicting a "significant operating loss "for the financial year to March - its first since privatisation in 1987. Analysts are predicting losses in excess of £700 million for the year. Pre-tax profit for the first six months totalled £45 million.
The downturn was blamed on the UK foot and mouth epidemic, the 11 September terrorist attacks and the subsequent outbreak of war and the continuing US economic slowdown, all of which led to heavily reduced passenger traffic, especially on the key transatlantic routes. Premium traffic, historically an especially important revenue source for BA, was particularly badly hit, declining 36% since last year compared with a fall of only 22% in non-premium traffic. As a result, staff numbers are being slashed by more than 7,000 and the dividend dropped for the first time since privatisation.
BA is now looking at the future shape of the airline and assertions by management that every route will have to make a profit in its own right is a warning of possible further heavy cuts to come, particularly on short-haul routes.
Since September the figures have failed to improve. Despite drastic cuts in capacity, the load factor was down 8% to 63% compared with last October, with traffic down 25%. BA does not expect the decline to level off this month, although forward bookings for December are slightly improved.
There was some slight cheer in the results. Although the group's flight schedule was reduced by 12.6%, largely because of the closure of US airspace after 11 September, revenue fell slightly less, down only 11.8%, meaning that yield actually rose, up 6.1% to 6.56 pence per revenue passenger kilometre. BA is still sitting on a healthy cash pile, with a balance of over £1 billion. And, as Lord Marshall pointed out, the airline is well situated to profit from the wave of consolidation in the European airline industry which is widely seen as inevitable.
Consolidation would have happened anyway - analysts have pointed out for years that the European market is only big enough for three large long-haul carriers, rather than today's 15. BA is expected to be one of them, with Air France and Lufthansa.
Source: Flight International
