Late lift for BA will fail to prevent record loss

Published on Friday 5 February 2010 20:09

HEAVY cost-cutting and a return to operating profit in the final three months of 2009 will fail to prevent British Airways sliding to a record full-year loss.

• British Airways cabin crew arrive for a union meeting to discuss a postal ballot. Picture: Getty

The airline, which is fighting a potentially damaging battle with staff over strike threats, stressed it was "on the right track" yesterday after reporting a surprise third-quarter operating profit of 25 million.

The result compared with analysts' expectations for losses as high as 100m.

Employee and fuel costs fell by 10.2 per cent and 22 per cent respectively during the quarter as BA continues to adapt to "the new business realities created by the global recession".

Pre-tax losses for the three months to December topped 50m, down from the 122m lost a year earlier and, again, a better outcome than the City expected.

However, losses before tax over the nine months to December rose to 342m from 70m the previous year after BA posted a record first-half loss – a normally buoyant period as it contains the holiday season. BA is on track to report a record full-year pre-tax loss of about 625m, according to a poll of ten brokers.

BA chief executive Willie Walsh said the Q3 figures reflected cost-cutting across the group. "Those changes, combined with capacity reductions and external spending cuts, mean operating costs are down by 10.5 per cent and show that we've adapted quickly to the new business realities created by the global recession," he said.

"We still expect to make record losses this year. Permanent structural change is being introduced in all areas and will return us to sustained profitability."

Low-cost rivals EasyJet and Ryanair recently raised their profit forecasts and said they were still taking market share from major flag carriers such as BA and Air France-KLM.

BA continued to suffer a fall in passenger numbers, with January hit by Britain's big freeze. Combined with the global economic downturn, overall traveller numbers fell 8 per cent in the month, compared with a year earlier.

In the UK and Europe, passenger numbers slumped 8.7 per cent, declining steeply from the nine-month fall of 4 per cent.

Evolution analyst Nick Cunningham noted that BA's premium traffic was faring better, suggesting business travel was "steadily improving", but said high unemployment would continue to act as a headwind.

Shares in BA closed 2.5 per cent lower at 206p, valuing the airline at about 2.4 billion.

Howard Wheeldon, senior strategist at BGC Partners, said: "When full-year results are published in May I have sufficient confidence to believe that two years from now BA will not only still be around it will be showing signs of beginning to prosper again."

The airline has cut some 3,900 roles in the past year, partly through redundancy and also by reducing overtime and increasing part-time working.

Walsh said the group was working to address its 3.7bn pension fund deficit and was discussing "a range of changes" to future pension benefits.