British Airways finds itself in economic turbulence

British Airways’ results for the nine months to April were in line with the recent profit warning issued by the carrier, but mark a sharp deterioration from the outlook as recently as November.

The airline reported losses of £70 million for the nine months to December and forecast a loss of £150 million for the financial year to April, despite remaining £89 million in profit on its operations for the year so far.

The figures match BA’s warning to the City on January 26, when it announced a likely operating loss of £50 million for the final quarter of 2008 and referred for the first time to losses for the full year. Until then BA had predicted a small profit for 2008-09.

Half-yearly figures released on November 7 showed an operating profit of £140 million and forecast “a small profit in the financial year”. As recently as January 6, BA’s monthly traffic statistics for December were accompanied by the reassurance that: “Trading conditions remain broadly unchanged . . . Financial guidance for the year remains unchanged.”

Given the collapse in the oil price from a summer high of $147 a barrel, these forecasts might have appeared cautious. But the banking crisis in early October changed everything.

Suddenly, the depth of the crisis – accompanied by the tightening grip of recession and slide in the value of Sterling – could no longer be denied.

BA’s latest figures reflect that reality. To put them in perspective, BA ended 2007-08 with record results – a pre-tax profit of £883 million and a long-promised 10% operating margin.

The airline even paid a divided to shareholders for the first time in seven years – a move that raised eyebrows among some analysts at the time.

The carrier’s £70 million loss for the year to December compared with a £816 million profit at the same stage a year ago. That is quite a turnaround.

Now, despite all the talk of deflation on the financial pages, rising non-fuel costs and falling passenger demand are the concern for carriers. BA’s latest figures show operating costs rising 18% year on year, while its January passenger statistics report a 13.8% fall in premium traffic – where its profits come from.

Given BA racked up profits close to £1.5 billion over the previous two years, this by no means represents a crisis. But the pressure on staff will be intense with the airline reassuring investors it is seeking “significant cost reduction”.

Willie Walsh is already in talks with unions on cost cutting. “We continue to review every aspect of the business [and] have opened discussions with the unions about pay and productivity,” reports the airline.

Do not be surprised if that leads to a fresh round of BA being in the news for all the wrong reasons.

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