Airlines fail to pull out of descent

The crisis in aviation is deepening despite evidence the downturn in traffic has bottomed out, with airline association IATA describing the latest losses of industry giants British Airways, Lufthansa and Air France-KLM as “shocking”.

BA lost £148 million in the three months to June – the carrier’s first-ever failure to profit in the period even when posting annual losses of £401 million last year.

Chief executive Willie Walsh reported 1,450 jobs cut since March and 4,000 since spring 2008, and expressed confidence a further 2,000 would go by next March. BA will ground 16 aircraft this winter, removing a further 5% of capacity. It remains in talks with unions representing cabin crew and ground staff on redundancies, pay cuts and changes to contracts, with a 14-day “cooling off period” due to end this week.

Lufthansa recorded a half-year operating profit of Euro8, which sounds better but did not prevent an overall loss of Euro216 million, and announced plans to cut Euro1 billion in costs by 2011.

Air France-KLM did even worse, with a three-month loss to June of Euro612 million compared with a Euro211 profit a year ago.

The chief problem is the recession and its impact on premium traffic. But the losses are global. Singapore Airlines – owner of 49% of Virgin Atlantic – warned of the first full-year loss in its history after losing £129 million during April-June, something it escaped even in the SARS year of 2003.

BA axing sandwiches on short-haul flights from Monday will save just £22 million a year when the carrier is haemorrhaging £1 million a day on operations. Downsizing is inevitable.

Does that mean all is rosy for the no-frills carriers? Not necessarily. Ryanair turned in a profit of Euro136.5 million for the three months to June, but that came almost entirely from the fall in the fuel price. An 11% rise in passengers accompanied a 3% fall in fares revenue and a warning of still lower fares to come.

EasyJet’s results for the same three months reflected a more cautious approach. Its passenger numbers were up just under 3% year on year, but fare revenue rose by 8% because EasyJet is charging passengers more to fly.

Latest figures from airport operator BAA confirmed the picture. It reported a near £546 million loss in the first half of 2009, which will not increase the value of Gatwick as BAA struggles to finalise a sale at the insistence of the Competition Commission.

Passenger numbers through BAA’s London airports fell by 4.4 million or 7.4% year on year – Gatwick seeing almost one in ten fewer passengers and Stansted one in seven fewer, while Heathrow traffic fell just 3.8%. However, the losses were chiefly down to depreciation of BAA’s assets and a rising pension deficit. Revenue from handling passengers at Heathrow rose 35% – reflecting higher airport charges. Where the operator suffered was in its income from retail operations.

What does that mean for users? BAA has generally increased charges below the rate allowed by the regulator, the Civil Aviation Authority. Whoever operates the UK’s major airports in future may feel compelled to charge more.

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