British A irways shows signs of recovery

British Airways reported a pre-tax loss of L50m for the first quarter yesterday but the underlying business showed signs of a recovery despite the continued high cost of fuel.

At the operating level, profits rose slightly to L97m, against L94m in the same period in 1999, helped by a rise in the more profitable business class traffic, a further reduction in capacity and the resultant rise in yields – the revenue earned from each seat flown. Group turnover rose 4 percent to L2.31bn.

“These results reflect the scale of the challenge we face in a highly competitive and price-sensitive market,” said Rod Eddington, BA’s new chief executive.

Chairman Lord Marshall said he was “encouraged” by the economic outlook in the airline’s key markets but said the strength of sterling and high cost of fuel “gives cause for concern.”

At the pre-tax level the airline reported a profit of L8m before a L58m write-down, largely from the sale of BA’s French subsidiary Air Liberte in May. This compares to a pre-tax profit of L200m in the same period last year, which was inflated by L177m in one-time gains from disposals.

These results were in line with expectations and came despite a L76m rise in fuel prices over the same quarter last year. Fuel is the second largest cost item for airlines, after wages, accounting for some 15 percent of operating expenses. BA has locked in about 75 percent of its fuel costs for the current year by buying options in the futures market, a process known as hedging.

BA saw an 8.2 percent jump in first and business class traffic in the period. Yields rose 2.9 percent as the airline continued its strategy of cutting capacity, largely by switching to smaller aircraft. The number of seats available in the quarter fell by 2.2 percent. Reuters