BA Bemoans ‘the Worst Trading Conditions Ever’

By DOUGLAS HAMILTON

THE airline industry was shrouded in more gloom yesterday after British Airways reported its profit crash-dived in the first quarter as high oil prices, an economic slowdown and deteriorating consumer confidence combined in what the airline called “the worst trading conditions ever”.

Willie Walsh, the airline’s chief executive, also confirmed talks with Spanish carrier Iberia Lineas Aereas de Espana about a potential all-share merger were under way but said it was “too early to say what impact it will have on the business in terms of jobs”.

The British flag carrier cut its annual revenue growth target to 3per cent from 4per cent and said it was focused on “achieving a small profit in the current financial year” and sustainable profitability in the medium and long term.

“This is the worst trading environment the industry has ever faced and fares are likely to go up as we reduce some winter capacity and cope with unprecedented oil prices but we won’t be grounding any aircraft, ” Walsh said on a conference call.

Profit before tax for the three months to end-June plunged by 88per cent to GBP37m from GBP298m last year, missing an average forecast of GBP49m supplied by BA. City forecasts ranged from GBP16m to GBP87m.

British Airways expects its fuel bill to rise 50per cent to GBP3bn this year. The company is buying 85per cent of its fuel in the present quarter at an oil price of Dollar91 a barrel, about a quarter less than the current price.

Shares in BA, which have fallen almost 20per cent since the start of the year, gained some altitude, closing 3.75p, or 1.4per cent, higher at 259p.

Conditions throughout the sector are grim. At least 24 carriers have stopped flying or filed for bankruptcy this year because of higher fuel expenses and the industry’s losses may surpass Dollar6.1bn this year, according to the International Air Transport Association.

“Conditions are tremendously difficult, so it is going to be a tough year ahead, ” said Douglas McNeill, an analyst at Blue Oar Securities in London. “British Airways is at least going into it with a good balance sheet.”

Analysts at brokers Collins Stewarts were also upbeat about BA’s prospects, adding that they retained a “buy” rating on the airline’s shares.

British Airways said this week that it is in talks to merge with Madrid-based Iberia to lower spending on planes, maintenance and staffing.

The new company would have two fleets and a dual listing in London and Madrid.

Originally published by Newsquest Media Group.

(c) 2008 Herald, The; Glasgow (UK). Provided by ProQuest Information and Learning. All rights Reserved.