Turbulent Times Ahead for Airlines
By Karl West, Daily Mail, London
Aug. 2–Willie Walsh, chief executive of British Airways, gave the most negative outlook yet for the airline sector after first quarter profits collapsed 88pc.
The BA chief declared the current market downturn is “the worst” that the industry has ever faced, and reiterated his view that some of his rivals would inevitably founder.
He said: “There are a lot of weak carriers out there in Europe. It’s only a matter of time before they run out of cash.”
The warning came as BA reported a plunge in pretax profits to UKpound 37 million from UKpound 298 million in the same period last year, as the high oil price took its toll on earnings.
Walsh said an expected UKpound 1 billion increase in its fuel bill to more than UKpound 3 billion this year means BA is now focused on eking out just a small profit for the year.
With oil currently hovering around $123 a barrel, and last month hitting a high of $147, BA is spending more than UKpound 8 million a day just to keep its planes in the air.
He said the industry is currently blighted by a combination of weak economic conditions, weak consumer confidence, and high oil prices — and the Irishman does not see anything on the horizon that is about to change this.
Walsh rarely agrees with his countryman Michael O’Leary, but he backed the Ryanair chief’s assessment that only five carriers can be sure of surviving such harsh economic headwinds.
To combat rising costs, BA said it is cutting capacity this winter by about 3.1 percent, which means around 5,000 fewer flights.
This includes reducing the frequency of its daily flights to New York’s JFK from eight to seven a day. It also plans to raise ticket prices.
Walsh said: “We are clear that fares will go up. It is inevitable that the industry has got to offset the oil price with ticket pricing.”
BA (up 3 3/4p at 259p) this week said it was in all-share merger talks with OneWorld Alliance partner Iberia about creating the world’s third-biggest airline, with revenues of more than UKpound 13bn.
The proposed tie-up was welcomed by the City, and analysts claim the combination may lead to as much as UKpound 400 million in annual cost and revenue benefits.
Andrew Fitchie at Collins Stewart said: “Within the context of a very difficult operating environment, BA management is doing all the right things.
“It is managing fares up, cutting capacity and seeking strategic tie-ups that will provide future synergies that will allow it to inch its way back to economic returns.”
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