BA shares soar as it lifts forecast
By Kevin Done, Aerospace Correspondent
nov 7 2008 04:05
British Airways' first-half profits plunged under pressure from the surge in fuel costs and falling traffic volumes and the group said it was cancelling its dividend for the six months.
Willie Walsh, BA chief executive, said on Friday that the group had achieved a "good performance given the incredibly difficult trading conditions. The six-month period will be remembered as one of the bleakest on record."
But BA shares rose by 14.9 per cent to 150p in early trading, as both the first-half results and traffic data for October were better than market estimates.
The airline said it had launched a "major review" to simplify the business, cut costs and remain competitive, including the cancellation and deferral of "significant projects."
It plans to reduce capacity in the next summer season from April to October by around 1 per cent following bigger cuts this winter, and said it was withdrawing long-haul services at Heathrow to Kolkata and Dhaka and short-haul services at Gatwick to Dublin and Zurich.
But BA raised its forecast slightly for the full year, from targeting break-even to "delivering a small operating profit" and said it expected revenues in the full year to rise by at least 4 per cent compared with its previous guidance for an increase of 3 per cent.
The group's financial performance has plunged from record profits last year, with a 75.3 per cent fall in operating profits in the six months to the end of September from £567m to £140m and a fall in pre-tax profits from £616m to £52m.
Turnover rose by 6.4 per cent from £4.47bn to £4.75bn. Traffic is shrinking, but BA is raising fares and refusing to lower many of its fuel surcharges on passenger fares despite the big fall in the oil price since July. Revenues are also benefiting from the weakness of sterling.
It said that improvements in yield or fare levels, mainly due to price and foreign exchange, were expected to more than offset volume reductions.
The fuel bill was still expected to rise by around £1bn or 50 per cent to £3bn this year as the weakness of the pound against the dollar and existing hedging contracts taken at higher prices than current levels had offset lower fuel prices.
BA said it had taken a number of measures to reduce capital expenditure and to control costs. Its capital investment for the full year was being cut from £650m to £550m, and in the first half it took a £40m charge for severance costs to reflect the cut of around one third of 1,350 managers eligible for voluntary redundancy and the closure of its Glasgow cabin crew base.
The group said the airline industry continued "to face very difficult trading conditions."
In October, the latest data, BA said its traffic, measured by revenue passenger kilometres, had fallen by 4.4 per cent. That included a fall of 9.2 per cent in premium traffic, where the airline generates most of its profits.
Capacity was reduced by only 0.7 per cent leaving BA with more empty seats as it filled 77 per cent of seats, down from 80 per cent a year ago.
BA's negotiations with Iberia, the Spanish flag carrier, on an all-share merger of the two groups to form Europe's third largest airline, behind Air France-KLM and Germany's Lufthansa, have made only slow progress since the talks were disclosed at the end of July.
The group said it anticipated the talks would "take several months to conclude."
The negotiations face problems in fixing the share exchange ratio for a merger, given that BA's shares fallen much more steeply than Iberia's over the last three months.
The valuation of BA has been hit by concerns about the rapid rise in the deficits in its pension schemes, and the group said on Friday an interim valuation update had shown a net increase in the pension deficit of £201m at the end of September.
Financial Times
By Kevin Done, Aerospace Correspondent
nov 7 2008 04:05
British Airways' first-half profits plunged under pressure from the surge in fuel costs and falling traffic volumes and the group said it was cancelling its dividend for the six months.
Willie Walsh, BA chief executive, said on Friday that the group had achieved a "good performance given the incredibly difficult trading conditions. The six-month period will be remembered as one of the bleakest on record."
But BA shares rose by 14.9 per cent to 150p in early trading, as both the first-half results and traffic data for October were better than market estimates.
The airline said it had launched a "major review" to simplify the business, cut costs and remain competitive, including the cancellation and deferral of "significant projects."
It plans to reduce capacity in the next summer season from April to October by around 1 per cent following bigger cuts this winter, and said it was withdrawing long-haul services at Heathrow to Kolkata and Dhaka and short-haul services at Gatwick to Dublin and Zurich.
But BA raised its forecast slightly for the full year, from targeting break-even to "delivering a small operating profit" and said it expected revenues in the full year to rise by at least 4 per cent compared with its previous guidance for an increase of 3 per cent.
The group's financial performance has plunged from record profits last year, with a 75.3 per cent fall in operating profits in the six months to the end of September from £567m to £140m and a fall in pre-tax profits from £616m to £52m.
Turnover rose by 6.4 per cent from £4.47bn to £4.75bn. Traffic is shrinking, but BA is raising fares and refusing to lower many of its fuel surcharges on passenger fares despite the big fall in the oil price since July. Revenues are also benefiting from the weakness of sterling.
It said that improvements in yield or fare levels, mainly due to price and foreign exchange, were expected to more than offset volume reductions.
The fuel bill was still expected to rise by around £1bn or 50 per cent to £3bn this year as the weakness of the pound against the dollar and existing hedging contracts taken at higher prices than current levels had offset lower fuel prices.
BA said it had taken a number of measures to reduce capital expenditure and to control costs. Its capital investment for the full year was being cut from £650m to £550m, and in the first half it took a £40m charge for severance costs to reflect the cut of around one third of 1,350 managers eligible for voluntary redundancy and the closure of its Glasgow cabin crew base.
The group said the airline industry continued "to face very difficult trading conditions."
In October, the latest data, BA said its traffic, measured by revenue passenger kilometres, had fallen by 4.4 per cent. That included a fall of 9.2 per cent in premium traffic, where the airline generates most of its profits.
Capacity was reduced by only 0.7 per cent leaving BA with more empty seats as it filled 77 per cent of seats, down from 80 per cent a year ago.
BA's negotiations with Iberia, the Spanish flag carrier, on an all-share merger of the two groups to form Europe's third largest airline, behind Air France-KLM and Germany's Lufthansa, have made only slow progress since the talks were disclosed at the end of July.
The group said it anticipated the talks would "take several months to conclude."
The negotiations face problems in fixing the share exchange ratio for a merger, given that BA's shares fallen much more steeply than Iberia's over the last three months.
The valuation of BA has been hit by concerns about the rapid rise in the deficits in its pension schemes, and the group said on Friday an interim valuation update had shown a net increase in the pension deficit of £201m at the end of September.
Financial Times