BA posts Q1 operating loss

[July 31, 2009]  LONDON (AP) -- British Airways PLC warned there were "no visible signs of improvement" in the recession-hit airline industry as it posted a 94 million pound ($155.5 million) quarterly loss Friday, despite noting a seasonal summer uptick.

BA said it would continue to focus on stripping costs out of the business, reporting that its efforts so far have resulted in a 6.6 percent reduction in operating costs since October.

The airline is seeking to slash some 3,700 jobs from its 40,000-strong work force and freeze pay for several years. It has also taken 5 percent of its winter flight capacity out of service and even dropped meals on short-haul flights.

The operating loss is the first time since BA was privatized in 1987 that it has recorded a deficit at the beginning of the fiscal year, which is usually the second strongest earnings period after the summer peak -- the airline earned a 35 million pound profit in the same period a year ago.

Revenue in the fiscal first quarter ending June 30 fell 12 percent to 1.98 billion pounds, from 2.25 billion pounds.

The airline did not provide net profit details in Friday's trading update. Operating earnings exclude financial items such as interest and taxes, as well as one-time gains and losses.

With the operating loss and revenue flagged up by the carrier ahead of the announcement, BA stock received a boost from the positive news that costs and debt had been reduced, rising 4.2 percent to 140 pence.

Chief Executive Willie Walsh said that while traffic volumes were down, they had stabilized during the quarter and showed some signs of improvement for the peak summer months.

However, he added that yields, or average fares per mile (kilometer), "remain volatile," leaving the airline wary of providing revenue guidance for the full year. Yields dropped 9.7 percent in the first quarter and Walsh said he expected a greater fall in the second quarter.

"Trading conditions continue to be very challenging ... and no visible signs of improvement," he said.

Other carriers have also succumbed to the market downturn, with Air France-KLM reporting a 20.5 percent fall in first quarter revenue to euro5.2 billion and Lufthansa posting an almost 20 percent drop to the same level on Thursday.

Even the normally more robust budget carrier Ryanair Holdings PLC spooked the market earlier this week by scaling back its full-year profit forecasts.

Walsh has been one of the most pessimistic airline industry executives about the sector, warning that BA is in a "fight for survival" and that the carrier's key premium traffic may never fully recover.

Panmure Gordon analyst Gert Zonneveld said that yields are likely to remain under pressure and premium traffic weak. He retained his hold recommendation on BA stock.

Walsh said Friday that while BA's efforts to cut costs were bearing fruit, "with revenue still weak, there is much more to be done," suggesting the savings plan would last years.

His plans to slash 3,700 ground staff and cabin crew positions have met with resistance from unions. BA recently called in a government-backed mediator in an attempt to reach a deal and avoid crippling strike action. Walsh said Friday that both sides are currently in a "cooling off" period with talks halted.

The carrier's engineers and pilots have accepted a separate deal.

In other cost-saving measures, BA has stripped capacity out of its flying schedule, with plans to park 22 aircraft over the winter. It has also extended its planned delivery of six new superjumbo Airbus A380 aircraft by an average of five months. A second round of delivery of six more aircraft will be delayed by an average of two years.

Walsh declined to comment on the status of talks with Boeing Co. over the 24 Boeing 787 jets it ordered in 2007, following a report he was seeking to renegotiate installment payments.

"Talks are ongoing and confidential," he told reporters on a conference call.

In more positive news, BA said it expected its full year fuel bill to be between 450 million pounds and 500 million pounds lower. It also said that its debt had fallen slightly to 2.3 billion pounds.

Walsh also played down reports that BA is planning to sell control of the trans-Atlantic premium subsidiary Openskies, which last week dropped its service between Amsterdam and New York, leaving just one route between Paris and New York.

Walsh told reporters he had nothing to add to existing public comment by the airline that it is "reviewing all aspects of its activities."

[Associated Press; By JANE WARDELL]

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.