07-Nov-2005 9:32 AM
British Airways Q2 profit falls 24% year-on-year due to strike, fuel costs
But the U.K. carrier lifted its sales outlook for the year on expectations of higher airfares.
British Airways' second-quarter net income fell to 171 mln pounds, or 15.3 pence a share, from the 225 mln pounds, or 20.6 pence a share, a year earlier.
Pretax profit at Europe's third-largest airline fell 17.7 pct to 241 mln pounds, better than the 215 mln pounds forecast of analysts polled by Dow Jones Newswires.
"These are reasonable results, but it's clear that we need to re-energize our drive on controllable costs,'' Chief Executive Willie Walsh said on a conference call with journalists.
"We have to tackle every aspect of the cost base and ask ourselves, are there any activities that we can eliminate? We're looking at getting better value for the money we're spending," he said.
Walsh noted that costs were up in all segments, but said the single biggest contributor was fuel, which surged 51.3 pct in the quarter.
A dispute involving caterer Gate Gourmet, which trigged a two-day strike at the airline in August, had an impact of 35 mln to 45 mln pounds in the quarter.
Walsh, who took over a month ago, plans to cut 300 mln pounds in costs by 2007.
He also said on the call that the company's current position on pension-fund contributions was not sustainable.
"We are already contributing about five times what our employees contribute....we have seen significant increases in our contributions in recent years. That is not a sustainable position," Walsh said.
Revenue climbed 8.2 pct to 2.21 bln pounds in the quarter. Positive trends continued in October, with passenger traffic up 6.4 pct and premium traffic up 6.8 pct.
British Airways said load factor -- a measure of how efficiently it's filling its planes -- was up a 0.5 percentage point to 74.7 pct in the month.
But Walsh said the airline still needed a fair amount of promotional activity to drive volume.
Looking ahead, the airline lifted its outlook for sales growth in the fiscal year by 0.5 pct to the range of 6 to 7 pct, citing expectations of yield improvement, or the ability to charge higher fares.
"Continued capacity restraint by the industry is resulting in a more stable price environment," British Airways Chairman Martin Broughton said in a statement.
Still, the airline expects fuel prices to continue to weigh on the bottom line. It reiterated its forecast for fuel costs to rise by up to 525 mln pounds in the fiscal year.
British Airways, by purchasing crude futures contracts, has 81 pct of its fuel needs covered at 45 usd a barrel through March 2006 and 50 pct at 55 usd a barrel in fiscal 2007, the company said.
Walsh said the airline won't meet its target of a 10 pt return on sales this year because of record high fuel prices, but reiterated that it's a reasonable objective.
He also said the carrier expects to post a profit on short-haul flights this year.