British Airways reports falling operating profits


British Airways reported (18-May-07) an operating profit of

GBP602 million for the 12 months ended 31-Mar-07 (2006: GBP694 million). The

operating margin was 7.1%, down from 8.5% in 2006.

For the quarter, the operating profit was GBP31 million (2006: GBP98 million) giving an operating margin of 1.6%.

Group turnover for the year was GBP8,492 million, up 3.4% on a flying programme up 0.7%, measured in Available Tonne Kilometres (ATKs). For the quarter, Group turnover was significantly impacted by the threat of a strike and was down 5.9% to GBP1,932 million, on a flying programme 1.5% lower in ATKs.

Traffic volumes, measured in Revenue Passenger Kilometres (RPKs), were up 2.9% for the year and down 1.3% for the quarter. Seat factor was flat for the year at 76.1% on capacity 2.9% higher in Available Seat Kilometres (ASKs) and down 2.0 percentage points in the quarter to 71.4%. Yield measured in pence per RPK was up 2.1% for the year and down 3.4% for the quarter. Total costs, excluding one off items, were up 5.5%, driven mainly by a 22% increase in fuel costs to GBP1.93 billion. Non-fuel costs were up 1.1%.

The results include a GBP396 million credit as a result of a change to the New Airways Pension Scheme (NAPS). The investigations by the US Department of Justice, the European Commission and the UK Office of Fair Trading and others into anti-competitive activity on long haul passenger and cargo fuel surcharges are continuing. However, British Airways has now responded to the subpoenas and other statutory requests for information from these authorities.

Willie Walsh, British Airways' chief executive, said, “tThese are strong results despite a challenging year. We know at times it has been a frustrating year for our customers, caused by disruption and overly restrictive UK government security measures on hand baggage.

"We have taken steps to ensure the fundamentals of our business are strong, laying the foundations to deliver our 10% operating margin target by March 2008. We have addressed the GBP2.1 billion pension deficit and disposed of the loss-making regional business, BA Connect. Our total cost control has been good, with non-fuel costs up just 1.1%.

"We are on the threshold of a new era for our customers. Terminal 5 is only 313 days away and tickets for flights from T5 are now available for sale. Our new Club World cabin is now on 96 services to New York's JFK airport and we will be investing in a fantastic new First cabin. We have made progress on Gatwick, particularly on costs, which has given us the confidence to renew our commitment to Gatwick and upgrade its fleet. This is a step towards a single shorthaul fleet.

"Earlier this year we ordered four new widebodied aircraft for delivery in 2009, and we anticipate making a further major order for 34 replacement and additional growth aircraft in the coming months. Today we have announced an order for eight Airbus A320 family aircraft for the shorthaul fleet.

"The 'open skies' air treaty agreed recently between the EU and the US has given us some new and exciting opportunities. We have filed an application with the US DoT for permission to operate services between any point in the US and any point in the EU to enable us to grow the most profitable part of our business."

Martin Broughton, British Airways' chairman, said, “we are pleased with the progress that Willie and his team have made on many fronts this year despite all the challenges.

"In terms of current performance, we have seen some weakness in non-premium segments notably on the North Atlantic. To some degree, complete visibility is hampered by the ongoing baggage restrictions which impact all cabins but particularly premium. Our revenue guidance of 5-6% increase is unchanged but we now expect to be at the lower of end of this range.

"Cost control remains a key focus and full year costs, excluding fuel, are still expected to be some GBP50 million higher than the year just reported.

"Our goal to achieve a 10% operating margin by March 2008 remains on track, although year over year improvements are likely to be delivered predominantly in the second half as we cycle against record results in the period to August 10 last year."

The Board has recommended that no final dividend be paid.

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