- Passenger numbers: 147,000, -13.1% year-on-year;
- Passenger load factor: 86.3%, -0.5 ppt.
British Airways reports 13% fall on Asia Pacific traffic in Aug-2009
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British Airways: cabin crew dispute tests the airline's resolve to reduce unit labour cost
A vote on 14-Dec-2016 by British Airways 'mixed fleet' cabin crew raises the real threat of strike action - and, as is often the case, in the lead up to a peak holiday period. This would be the first serious industrial action since strikes by cabin crew protesting at the 2010 introduction of mixed fleet crew. BA, and its parent IAG, have been praised by many observers (including CAPA) for their resolve in driving through important restructuring programmes in legacy airlines, while their European peers have fallen behind the field. A crucial part of this has been to generate labour productivity improvements, often in the face of union resistance.
British Airways has a good track record in improving the efficiency of its workforce, as measured by ASKs per employee. In 2015 it made its highest-ever operating profit margin, beating Europe's other major legacy airlines, and it looks likely to improve on this once again in 2016. However, it does not have a great record of lowering unit labour cost.
Moreover, BA is currently experiencing falling unit revenue. With help from lower fuel prices receding, cutting ex fuel unit cost will be vital if BA is to fight off the margin squeeze resulting from unit revenue weakness. Labour is a key element of ex fuel cost, so the cabin crew dispute is a test of BA's resolve.
IAG lowers plans for capacity growth, fleet investment & profit, but keeps return on capital target
IAG's Capital Markets Day on 4-Nov-2016 was the first since its formation in 2011 when it lowered any of its medium term financial targets. It cut its 2016-2020 average EBITDAR goal, in spite of adding in Aer Lingus for the first time. This followed two cuts to 2016 operating profit guidance during the course of this year, as a result of "a tough operating environment". It has been hit by adverse currency movements, mainly resulting from the UK's Brexit vote, in addition to ATC strikes and terrorist events.
To its credit, IAG has responded to the more challenging trading conditions by lowering its planned capacity growth and capital expenditure during its 2016-2020 strategic plan. These steps are necessary if it is to have a chance of meeting its ambitious goal to sustain a 15% return on invested capital. This target is unchanged, despite the lower profit outlook.
In 3Q2016, IAG's rolling four quarter return on capital fell, after rising more or less continuously since it began to target this measure in 2013. It has consistently been more profitable than either of its two main European legacy airline group rivals (Air France-KLM and Lufthansa). Nevertheless, the downward step highlights the challenge in meeting its own demanding target.