British Airways Unveils Record Profits

British Airways (BA) announced record profits on Monday which it said were boosted by increased traffic and cost-cutting, but a sharp rise in jet fuel prices hit operating profits.

Pre-tax profits for the three months rose 8.7 per cent to 113 million on sales up 6.3 per cent at 2.02 billion , pushing the pre-tax result for the nine months to December 31 to an all-time high of 583 million ($956.2 million), up from last year's record 534 million for the same period.

But operating profits in the third quarter fell to 131 million from 152 million a year ago due to the fuel factor. BA said operating profits would have been up 23 per cent had it not been for a 33 per cent rise in its fuel costs, "reflecting more passengers and cargo carried and the group's continued focus on cost efficiencies."

 

It said unit costs would have fallen three per cent had it not been for fuel prices which were the main factor behind a 0.3 per cent increase in unit costs.

Scheduled passenger traffic in the third quarter was up 9.1 per cent with the average number of seats sold rising to a record 71.2 per cent of capacity from 70.7 per cent a year ago.

The airline said the average fare yield for every kilometre flown dipped 1.8 per cent due to the strength of sterling's exchange rate but overall the effects of moves in exchange rates on costs and sales were largely neutral. Chairman, Colin Marshall, said in his results statement that the airline would be seeking to contain the impact of high fuel prices and a strong pound, pushing through its radical business efficiency cost-cutting programme, and seeking to improve customer services.

He did not comment on the proposed alliance with American Airlines except to say BA would also concentrate this year "on completing the regulatory clearance of the alliance."

Report on cost saving in May

Reuter LONDON

British Airways plans to make a progress report on its campaign to find a billion pounds of annual cost savings when it reports full-year results in May, chief executive Robert Ayling told Reuters on Monday.

British Airways launched its `Business Efficiency' programme to find ways of rationalising its various operations in September last year.

Since then British Airways has announced several moves to sell off or reorganise parts of the business such as ground services and cargo handling, but Ayling said it was too early to give a running total of savings identified so far.

"What we have done is to initiate action across every front in the company and what we are doing now is to bring together all the various actions which have been taken by managers," he said in a post-results interview.

"I think when we report our year-end figures we will be announcing the accumulative effect of that and telling people what we are doing and what sort of impact that's going to have year-on-year."

But Ayling said much still had to be done if the airline was to remain competitive, saying that operating margins at rival US carriers were higher.

"I am encouraged by the progress that we are making on the Business Efficiency programme but we have a long way to go yet. We are certainly not there yet by any means." he said.

Operating profits were under particular pressure not only from higher fuel prices but also the costs of selling tickets and handling increased levels of traffic.

He said selling costs in the three months to end-December rose 11 percent while handling and catering costs were up by about 12 percent.

But it remained to be seen whether BA can succeed in cutting the rate of commissions it pays agents on ticket sales -- something US carriers have already succeeded in doing.

"We have made no secret of the fact with all of our intermediaries that we believe that the cost of sales has got to be brought down," Ayling said.

"We have been in discussion with them for some time and I am hopeful that we will begin to see the effects of these discussions in the future but, again, that's not home yet."

He declined to say what the current level of commissions is except to confirm it was more than nine percent of sales.

"There is the IATA (International Air Transport Association) commission which is nine perecent but over and above that additional commisssions are paid throughout the industry," he said.

In addition there were computer reservation services and credit card charges, "which of course are of concern."

Earlier the airline reported that taxable profits rose 8.7 percent to 113 million pounds for the three months to December 31, on sales up 6.3 percent at 2.02 billion pounds, pushing the pre-tax result for the nine months up 9.2 percent to an all-time high of 583 million pounds ($956.2 million).

But operating profits in the third quarter fell to 131million pounds from 152 million pounds a year ago, mainly due to higher fuel prices.

BA said unit costs would have fallen three percent had it not been for a 33.7 percent rise in the quarterly fuel bill to 222 million pounds -- the main factor behind a 0.3 percent increase in unit costs.