Friday, May 22, 2009

British Airways Posts Biggest Loss in 25 years

. Friday, May 22, 2009

By stockOzone team

British Airways posted a loss of £375 million on Friday for the year to March 31, the worst annual performance since the government sold the airline to the public in 1987.

The carrier blamed high fuel prices last summer, as well as reduced passenger and cargo demand, for the loss, which is equal to $595 million. The year before, British Airways had a net profit of £712 million.

In response, the carrier announced plans to reduce costs and cut capacity.

“The prolonged nature of the global downturn makes this the harshest trading environment we have ever faced,” said Willie Walsh, the British Airways chief executive, “and with no immediate improvement visible, market conditions remain challenging.”

Starting this winter, British Airways will cut capacity “by taking out 4 percent of flying compared to last year, parking up to 16 aircraft,” Mr. Walsh said. Last summer, the carrier cut capacity by 3.1 percent.

“They are doing more or less what you would expect, focusing on the right issue of cutting costs while waiting for a turn in demand,” said Jonathan Wober, an aviation analyst at Société Générale in London.

Revenue is falling for airlines as the recession stunts demand for first-class and business-class tickets, typically the most lucrative. Even before swine flu reduced interest in travel, global passenger demand fell 11.1 percent in March from a year earlier, and airlines cut international passenger capacity by 4.4 percent, the International Air Transport Association said last month.

British Airways’ revenue rose to £9 billion in the fiscal year, from £8.7 billion, but fuel costs jumped 45 percent to almost £3 billion. For the fourth quarter, revenue slumped by 8.4 percent to £1.9 billion, resulting in an operating loss of £309 million. Passenger revenue for that quarter was down 8 percent.

The company suffered a public relations disaster, and cost overruns, as a result of the chaotic opening of Terminal 5 at London Heathrow Airport in March 2008.

British Airways announced plans to further pare nonfuel costs. It said it would not pay a dividend or management bonuses for 2008. It also has no plans to raise base pay and is offering staff members the option of unpaid leave or shifting to part-time work on a temporary or permanent basis.

Mr. Walsh and the finance director, Keith Williams, said they would work for no pay in July. “This is no stunt,” Mr. Walsh said. “I do not easily give up anything I have earned.” Mr. Walsh’s base salary is £735,000 a year; Mr. Williams’s is £440,00.

Disclosure: Author does not own any of the stocks discussed here.

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