High costs fuel record loss at BA

Friday, 22 May 2009 15:51 UK, BBC

British Airways has announced the biggest loss since the company was privatised in 1987.

BA reported a loss before tax of £401m for the year to 31 March, after seeing its results hit by a weak pound and higher fuel costs.

The airline made a revised profit of £922m in the previous year.

BA also offered staff the option of taking unpaid leave or working part-time. Chief executive Willie Walsh said he would work for no pay in July.

Mr Walsh said: "I certainly want to make a contribution in recognition of the extremely challenging position we face. This is no stunt. I do not easily give up anything I have earned."

Mr Walsh earns £735,000 a year.

Finance director Keith Williams, who is paid £440,000, will also forgo his pay for the month of July.

Fuel pressures

Although revenues increased to almost £9bn, BA faced a near-£3bn fuel bill.

Mr Walsh said he saw "no signs of recovery anywhere".

It's difficult to avoid the impression that at least part of BA's agony, its descent in just 12 months from record profits to record losses, was of its own making Robert Peston, BBC business editor

Fuel costs rose 44.5% after the price of oil soared last year. The weaker pound also contributed to rising costs as fuel is bought in US dollars.

But the airline said it expected lower fuel prices to reduce its fuel costs by about £400m in the year ahead.

The results also included redundancy-related costs of £78m.

BA said it had cut more than 2,500 jobs since last summer and added that it was in talks with unions about "pay and productivity changes".

'Self-inflicted wounds'

Despite BA's claims that it has been a victim of a downturn in global conditions, analysts say the airline is not entirely blameless for its poor results.

Tom Symonds, BBC transport correspondent One of BA's biggest problems is the drop in numbers by 13% of the airline's real earners - the business passengers. The airline is doing all it can to keep them flying, including in recent months a Buy One Get One Free offer. It is much harder for BA to take on the likes of easyJet and Ryanair when it comes to offering cheap economy seats. And easyJet in particular is deliberately punting for business passengers forced to travel on a budget. The other big problem is an old one. BA's fuel bills have soared by 44.5% in the last year. The real problem is that the world's airlines buy their fuel in dollars, and the exchange rate against the pound is not good for BA. Read Tom's thoughts in full

"The first half of the year really was [a period of] self-inflicted wounds from the Terminal 5 opening problems," said airline consultant John Strickland.

Travel writer Simon Calder added that BA had been particularly hit by a fall in premium traffic - business class and first class passengers - which was down 13%.

"The premium traffic which accounts for half their income has simply dried up," he said.

"They base their business on the fact that there will be plenty of businesses wanting to fly and businesses are simply cutting back.

"British Airways has been losing £7 every second for the past year, which is pretty grim."

The BBC's business editor Robert Peston said that BA's loss was a result of "a lamentable rise in costs", including engineering and aircraft costs, landing fees and staff costs.

Fewer passengers

Shares in the airline were down 4.5% to 155 pence in afternoon trading, having lost as much as 7% earlier in the day.

However, BA said that it had seen a "significantly better" operational performance, and that it had received record customer satisfaction ratings.

The total number of passengers carried fell 4.3% to 33.1m.

The results also included the impact of the airline's first full year of operations at Heathrow Terminal 5, and BA said more than 24 million passengers had flown through Terminal 5.

BA added that it had had to take "significant pricing actions" to stimulate non-premium sales, which were broadly unchanged on the previous year.

"Fares have been going down and will continue to be very competitive," Mr Walsh told the BBC. "I don't expect to see any increase in fares in the coming year."

Tough year ahead

BA said the outlook for the airline industry was tough and it would not be paying a dividend this year.

It plans to reduce capacity by 4% over the winter by not flying up to 16 aircraft.

BA is not the only airline suffering in the global recession, as higher fuel prices and a drop in demand for air travel have affected the whole industry.

Also on Friday, the Emirates group reported a 72% fall in profits.

On Wednesday Air France-KLM revealed a net loss of 505m euros ($705m; £444m) in the three months to 31 March, compared with a 534m euro loss in the same period a year earlier.