BA may buy out Air Miles partner

BRITISH Airways may take full control of the Air Miles frequent-flyer business that it owns in Britain with Mills Cowdrey Management. The airline is keen to dispel speculation that free miles being built up by customers will erode profit margins as people take up complimentary flights.

Announcing a 21.5 per cent increase in BA's pre-tax profit to pounds 300m for the first nine months of the year, Sir Colin Marshall, chairman, said Air Miles continued to generate extra revenue and took up seating that would otherwise be empty. A BA spokesman said the 2 billion free miles now in circulation represented 10 per cent of the company's unused annual capacity.

Air Miles, in which BA has a 51 per cent stake in the UK, earns the airline money by persuading passengers to fly with it to earn miles and by encouraging them to buy a more expensive seat to gain extra miles.

BA sells seats to Air Miles, which pays for them by selling vouchers to organisations in the scheme, such as Sainsbury, Shell and Cellnet.

Sir Colin would not comment on a potential buyout of its Air Miles partner but is believed to be keen to gain full control.

In the third quarter of the year, an increase in business-class and first-class travel helped boost BA's pre-tax profits to pounds 65m from pounds 20m a year earlier. Turnover rose 11.9 per cent to pounds 1.5bn. Productivity improved by 8 per cent during the quarter. Sir Colin hoped staff would benefit from a profit-sharing scheme this year. He said BA was on target to cut costs by pounds 150m in the full year and planned more efficiency measures next year.

In the nine months to 31 December, the number of BA's scheduled passengers rose 11.3 per cent to 22 million. Earnings per share were 28.4p, compared with 28.9p in the same period last year, adjusted to take account of a rights issue. The shares fell 1p to 473p.