BA sets profits target of pounds 1bn

British Airways has set itself the ambitious target of increasing profits to more than pounds 1bn a year by the end of the decade, reinforcing its position as the world's most efficient and profitable airline.

Announcing record pre-tax profits last year of pounds 585m and a pounds 94m bonus for staff - one of the biggest paid by a UK company - BA's chairman, Sir Colin Marshall, said every aspect of the group's operations would be reviewed.

The huge improvement in business efficiency, he added, would be achieved through further cost reductions, improved use of assets and revenue-enhancing initiatives.

Sir Colin said that over the next three years BA aimed to achieve business efficiencies worth pounds 1bn on top of the pounds 900m of savings made in the last five years.

BA's finance director, Derek Stevens, indicated that up to pounds 600m of this improvement could feed straight through to the bottom line - pushing BA's profits well above the pounds 1bn mark by the beginning of the next century.

The unveiling of the plan was marred, however, by an announcement that BA's pilots are to hold a strike ballot in protest over a two-year pay deal on offer from the airline.

BA's chief executive, Robert Ayling, maintained that the pay offer - worth 3.7 per cent in the first year and inflation plus 0.5 per cent in year two - was a "very attractive" one and had already been accepted by the airline's 20,000 ground staff.

He added that the staff bonus - worth a minimum of pounds 1,210 for junior employees and up to pounds 5,000-pounds 6,000 for pilots - would be paid irrespective of whether there was a vote for strike action.

Sir Colin would not specify exactly how the challenging efficiency target would be met and how much would come from cost-cutting. However, he said achieving competitive unit costs would be an important part of the programme.

Nor would he respond to reports that BA is on the verge of sealing a transatlantic tie-up with American Airlines, possibly involving the two carriers taking cross-shareholdings in one another.

"We continue to believe that a further round of consolidation within the US airline industry is likely to occur. What, when and how I cannot say. We will, however, be watching the situation closely to see what implications there could be for our US investment and for British Airways itself."

BA has a 24.6 per cent stake in USAir, which it acquired four years ago for pounds 250m. Both American and United Airlines held discussions last year about acquiring USAir - a deal that could have led to a new and bigger alliance with BA but the talks broke down.

Although BA has written down the value of its stake in USAir by a half, the airline is making an increasing contribution to the group's bottom line.

Last year BA's global alliance partners, including franchise airlines, contributed pounds 150m profit.

USAir contributed pounds 80m in additional revenues and cost-sharing benefits. Qantas, the Australian airline, in which BA has a 25 per cent stake, also chipped in about pounds 80m, while BA made about pounds 20m from franchising its name to other airlines.

Losses from its two European associates - TAT of France and Deutsche BA - were also cut from pounds 90m to pounds 68m, despite a strengthening of both the franc and the German mark.

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