BA shares fall as strike costs climb to pounds 125m

The British Airways cabin crew strike last month cost the airline pounds 125m, wiping out more than half the savings it expects to achieve this year from its pounds 1bn business efficiency programme, it emerged yesterday.

BA also warned the strong pound could knock a further pounds 200m off profits. Alongside a 28 per cent drop in operating profits for the first quarter, the news sent BA shares skidding down 30p to 610p, making them the worst performer in the FTSE 100 index.

The costs of the three-day stoppage in July are far higher than expected. Analysts had pencilled in losses of pounds 40m-pounds 100m. But BA said it was still feeling the effects of the dispute. Although no further stoppages are planned and unions and management have resumed talks on how to achieve the pounds 42m cost savings BA is seeking, sickness levels among the 12,000 cabin crew staff are still 50 per cent above normal levels. About 900 staff are off sick - 350 more than BA would expect at this time of year.

BA's chief executive, Bob Ayling, who was heavily criticised for the airline's tactics during the strike, would not comment on the progress in the talks but said he was optimistic that the difficulties between the two sides could be resolved. "We can ill-afford a costly dispute of this sort. I very much hope we can win the hearts and minds of employees and customers of the need for efficiency changes which are essential for the future," he added.

BA expects benefits from the programme to exceed pounds 200m this year and reach pounds 1bn by the end of the decade.

Operating profits in the period from April to June were pounds 140m compared with pounds 195m last year. BA said that the overall impact of the strong pound had been to cut profits by pounds 77m in the three months.

At the pre-tax level, profits were up by 47 per cent to pounds 220m due to the one-off pounds 130m gain from the sale of BA's stake in US Airways, its former transatlantic partner.

The strength of sterling contributed to a 6.3 per cent fall in operating margins and a 2.4 per cent decline in passenger yields - the amount earned per kilometre flown.

Mr Ayling said that excluding the impact of the strong pound and the pounds 15m of strike-related costs during the quarter, the underlying growth in profits was 21 per cent. However, he added: "These figures show that we were right to put in place the restructuring plan. The airline industry remains very competitive."

The plan is to remove some 5,000 staff from the payroll through the sale and outsourcing of some businesses but to recruit an equal number in areas such as customer service.

Compared with a year ago BA is employing 2,200 more people, leading to a 3.8 per cent increase in employee costs to pounds 572m. But productivity improved 6.2 per cent in the quarter.

Sir Colin Marshall, chairman, said BA still hoped to receive regulatory approval from London, Brussels and Washington for the alliance with American Airlines. It has in effect set a deadline of this November for clearance. Even if the tie-up is approved by then, it is not expected to be able to launch the alliance until next summer.

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