City analysts are expecting an 85 per cent drop in the company's pre- tax operating profits for the first three months of the year, to pounds 22m from pounds 145m in the same period of 1998. Including exceptional gains, however, overall profits are expected to have risen by around 28 per cent, according to a Bloomberg straw poll.
BA blames a surge in the number of seats and flights being offered by rival airlines on busy routes from Europe to the US for the company's poor performance, forcing it to slash prices to compete. "We are seeing capacity increase across the Atlantic completely out of line with expected demand," BA's chief executive Bob Ayling told The Independent on Sunday. "It is effective dumping, but there is nothing we can do because it is an absolutely free market."
According to BA, Dutch airline KLM was offering seats from Paris to New York last week for the rock-bottom fare of pounds 150. "No one in the world can afford to offer that fare and still invest in new planes for the future," said Mr Ayling.
Over the past year, Lufthansa has increased capacity on its transatlantic routes by 21.7 per cent, Spain's Iberia by 15.2 per cent, and Alitalia by 9.3 per cent. "We are focusing on the most profitable area of our business, which is essentially premium and full-fare economy seats," said a BA spokesman. "Transatlantic routes account for around 40 per cent of all BA flights.
BA's bad news on profits follows the decision by US regulators last week not to allow the airline's planned link-up with American Airlines after a three-year investigation in Washington and Brussels. Meanwhile other cost-saving alliances such as the Star Alliance, led by Lufthansa are forging ahead.
As a condition for approving the alliance, EU and US regulators wanted BA to give up take-off and landing slots at Gatwick and Heathrow - a move BA estimated would have cost it more than pounds 250m a year.
A spokesman for Virgin Atlantic dismissed claims that increased capacity by its competitors was the reason for BA's woes. "BA and AA are the two companies that have increased capacity since 1996. As it became evident they would have to give up slots they have been piling on capacity."
"They (BA) are simply talking about cutting back to the levels they had before."
He said Virgin was expecting to see pre-tax profits rise to pounds 96m from pounds 89m last year. Virgin has also increased capacity over the past year, putting on extra flights to Los Angeles, New York and Miami. "We are selling all the seats, and we are filling the planes."