BA warns of job cuts as profits dive by 80%

BRITISH AIRWAYS yesterday warned of job cuts and refused to rule out the possibility of falling into loss this year for the first time since privatisation 12 years ago.

The warning came as BA reported an 80 per cent slump in profits for the three months from April to June and confirmed plans to cut capacity by 12 per cent - the equivalent of 6.5 million seats - over the next three years.

Bob Ayling, BA's chief executive, would not be drawn on how badly the airline's 65,000-strong workforce would be hit. But he said: "In the past, BA has generated significant numbers of jobs. That will stop."

Although there would be no reduction in front-line staff such as pilots, cabin crew and ground handling, Mr Ayling said there would be cutbacks in support jobs as BA introduced more automation and outsourced functions such as accounting to overseas locations.

The cutback in capacity will be achieved by introducing smaller planes, reducing frequencies on some routes and scrapping other routes altogether, such as Jakarta and Pittsburgh.

BA also disclosed that it has reached its goal of achieving savings of pounds 1bn a year and was targeting a further pounds 200m of efficiency gains by the end of the current financial year.

Lord Marshall, the BA chairman, blamed the slump in underlying pre-tax profits for the quarter - from pounds 139m to pounds 23m - on excess capacity on North Atlantic routes, subdued economic activity in Europe and the lack of any convincing recovery in the Far East. Added to this, BA had been hit by the strength of sterling and the growth of low-cost carriers.

He went on to warn that the second quarter - traditionally the most profitable part of the year for BA - would be "significantly affected" by excess capacity, making it difficult to forecast results for the year with any certainty.

In the past three months, United Airlines has increased its capacity on the North Atlantic by 20 per cent and American Airlines by 8 per cent. Air France, Alitalia and Lufthansa have also added more seats, resulting in a price war. Last week the Dutch carrier KLM was offering return flights to New York for as little as pounds 150.

Chris Tarry, aerospace analyst at Commerzbank, is forecasting underlying pre-tax losses of pounds 7m for the full year. "BA's strategy is brave, coherent and deliverable and we are beginning to see the benefits coming through. What we are watching for now is what the other airlines will do about reducing their capacity."

BA has already begun replacing its Boeing 747 aircraft with 777 jets. By 2002, half the BA long-haul fleet will be 777s which have fewer economy seats but the same number of first and business class seats as the 747.

It plans to replace its fleet of Boeing 757s with smaller Airbus A318 or Boeing 717 jets to improve the economics of its short-haul European network.

Yields fell 5.8 per cent during the April-June period while the load factor dropped by nearly two points to 65.5 per cent. Including gains on disposals, such as the sale of BA's stake in the Galileo ticket reservations system, pre-tax profits climbed 38 per cent to pounds 200m. Operating profit fell from pounds 173m to pounds 94m. Fuel costs were pounds 7m lower at pounds 173m but will be up sharply this quarter because of the surge in oil prices.

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