BA warns of squeeze as yields fall

BRITISH AIRWAYS yesterday reported a tenfold increase in first-quarter pre-tax profits to pounds 91m, but warned that it faced a continued downturn in several of its most important markets.

These economic pressures were reflected in a 6.5 per cent drop in passenger yields between April and June - principally due to the shortfall in customers flying first and business class.

Although forward bookings for the peak summer months indicated a strengthening in demand, Lord King, BA's chairman, warned that yields would remain under pressure because of sterling's strength and the depressed level of premium traffic.

This is likely to result in BA redoubling its efforts to cut costs. In the first quarter, unit costs were reduced by 7.4 per cent, helped by a 22 per cent increase in productivity.

Lord King said that, as part of a three-year cost-reduction programme, the airline was on track to reach its target of saving pounds 150m in costs this year. This target follows savings of pounds 265m achieved last year.

Despite the cautionary note about pressure on yields, BA's results compared favourably with those of rival US airlines, all of which have recently reported higher first-quarter losses.

BA also increased its market share at its Heathrow hub, suggesting that it is matching competition from the two large US carriers, United and American, and other long-haul airlines which have been allowed to start services from the airport.

The first-quarter performance compares with BA's pre-tax profit of just pounds 9m during the same period last year when air travel was badly affected by the combined effects of the Gulf war and economic recession.

In the first quarter of 1990-91, which provides a better comparison, BA achieved a pre-tax profit of pounds 156m. Lord King said this year's first quarter results reflected 'a gradual return to more normal trading conditions'.

Passenger numbers between April and June, at 7.2 million, were 15.5 per cent up on the level a year earlier. But this traffic growth was largely due to the increased number of passengers travelling economy on BA World and Euro Traveller class.

Operating expenditure rose from pounds 1.216bn to pounds 1.3bn as increased landing fees, selling costs and handling charges overshadowed reductions in fuel and aircraft leasing costs and a lower depreciation charge.

Commenting on BA's proposed dollars 750m link up with USair, which is vehemently opposed by other American airlines, Lord King said both carriers remained confident that the US regulatory authorities would recognise the extensive benefits of the partnership and grant all necessary approvals.

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