BA investors shrug off £50m hit from the cold

Shares in British Airways were the biggest risers on the FTSE 100 in percentage terms yesterday despite the airline's warning that the bitter cold in December would cost it £50m.

The extreme weather conditions that affected Britain and other parts of Europe last month grounded flights and closed airports including Heathrow and Gatwick, causing travel chaos and misery for thousands of passengers. Total traffic fell by 8.3 per cent in December, largely because of the cold weather, which resulted in a 12 per cent drop in capacity.

However, the airline said that "underlying conditions remain positive". BA also said that the overall decline in passenger numbers for the more profitable premium sector was just 1.6 per cent, compared with a 9.6 per cent decrease in non-premium traffic. Business travel has been growing again as a result of the economic recovery. And compared with the damage caused by last January's cold snap, this month's statistics should look good.

Although the figures for December bring to an end three successive months in which passenger numbers have risen, the figures for premium passengers will please investors, as will BA's comments on the outlook. But they are still disappointing compared with those for some of BA's rivals. For example, Ryanair, the low-cost carrier run by Michael O'Leary, reported a 2 per cent rise in traffic compared with the previous December.

Airlines have nonetheless had a difficult year, as the benefits from the economic recovery have been offset by a series of setbacks. Among these was the grounding of flights in April prompted by the volcanic eruption in Iceland. BA's bitter dispute with its cabin crew also continued to disrupt its business, particularly during the strikes in March and May.

But in a recent note Barclays Capital said it believed an earnings recovery by airlines would continue throughout 2011. It also highlighted BA as one of its sector picks.

"In an attractive sector, we continue to favour long haul over short haul and networks over low-costs. Our top picks remain Air France and British Airways." The shares finished up 12.6p at 300.2p.

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