BA profits nosedive as terror alert bill hits £100m

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The Independent Online

British Airways today conceded that the terror scare in August cost it far more than initially expected as profits fell by more than a quarter.

The airline said grounded flights and disruption at airports in the aftermath of the security alert cost it £100 million compared with the £40 million it originally thought.

It came as BA posted a 27 per cent fall in pre-tax profits to £176 million for the three months from July to September.

BA said that, despite the chaos in August, revenues lifted 4.9 per cent in the second quarter to £2.31 billion.

Chief executive Willie Walsh said: "Given the significant impact of the security disruptions, estimated at a cost of some £100 million, these are good results.

"Despite the extremely difficult operational environment, we have delivered improved revenue."

The airline also said it has agreed to sell the regional business of BA Connect to Flybe.

Mr Walsh said: "As part of our continued efforts to improve the profitability of short-haul, we have today announced that we have reached an agreement in principle to sell the regional business of BA Connect to Flybe.

"Point-to-point regional operations are not a strategic part of our business and we believe that such activities are better undertaken by a regional low-cost airline."

BA Connect, which is based in Manchester and employs 1,900 staff, made losses of £6 million in the first half of the year and Mr Walsh said he did not expect "any prospect of profitability in its current form".

It operates 52 routes from 13 airports around the UK, although BA said it will keep hold of the services from London City Airport and between Manchester and New York.

Under the agreement, which has yet to be finalised, BA will take a 15 per cent stake in Flybe.

The fall in profits in the second quarter meant pre-tax profits for the six months to September 30 were up just 1.6 per cent at £371 million while revenues lifted 8.6 per cent to £4.63 billion.

BA said its results were hit by a one-off writedown of £106 million in its investment in BA Connect.

It also lowered its revenues growth forecast for the full-year by half a percent to between 4.5 per cent and 5 per cent because of the tighter security arrangements at airports across the UK.

The airline said passengers transferring flights at Heathrow were particularly badly hit because of restrictions on hand luggage.

The UK banned most liquids and set smaller limits on hand luggage in August following the alleged plot to blow transatlantic planes out of the sky.

Chairman Martin Broughton said: "Overall market conditions are broadly unchanged.

"Long-haul premium transfer and short-haul premium traffic, although recovering, continue to be affected by the tighter security arrangements currently in place.

"As a result, total revenue is now expected to be 4.5 per cent to 5 per cent higher than last year, down half a percent from our previous guidance."

BA added that its fuel bill for the year was expected to be £400 million more than last time around, with fuel costs up 30 per cent in the second quarter.

The airline also said it was in "constructive" negotiations with trustees over the £2.1 billion pension fund deficit.