BA trebles profits but warns on outlook

British Airways announced a trebling in first-quarter profits to £158m yesterday but warned revenues were likely to be lower for the year as a whole because of economic and political uncertainty.

The cautious outlook for the rest of the year prompted a 5 per cent fall in BA shares. Analysts had previously expected revenues for this year to be flat, not down, on 2001.

Rod Eddington, BA's chief executive, said it was impossible to say how much lower revenues would be. "We don't know what is going to happen on the economic front or in the Middle East," he added.

The increase in first-quarter operating profits from £50m last year to £158m easily outstripped market forecasts and came on the back of a big reduction in costs and staffing levels. Pre-tax profits rose 62.5 per cent to £65m.

Net costs for the three-month period were down by 15 per cent, mainly as a result of the reduction in the headcount. Since last September, BA has achieved 7,500 of the 13,000 job cuts it announced as part of a £650m cost saving plan.

BA said it was on target to achieve 10,000 job cuts by March, 2003 and remained confident the overall target would be met by March, 2004. At the end of June the workforce stood at 53,000 compared with 60,000 a year earlier.

Fuel costs, handling charges and selling costs were also down sharply – the latter a reflection of the cut in travel agents' commission and increased online booking.

Although traffic levels were down by 14 per cent on the April-June period last year, the reduction in seat capacity was even greater at 14.5 per cent. This year BA expects to take a further 7 per cent of capacity out of its network by using smaller aircraft. Mr Eddington described the North Atlantic market as "dire" with bookings in June down by 15 per cent but he said BA was managing to take more than its fair share of the market.

The airline has reduced its North Atlantic flight schedule on 11 September by a third and expects passenger numbers to be down for the week as a whole. It was because of the sharp drop in passenger numbers in the wake of the terrorist attacks, that the market had expected traffic levels to be on a par this year, notwithstanding the further cuts in seat capacity.