British Airways pleases City with lower than expected £200m loss

British Airways yesterday reported its first full-year loss since privatisation although the City was cheered by the fact that the deficit was only half the amount forecast.

The £200m pre-tax loss for the year to the end of March compared with analysts' estimates of a £400m to £450m deficit and a prediction by BA's house broker, Merrill Lynch, shortly after 11 September that the airline could be heading for a loss of as much as £775m.

BA put the much better-than-expected results down to the "swift and decisive" cost-cutting measures it put in place immediately after the terrorist attacks on the US and a much improved performance in the fourth quarter.

The January to March period is traditionally the worst for BA and yet the airline produced an operating profit before restructuring charges of £35m for the quarter.

Despite the fourth-quarter recovery, BA's chief executive Rod Eddington, cautioned that the market would remain "soft" this year and vulnerable to "geo-political uncertainties" ­ a reference to the US Vice-President Dick Cheney's weekend warning that another terrorist attack on the US was "almost a certainty".

The difficulty in predicting revenues over the next 12 months with a high degree of authority meant that BA's focus would continue to be on reducing costs, he said.

Operating profits on BA's north Atlantic routes slumped from £470m in the previous year to £144m in 2001/02 while its losses on European routes increased by £70m to £240m and losses in Asia rose from £10m to £100m.

Revenues were down by 10 per cent to £8.3bn for the year but this was offset by BA's attack on costs. In the fourth quarter costs were down 12 per cent resulting in a 2.8 per cent reduction in the airline's unit costs.

Mr Eddington said that 7,000 of the 13,000 job cuts announced since 11 September had so far been implemented and BA was on course to achieve cost savings of £650m by 2003-04. Of the £450m in cost savings the airline aims to deliver this financial year, 60 to 65 per cent had so far been achieved.

BA said it had no regrets about selling the low-cost airline Go for £110m last June even though last week's agreed takeover by easyJet values the carrier at £374m. "We sold it at a time which was right for BA," Mr Eddington said. He added that BA's disposal or planned disposal of its three short-haul operations ­ Go, Air Liberté and Deutsche BA had raised almost £200m and taken £50m to £100m of losses off its books. "That is a deal I would do again," he said.

BA is due to announce plans for further price reductions on its European short-haul routes next month to make them more competitive with no-frills airlines. BA has already cut prices on domestic services from Heathrow and services from London to Amsterdam and Scandinavia. However, Mr Eddington said BA did not expect its European operation to break even for another two years.

BA said it had no plans to follow the lead of the German flag carrier Lufthansa and introduce business class-only flights on some of its transatlantic routes.

BA reduced seat capacity by 12.4 per cent last year and it plans further reductions this year to help underpin yields and load factors ­ the proportion of seats filled on each flight. In the fourth quarter this rose 5 percentage points to 72 per cent.

BA pensioners, meanwhile, secured a victory in their long-running legal battle to prevent the airline raiding their pension fund. The Court of Appeal ruled that BA could not use surpluses in the fund to finance a contributions holiday.

The shares rose 2p to close at 237.5p.