Willie Walsh, chief executive of British Airways, said yesterday that the last six months has been the bleakest in his 30 years in the airline industry as the UK flag carrier reported that interim pre-tax profits had plunged 92 per cent to £52m.
The group will cut routes and capacity to stave off what Mr Walsh thinks could be a difficult two years ahead.
Despite the gloom, BA's shares outshone the rest of the FTSE 100 yesterday, rising 11.9 per cent to 146p after the company predicted that its full-year numbers would show a small profit, beating City expectations that the carrier would be in the red.
"Against last year clearly it is a very disappointing result," said Mr Walsh. "But compared to a backdrop of a worsening economic situation, a drop in consumer confidence and of course the volatile price of oil, I think the numbers are good. We are able to say that we expect to be profitable this year, and that puts us in a relatively good position [against other airlines]."
Revenues for the six months to 30 September rose 6.4 per cent to £4.75bn, largely as BA refused to cut ticket prices during the summer, added more premium rate seating and benefited from a strengthening US dollar on overseas bookings.
Operating profits of £140m beat most analysts' expectations, but were also down on last year's figure of £567m. The group said it would not pay an interim dividend.
The biggest contributor to the disappointing half-year profit numbers was a hike in fuel costs, which spiked to £511m as oil prices hit $147 a barrel in July. Mr Walsh claimed that BA's hedging policy had saved the company £329m. It still has 38 per cent of fuel costs for next year hedged at between $85 and $90 a barrel.
As part of the effort to save costs, BA has brought forward to the end of the year a decision to make 35 per cent of its managerial staff redundant. It will also cut flight capacity by 1 per cent between April and October next year, scrapping flights from Heathrow to Dhaka in Bangladesh and to Kolkata in India, and a number of short-haul services, such as Gatwick to Dublin, and to Zurich.
Although Mr Walsh expects more airlines to go bankrupt, he disagrees with the prediction by Michael O'Leary, chief executive of Ryanair, that only four airlines – Air France, British Airways, Lufthansa, and Ryanair – would survive the downturn.
British Airways is in negotiations over three deals. The group said its merger with the Spanish carrier Iberia was being held up by talks over BA's pension scheme, but not because of the size of its pension deficit, which rose £201m in the half year. Mr Walsh said: "Iberia's board is rightly taking a long time to work out and understand the principles of our defined benefits scheme, which is not something they have had for a long time."
BA is also in talks about a joint venture with American Airlines, which Mr Walsh expects to be approved early next year. Other airlines, most notably Virgin Atlantic, which has had the slogan "No way BA/AA" emblazoned of its some of its planes, have objected to the move.
British Airways has also been in talks with the troubled Italian carrier Alitalia, but said that any deal will not include any equity payment.Reuse content