British Airways readies for short haul profits take-off

British Airways is close to announcing the first profit for its short-haul operations since 1997, according to Rod Eddington, the chief executive. Announcing strong third-quarter results yesterday, Mr Eddington said its consistently loss-making short-haul business stood a good chance of breaking even by the time BA announced full-year results in March and of moving into profit later in 2004.

A turnaround of BA's troublesome Gatwick-based European short-haul business would be a significant achievement for Mr Eddington, who appears to have successfully steered the flag carrier through the most difficult period in its history.

Mr Eddington said: "If you wind the clock back three years short haul was losing £310m. When we announce the results this year we will be able to show considerable improvement. As part of our future size and shape strategy we wanted short haul to break even by March 2004. We are not there yet but we could be there. I'm not going to speculate where we might be but there has been a huge improvement."

An upbeat Mr Eddington announced yesterday that pre-tax profit for the three months to December 31 was £125m, the highest third-quarter profit in 12 years, compared with £25m for the same three months in 2002. However, he warned that the company's £4.5bn of debt was still too high. He would be more comfortable with a figure closer to £3bn, he said.

Yesterday's results continued BA's theme of the past two years of delivering a "cost recovery" by slashing overheads. BA said unit costs were down 5.4 per cent in the quarter while passenger revenue yields were down just 0.8 per cent, compared with a fall of 6 per cent in the preceding quarter. Mr Eddington warned that the continuing improvement in its short-haul operations had been achieved against a more challenging environment for the market in general.

"Short-haul yields are still under pressure," he said. "Look at what Michael O'Leary at Ryanair said recently about yields being 25-30 per cent down. It remains extremely competitive."

Operating margins for the business as a whole were 7.3 per cent, driven mainly by cost reductions. The company has now taken £1.7bn of costs out of the business, reducing its headcount by 12,652 against a target of 13,000 by the end of March.