British Airways suffers record loss as more strikes loom

British Airways slumped to record losses last year as the downturn smashed the industry, and a return to growth in 2010 could be derailed by a series of strikes and rogue weather.

Pre-tax losses at the UK's flagship airline hit £531m for the year to the end of March, from £401m the previous year. This marked the worst results since the group was privatised in 1987.

British Airways' revenues tanked by £1bn last year to £7.9bn as the wider economic downturn prompted consumers and businesses to cut back on travelling. The group was also hit by industrial action from its cabin crew in March, costing the business £43m. The service was disrupted by heavy snows during the winter, although the estimated £100m hit from the chaos caused by the ash from Iceland's Eyjafjallajokull volcano came after the end of the financial year.

Operating losses fell slightly, prompting an upbeat response from the chief executive, Willie Walsh. He hailed the "hard work that been put into steering our business through the recession" to produce the same operating figure "in the midst of the biggest economic downturn in 60 years".

The share price rose 2p to 188.5p, as the results were less cataclysmic than some industry experts had predicted. This smaller-than-expected fall in profit was down to an extensive cost-cutting drive, with £1bn slashed out of the business.

Mr Walsh said: "The numbers are better because we surprised the market with the extent of the cost-cutting. We can only pursue growth from an appropriate cost base," before adding: "But we're getting it to a place where we can stop shrinking the costs."

Fuel costs fell £597m, mainly driven by the oil price. Another £390m was cut from the rest of the business, including axing 3,800 jobs. The group said the staff cuts came from natural attrition, voluntary redundancy, overtime reductions, productivity improvements, and part-time working.

Mr Walsh was not just thinking about further cuts when he said "we think we can break even on the pre-tax profit level in the next full year".

He pointed to recovering passenger revenues, especially in premium classes, which were up in December year on year for the first time in 18 months. He added that the group was looking to grow in the Asian, Latin American and transatlantic businesses.

Yet Mr Walsh said: "The current financial year could hardly have had a worse start with the unprecedented closures of UK airspace following the eruption of the volcano in Iceland. This added to the aviation industry's current financial woes while highlighting its crucial contribution to the economy."

It has further issues. The results were posted shortly after British Airways' High Court injunction to prevent a strike by its cabin crew was overturned. The Unite trade union is pushing ahead with the industrial action that will see the start of three five-day strikes next week, unless the two sides reach an 11th-hour settlement. Mr Walsh said: "Returning the business to profitability requires permanent change across the company and it's disappointing that our cabin crew union fails to recognise that."

He added: "We are getting on with implementing a contingency plan. I have no apology for going to the High Court to take on this unjustified industrial action." Mr Walsh called on the union to control the British Airlines Stewards and Stewardesses Association, which has stood in the way of a deal over removal of their travel perks.

Separately, British Airways' merger with Iberia last month should complete this year, Mr Walsh said. BA has also agreed a tie-up with American Airlines, and hopes for full regulatory approval by the summer.