Marshall bows out of BA on low note as profits fall by a half

BAT chief takes over as chairman; Airline says market has stabilised; More cost cutting planned

Lord Marshall of Knightsbridge finally succumbed to shareholder pressure yesterday and announced his retirement as chairman of British Airways.

The announcement came as BA reported a sharp drop in profits and said it would be redoubling its cost-cutting efforts in the face of a continuing decline in revenues.

Lord Marshall, who has been at BA for 20 years, will leave next June when he will be succeeded as chairman by Martin Broughton, currently chairman of British American Tobacco and BA's senior independent director.

Pre-tax profits for the third quarter fell by 53 per cent to £110m after a drop in revenues and yields and £40m of one-off costs associated with the wildcat strikes by check-in staff at Heathrow in July.

The fall in profits came despite an overall rise in passenger numbers and higher-than-expected cost savings, which, at £701m, are ahead of the £650m target the airline set itself to achieve by March next year. BA also said that nearly half of all passengers were using e-tickets while 46 per cent of point-to-point shorthaul economy flights were booked on the web.

But Rod Eddington, the chief executive, warned: "In the soft revenue environment, we must do more to remove costs." He said BA would roll out further cost-cutting initiatives in the new year to help it achieve the additional £450m in efficiency gains it is seeking on top of those already achieved under the Future Shape and Size programme.

Analysts said that despite being on track to shed 13,000 jobs by next spring, BA had to do more to bring down its overall labour costs, which actually rose by 1 per cent to £516m in the three-month period from June to September.

"BA's results may have been ahead of expectations but that is not the issue," said Chris Tarry, an independent aviation analyst. "If you look at the cost structure of the airline, the real challenge remains to reduce the wage bill, which is still too high. The amount of revenue BA is generating for every pound it spends on labour has deteriorated."

BA said the outlook for revenue was now "stable" after having declined by 8 per cent in the first half of the year. Asked whether the airline would make a profit for the year as a whole, Mr Eddington said a lot would depend on how well corporate travel recovered over the next six months, particularly on transatlantic routes. Most analysts are forecasting that BA will break even, at best, or make a small loss for the full year.

Net debt fell a further £342m to £4.8bn and BA said it was on target for achieving its target of generating £900m from disposals by next April with £694m already raised.

Mr Eddington said there was "no urgency" for BA to follow the example of Air France and KLM and proceed with a merger with its preferred European partner, Spain's Iberia.

He said that the key to European airline consolidation would be the move towards negotiating landing rights on a European Union-wide basis rather than country by country and that was unlikely to be in place for a considerable time.

Lord Marshall was appointed chief executive of BA in 1983 and became the executive chairman in 1993. The announcement of his retirement coincides with the appointment from December of Marks and Spencer's finance director, Alison Reed, as a non-executive director. Lord Marshall's continued chairmanship of BA has come under increased pressure as critics blamed him for its lacklustre performance and failure to pull off a transatlantic merger.

Yesterday, he rejected suggestions that he had hung on too long. "No, I don't think that was the case, but I do realise there are differing opinions about that," he said.

He gives up his other remaining directorship of a public company next year when he stands down as a non-executive at HSBC but will remain chairman of Pirelli UK and is also becoming chairman of Birbeck College, London University. "I have no intention of stopping work and disappearing into the woods," he said.