Passengers ticket to 57% boost at BA gets

British Airways yesterday prompted the City to revise its annual profit forecasts upwards with a 57 per cent increase in profits before tax to pounds 135m in the first quarter of the year.

Sir Colin Marshall, the chairman, reported sharply increased demand from passengers and gave a reassuring picture of the company's French and German joint ventures and of its stake in USAir, the American group that has returned to profit after a series of losses.

USAir recently broke off talks with its unions after hitting an impasse on pay and restructuring but still expects to reach $400m of cost savings by the end of the year, BA said. Sir Colin is backing USAir's decision to continue with the cost savings and to leave negotiations with the unions until after their contracts expire later this year.

This is the traditional method of collective bargaining in the industry, and BA sources suggested it could be more effective than the now-failed method of trying to negotiate a comprehensive package in advance of the expiry of contracts.

Sir Colin also said that losses had been reduced at Deutsche British Airways and TAT, the French venture, despite the weakening of sterling. The two lost pounds 90m last year.

Sir Colin dismissed suggestions that the lower-than-expected flotation price of the Australian airline Qantas, in which BA has a 25 per cent stake, could hit the British company. BA paid substantially more for its stake than the flotation price, but at that time the goodwill was charged to reserves, and the current book value is understood to be close to the market value.

Sir Colin said the passenger load factor of 73.5 per cent for BA was a first-quarter record, up from 69.3 per cent a year ago, and the number of passengers carried, at 8.3 million, was up more than 7 per cent.

There was also a significant increase in long-haul traffic compared with short-haul, and the average passenger flew further. BA increased its capacity 5.4 per cent but the revenue from passengers per kilometre travelled rose more than twice as fast. The company has had success in filling otherwise empty seats through its World Offers programme.

Sir Colin said demand remained strong and forward bookings were encouraging. But he added: "The industry remains intensely competitive and yields are expected to stay under pressure in real terms." He forecast more improvement in performance and greater benefits from the company's overseas alliances during the rest of the year to next March.

With volumes growing, selling costs were 14.4 per cent higher, mainly because of higher commissions to agents and credit card companies and computer reservation systems, all of which are directly related to the number of tickets sold.

But depreciation and aircraft operating lease costs fell 5.5 per cent reflecting the savings on 20 Boeing 737-200 leases that have been extended on reduced terms after the initial leases expired. BA shares rose 9p to 447.5 p.

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