Strike and sterling cost BA pounds 250m

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British Airways yesterday revealed the scars left by this summer's cabin crew strike and the strong pound as it reported a 34 per cent drop in profits for the key July to September period. Michael Harrison reports.

BA disclosed that the industrial action and the impact of exchange rates had blown a pounds 250m hole in its performance, cutting second-quarter profits from pounds 320m a year ago to pounds 210m.

However, the airline soothed City worries by reporting that its business efficiency plan would deliver savings of pounds 200m this year and that it was now more than half-way towards its goal of cutting pounds 1bn from costs by 2000.

Bob Ayling, BA's chief executive, said the measures taken so far - including the outsourcing and sale of parts of the business, relocation of some accounting functions to India and redundancy programmes - would produce pounds 600m savings.

The remaining pounds 400m would come from efficiency improvements, re-organisation of flight schedules and driving down supplier costs. The extra savings, he added, were not contingent upon BA launching a low-cost, no-frills airline to compete with carriers like Ryanair, Debonair and easyJet.

The City reacted positively, marking BA shares up by 27p to 603p. The strike and exchange rate losses were also offset by pounds 157m of exceptional profits from the sale of BA's stake in USAirways and part of its holding in the Galileo reservations system, which left first-half profits down 8.5 per cent at pounds 430m.

Mr Ayling said BA did not expect a decision from Brussels until early next year on whether its alliance with American Airlines would be approved. BA brushed aside reports yesterday that the Commission would block the deal unless the two airlines came up with a package in the next couple of weeks setting out the number of take-off and landing slots they are prepared to surrender.

However, it has emerged that BA executives and officials from the Competition Commissioner Karel van Miert's division will meet next week to discuss slots. Brussels has said it wants BA and American to give up 350 slots but a compromise, based on them relinquishing 200-250 slots, is thought to be possible.

Sir Michael Bishop, chairman of British Midland, the country's second- biggest scheduled carrier, meanwhile disclosed that profits this year would show a "significant improvement" on the pounds 7.2m achieved in 1996.

Sir Michael also sounded a warning note over the BA-AA alliance, and the open-skies deal that would follow if it is approved. Although it would lead to the "fares war to end all fares wars" across the Atlantic, it could also turn Heathrow into a "bucket and spade airport for North America".