Strike helps push BA into dive: Profits slide 30% as passengers economise on airfares

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The Independent Online
INDUSTRIAL action and a decline in the willingness of passengers to pay 'premium fares' contributed to a 30.8 per cent drop in British Airways' pre-tax profits to pounds 63m in the first quarter from pounds 91m a year earlier.

A one-day strike in June is estimated to have cost the company about pounds 15m in addition to other revenues lost as passengers switched to other airlines in case of further staff action.

BA was further hit by higher interest charges resulting from its investment in other airlines including USAir and Qantas. BA has spent dollars 400m to date on USAir - in which it has a 24 per stake - and pounds 300m for 25 per cent of Qantas.

Other large outlays in the past year include investments in buying and leasing 20 new aircraft. Overall interest charges increased to pounds 42m in the three months to 30 June from pounds 8m in the first quarter last year, offset slightly by a fall in interest rates.

Sir Colin Marshall, chairman, said: 'Our globalisation programme is moving ahead and we are consolidating the investments made. We always said that there would be a negative effect in the first year in developing the synergy benefits. Next year will see benefits, and an acceleration thereafter.'

In addition to investing in USAir and Qantas, BA has taken stakes of 49 per cent in both Deutsche BA and TAT of France. The UK airline is believed to be looking for further alliances or acquisitions in the north Pacific area.

Operating profit in the quarter was pounds 108m, against pounds 96m last year. Turnover increased to pounds 1.52bn from pounds 1.39bn a year ago and earnings per share fell to 6.9p from 9.3p in the same period last year.

BA said the results reflected 'intense competitive pressure', over-capacity in the industry and slow economic recovery in key markets. As well as the drop in passengers paying for premium accommodation when they fly, the overall number of seats occupied on BA flights has declined slightly. This is partly due to the replacement of older aircraft with newer and larger ones.

The number of passengers carried in the first quarter was 7.7 million, up 7.4 per cent, but revenue for each kilometre travelled by passengers rose only 2.3 per cent.

The company said it was well placed to take advantage of improved prospects this year and next and that the second quarter is traditionally the most profitable in the industry. Last week BA announced that passenger kilometre revenues rose over 11 per cent in July compared with July 1992, which was the best year-on-year growth this year.

A spokesman for BA said that the airline welcomes the prospect of interest rate cuts in other European countries if it helps to ease economies out of recession. BA benefits from higher earnings overseas but loses on overseas expenditure, he said.

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