British Airways triples profits and pledges to end the year in the black

British Airways more than tripled operating profits in the second quarter and said it expected to be profitable for the year as a whole in the absence of a war in Iraq or fresh terrorist outrages.

The increase in operating profits to £248m from £72m for the June-September period last year comfortably beat market expectations.

However, BA shares fell 8 per cent to 146p on a combination of profit taking by dealers and worries about the continued economic and political uncertainty facing the airline industry.

BA said the outlook for revenues had "stabilised" but it still expected sales to be down for the year as a whole. In the second-quarter, revenues fell by 6.5 per cent while capacity was down by 10 per cent producing a 1.2 per cent improvement in yields – less than some analysts had expected.

The sharp improvement in profitability was attributed to the success of BA's cost-cutting programme. Since August last year BA has shed 8,180 staff and expects to achieve 10,000 reductions by March next year, putting it on course to achieve £450m of the cost savings identified in its Future Shape and Size initiative. The overall target is to cut 13,000 jobs and £650m of costs by March, 2004.

Rod Eddington, BA's chief executive, said: "Structurally, the business is in better shape than it has been for four or five years, which gives me greater confidence that we can meet whatever comes over the horizon."

He said that debt had been cut by £1bn since December, bringing it down to £5.5bn, while BA now had a "war chest" of £1.5bn in ready cash which would help it withstand any renewed downturn in air travel caused by conflict in the Middle East.

As indicated, BA is not paying an interim dividend, nor is it expected to pay a final dividend, nothwithstanding the plan to achieve profitability for the year.

The operating margin for the three-month period, traditionally BA's strongest quarter, was 11.8 per cent. This compares with the 32 per cent net margin achieved by its low-fares rival Ryanair over the same period.

"What that demonstrates is that we still have a long way to go but as far as full-service airlines are concerned, we aim to be best of breed," Mr Eddington said.

BA has achieved its target of selling a third of all economy-class, short-haul point-to-point tickets through the internet six months ahead of schedule and Mr Eddington said it was now confident of achieving a figure of 50 per cent by March 2004. Ryanair sells 95 per cent of its seats online.