Sun, May 15, 2005 - Page 11 News List

Oil price eats into British Airways' earnings


British Airways PLC said on Friday that quarterly profits slumped 25 percent as high crude oil prices ate into earnings. The carrier's full year earnings were up 93 percent, largely on cost-cutting measures.

British Airways said that net profit for the three months to March 31 was ?9 million pounds (US$16.8 million), down from ?12 million a year earlier. For the full year, the company earned ?251 million (US$467.31 million), up from ?130 million a year ago.

Revenue for the fourth quarter was ?1.89 billion (US$3.51 billion), up slightly from ?1.85 billion a year ago. Revenue for the full year was up 3.3 percent to ?7.8 billion (US$14.49 billion).

The airline warned that high fuel costs would be an ongoing problem.

"Market conditions remain broadly unchanged," British Airways Chairman Martin Broughton said in a statement to the London Stock Exchange.

Broughton said the airline now expected fuel costs, net of hedging, to be about ?400 million (US$744 million) more than last year. The airline had previously warned that fuel costs would be ?300 million (US$558 million) higher than last year.

Crude oil prices hit a record US$58.28 in early April. They have since slid about 20 percent, but remain 19 percent higher than this time last year.

The result benefited from cost improvements made under Chief Executive Rod Eddington's restructuring plans.

"These are good results, driven by continued cost control and strong demand for our products," said Eddington, who will step down in September after five years with the airline. He will be replaced by former Aer Lingus Chief Executive Willie Walsh.

The results exceeded analysts' expectations and shares in the airline rose 2.4 percent to ?0.26 (US$4.82) on the London Stock Exchange.

Eddington said the airline had exceeded its 2003 to 2005 planned savings of ?450 million (US$837 million) by ?7 million (US$13 million). The airline's restructuring has included 13,000 job cuts since the Sept. 11 terror attacks.

It expects cost-cutting arrangements, including streamlining working practices and the continued rollout of self-service check-in facilities, to deliver a long-term operating margin target of 10 percent.

The carrier achieved an operating margin of 6.9 percent over the year, triggering the first bonus payment for non-management staff in seven years. Staff will receive a total of ?45 million (US$84 million) in bonuses.

"We have made really good progress toward the 10 percent target, but to deliver 10 percent throughout the cycle we need to be flying in still air," Eddington said. "The headwind is still pretty strong, you only need to look at fuel prices to realize that."

Broughton said total revenue was expected to increase by between 4 percent and 5 percent between last year and this year, up from an earlier estimate of 3 percent to 4 percent because of new fuel surcharges imposed by the airline to reap back some of the higher costs.

Broughton said that capacity and volumes were expected to increase by about 3 percent.

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