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Sat, Jul 05, 2003 - Page 12 News List

European airlines weather war and disease

DYNAMIC DUO The Dutch carrier KLM and British Airways have both announced that they are in the process of recovering from the SARS epidemic-induced slump

REUTERS , LONDON

Two of Europe's biggest full-service airlines said on Thursday they were recovering from the war in Iraq and the outbreak of the SARS virus in Asia, and a low-cost rival was hit by concerns it was expanding too quickly.

British Airways Plc, Europe's biggest airline, said passenger numbers rose 5.8 percent last month compared with the year before, though demand was driven by price cuts and it expected a steep fall in first-quarter revenues as a result.

Earlier, Dutch flag carrier KLM, the European airline with most flights to Asia, boosted stocks in the sector by saying it had seen some recovery since the outbreak of SARS peaked in the region.

Leading the pack

The exception was budget airline Ryanair Plc, whose shares slumped after it reported a drop in the proportion of seats filled last month compared with the year before, fueling concerns its rapid expansion was running ahead of demand.

BA shares closed 5.5 percent higher at 163 pence, while KLM shares ended down 0.4 percent at 7.46 euros, off an earlier high of 7.65 euros.

Ryanair stock closed 7.3 percent lower at ?4.00 in London and down 6.6 percent at 5.81 euros in Dublin.

Bounce back

Analysts welcomed the signs that full-service airlines might bounce back, but said it was too early to talk of a sustained recovery, or to play down the challenge of low-cost operators.

"Things are better, but that doesn't mean things are good," said Commerzbank analyst Dominic Edridge.

He said an industry cutting prices to prop up demand was not in the best of health.

Europe's full-service airlines have had a torrid few years, hit by a downturn in travel since the September 2001 attacks on the US and a drop in business passengers in the global economic downturn.

These problems have been magnified by losing market shares to budget operators which have undercut their fares by using cheaper provincial airports, scrapping in-flight meals, speeding up the turnaround of planes and encouraging Internet booking.

Cutting fares

"The traffic certainly is improving from the lowest levels that we've seen earlier in the year," BA's head of investor relations, George Stinnes, told reporters.

But he said the airline had been cutting fares in a bid to boost demand and that, as a result, first-quarter revenues would be down around 10 percent compared with the year before.

BA said its passenger load factor -- the number of passengers carried as a proportion of available seats -- rose 2.0 percentage points to 76.8 percent last month.

"The outlook remains fragile with traffic volumes being very sensitive to yield [average fares]," it added in a statement.

KLM, Europe's fourth-biggest airline, said its passenger load factor on key Asia/Pacific routes fell almost six percentage points to 77.9 percent last month, but was sharply up from May's 60.2 percent.

Fast-growing budget airline Ryanair, meanwhile, said it filled 79 percent of seats last month, down from 88 percent in the same month of last year.

Slow take off

"With the company also cutting fares, this implies [profit] margins are coming down," said Nick van den Brul, an analyst at BNP Paribas.

But he continued to favor budget operators, saying they would benefit from the trend towards self-booking holidays and away from package tours, while full-service airlines were still struggling with a depressed global economy.

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