BA posts profit as ticket prices surge
British Airways posted its first profit in two years as surging demand for travel allowed it to ramp up fares. Europe’s third-largest carrier said the outlook depends on a global economic environment that remains unclear.
Net income in the second quarter ended September 30 was £229m (€264m), compared with a £111m year-earlier loss. Sales rose 18pc to £2.51bn.
British Airways, which last had a profit in the quarter through June 2008, shortly before the collapse of Lehman Brothers, slashed capacity as the recession hurt premium bookings.
That’s given the London-based carrier control over pricing as traffic returns, and yields -- a measure of fares -- jumped 17pc in the first half, it said today.
“This is a cyclical recovery par excellence, driven by a phenomenal growth in yields,” said Douglas McNeill, an analyst at Charles Stanley in London.
“The question now is how long that can be sustained. Capacity is going to grow and that will limit further price improvements.”
British Airways, which had advanced 50pc this year before today, was trading down 2.4pc at 274 pence as of 9:04am in London, valuing the company at £3.16bn.
McNeill said he has a “sell” rating on the stock because of its gains, the biggest in the eight-company Bloomberg EMEA Airlines Index after Spain’s Iberia, with which British Airways is merging.
Iberia today posted quarterly net income of €74m, versus a €16m loss in 2009. The shares fell 2.1pc.
Air France-KLM and Deutsche Lufthansa, the region’s biggest carriers, both raised earnings forecasts this week as airlines across Europe benefit from the pick-up in travel.
Cologne, Germany-based Lufthansa reported a 17-fold increase in nine-month net income to €524m.
British Airways didn’t comment today on its earnings target of breaking even on a pretax basis this fiscal year, and said that “while positive, the economic environment continues to be subject to uncertainty,” and that it remains focused on costs.
“If you run an airline and you look at consumer confidence you have to be cautious,” said Gert Zonneveld, an analyst at Panmure Gordon in London with a “hold” rating on the stock.
“Business travel is the big factor, and British Airways has been seeing a recovery in the premium cabin for months now.”
Premium travel rose 9.1pc worldwide in August, the International Air Transport Association said on October 14. Demand in the segment is about 17pc higher than at its low point in 2009, according to the trade body.
Ahead of estimates
First-half net income amounted to £107m compared with a loss of £217m a year earlier, British Airways said in its statement today. Sales rose 8.4pc to £4.45bn.
Analysts had predicted a six-month profit of £41.5m, according the average of seven estimates.
The return to profit comes after British Airways suffered a £425m loss in the year through March as the impact of the slump was compounded by a harsh winter and a series of strikes involving its 12,000 cabin crew.
Losses continued into the current fiscal year as a cloud of volcanic ash from Iceland shut European airspace and further walkouts grounded flights.
Chief Executive Officer Willie Walsh, 49, has made a proposal to resolve the 20-month dispute over staffing levels and pay which the Unite union will recommend that flight attendants accept. A “no” vote would lead to a new strike ballot and possible disruption over Christmas.
Walsh is also hiring new crew members on less lucrative contracts, the first of whom will begin work next week.
Operating costs were reduced by 1.5pc in the first half, with the fuel bill up 2.4pc and non-fuel expenses down 3.1pc, the company said.
Today’s results are the last before British Airways merges with Madrid-based Iberia to form International Consolidated Airlines Group. The combination of carriers with market values totaling $9.3bn is scheduled to be completed in January after shareholder votes next month.
Walsh, who will lead the enlarged group, said last month that British Airways and Iberia are already working to identify further takeover candidates even before their deal is complete.
The CEO has also deepened ties earlier with AMR Corp’s American Airlines in a trans-Atlantic venture that began October 6 and which will give the carriers control of almost 50pc of US flights at London’s Heathrow airport, Europe’s busiest hub.