British Airways posts record loss
Published 21/05/2010 | 10:00
British Airways reported a record annual loss as a slump in travel during the global recession was compounded by cabin-crew strikes and an unusually harsh winter.
The net loss widened to £425m in the year ended March 31 from £358m a year earlier, British Airways said in a statement today. Europe’s third biggest carrier aims to break even this year. Sales slumped 11pc to £7.99bn.
Efforts to return to profit are being hampered by volcanic ash that has shut airports for a total of two weeks since April 14 and the tussle with 12,000 flight attendants who plan to walk out again next week if a dispute over pay and staffing isn’t resolved.
“Returning the business to profitability requires permanent change across the company,” Chief Executive Officer Willie Walsh said in the statement. “It’s disappointing that our cabin crew union fails to recognize that. The current financial year could hardly have had a worse start.”
Last year’s sales drop was offset by almost €1bn of savings the company said, including a fuel bill that was £597m lower than a year earlier, while the net loss was lower than the £470m expected by analysts.
British Airways was trading up 1.7pc at 189.7 pence as of 8.01am in London.
The stock fell 3.2pc yesterday after the UK Court of Appeal ruled that the Unite union could go ahead with further strike action following seven days of walkouts in March that cost the carrier £45m.
Passenger revenue is beginning to pick up, buoyed by increased business travel in the key trans-Atlantic market, and that should help British Airways break even on a pretax basis in fiscal 2011, it said.
Cabin crew will stage three five-day stoppages beginning on May 24, May 30 and June 5, forcing the carrier to ground 30pc of flights slated to carry 25,000 people a day, including 40pc of long-haul services from London Heathrow.
Concern about the dispute and the state of the European economy have all but wiped out gains that the stock racked up earlier this year as Walsh steered British Airways toward a merger with Spain’s Iberia and a deeper alliance with AMR Corp’s American Airlines.
Passenger traffic fell 3pc in the fiscal year, with the most lucrative first- and business-class travel declining in nine of the 12 months.
Earnings were also hurt by Britain’s coldest winter in decades, which caused cancellations and closures at the carrier’s main Heathrow and Gatwick hubs.
The eruption of Iceland’s Eyjafjallajökull volcano will weigh on profit this year after closing UK airspace for six days in April and intermittently shutting terminals ever since.
The dust plume prompted a 22pc drop in traffic last month, with costs from the initial shutdown amounting to about £100m, Chief Financial Officer Keith Williams said in a staff newsletter on April 29.
Walsh has joined other airline leaders in criticising European regulators for unnecessary caution over the eruption, and restrictions were this week eased to allow flights in moderately dense ash if deemed safe by plane and engine makers.
Volcanic dust is a threat to planes because the abrasive, silica-based material may clog engines, scar windscreens and disable speed sensors that are critical in flight.
British Airways signed a definitive agreement on its merger with Iberia on April 8 and the companies are on track to complete the deal by the end of this year, Walsh said today.
The combination would narrow the gap with Air France-KLM Group and Deutsche Lufthansa AG, Europe’s biggest airlines.
Iberia can still pull out of the combination should British Airways fail to reach a “satisfactory” agreement to reduce a £3.7bn pension deficit.
Plans for increased payments from workers or lower payouts to pensioners have been backed by unions and will be put to trustees before the final proposal is presented to regulators by June 30, Walsh said.
British Airways was granted tentative backing for a closer tie-up with American Airlines in February.
The pact, which would allow joint pricing, marketing and scheduling without fear of antitrust prosecution, should get final approval from US and European regulators “by the summer,” the CEO said today.