BA's battle with costs goes on as deficit spirals higher

Nov 06, 2009 (Evening Standard - McClatchy-Tribune Information Services via COMTEX) -- BAIRY | Quote | Chart | News | PowerRating -- Costs are falling and its aircraft are flying fuller, but British Airways (BA) today said it has yet to turn a corner in the worst airline slump on record.

The flag carrier today reported the worst-ever, half-year loss in its history.The GBP292 million crash into the red which includes GBP48 million of restructuring costs in the six months to the end of September, compares to a GBP52 million profit in last year's same period -- traditionally the airlines' strong trading season.

A horrendous winter last year left BA nursing losses of GBP401 million in the financial year to the end of March, and the bet in the City is that with another tough winter ahead BA is heading for its worst full-year figures ever.

However, data from the airline today indicated BA is finally getting on top of the mismatch which has seen the airline flying too many aircraft at too high a cost with too few passengers.

"We cut our flying capacity in the summer by 3.5 percent which is offsetting the rate at which our passengers numbers have fallen -- 1.9 percent last month," said finance director Keith Williams. "That means are aircraft are flying fuller with load factors at more than 80 percent.

"What we have done is to better-match supply and demand. And what we are seeing now in long-haul premium [first and business class], one of the main engine drivers of British Airways, is that yields [the per-passenger revenue] have flattened though they are still 10 percent lower than where we were two years ago."

The cutting of 1900 jobs in the six months has accelerated the fall in operating costs at the airline to 8.7 percent from a rate of 6.6 percent reported earlier in the summer and fuel costs this year have tumbled 18 percent against the record highs seen during the summer of 2008.

While the City reacted to today's news with a 2 percent rise in the share price, Williams warned BA is not out of the woods.

"We are still in a difficult environment and we expect our revenues to be down GBP1 billion this year," he said. "What we can do is continue to improve costs to take account of this revenue environment."

That means another 3000 job cuts this winter and controversial changes in working practices from the middle of this month which the unions are threatening to counter with a Christmas strike.

"We've had no notification of a ballot for industrial action," said Williams.

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