New British Airways Exec Warns on Goal

The new chief executive of British Airways PLC warned Tuesday that the airline will not meet a key profitability goal this year due to rising fuel prices.

But Willie Walsh, a former pilot and chief executive at Irish airline Aer Lingus, said the airline would invest 100 million pounds ($175 million) in improving onboard amenities to win back customers on its long haul flights to destinations outside Europe.

Walsh said the carrier also plans to restructure its unprofitable short haul operations within Europe and said there would be an unspecified number of job cuts as the carrier prepares to move into a new single terminal at Heathrow Airport.

Walsh, who took over over this week as head of BA, said the airline would not achieve the target of a 10 percent operating margin set by his predecessor Rod Eddington for this year because of record high fuel costs.

The operating margin is operating income divided by revenue, and indicates how much a company makes from each dollar of sales, before interest and taxes. BA achieved an operating margin of 6.9 percent last year.

"I do believe it is achievable," Walsh said of the 10 percent goal. "With fuel prices where they are we clearly are flying into very significant headwinds ... I don't have a date in mind when we will achieve it."

Walsh takes over as BA struggles to win back customer confidence after an August strike by staff at catering firm Gate Gourmet and BA ground workers led to hundreds of canceled flights. It recently reached agreement with unions to resolve the industrial dispute that led to the strike but is still not offering a full meal service on short haul flights.

Analysts, who estimate the strike cost the airline as much as 40 million pounds ($74 million), are concerned about the ongoing effect on BA's ability to woo high-end customers.

Walsh said Tuesday the airline planned to invest in new business-class seats and in-flight entertainment on long haul flights, with an announcement due in the next few months.

On short haul operations, Walsh said he was committed to running services from London's Gatwick, where the airline competes against budget carrier easyJet PLC for short-haul flights, but said to expect changes there in the next few months.

"We believe we can make it work at Gatwick," he said.

Walsh said that the airline will look to take part in the future consolidation of the airline industry, although he added that current regulatory controls are likely to limit opportunities.

He said increasing the airline's stake in Spanish airline Iberia is not "an immediate priority." BA has an 8.76 percent stake in the airline.

A major focus for the airline will be the shift to the new Terminal Five at London's Heathrow Airport, due to be completed by March 2006.

Walsh said BA is currently evaluating existing and potential aircraft, but said the airline is unlikely to take delivery of new or additional aircraft before the transfer to its new base.

Among the aircraft being viewed are the planned "advanced" version of Boeing Co.'s long-haul 747 jumbo, its wide-bodied 777 as well as Airbus' double-decker A380 and planned wide-bodied A350, Walsh said.

Walsh said that staff cutbacks would be a part of the move to Terminal Five, but declined to put a figure on how many jobs would go following reports the airline was planning to cut up to 15 percent of its work force.

"I am committed to the principle of no compulsory redundancies," he said.

Under his predecessor, BA cut 14,000 jobs, or almost 25 percent of its work force, almost entirely without forced layoffs.


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