British Airways 3Q Profit Rises 1.7 Percent on Increase in Business Passengers

LONDON_British Airways PLC reported a 1.7 percent increase in third-quarter net profit Friday on the back of an increase in business and first class passengers.

BA, which is facing tough competition from low-cost carriers such as Ryanair Holdings PLC and easyJet PLC, said that net profit for the three months to Dec. 31 was 117 million pounds (US$207.8 million; €173.2 million), up from 115 million pounds a year ago.

Revenue rose 8.7 percent to 2.13 billion pounds (US$3.8 billion; €3.17 billion).

"These are encouraging results which reflect better revenue and the continued efforts of our people to strengthen the business," said British Airways Chief Executive Willie Walsh, who joined the airline in October.

Walsh said that the increase in revenue was driven by increased traffic volumes in the premium cabin, boosted by "significant" promotional activity.

BA earns the majority of its profits from its long-haul first and business class operations, including the trans-Atlantic route.

The airline also revealed that its load factor, which measures how full its planes are, increased to 72.5 percent from 72.3 percent in January.

Walsh said new routes such as Europe to Bangalore and Shanghai were doing well, boosted by strong marketing campaigns, and that "active promotion" of services was clearly paying off.

Chairman Martin Broughton said that BA expects revenue to grow by more than 8 percent this financial year, supported by yield improvement.

However, Broughton said that "market conditions remain broadly unchanged as significant promotional activity is required to maintain seat factors" and that underlying costs, excluding fuel, are now expected to be around 1 percent higher than the flat guidance the airline gave at the beginning of the year.

Fuel costs are expected to rise by 525 million pounds (US$929 million; €774 million) this year, he added.

Walsh said that the airline had no plans to adjust its fuel surcharges on passenger fares and cargo traffic as hedging remained in place. BA has progressively increased surcharges as oil prices soared over the past year. In contrast, Ryanair has imposed no extra fuel charges on passengers, a decision it claims has helped keep prices low and win customers from the full-service airlines.

Walsh added that the company is actively talking to Boeing Co. and Airbus but has no plans to order new long-haul aircraft at this stage. BA doesn't expect to take delivery of new planes before its transfer to Heathrow Airport's new fifth terminal in early 2008.

BA shares fell 1.2 percent to 320 pence (US$5.67; €4.73) on the London Stock Exchange.

"The company is performing well but significant uncertainties remain, particularly the unresolved pension issue and the move to Terminal 5," said Gert Zonneveld at stockbroker Panmure Gordon.

BA is in the process of tackling its 1.3 billion pound (US$2.3 billion; €1.92 billion) final salary deficit.

"The possibility of industrial action, which tends to be very damaging to airlines ... remains a real possibility," said Zonneveld.

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