Warning as BA slumps into red

Author: By Holly Williams, Press Association

The carrier slumped into the red by £148 million in the three months to June
30 against profits of £37 million a year earlier.

It said costs had come down by 6.6% in the quarter, but cautioned there was
“much more to be done”.

The group has yet to reach agreement with unions representing cabin crew,
baggage handlers and check-in staff over plans to axe thousands of jobs and
freeze pay as part of the airline’s cost-reduction drive.

Willie Walsh, BA chief executive, said he was confident the talks – currently
in a “cooling-off” period due to end in a week’s time – would result in a
deal.

BA has already cut 4,000 jobs in the past year and said around 7,000 staff
have supported its cost-saving plan – including pay freezes and volunteering
to work unpaid for up to a month.

It added today it was grounding more planes and cutting its services back
further, while also squeezing suppliers to trim costs.

But BA gave hope of better conditions as it reported some stabilisation in the
pace of decline in the number of passengers flying, which it expects to
continue into the summer.

Shares rose 5% on the news.

Willie Walsh, chief executive of BA, said: “Trading conditions continue to be
very challenging, with underlying revenue down 16.8% and no visible signs of
improvement.

“While traffic volumes are down considerably compared to last year, they have
stabilised during the quarter and show some signs of improvement for the
peak summer months.”

The first quarter results – traditionally strong for the carrier, coming at
the start of the holiday season – revealed a 12.5% drop in passenger revenue
as lucrative long-haul business passengers travelled less and traded down to
cheaper tickets.

BA said it was fighting the downturn with more cost-cutting action,
forecasting another 20%, or £145 million, in annual savings for the
financial year.

The group confirmed it will “park” 22 planes in total by winter 2010, with
capacity cuts of 3.5% this summer, 5% in winter 2009 and more reductions
next year.

Its fuel costs have also reduced substantially after last year’s oil price
bubble burst and are expected to be between £450 million and £500 million
lower over the financial year.

BA is also boosting revenues through sales of so-called “ancillary products”
via its website, such as car hire and hotels, which have doubled since last
year.

The airline also announced earlier this week it was scrapping all meals except
breakfast on its short-haul flights in an effort to save £22 million.

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