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Airlines in worst market ever

British Airways hit by fuel costs
[August 1st 2008] British Airways plane

High fuel bills have hit BA’s profits as the airline faces the worst market conditions the industry has ever known.

BA says that fuel prices have doubled in the past year, and despite a successful hedging programme the airline expects its fuel bill to top £3 billion this year – more than £8 million a day.

"We are in the worst trading environment the industry has ever faced. The combination of unprecedented oil prices, economic slowdown and weaker consumer confidence has led to substantially lower first quarter profits,” said BA chief executive Willie Walsh, announcing the airline’s first quarter results.

Profit before tax for the period was just £37 million – compared to £298 million in the same period last year. Passenger capacity rose 0.7%, but weaker consumer confidence, particularly in the key UK and US markets, meant load factors were down 3.4% to 73.4%.

But yields were up 6.9% “on the back of price increases as a result of increasing fuel surcharge levels, the stronger Euro and good long haul premium traffic”.

After the traumatic opening of Terminal 5 at Heathrow in March, Walsh insists the new terminal is now performing well: “We continue to refine and improve Terminal 5 and plan to introduce a dedicated check in for our Club World customers. The terminal continues to go from strength to strength delivering new levels of operational performance and real value to our customers."

Merger talks with Iberia are also giving BA cause for optimism. “The potential benefits are significant. We can build on our successful 10 year relationship with increased efficiencies, synergies and an excellent network fit,” says Walsh. BA is also in talks with American Airlines about further cooperation.

Looking ahead, Walsh concludes: "We are well prepared. Since year end we have adapted our plans to reflect the fast moving and challenging conditions. We have reduced capacity in the winter schedule without compromising our network and at the same time we have the flexibility in the business to capitalise when conditions improve”.

Written by: Nick Purdom


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