Source: AFP Author: 08/01/2008
Subject Concerned: Airlines Aviation Fuel
British Airways, which is in merger talks with Spanish airline Iberia, said on Aug. 1 that net profit dived 90 per cent in the first quarter, hit by surging fuel costs and a wider economic slowdown.
Profit after tax tumbled to 27 million pounds (EUR34 million, US$53 million) during the three months to Jun. 30 compared with net profit of 274 million pounds in the same period a year earlier, BA said in an earnings statement.
Sales rose by 2.8 per cent to 2.26 billion pounds and pre-tax profit slumped by 88 per cent to 37 million pounds.
BA's share price was up by more than five per cent in morning trade in London.
Dealers said the group was benefiting from its merger talks and a drop in crude oil prices on Aug. 1.
The aviation sector relies on kerosene to power its planes, a fuel refined from crude oil which last month struck record highs above US$147 a barrel, almost double the price of a year ago.
Crude oil prices were trading at about US$122 on Aug. 1 amid a strengthening US currency.
"We are in the worst trading environment the industry has ever faced," BA chief executive Willie Walsh said in the group's trading update published on Aug. 1.
"The combination of unprecedented oil prices, economic slowdown and weaker consumer confidence has led to substantially lower first quarter profits."
The group said fuel costs had risen by 49 per cent to 706 million pounds in the first quarter.
"We expect our fuel bill to top three billion pounds this year - the equivalent of more than eight million pounds every day," the airline added.
Walsh said on Aug. 1 that BA was "well prepared" to battle the fuel-cost situation.
"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.
"We have revised our capital expenditure plans and are focusing on cost control," added the chief executive.
BA's trading update comes three days after the airline said it was holding merger talks with Iberia aimed at creating the third largest airline in the world in terms of income with more than EUR16.5 billion (US$25.7 billion).
An all-share tie-up would rival Air France-KLM, the world's biggest airline that was born in 2004 after the merger of France's national carrier and Dutch peer KLM.
It would create an airline which is dominant on both the north and south Atlantic routes.
Iberia is the market leader on flights between Europe and Latin America while BA is strong on routes from London to the United States.
Under the tentative proposals BA and Iberia would retain their separate brands.
Walsh said on Aug. 1 that it would be "several months" before the talks were finalised. "But we are confident of securing regulatory approval," he added.
The tie-up talks also come as airlines seek to take advantage of the newly-launched "open skies" agreement that has loosened restrictions on airlines flying between the United States and Europe.
The dramatic merger plan comes as all of the world's biggest airlines face commercial headwinds from record high oil prices and weak consumer spending that is dampening demand for air travel.
An adverse business climate has caused the collapse of 25 carriers since the start of 2008.
Only airlines owned by oil-producing Gulf states, such as Emirates, appear immune to the aviation downturn.