PARIS: In a stark sign of the havoc being wrought on the global aviation industry by a surge in the cost of fuel, Europe's leading trans-Atlantic airline, British Airways, said Friday that its first-quarter earnings had collapsed in the period from April to June, and revised downwards its revenue outlook for the full year.
"We are in the worst trading environment the industry has ever faced," the British Airways chief executive Willie Walsh said Friday. "The combination of unprecedented oil prices, economic slowdown and weaker consumer confidence has led to substantially lower first quarter profits."
Just three days after it announced plans to merge with the Spanish flagship airline Iberia, British Airways said that profit in the three months to end June had plunged 90 percent to £27 million, or $54 million, on a 2.8 percent increase in revenue to £2.259 billion.
British Airways' bleak results confirm predictions of a dire outlook for the aviation industry coming notably from the international aviation body IATA, which says that 25 airlines around the world have gone under since the start of this year.
The major European airline that carries the greatest volume of traffic between Europe and the United States, British Airways is triply exposed to the current sombre operating climate.
"They have the worst exposure on currency, oil prices, and on route and destination network," said Nick van den Brul, a transport analyst at BNP Paribas in London.
Not only does it have the lowest oil price protections in place among the big three European carriers, it is also uniquely vulnerable to the slowing economies of both Britain and the United States, van den Brul said. It also lacks the benefit of a strong euro against the dollar enjoyed by its two larger competitors, the Franco-Dutch carrier Air France-KLM and Lufthansa of Germany, which is still benefiting from its merger with Swiss.
On Tuesday, Lufthansa reported a 59 percent drop in its first-half net profit compared with last year, when earnings were lifted by one-time gains. L ufthansa said it earned €402 million in the January-June period, down from €992 million a year earlier - a figure that was helped by the sale of a stake in the travel operator Thomas Cook.
Air France-KLM is set to report quarterly figures on Tuesday.
With fuel costs up 49 percent compared with the same period last year, Walsh said that British Airways was reducing its winter capacity by 3.1 percent and raising ticket prices, and warned that this would hurt volumes. "We are focused on achieving a small profit in the current financial year," Walsh said.
The company is paying more than 8 million pounds a day just to keep its aircraft flying and said that it expects its annual fuel bill to exceed 3 billion pounds this year, after paying more than 700 million pounds in the quarter.
Like Air France-KLM and the US airline Southwest, British Airways hedges its fuel price exposure. It said Friday that additional steps to do so had brought its some relief -- every $1 increase in the price of crude oil will knock 8 million pounds of its earnings, rather than 16 million pounds before, it said.
It forecast full-year turnover would grow by "around 3 percent," compared with its previous forecast for an increase of 4 percent.
On Monday, the low-cost carrier Ryanair said its quarterly profit had dropped 85 percent. The carrier this year could make its first annual loss since 1990, company officials said.
Source: http://www.iht.com/articles/2008/08/01/business/1airways.php