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Airways May Say Profit Fell After London Security Alert
Feb. 1 (Bloomberg) -- British Airways Plc may report its first
decline in five quarters after a terror alert led to tighter security
measures and fewer flights.
Net income probably fell 6.8 percent to
109 million pounds ($214
million) in the three months ended Dec. 31 from 117
million pounds a
year earlier, according to the median estimate of eight
surveyed by Bloomberg. Revenue likely rose 0.5 percent to 2.14
pounds, the survey showed.
The world's third-largest airline
was forced to cancel 1,280 flights in
August after the police discovered a
plot to blow up planes. Fog at
London's Heathrow caused more disruptions in
December. This week, Chief
Executive Officer Willie Walsh averted a strike
after reaching an
agreement with cabin crew unions on sick leave and pay.
The airline had
scrapped 1,300 flights in preparation for the walkout and
carried just a
third of its average passengers on Jan. 30.
got their work cut out for them,'' said Nicholas van den Brul,
an analyst at
Exane BNP Paribas with an ``underperform' ' rating on the
of the security disruption and the weather disruption
and this recent strike
threat, a lot of travelers will have reconsidered
some other options. BA
will have to win them back.''
Shares of London-based British Airways have
gained 89 percent since
Walsh, 45, replaced Rod Eddington as chief executive
in October 2005.
With a market value of 6.2 billion pounds, the company is
Singapore Airlines Ltd. and Deutsche Lufthansa AG.
Walsh plans to increase the carrier's operating margin to 10
reducing spending and increasing sales. The operating margin, or
earnings before interest and tax as a proportion of sales, was 8.3
percent in the fiscal year ended March 31.
Cost cuts, including a
reduction in sick leave, stoked the dispute with
flight attendants. About
8,000 of the 15,000 cabin crew members voted to
strike. The aborted strike
may have cost the company as much as 20
million pounds in lost profit, said
Howard Wheeldon, an analyst at BGC
The airline carried
24,000 passengers on Jan. 30, about a third of the
number it usually flies,
said Patrick Spink, a British Airways
spokesman. The company does not yet
have a figure for lost sales and
extra charges. He declined to comment on
earnings before tomorrow's report.
Tighter security measures were
introduced after the discovery in August
of a plot to blow up as many as 10
planes between Britain and the U.S.
using liquid explosives. Flight
cancellations that month stranded 80,000
people and cost the company about
100 million pounds.
Security measures were eased in
November and passengers were again
allowed to carry hand luggage and limited
amounts of liquid on board.
The airline on Nov. 3 lowered its full-year
estimate of revenue growth
to between 4.5 and 5 percent from 5 to 5.5
percent, saying first- and
business-class traffic were ``affected by the
Dense fog at Heathrow lead to the
cancellation of more than 800 flights
over three days in December. The
disruptions probably hurt earnings in
the third quarter, the company said
Dec. 22, without specifying a figure.
Load factor, or the proportion of
seats filled, fell 0.4 percentage
point in the third quarter to 73.7
percent. British Airways flew 8.53
million passengers in the period, little
changed from 8.52 million a
High oil prices may also
have cut into profit. Fuel is the airline's
second-biggest cost after labor.
Jet fuel rose to an average price of
$601.54 a metric ton in the quarter
compared with $584.43 a year earlier.
quarter really bore the brunt of rising fuel prices,'' said
an analyst at Collins Stewart who recommends investors
buy the shares. ``The
airline will have been using fuel that it bought
or hedged a short bit
The carrier still needs its four main unions to agree to a
close a 2.1 billion-pound pension deficit before it can upgrade
fleet with more fuel-efficient airplanes. The Transport & General
Workers Union, Amicus and the British Airlines Pilot Association have
voted to recommend the proposal to their members. The GMB union, which
includes baggage handlers and ground staff, rejected the plan on Jan.
``It's very difficult to keep all the plates spinning without giving
into labor all the time and harming your long-term profitability, ''
Chris Avery, an analyst at JPMorgan Chase & Co. in London, who has a
``neutral'' rating on the stock, said in an interview.
swaps based on 10 million euros of British Airways debt
are trading at
79,000 euros, a record low, according to data compiled by
benchmark iTraxx Crossover Index of 45 European companies
grade and non- investment grade credit ratings,
including British Airways,
reached a record low of 192,000 euros last week.
Credit-default swaps are
based on corporate bonds and are used to
speculate on a company's ability to
repay debt. An increase indicates
worsening credit quality.
contact the reporter on this story: Tracy Alloway in London at talloway@bloomberg.
Last Updated: January 31, 2007 19:13 EST