British Airways’ 2008 first quarter earnings nosedive

British Airways, the national airline and flag carrier of the United Kingdom and the leading trans-Atlantic airline of Europe, has said that its first-quarter earnings had dropped in the period from April to June 2008. The airline, which has blamed the unprecedented rise in prices of fuel for the losses, also revised its revenue outlook downward for the full year – reining in its forecast for full-year revenue growth to around 3% from a previous forecast of 4%.

In a statement, Willie Walsh, chief executive of British Airways, said: “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.”

“With fuel costs up by 49% from a year earlier,” Willie Walsh added, “British Airways is reducing its winter capacity by 3.1% and raising ticket prices – and this would hurt revenue. We are focused on achieving a small profit in the current financial year.”

It was just a few days ago that British Airways had announced its plans to merge with Iberia, the flag carrier of Spain.

According to the company’s statement, British Airways posted profits in the first-quarter in the period from April through June 2008, but the profits nosedived by 90% to £27 million ($54 million) on a 2.8% increase in revenue to £2.259 billion.

The website guardian.co.uk has reported that British Airways is “triply vulnerable to the current somber operating climate in comparison with its two larger competitors: the French-Dutch carrier Air France-KLM and Lufthansa of Germany, which is still benefiting from its merger with Swiss International Air Lines.”

A transport analyst at BNP Paribas in London was quoted as saying: “British Airways has the worst exposure on currency, oil prices, and on route and destination network. Not only does the airline have the lowest level of oil-price protection in place among the big three European carriers but its heavy reliance on trans-Atlantic routes also makes it more sensitive to the slowing economies of both Britain and the United States. It also lacks the advantage of a strong euro against the dollar enjoyed by its two rivals.”

According to Willie Walsh, British Airways “is paying over £8 million a day just to keep its 245 aircraft flying,” adding that the airline’s annual fuel bill is expected to reach £3 billion in 2008, after paying over £700 million in the first quarter.

Walsh stressed that British Airways would ground no aircraft, but would redeploy the fleet to use the most fuel-efficient planes on its longest routes.

The chief executive of British Airways also warned that more airlines will go bankrupt in 2008 in the face of rising fuel costs and weak consumer confidence. In his opinion, “carriers that struggled to make a profit during the recent sales boom will not survive the worst-ever trading environment the industry has seen.”

Walsh elaborated: “Fares will rise by an average of around 3% for the rest of the financial year, as British Airways passes on higher fuel costs to ever fewer passengers. Fares are expected to increase towards the end of the year as airlines’  fuel hedges, where carriers buy their fuel in advance at a fixed cost that is often cheaper than the current market price, come to a close.”

Already, the depression in the airline industry has forced 25 airlines, including  the  business carrier Silverjet, to close down so far in 2008.

(Silverjet, the British all-business class airline, based at London Luton Airport, had suspended  operations on May 30, 2008. It had operated services to Newark Liberty International Airport and Dubai International Airport.)