British Airways anticipates operating loss in 4th quarter

British Airways, the national airline and flag carrier of the United Kingdom and the third biggest airline in Europe, says it expects to post a third-quarter operating loss of about 50 million pounds ($69.9 million) because of dwindling travel demand as well as declining value of the pound.

In a statement, British Airways, which has its main hubs at London’s Heathrow Airport and London’s Gatwick Airport, said the carrier was likely to suffer an operating loss of about 150 million pounds for the fiscal year ending March 31, 2009. It may be noted that British Airways had earlier targeted what it described as a “small” operating profit for this financial year.

The airline’s sales, the statement said, were falling as the worldwide economic recession had adversely affected demand for corporate and leisure travel. “Further economic weakness in January 2009 and the outlook for February and March 2009, combined with the fall in sterling, are impacting our outlook for the year,” the statement explained.

British Airways’ premium traffic volumes – the segment where the carrier makes most of its profits – have been falling a lot for four months. However, the pace of the drop speeded up in December 2008, with a drop of 12.1% year-on year, following declines of 5.4% in September, 9.2% in October and 10.8% in   November, the statement said.

British Airways said its revenue guidance for the full year stayed unchanged, but it now expected non-fuel costs to increase by rise 8% this in 2009 as against the previous revenue guidance for a 5%.

On January 21, 2009, British Airways’ rival Air France-KLM Group, the biggest airline in Europe, had said that it would report a loss of 200 million euros ($264 million) for the quarter after revenue owing to fall in ticket sales.

British Airways is currently holding merger talks with Iberia airline of Spain.

The Financial Times quoted a spokesman of British Airways as saying that the carrier’s talks with Iberia airline were still continuing despite the warning of loss.

However, aviation analysts said that British Airways’ latest fall in share prices has disturbed further valuations of British Airways and Iberia. When the merger talks were announced in July 2008, analysts had been expecting British Airways to make up about two-thirds of the combined airline, but Iberia has since become larger in terms of market capitalisation, the Financial Times report said.

Willie Walsh, chief executive of British Airways, had said a few days ago that that Iberia’s share price was “overvalued” and that the shareholders of British Airways were unlikely to consent to a merger based on current market values.

The current value of British Airways is around 1.5 billion euros ($2.0 billion), whereas the current value of Iberia is about 1.8 billion euros.