Summer Gives No Sunshine To BA – US-FOREX.US
British Airways should have been raking back business in the last quarter as travelers took the skies for the early summer months. Instead, the airline posted its first loss in decades for the busy May-to-June period. The airline posted a loss of 106 million pounds in the three months to June. Sales tumbled by 12% as business passengers ditched premium class in favor of economy, while passenger yields, or the average spend per passenger, fell 10%.
It was the carrier’s first loss for that quarter since its privatization in 1986, highlighting the severity of the crisis facing the premium airline sector. “The news flow from BA remains bad and this is an airline that has a hell of a lot to do if it is to carve out a successful future for itself within a much changed, weaker and yet ever more competitive market,” said Howard Wheeldon of BGC Partners in London.
British Airways has been caught out by its dependence on premium class travel, particularly in the long-haul sector, where traditionally two thirds of revenue comes from such tickets. The company’s cost-cutting program and a drop in oil prices has not been enough to offset the severity of decline in this area, both for British Airways and its rivals. Earlier this month British Airways announced it would be raising up to 1 billion to fund itself through the downturn. Air France-KLM, which was blighted by tragedy in the quarter when a flight en route from Brazil crashed into the Atlantic Ocean, killing all on board, reported a loss of 496 million euros late on Thursday, after making a profit of 149 million euros the year before, and warned that it would be forced to make further cuts in capacity to match falling demand and yields. “For the big, traditional players it’s about managing the crisis rather than putting themselves in a position to maximize their place in the market going forward,” said Panmure Gordon’s Gert Zonneveld. One of the problems facing the airlines is that cost cutting proves less effective if is accompanied by a cut in capacity. “If you cut capacity by 3%, it may be more difficult to cut costs because the economies of scale start to work against you,” says Zonneveld. The chief executive of British Airways
, Willie Walsh, warned that the timing of any recovery for the industry remained uncertain, but that the firm would continue to press for a “permanent structural change” to the cost base of its employees. This is “essential for our short-term survival and long-term viability,” Walsh told analysts on a conference call. The firm has already cut nearly 4,000 jobs, though has run up against the unions in its plans to cut costs, which includes the controversial measure of asking employees to work for free for up to a month.
While all three of Europe’s premium airlines-British Airways, Deutsche Lufthansa and Air France-KLM-have posted a loss for the last quarter, the budget sector has fared slightly better.
Ryanair reported a profit of 123 million euros but warned that it would have to cut ticket prices more than it had predicted in order to be on target for its plans to increase capacity. EasyJet joined the Irish carrier in predicting a profit for the current fiscal year. The global airline industry could lose 9 billion this year, warned Giovanni Bisignani, the director general of the International Air Transport Association, last month.