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Tuesday, May 25, 1999 Published at 16:06 GMT 17:06 UK

Business: The Company File

No longer our favourite airline

BA is to offer fewer economy seats

British Airways, once labelled the world's most profitable airline, has recorded its worst profits in six years.

BA Chief Executive Robert Ayling: "We can't carry the range of passengers we used to"
Its pre-tax profits were 61% lower, at £225m.

BA managers warned that "the situation is not likely to improve materially in the short-term".

[ image:  ]
These figures come at the end of what BA chief executive, Robert Ayling, conceded has been "a poor year".

The company blamed the fall on the world economic slowdown and weak demand for its premium seats, such as First and Club class.

The slowdown hit hardest in the last three months of BA's financial year when the company reported a pre-tax loss of £85m.

Simon Montague: "Targetting the business market may be a risky strategy"
Mr Ayling said the airline's strategy was now switching and would concentrate on business travel at the expense of the cut-throat economy travel market.

He said: "This will ensure that we stay ahead while reducing our exposure to the heavily discounted element of the economy sector."

BA staff will pay a price too for the disapointing profits as they will miss out on a bonus payment which is triggered when profits reach £400m.

Asian contagion

[ image: Robert Ayling wants you to fly with him - if you fly Club Class]
Robert Ayling wants you to fly with him - if you fly Club Class
Part of the blame, BA's profits were £580m a year ago, has been put on a sharp drop in business passengers heading for Asia.

Planes once destined for the Far East were used instead on the transatlantic routes, but fierce competition there meant more meant more capacity and consequently lower fares.

An immediate change is being made to some of BA's less profitable shorthaul networks which could see 20 or so of them out of London Heathrow being axed.

Fewer economy seats

The airline's strategy for recovery focuses on updating its long-haul fleet, introducing more Boeing 777 aircraft, smaller than 747s but containing fewer economy seats.

Steve Ridgeway, MD of Virgin Atlantic and Ian Peters of the British Chambers of Commerce give their verdicts
By cutting out some of the discounted seats, the airline will boost its financial return on each ticket sold.

The airline plans that half its fleet will be the smaller 777s by the year 2002.

BA also plans to introduce a new Club class service with what it is calling 'the flying bed', a type of luxury aircraft seat.

BA said average fare yields fell 7.4% to 5.9p per passenger per kilometre flown.

City in favour

Analysts in the City of London gave British Airways welcomed the overhaul of company strategy, believing that the company is putting in place the right strategy to fight off the sharp decline in its profits.

"The introduction of new premium products is key for British Airways. It is the catalyst that will help them regain their premier airline status," said Chris Tarry, airline analyst with Commerzbank.

BA shares shot up 2.6% to close the day at 469.5 pence, a gain of 12p.

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