BA profits to suffer from US slowdown

British Airways' profits are expected to suffer twin blows from the slowdown in the American economy and foot and mouth, which have combined to cut passengers on transatlantic routes.

Airline industry analysts expect BA's first quarter operating profits to be between £50m and £60m, down from £97m in the same period of last year when they are issued on Monday.

Analysts will also be watching for any further news on the airline's controversial plans to seek a tie-up with American Airlines.

The airlines said on Friday that they will ask EU, UK and US regulators to look again at tie-up plans, which opened a two-year battle within the aviation industry when they were first aired in 1996.

The scheme would see BA, Europe's biggest airline by revenue, and AA, ranked number one in the world, share profits and collaborate over pricing on nine transatlantic routes out of London.

Sir Richard Branson: "We will fight this tooth and nail"

The firms are hoping to win regulatory clearance for the deal before the end of the year - after which individual European countries may no longer be able to negotiate aviation deals with the US.

The European Commission hopes to amend regulatory rules in order to make itself the sole authority for aviation deals, and that might make it harder to put together a transatlantic tie-up.

Alliance gets closer

The two airlines, which currently operate a loose relationship as members of the Oneworld alliance, would also share flight codes, allowing passengers seamless flights between a greater range of US and UK destinations.

The tie-up would see extra destinations served, and bring low fares to a wider range of routes, the carriers added in a statement on Friday.

At the same time, BA plans to buy a 10-15% stake in Dutch airline KLM, another Oneworld member, according to reports on Sunday.

BA is planning a series of agreements with other Oneworld airlines, including Aer Lingus, Iberia, Qantas and Finnair.

Virgin furore

But the American Airlines plans attracted fresh opposition from Virgin Atlantic, which said a combined BA/AA would boast sufficient muscle to force small airlines out of business.

Profile - American Airlines

Serves 242 destinations, in 52 countries

Carried 86.3m passengers last year

Operates 725 aircraft

Employs 106,000 staff

Made profits of $1.3bn last year

"We will fight this tooth and nail," Virgin chairman Sir Richard Branson said.

The proposal was little changed from the 1996 scheme, which raised concerns both among regulators and rival airlines.

"Nothing has changed since then," Sir Richard said.

"I am confident that our government together with the US and European regulators will see through this announcement and give it the short shrift it deserves."

Regulatory concerns

AA and BA's original alliance plans collapsed after raising concerns at the US Department of Justice and the European Commission.

Profile - British Airways

Serves 230 destinations, in 94 countries

Carried 36.2m passengers last year

Operates 341 aircraft

Employs 62,175 staff

Made profits of £150m last year

In 1998 the Commission ordered the airlines to surrender 267 prized take-off and landing slots at London's Heathrow airport to win approval for the tie-up, a demand branded as "commercially unacceptable" by BA.

Rival firms have continued to complain over the number of slots at the airport held by BA and AA, a share which Virgin claims allows the carriers to control more than 60% of the Heathrow-to-America market.

'Dramatic change'

But BA chief executive Rod Eddington said the airline market had changed considerably since the tie-up was last scrutinised.

Don Carty: ""We want a level playing field"

"All parties should take notice of the dramatic change in the transatlantic marketplace over the last five years," he said.

Other US and European airlines have managed to seal alliances, such as the tie-up between Northwest and Holland's flag carrier KLM, and between Delta and Air France.

The BA/AA proposal is "modelled after" these deals, background papers to Friday's plan said.

And while admitting that BA and AA hold 38% of Heathrow slots between them, this figure compares with the 70% of Amsterdam capacity held by KLM and Northwest, 55% of slots at Paris Charles de Gaulle airport claimed by Delta and Air France.

"We simply want to have the same commercial advantages and deliver the same consumer benefits that rival airline alliances and their passengers enjoy," Mr Eddington and AA chief Don Carty said in a joint statement.

City reaction

News of the proposal prompted a short surge in BA shares to 351p.

But the stock fell back to close at 339p, down 2.75p, after the airline revealed a 9.1% slump in passenger figures last month, compared with July 2000.

Figures for premium travellers, a key market for BA, fell by 11%, but the airline said it was gaining market share despite "challenging market conditions".

BA is due to unveil its second-quarter results on Monday.

BA reported a pre-tax loss in the first quarter of £50m, and market predictions range from a £60m profit to a £20m loss this time around.