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Thursday, 20 September, 2001, 13:51 GMT 14:51 UK
What now for British Airways?
BA share graph
BA shares were underperforming even before the tragedy on 11 September
Demand for air travel has plummeted since four planes were hijacked and used to attack the World Trade Center and the Pentagon. UK carrier British Airways is one of the airlines that has been forced to cut jobs and routes. BBC News Online's Tim Weber investigates whether BA can survive the turmoil.

British Airways is not the only airline in trouble. US carriers, for example, have announced tens of thousands of job losses and cut up to a fifth of their routes.

BA cutbacks
5,200 new job losses
1,800 already announced
20 aircraft mothballed
10% of flights cut
But BA's problems are in a class of their own. The company has just emerged from a painful restructuring programme, which not only cost money but hundreds of jobs as well, including that of the former chief executive Robert Ayling.

Instead of breaking even this year - following a string of quarterly losses - analysts now expect the airline to report a 200m loss by the end of the year.

Investors are smarting as well. BA's shares currently trade at about 150 pence. In May 1997, they were priced at 760p.

In the past four months alone BA shares have lost more than 60% in value and 42% since the eve of the attacks.

And worse could come. Analysts at investment bank Lehman brothers have more than halved their BA share price target, from 190p to 80p, sending a shockwave through the market.

BA, once the UK flag carrier and mighty near-monopolist of the British skies, now has a stock market value of about 1.8bn - lower than low-budget upstart Ryanair.

Thursday's radical action, cutting 5,200 jobs, mothballing 20 planes and cutting 10% of all flights, did nothing to boost BA's shares.

Multiple threats

British Airways will not find it easy to recover. The company is under assault on all fronts.

First there is the global slowdown in the travel industry. Bookings were sharply down even before the atrocities committed in New York and Washington.

This weak demand for seats was blamed for the first round of cuts, costing 1,800 jobs.

But since Tuesday 11 September, people just don't want to fly any more.

International travel reservations company Amadeus reported that airline bookings had slumped 28% worldwide, and by 74% in the United States alone.

Online travel agencies like Travelocity and Expedia report sharply lower bookings as well.

Losing focus

Two segments of the market have been particularly hit: Transatlantic flights and business travel.

And that is BA's core problem. In its attempts to claw back into profit, the company focused on exactly these two groups of passengers.

Indeed, nearly two thirds of all BA passengers fly internationally. The airline boasts that nobody else carries "more passengers from one country to another".

This market is now disappearing fast. Compounding the problem is the fact that BA's most important partner in the One World alliance of carriers, American Airlines, is in deep trouble.

Following the attacks, the US airline has cancelled 20% of its flights and sacked 20,000 staff.

Many flights that did channel passengers onto BA planes no longer exist.

In an industry that operates on razor-thin margins and is highly dependent on a steady flow of cash to finance operations, such a sudden drop in demand can have a devastating effect.

New burdens

Even worse, costs are skyrocketing at the same time.

Depending on where and how the United States retaliates for the attacks in New York and Washington, fuel costs look likely to rise sharply.

Extensive use of war planes would drive up the price as well, as happened during the Gulf War.

And insurance costs are going up too, with several airlines reporting that their insurers are demanding 10 times the normal premium.

For a large carrier like BA, with more than 300 aircraft, this translates into costs of many millions of pounds.

Beefing up security both at airports and for the planes themselves is an expensive business as well.

Higher airport taxes to pay for better security may deter even more passengers.

Subsidy trap

And finally, there's the issue of a level playing field.

US airlines - BA's rivals on the transatlantic routes - have been promised juicy subsidies to help them survive the current slump.

The European Union is still deliberating whether it should rig the markets in the same way.

British Airways, in the meantime, continues to bleed cash.

It will be a rough ride, both for BA's staff and management, and the firm's quarter-of-a-million shareholders.

See also:

20 Sep 01 | Business
Profile: British Airways
20 Sep 01 | UK
Anger over job cuts
20 Sep 01 | Business
Airlines slash thousands of jobs
18 Sep 01 | Business
UK airlines call for state aid
09 Sep 01 | Business
British Airways confirms job cuts
04 Sep 01 | Business
British Airways cuts 1,800 jobs
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