BA plunges into the red

British Airways needs to cut unprofitable routes

BA has made an underlying loss of £244m in the latest financial year after one-off gains are stripped out - its worst showing since it was privatised.

These results mark the end of the most difficult year that British Airways has had since privatisation

Colin Marshall,
BA chairman

The figure compares with a pre-tax profit for the year before of £225m.

This year's results were boosted by the inclusion of the sales of BA's stake in the Galileo booking system and Equant, which raised £249m, leading to a paper profit of £5m.

"These results mark the end of the most difficult year that British Airways has had since privatisation," said BA chairman Colin Marshall.

BA used to claim the title of the world's favourite airline, and was one of Britain's most admired companies.

BA is hoping to have turned the corner

Analysts are watching to see whether the new chief executive, Rod Eddington, will be able to implement the cost-cutting and down-sizing strategy laid out by his predecessor Bob Ayling, who was sacked in March after a troubled four-year tenure.

Mr Ayling is also under pressure to resign as head of the troubled Millennium Dome, which is struggling to meet its financial targets.

BA had a particularly bad winter, losing £175m in the final quarter, but it forecast improving prospects for the summer.

Restructuring

There has been some speculation that Mr Eddington, the former boss of Ansett Australia, may want to speed up BA's restructuring programme, which analysts say could lead to a 10% workforce reduction by 2003.

In a sign of confidence over the prospects for revival, the company has maintained its dividend at 17.9p.

"I believe that the basic planks of our strategy, which include developing frequency, network and customer service, are a good foundation for a return to profitablity," Mr Eddington said.

The airline is planning on reducing capacity on many routes, switching from the large Boeing 747 planes to smaller 777 or Airbus models.

The figures were slightly better than expected by analysts, who had forecast a loss of around £275m.

"It looks a bit better... this year is one of transition," said Chris Tarry, airline analyst at Commerzbank.

Shares in British Airways moved higher to 381p, up nearly 6p on its previous close, in early trading on the London stock market.

Overcapacity

Overcapacity on the North Atlantic, fierce competition from low-cost airlines in Europe and high fuel prices are the main causes of BA's troubles.

Higher oil prices cost the company £67m. The airline says that it also lost £136m from foreign currency movements and spent £88m on restructuring costs.

Nearly one-third of its seats were unoccupied in the past year, with a load factor of just under 70%.

Turnover was slightly up, at £8.9bn this year compared with £8.8bn last time.

But investors may be encouraged by the fact that yields - the average price paid by a passenger to be flown one kilometre - are improving, thanks to its move to focus more on premium passengers.

BA reported a 3.3% increase in yields for the fourth quarter - its second increase in a row.

Each 1% improvement in yields for BA over a full year is worth about £70m to £80m in terms of profit to BA, say industry watchers.