SHARES in British Airways (BA)
fell sharply yesterday as City
gloom deepened over the airline's
trading outlook.
Stark warnings were issued
that if oil prices remained at present
record levels, it could send
BA's operating profit plunging
from £870m to £25m and force it
to cut services.
There were also fears that a financial
sector slowdown and increased
competition could hit its
most profitable routes across the
Atlantic, sending shares as much
as seven per cent lower, closing
last night at 222.75p
The warnings came days after
the carrier, which operates internal
flights from Newcastle International
Airport, posted record
pre-tax profits of £883m, paid a
dividend for the first time since
2001, and rewarded staff with a
£35m bonus pool.
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Chief executive Willie Walsh
said the results made him feel
like he had "won the Premier
League", but he warned about
difficulties ahead because of the
high fuel costs.
Mr Walsh said the airline faced
spending an extra £1bn on fuel
this year if prices remained
about the $120 a barrel mark.
Crude costs about $125, having
risen about 30 per cent this year
alone.
Andrew Lobbenberg, of broker
ABN Amro, yesterday cut the airline
to a sell recommendation,
citing the punishing cost of oil
and looming travel cutbacks.
"We struggle to understand
how the challenges facing the financial
services industries are
not affecting the transatlantic
premium business and we think
that, in time, BA will see weakness
in this key segment," he
said.
He added that the recently
signed Open Skies agreement,
which allows carriers to fly
across the Atlantic from other
countries, could also have an impact
on trading.
Mr Lobbenberg said oil remaining
at $120 could see BA's operating
profits come in at only
£25m this financial year if BA's
other forecasts such as four per
cent revenue growth and a £200m
rise in non-fuel costs, remained
the same.
This would see the operating
margin drop as low as 0.3 per
cent, compared to ten per cent for
the past year.
He said the airline faced having
to axe some routes later this
year.
"We expect BA will lower its capacity
in the winter, in particular
targeting its weakest performing
capacity, which we believe is the
short haul operations from
Gatwick," he said.
"We imagine BA will also make
considerable efforts to reduce its
non-fuel costs."
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