BA 'breaks even' in fares war

BRITISH Airways is believed to have transformed its heavily loss-making European operations to the point where they will break even in the current financial year.

The routes chalked up losses of about £200 million in the year to March, when analysts reckoned the airline made total losses of £145 million. They have accounted for an astounding £1.1 billion deficit over the past decade but are now said to be operating at or close to break-even.

The dramatic turnround has been achieved partly by targeting destinations served by easyJet, which last week warned that its profits were coming under increasing pressure. That knocked 25% off its share price in one day.

Luton-based easyJet has become the main casualty of the shift by BA to a 'no-frills' European operation, using tactics picked up from the lowcost carrier itself.

While the dramatic growth in east European budget airlines has hit easyJet's profits, it is the tough new competition from a revitalised BA that poses its greatest threat, analysts admit.

According to internal BA figures seen by Financial Mail, easyJet and BA compete directly on 15 routes from Gatwick while BA and its franchised partners compete in 30 markets from London's five main airports - and on many occasions BA's fares are lower than easyJet's.

EasyJet last week unveiled greater than expected losses in the first half of the year and warned that the full year's financial performance would be hit by greater competition. Savage costcutting at BA, combined with adopting the tactics of its no-frills rivals, has had an equally dramatic effect on its European finances.

In the summer of 2002, BA's top management decided they would compete online with the cheapest ticket prices of the no-frills opposition in Europe. The effect has been devastating.

Tim Coombs, a partner in Aviation Economics said: 'This is one of the great untold stories. People have underestimated how well BA has responded to the low-cost carriers. We predict they will soon be breaking even on their European operations. This is a significant achievement.'