BA profits soar to £410m

BRITISH AIRWAYS today warned that fuel surcharges which add £20 to every ticket are likely to stay in place for the rest of the year because of the soaring price of oil.

The surcharge, which was slapped on last May, will remain for the 'foreseeable future', BA executives said.

British Airways issued the warning even though latest trading figures show the carrier is on course to record its biggest profits since the turn of the millennium. 'We have no plans to take the surcharges off,' said finance director John Rishston.

'Though we are reviewing them on a week-by-week basis, they will remain while the oil price remains high. The oil price is 53% higher than it was in 2003 and we believe it will stay there for the foreseeable future, which we see as being over the next year.'

However, if other airlines begin to undercut BA it is reserving the right to change its policy. 'The decision will be made on several elements including the oil price and a review of our competitive position,' added Rishston.

The surcharges offset the worst ravages of the oil price, which has put £106m on the airline's fuel bill over the last three months, a rise of nearly 50% year on year.

While that slowed profit growth during the Christmas period, British Airways' earnings for the nine months to 31 December were £410m, more than double last year's figure.

For October to December, profits were £50m down on the previous year at £75m, but chief executive Rod Eddington called the numbers 'respectable', given the rise in the fuel bill. BA is on course to report its best annual profits in the year to the end of March since 1999, when pre-tax earnings last topped £400m.

Eddington said that the return to huge profits is down to his controversial restructuring of the airline which resulted in the cull of 13,000 workers. He said: 'Our focus remains on reducing controllable costs and debt.'

{2} There are also signs that passengers are returning to the airline in increasing numbers. Latest monthly statistics show that passenger numbers soared by more than 8% with a 12% growth in the highly-lucrative first and business class cabins.

Moreover, chairman Martin Broughton has upgraded BA's revenue outlook for the year to an increase of between 3% and 3.5%, ahead of the previous 2% to 3% signalled to the City.

Yields - the average fare per passenger - are also looking much better with a fall of 1.9% in the Christmas quarter against the 5.1% dive during the first half of the year.

Having taken out hedges to offset the worst effects of the rising oil price, Broughton said he is sticking to previous forecasts that BA's fuel bill will rise by £245m this year - much of which is offset in any case by its fuel surcharges on tickets.

Net debt at 31 December came in at £3.2bn, nearly £1bn better than at the start of the financial year and £3.4bn down on the borrowing high at the end of 2001 when the airline was burning cash at a rate of £2m a day.

The two big issues for BA shareholders are when they will start getting dividends again and how long Eddington will be around. The two are inextricably linked. It has become common currency that, after almost five years in the job, the Australian is readying himself to leave and go home.

However, it is almost inconceivable he will quit before his infamous post-9/11 Future Size and Shape restructuring is translated into a return to shareholder payouts.

The board could sanction the first dividend for three years at the preliminary results in May. If not, he could hang around until November and a dividend re-introduction at the interim stage.

BA shares rose 3½p to 274p in early trading, their best for seven months and a strong recovery from the dark days of 2003 which saw them fall as low as 86p.