Budget airline boost for BAA

DEMAND for budget flights and a recovery in long-haul travel has sent profits soaring 18% at airport operator BAA. The company, which runs seven UK airports, including London's Heathrow, Gatwick and Stansted airports, also said passenger traffic was up 6.5% to 110.6m.

However, the figures also revealed a slowdown at the end of the year with traffic up only 4.3% in the last three months of 2004. At the beginning of the year, the annual rise was 9.7%.

BAA, whose shares have rallied more than 50% since hitting a low of 406p in March 2003, has enjoyed a strong recovery as travellers have returned to flying post-9/11. The low in the BAA share price was largely a result of the US invasion of Iraq in February 2003.

It has also been buoyed by the on-going boom in budget flights. A batch of new airlines have taken off on the Continent in recent years aimed at following the success of low-cost carriers such as Ryanair and easyJet. Stansted, where underlying revenues rose 12.8%, has been a particular beneficiary of the cheap flights phenomenon.

Group pre-tax profits for the nine months to the end of December were £521m, compared to £441m a year earlier. The rise in earnings for the final three months of the year was less impressive, with a 13% hike on a year earlier to £146m. The number fell short of a £155m estimate by broker Williams de Broe.

BAA also stood by a forecast to increase passenger volumes by more than 6% over the course of the fiscal year to the end of March and was 'comfortable' with brokers' estimates that it will make a profit of £619m for the full-year.

The results also showed passengers spending more in airport shops despite 'adverse market conditions', averaging £4.41 between October and December compared with £4.15 for the nine months as a whole.

Total retail income was up 7.5% at £457m and chief executive Mike Clasper pointed to other recent achievements that underlined the 'good progress' the company was making.

A pay settlement was reached with unions for the current year and the following 12 months, while construction of more than half of Terminal 5 at Heathrow had been completed on budget and ahead of schedule, he said.

The development at Terminal 5 has accounted for more than half of the £1.08bn spent by BAA on infrastructure during the financial year so far.

But its legal wrangle with budget airline Ryanair over airport charges has not been resolved and BAA has set aside £14m provision in its accounts.

Revenues from its airports rose 8.3% in the nine-month period to £1.53bn, with nearly half generated by Heathrow where turnover rose 12.1% to £715m.