Margins cloud profits at BA

ROD Eddington, into his final four months running British Airways, has admitted he is likely to miss his long-held target of delivering profit margins of 10% a year, but is still promising another year of bumper earnings.

As part of his Future Size and Shape restructuring programme, Eddington had said his goal was to produce 10% margins in an effort to leave the airline with a sustainable future. Despite storming profits of £415m last year, margins were less than 7%.

Eddington indicated that his efficiency drive, which cost 13,000 jobs, is improving margins by two percentage points a year, which means his decision to quit at the end of September will see him miss his target.

But the Australian chief executive suggested the 10% target could be hit in the first full year of successor Willie Walsh, former head of Aer Lingus. Eddington said he was comfortable with analysts' forecasts that profits in the year to next March would be broadly in line with last year.

'We are steering clear of giving any formal guidance because to do that we need to fly in still air. The price of fuel and its volatility affects any guidance we could give,' he said.

'But what we are saying is that, first, revenues are going up by between 4% and 5%, second, that our fuel bill is likely to go up by £400m and, third, that costs will be flat. The analysts say the revenue gain will be balanced out by the fuel costs, and that profits will therefore be flat.'

Eddington is to return to Australia with his young family but will continue with part-time directorships, including Rupert Murdoch's News Corporation. He is also helping the UK Government on its transport infrastructure review.

He said his decision to scale down short-haul operations to the point where European and domestic services represent just 20% of the carrier's business has gone far enough. But he admitted that short haul, which was losing up to £300m a year, remains a problem.

'The current position of breakeven [on short haul] is not good enough,' he said. 'But, unlike many other airlines, we have moved away from a situation where we live or die by the performance of short haul.'

Eddington added that a review of short-haul operations had been refocused by the decision of bmi, BA's main European and domestic rival at Heathrow, to axe its business class.

He refused to rule out cutting business class but admitted that keeping the premium cabin would further differentiate BA from its competitors. 'Bmi's decision is one reason to stick with it,' he said.