Strike threatens BA recovery

BRITISH Airways' radical restructuring plan could be thrown into a tailspin by the chaos created by a labour dispute at Heathrow, the airline‘s main hub, analysts have warned.

An unofficial walk-out, which began on Friday, has so far caused misery for 100,000 passengers and is estimated by analysts to have cost the airline up to £40m. The London airport is the base for 126 of BA's 264 global routes. In the year to March 2002, BA accounted for 37% of the airport's traffic.

BA shares have slipped just 3p to 172p since the crisis began. But any prolonged industrial action could make a serious dent in its critical second-quarter 'summer season' results, due in October.

However, the resilient share price reflects a mood in the market that ongoing discussions between management and staff will meet an early resolution, according to Nick van den Brul, an airline analyst at broker BNP Paribas.

But he added: 'BA has had declining revenues for two years and is relying heavily on cost cutting. If a wider labour issue derails that programme it could jeopardise the whole 'Future Size and Shape' programme.'

Plans to axe staff and routes were unveiled in spring 2002 under the Future Size and Shape banner. The strategy was simply to make the company a smaller, profitable airline rather than a large, loss-making one. The 61,000-strong workforce was slashed by 23% in the first year.

BA has remained a favourite with small investors. Around 260,000 shareholders own 15% of the company, and around 50% of BA staff own shares.

The shares were driven down to a low of 86p in March due to the war in Iraq but have climbed steadily higher despite travel fears sparked by the Sars virus in Asia. A 5.8% rise in passenger traffic in June helped fuel the recent rally.

However, analysts remain concerned about the size of BA's £5.15bn debt and the £1.2bn deficit in its staff pension fund. An escalation of the row at Heathrow into a company-wide strike would add to the woes. First quarter results are due on 31 July.

The shares closed up 1p at 172p.