BA Cuts Capacity, Eyes Fleet With Losses
Robert Wall/Paris wall@aviationweek.com
British Airways suffered a 401-million pounds sterling ($631-million) pre-tax loss in the last financial year and sees little near-term improvement in economic conditions, driving the carrier to seek further capital expenditure reductions and capacity cuts.
BA has announced plans to trim 4% capacity in the coming winter season, by parking eight 747-400s and eight 757s.
After the European Parliament waved the so-called 80/20 rule on slot use for the summer season, BA cut capacity a bit more during the ongoing period. This summer season's available seat kilometers are now down 2.5% rather than 2%.
The 4% cut to the winter plan is based on the 80/20 rule being back in place. Airline CEO Willie Walsh showed frustration that European regulators weren't more responsive to airlines needs to extend the rule. If relief is granted for the winter season, BA would likely reduce capacity a bit more, focusing on short-haul flights out of London Heathrow that are partly in place simply to protect slots. Long-haul is less likely to take further cuts.
In addition, BA is looking for ways to further trim costs, with additional headcount reduction possible.
Moreover, the airline is trying to protect its cash position - it had 3.58 billion pounds in cash on hand at the end of March - and is closely reviewing capital expenditure plans. As part of that exercise, it has determined that 737-400s that are 16 years old can remain in service longer than planned, so their replacement is being deferred.
BA also says it is reviewing all its fleet plans, in particular due to a mismatch between capital expenditure plans and financing.
Walsh notes that BA has further room for fleet reductions looking ahead, with around 16 widebodies older than 20 years coming available in the next two financial years that provide flexibility for cuts. However, he says reductions will be made carefully to avoid harming the airline's network and slot portfolio.
The difficult operating environment, including what Chairman Martin Broughton says was the worst fourth quarter financial performance on record for the airline, has meant talks with Iberia on a merger have slowed. Iberia CEO Fernando Conte said recently he's focused on managing his own airline during this crisis, with Walsh saying he's similarly concentrating on BA operations. There has been little recent progress on talks with Iberia, Walsh concedes, noting that the Spanish shareholders remain concerned about BA's pension liabilities, but that the chief hurdle continues to be corporate governance of the combined entity.
However, Walsh says there is still interest in the merger.
Regarding the anti-trust immunity BA is seeking with Iberia, American Airlines and others, Walsh says he's optimistic the U.S. will rule in favor. Moreover, BA hopes to receive the European Union's statement of objections by the end of July, and plans to respond 4-6 weeks later, rather than waiting the full three months allowed, in part to get the European and U.S. decision processes on a similar timeline.
As to the current financial year, BA officials are not giving any guidance, saying there are too many uncertainties. "Forecasting even in the short term is increasingly difficult," Broughton told analysts. CFO Keith Williams merely adds that "we have yet to see any signs of revenue improvements."
BA full-year revenue was up 2.7%, but fell 8% in the fourth quarter, the first decline since 2007. Fuel costs were up 44.5% to almost 3 billion pounds, but due to a better hedging position should come down 400 million pounds in the current financial year. The operating loss for the past financial year was 220 million pounds.
Photo credit: oneworld
