BA attacks costs as profits drop

BRITISH AIRWAYS is preparing to embark on a further cost-cutting programme following the shelving of its alliance with American Airlines and a sharp downturn in the outlook for global air travel.

Capacity growth for next year has been slashed back, BA has revised its fleet strategy to cut spending on aircraft, and services on some routes will be reduced or even scrapped.

News of the airline's renewed assault on costs came as BA reported a 10 per cent fall in interim profits to pounds 385m and a fall in yields because of weak demand in business and first classes. BA's brokers, Warburg Dillon Read, cut its forecast for full-year profits to pounds 400m against pounds 580m last year.

Bob Ayling, BA chief executive, denied that the new cost-cutting drive heralded further job losses among the 64,000-strong workforce, saying that BA had created 5,000 jobs in the past two years and its business plan involved the creation of more.

BA has so far achieved pounds 600m in cost savings through its three-year Business Efficiency Plan, and is on course to hit its target of pounds 1bn of savings by 2000.

Mr Ayling said that without the efficiency plan, BA would now be losing money, and that further improvements in the company's operating efficiency were necessary to cope with the downturn in air travel and increased competition from rival airline alliances.

Some of the cost savings will come through the Oneworld partnership BA has formed with American Airlines, Cathay Pacific of Hong Kong, Canadian Airlines and Qantas of Australia. In particular, the five partners are looking at pooling information technology costs, now running at pounds 300m at BA alone, and emergency back-up facilities.

Mr Ayling said he expected to see Oneworld expand to include carriers such as Iberia of Spain, Finnair, LOT of Poland and Malev of Hungary.

Capacity growth next year has been scaled back from 8 per cent to 2 per cent, while BA is planning to reduce services to places such as Seoul, Colombo, Nagoya, Osaka and Jakarta, where traffic levels have been hit by the downturn in Asia. BA said that underlying pre-tax profits in the six months to the end of September rose by 41 per cent excluding one-off gains from disposals.

But the market preferred to focus on figures showing a 4.3 per cent decline in yields - the revenue per passenger for each kilometre flown.

Despite repeated speculation about his future, Mr Ayling said he felt completely relaxed. "The only pressure I feel under is to keep my customers happy," he said.

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