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BA unveils £450m cost-cutting plan
By Kevin Done in London
Published: March 9 2006 13:19 | Last updated: March 9 2006 13:19
British Airways is planning to cut costs by £450m during the next two years with hundreds of job cuts expected, as it rationalises operations at Heathrow airport, its global hub.
The cost reductions will support the drive to improve profitability, despite higher fuel prices. BA forecast that it would achieve a 10 per cent operating margin for the first time in its history in the year to March 2008 helped by rising revenues and further cost savings, provided there were no more external shocks such as further oil price increases or events such as terrorism or pandemic scares.
Willie Walsh, BA chief executive, also told a meeting of analysts and investors, that the airline was preparing for future capacity growth around the end of the decade and had secured with Boeing options on delivery slots for 10 777 long-haul aircraft in 2009 and 2010.
BA said that it expected its fuel costs to rise by £400m in the next financial year to the end of March 2007 to about £2bn, following an increase of £505m-£515m in the current year to March 2006 to £1.6bn.
The fuel bill, which now accounts for about 21 per cent of total costs will have more than doubled in three years.
It forecast that revenue would rise by 4-5 per cent in the next financial year supported by increased capacity and passenger loads following a rise of 8 per cent this year.
Given the smooth handover of power from Rod Eddington to Willie Walsh, a radical change in strategy at British Airways was hardly on the cards.
A large part of the planned cost savings is related to reducing employee costs, and includes some of the £300m already due to be eliminated over the three years to March 2007.
Key to the savings is a planned reform of the airline’s pension scheme, which has one of the biggest deficits among leading UK companies. Proposed changes in pension fund terms and conditions are due to be presented to staff at the end of the month.
BA is also planning to make significant savings from the transfer of the bulk of its operations at Heathrow to the new Terminal 5, the £4.2bn project under development by BAA, the airport operator.
Martin Broughton, BA chairman told a meeting of analysts and investors, that the airline had “a once-in-a-generation opportunity” to increase efficiency, transform conditions for passengers and reduce costs with the move to T5 at the end of March 2008.
Many of the job cuts are likely to come from ground services staff with changes in working practices and the introduction of new technology. BA said it expected that 80 per cent of passengers would be checking in online or at self-service kiosks by the opening of T5.
The airline said that it would transfer about 90 per cent of its Heathrow operations to Terminal 5, with the remainder moved to Terminal 3, where it would co-locate its Australian and Spanish routes beside its Oneworld alliance partners Qantas and Iberia.
The £450m cost savings will be spread equally across the next two financial years. Total costs, excluding fuel, are forecast to be flat in the year to March 2007 with increases offset by cost efficiencies.
BA is driving an increasing share of its bookings on to the internet with the share planned to rise from nearly a third this year to 50 per cent by March 2008.
The group said that its net debt would be below £2bn by the end of March, down from the crisis level of £6.6bn at the end of 2001 in the recession following the September 11 terrorist attacks in the US.
Shares in BA were up 2½ per cent at 324 ¾ p in early afternoon trade.