http://business.timesonline.co.uk/to...cle3953811.ece
British Airways plans to ground part of its fleet from October to cut costs and stem potential losses caused by the crippling price of fuel.
Confirmation of the move, from chief executive Willie Walsh, comes as analysts warn BA may only break even or worse for the next two years, despite having reported one of its best year’s trading last week.
The sudden reversal has been caused by rapidly rising fuel prices – jet fuel went through the $1,300-a-tonne mark last week – and sluggish demand.
BA has already selectively slashed fares across the Atlantic, offering returns to New York for £249, a base fare of £30 once taxes and fuel surcharges are stripped out. “It is a bloodbath,” said one industry executive.
Scheduled airlines rarely ground aircraft, preferring to keep their expensive fleets in the air, although Ryanair has kept planes on the ground during slack periods. Walsh said: “You should certainly expect us to do that this winter.”
The airline would park its oldest, least fuel-efficient aircraft. Walsh said this would be likely to include its older Boeing 747s, 767s and 737s.
BA last week reported strong annual results for 2007-8, hitting its long-held goal of a 10% profit margin, paying staff £35m in bonuses and the first dividend in seven years.
Walsh did not take his £700,000 bonus, saying it was not appropriate in the wake of the chaotic opening of Heathrow’s terminal 5.
The fall-out from the T5 debacle will dent BA’s figures this year. The company has guided analysts to expect a hit of a further £40m-£50m on top of the £18m in the last financial year.
Half of the hit would be in extra costs, half in lost revenue. Walsh told analysts that T5 was working smoothly, although the moves of additional flights to the terminal would still be later than first planned.
Fuel will be the biggest headache for BA. If oil continues at $120 a barrel, BA’s profits could be wiped out this year. Chris Avery, analyst at JP Morgan, said that if oil remained above $110 a barrel, “investors need to be very conscious that BA could make a loss for one or both of the next two years”.
BA is hoping tough times will help it take the lead in industry consolidation. Walsh said that he had resumed negotiations with American Airlines and Continental Airlines of the US with the aim of creating a transatlantic alliance.
Previous attempts have been rebuffed by American regulators, but Walsh said he was hopeful the difficult trading environment would clear the way for a deal. Pilots begin a legal challenge to BA’s plans to start an “airline within an airline” tomorrow. The company wants to start flights between Paris and New York next month with a new subsidiary called Open Skies.
The British Airline Pilots Association does not oppose the services, but is against the planned use of flight crews from outside the main BA pilot group.
Pilots voted in favour of striking over the issue earlier this year, but they have put the action on hold pending this week’s High Court challenge.