Some food for thought on the BA "profits" of last year - FT.com:
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A profits engine, or simple [financial] engineering, at BA?
The shares may have jumped 22 per cent at the opening on Friday - but does the unexpected forecast of a 1 per cent increase in revenues at British Airways really detract from the overall gloomy picture painted by the interim figures?
From Bloomberg:
The net loss of 49 million pounds ($77 million), or 4.3 pence a share, compared with net income of 493 million pounds, or 42.9 pence, a year earlier, British Airways said in a statement today. Analysts had estimated profit of 64 million pounds. Sales rose 6.4 percent to 4.75 billion pounds, beating the average analyst estimate of 4.57 billion pounds.
Oops!
What makes it worse, is that business has been in dire straits for some time now. The much-lauded 10 per cent operating profit margin - barely achieved last fiscal-year and used as a benchmark to restart dividend payments - was helped along by a clever accounting trick, not a genuine improvement in business levels.
The airline changed the depreciation period for their RB211 engines, generating a £32.5m decrease in annual depreciation charges, et voila, CEO Willie Walsh gets his 10 per cent margin despite the fiasco that was Terminal 5’s opening and rising fuel costs.
Now the realities of BA’s operating environment are catching up on them — the rapid shrinking of their premium business segment, heightened competition from competitors’ like Deutsche Lufthansa and management preoccupied with what looks to be a floundering merger attempt with Iberia.
At least fuel costs are coming down. Oh wait.
The fuel bill for the year is still expected to be some £3 billion as exchange and hedging have offset lower fuel prices.