British Airways reports worst quarterly loss as fares slump

LONDON – British Airways, Europe’s third-largest long-haul airline, on Friday reported its worst quarterly loss since records began as it reduced tickets prices to stimulate demand amid a sharp slowdown in air travel.

It also said it would pay no dividend in 2008, did not give any guidance for the year and announced further capacity cuts for the winter. It sees no sign of an economic recovery.

British Airways posted a loss of 231 million pounds ($366 million) in the fourth quarter compared to a profit of 74 million pounds in the year-earlier quarter. Its operating loss came in at 309 million pounds, its worst quarterly performance since records began.

Revenue fell 8% to 1.95 billion pounds. In order to fill its plane, British Airways used promotions, so that average fares declined 2.5%. Excluding currency fluctuations, they slumped 16%.

British Airways shares were last down 2% in London.

No guidance, no recovery

The airline gave a bleak outline of the future and, unlike its rival Air France-KLM, said it sees no sign of stabilization.

Chief Executive Willie Walsh told analysts in a conference call that he believes the airline isn’t suffering more than its peers but is being more truthful.

“I think we’re calling it more accurately and more realistically than perhaps some of our competitors,” he said.

Shares of Air France-KLM surged on Wednesday after it reported a smaller -than-feared loss for the year and said it has seen signs of stabilization across its business.

British Airways didn’t give any guidance for the year, saying there simply isn’t sufficient visibility, but it cautioned investors not to expect a quick recovery.

It underscored that during the past downturn, after the 9-11 attacks, fuel prices were hovering around $20 a barrel. Today they are three times higher, which remains a significant weight on the bottom line.

Tony Shepard, analyst at Charles Stanley, said the lack of guidance, although expected, would disappoint some investors. British Airways had previously forecast a 10% drop in revenue this fiscal year.

The airline also said that it would cut capacity by 4% this winter, grounding 16 aircraft. It wouldn’t detail how the cuts will be spread between long-haul and short-haul flights, but said it would make it a priority to preserve its slots.

In an effort to reduce costs further, the airline said it’s reviewing its fleet plan and has decided to defer the replacement of the Boeing 737-400s it operates out of Gatwick.

The airline is also pushing hard to reduce staff costs. It has a pay freeze in place and is offering unpaid leave as well as part-time to its employees. It said discussions with engineering, baggage-handling and pilot unions are progressing well.

But Walsh said negotiations with cabin-crew unions have stalled because of a “difference in attitude.” So far the cabin-crew unions have insisted that the downturn should be addressed with temporary changes only, while management wants deeper and permanent change.

British Airways also said that it’s reaping the benefits of its move to a single terminal at its London Heathrow hub. It forecast its operating costs at that airport will fall 13%, or 50 million pounds, in the current fiscal year.

Turning to its merger plans with Spanish peer Iberia, it said the talks continue albeit at a very slow pace. Walsh said once again that British Airways’ pension deficit remains a key issue for Iberia.