Rising demand from long-haul business class passengers helped British Airways increase profits significantly in the third quarter and offset a jump in fuel and other cost increases.
The improved results, ahead of market expectations, reflect a stronger trading performance during the winter months across much of the European airline sector and follow similar positive announcements by both Air France-KLM and Germany’s Lufthansa.
Willie Walsh, BA chief executive, said the results were “encouraging” and reflected improving revenue, as demand for air travel continued to strengthen. The airline was still having to engage in heavy promotions, however, in order to achieve the higher volumes.
Operating profits in the quarter rose 28.7 per cent from £136m ($239.4m) to £175m and increased 20 per cent in the first nine months to £612m. Pre-tax profits increased by 8.6 per cent in the quarter from £151m to £164m and by 2 per cent in the nine months to £529m.
Several financial analysts raised their profit forecasts for BA.
Chris Avery, aviation analyst at JPMorgan, said the airline could finally hit its target of a 10 per cent operating margin in the financial year to March 2008 compared with a forecast 8 per cent margin in the current year.
“The European airline trading environment is seeing a better winter than most commentators predicted last autumn,” said Mr Avery. “Fuel price surcharges have not depressed demand for air travel and the UK consumer spending slowdown on the high street has not really crossed over into the airline space.”
BA strengthened its own guidance for the full year to the end of March, and said that revenues were expected to rise by more than 8 per cent compared with earlier guidance for a rise of 6-7 per cent. Fuel costs were expected to jump by £525m in the full year to £1.65bn. BA has hedged 80 per cent of its fuel requirements to the end of March at $48 a barrel but is less protected in the coming year with 54 per cent of its requirements hedged at $57 a barrel.
While revenues increased strongly by 8.8 per cent in the third quarter and by 8.4 per cent in the nine months, total costs rose by 7.3 per cent including fuel.
The airline faces tough industrial relations challenges. It has announced measures aimed at cutting costs, including elimination of about a third of management positions and changes to working practices.