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BA slides into 3Q loss
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February 9, 1999: 12:08 p.m. ET
The carrier reports its first quarterly loss in more than three years
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LONDON (CNNfn) - British Airways surprised the market Tuesday with what looked like smaller-than-expected third-quarter losses.
The airline reported losses of 75 million pounds ($122.5 million) for the three months ending Dec. 31, versus profits of 80 million pounds for the same period in 1997. It is the airline's first quarterly loss since 1995.
Investors were left smarting, however, after driving up the shares by 6 percent in early trading, when they discovered the airline had benefited from a 59 million pound credit for employee profit share provisions taken earlier in the year.
Stripping that figure out, the losses were generally in line with analysts' expectations.
The company decided to book the credit after it became apparent that it would no longer be needed as the equity market deteriorated.
Management only admitted to the one-time gain, however, just as the market was opening, having only alluded to the write-back in the company's earlier statement. "There are some investors here who are fairly irritated," says Matthew Owen, transport analyst at HSBC Securities in London.
The tactic will do little to endear Chief Executive Bob Ayling to shareholders. BA's boss has come under intense scrutiny recently as business continues to decline. Increased competition over the Atlantic, BA's main market, has put pressure on first and business class yields, with the U.K. airline suffering disproportionately after pushing up fares way ahead of its rivals in recent years.
"BA has raised business class fares by around 35 percent the past two years, compared to 15 -16 percent by its European rivals. Now the chickens have come home to roost," said Owen.
Said Ayling: "Economic conditions and increased competition on our routes have resulted in excess capacity, which is forcing yields down. But investors can look beyond the short term with confidence. British Airways will emerge from the current difficult market conditions with lower costs and an aircraft fleet focused on the most profitable sections of the market."
Owen sees some hope on the horizon for what has long been one of the few star performers in the global airline sector. Banks lifting a ban on business travel helped boost January traffic figures, which showed yields had only declined by 1 percent, compared with a 6 percent decline in previous months. "BA is always the first to fall and the first to recover in Europe," Owen said.
Cost-cutting also helped to offset losses in the period, with unit costs declining 4 percent. Third-quarter earnings were further dented by a one-time 117 million pound charge incurred for revaluing BA's long-term Japanese debt, used for aircraft financing. The stronger yen was to blame for the provision.
BA reported a pre-tax profit of 310 million pounds for the nine month period versus 510 million pounds for the same period the year before.
The shares came off their early highs and were trading up 1.7 percent at 386 pence around midday in London. 
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British Airways
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