More on British Airways
BA: 2004 full year results
British Airways reported an operating profit for the year to march 2005 of £540m (2004:£405m). The company attributed the good results to continued cost control and strong demand.
Operating margins improved by 1.5 points to 6.9% due to increased turnover (+3.3% mainly due to non-traffic revenues) - partially offset by increased operating costs, particularly fuel. Passenger load factors were up 1.8 points to 74.8% and the overall load factor was up 2.1 points to 67.6% but passenger revenues were flat at £6,500m (2004:£6,490m). Cargo revenues were up 4.1% (to £482m) but the bulk of the turnover growth was attributable to non-traffic revenues which grew 36.9% to £831m. Non-traffic revenue is made up of aircraft maintenance, package holidays and other airline services.
Cargo volumes (CTKs) for the full year were up 11.1% compared with last year but passenger numbers declined by 1.1% to 35.7m.
Yields (or fares) declined by 4.4% for passengers and 6.3% for cargo, an indication of the more competitive market conditions.
Cost control is impressive, total operating costs rose just 1.6% despite a 22.3% increase in fuel costs, an 11.9% saving in selling costs and a 12.7% saving in accommodation/ground equipment/exchange costs compensating for this. The savings in selling costs is commendable but may possibly have contributed to the decline in passenger numbers and yields, which needs to be watched.
BA’s growth is coming from revenue through non-traffic sources and tight cost control. Given an environment characterised by high fuel costs and signs of an economic slowdown, this strategy seems to have positioned BA to weather the expected storm.
The company says revenue is expected to improve by 4%-5%, capacity and volumes by about 3% while yields are expected to be flat for the current year. Fuel costs are expected to rise by £400m or 35% next year, all of which translates to fairly poor growth prospects.
The share is trading at 260.5p, on a PE of 12.2x (2005 earnings) which is at the upper end of the sector and despite being well managed looks rather expensive.
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