More on British Airways
BA: Q1 2005 Results
British Airways announced 1st quarter operating profits of £176m, up 36% on last year, despite a 37.6% increase in fuel costs. Pre-tax profits rose to £124m from £75m last year. Overall operating margins improved to 8.5% (2004: 6.8%).
The growth was mainly due to higher passenger revenue driven by more premium traffic. Revenue was also boosted by higher passenger numbers, fuel surcharges and the strength of the US dollar.
Traffic volume improved, revenue passenger kilometres (RPKs) were up 2.5% and the passenger load (or seat) factor was up 0.7 points at a record 75.6% in the quarter. The overall load factor suffered due to poorer cargo loads and was down 0.2 points at 69%.
Yield (average fares) measured as pence per RPK increased by 1.5% driven by the higher level of premium traffic. Cargo volumes were down 2.6% but offset by higher cargo yields, which rose 2.7%.
Total costs rose by 6.2% mainly due to a 37.6% increase in fuel costs and a 21.9% jump in engineering costs. Engineering costs rose because of a higher level of planned engine maintenance. The overall cost increase was small due to a 21.7% reduction in selling costs, achieved by cutting agents’ commissions and increasing online sales.
The results for the first quarter are impressive and the company says that record passenger loads in July indicate that the short term impact of the London bombings was not material, although does go on to warn that it is too early to assess the long term impact. The main concern is with rising fuel costs (which are expected to increase by £525m next year) but the company’s aggressive cost control strategy and shift to online sales is reassuring.
The slow down in consumer spending will take its toll on holiday spending, although there is little sign of an impact upto now, probably because BA’s greater volume of business traffic.
The share trades at 290.5p, on a prospective PE (2005 earnings) of 11.3x, at the upper end of the sector range. The yield is 1.2%.
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