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British Airways: Q3 results
Higher passenger numbers, particularly in business class travel has seen British Airways report good figures for the quarter to December 2005.
The company reported a pre-tax profit of £164m for the quarter to December 2005 (2004: £151m). For the nine months to December, pre-tax profits were £529m, up from £519m last year.
Operating margins for the quarter improved pushing operating profits for the quarter to £175m (2004: £136m). For the nine months, operating profit was £612m (2004: £510m).
The drivers of revenue have been higher passenger numbers, and higher fares (fuel surcharges and a greater proportion of business class travel) but nevertheless passenger yields dropped 1.5% per RPK in Q3.
Tight (and sometimes ruthless) cost control has lead to a 1.3 percentage point increase in operating margins in Q3.
Operating expenditure in the quarter increased by 7.3% mainly driven by a 28.2% increase in fuel costs (net of hedging). A larger flying programme and a stronger US dollar also contributed to higher costs. Wage awards and pension service costs (partly offset by manpower cuts) helped push employee cost s up by 8.3%.
Interest costs for the quarter fell by £7m (to £51m) due to lower debt levels.
The company is rightly somewhat cautious in its outlook. Although yields are expected to improve slightly the company admits that “significant promotional activity” is required to maintain seat factors-something that will grow increasing difficult as the economy slows.
British Airways has been able to maintain revenues through its premium class business travelers but low-cost airlines are constantly gnawing at regular travelers, depressing yields.
The share trades at 324.25p, on a prospective PE (2006 earnings) of 10.5x, with a poor yield of 0.6%.
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