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Mon, May 19, 2003

British Airways: Turbulence Ahead

BA Profitable Again, But For How Long?

First, the good news. British Airways is expected Monday to tell government officials in London it returned to profitability in fiscal 2003 - an iffy proposition in the wake of 9/11, the war on terror, the war in Iraq and SARS.

Now, the bad news: there are a lot of questions about whether the Crown's official airlines can stay profitable.

Chris Avery, an aviation analyst at JP Morgan, was quoted by the Financial Times of London over the weekend as saying the annual figures for BA last year hide "how awful" the airline performed in Q4. The amount of revenue generated by BA in that quarter fell 7% because of the war in Iraq and SARS. BA's yield is expected to drop more than three percent in the new fiscal year.

Not that BA was alone among European-based carriers bleeding red ink in the past few months. Bloomberg reports Lufthansa's quarterly deficit doubled in the fourth quarter, up to almost $4.7 million. In Paris, Air France reported a 2.3% loss in passenger yields.

The Solution: Sell, Baby, Sell

The British aren't taking the forecasted losses sitting down. Instead, they're trying to lure passengers from around the world with fire-sale fares. ``The take-up on our fares shows the great British public still want to travel,'' British Airways' head of U.K. and Ireland marketing Jayne O'Brien said in the company's employee newsletter. ``They have just been putting off booking. The sales are coming in and I'm optimistic we will more than meet our targets.''

"They are going to keep their load factors up but at a cost,'' said Commerzbank analyst Dominic Edridge, quoted by Bloomberg. Commerzbank has now put a "hold'' rating on BA stock. "Their yields are going to be hit and profits are going to be hard to come by.''

FMI: www.british-airways.com

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