BA shares hit six-year low on increased competition worries

Shares in British Airways fell to a six-year low yesterday as growing worries about the downturn in airline markets, increased competition from the Star Alliance and a fresh profit downgrade took their toll.

Shares in British Airways fell to a six-year low yesterday as growing worries about the downturn in airline markets, increased competition from the Star Alliance and a fresh profit downgrade took their toll.

At one point the shares were trading 10p or 4.5 per cent down at 287p - their lowest since July, 1993 - before recovering to close 0.5p up at 300.5p.

Richard Branson, the chairman of Virgin Atlantic, said recently he might be interested in buying BA shares at 275p, having previously held an option, now expired, to buy them at 300p.

The market was unnerved by poor third-quarter earnings figures from rival American airlines and increased concerns about the competitive threat to BA once British Midland, the second biggest carrier at Heathrow, joins Lufthansa and United Airlines in the Star Alliance.

BA also suffered a setback when the Polish airline Lot announced that Swissair will be its preferred strategic partner and take a 37 per cent stake. BA later insisted it had not been prepared to match the price being paid by Swissair. Meanwhile, Credit Suisse First Boston cut its estimate for BA for the current year from a profit of £40m to a loss of £160m, citing disappointing load factors and rising fuel costs. It is forecasting a loss of £85m next year.

But other brokers, notably Commerzbank, remain bullish, arguing that BA's strategy of reducing capacity and concentrating on the premium, business-class end of the market will start to pay off next year.

The Star Alliance will hold 24 per cent of Heathrow's take-off and landing slots once British Midland joins the nine-strong group of carriers. BA, which has 38 per cent of the slots, argues that the Star Alliance's increased presence at Heathrow will distort competition on transatlantic, German and Scandinavian routes. It plans to lodge an objection with the EC.