BA profits nosedive by 60 per cent

BRITISH AIRWAYS launched a multi-million pound programme to woo more business passengers as it announced yesterday that profits plunged by more than 60 per cent last year. It blamed cut-throat competition across the Atlantic and the downturn in the world economy.

The centrepiece of the improvements will be a pounds 200m investment in new "lounges in the sky" for long-haul business-class travellers. BA's Club World cabins will feature seats that turn into beds and face the back of the aircraft. They will also be plugged into a multi-channel entertainment system and the Internet. BA also said it would introduce improvements to its first class, Club Europe and Concorde cabins.

The move follows a decline in premium passenger numbers and a price war on routes to the United States which ravaged BA's earnings. Profits fell from pounds 580m in 1997-98 to pounds 225m last year and BA's chief executive, Bob Ayling, warned that the outlook was not likely to improve in the short- term.

BA is also targeting the lucrative top end of the market by bringing into its fleet more Boeing 777 aircraft, which have fewer seats in economy and more in business and first-class. By 2003 nearly half the BA long- haul fleet will comprise 777 aircraft as older 747 jumbo jets are retired.

Mr Ayling also said that BA intended to withdraw from about 20 of the 80 short-haul UK and European destinations currently served from Heathrow.

But he denied that it would pull out of any domestic routes.

He also rejected suggestions that BA was being transformed into a business- class airline that was only interested in the most profitable customers and routes. "If the suggestion is that we are leaving the great British public behind, then the answer is emphatically not," he said.

However, he said that economy passengers transferring on to BA from other airlines were a "dead loss which has been destroying the value of the business for years" and would no longer be welcomed.

The City had been braced for a poor set of results following the pounds 75m loss that BA made in the third quarter of the year - its first loss since privatisation in 1987. But the pounds 85m loss in the fourth quarter - January to April - was less than some analysts had feared and the shares rallied 3 per cent, to close at 469.5p.

The savage price wars on the Atlantic, where there are far too many seats available for the number of passengers flying, led to a 10 per cent fall in yields, that is, the amount of money BA makes for each kilometre a passenger flies.

Mr Ayling warned: "The situation is not likely to improve materially in the short-term."

But he said that BA's business plan was on target to achieve savings of pounds 1bn by the end of this year.

BA has already saved pounds 610m a year by changing working practices and contracting out services, such as catering.

Mr Ayling has come in for regular flak over BA's "ethnic" tailfin designs and has frequently been linked with rumours that he is about to take a senior post in the Government.

But yesterday he insisted that the constant speculation about his future was the product of a "black economy" of people with nothing better to do than criticise chief executives.

Business Review, front

Outlook, page 23