View from City Road: Wrong class of person at BA
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.BRITISH RAIL may complain in its surrealistic way about suffering from the wrong sort of snow; British Airways' problem is that it has got the wrong sort of passenger.
During its first quarter to 30 June, BA increased volume, or revenue passenger kilometres, by 17.2 per cent over last year and by 9.7 per cent compared with the same quarter in 1990, implying some gain in market share. But the impact of this on the airline's overall turnover was partly offset by a 6.5 per cent fall in the passenger revenue yield on this volume.
This decline in yield partly reflects a retreat from temporarily high fares during the Gulf war; partly the impact of a weakening pound on fixed foreign currency tariffs, but mostly a shift in British Airways' passenger mix away from business travellers paying premium fares to backpackers and tourists travelling in economy class.
Quite a few international airlines would like to have British Airways' problems. While others plough deep into the red, the UK airline's iron control of costs directly under its influence - unit costs fell by 7.4 per cent - has permitted profits to soar.
Turnover rose by 10.4 per cent. Staff and fuel make up 40 per cent of costs. Employee costs rose by a mere 1.6 per cent and an 8 per cent fall in average fuel costs held the fuel bill steady.
So total costs rose by only 6.4 per cent and operating profits more than doubled to pounds 96m. Leasing of new aircraft helped to generate a net cash inflow of pounds 153m and a sharp drop in interest costs lifted pre-tax profits from pounds 9m to pounds 91m.
The passenger yield problem has continued into the second quarter. Some may suspect that a portion of businessmen demoted to economy class during the recession may never return to their Club class seats.
But British Airways, whose chief executive is Sir Colin Marshall, can afford some leeway on yields, relying on volume and market share gains with a firm lid on costs to generate substantial profits growth.
British Airways' balance sheet is a background cause for concern. Treating its pounds 320m capital bonds as debt, gearing is more than 100 per cent even before the pounds 390m investment in USAir, so equity raising can never be ruled out.
But high cover will allow rapid dividend growth in the 15-20 per cent range for some little while, implying a prospective yield at 254p of at least 6 per cent in the current year. The trend remains towards outperformance by the shares.
(Photograph omitted)
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments