British Airways revealed it has set aside millions of pounds (dollars) to pay possible fines for anticompetitive behavior as it posted a final quarter net loss on Friday, sending shares in the airline shares lower.
BA said it has earmarked 350 million pounds ($690 million; 510 million euros) to cover potential fines and legal action that is likely to stem from an investigation into whether senior staff had discussed long-haul fuel surcharges with rivals.
The move compounded negative sentiment arising from its swing to a net loss of 124 million pounds ($244.5 million; 180.9 million euros) in the fourth quarter, compared to a net profit of 80 million pounds ($157.8 million; 116.8 million euros) a year ago, after threatened cabin crew strikes in January and a new British tax on flights bit into the carrier's bottom line.
Revenue dropped 6% to 1.9 million pounds after thousands of passengers canceled their flight reservations before the cabin crew dropped their planned strike, costing the carrier a total of 80 million pounds ($157.8 million; 116.8 million euros).
BA noted that it had experienced "unprecedented disruption" over the whole year, following the terrorist alert at Heathrow last summer that grounded hundreds of flights and led to higher ongoing security costs, several labor disputes and a weaker U.S. dollar.
Full year profit was down 35% at 304 million pounds ($599.5 million; 443.6 million euros), despite a 3.4% tick up in revenue to 8.5 billion pounds ($16.7 billion; 12.4 billion euros).
The carrier also has further threats looming on the horizon in the form of fiercer competition on its key trans-Atlantic route following the "open skies" agreement.
"BA seems determined to do things the hard way and today's figures summarize a difficult year," said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers.
However, Hunter added that the shares had been supported by BA's focus on increasing margins, particularly via its "premium cabin" strategy and the potential offered by the new Terminal 5 at Heathrow Airport, which is due to open in March 2008.
The stock was trading down 3.3% at 485 pence ($9.57; 7.08 euros) in midmorning trade on the London Stock Exchange.
Allegations of Price Fixing
The airline is being investigated by British and U.S. authorities over the allegations of price fixing on fuel surcharges. If found guilty of breaching antitrust rules, it could be fined either up to 10% of sales on its lucrative Trans-atlantic routes or 10% of its total group sales.
Chief Financial Officer Keith Williams said the investigations were "unlikely to be resolved for some time."
The company added that it expects full year costs excluding fuel in the current year to be around 50 million pounds ($98.6 million; 72.9 million euros) above those reported this year. Its fuel bill expected to rise by 100 million pounds ($197.2 million; 145.9 million euros).
However, CEO Willie Walsh reiterated plans to deliver a 10% operating margin by March 2008.
Walsh added that the airline has not made a final decision about its stake in Spanish airline, Iberia Lineas Aereas de Espana, but he expects to be able to give an update "in the next week or so."
BA holds a 10% stake in Iberia and has first refusal over offers for an additional 30% of the company. It has said it will not make an independent bid for the airline but has not ruled out joining a consortium, probably involving a private equity partner.
BA also announced that it had placed an order for eight A320 aircraft, for delivery in 2008-2010, as it renews its short-haul fleet.