British Airways Profit Takes off on Expensive Seat Sales

British Airways reported record first-half profit on Friday, up 26 percent due to cost cutting, but its shares fell by as much as 5 percent after it cut its full-year revenue guidance due to the weak U.S. dollar.

Profit before tax was 593 million pounds ($1.23 billion) in the six months to Sept. 30, 122 million more than a year earlier after it slashed 150 million off costs.

"Our cost performance was excellent, helped by the weak U.S. dollar," said Chief Executive Willie Walsh.

The market focused not on the way the weak dollar would help cut costs, but on the way it would reduce revenues after BA cut its view of full-year revenue growth to 3 to 3.5 percent from earlier guidance of 4 percent.

"We've lowered the revenue guidance by some half percent but that's because of exchange, and we lowered the cost guidance," British Airways CFO Keith Williams told "Power Lunch Europe."

"We're 90 percent hedged now on the fuel for the year, so we've got some certainty on fuel costs," he added.

The shares fell by as much as 5 percent in early trading, but later recovered and were down by just 2.7 percent at 418.5 pence by 0852 GMT.

"What we see is premium bookings remaining strong," Walsh told reporters. "The North Atlantic non-premium market is still soft but other non-premium markets are more encouraging."

Analysts at Deutsche Bank kept a 'hold' rating on the stock due to worries about the impact of liberalisation of the transatlantic market next year, but added: "We believe this is a good set of figures from a strong management team."


Walsh said BA remained committed to the consortium looking at buying Spanish airline Iberia.

"Hopefully, things will be moving forward in a few weeks," Williams told CNBC.

The airline said it was on track with its goal of keeping operating margins at 10 percent or more, having hit 12.5 percent in the first half.

Williams said this meant British Airways was ready to pay a dividend again.

"We've always said that as soon as we see our way to the 10 percent operating margin, which we can for this year, then we will reinstate the dividend, which hopefully will come at the end of this year," Williams told "Power Lunch Europe."

It predicted costs excluding fuel were now expected to be 100 million pounds lower than previously forecast in the full year due to the weak dollar.

Fuel Price Increases

But fuel costs are expected to be up by 100 million pounds on last year.

"Fuel costs remain a major challenge and our fuel bill for the year is expected to top 2 billion pounds for the first time," said Walsh.

"The fuel surcharge is constantly under review, but there's no plans to adjust it at this moment," he added.

Hedging and the weak dollar helped British Airways contain its fuel bill this year, but Williams told CNBC next year's outlook was different.

"If you look forward into next year, even though we've got 40 to 50 percent of our fuel hedged for that year, you're still looking at a very significant fuel price increase," Williams said.

Walsh brushed off media reports that BA's plans to start flights to the United States from European cities could be threatened by opposition from its pilots or by plans to cut flight capacity at New York's JFK airport.

-- contributed to this report