British Airways shares tumble

May 20 2008 by Iain Laing, The Journal

SHARES in British Airways fell sharply yesterday as City gloom deepened over the airline’s trading outlook.

One analyst warned that oil prices remaining at current record levels could send BA’s operating profit plunging from £870m to as low as £25m.

There were also fears that a financial sector slowdown and increased competition could hit its most profitable routes across the Atlantic, sending shares as much as 7% lower.

The warnings came just days after the carrier posted record pre-tax profits of £883m, paid a dividend for the first time since 2001, and rewarded staff with a £35m bonus pool.

Chief executive Willie Walsh said the results made him feel like he had “won the premier league”, but he warned about difficulties lying ahead this year thanks to high fuel costs.

Mr Walsh said the airline faced spending an extra £1bn on fuel this year if prices remained around the US$120 a barrel mark. Crude currently costs around US$125.

Andrew Lobbenberg of ABN Amro yesterday cut the airline to a sell recommendation, citing the punishing cost of oil and looming travel cutbacks. “We struggle to understand how the challenges facing the financial services industries are not affecting the transatlantic premium business and we think that in time BA will see weakness in this key segment,” he said.

He added that the recently signed Open Skies agreement which allows carriers to fly across the Atlantic from other countries could also have an impact on trading. Mr Lobbenberg said oil remaining at US$120 could see BA’s operating profits come in at just £25m this financial year if BA’s other forecasts such as 4% revenue growth and a £200m rise in non-fuel costs remained the same.