British Airways Cuts Capex While Shareholders Hope for Lower Oil

British Airways (BAIRY.PK) was reviewed just two weeks ago at a share price of 136.26p. Since then the firm has released June 2009 data (using June 2008 as a benchmark), updated the market on route changes and provided a business update. The prior reported highlighted the company’s “no green shoots” pessimism toward the market. The latest update advised:

1. A 1.7% reduction in passenger capacity measured in available seat kilometres.
2. A 3.8% fall in traffic measured in passenger revenue per kilometre.
3. The passenger load factor also fell in June 09, relative to June 08, to 79.6%.
4. Premium traffic has fallen sharply by 14.9%, year-on-year. Non premium traffic is 1.3% weaker.
5. Cargo, measured by cargo tonne kilometres is 9.8% lower.
6. Short haul routes from Gatwick to Barcelona, Madrid, Malta, Alicante, Krakow and Palma are to be suspended with the loss partly compensated via extra Caribbean flights.

The update also confirmed three Boeing 757’s are to be grounded in summer 2010 and a few months later a further three 747’s will also be moth-balled. The delivery timetable for BA’s first six A380 Airbus aircraft has been delayed by five months. The anticipated arrival of six further A380’s have been delayed by around two years. Interestingly, BA suggests 7,000 staff have volunteered for cost reduction schemes which may lead to savings of £10m.

Capital expenditure forecasts for the year 2009/10 have been lowered to £580m from £725m. The following year has a similar revised forecast. It appears every conceivable effort is being taken to remodel the business to fit an environment of lower demand and changing customer needs. The recent downward stock price movement reflects weak confidence in the sector but Friday’s bounce, in a response to a sharp fall in oil prices, offers shareholders some hope in the event fuel costs decrease further.

Comments

[Dian L. Chu:]

Some Asian airlines like Cathay Pacific, Singapore Airlines and Air China may actually benefit from the rise of oil prices this year. The decline of oil prices from July '08 to Mar. '09 worked against airlines which locked in fuel-hedging contracts at higher prices. So the recent surge in oil prices will curb losses from their hedges. Most airlines in Asia are expected to recognize profits from fuel hedging this year because last year many recorded high marked- to-market hedging losses.

Jul 05 08:44 PM

[Graham and ...:]

British Airways is one of the better-run (western) airlines, which isn't saying much.

Jul 07 03:36 PM