UPDATE 3-BA posts surprise Q3 operating profit, costs fall

* Q3 operating profit 25 mln stg vs 51 mln stg loss

* Nine-month operating loss 86 mln stg vs 89 mln stg profit

* Jan traffic down 7 percent

* Cuts operating costs by 10.5 percent in Q3

* Shares down 1.0 percent

(Recasts, adds company, analyst comment, shares)

By Rhys Jones

LONDON, Feb 5 (BestGrowthStock) – British Airways posted a surprise
third-quarter operating profit, helped by heavy cost cutting,
but said it was still in a worse position than last year,
despite attempts to adapt to the realities of global recession.

The British flag-carrier on Friday reported an operating
profit of 25 million pounds ($39 million) in the three months to
the end of December, well ahead of analyst estimates that it
would post a loss of loss between 90 and 100 million pounds.

“The result was a pleasant surprise and is a remarkable
turning of the corner,” said Evolution analyst Nick Cunningham.

Employee and fuel costs fell 10.2 percent and 22 percent,
respectively, in the third quarter, while engineering and
selling costs also dropped significantly, the airline said.

“These results highlight the impact of permanent changes
across the company on our costs,” BA Chief Executive Willie
Walsh said.

“Those changes, combined with capacity reductions and
external spending cuts, mean operating costs are down by 10.5
percent and show that we’ve adapted quickly to the new business
realities created by the global recession.”

Shares in BA, which jumped 2.3 percent in early trade were
1.0 percent lower at 218.9 pence by 1048 GMT, valuing the
airline at around 2.5 billion pounds.

“BA said the year-on-year improvement in fourth quarter
operating profit is likely to be similar to the third-quarter so
76 million pounds better year-on-year … but the focus remains
on costs,” said Societe Generale analyst Jonathan Wober.

Rival Air France (AIRF.PA: ) recently said business was
stabilising but the chief financial officer of Deutsche
Lufthansa (LHAG.DE: ) last month said some analyst estimates for
2010 were too high. [ID:nLDE60L0Q4]

However, Finnish national carrier Finnair (FIA1S.HE: ) on
Friday reported wider fourth-quarter losses and said it expected
to make a loss in the first quarter this year. [ID:nLDE61408M]

BA’s operating loss came in at 86 million pounds for the
first nine months of the year, sharply down from a profit of 89
million pounds it made in the same period a year ago, while
revenues fell 12.9 percent to 6.14 billion pounds.

BA is expected to report a record full-year pretax loss of
627.76 million pounds, according to the average from a Thomson
Reuters I/B/E/S poll of 17 analysts.

TOUGH 2010

The International Air Transport Association (IATA) last week
said the aviation sector would face a tough 2010 making up for
the lost demand in 2009 and handling new security demands.

BA said its yields — the revenue it makes on each passenger
for every mile travelled — fell 8.8 percent in the third
quarter, reflecting lower surcharges and cabin class sales.

Yields were 11.9 percent up in the same quarter last year.

“Long-haul premium yields have recovered to 2007 levels and
show recovery. Yields in non-premium cabins have some way to go
before they recover and short-haul yields have not recovered to
the extent we have seen elsewhere,” said Walsh.

The airline said it carried 7 percent fewer passengers in
January year-on-year. The number of its premium, or business
class, passengers fell 2.1 percent year-on-year, while
non-premium traffic fell 7.9 percent on the same month last

“Premium is better than overall traffic, which shows
business travel is steadily improving, but the domestic
recession is still going on and unemployment is high so economy
is not back to its best,” said Evolution’s Cunningham.

The carrier, which said its merger agreement with Spain’s
Iberia would be finalised by the end of the year, added that it
was confident of receiving regulatory approval for its proposed
transatlantic tie-up American Airlines and Iberia.

BA’s Walsh said the company was working to address its 3.7
billion pounds pension fund deficit and was discussing “a range
of changes” to future pension benefits.

Low-cost rivals easyJet and Ryanair recently raised their
profit forecasts and said they were still taking market share
from leading flag carriers such as BA and Air France-KLM.
[ID:nLDE60J1F6] [ID:nLDE61003J]

BA is currently in court fighting a union bid to overturn
changes made to cabin crews’ working arrangements, with a ruling
expected later on Friday.
($1=.6363 pounds)

Investing Analysis

(Editing by Julie Crust and Mike Nesbit)

UPDATE 3-BA posts surprise Q3 operating profit, costs fall