British Airways Plc beat second-quarter profit forecasts on Monday but investors reacted cautiously after it warned that high fuel costs and lower ticket prices would continue to weigh on its performance this year. Europe's second-biggest airline said profits rose due to deep cost cuts and a pick-up in air travel following last year's downturn, but added that competition from domestic rivals and struggling US carriers would drive fares lower.
"They are being cautious but not negative. Given the current fuel situation and the competitive environment they are right to be cautious but it looks as though they are starting to become relatively well positioned," said BNP Paribas analyst Nick van den Brul.
The airline's operating profit for the three months to end-September rose 23 percent on the same period last year to 240 million pounds ($442.5 million), above a consensus forecast of 210 million pounds given in a Reuters poll of nine analysts.
Profits would have been near flat after accounting for a 40 million pound charge last year due to a strike at Heathrow Airport.
BA shares fell 1.0 percent to 222 pence by 1220 GMT. The stock earlier hit a low of 217-3/4p but picked up after a meeting with analysts during which management sounded slightly more upbeat, according to analysts. The stock had fallen 3.4 percent so far this year by Friday's close, compared to a 5.5 percent rise in the broader market.
Chief Executive Rod Eddington said analysts' forecasts for the year were on the mark. Analysts are estimating a full-year operating profit of 420 million pounds.
"We believe it is going to be a very tough winter. We believe yields will continue to be under pressure," Eddington told reporters on a conference call.
Low-cost carriers Ryanair and easyJet have driven down ticket prices in recent years, hurting BA's yields - or average revenue per passenger - while near-bankrupt US carriers are also cutting North Atlantic ticket prices.
BA's revenues for the period were slightly behind forecasts at 2.03 billion pounds, compared to 1.98 billion made last year.
Deep cost cuts as a result of staff reductions and greater on-line bookings helped offset fuel price spikes and high pension costs. Overall unit costs improved by 6.1 percent on the same period a year ago.
BA expects fuel costs of 245 million pounds this year after accounting for hedging, 20 million higher than its previous estimate although some costs will be offset by fuel surcharges.
The London-based carrier has hedged 72 percent of its fuel buying to March 2005 at $32.00 a barrel, compared to Ryanair which is currently unhedged.
Eddington said BA needed to continue reducing its domestic flights in favour of long-haul where it makes most of its profits. He told analysts short-haul yields would remain under "enormous pressure".
The airline also reported a 1.8 percent rise in October passenger traffic and a load factor - a measure of how many seats it has filled on flights - that improved to 74.2 percent from 73 in the same period a year ago.
BA has axed 13,000 jobs as part of a major cost-cutting drive to ensure it survived the industry downturn following September 2001 attacks on US cities, but has been further frustrated this year by strike threats, flight disruptions and record oil prices.
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