PracticeConsultingBusiness Week – BA faces turbulence.

Business Week - BA faces turbulence.

Passenger figures for September, due next week, will reveal more about the airline's problems

An indication of the extent of the damage the World Trade Centre bombing is likely to inflict on British Airways’ business will be made more clear on Wednesday, as the airline releases its traffic figures for the month.

Before the terrorist attack, which occurred just after the Concorde was cleared for take off, the company’s business was already suffering. First, there was the Concorde crash in July of last year, which grounded the airliner and cost BA and Air France between #2.8m and #7m a month, until it resumed flights last month.

Then, starting in March, foot and mouth disease caused a scare that resulted in fewer tourists coming to Britain from abroad.

At the same time, a downturn hit the US and then the global economy, reducing passenger numbers even further.

The airline has been under performing last year’s figures since March, when it announced a 6.6% drop in passenger numbers. The biggest drop so far took place in May, when 10.5% fewer people flew ‘the world’s favourite airline.’

As passengers dwindled, BA’s results also slumped. After announcing a year-on-year increase in its results to March 2001, the company reported a 0.6% drop in turnover. The company attempted to reverse the negative trend by launching passenger perks, such as travel health advice clinics and a new pet travel scheme.

BA had also announced a profit-sharing scheme on nine transatlantic routes with American Airlines in which the companies jointly asked for anti-trust immunity in the US. BA’s chief executive Rod Eddington repeated that the deal was still on, despite fears resulting the fact that two of the hijacked planes belonged to AA.

But the City fears the terrorist attacks could be the last straw for many airlines.

Ten airlines, including BA, sent a letter to trade secretary Stephen Byers saying they would have to ground their planes after insurance companies warned they would have to cancel calls for war liabilites. The government came up with a rescue package in which it would insure airlines free-of-charge for 30 days.

Earlier, BA also announced 7,000 job cuts, 10% fewer flights, and the grounding of 20 aircraft due to the ‘exceptional conditions that forced them to make ‘very tough decisions’. They also announced that they were in consultation with the unions.’

And now there is speculation that the company may sell some land to make up for losses. Eddington said: ‘The tragic events in the USA will undoubtedly have a significant impact on the demand for air travel in the months ahead.’

‘Despite the difficult market, our balance sheet remains strong and we are a well-established business. However, we must act now to protect British Airways for the long term.’ Fearful for the future, investors sold shares in the company, causing prices to drop to a ten-year low last week.

More at: www.british-airways.com.

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