BA heads for trouble as decrease in sales accelerates

British Airways has confirmed that its deterioration in sales has continued to accelerate in June, causing further turmoil in the beleaguered airline industry.

The carrier announced that the 0.7% drop in traffic for May had deepened to a fall of 3.7% for June, and that its highly-profitable business class segment fell by 3.1%. Worsening sales are indicating that the significant increases in fuel surcharges put in place in late May have turned more passengers away from flying, including premium-class customers who are normally seen as less price-sensitive than economy-class travellers.

BA’s figures for June mean that airlines in general are likely to lose revenue if they try to cover rising fuel costs with increased fares and surcharges. According to BA’s forecasts, it will not see a profit in 2008 if oil prices remain at the current level of $145 per barrel. The airline maintains that, even at $125 per barrel, its operating profits are done away with. With an operating profit historically of 10%, the UK carrier has been one of the most profitable airlines in the world.

Analysts have estimated that approximately two-thirds of BA’s earnings are based on transatlantic traffic, and that premium-class sales constitute the most profitable segment of the business. The new figures indicate that premium-class transatlantic sales are now performing badly.

BA has already dropped its expansion plans for the coming winter, and will not increase its number of flights offered. Analysts are expected to query whether fare increases across the industry are likely to trigger further declines in sales.

www.britishairways.com