So why has BA - which last year posted record profits of £922m, don’t forget - come down to earth so spectacularly and so fast? Well, air travel is notoriously sensitive to the prevailing economic climate, so BA has been hit very hard by the current recession. And because the slowdown has been global in reach, the carrier hasn’t even been able to rely on better economic conditions outside Europe and the US to keep it going. Add in the parlous state of the pound – the aviation business is largely dollar-denominated – and you’ve got a pretty gruesome set of circumstances for any firm to deal with.
The results make pretty awful reading. Overall passenger volumes are down over four percent to 33.1m, which might not sound like much, but the vital business class volume – the high-margin trade which generates much of BA’s profit – is off a whopping 13%. That’s got to smart a bit.
BA has cut 2,500 jobs, reduced capacity and pared costs to the bone as far as possible, and today announced its intention of doing more of the same (engineering and 'other costs' still rose noticeably last year, so it arguably has a way to go). And despite this, it’s had to burn through a quarter of its cash to keep going, reducing reserves to £1.4bn.
It’s also suffered as a result of last year’s very high oil prices, its fuel bill for the year coming in at nearly £3bn (that’s an awful lot of Nectar points). The total wasn’t helped by the fact that BA hedged much of its fuel at $120 a barrel last summer, thus losing out when the price plummeted later on. At least that’s one cost that should go down this year.
Even someone as tough as BA boss Willie Walsh, a pugnacious Irishman who thrives on bad news and ‘telling it like it is’, must be wishing that things weren’t quite this exciting just at the moment. But even so there was no sugaring of the pill, as he added that he saw ‘little or any’ reason for optimism about the rest of 2009.
To cap it all, BA’s net debt almost doubled to £2.4bn, and there were dire warnings that its pension fund deficit - already £2bn - may rise further. That would curtail the firm’s ability to raise money in the markets, and throw its protracted merger talks with Iberia of Spain into grave doubt. How much worse can it get?
Cynics might suggest that Walsh – well known for his cost-cutting zeal – is playing up the crisis so that he can soften up both investors and unions and push through some ‘emergency measures’. But in reality BA’s plight looks bad enough to render such grandstanding unnecessary. It’s going to be a bumpy year for our national carrier.
In today's bulletin:
Fasten your seatbelts - BA nosedives to record loss
Non-Standard and Poor outlook for UK economy
Editor's blog: Why this new Puritanism is pointless
Why green shoots lead to recovery
Resigning in style, with YouTube