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Saturday, May 22, 2010

British Airways Posts Another Record Loss as Strikes Loom

USA Today

LONDON — British Airways posted a record net loss for the second consecutive year on Friday — giving Chief Executive Willie Walsh a platform to accuse striking cabin crews of being out of touch with reality.

The full year net loss of 425 million pounds ($611 million), compared with a 358 million pound loss the previous year, was the largest since the former national airline was privatized in 1987. Revenue dropped 11% to 7.99 billion pounds from 8.99 billion pounds.

The earnings report was slightly better than analysts had feared and BA was more upbeat about the current financial year, but Walsh said it underscored his argument that staff need to accept changes to pay and working conditions for the airline — and their jobs — to survive.

The union representing cabin crews, which are due to walk off the job on Monday for a series of strikes totaling 15 days, accused Walsh of "macho" posturing and urged him to back down from a hardline stance that has revoked staff travel perks and taken disciplinary action against striking workers.

Walsh has repeatedly warned the Unite union that the changes at the center of their dispute with the airline, including fewer staff on long haul flights, are necessary to cope with reduced demand for air travel in the wake of the global financial crisis.

"Returning the business to profitability requires permanent change across the company and it's disappointing that our cabin crew union fails to recognize that," he said. "The dispute ... should be put behind us as quickly as possible for everybody that works at BA."

Unite joint general secretary Derek Simpson said that union leaders were willing to negotiate with BA over the weekend to avoid the strike beginning on Monday.

"We don't want this dispute," Simpson said. "This has to be resolved by negotiated settlement."

However, there has been little sign that BA and Unite, which represents around 90% of the carrier's 12,000 cabin crew staff, will be able to reach a deal in the monthslong dispute.

Negotiations have become increasingly difficult since Unite forged ahead with a financially damaging walkout in March and BA retaliated by revoking the travel perks and taking disciplinary action some 50 workers.

Unite was further incensed when BA turned to the courts earlier this week, just hours before a planned series of strikes totaling 20 days was due to begin on Tuesday, winning a ruling that the walkouts were unlawful because of a technical error in the union's ballot of members.

That decision by the High Court was overturned by the Court of Appeal on Thursday and Unite announced plans to carry on with the rest of the planned strike dates — May 24-28, May 30-June 3 and June 5-9.

Friday's earnings report included the seven-day cabin crew walkout in March, but not the recent closure of European air space because of the Icelandic volcanic ash cloud.

CEO Walsh was more positive about the airline's performance this year, saying it was making progress on a cost savings program that has included cutting jobs and restructuring the company.

"Our cost base has improved and we are seeing signs of market conditions improving," he told reporters on a conference call. "The combination of the two of those leads us to forecast break even at the PBT (profit before tax) level."

Walsh added that the carrier was targeting 6% revenue growth this year.

Shares in the airline were down 0.6% at 185.3 pence in morning trade in London after rising initially — the stock has dropped around 11% in the past three months, compared with an 8% fall in the FTSE 100 index.

"The loss was slightly less than investors had feared, and the cost cutting program has almost equalised the overall loss of revenue." said Richard Hunter, Head of UK Equities at Hargreaves Lansdown Stockbrokers. "The company's ongoing issues are numerous, however, and a root and branch structural change is clearly necessary."

Bob Atkinson, travel expert at travelsupermarket.com, said BA was performing well compared with a euro691 million net loss posted by Air France/KLM on Thursday.

"From the customer's point of view, we are highly likely to see a fares bonanza in the summer months and through to the autumn," Atkinson said, noting that Air France/KLM announced they would sell cheaper seats over the summer.

"BA will no doubt react once strike action is over," he said.

Walsh said Friday he expected a large number of cabin crew staff to ignore the strike call — as several did during the March walkout.

The airline, which has been running a reduced service this week, said it plans to fly around 70% of passengers booked to travel over the targeted period, which includes British school summer vacation period, a long weekend and the run-up to the football World Cup in South Africa.

As with the March strike, London's Heathrow Airport will again bear the brunt of the cancelations with the airline planning to operate around 60% of its longhaul program and 50% of its shorthaul service from that hub. It plans to operate a full schedule at Gatwick and London City.