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#518829

VintageKrug
Participant

Many airline finances are highly seasonal: they make fewer profits during the winter season, and larger profits during the summer. This is very much the case with BA.

British Airways made a modest £58m loss in the first quarter; about £38m of those losses were related to exceptional items connected with the bmi takeover.

So BA itself remains – even in the lowest quarter – only modestly loss making (down £20m – hardly anything compared to turnover), and over the year will post an operating profit.

At Iberia, IAG is using experience its management have gained turning around BA to initiate a restructuring plan which will deliver profitability – and this is also already happening at bmi. The recent purchase of Vueling also increases cashflow. However, the Spanish economy is something of the determinant here, and it has suffered more than most foresaw in recent years.

It will, however, improve, and the restructuring plan is the right approach to turning the airline around and generating value and future profits; it’s easy to see the upside when things are in the current state.

Finally, in the decades I’ve been using BA, it has always held regular sales (branded as “World Offers” in the 90s) and especially in a recession this is good practice; you’ll have seen recent threads on Cathay’s sale, Singapore Airlines’ sale amongst others. There are some great deals to be had, but those are fewer than was the case a few years ago, suggesting prices are holding up.

BA sale fares are largely leisure in focus and fill seats around what would otherwise be quieter holiday periods when fewer people are travelling on top whack business fares. The upcoming sale towards the end of May drives sales over a Bank Holiday weekend for the summer season; it’s not normally the best “sale” of the year because that period is busy.

Just take a look at BA’s 777 seatplan to understand just how much floorspace on its aircraft are dependent on premium cabins when compared to many other airlines:

http://www.seatguru.com/airlines/British_Airways/British_Airways_Boeing_777_300.php

…just 13 rows of economy, and that cabin starts well behind the wing.

BA still maintains margins, and is able to command some impressive fares for its premium cabins, while at the same time pricing keenly enough for volume to keep large corporates flying the airline.

While taking a snapshot of last week’s 4% loss might lead to concern, it would be more reasonable to look at the 66% share price rise over the past year as evidence that the current strategy, though not without its challenges, is being viewed positively in the long term by the City.