MercoPress. South Atlantic News Agency

British Airways reports £148m loss but cuts debt

British Airways (BA) reported a larger-than-feared loss this morning, but provided some joy for investors after revealing that traffic was starting to stabilise and debts were falling.

In a first-quarter update that confirmed the huge challenges facing the airline industry, the carrier said it had made a loss before tax of £148 million in the three months to end of June, its first Q1 loss since being privatised in 1987.

Chief executive Willie Walsh also said that the firm could not give any solid guidance on future revenues, which have already fallen 12.2% year on year, to £2 billion.

While down sharply, Walsh noted that this was better than rivals such as Luthansa and Air France, who reported larger falls in revenue earlier this week.

Walsh added: 'The industry continues to face very difficult trading conditions, with considerable uncertainty over the likely timeframe of the recovery from the global economic downturn.'

With competition fierce, given falling demand, BA said it would be reducing capacity by 3.5% this summer, while winter capacity will come down by 5% year on year.

However, while the headline loss was worse than expected, comments regarding costs, the oil price and debt levels were more upbeat.

BA embarked on a programme of cost-cutting last October, which has already resulted in the loss of 4,000 jobs, and which hit the headlines this week after the firm revealed it would be scrapping free food and drink on flights.

However, the moves appear to be having an impact already, with BA noting that operating costs were down 6.6%. Meanwhile, fuel costs have dropped 15.6%, following sharp declines in the cost of oil.

BA added that it had also increased its fuel-hedging operation, with 70% of its full-year fuel needs now hedged at $71 a barrel.

Walsh also said that traffic levels were showing signs of stabilising. He said: 'While traffic volumes are down considerably compared to last year, they have stabilised during the quarter and show some signs of improvement for the peak summer months.'

The company also said that net debt of £2.3 billion, while substantially higher than last year's figure of £1.1 billion, had improved since March by £114 million.

The statement lifted shares to the top of the FTSE 100 leader board shortly after the market opened, up 6.9p at 141.2p. (Citywire)