LONDON (Reuters) - British Airways <BAY.L> warned on Friday that rising fuel costs would become increasingly hard to tackle, knocking its shares despite solid third-quarter results and robust business-class travel to and from the United States.
By Pete Harrison
LONDON (Reuters) - British Airways <BAY.L> warned on Friday that rising fuel costs would become increasingly hard to tackle, knocking its shares despite solid third-quarter results and robust business-class travel to and from the United States.
BA shares fell 4.5 percent to 317 pence by 1035 GMT, valuing the airline at around 3.7 billion pounds. Deutsche Bank analysts said BA's warning on fuel costs was "another way of saying that margins will fall next year."
The airline said long-haul premium traffic had so far shrugged off a downturn in corporate travel from the United States to Europe, which contributed to the recent failure of business-class airline MAXjet.
!ADVERTISEMENT!"Fuel remains our biggest challenge," Chief Executive Willie Walsh told reporters. "Fuel costs soared by 72 million pounds ($143.3 million) in the third quarter -- probably the highest ever increase in a quarter."
"While we've done very well to mitigate the rising cost of fuel, that clearly will get more difficult," said Walsh, adding that the group was still aiming for its 10 percent margin target this year.
Operating profit reached 734 million pounds in the nine months to December 31, in line with analysts' forecasts and up from 571 million a year ago.
It said full-year fuel costs would be more than 100 million pounds above last year's, but would be offset by cost-cutting elsewhere.
LONG HAUL
Analysts said that weakness in the airline's longhaul economy business reflected weaker consumer sentiment in Britain, with leisure travelers trading down to holidays closer to home, where they were supporting BA's shorthaul routes.
Recent weakness in shorthaul premium travel reflected cutbacks by City firms doing business in Europe, they added.
The carrier said it was launching an all-business-class service next year using Airbus A318s between London and New York, flying from London City airport, close to the capital's financial district.
"It's been possible to do that now because of the development of the A318 and its certification into London City airport," said Walsh.
He said the airline hoped to strengthen ties with Spain's Iberia <IBLA.MC>.
His comments come after the chairman of Iberia's biggest shareholder, Caja Madrid, said last week that BA would need to offer an attractive partnership to Iberia or risk it defecting to rivals Air France-KLM <AIRF.PA> or Lufthansa <LHAG.DE>.
"Our relationship with Iberia has been a positive one, and we believe there is scope to deepen and strengthen that relationship, and we continue to talk to Iberia to see if we can do that," Walsh told reporters.
The Boeing 777 damaged in last month's accident at Heathrow airport has been written off by underwriters and the insurance claim agreed in full, with no material impact on BA's results.
(Reporting by Pete Harrison; Editing by Louise Ireland)
