British Airways plans $780 million in cuts

/ Source: The Associated Press

British Airways PLC, which is facing tough competition from budget airlines and coping with surging fuel costs, announced another cost-cutting program Thursday.

BA said it plans to reduce costs by 450 million pounds ($780 million) over the next two years in a move that is likely to lead to further job losses.

The carrier also said that its fuel bill for 2006-2007 was forecast to rise 400 million pounds ($695 million) to 2 billion pounds ($3.5 billion, adding that the fuel surcharge remained under “constant review.”

However, Chief Executive Willie Walsh said later at an analyst and investor meeting that he has no plans to adjust the fuel surcharges on either long-haul or short-haul tickets.

BA has progressively increased surcharges as oil prices soared over the past year. In contrast, budget airlines such as Ryanair Holdings PLC have imposed no extra fuel charges on passengers, a decision they claim have helped keep prices low and win customers from the full-service airlines.

BA said revenue growth for 2006-2007 was forecast between 4 percent and 5 percent. Total costs for 2006-2007, excluding fuel, were forecast to be flat with increases offset by cost efficiencies.

The savings target and the fuel forecast were part of the 2006-2008 business plan unveiled to analysts and investors. It was greeted positively by the market and the airline’s shares rose 3.8 percent to 3.29 pounds ($5.71).

The airline also said it plans to invest nearly 200 million pounds ($350 million) on its booking Web site and new on-board services, including a new Club World seat and on-demand films in all cabins.

“This plan will make us fit for the future,” said Chief Executive Willie Walsh. “Better management of our costs and having an absolute focus on customer needs will give us a lasting platform for success.”

The airline said the plans could lead to job losses, which would add to cuts already announced. The carrier said in November that it would cut its management force by 35 percent, or about 600 jobs, by 2008 as part of an earlier bid to trim costs by 300 million pounds ($520 million), the carrier said.

Walsh said that BA has secured delivery slots with Boeing Co. for 10 Boeing 777 aircraft starting from the end of 2008 for its long-haul fleet — where it makes the majority of its profit.

Walsh said the move will enable BA to “secure availability of additional capacity.”

However, he added that a commercial order would require the airline to successfully address its large pension deficit, push through its 2006-2008 business plan and see sufficient demand going forward.

BA is in the process of tackling its 1.3 billion pound ($2.3 billion) final salary deficit.

The business plan covers the period up to March 2008 when the airline moves nearly all its operations into the new Terminal 5 at Heathrow airport. The terminal is still under construction.