Sector movers: Fuel costs to slice British Airways' margins

06.03.2008

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Just a day after well received passenger statistics, airlines are on the downturn today after a statement from British Airways ahead of an investor presentation today.

British Airways has forecast an increase in full year revenue of between 4 and 4.5% to over £9.1bn, but has cut guidance operating margin to about 7% for 2008/9, down from 10% previously.

The company said fuel costs are expected to rise by some £450m, or 20%, to £2.5bn.

Non-fuel costs are seen between 3 and 3.5% higher, while total costs, excluding fuel, are forecast to be up £200m.

"The outlook for next year is consistent with economic slowdown, the impact of increased fuel costs and one-off Terminal 5 transition costs, all of which analysts have already factored in to their expectations," said chief financial officer Keith Williams.

Revenue forecasts were based on a 2.4% rise in capacity measured in available seat kilometres.

Power station operator International Power saw profits and revenue slide for the year but still hiked dividends by 29% and said it saw "another year of growth" in 2008.

For the year to December, pre-tax profit fell to £483m from £624m last year on revenue that fell to £2.3bn from £2.5bn previously. However, the group said excluding exceptionals and specific mark to market movements, profits rose 17% to £904m.

Despite the figures, full year dividends were increased to 10.16p from 7.9p before.

"We believe 2008 will be another year of growth after taking into account reduced output at Rugeley due to the fitting of FGD equipment, lower UK coal spreads, and in the US subdued summer spark spreads following the cool summer in 2007," said the group.

"We remain well positioned to finance and deliver on organic and acquisition growth opportunities across our international portfolio," it added.

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