Cost of airline terror scare forces cuts at BA

British Airways unveiled plans to slash its regional operations today as it conceded that the August terror scare cost far more than initially expected.

BA agreed to sell the loss-making regional business of BA Connect to Flybe in a move which will see the famous tailfin disappear from airports such as Southampton, Bristol, Inverness and Birmingham.

It came as BA revealed that grounded flights and disruption in the aftermath of the airport security alert cost it £100m (€149.5m) compared with the £40m (€59.8m) it originally thought.

Chief executive Willie Walsh said: “Given the significant impact of the security disruptions, estimated at a cost of some £100 million, these are good results.

“Despite the extremely difficult operational environment, we have delivered improved revenue.”

BA Connect, which is based in Manchester and employs 1,900 staff, made losses of £6 million in the first half of the year and Mr Walsh said he did not expect “any prospect of profitability in its current form”.

He said: “As part of our continued efforts to improve the profitability of short-haul, we have today announced that we have reached an agreement in principle to sell the regional business of BA Connect to Flybe.

“Point-to-point regional operations are not a strategic part of our business and we believe that such activities are better undertaken by a regional low-cost airline.”

BA Connect operates 52 routes from 13 airports around the UK, although BA said it will keep hold of the services from London City Airport and between Manchester and New York.

Under the agreement, which has yet to be finalised, BA will take a 15% stake in Flybe.

BA lowered its revenues growth forecast for the full-year by half a percent to between 4.5% and 5% because of the tighter security arrangements at airports across the UK.

The airline said passengers transferring flights at Heathrow were particularly badly hit because of restrictions on hand luggage.

The UK banned most liquids and set smaller limits on hand luggage in August following the alleged plot to blow up transatlantic planes.

Chairman Martin Broughton said: “Overall market conditions are broadly unchanged.

“Long-haul premium transfer and short-haul premium traffic, although recovering, continue to be affected by the tighter security arrangements currently in place.

“As a result, total revenue is now expected to be 4.5% to 5% higher than last year, down half a percent from our previous guidance.”

The airline also said it was in “constructive” negotiations with trustees over the £2.1 billion pension fund deficit.

Richard Hunter, head of UK equities at Hargreaves Lansdown stockbrokers, said: “Much as expected, the gloss has been taken off these numbers following generally higher fuel costs and August’s terror alert.

“Quite apart from such security scares which potentially form part of BA’s day-to-day operations, there are other issues.

“Cost-cutting measures are becoming more difficult to implement, particularly after the £450 million programme which ended last year, and the pension deficit remains a concern.

“Nonetheless, the longer term forecasts for the industry remain rosy, with some predicting a doubling of passenger numbers by 2020.

“Steady replacement of its (BA’s) fleet for more fuel-efficient aircraft and an ongoing strategy of attracting premium cabin customers augur well for the future.

“Despite a 50% rise in the share price over the last year, the market remains cautiously positive on BA’s prospects.”