British Airways cost-cutting bears fruit with a rare £25m profit

Willie Walsh's remorseless war on costs at British Airways has started to come good with the airline's first operating profit for more than a year.

Although the airline is still expected to make its biggest loss, the third-quarter figure was much stronger than the City expected.

BA was £25 million in the black in the three months to December, the first surplus since the second quarter of 2008, but made a
£50 million loss at the pre-tax level, compared with analysts' forecasts of about £150 million. For the first nine months BA made a £342 million pre-tax loss.

The chief executive, still locked in a bitter dispute with cabin crew over pay and conditions, said: "These results highlight the impact of the permanent changes across the company on our costsOperating costs are down by 10.5% and show that we've adapted quickly to the new business realities created by the global recession."

Finance director Keith Williams said the "Terminal Five dividend" had contributed between £40 million and £50 million to annual cost reductions while the fuel bill is down by almost a fifth. The pay bill was down 10% to £492 million in the quarter following waves of redundancies, Costs for the financial year are likely to be about £700 million lower, although this will be outweighed by the estimated £1 billion annual loss of revenue.

In the third-quarter revenues were around £250 million down, about £30 million better than forecast. Williams said the airline was starting to see the first signs of an improvement in passenger yields, particularly in long-haul premium traffic.

Gert Zonneveld, transport analyst at brokers Panmure Gordon, said: "The cost reductions seem to be kicking in quite well. It's a good performance but there is still a long way to go."

Ken McCluskey, assistant general secretary of Unite, the cabin crew union, said the better financial results could make it easier to get a deal and avoid industrial action.