British Airways Plc Chief Executive Officer Willie Walsh said the airline is bracing for the loss of passengers in its most lucrative premium-travel market amid job losses because of financial-industry bankruptcies.
The carrier's stock has fallen 20 per cent in the past week as investors grow concerned that fewer banking jobs will translate into falling demand for first-and business-class trips across the North Atlantic.
London-based British Airways, which makes its highest margins on premium travel to the US, has yet to experience a decline in the segment, even as economic growth slows in that country and in Europe.
“There's no doubt in my mind that the impact of a weakening economic environment, combined with the credit crunch will play through to the premium cabin,” Walsh said today in a Bloomberg Television interview. “It has to have an impact at some point.”
Walsh said the airline, Europe's third biggest, hasn't been affected by the collapse of New York-based Lehman Brother's Inc, which had about 6,000 employees in Europe when it filed for bankruptcy protection September 16.
The carrier's corporate customers work in diverse industries, and financial institutions account for 13 of its top 50 business clients, according to Walsh.
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“The perception is that the people traveling in our premium cabins are people working in banks,” said Walsh. “We do have banks as an important part of our customer base, but it is not the customer base.”
Fuel-Hedge ‘Exposure’: British Airways has a “small exposure” to the Lehman Brothers failure because of the investment bank's role in fuel-price hedging contracts valued at £5 million ($9.3 million) to £10 million, the CEO said.
The carrier has hedged 85 per cent of fuel needs for the fiscal year ending in March 2009 at about $91 a barrel, according to Walsh. For the following year, the airline has taken out contracts to cover 40 per cent of its requirements at a price of about $100. British Airways' fuel bill will be about £3 billion this year, an increase of £1 billion, Walsh said, reiterating an earlier forecast.
The carrier has no exposure to International Lease Finance Corp, the airplane-leasing company owned by American International Group Inc, according to Walsh. ILFC is borrowing $6.5 billion in emergency funding, the maximum amount allowed under its three credit lines, in an agreement with lenders on September 16, the day New York-based AIG gave the US government an 80 per cent stake in exchange for an $85 billion rescue loan.
AIG Insurance: Walsh said he was “not concerned” about insurance contracts that British Airways has with AIG because a “competitive” market will allow him to find replacement coverage.
British Airways fell 3 pence, or 1.4 per cent, to 207.5 pence in London today, reducing the airline's market value to £2.4 billion. The stock has fallen 33 per cent this year.
Walsh has no interest in bidding for Alitalia SpA, the state-controlled Italian airline that filed for protection from creditors on August. 29.
The Rome-based carrier risks becoming the first major European flagship airline to collapse since Swissair Group and Belgium's Sabena in 2001. Augusto Fantozzi, Alitalia's government-appointed administrator, told Italy's Senate today that the airline is operating on “a razor's edge”, and may run out of cash after a September 30 deadline to find a buyer.
“In its current form, I don't think anyone will touch Alitalia,” Walsh said. “It's a mess, and the scale of restructuring that is required is beyond the capacity of most management teams.”