British Airways and low-cost rival easyJet raised earnings forecasts yesterday after demand for flights, rising ticket prices and cost cuts helped two of Europe's biggest airlines offset the impact of soaring fuel prices.
BA, Europe's second-largest airline, beat forecasts with a 36 per cent rise in first-quarter profits, buoyed by growth in first- and business-class travel, extra revenue from fuel surcharges and cost cuts.
Analysts said the BA result and positive news from easyJet and from low-cost giant Ryanair earlier this week, showed major European carriers were keeping ahead of record fuel prices through cost cuts, higher ticket prices and the demise of some competitors.
"They are pretty good numbers, that is clear. As we saw with Ryanair, for the leading players in Europe the yield and revenue situation is improving at a faster rate than the fuel cost increase," BNP Paribas analyst Nick van den Brul said.
BA said operating profit for the three months to June 30 was £176 million, compared with £129 million a year ago.
The result was above consensus forecasts of £141 million, according to a poll of six analysts by Reuters. Forecasts had ranged from £103 million to £160 million.
BA shares, which initially rose more than two per cent on the news, were trading 0.7 per cent higher at 292-1/2 pence at 0958 BST. The stock has risen about 20 per cent from lows in April as fears about the impact of oil prices on the sector eased.
BA said favourable exchange rates, increased fuel surcharges, more people filling first- and business-class seats on its planes and continuing cost cuts were staving off a jump in its expected fuel bill this year.
Chief executive officer Rod Eddington, who retires from the airline next month, told reporters he expected revenue for the year to March 2006 to grow by 5.5 to 6.5 per cent, up from an earlier forecast of 4.5-5.5 per cent.
This was despite an expected annual fuel bill of £525 million, up from its earlier forecast of £450 million.
BA also reported strong passenger figures for July, which it said indicated the short-term impact of the London bombings in July was not material. Some analysts were still wary about the potential long-term impact of the bombings, however.
"Apart from gyrating oil and currency rates, it's still unclear what the long-term effect of the London terrorist events will be," UBS told clients in a note.
EasyJet said it expected its current year pretax profits to match last year's £62.2 million, instead of coming in slightly below that figure as previously stated.
Chief executive officer ray Webster, who plans to retire when the carrier finds a replacement for him, told Reuters high fuel prices were being offset by cost cuts and improving revenues as the collapse of some rivals in Europe freed up capacity.
"I think we have turned the corner where more and more capacity was coming into the market chasing fewer and fewer customers," Mr Webster told Reuters.
EasyJet shares rose 2.4 per cent to 257 pence by 0957 BST. The stock had fallen in the past two weeks on concern about the departure of some senior managers from the airline.
Larger low-cost rival Ryanair also beat forecasts with record first-quarter profits this week, saying it had benefited by not imposing fuel surcharges as levied by rivals such as BA.
The price of oil has jumped more than 40 per cent since the start of the year, hitting airlines globally hard.