Cuts by City banks in their business-class travel contributed to a 10.8 per cent year-on-year fall in the number of premium passengers carried by British Airways last month.

Nine of BA’s twenty largest corporate customers are understood to be City banks and the financial crisis has forced them to slash travel budgets. The nine include Barclays, HSBC and Royal Bank of Scotland. Lehman Brothers was also a large BA customer until it collapsed in September. UBS is understood to have recently banned its bankers from travelling business class on flights of less than five hours.

BA declined to comment on the number of banks in its top 20 client list, but in the past it has admitted that they are a big part of its premium business. As the largest airline operating out of Heathrow, it has been particularly badly hit by this drop in City business-class passengers.

Its strategy of keeping fares high is also thought to have contributed to the fall in premium passengers as a number of its competitors have slashed their fares. However, BA believes that if it can keep the yield from its premium seats high it will quickly return to high profit margins once the economy recovers.

The economic slowdown has hit many airlines and BA is trying to cope with the fall in demand by cutting management jobs and seeking mergers with rival carriers. It announced two days ago that it had begun merger talks with Qantas, the Australian flag carrier, to create a new, dual-listed company.

The British carrier is also in merger talks with Iberia and hopes to expand its alliance with American Airlines.

Analysts said yesterday that the BA-Qantas deal could lead to cost-cutting synergies of between £100 million and £200 million a year, less than the £400 million it is estimated that the Iberia merger could generate.

Andrew Fitchie, an aviation analyst at Collins Stewart, said: “Given the geographical remoteness of Qantas and its relative efficiency, it is unlikely that synergies would be as great, but [they] could comfortably be in the range of £100 million to £200 million.”

If BA can pull together Qantas, Iberia and American, it would create the world’s largest airline and be the first global carrier – but there are numerous regulatory hurdles to be crossed with all three deals and analysts are unsure that these can be overcome. For example, the Qantas Sale Act limits foreign ownership in the Australian flag carrier to 35 per cent. The Australian Government has proposed lifting this to 49 per cent but is refusing to raise it any further.

Wayne Swan, the country’s Treasurer, said yesterday: “Our bottom line is the Flying Kangaroo remains majority Australian-owned and based.”

Nick Cunningham, an analyst with Evolution Securities, said: “The postprivatisation history of BA is littered with putative but failed deals with United, American, KLM etc. That alone should act as a warning not to get carried away about the prospects for completing any one of these deals, let alone all three.” BA’s traffic figures revealed that it carried 205,000 fewer people last month, compared with the same period the year before. The largest drop was in its short-haul business within the UK and Europe. Flights to the Americas and Asia were also weak but Middle East flights were down only slightly.

The airline’s load factor, which is a measure of how full each aircraft is, fell 2.2 percentage points to 74.4 per cent. The carrier said that trading conditions remained unchanged and in line with recent downward trends.

BA’s share price fell 0.2p to 156.9p yesterday after a 17.4p gain the day before.

Ryanair, Europe’s largest airline, said that its passenger numbers had risen by 11 per cent to 4.32 million last month. The low-cost carrier increased its load factor by one percentage point to 81.5 per cent. High flyers

Banks thought to be in BA’s top 20 customer list

Barclays

HSBC

Credit Suisse

JPMorgan

Royal Bank of Scotland

Citigroup

UBS

Merrill Lynch

Deutsche Bank

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