BA braces for Iraqi fallout

British Airways may be heading for more problems if the Iraqi conflict intensifies

LONDON, England -- British Airways, Europe's largest carrier, says fears of military action against Iraq could result in further job cuts as the public avoids air travel during times of conflict.

BA, which saw passenger levels decline and profits tumble after the terrorist attacks in the United States, expects that any escalation in tensions between the U.S. and Iraq will result in more cost-cutting measures.

The carrier has cut more than 13,000 jobs and is overhauling its European operations to take on low-cost operators. Other major airlines have introduced similar measures due to the decline in the sector, which has been aggravated by the global economic slowdown and volatile financial markets.

"We are focussed on a Middle East conflict. We have just gone through all our contingency planning," Chief Executive Rod Eddington told the Financial Times. "We have taken all the measures necessary so far, and we can cut capacity quickly again like after September 11."

Eddington said that BA -- which lost £2 million ($3.1 million) a day during the three months following the terrorist attack -- now has a cash reserve of about £1.5 billion to help the carrier through any Middle East conflict.

But analysts warn that if the Iraqi conflict grows to the scale of the 1991 Gulf War, it would have a substantial impact on the airline industry.

"An attack on Iraq would unsettle the global travel community, raise fears of counter-attacks, like in the Gulf War... [and result in a] major drop off in traffic, particularly international traffic," Chris Avery, European aviation analyst at JP Morgan, told CNN.

Those concerns come as BA faces possible ejection from the FTSE 100 index, London's listing of blue-chip stocks, for the first time since it was privatised in 1987.

BA, which has seen its share price tumble to its lowest level in 11 years, could be dropped from the index when the FTSE completes its quarterly review of companies based on market capitalisation at the close of trading on Tuesday. BA (BAY) shares were up 4.2 percent to 128 pence in midday London trading on Tuesday.

"Share prices of all major carriers are down," says Avery. "BA is the worst hit in Europe because of its exposure to the U.S. markets."

BA's passenger traffic, measured in revenue passenger kilometres or paying customers, fell by 10.1 percent in August from the same month a year earlier, with a 10.4 percent decrease in business and first class travellers.

On its North American routes, which include the key business market of New York, its passenger traffic was down 7.6 percent in August year-on-year.

BA's net income in the three months to June 30 rose to £40 million, or 3.7 pence a share, from £26 million, or 2.4 pence a share, in the year earlier period. Sales fell 10.7 percent to £2.05 billion.