estimated that there were more than 1.8 billion passengers in 2004, and more than 1.9 billion passengers are expected to fly in 2005. This increase is significant given that the industry was devastated by the American terrorist attacks in 2001, the SARS outbreak in Asia and a generally lackluster global economy. However, although the number of passengers may be increasing, fuel costs are also increasing in the industry, and there is considerable excess capacity·particularly in Europe·that is keeping revenues and margins low ("Change," 2005).
It is expected by some analysts that the airline industry will lose a total of USD5.5 billion in 2005, primarily as a result of higher fuel costs. Some airlines are able to engage in hedging·that is, participating in forward-looking contracts that protect against price increases·but the industry overall is suffering from the significant increases in fuel that have occurred in recent months. Such losses make it more difficult for airlines to provide high-quality service, and may force airlines lacking strong financial presence to reduce the number of flights they provide, or to reduce service on those flights ("Airlines to Lose," 2005).
British Airways competes against other UK carriers, including Virgin Atlantic and bmi, as well as with other international carriers. The company had revenues of $13.894 billion for fiscal year ending 31 Mar 2005, although its yield remained flat. Still, analysts are not disappointed in the yield results since the company was able to engage in significant cost-cutting that prevented a decline in yield despite rising fuel costs. British Airways was able to post a profit for the fiscal year ending 31 Mar 2005, and two-thirds of its revenue comes from trans-Atlantic flights to the United States. The carrier operates 40 flights daily to and from 19 American cities. Business-class revenue, one of the most lucrative sources of revenue, accounts for approx...