BA profit collapses on dire trading

By Rhys Jones

LONDON (Reuters) - British Airways' (BAY.L) profit collapsed in the first quarter as high oil prices, an economic slowdown and weak consumer confidence combined in what the airline called the worst trading conditions ever.

BA Chief Executive Willie Walsh also confirmed talks with Spanish carrier Iberia (IBLA.MC) about a potential all-share merger were underway but said it was "too early to say what impact it will have on the business in terms of jobs".

The British carrier cut its annual revenue growth target to 3 percent from 4 percent and said it was focused on "achieving a small profit in the current financial year" and sustainable profitability in the medium and long-term.

"This is the worst trading environment the industry has ever faced and fares are likely to go up as we reduce some winter capacity and cope with unprecedented oil prices but we won't be grounding any aircraft," Walsh told reporters on a call.

Profit before tax for the three months to end-June plunged 88 percent to 37 million pounds from 298 million pounds last year, missing an average forecast of 49 million pounds supplied by BA.

Forecasts ranged from 16 million pounds to 87 million.

Shares in BA, which have fallen almost 20 percent since the start of the year, were up 5.3 percent at 268.3 pence at 12:11 p.m., valuing the company at just over 3 billion pounds.

Despite branding BA's numbers as "awful" Blue Oar Securities transport analyst Douglas McNeill said there were some positives driving the share price hike.