THE British Airways share price ran into some turbulence yesterday despite the company's full-year results exceeding market expectations.

Although the #125m cost of the cabin strike last summer and a #200m hit on the impact of the stronger pound were partially offset by a #115m saving on fuel costs, pre-tax profits dropped 9.4% to #580m.

The setback was less than many had feared but the shares slid 13.5p to 636.5p.

Chief executive Robert Ayling said the company's efficiency programme had increased profitability by 6.1% and that BA was on line to achieve savings this year of #250m so that the target of #1000m would be achieved by 2001.

He said little on how the discussions with the regulators on the proposed route sharing with American Airlines on trans-Atlantic flights were progressing.

However, while the European Union's Competition Minister Karel Van Miert said he expected to make a ruling some time next month. The US authorities are unlikely to give their decision until the autumn. Most observers expect any solution to result in a reduction in the number of landing slots the two airlines can share at Heathrow.

Ayling said that the Scottish routes have been performing very strongly, particularly Inverness-Heathrow. He added that he expected overall growth this year of 5% but this flattening out in 1999-2000 as US and UK economies slow. The airline has been reducing its flights to the Far East, withdrawing from the Korean capital Seoul and also from Nagoya in Japan.

BA's overall turnover advanced slightly to #8642m.

There was a decrease in the load factor - as capacity increases outstrip growth in passenger numbers - and that was most pronounced in the fourth quarter ending in March when the decline was 2.9%.

This puzzled some analysts as it was thought that BA would try to persuade Air Mile holders to travel during this period to bolster traffic.

But the airline was able to raise fares on many routes and in local currencies, there was an improvement in the yield.

In the final quarter, the impact of the fuel price drop was most pronounced, down by over a quarter on a year earlier and a very significant figure for a company which spent about #800m on aviation spirit and oil in 1997-98.

Shareholders will benefit from a 10.3% rise in the dividend total to 16.6p with a final of 11.9p.

However, the vast majority of the 61,000 employees have suffered a pay freeze although they will be entitled to a profit-share bonus amounting to #16m or about #250 on average, equivalent to a half-week's pay.

Overall employee costs dropped by 1.6% to #2211m.

Elsewhere, the alliance with the 25%-owned Qantas of Australia saw its contribution reduced due to the strength of sterling against the Australian dollar.

Despite fierce competition, Deutsche BA in Germany is increasing its market share and expects to move into breakeven this year.

Air Liberte in France, which has merged with TAT European Airlines, saw a reduction in losses and will benefit from the improvement in the French economy expected for the next year or two.

Analysts did express some concern about BA's high level of debt which rose by #645m to a net #4603m with a greater than expected cash outflow.

For the current year, Panmure Gordon is expecting pre-tax profits of around #635m although there is some concern that there could be hefty price discounting by Far East carriers awash with capacity because of their local difficulties.

n BRITISH Airways' arch-rival Air France swung back into profit last year with a net attributable surplus of Ffr1870m, bringing it back into the black after seven years. An order for 20 Airbus jets has been placed for the fleet.

Air France expected continuing growth in sales and profit if operational conditions remain normal, the airline said in a statement. Demand remained strong at the start of the 1998-99 year.

Comment Page 23