As the outlook for British Airways continues to deteriorate, both ABN Amro’s Andrew Lobbenberg and Deutsche Bank’s Chris Reid have slashed their recommendations for the airline to ‘sell’.

Lobbenberg, who has maintained his target price of 200p, reduced his recommendation on the back of ‘downside risks to revenue and challenges in lowering non-fuel costs’.

Lobbenberg also sees downside risk to leisure revenues, ‘where BA hopes it will be able to raise fares and surcharges to mitigate the increase in fuel costs’.

Long-haul premium traffic strength is also at risk. ‘We struggle to understand how the challenges facing the financial services industries are not affecting the transatlantic premium business and we think that in time BA will see weakness in this key segment,’ says Lobbenberg.

He also points out that the sector could ultimately be impacted by the Open Skies agreement, which came into effect in March this year. ‘The immediate impact may be delayed because corporate travel contracts tend to last a year and only as major contracts come up for renewal will BA face the pain, be it from losing contracts or from having to be more aggressive in pricing in the face of greater competition,’ he says.

Lobbenberg has lowered his full-year 2009 operating profit forecast by 29% to £215 million, with operating profit for 2010 down 19% to £322 million.

Deutsche Bank’s Reid meanwhile has slashed his target price from 361p to 200p.

BA shares are currently trading around 206p.

by Rachel Robson