Airline Code [BAW]
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British Airways presented its interim management report for the six months ended 30-Sep-08. British Airways' chief executive Willie Walsh, said: This is a good performance given the incredibly difficult trading conditions. The six month period will be remembered as one of the bleakest on record.”
“The period was hit by a crisis in the banking sector, record fuel prices and several airlines going out of business. Against this very tough economic backdrop we have delivered profits of £140 million resulting from a 6.4 per cent revenue increase.”
"Costs are up £711 million and remain a key challenge. Fuel costs for the period were up £511 million at £1,494 million. Our annual fuel bill is still expected to be up some 50 per cent at about £3 billion. Employee costs, including a £40 million severance provision, were up 8.6 per cent.
"We have made good progress with our plans to offset the difficult conditions. We have reviewed the summer 2009 schedule and plan to reduce capacity by some 1 per cent compared with summer 2008. We have revised capital expenditure plans and remain focused on cost control and our strong cash position.
"In these difficult times it is more important than ever to deliver excellent customer service. Terminal 5 is performing extremely well. Transfer passenger connections are faster with 90 per cent of our Heathrow flights now under one roof. We have now moved to full operations at Terminal 5 and it is delivering real customer benefits. The terminal is proving to be the genuine asset that we always expected it to be. More than 12 million customers have now travelled through the terminal and customer feedback has been excellent."
"Our punctuality performance has improved significantly. Our passengers are departing more promptly than in recent years and we are improving every month. Heathrow punctuality levels in July, August and September were more than 20 percentage points better than the same period last year. Last month saw an improvement of 23 percentage points on October 2007. We also had our best ever day at Heathrow on October 14, with 95 per cent of flights departing on time as measured by the industry standard.
"We have signed the joint business agreement with American Airlines and Iberia. The agreement will improve customer service levels with better connections, network, frequency and frequent flyer benefits. We expect our application to receive approval from the US Department of Transport next year."
Capacity
We continue to review capacity plans across the network. We plan to reduce capacity by around 1 per cent in the 2009 summer schedule without compromising the network.
As part of the planned 2009 summer schedule we have suspended four services. These are the Heathrow services to Dhaka and Kolkata and the Gatwick shorthaul services to Dublin and Zurich.
Competitive cost base
We remain committed to maintaining a competitive cost base and continue to review all areas of the business. We have invested in our future. Terminal 5 will deliver increased efficiencies to the business. Most transitional costs, including additional manpower resource, have been accounted for as we begin to move towards mid and long term benefits.
As part of our continuing restructuring process around a third of the 1,350 eligible managers chose to take voluntary severance. This was in line with our expectations and most will leave the company by 31-Dec-08.
We are conducting a major review to simplify the business, reduce costs and remain competitive. This includes the cancellation and
deferral of significant projects and the closure of our Glasgow cabin crew base.
The company's continuing programme to achieve greater efficiency from its property is making good progress. We completed our move out of the Compass Centre at Heathrow Airport during the summer. All Heathrow based cabin and flight crew now report for duty at Terminal 5.
Principal risks and uncertainties
During the period the Group has continued to maintain and operate its structure and processes to identify, assess and manage risks. In addition to the principal risks and uncertainties affecting the Group, detailed on pages 36 and 37 of the March 31, 2008 Annual Report and Accounts, recent turmoil in the financial markets has increased the risks inherent in the Group's pension position and its exposures to counterparties in its financial dealings.
Trading Outlook
The industry continues to face very difficult trading conditions on the back of a weak economic environment. Yield improvements, due mainly to price and exchange, are expected to more than offset volume reductions. Overall we now expect revenue to grow by at least 4 per cent, an increase on our previous guidance of a 3 per cent increase.
Including the impact of restructuring costs and exchange, our non-fuel costs are now targeted to rise 5 per cent (3 per cent last guidance). The fuel bill for the year is still expected to be some £3 billion as exchange and hedging have offset lower fuel prices. Our fuel hedge position remains largely unchanged from our last guidance and therefore we are well placed to benefit from falling fuel prices going into next year.
We have taken a number of actions to reduce capital expenditure and focus on cost control. Along with the management restructuring we have reviewed projects both underway and planned and have revised our capital expenditure forecast to £550 million (previously £650 million) for the year.
We remain focused on delivering a small operating profit in the current financial year and sustainable profitability in the medium and long term.
(c) Centre for Asia Pacific Aviation. Date posted: 10-Nov-08
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British Airways presents interim management report for six months ended in Sep-08 
