Airline Code [BAW]
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British Airways presented its preliminary results for the 12 months ended 31-Mar-2009.
Operating loss of GMP220 million, including restructuring costs of GMP78 million (2008: GMP878 million profit - restated)
Loss before tax of GMP401 million (2008: GMP922 million profit - restated) Revenue GMP8,992 million (2008: GMP8,758 million - restated) Full year fuel costs near to GMP3 billion Significantly better operational performance, particularly punctuality
British Airways' chief executive Willie Walsh, announced Reduced passenger and cargo demand and high fuel prices last summer contributed to our GMP220 million operating loss as our total fuel bill reached almost GMP3 billion. The prolonged nature of the global downturn makes this the harshest trading environment we have ever faced and, with no immediate improvement visible, market conditions remain challenging. It is vital, therefore, that we remain absolutely committed to our plans to establish British Airways as a high-performing, market-focused, global premium airline.
"On revenue, we changed our focus during Q4 from driving yields to securing volume as customers became more price sensitive. We continue to actively manage the balance between yield and volume to ensure that we respond effectively to changing external conditions. Despite the fall in premium travel, our market share is growing currently and we must maintain this momentum.
"We are taking action to mitigate the impact of the economic crisis on our business. Next winter we will continue to reduce capacity by taking out 4 per cent of flying compared to last year, parking up to 16 aircraft.
"We are taking action on non-fuel costs too. In addition to reducing external spend and not paying management bonuses, there are no base pay increases planned and we are offering staff the option of unpaid leave and temporary or permanent part time working. We are also in talks with our trade unions about pay and productivity changes. The results for the year include GMP78 million of redundancy related costs. Since last summer, our overall manpower has fallen by more than 2,500.
"While we focus on the immediate situation by reducing costs, investing in improved customer service is vital. With increasing competition and more consumer choice, we need to guarantee our future competitiveness by ensuring that we offer customers excellent service throughout their journey.
"We start from a good point. We ended the year with record customer ratings with 77 per cent of customers either extremely or very satisfied with their journey - a 13 point improvement over last year. More than 24 million passengers have flown through Terminal 5 and they love the improved punctuality, speedy baggage retrieval and lack of check-in queues. We have won numerous awards this year including the Daily Telegraph Ultratravel awards for best first class cabin, business class airline and shorthaul airline.
"We are committed to being the leading global premium airline. This year we will complete our Club World cabin upgrade and introduce a brand new First cabin while investing in premium cabin crew training to ensure that we can deliver service standards to match those experienced in the most prestigious hotels and restaurants.
"Both the US Department of Transportation and EU continue to assess our application for anti-trust immunity to operate a transatlantic joint business with American Airlines and Iberia and nearly 3,400 letters have been sent to the US Department of Transportation supporting our application. We are optimistic that anti-trust immunity will be approved in the next six months so that in early 2010 we can start to bring benefits to our customers, employees and shareholders, and enjoy a level playing field for oneworld with the two other global airline alliances.
"Finally, the UK Government's recent decision to double Air Passenger Duty from 2010 will undoubtedly disadvantage the UK's competitive position within the airline industry."
British Airways' chairman Martin Broughton explained"In the last twelve months we have gone from a record profit to a record loss due to the current tough economic environment. That only serves to underline the extremely difficult trading conditions that we are facing, despite our best ever operational performance, and any recovery is likely to take longer than initially envisaged.
"The revenue outlook continues to be weak during the current financial year but we expect lower fuel prices to reduce our fuel costs by approximately GMP400 million.
"In light of this, the board is unable to recommend a dividend this year."
Financial review
Group revenue in quarter 4 was down 8.4 per cent to GMP1.9 billion on operating costs up 13.3 per cent, resulting in an operating loss of GMP309 million. Excluding fuel costs and the impact of exchange, operating costs were down 5.5 per cent in the quarter. Quarter 4 loss before tax was GMP331 million. Passenger revenue for quarter 4 was down 8.0 per cent. Yields were down 2.5 per cent, down 16.0 per cent excluding exchange.
Full year revenue was up 2.7 per cent to just under GMP9.0 billion (including GMP109 million arising from a change in estimation basis for unused tickets). Excluding year on year exchange effects, underlying revenue was down 3.7 per cent.
Passenger revenue rose 3.1 per cent to GMP7.8 billion, on capacity down 0.7 per cent. Seat factor was down 2.1 points to 77.0 per cent. Yields, however, rose 6.7 per cent as a result of currency impacts. At constant exchange, passenger yields were broadly flat.
The economic downturn led to a significant fall in global demand for premium travel, with IATA premium traffic down around 14 per cent (our premium traffic was down 13 per cent), in the second half of the year. Our premium traffic volume, which started to see some weakness back in August, has steadily declined in the second half in response to the economic slowdown. Significant pricing actions were required to stimulate non-premium traffic volumes, which were broadly unchanged year on year.
Total traffic, measured in revenue passenger kilometres, was down 3.4 per cent. Total passengers carried fell by 4.3 per cent to 33.1 million.
The economic downturn had a marked impact on the worldwide demand for airfreight, which saw a significant reduction in the second half of the year. Full year cargo revenue rose 9.4 per cent, despite the fall in demand in the second half. Cargo volumes, measured in cargo tonne kilometres, fell 5.2 per cent. Despite the favourable impact of exchange, yields also came under pressure in the second half, driven primarily by lower levels of fuel surcharges as the oil price fell.
Our cost performance for the year was dominated by our fuel costs, which were up 44.5 per cent, as a result of a combination of fuel price increases and sterling weakness. Our non fuel costs rose 7.2 per cent. Excluding the impact of exchange, these costs rose by just 0.3 per cent.
Employee costs, excluding GMP78 million of restructuring related costs, rose by 1.3 per cent. Engineering costs, which were impacted by increased volumes from CityFlyer and OpenSkies together with significant exchange effects, were up 13.1 per cent. Landing fees and en route charges were up 14.2 per cent, due primarily to the much higher charges levied by BAA at both Heathrow and Gatwick.
Our cash balance at the end of March 2009 was just under GMP1.4 billion, down GMP483 million on the previous year. Our net debt was GMP2.4 billion, up GMP1.1 billion on March 2008, including GMP554 million due to retranslation of foreign debt and GMP122 million due to the reclassification of 10 Airbus A319s from operating to finance leases.
The retranslation of foreign debt and the marked-to-market movement on fuel and currency hedges have reduced reserves by £988 million. This reflects the weakness of sterling and lower fuel prices at March 31, 2009.
Capital expenditure, at GMP571 million, was GMP58 million lower than last year following a management review earlier in the year.
Business review Upgraded customer experience We have finalised the design and certification of our new First cabin and will start installing it on our longhaul fleet later this year. All 57 of our Boeing 747s and 33 of our 43 Boeing 777s are fitted with our multi-award winning Club World cabin. The embodiment schedule for the remainder of the fleet is on track for completion by the end of this year.
We will launch the first ever longhaul flights from London City this autumn with our new business class service to New York. Customers will be able to send texts, emails and access the internet onboard - the first time this has been done on transatlantic flights. Customers on the new service will also be able to clear US customs and immigration at Shannon Airport allowing them to bypass the normal arrivals checks when they land at JFK.
Capacity
In response to trading conditions, capacity was reduced by 3.1 per cent in winter 2008 and 2.5 per cent in summer 2009 compared to the previous year. We will continue to reduce capacity by taking out around a further 4.0 per cent in winter 2009.
We have ordered six Boeing 777-300ER aircraft for delivery between 2010-12, and placed options for four more, to give us greater flexibility in our longhaul fleet following delays to our Boeing 787 deliveries. In addition, 11 Embraer aircraft have been ordered for our subsidiary CityFlyer to replace its current AVRO RJ100 and RJ85 fleet.
Our 11 mainline Boeing 757 aircraft have been sold for cargo conversion. The 757s will leave the fleet between 2010-2012 and be replaced by Airbus A320 family aircraft.
Among the new routes launched this year are Heathrow to Hyderabad and Gatwick to St Kitts. Services from Heathrow to Jeddah and Riyadh resume in late May and Heathrow to Las Vegas flights start in October. Flights from Heathrow to Dhaka, Islamabad and Kolkata, from Gatwick to Dresden, Dublin, Newquay, Poznan, Sarajevo and Zurich and from London City to Dublin and Warsaw were suspended.
Competitive cost base We continue to review all areas of our cost base and capital expenditure and are working with our suppliers to examine ways that we can work together to reduce our costs.
Our overall manpower has fallen by more than 2,500 compared with last summer. The manpower savings have come from natural attrition combined with voluntary redundancy, overtime reductions, part time working and unpaid leave.
In each part of our business, we have launched a major drive to improve productivity and competitiveness and have begun formal discussions with the trade unions.
Corporate responsibility We have recently launched our BAcking Britain campaign to help British businesses beat the recession. In conjunction with UK Trade & Investment (UKTI) and BritishAmerican Business (BAB), we will offer 5,000 return flights worth up to £15 million to help UK small and medium enterprises win new business abroad. More than 1,200 applications have been received so far and the first successful small business has already flown.
We announced a new environmental target of halving our net C02 emissions by 2050. This ambitious target means that we will reduce our net carbon output from 16 million tonnes in 2005 to eight million by mid century.
In a bid to enable budding British talent to realise their dreams, we launched the BA Great Britons Programme with a £500,000 travel fund. We won several environment awards this year including the ITM ICARUS Environmental Award for the aviation sector.
Our partnership with UNICEF Change for Good celebrated another fundraising milestone with £25 million raised.
Principal risks and uncertainties The principal risks and uncertainties affecting the Group remain those detailed in our March 31, 2008 Annual Report and Accounts, with the exception of the following additional items:
Currency fluctuations As we operate globally we are exposed to currency fluctuations on our revenue, expenditure and foreign currency debt. This can have a material impact on our operating results.
Fuel supply The infrastructure that provides jet fuel to Heathrow is critical to the operation. Any breakdown in this infrastructure and/or contamination of the supply will have a significant operational impact.
Government intervention The UK Government's recent decision to double Air Passenger Duty from 2010, and the European Union's Emissions Trading Scheme will distort our competitive position in the industry. These taxes may have an adverse impact upon demand for air travel and/or reduce profit margins and may also advantage our competitors by reducing the relative cost of doing business from their hubs.
(c) Centre for Asia Pacific Aviation. Date posted: 25-May-09
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Results reflect bleak trading environment 
