The operational complexities inherent in our business, together with the highly regulated and commercially competitive environment of the airline industry, leave us exposed to a number of risks. Many of these risks – for example, changes in governmental regulation, acts of terrorism and the availability of finance – can be mitigated to a certain degree but remain outside of our control.
The directors of the Group believe that the risks and uncertainties described below are the ones that could have the most significant impact on the long term value of British Airways. The list (presented in alphabetical order) is not intended to be exhaustive.
Brand reputation
Our brand is of significant commercial value. Erosion of the brand, through either a single event, or series of events, could adversely impact our leadership position with customers and ultimately affect our future revenue and profitability.
Capital investment
A wrong decision in respect of our planned fleet growth, in terms of timing, aircraft numbers or fleet type, could have a material adverse impact on our future performance.
Competition
The markets in which we operate are highly competitive. We face competition from other airlines on our routes, as well as from indirect flights, charter services and from other modes of transport. Some competitors have cost structures that are lower than ours or have other competitive advantages. Fare discounting by competitors has historically had a negative effect on our results because we are generally required to respond to competitors’ fares to maintain passenger traffic.
Consolidation/Deregulation
Mergers and acquisitions amongst competitors have the potential to adversely affect our market position and revenue. Certain markets in which we operate remain regulated by governments, in some instances controlling capacity and/or restricting market entry. Relaxation of such restrictions, whilst creating growth opportunities for us, may negatively impact margins.
Environment
Failure to adopt an integrated environmental strategy could lead to a deterioration in our reputation and consequential loss of revenue. An increased focus on corporate responsibility and a published emissions reduction target will help deliver the refocused strategy.
Financial commitments
We carry substantial debt which will need to be repaid or refinanced. Our ability to finance ongoing operations, committed aircraft orders and future fleet growth plans may be affected by various factors including financial market conditions. Although most of our debt is currently asset-related, there can be no assurance that aircraft will continue to provide attractive security for lenders in the future.
Fuel price
We use approximately six million tonnes of jet fuel a year. Volatility in the price of oil and petroleum products can have a material impact on our operating results. This price risk is partially hedged through the purchase of oil and petroleum derivatives in forward markets, which can generate a profit or a loss.
Global economic slowdown/Credit crunch
Our revenue is highly sensitive to economic conditions in the markets in which we operate. The financial services sector is one of our key customer segments and recent difficulties in the banking industry represent a significant risk to our revenue.
Government intervention
The airline industry is becoming increasingly regulated. The scope of such regulation ranges from infrastructure issues relating to slot capacity and route flying rights, through to new environmental and security requirements. Our ability to both comply with, and influence any changes in, these regulations is key to maintaining our operational and financial performance.