| (£ million) | 2007/08 | 2006/07 | Better/ (worse) |
|---|---|---|---|
| Employee costs | 2,166 | 2,277 | 4.9% |
| Depreciation, amortisation and impairment | 692 | 714 | 3.1% |
| Aircraft operating lease costs | 68 | 81 | 16.0% |
| Fuel and oil costs | 2,055 | 1,931 | (6.4)% |
| Engineering and other aircraft costs | 451 | 414 | (8.9)% |
| Landing fees and en route charges | 528 | 517 | (2.1)% |
| Handling charges, catering and other operating costs | 977 | 930 | (5.1)% |
| Selling costs | 359 | 436 | 17.7% |
| Currency differences | 6 | 18 | 66.7% |
| Accommodation, ground equipment and IT costs | 576 | 618 | 6.8% |
| Total Group expenditure on operations* | 7,878 | 7,936 | 0.7% |
*Before non-recurring items.
Our depreciation, amortisation and impairment costs reduced by 3.1 per cent compared to last year. This is partly due to changes in dilapidations charges and changes to the useful economic lives of a number of assets.
The number of aircraft we have on operating leases reduced during the year and this, along with lease renegotiations and the weaker US dollar, resulted in our aircraft operating lease costs reducing by £13 million compared with last year.
Record fuel prices drove our fuel and oil costs up by £124 million compared with last year. This increase was after the benefits of hedging of $392 million, and the favourable exchange impact of the weaker US dollar.
Our engineering and other aircraft costs, at £451 million, increased by 8.9 per cent compared with last year. This was partly due to contractual price increases on our flying hour engine maintenance contracts and partly due to prior year inventory provision releases on the back of a sustained improvement in the control environment. We also had an increased number of wet leases (aircraft with crew) this year, and additional shorthaul freighter costs. These increases were partly offset by reduced fleet insurance rates due to the soft aviation market.
Landing fees and en route charges cost us £528 million, up 2.1 per cent. This was partly due to rate increases and adverse exchange movements, primarily the stronger euro.
Handling charges, catering and other operating costs increased by 5.1 per cent compared with last year. The increase was primarily down to the costs of repatriating mishandled baggage and compensation, following the baggage issues we had in the summer and more recently following the opening of Terminal 5. We also incurred additional costs as a result of our ongoing investment in First and Club World.
Our selling and marketing costs fell by 17.7 per cent, year on year. This primarily reflects increased booking through britishairways.com, lower advertising costs and agency commissions.
Our £576 million spend on accommodation, ground equipment and IT was 6.8 per cent lower than last year. This reflects savings in IT development and operating costs as well as lower property costs – mainly due to rent and rates savings, less onerous lease costs and reduced dilapidation provisions. Our spend on legal fees reduced, but this was partially offset by higher consultancy costs associated with Terminal 5.
Financial derivatives
Net unrealised gains on fuel derivatives were £12 million (2006/07: £12 million loss), reflecting the ineffective portion of unrealised gains and losses on fuel derivative hedges required to be recognised through the income statement under International Accounting Standard (IAS) 39.
Our engineering and other aircraft costs, at £451 million, increased by 8.9 per cent compared with last year.