Controlling costs
Of course our ability to invest in growth depends directly on us controlling our cost base. In the last seven years this has been an absolute priority. To that end we tackled our pension deficit and worked hard to reduce our debt levels from the peak of over £6 billion to £1.3 billion.
As a result of this concerted action, we have delivered a 10 per cent operating margin for the first time ever.
However, we expect to see our margins decrease in 2008/09, due mostly to sharp increases in fuel costs – which we now expect to rise by around a half to £3 billion (at current prices) this year – higher employee costs, economic slowdown and increased competition.
The expected reduction in margin in the current year only serves to underline how important our cost control efforts have been and must continue to be.
Another area of significant cost is airport charges which have been set by the CAA for the five years between April 2008 and March 2013. We continue to believe they were set at an overly generous level at Heathrow that is far in excess of what is needed to upgrade facilities through investment in infrastructure and improved service quality levels.
We suffer from very poor regulation and the CAA’s objective should be to ensure that BAA provides the infrastructure and services that customers want, but in a cost effective and efficient way that does not overcompensate the airport operator financially.
The focus of the Competition Commission’s current review into the UK airports’ market should be to ensure that the right conditions are put in place that best meet customers’ needs.
Environmental leadership
We have put corporate responsibility at the centre of our business priorities and our ambition is to be a leader in this field.
During the year we announced that Silla Maizey – formerly Head of Procurement – had been appointed as our first ever Head of Corporate Responsibility, reporting directly to me. We are determined to grow. But we are equally determined to grow responsibly, and I hope Silla’s appointment will be seen as a statement of our serious intent.
Undoubtedly, climate change is our most significant challenge in this respect. Our industry gets pilloried by some environmentalists for its contribution to global warming. We don’t agree with their analysis, but I want to be very clear that we do intend to be in the vanguard in tackling this issue.
The corporate responsibility report can be found on the Corporate responsibility section of the website.
Confidence
At the end of a testing year for British Airways, I’d like to thank everyone in the Company for their tremendous support and dedication – not least as we worked to overcome difficulties at Terminal 5 and restore the confidence of our customers. It’s this spirit that, above all, gives me such a strong sense of confidence in the future of this airline.
Willie Walsh, Chief Executive