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Chief Financial Officer’s report

Operating expenditure

Our cost performance excluding fuel costs, was strong, particularly in the context of three major headwinds – the transitional costs associated with our move to Terminal 5; a sharp increase in the charges we now pay BAA as a result of the recent regulatory review (at Heathrow these costs rose by 23 per cent) and adverse exchange impacts.

We also incurred costs of £78 million, mainly redundancy, associated with restructuring the business to make it more competitive for the future.

Our expenditure on operations increased by 16.9 per cent compared to the previous year, with unit costs (total expenditure on operations per ATK) increasing by 19.9 per cent. Excluding the impact of exchange and fuel, our underlying unit costs increased by only 2.9 per cent. This was a major achievement, given the significant additional resources we deployed across the operation for our move to Terminal 5 in the first six months of the year, and the additional restructuring costs mentioned above.

Employee costs, excluding £78 million of restructuring related severance costs, rose by 1.3 per cent. The average number of employees in the Group, measured in MPE, fell by 0.7 per cent to 42,094. However, productivity (measured in ATKs per MPE) weakened by 1.9 per cent due to the additional manpower that was retained in the first half of the year to handle our move to Terminal 5.

Depreciation, amortisation and impairment costs include an impairment of £5 million on the goodwill which arose on the acquisition of L’Avion.

The number of aircraft we have on operating leases reduced by 17 during the year. However, the impact of weak sterling meant our operating lease costs increased by 7.4 per cent.

The year saw unprecedented volatility in oil prices, climbing at one point to $146 a barrel and falling to as low as $37 a barrel. This, together with the weakness of sterling, pushed our fuel spend up by £914 million to £2,969 million.

Landing fees and en route charges

up 14.2%

Fuel and oil costs

up 44.5%

“We incurred costs of £78 million, mainly redundancy, associated with restructuring the business to make it more competitive for the future.”

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