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Chief Financial Officer’s report

World cargo & staff member

After a strong start to the year, our cargo revenue in the second half felt the impact of both lower fuel surcharges, as the oil price fell, and lower demand, as the economic slowdown took hold.

Our engineering and other aircraft costs, at £510 million, increased by 13.1 per cent compared with last year. These costs were significantly impacted by weak sterling as a high proportion of our engineering costs are incurred in US dollars. Other increases relate to increased volumes from CityFlyer and OpenSkies, offset by a reduction in engine maintenance operating lease provisions and other cost saving initiatives.

Landing fees and en route charges cost us £603 million, up 14.2 per cent. This was mainly due to the fact that we had to pay much higher charges to BAA for using Heathrow and Gatwick.

Handling charges, catering and other operating costs increased by 4.5 per cent compared with last year. Reduced passenger numbers and lower booking volumes drove significant savings, as did lower baggage compensation costs following our move to Terminal 5. However, these savings were masked by weak sterling and the introduction of OpenSkies, new routes operated by CityFlyer and catering price increases.

Our selling costs increased by 2.2 per cent primarily due to the impact of adverse exchange, partially offset by lower marketing activity and lower selling and commission costs.

With over 40 per cent of our expenditure on operations in US dollar and euro, currency differences arising on working capital retranslations and the settlement of transactions in the year resulted in a significant charge to our income statement of £117 million (2008: £6 million).

Our £585 million spend on accommodation, ground equipment and IT was 1.6 per cent higher than last year. IT development savings were offset with adverse exchange impacts and other cost increases relating to Terminal 5, primarily rent and rates.

Financial derivatives

Net unrealised losses on fuel derivatives were £18 million (compared with a £12 million gain in 2008), primarily 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.

Net finance costs

Our finance costs this year were £182 million compared with £175 million in the prior year. Our interest expense decreased by £7 million from last year.

Our finance income for the year was £95 million, down £16 million on the previous year due to both lower average interest rates and cash balances.

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