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Chairman’s statement

Martin Broughton, Chairman

We have made no secret of the fact that we believe in the next 10 or 20 years the industry will be dominated by a small number of global airline groups. We want to be leaders in that consolidation process.

Twelve months ago we reported record profits, achieving a 10 per cent operating profit margin for the first time in our history.

We knew then that the year ahead would be far more difficult, but the pace of economic slowdown has taken almost everybody by surprise. Barely a month has passed without us seeing a sharp revision downwards in economic forecasts and an equally quick decline in business activity and consumer confidence.

Financial results

In the first six months of the year we delivered a good performance given the incredibly difficult trading conditions, with an operating profit of £140 million on revenue, up 6.4 per cent.

For the full year, we have fallen into losses on the back of a sharp fall in premium traffic of 13.0 per cent in the second half year, last year’s record oil prices and adverse currency movements. Total revenue grew by 2.7 per cent to £8,992 million and we recorded a pre-tax loss of £401 million for 2008/09, compared with a pre-tax profit last year of £922 million (restated).

Financially, this is a very difficult time for our business. Operationally however, we are achieving levels of excellence today never seen before in this airline, thanks in large part to Terminal 5.

We therefore continue to plan carefully for the future. We are balancing the need to take short-term action to see us through a very tough trading environment with our long-term goal: to create a high-performing, market-focused, global premium airline.

Dividends and executive remuneration

As conditions have deteriorated so much, we have decided it would be wrong to recommend either a dividend to shareholders or a bonus to our senior executives.

We have looked at these two issues through the same lens. Our long-term aim is to provide our shareholders with a consistent and growing dividend stream and to pay meaningful executive and employee bonuses. But we cannot justify either at the moment.

Government action

During these challenging times, the need for clear-sighted leadership from policy makers – both nationally and internationally – is greater than ever.

The UK Government showed just such leadership in tackling the financial crisis last autumn. The collapse of the banking system was closer than any of us dared imagine.

Efforts to ease the credit squeeze on business and homeowners, to restore confidence and to stem rising unemployment will take time. We are hopeful that efforts by the G20 countries to coordinate action both on the banking crisis and on stimulating growth and trade will progressively bear fruit. Realistically, it will probably not be until the turn of the year that we begin to see signs of progress.

Notwithstanding these positive actions, the UK Government’s recent decision to double Air Passenger Duty (APD) from 2010 will undoubtedly disadvantage the UK’s competitive position within the airline industry.

Loss before tax for year

£401m

Fuel costs

£2,969m

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