Chief Financial Officer’s statement
The financial performance of our business is linked to the general strength of the economies in the UK and across the world. We have had to cope with the deepest downturn in the global economy in 60 years.
With the recession and structural market change leading to a sharp decline in our revenues, we have responded quickly by making significant and permanent reductions in our cost base. We have gone further and faster than predicted. The result is that although still loss making, we have been able to stabilise the financial performance of the Company and have been able to beat most analyst expectations for the business.
So far, our recovery has been cost driven, but crucially, we now have a more efficient base from which to bring the business back to profitability as the economic recovery gathers pace.
The impact of the recession is being compounded by important structural changes to our business. The first is the impact of high oil prices which have increased our fuel cost to the point of being our single largest cost and, secondly, changes in shorthaul business travel have had some impact on our revenues.
The impact of the recession has been to reduce our revenue by 11.1 per cent to £7,994 million.
We anticipated the sharp decline in revenue and adapted our costs accordingly. As a consequence, we reported an operating loss which was almost flat year on year – a loss of £231 million including £85 million for restructuring the business.
As a result of increased interest and pension costs, our pre-tax loss increased from £401 million to £531 million.
Passenger revenue for the year was down by £856 million, a decline of 10.9 per cent. The first half of the year saw the most dramatic decline in revenue, as premium revenues were affected by the sudden and severe drop in demand as a result of the changing economic outlook. Revenue started to recover in the second half of the year, as capacity was better matched to demand and yields started to recover.
We were quick to manage capacity to this greatly reduced demand, cutting overall flying by 4.9 per cent.
In responding to the extent of the downturn, particularly in the UK, we were quick to take advantage of the stronger euro to offer more seats for sale in european markets than was previously the case for this typically lower yielding traffic. As a result, our transfer volumes grew in the first half of the year, and then eased off again as the point-to-point business started to recover. This contributed to the strong seat factors reported all year.
Seat load factor – the percentage of seats actually filled – rose by 1.5 points, to 78.5 per cent. This compares very well with some of our main competitors who have reported significant declines in load factors.
Geographically, we saw the steepest decline in traffic on our asian routes, while on the North Atlantic, a major part of our business, traffic held up remarkably well and showed promising signs of improvement towards the end of the year, which bodes well for our recovery.
Our cargo business, like our passenger business, experienced a sharp decline in the first half of the year but began to recover quite strongly as the year closed.
Global freight markets were impacted materially by the economic downturn, reaching a low point in early 2009, more than 20 per cent lower than the previous year. British Airways World Cargo (BAWC) volumes, measured in cargo tonne kilometres (CTKs), were down 8.1 per cent for the first half of the year. Since November 2009, both the market and British Airways have seen a return to positive year on year growth, with overall volumes for the year down only 2.2 per cent against capacity, down 4.6 per cent.
Market reductions in capacity lagged and were lower than the demand reduction, impacting market yields by more than 20 per cent. Our cargo yield (revenue per CTK) averaged 16.5 per cent lower than the previous year, including the impact of lower fuel surcharges.
The overall load factor for the year was 73.3 per cent, up 1.3 points on last year.
Returning our business to profitability requires permanent structural change in our cost base. So far our recovery has been cost driven, but crucially, we now have a more efficient base from which to achieve higher levels of profitability in the future as economic improvement continues.
|Basic operating result||(146)||(142)|