The FINANCIAL — "These are record results which are driven by all the hard work our people put in last year to tackle the cost base of our business”, British Airways' chief executive Willie Walsh, said announcing company’s financial results last week.
“Profits are up some 26 per cent and costs are down nearly 4 per cent. Fuel costs remain a major challenge and our fuel bill for the year is expected to top £2 billion for the first time. We see every possibility of achieving our 10 per cent operating margin by March 2008”.
"Our business plans for the future are gaining real momentum. We announced an order for 36 new longhaul aircraft that are greener, quieter and technically more advanced. Both the Airbus A380 and the Boeing 787 are truly 21st century aircraft with huge potential. The Airbus A380 will work well on high density routes and the Boeing 787 gives us the flexibility to open new routes and grow existing ones. These aircraft set the gold standard when it comes to environmental performance in CO2 emission, local air quality and noise. They will contribute significantly to our target of improving fuel efficiency by 25 per cent between 2005 and 2025.
"Further good news was our welcome return to investment grade which helped us negotiate the finance for aircraft deliveries until 2011, despite the current difficulties in the markets.
"Terminal 5 is now only 145 days away. Before its opening on March 27, 2008 our new home will have undergone trials involving thousands of volunteers. The first major public trials begin this weekend to ensure customers can speed through check-in and chill out for the ultimate experience. Our people are determined to ensure it will be a national success story Britain can be proud of.
"More good news for our customers will be the removal of restrictions on hand-baggage which we expect soon. This will go a long way to relieving the hassle factor of the one bag limit. At the same time we continue to staff up to record levels in the terminals and have improved our direct baggage performance in recent weeks. This is despite the 15 per cent increase in hold baggage."
Revenue was marginally down by 0.8 per cent. Excluding exchange, revenue was up 2 per cent.
Passenger revenue fell slightly to some £3.9 billion on capacity up half a per cent. Seat factor was down almost 1 point to 78.4 per cent. Yields rose half a per cent due to more premium passengers travelling, although our gains were largely neutralised by exchange rates, particularly the US dollar.
Club World performed strongly, contributing to our overall 2.5 per cent increase in premium traffic. Non-premium traffic has been soft on the North Atlantic and Europe.
Lower cargo volumes driven by tougher competition, and lower yields in Asia Pacific, Europe and the UK – plus exchange effects – have led to a disappointing result in our cargo business. Revenue fell to £290 million.
“Our cost performance was excellent, helped by the weak US dollar. Total costs were down £150 million with unit costs down 2.6 per cent. Employee costs fell by 7.1 per cent to almost £1.1 billion because of reduced pensions costs and lower severance costs. Fuel was down 3.5 per cent in the half year helped by the weak US dollar. We have fewer aircraft on operating leases and have renegotiated some existing leases, so costs were down 21.4 per cent. Engineering costs were up 6.7 per cent because of price rises in maintenance and higher volumes. Handling charges, and other operating costs have risen by 3.4 per cent because of the cost of dealing with baggage issues”, company said.
The financial position of the company remains strong and this has given us the confidence to order 12 Airbus A380 aircraft, with options for a further 7 aircraft, and 24 Boeing 787s with options for a further 18 aircraft.
Our cash and net debt were affected by payments into the New Airways Pension Scheme (NAPS) and to the US Department of Justice for anti competitive activity. Cash at the end of September was £1.8 billion, £599 million lower than at March 2007. Our net debt was £1.4 billion, up £422 million since the year end.
Capital expenditure at £297 million was higher than last year because we took delivery of three new Airbus A321 aircraft and continue to invest in the new Club World cabin and Terminal 5.
The tax rate was 18 per cent and benefited from a one-off credit because of the reduction in the UK corporation tax from 30 per cent to 28 per cent, effective from April 1, 2008. Excluding the one-off credit, the tax rate for the period would have been 30 per cent.
“We have revised our revenue guidance to around 3 to 3.5 per cent because of the continued weakness of the US dollar.
Premium traffic continues to be strong, supporting our earlier decision to make more premium capacity available. The North Atlantic non-premium market is still soft but other non-premium markets are more encouraging.
We have also revised our guidance for costs, excluding fuel, which previously was flat. We now expect costs to be down by £100 million because of the weak dollar”.
“Our fuel costs are expected to be up by £100 million on last year, £20 million lower than our previous guidance”.
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