| British Airways makes record loss of £292m |
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06/11/2009 12:27 (14 Day 16:58 minutes ago) | ||||
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The FINANCIAL -- British Airways today (November 6) presented its interim management report for the six months ended September 30, 2009.
Period highlights:
· Operating loss of £111 million (2008: profit of £140 million)
British Airways' chief executive Willie Walsh, said:
"Aviation remains in recession with IATA predicting that the industry will lose $11 billion this year. We were quick to respond to the crisis by taking out excess capacity and, at the same time, driving down unit costs by 5.2 per cent. This demonstrates how well our costs have been managed in the first half and it's imperative we continue to deliver on our plans to reduce costs further in the second half. With revenue likely to be £1 billion lower this year, we can't stand still and further cost reduction is essential.
"We reduced summer schedule capacity by 3.5 per cent, our costs are some £400 million lower and manpower has been cut by 1900 through reduced overtime, increased part time working and targeted voluntary redundancy. Total liquidity of some £4 billion puts us in a strong position.
"The global airline industry is facing continued pressure on yields highlighting a significant shift within the industry. We will introduce further structural change in the second half to secure the long term future for our business. We are cutting winter capacity by 6 per cent and making further manpower reductions of 3000 by March 2010 and permanent changes to the way we run our business.
"We're continuing to innovate with new services for customers to strengthen our position as the leading global premium airline. We launched our London City to JFK all-business flights and they're proving popular with customers with booking levels ahead of expectations. More widely, we're offering customers the option to pay to reserve seats more than 24 hours in advance and have seen an excellent response to this new initiative. Upgrading our cabins continues and, with our Club World refurbishment nearly complete, we will introduce a new First cabin in the New Year.
"Premium leisure demand has been strong during the last six months and we're investing in new leisure destinations with six new routes starting this winter.
"We continue to reap the benefits of Terminal 5 following our first full summer in the terminal. We've had record punctuality throughout the summer and this continued last month with our best ever October. Our baggage performance has hit record levels too and we continue to see high customer satisfaction ratings".
Financial review:
Total revenue in the period was down 13.7 per cent.
Passenger revenue was down 13.6 per cent, on capacity down 3.0 per cent. Yields were down 12.2 per cent, 18.2 per cent excluding exchange, largely as a result of lower year on year surcharges and sales mix within cabin class.
"Our cargo business continues to be impacted by the worldwide decline in demand for airfreight although its performance compares favourably with market trends which saw volume declines of some 13 per cent during the period. Cargo revenue declined by 30.9 per cent, with cargo volumes, measured in cargo tonne kilometres, decreasing by 8.1 per cent, reflecting some stabilisation in declining volumes. Cargo yields declined by 24.8 per cent driven by significantly lower levels of fuel surcharges, in line with lower fuel prices and significant market price declines," British Airways says.
Operating costs were down 8.7 per cent, despite the weakening of sterling compared to the same period last year. Fuel costs for the period were down 17.8 per cent on last year. Other operating costs decreased by 4.3 per cent due to the continued delivery of the cost reduction initiatives launched last October. Operating costs include a charge of £48 million for restructuring. Unit costs are down 5.2 per cent. Excluding fuel, the impact of exchange and restructuring costs, our unit costs are down 5.5 per cent.
Non operating costs include £100 million of pension costs and net finance costs of £65 million.
Loss before tax for the period was £292 million.
The tax rate for the period was 29 per cent.
Our financial position is strong. Our liquidity position at the end of September was £2 billion, including £1,507 million of cash and some £460 million of general facilities. In addition we have £2 billion of committed aircraft facilities.
The increase in reserves is primarily driven by the retranslation of foreign debt and the marked to market movement on fuel and currency hedges of £454 million. The equity component of the convertible bond raised in August 2009 adds a further £84 million to reserves. Net debt at the end of September was £2,362 million, a decrease of £20 million from the end of March 2009.
The Directors declare that no dividend be paid for the period ended September 30, 2009.
Business review:
We remain committed to our key business priorities.
Upgraded customer experience
We launched our first ever longhaul flights from London City airport onboard an all-business class, 32-seater Airbus A318. Customers on the new service are the first to be able to send emails, texts and use the internet on transatlantic flights via an in-flight mobile communications service.
We continue to receive consistently high customer satisfaction and recommendation ratings with more than 70 per cent of customers highly satisfied with the airline.
We have successfully reduced capacity in line with demand and seen our seat factor improve by 1.1 percentage points to 80.6 per cent in the first half.
We completed discussions with Airbus on rescheduled A380 deliveries. The first A380 will arrive in 2013 with the last aircraft arriving in 2016.
The first two aircraft in our subsidiary BA CityFlyer's new fleet of Embraer efficiency jets went into service from London City airport.
Competitive cost base
We continue to review costs and our cost reduction initiatives in all business areas are in line with our plans. This will provide us with some permanent reductions that we will see next year.
Corporate responsibility
Willie Walsh attended a United Nations leadership forum on climate change in New York. He called on world leaders to support an unprecedented agreement between airlines, aircraft manufacturers, airports and air navigation providers that IATA will present to the Copenhagen climate change summit in December.
Earlier this year we launched the Backing Britain campaign to help British businesses fight the recession. We've now launched the US version, "Face to Face", a long term campaign to boost economic growth in the United States by offering 1000 American business people the opportunity to travel overseas on BA flights to conduct face-to-face meetings with their business partners.
Principal risks and uncertainties
During the period we have continued to maintain and operate our structure and processes to identify, assess and manage risks. The principal risks and uncertainties affecting us, detailed on pages 32 and 33 of the March 31, 2009 Annual Report and Accounts, remain relevant for the remaining six months of the year. The risks include brand reputation, competition, consolidation/deregulation, debt funding, employee and industrial relations, environment, fuel price and currency fluctuation, fuel supply, global extended economic slowdown/credit crunch, government intervention, Heathrow operational constraints, key supplier risk, pensions and safety/security incident. Related parties
Related party disclosures are given in Note 20 to the condensed consolidated financial information.
Trading Outlook
IATA has forecast a 15 per cent decline in revenue for the industry this year. Although this will be partially offset by the fall in oil price, IATA has recently revised their global airline loss forecast by $2 billion to $11 billion for this year. Our traffic volumes and yields have stabilised compared to a very low base. We are continuing with our cost reduction initiatives to help offset the declines in revenue.
We continue to focus on excellent customer service to ensure we are the leading global premium airline.
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