18 / British Airways 2008/09 Annual Report and Accounts

Our business

The global airline industry is fiercely competitive, heavily regulated and highly exposed to changes in customer behaviour and consumer confidence. The current economic environment presents a new challenge. We must concentrate our efforts to seize long-term opportunities for growth. British Airways 2008/09 Annual Report and Accounts / 19 The markets we operate in Overview

Market overview already begun in earnest, forcing many Global premium airlines into financial loss. demand in key markets The pace of economic slowdown during Even at these lower levels, fuel remains North Atlantic the year was faster than most had +1.2% a much bigger proportion of airline costs predicted. What had first been expected -17.9% to be a downturn in key developed compared to a few years ago, and the Within Europe economies turned into a global recession prospect of renewed volatility in prices -9.5% remains a long-term concern. in the autumn of 2008. With record oil -24.1% and commodity prices, sterling collapse The most significant impact of the Within Far East and an unprecedented financial crisis all downturn has been on premium -6.6% striking at once, even those emerging passengers, with businesses looking to -26.3% economies that had been expected to cut back sharply on travel to save money. Europe – Far East go untouched by recession saw sharp Our business IATA’s latest figures show that global -2.8% declines in growth. premium traffic fell in 2008 by 2.8 per -20.3%

In the UK, growth began slowing in the first cent. The rate of decline is increasing, and Europe – Middle East half of the year, whilst the US economy IATA has indicated that the year to date +6.9% went into recession in the last quarter. In decline for the first three months of 2009 -10.3% both economies, consumer and business was around 19 per cent. The rate of Total Market confidence plummeted due to rising decline varied across the world, with trans- -2.8% unemployment, uncertainty in the capital Pacific traffic and routes within Asia most -19.0% markets, a continuing squeeze on credit, severely hit. the erosion of household budgets and The impact on business travel is likely to 12 months to December 31, 2008 falling house prices. Growth also slowed continue for some time. A recent survey 3 months averaged to dramatically in many Asian economies. suggested that 47 per cent of businesses March 31, 2009 Government attempts – nationally and will take fewer trips in the year ahead. Source: IATA oprt oenneFinancial statements Corporate governance internationally – to halt the financial Individual customers are also looking to crisis through bank bailouts and credit make savings on travel, increasingly seen as guarantees staved off what might have an item of discretionary spend. Consumer been an even more serious collapse. confidence the world over has tumbled. Subsequent efforts to stimulate economic Though many customers continue to see “The airline industry acts activity are expected by most economists a first holiday as an essential rather than as an economic barometer. to take longer to take effect. a luxury, most are cutting back on second Like our competitors, It is hoped that these steps will kick-start and third holidays and short breaks. we feel the full force the US and UK economies which will For both business travellers and provide some economic growth in 2010. of falling confidence individuals, airline brands that are trusted quickly and, on this This should, in turn, provide some basis to be robust and reliable are more sought occasion, dramatically.” for a recovery in our own business. after in tough economic times. Customers seek assurance that their journeys will go Impact on the industry smoothly. If they travel less, each trip they The airline industry acts as an economic do make is all the more important. barometer. Like our competitors, we feel the full force of falling confidence quickly The downturn is also making customers and, on this occasion, dramatically. much more price sensitive. They are looking for value for money, demanding During the first half of the year, oil prices excellent levels of service and high-quality hit a record high of $146 a barrel, forcing standards at lower costs. Less loyal to up the fuel costs of all carriers to brands than in the past, they are now unprecedented levels and putting margins willing to try out new ones which offer real under enormous pressure. Although fuel value. This presents agile operators with an prices subsequently fell to about a third opportunity to attract new customers, but of that level, the onset of recession had 20 / British Airways 2008/09 Annual Report and Accounts The markets we operate in continued

“Some 35 passenger and cargo carriers have either makes it vital that they keep offering value Taxation gone out of business for money, reliability and superior service. Governments are increasingly looking at aviation for additional tax revenues under or been absorbed into Customers are also making more informed the auspices of making airlines pay for other airlines.” choices. They have become more self- environmental costs. By March 2011, reliant, thanks to the proliferation of new APD in the UK will have increased by up to information channels such as the internet 210 per cent from current levels and the and mobile phones. They are using price EU will be looking to introduce a system comparison sites and seeking out personal of payment for carbon emissions. recommendations on service and quality before booking their trips. We expect this trend to increase during the downturn. Competition Metrotwin, our new online community, is In response to the worsening economic an example of how we are responding to conditions, the airline industry is in the this social media trend. The new website process of change in a number of areas. ‘twins’ London and New York and publishes recommendations of the best Consolidation places to visit in both cities. Metrotwin is Weaker customer demand coupled successfully attracting a young, affluent with record fuel prices, has sped up and influential audience. consolidation in the airline industry. Some 35 passenger and cargo carriers have either Corporate responsibility gone out of business or been absorbed into While recession is the overriding concern other airlines. In Europe, five independent for most customers, the environment airlines have been, or are in the process of and corporate responsibility remain very being, taken over by competitors. important issues to them. It is clear from research that those companies with a In an effort to protect their airline industry clear and open commitment to behave from the effects of the financial crisis and responsibly and to manage their global recession, some governments have environmental impact have a far greater resorted to bailout programmes. This has chance of building a trusted relationship been particularly true in a number of major with their customers. emerging markets, most notably China, India and Russia.

Metrotwin, our new online community, is an example of how we are responding to social media trends. The new website ‘twins’ London and New York and publishes recommendations of the best places to visit in both cities. Metrotwin is successfully attracting a young, affluent and influential audience. Overview Our business Corporate governance Financial statements Three airlines have Three the new introduced Heathrow Airbus A380 at of in 2008, with a total a week. 24 departures them offers The aircraft enhance to the chance their products. For both business travellers business travellers both For airline brands and individuals, be robust to trusted are that sought more are and reliable times. economic after in tough assurance seek Customers will go their journeys that less, travel If they smoothly. is all do make each trip they important. the more 2008/09 Annual Report and Accounts / 21 and Accounts Report Annual 2008/09 British Airways British Longhaul market Longhaul impact has had a significant Deregulation phase on our longhaul business. The first has the EU-US Open Skies agreement of landscape on the competitive altered capacity While seat routes. transatlantic 3 per by just 2008 rose in the summer of a sharp has provoked regime the new cent, (down Gatwick capacity from of transfer (up 19 per cent). Heathrow to 39 per cent) slots won now US airlines have new Four also been new have There Heathrow. at Africa and India. Air France from entrants a US service established temporarily a time when our at Heathrow, from OpenSkies subsidiary launched own Paris the US from to services direct and Amsterdam. the new introduced airlines have Three in 2008, with Heathrow Airbus A380 at The a week. 24 departures of a total enhance to them the chance offers aircraft their products. downturn the economic However, in sectors emerging in two havoc wreaked the collapse saw We in 2008. our industry – Maxjet, operators premium-only three of longhaul cost Low Eos and Silverjet. and such as Oasis Hong Kong operators, business, although out of also went Zoom, serve to emerged have operators other charter in which a number of this market, operate. to airlines continue Shorthaul market competition face we On shorthaul routes, Train in the air and on the ground. taking a bigger in the UK are operators now markets, travel the air/rail of share have improvements infrastructure that lines such as the times on key cut journey overcame mainline. Eurostar Coast West and disruption caused by the tunnel fire in passengers more carried 10 per cent flights a time when demand for 2008, at fell Paris Brussels and to to London from respectively. by 20 and 13 per cent, but grow, to continuing airlines are Budget at growth switched their priorities to have has been little airports. There continental operations. in their London growth organic airlines have At the same time, full service cutting in London, their presence reduced in 2008, capacity by 5 per cent seat has been this reduction although little of which from on the airports focused operate. we Increased competition Increased operate in which we the markets of Most of Levels highly competitive. are On a by route. route vary, competition is competition routes international few are airlines and fares national to restricted is there extreme At the other regulated. within flights internal for market a free airline to European any allowing Europe fares. its own and set route any operate 22 / British Airways 2008/09 Annual Report and Accounts The markets we operate in continued

BAA is being forced by the Competition Commission to dispose of Gatwick, Stansted and either Glasgow or Edinburgh airports. Such a move could be beneficial to Heathrow, ensuring that it has the right resources and focused management.

Regulatory controls and valuable services. Other recent regulatory changes have made these Almost every aspect of running an airline routes, and Heathrow in particular, far is governed or influenced by a web of tight more competitive than in the past and we regulatory controls. These cover everything have argued that the move would bring from the routes we fly, to the business real benefits and choice to customers. partners we cooperate with, the airport We expect a decision in the autumn of slots we use, the fares we set and the this year. “The UK Government infrastructure costs we pay. Strict rules announced during the year also govern safety and security and the The second phase of Open Skies is that it was in favour of management of our environmental impact. at a critical stage too. This would give European carriers reciprocal rights of developing a third, short There were a number of important access to US airports of the sort that US runway at Heathrow.” regulatory developments during the carriers now enjoy in Europe. The latest year which will have a major impact on negotiations are moving slower than we the industry in general and on our own had hoped. The EU retains the right to long-term strategy. revoke phase one if satisfactory progress is not made. European airlines are generally Liberalisation keen to avoid this however, believing that In April 2009 we completed our third further liberalisation will provide a long- application to EU and US competition term boost for the industry and extend authorities to operate a joint business choice for customers. on north Atlantic routes with our oneworld alliance partners, American UK airports Airlines and Iberia. The UK Department of Transport is We are seeking the same anti-trust reviewing the way the CAA regulates airport immunity to run this business as is already charges. There is strong pressure for a enjoyed by our major competitors. Their review of the way BAA is regulated and for respective alliances, Star and Skyteam, are the introduction of cost-effective charges already allowed to coordinate schedules that ensure airports are managed efficiently. and offer customers a range of benefits Overview Our business Corporate governance Financial statements route charges cost us charges cost route £603 up 14.2 per million, mainly due This was cent. had to we that the fact to much higher charges pay using Heathrow for BAA to and Gatwick.” Our security department works Our security department within the wider international ensure to security framework our business to threats any that protect to minimised and are worldwide our customers, and staff. assets, operations “Landing fees and en and fees “Landing 2008/09 Annual Report and Accounts / 23 and Accounts Report Annual 2008/09 British Airways British Safety and security Safety have us. We priority for a key is Safety in system management safety a formal all meet we that which ensures place a operate and we regulations relevant to system monitoring comprehensive and reported are all incidents ensure the start From action taken. necessary member airlines have 2009, all IATA of pass an International to been required We (IOSA). Audit Safety Operational since accreditation held IOSA have 2007. October have the world across Governments to security measures of a range introduced and terrorism of the threat combat try to to Airlines continue illegal immigration. Commission, European with the engage make to governments the UK and other effective are these measures that sure while causing the minimal inconvenience customers. to within the works Our security department to security framework wider international our business are to threats any that ensure our customers, protect minimised and to and staff. operations assets, worldwide 2 emissions by 2050 goes much further than emissions by 2050 goes to commitments industry-wide current by 2020. 2005 levels emissions at stabilise Environment a comprehensive meet to All airlines have and international local, national of range Our approach regulations. environmental as with all regulations comply these is to to them exceed minimum, and to an absolute our example, For areas. key in a number of CO our 2005 net halve to commitment BAA is also being forced by the being forced BAA is also dispose to Commission Competition and either Glasgow Stansted Gatwick, of airports. Such a move or Edinburgh ensuring Heathrow, be beneficial to could and resources it has the right that management. focused during announced The UK Government developing of in favour it was that the year subject Heathrow, at a third, short runway being conditions environmental tight to emissions and noise, of in terms met the at Capacity constraints air quality. behind fall to led Heathrow airport have airports in recent European competing the its position as one of threatening years, leading airports. While expansion world’s more compete help Heathrow would the of the future over the debate strongly, and is politically divisive airport remains the UK general up to way that stay to likely election and beyond. 24 / British Airways 2008/09 Annual Report and Accounts

Our strategy and objectives

In an incredibly tough trading environment we have to focus hard on pulling ourselves through the immediate crisis, while preparing the business for better economic times. This year we have mapped out a long-term vision for our business. It is to be the world’s leading global premium airline. Overview Our business Corporate governance Financial statements punctuality and baggage the network, targets across customer record achieving scores.” satisfaction The Galleries lounges at The Galleries 3 5 and Terminal Terminal reception fantastic had a have using the same are and we airports key other at concept such as Milan, Johannesburg and Vancouver. “We have exceeded have “We 2008/09 Annual Report and Accounts / 25 and Accounts Report Annual 2008/09 British Airways British the peak resource level during the level the peak resource 5 operations. Terminal of month first voluntary management A significant the also reduced programme severance by a third. Capacity managers number of demand weaker meet to realigned was our most possible, exploit and, where aircraft. fuel efficient growth A plan for continued have we the downturn, Despite sense economic it makes where grow to our customers. of the needs and meets London from routes launched new We launched Kitts; we and St Hyderabad to OpenSkies, our subsidiary flying from in North America to Europe continental purchased June 2008, and subsequently have in July 2008; and we L’Avion London the first the launch of announced later start to JFK service York New City to this year. new and flexible in efficient Investing in these tough sense, even makes aircraft Boeing our new of the arrival times. With we787s delayed, contracted six Boeing 777-300ER aircraft four acquired, (two a further four. leased), with options for responsibility Corporate most the world’s become Our vision is to brought have airline, and we responsible activities responsibility all our corporate under the banner ‘One together challenging set have We Destination’. in our carbon further reductions for goals waste and recycling emissions, reducing and minimising air and noise pollution. significantly invest to continued have We programme relations in our community raising of our record of proud and are as a business charities, both for money and energy the incredible and through our people. of commitment Competitive cost base cost Competitive with contend to fuel prices record With to efforts redoubled we during the year us to 5 has allowed Terminal costs. control operations our Heathrow of cut the cost By the end of than expected. by more Heathrow March 2009, our overall by had reduced levels manpower 1,074 MPE, 14 than lower per cent An upgraded customer experience customer upgraded An our 5 has transformed Terminal and customer performance operational punctuality exceeded have We service. the network, across targets and baggage satisfaction customer record achieving has customers premium for Service scores. Club World with the new been upgraded all Boeing 747 to fitted now product, 777 our Boeing half of and over aircraft will launch our we and this year aircraft, at cabin. The Galleries lounges First new had a 3 have 5 and Terminal Terminal using the are and we reception fantastic airports such key other at same concept and Vancouver. as Milan, Johannesburg BP11 plan, business three-year The rolling 2008/09. for agenda out our BP11, set build on Terminal to Our main aims were the customer upgrade to strengths 5’s the business make to continue experience, our operations grow effective, cost more a responsibility corporate and make our business. Record part of prominent meant and the global downturn fuel prices plans and reset our revise needed to we still have we priorities. Nevertheless, our against progress made significant the foundations laying original goals, success. future for Progress against our against Progress Business Plan 26 / British Airways 2008/09 Annual Report and Accounts

As discussed in the Chief Executive’s review on page 10, we have set our sights on being the world’s leading global premium airline. The decisions we are taking now will determine how strongly we emerge from the downturn. The airline industry is in a period of unprecedented change and we have developed a clear vision for our business. This vision is guiding us in how we deal with current market conditions and in how we go about building a sustainable future for our business. Global Premium Airline

What we offer will appeal to We will make sure all our customers We will remain focused on aviation, customers across the globe. enjoy a unique premium service moving people and cargo is our Wherever we operate, individuals whenever and wherever they come core business. We will develop new and business travellers alike will into contact with us. Our customers products and services to want to fly with us whenever will recognise that the service we complement this. they can. offer is worth paying that little bit more for.

Five Key Goals – the steps we will take to achieve our vision:

Be the airline of choice …so that people will want to fly with us whenever they can. We will continue to introduce great products such as the new business class seat on longhaul for longhaul premium and a restyled First cabin. To complement our Heathrow home – Terminal 5 customers… – we will redevelop premium facilities in New York JFK and continue to invest in lounges in other key cities.

Deliver an outstanding …by training our colleagues, on the ground and in the air, in world-class hospitality and customer service. Customers can already check-in from their service for customers at mobile or PDA, and we will continue to enhance ba.com. A new in-flight every touch point… entertainment system will be launched later this year.

Grow our presence …to provide the best global connectivity for our customers. In addition to our new longhaul service from London City to New York JFK, our network in key global cities… depth will be strengthened with more flights to Dubai and Johannesburg and a return to Saudi Arabia.

Build on our leading …the world’s biggest aviation market. Ensuring Heathrow remains a world- class hub is vital to give us a strong London base to serve the largest position in London… international longhaul markets. We will acquire new slots, support plans for a third runway and work with BAA to improve baggage and terminal facilities at Heathrow.

Meet our customers’ …by building profitable ancillary services that offer customers great value and re-enforce our brand. Our aim is to grow our mileage business and needs and improve boost revenues from third-party engineering, in-flight sales and a new online margins through new retail website. On ba.com we have now launched a range of great value revenue streams… hotel and car hire options packaged with our flights. Overview Our business Corporate governance Financial statements

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n t r a P In order to become the leading global premium airline, we need to look at the way we the way look at need to airline, we the leading global premium become In order to doing as a business. are we as what as well work change launched a three-year have we goals, key along with our five reason, that For –programme 2012 – Compete Olympics. 2012 the London our sponsorship of to linked our refresh our business to out across rolled is being progressively This programme work. we the way and will revolutionise culture 28 / British Airways 2008/09 Annual Report and Accounts Our strategy and objectives continued

Compete 2012 • Improving the way we manage performance in all areas of our business Our Compete 2012 programme aims through training and systems solutions; to instil the drive and competition of the Olympic spirit into the way we work and • Re-enforcing the new organisation perform as a team, and it puts our structure with clear accountabilities customers at the heart of our culture. linked to our overall Company goals; and • Innovating and improving our ways of Customer working, using e-tools. We think customer Our people will set the standard and Performance through them we will deliver world-leading We make it happen customer service. To be the world’s leading global premium To continue our success, we need to be airline, we need to sustain our improving Our employees are operational performance and be financially central to our ambitions clear about what sets us apart. to be the world’s leading fit. That way we can both invest in our • We keep promises – always doing what global premium airline. future and deliver a healthy return to we say we will do; our shareholders.

• We look the part – our style is To achieve these goals we need to be contemporary and understated; able to measure our performance across • We do things properly – doing the the business and to make our managers right things for the right reasons and accountable for delivery of our targets. to a high standard;

• We find solutions – solving any problems Excellence inventively and working flexibly within a We set standards that others aspire to framework; and We developed a number of key operational processes ahead of our move • We treat everyone as an individual – into Terminal 5 which have helped us to respecting differences and adding a personal become more efficient. Building on these touch to make everyone feel valued. we are now rolling out what we call the We are using a comprehensive ‘Lean’ Continuous Improvement approach communications and training programme across our business. to help put these principles into practice in everything we do. Partners Colleagues We win together The modern airline business is highly I am proud to give more interconnected. We rely on a network of We expect great things of everyone who both airline and non-airline partnerships to works for British Airways. Our colleagues deliver a complete service to our customers. are central to our ambitions to be the So to be the world’s leading global world’s leading global premium airline. In premium airline, we also need our partners return, they have the right to expect us to to see us as a great company to do provide them with a great place to work – business with. We are working hard to one which they can really feel proud of. develop better and more sustainable To achieve this we are: relationships with our partners, particularly some 500 key businesses to whom we • Investing in new leadership training; have given formal preferred supplier status. • Implementing clear communication programmes; Overview Our business Corporate governance Financial statements 2008/09 Annual Report and Accounts / 29 and Accounts Report Annual 2008/09 British Airways British Our Key Performance Our Key Indicators the year through Our performance Performance in our Key is reflected our meet to failed We Indicators. the because of financial target in trading downturn unprecedented to the move However, conditions. in a step-change 5 saw Terminal and performance our operational record-breaking achieved we punctuality and customer scores. recommendation 30 / British Airways 2008/09 Annual Report and Accounts Our Key Performance Indicators continued

KPIHow is it measured? What does this mean and why is it key to our strategy?

Financial Operating We must achieve a consistently strong financial performance if we are margin to continue investing in the future success of the business and provide adequate shareholder returns. Operating margin is the main way we measure our financial performance. In 2002 we set ourselves the goal of achieving a 10 per cent operating margin through the economic cycle and in 2007/08 we delivered this for the first time in our history.

Customers Customer Customer recommendation is a key measure of our success. Our Global recommendation Performance Monitor (GPM) survey, an onboard customer survey, together with a follow-up online survey on the arrivals process, provides monthly insights into customers’ views. The survey is carried out by an independent market research company and involves more than 57,000 customers each month. The customer recommendation measure is based on the percentage of customers who, when surveyed, were very, or extremely likely to recommend British Airways to friends, family or colleagues. Apart from being extremely important in its own right, we believe that this measure indicates how the customer experience will affect future profitability.

Operations Punctuality – Running a robust operation is key to both meeting our customers’ ‘Ready to Go’ expectations and to creating a cost-effective business. We monitor our operational performance via a broad range of measures at a variety of levels. Departure punctuality is our primary operational performance measure, requires other operational processes to run smoothly and is a key factor in whether customers would recommend British Airways to other travellers. ‘Ready to Go’ measures how many of our flights are prepared for departure at three minutes before the scheduled or planned departure time and focuses on the aspects of the departure process within our control.

Colleague Progressive, high-performing organisations are increasingly recognising Colleagues that engaged employees are more committed to organisational goals involvement and values and more willing to embrace change and improve customer service. For three years we have tracked opinions via an all-employee confidential Speak Up! survey, conducted and hosted by the independent research organisation, Ipsos MORI to measure our colleague involvement. Last year we indicated we would review our headline measure in this area. We have now defined an Employee Engagement Index, based on a basket of more detailed measures from the Speak Up! surveys, and have built employee responses into the way we measure and manage individual performance. Overview Our business Corporate governance Financial statements 7.1% 8.5% 36% 34% 70% 65% 65% 61% 59% 53% 7.2% 10.0% (2.4)% Not available* Not 2008/09 Annual Report and Accounts / 31 and Accounts Report Annual 2008/09 * Based on a basket of detailed measures, not comparable comparable not measures, detailed of Based on a basket * years. with previous top-level at * Restated for the adoption of IFRS. the adoption of for Restated * IFRIC 13 and 14. adoption of the for Restated ** 2008/09 2007/08 2006/07 2008/09 2007/08** 2006/07 2005/06 2004/05* 2008/09 2007/08 2006/07 2008/09 2007/08 2006/07 Performance over time over Performance British Airways British The move to Terminal 5 has delivered record-breaking levels of levels record-breaking 5 has delivered Terminal to The move for Go performance to 5 Ready Terminal performance. operational high in March 2009 with a record 46 per cent 2008/09 averaged good drives Heathrow at performance As good 64 per cent. of ever our highest delivered we the network, across performance This translated 53 per cent. of Go performance to Ready network-wide departing on time and within 15 minutes, flights of levels record into as with punctuality, satisfaction customer of levels as record as well survey. by our GPM recorded and product pride, service for scores saw The autumn Speak Up! survey significantly. all improve basic conditions with and satisfaction advocacy, the over performance operational the improved of This is a reflection 5. Terminal to moving summer and the impacts of 2008/09 was expected to be a tough year financially, given record fuel record given financially, year be a tough to expected 2008/09 was The rapid margin. in operating a reduction expected and we prices, our forecasts revise led us to situation decline in the global economic the year.through has been has followed that recession The economic hit demand for It has had predicted. most so than more far severe, coupled business. That, premium particularly significantly, air travel that has meant the year, in the early part of fuel prices with record down the year, £220 million for loss of an operating posted we £1,098 year. the previous million from For 2008/09 we targeted a level of customer recommendation (the recommendation customer of a level targeted 2008/09 we For British recommend to likely or extremely very customers of proportion 5 and the brilliant Terminal to The move 62 per cent. of Airways) as our network across delivered have we that performance operational This is 65 per cent. of score a recommendation this, drove of a result and in March 2009 the year through trend an increasing of the result (70 per cent) score recommendation monthly highest our achieved we this in April 2002. began tracking we since Achievements in 2008/09 Achievements 32 / British Airways 2008/09 Annual Report and Accounts Principal risks and uncertainties

“The Group carries out detailed risk management The operational complexities inherent Fare discounting by competitors has reviews to ensure that in our business, together with the highly historically had a negative effect on our the risks are mitigated regulated and commercially competitive results because we are generally required where possible.” environment of the airline industry, leave to respond to competitors’ fares to us exposed to a number of risks. Many maintain passenger traffic. A particular of these risks – for example changes in threat in the current economic governmental regulation, acts of terrorism, environment is cash rich competitors pandemics and the availability of funding growing market share and acting irrationally from the financial markets – can be to force other airlines out of the market. mitigated to a certain degree but remain outside of our control. Consolidation/deregulation As noted above, the airline industry The directors of the Group believe that is fiercely competitive and will need the risks and uncertainties described to rationalise to meet current market below are the ones that could have the conditions. This will involve further most significant impact on the long-term airline failures and consolidation. As in value of British Airways. The list (presented all consolidations, a merger with Iberia, in alphabetical order) is not intended to and the joint ATI application with Iberia be exhaustive. and American Airlines, would introduce The Group carries out detailed risk integration risks such as a failure to realise management reviews to ensure that the planned benefits, brand erosion and other risks are mitigated where possible. A more execution risks. detailed summary of risk management and Mergers and acquisitions amongst internal control corporate governance competitors have the potential to processes are included on pages 58 and adversely affect our market position and 59. Clear plans for mitigating many of our revenue. Certain markets in which we principal risks and uncertainties that we operate remain regulated by governments, face are included in the section on ‘Our in some instances controlling capacity strategy and objectives’ and ‘The way we and/or restricting market entry. Relaxation run our business’ on pages 24 to 28 and of such restrictions, whilst creating growth pages 34 to 52 respectively. opportunities for us, may have a negative impact on our margins. Brand reputation Our brand is of significant commercial Debt funding value. Erosion of the brand, through either We carry substantial debt which will need a single event, or series of events, could to be repaid or refinanced. Our ability to adversely impact our leadership position finance ongoing operations, committed with customers and ultimately affect our aircraft orders and future fleet growth future revenue and profitability. plans may be affected by various factors including financial market conditions. Competition Although most of our future capital The markets in which we operate are highly requirements are currently asset-related competitive. We face direct competition and already financed, there can be no from other airlines on our routes, as well as assurance that aircraft will continue to from indirect flights, charter services and provide attractive security for lenders from other modes of transport. Some in the future. competitors have cost structures that are lower than ours or have other competitive Employee relations advantages such as being supported by We have a large unionised workforce. government intervention. Collective bargaining takes place on a

Overview Our business Corporate governance Financial statements

2,382 2008/09

1,310 2007/08

**

991 2006/07

1,641 2005/06

2,922 2004/05 * Net debt £ million * Restated for the adoption of IFRS. of the adoption for Restated * the adoption of for Restated ** and 14. IFRIC 13 2008/09 Annual Report and Accounts / 33 and Accounts Report Annual 2008/09 British Airways British regulation ranges from infrastructure from ranges regulation capacity and route slot to issues relating environmental new to through flying rights, ability Our and security requirements. with, and influence comply both to is in, these regulations changes any and our operational maintaining to key financial performance. double APD to plans UK Government 2010,from Union and the European Scheme,Emissions Trading have may air for impact upon demand an adverse per margin profit the and/or reduce travel also benefit our may These taxes ticket. cost the relative by reducing competitors their hubs. doing business from of constraints operational Heathrow capacity runway has no spare Heathrow runways on the same two and operates As ago. it had when it opened 60 years short-term to vulnerable are we a result, is little disruption and there operational this. In February mitigate can do to we on the UK 2008, public consultation its that conclusion Government’s be met could conditions environmental and runways these two full use of allow to a third, short runway, of the construction the airport would of ended. This expansion delays, capacity and reduce extra create more compete to enabling Heathrow hubs such European against effectively and Frankfurt. Amsterdam as Paris, supplier risk Key some on suppliers for dependent are We In the current principal business processes. at our suppliers are environment economic The failure business failure. risk of increased cause significant supplier may a key of describe We our operation. disruption to 46. on page detail the supplier risk in more Pensions deteriorate If the financial markets our pensionfurther, increase, deficit may liabilities, sheet impacting balance which raise our ability to in turn affect may additional funds. incident Safety/security our customers and security of The safety for values fundamental are and employees a to or respond prevent to us. Failure could or security incident major safety and impact our operations adversely financial performance. Government intervention Government is becoming The airline industry such of The scope regulated. increasingly Global economic slowdown/credit crunch slowdown/credit Global economic economic to is highly sensitive Our revenue in which we in the markets conditions in the global deterioration Further operate. impact on a material have may economy our financial position. The financial services segments customer our key is one of sector difficulties in the banking and continued risk to a significant represent industry our revenue. Fuel supply Fuel fuel to jet provides that The infrastructure Any the operation. is critical to Heathrow and/or in this infrastructure breakdown the fuel supply will have of contamination impact. operational a significant Fuel price and currency fluctuation and currency price Fuel six million tonnes use approximately We of in the price Volatility fuel a year. jet of a can have products oil and petroleum results. impact on our operating material through risk is partially hedged This price oil and petroleum the purchase of which markets in forward derivatives or a loss. a profit can generate risk currency to is exposed The Group in purchases and borrowings on revenue, seeks to Group The currencies. foreign arising exposures exchange foreign reduce currencies in various transactions from as far matching, a policy of through in and payments as possible, receipts and selling the each individual currency its of surplus or buying the shortfall obligations. currency Environment adopt an integrated to Failure lead to could strategy environmental and a in our reputation deterioration An revenue. loss of consequential responsibility corporate on focus increased target and a published emissions reduction strategy. the refocused will help deliver regular basis and a breakdown in and a breakdown basis regular disrupt could process the bargaining business affect and adversely operations to effort Our continued performance. through costs, employment reduce and competitive productivity increased the risk in this area. increases awards, wage 34 / British Airways 2008/09 Annual Report and Accounts

The way we run our business

To create a really high-performing business we need to build an inspiring and rewarding workplace where talented people can work to the best of their ability to meet our customers’ needs and our wider social responsibility. Overview Our business Corporate governance Financial statements Tim Steeds Investments Roger Maynard Roger Maria Da Cunha and industry affairs and industry Safety and security Safety Legal and government Legal Chief Executive Reporting to the to Reporting 2008/09 Annual Report and Accounts / 35 and Accounts Report Annual 2008/09 Board British Airways British Customer Willie Walsh Willie Management Engineering Silla Maizey effectiveness Robert Boyle Robert Chief Executive Keith Williams Keith Tony McCarthy Tony Garry Copeland Andrew Crawley Andrew Sales and marketing Finance and performance and performance Finance People and organisational and organisational People Strategy and business units Strategy Restructuring management Restructuring long-term 2012 is a While Compete market current programme, change it imperative made have conditions more a leaner, create to fast move to top the very at starting agile structure our business. of our 2008, a third of In December business under a left the managers scheme. At the same severance voluntary to the organisation redesigned time we and focus customer greater promote and leadership. governance better has made us more effort This restructuring and us identify It has also helped efficient. in the business, helped talent on new draw encouraging now are we that by the fact functions between move people to more and find new gain wider experience to support greater their skills. To for outlets

Customer and Customer

Operations Executive Operations

We are re-inventing the way we work at work we the way re-inventing are We a leaner creating are We British Airways. high- with a distinctive, organisation our flagship through culture performing 2012. Compete programme, change this programme, years three the next Over 28, will help on page described in detail the becoming our vision of achieve us to airline. leading global premium world’s with interact we the way It will affect individual measure we how each other, promote, we and how performance Coupled with talent. and reward develop be a responsible to our commitment our airline, it will also help us achieve put our targets, ambitious environmental on a new suppliers with key relationship of our tradition and continue footing in useful and supporting communities ways. imaginative The workplace The way we run our business run we way The

Customer

Andy Lord

Operations

Engineering

Silla Maizey Julia Simpson

Garry Copeland Riley Stephen Flight operations Flight Communications 36 / British Airways 2008/09 Annual Report and Accounts The way we run our business The workplace continued

“Change must start at the top and during the mobility, we have clarified individual and Among the other leadership initiatives year we reorganised collective roles and responsibilities and we launched were: now publish accountabilities for all of our our top management • Behaviours for Success – a leadership top managers on our intranet. team, comprising nine development programme for the HPL directorate heads, led community, focusing on understanding Leadership development by the Chief Executive.” and developing personal leadership We need great leaders to help us contend performance; with current trading conditions and achieve our long-term vision. A leading global • Leadership Matters – a scheme to premium airline must be bold and highly identify and develop leaders who have effective in developing present and pivotal roles in the Customer and potential leaders. Operations areas of our business; and

This is why we introduced our High • A Leadership Development Portfolio Performance Leadership (HPL) system that will be introduced this year with the during the year. This is an integrated aim of supporting current and potential system, linking business strategy, objective leaders at every level of the business, setting, performance assessment, including emerging leaders, those on a development and reward. Focused initially fast track to senior positions and those on the senior leaders, HPL has rigorous with strategic roles at the very top of assessment mechanisms to identify our organisation. talented leaders and to provide them with the right tools and support to The management of our business continue developing. Change must start at the top and during the year we reorganised our top We have also defined, communicated and management team, comprising nine begun to measure individual performance directorate heads, led by the Chief against three capabilities we think we Executive. It is now split into two groups – need in our leaders, in addition to the Management Board and the Customer operational excellence: and Operations Executive. • Communicating a common vision; The Management Board, which meets • Agreeing accountabilities; and weekly, is responsible for the vision and strategic direction of the Company. • Motivating and inspiring others. The Customer and Operations Executive For each capability, specific behaviours is accountable for day-to-day customer have been developed so that leaders service, operational performance and understand exactly what is expected of ensuring the highest standards of safety. them and we are supporting them with This group also meets weekly. a range of development programmes, including executive coaching, networks, Legal, director of safety and security and forums and external courses. We are director of investments also report to the also using new techniques to measure Chief Executive. performance. These will allow us to monitor individual progress and track our own overall success at managing talent. Overview Our business Corporate governance Financial statements 2008/09 Annual Report and Accounts / 37 and Accounts Report Annual 2008/09 British Airways British Our restructuring effort has made us more efficient. It has also efficient. has made us more effort Our restructuring in the business, helped talent new on and draw helped us identify move people to more encouraging now are we that by the fact outlets and find new experience gain wider functions to between clarified have we mobility, greater support their skills. To for publish and now and responsibilities roles individual and collective our top all of for accountabilities on our intranet. managers 38 / British Airways 2008/09 Annual Report and Accounts The way we run our business The workplace continued

“Given the deterioration in trading conditions during People and organisational due to our losses in the year, the scheme the year, no bonuses will did not operate in 2008/09. effectiveness be paid.” Instead we used local incentive plans to In transforming the way we work, we offer rewards for improved performance, remain focused on creating a diverse, assessed against a range of operational, challenging and rewarding workplace customer and financial measures. The which people across the airline can feel first plan was introduced in Terminal 5 proud to be a part of, despite our and has led to significant improvements in expectation that the number of people performance, with targets being exceeded employed will need to reduce as we seek frequently. This approach is now being to streamline our business. considered in other areas to drive continuous improvement in our Headcount performance across the business. As at March 31, 2009, we employed 40,627 MPE. Management bonus schemes, using a mix of financial and non-financial performance Average attrition remains low at 7 per metrics, are designed to improve overall cent, with the exception of management performance and to reward individual grades where a voluntary redundancy effort. Given the deterioration in trading programme contributed to a significant conditions during the year, no bonuses increase in attrition for this group. will be paid.

Reward However, we have replaced our grade- Airline operations We operate two principal funded defined based reward scheme for managers with a benefit pension schemes in the UK, the new broad band system which links rewards MPE reduction more closely to individual performance (average) Airways Pension Scheme (APS) and the New Airways Pension Scheme (NAPS). and capability. Separately, our Bravo Both are closed to new members. From recognition scheme allows us to recognise 0.7% April 1, 2003, new employees were people across our business for their efforts entitled to join the British Airways and achievements. Retirement Plan (BARP). Employee costs Diversity SmartPension arrangements, which allow We are proud to be a business that (excluding our UK-based employees to make their restructuring) welcomes and nurtures difference. pension contributions in a more tax- Diversity and inclusion are a way of efficient way, were introduced in early life for us. 2008. Around 90 per cent of those eligible £2,193m Our diversity initiatives are all about are now benefiting from this arrangement. dignity and respect. They are designed Since 2005 our Employee Reward Plan to promote good relationships between (ERP) has allowed non-management colleagues, irrespective of their background, employees to share in the success of the religion or culture. As part of our annual business based on the achievement of diversity week, a series of events was held corporate measures and targets. However, to raise awareness and promote a more

Total members

March 31, 2009 APS NAPS BARP Active members 1,494 28,130 6,770 Pensioners in payment 19,266 15,699 Dependent pensioners 7,301 2,756 Deferred pensioners 3,143 22,307 584 31,204 68,892 7,354 Overview Our business Corporate governance Financial statements 2008/09 Annual Report and Accounts / 39 and Accounts Report Annual 2008/09 British Airways British We are proud to be a business that welcomes and nurtures difference. nurtures and welcomes be a business that to proud are We us. for life of a way inclusion are and Diversity designed are They dignity and respect. all about are initiatives Our diversity their of irrespective colleagues, between relationships good promote to a series week, our annual diversity As part of or culture. religion background, and positive a more and promote awareness raise held to were events of environment. work productive 40 / British Airways 2008/09 Annual Report and Accounts The way we run our business The workplace continued

positive and productive work environment. workshops across the business. All These included an inter-faith panel departments have targets to achieve and discussion focusing on five key religions and all employees must now complete the a presentation from a member of the Board online ‘Expect Respect’ training course, of the British Paralympic Association. introduced during the year.

The focus this year has been on Absence developing our Dignity at Work strategy We saw a modest improvement in to reduce harassment and bullying in the attendance throughout the year. The workplace. We have appointed and trained headline annual absence level has Harassment Advisors, drawn from across improved by one day per person. At the business, in response to colleagues’ December 2008 it stood at 10.8 average requests for people they can approach days per person per annum, with some confidentially about any issues they may areas of the business meeting top quartile have. The advisors act as a listening ear absence levels. While there has been a and provide practical advice and guidance. Total employees modest improvement overall this year, Our intention is to adopt a more informal we still compare unfavourably with similar approach to resolving potential conflicts sized businesses in the UK. To remedy this using internal mediators. we are creating a new programme to help As a responsible company, we take managers deal with attendance issues. disability very seriously. We welcome applications from people with disabilities Absences – days per person per annum as we aim to employ the most talented December 2008 10.8 Men 54% people and we support individuals with Women 46% disabilities in reaching their full potential by January 2008 11.7 making reasonable adjustments for them 2003 baseline 16.7 Senior managers in the workplace. Employee relations We consult with our disabled employee We negotiate with a total of three trade group to identify disability issues and they unions representing colleagues across the help us to ensure that we are making all business. We seek to work constructively our products, services and training fully with colleagues and their representatives inclusive and accessible. All frontline to improve productivity and performance. employees are trained in disability Men 74% awareness to increase their knowledge Despite the challenges we faced in the Women 26% about disabled customers and employees. early days of Terminal 5, we went on during the year to achieve significant We introduced a Building Ability strategy Managers improvements in our operational to identify and promote the needs of performance. This was partly down to the disabled customers and colleagues. We agreements we reached for new working constantly look at how we can improve the practices at the terminal. A major feature journey experience for disabled customers of these agreements was direct colleague and for the first time we conducted engagement with the involvement of our specific customer research to identify recognised trade unions. Another key areas for development. In July 2008, aspect was the introduction of local Men 69% 522 members of the British Paralympics incentive plans for many terminal-based Women 31% Association travelled to Beijing for the jobs as discussed above. Paralympic Games, providing us with important lessons we can translate into We continue to work hard to foster day-to-day practice. good relations with the representatives of our flying community. These Overall, our Dignity at Work strategy relationships will remain key as we involves training, communications and tackle the challenges ahead. Overview Our business Corporate governance Financial statements total of three trade trade three of total unions representing the across colleagues seek to business. We constructively work and with colleagues their representatives productivity improve to and performance.” “We negotiate with a with a negotiate “We 2008/09 Annual Report and Accounts / 41 and Accounts Report Annual 2008/09 British Airways British discrimination and other matters were matters and other discrimination on the increase a 60 per cent lodged, ongoing, Of these, 31 are before. year withdrawn, and four settled 12 were out. or struck by British Airways won outnumbered those for unfair dismissal unfair those for outnumbered 19 unfair were There year. the second for dismissal claims, about the same as in 2007/08; and including two, on how holiday pay should pay holiday on how including two, under Civil Aviation be calculated on brought Time) Regulations, (Working and cabin some 13,000 pilots behalf of members; crew currently being appealed, concerning the being appealed, concerning currently in and resident employed staff of rights pursue discrimination to Hong Kong claims in the UK; • or discrimination 47 claims for of A total • element Claims including a discrimination • multiple claimants, claims involved Six indicating that more employees regard regard employees more that indicating expressing of means this as an important their opinions. want we effective, more the survey make To as implemented are changes that ensure to now are All managers beinga result. given a plan actions based to clear responsibility and findings in an open on survey will run the we year Next way. transparent during the year, frequently more survey on feedback regular get managers so that opinion. in colleague changes an the launch of 2009/10 will also see Up! Building on Speak Index. Engagement how this will help identify results, of levels can increase managers within their teams. engagement tribunals Employment served was During 2008/09, the Group in employment proceedings with 74 new the Plc was tribunals. British Airways the of in all but three respondent against are three The other proceedings. and Engineering, CityFlyer BA Avionic a Cardiff. This remains BA Maintenance Of the size. our relative given figure low 74 proceedings: • no tribunal claims in the year; lost We • hearing, did lose a preliminary We Engaging our colleagues Engaging our colleagues well kept are colleagues that ensure We customers about our Company, informed using comprehensive by and industry Face-to-face communications. internal run is our priority and we communication so the Company briefings across regular people as possible can meet, as many that ideas with senior and and share question to run workshops We line managers. key in communicating support managers also online forums and announcements to and an online Ideas Exchange Other wider dialogue. encourage channels include a communication mobile SMS personalised intranet, of messaging, video and a range and local newsletters. Company-wide in the a sea change saw In 2008/09 we our business think about people within way Our Speak Up! attitude here. working 2008 recorded in the autumn of survey for in scores improvements significant advocacy, and product pride, service with basic conditions. and satisfaction way the positive reflect The results to about our move feel colleagues performance. 5 and our improved Terminal people the number of Encouragingly, too, rose the survey to responding We carried out consultations with a carried out consultations We to within the business groups number of efficiency improve could we see where some beneficial and this has led to The and roles. practices in work changes included: by restructuring affected areas • relations; Customer • services; and customer ramp Gatwick • Cargo; World British Airways • base; and cabin crew Glasgow • base. engineering Manchester changed fundamentally we During the year our human resources organise we the way HR introduced We (HR) management. on good focus now who Business Partners and employee people management day-to- for responsible and are relations The central matters. relations industrial day consequently was team relations industrial strategic a more scaled back and given a ran we support this change To role. relations industrial bespoke number of understanding improve to courses training and practice. 42 / British Airways 2008/09 Annual Report and Accounts The way we run our business The marketplace

Customers punctuality, shorter check-in times and an altogether smoother travelling experience. Our customers are at the heart of everything we do. Our overriding aim is Around 21 million customers used the to make sure we offer an upgraded service terminal during the year and customer to everyone who chooses to fly with us. satisfaction has increased noticeably since opening. In direct response to customer We talk constantly to large numbers of feedback, we have further improved the customers to get a real understanding experience since opening, for instance of their needs, each month surveying by introducing a dedicated premium around 57,000 of them through our check-in zone. global performance feedback survey. The luxurious lounge complex at Terminal 5 By doing this we get a close and accurate has also been exceptionally well received, reading of how our customers’ needs are with an increase of over 20 percentage “Later this year we will changing and we are able to constantly points in customer satisfaction. The new improve their travelling experience. This is introduce a new First lounges offer greatly improved facilities, vital for us to to secure our position as the including wine bars, spa treatments, delicious cabin and the new aircraft world’s leading global premium airline. we have on order will allow food and upgraded communication links. We are now introducing similarly themed us to introduce further Service and training lounges across our network. innovations including new Our people play a crucial role in providing seating in World Traveller the upgraded travel experience. We are Onboard experience Plus and World Traveller.” committed to excellent service and are The new Club World cabin layout was investing heavily in training customer- introduced on our Boeing 747 aircraft in facing colleagues. Putting the customer 2007/08 and the roll-out was completed at the heart of everything we do is also a last year. Combining new levels of comfort, key priority of our Compete 2012 change greater privacy and choice, the layout programme, described in detail on page 28. has achieved an increase in customer These training programmes will continue satisfaction, of over 20 percentage points. in 2009, supplemented by service style We are now rolling out the new cabin training for our ground team at Heathrow on our Boeing 777 aircraft. and coaching for people in our contact Later this year we will introduce a new centres in how to provide a more attentive First cabin and the new aircraft we have and personal service. on order will allow us to introduce further Following the introduction of new corporate innovations including new seating in World values last year, all training programmes Traveller Plus and World Traveller. Our new have been redesigned. The behaviours London City to New York JFK service will are woven into all our courses to ensure use Airbus A318 aircraft in an all-premium, colleagues, particularly those in customer- 32-seat layout. This service is the first facing roles, meet our high standards. north Atlantic service from London City airport, and it will offer customers full During the year we delivered over mobile text and data services. 215,000 days of training. This included training days for cabin crew to enable them The new on-demand in-flight entertainment to deliver the highest level of premium system has also been well received. service to our customers, and for ground Customers like the increased flexibility staff to support the continued phased and the wider choice of movies, TV moves to Terminals 5 and 3 at Heathrow. programmes, audio and interactive games. We have improved the onboard Ground experience experience for our premium shorthaul Terminal 5 continues to impress our customers, offering them greater space customers. They are enjoying improved Overview Our business Corporate governance Financial statements 2008/09 Annual Report and Accounts / 43 and Accounts Report Annual 2008/09 British Airways British Terminal 5 continues to impress our customers. They are They our customers. impress to 5 continues Terminal check-in times and shorter punctuality, improved enjoying experience. travelling smoother an altogether during the used the terminal 21 million customers Around since noticeably has increased satisfaction and customer year have we feedback, customer to response opening. In direct instance opening, for since the experience further improved check-in zone. premium a dedicated by introducing 44 / British Airways 2008/09 Annual Report and Accounts The way we run our business The marketplace continued

“During a recent survey, two thirds of respondents and privacy by keeping the middle seat carrier to use e-freight between Heathrow rated ba.com as Excellent free. Also, we have not forgotten our and New York. or Very Good – proof that youngest passengers who can now enjoy our creative development of an entertainment pack on longhaul flights Overseas branches the website is providing real featuring that much-loved character, We fly to a number of destinations around Paddington Bear. the world (see inside front cover). In value to our customers.” addition to the overseas branches we have ba.com established in many of these countries, ba.com – our online portal – is not only we have branches in countries to which becoming more popular with customers, we do not fly. it is also helping us to drive down costs and increase revenues. Suppliers, partners and Almost a third of all our bookings are now made on ba.com, with almost half of all alliances European leisure fares sold via the UK site. This year we introduced a new feature Suppliers allowing customers to upgrade their Overall supplier costs, excluding fuel, booking at any time between buying a were up nearly 7 per cent year on year, ticket and checking-in online. reflecting significant inflationary pressures on suppliers’ own costs. In continuing to A large number of our passengers now control our costs, we have decided to check-in online. They clearly enjoy the prioritise those projects that really add convenience of this service. For that value to the customer proposition. Average payment reason we have now launched a popular performance new service, allowing customers to Goods and services are procured through check-in or access real time arrivals a strategic sourcing process. We use and departures information through benchmarking principles to make sure 91% their mobiles. we derive the maximum value from them, of payments were on time in both at the point of purchase and over the During a recent survey, two thirds of the UK. life of the supply contract. respondents rated ba.com as Excellent or Very Good – which is proof that our During the year we signed major in-flight creative development of the website is catering agreements with three suppliers, providing real value to our customers. all of which will come into effect from April 1, 2010. We believe these agreements will Cargo set a new benchmark for high-quality BA World Cargo continues to focus airline catering. Using three suppliers will on providing premium products. We also help us to minimise our exposure to have improved the ‘Prioritise’ (express) supplier failure. service through advancements in the We continued to reduce our carbon new ‘cool chain’ technology. New services footprint with the delivery of the first such as scanning for airmail and direct of our new Boeing 777 aircraft during airport-to-door deliveries are just some the year. Lower fuel burn and reduced of the improved solutions we are now environmental impact were key factors offering shippers. in our choice of aircraft.

BA World Cargo also continues to play a In addition, we have selected the Thales leading role in simplifying the international in-flight entertainment system for all new supply chain. We are fully committed to aircraft delivered from 2010. With bigger the IATA coordinated e-freight initiative. screens, the multimedia system will give Not only have we played an important role customers access to over 100 movies, in formulating guidance for participating 300 programmes and 400 CDs as well as airlines, we were also the first European a range of radio programmes and podcasts Overview Our business Corporate governance Financial statements 2008/09 Annual Report and Accounts / 45 and Accounts Report Annual 2008/09 British Airways British Almost a third of all our bookings are now made on ba.com, made on ba.com, now all our bookings are a third of Almost sold via the UK site. fares leisure all European half of with almost to customers allowing feature a new introduced we This year and buying a ticket time between any their booking at upgrade checking-in online. check-in online. They now our passengers number of A large we reason that For service. this of the convenience clearly enjoy to customers allowing popular service, launched a new now have information and departures time arrivals real check-in or access their mobiles. through 46 / British Airways 2008/09 Annual Report and Accounts The way we run our business The marketplace continued

whenever they want. The system is lighter Corporate responsibility in the so will also help us reduce aircraft weight supplier base and use less fuel. We are committed to making responsible purchasing decisions, and during 2008/09 Supplier risk started to refine our purchasing process Mitigating supplier risk is a key priority, and train our procurement team to make particularly in the current economic sure this happens. We will continue to climate. Our procurement team records survey potential suppliers to assess their and measures risk across our most corporate responsibility credentials, using important suppliers. We have currently independently-held, self-certification data identified a number of suppliers who, if when deciding with which suppliers to work. they ceased trading or experienced severe difficulties, would have a serious impact on Procurement delivery our ability to operate. For these suppliers, Using preferred suppliers helps us “We are committed to risk is measured across five dimensions, to control costs. In December 2008, making responsible updated each month and we take 96 per cent of our external spend purchasing decisions, and mitigating action when any supplier was with 500 suppliers who have during 2008/09 started is deemed to be in trouble. all been awarded formal preferred supplier status. Increasingly we are to refine our purchasing In addition to managing supplier risks, we also making sure our spend goes also routinely monitor the financial health process and train our through our approved order-based of critical suppliers using monthly Dun & procurement team to process. In December 2008, 99 per Bradstreet company reports as an early make sure this happens.” cent of spend was approved this way. warning system.

We use business continuity plans to cover Partners and alliances the risk of supply failures and regularly We maintain commercial arrangements review their effectiveness with the suppliers with other airlines covering scheduled themselves. Equally, we make sure effective passenger and cargo services on a small contingency plans are in place to respond number of our international routes. to any supply interruption. Commercial arrangements can govern, among other things, capacity offered Payment performance by each airline, how revenue is shared We have again made good progress on between the airlines and how schedules paying suppliers in accordance with our are coordinated. In very few cases, some agreed terms. On average, 91 per cent commercial arrangements between of payments were on time in the UK ourselves and other airlines are required for the year ended March 31, 2009. under the relevant air services agreements. This compares with 88 per cent in the preceding year and exceeds our 90 per cent target. Next year we expect to improve further through increased use of e-invoicing and purchasing cards.

We are a signatory to the Confederation of British Industry (CBI) code of practice on supplier payment and are committed to paying our suppliers on agreed terms. The number of days’ purchases in creditors at March 31, 2009, is calculated in accordance with the provisions of the Companies Act 1985 and was 32 days (2008: 33 days). Overview Our business Corporate governance Financial statements 2008/09 Annual Report and Accounts / 47 and Accounts Report Annual 2008/09 British Airways British We have improved the onboard experience for our premium for the onboard experience improved have We and privacy space them greater offering shorthaul customers, forgotten not have And we free. the middle seat by keeping an entertainment enjoy who can now passengers our youngest character, much-loved that featuring pack on longhaul flights Bear. Paddington 48 / British Airways 2008/09 Annual Report and Accounts The way we run our business Community investment

“Our partnership with UNICEF, Change for Good, We have a long history of investing in Overseas, we have been working with UK celebrated reaching its the communities in which we operate. and South African partners on a multi- £25 million milestone This work continues and in 2008/09 agency Safer Communities programme in July 2008.” we supported over 120 community and in South Africa to reduce crime and conservation organisations in a variety of increase community confidence. Since ways, including donating travel awards, the programme began in 2003, over 40 cargo and excess baggage space. schools and more than 200 volunteer youth coaches have been trained. We work closely with the communities around Heathrow and the UK regions. Our Change for Good main priorities include education and youth Our partnership with UNICEF, Change development, supporting volunteering by for Good, raised £3 million in the year to our colleagues and promoting sustainable March 31, 2009. The onboard collection tourism, heritage and the environment. programme, supported by over 2,400 cabin We continue to be a member of both crew champions, enabled us to help fund the London Benchmarking Group (LBG) UNICEF’s work with vulnerable children. and the Business in the Community (BITC) Change for Good celebrated reaching its 15 Percent Club. £25 million milestone in July 2008.

In August 2008 our Chief Executive visited Education and youth development Tanzania to see the work of Change for Our Community Learning Centre – Good at first hand, particularly how funds close to our Waterside headquarters at are being used to support and treat Heathrow – has welcomed nearly 50,000 mothers and babies affected by HIV/AIDS. 2008/09 young people and adult learners on a We have also invested significantly in China range of education programmes since its to support literacy programmes and in opening in 1999. Programmes relevant Nigeria our donations have been used £5.4m to the school curriculum are run in to buy malaria nets. donated to charity. partnership with the United Nations International Children’s Emergency Fund Employee fundraising (UNICEF) focusing on places we fly to, Over 3,500 retired and current employees using workshops on customer service, donated over £630,000 directly from their BA Fun Run information and communication payroll to their chosen charities through technology and the environment. our Giving Scheme during the year. In £55,000 addition, we supported Children in Need Languages raised for Cancer and Red Nose Day across the airline The British Airways language flag award, Research UK. raising over £13,000 for charities in the offered to schools across the UK, has UK and overseas. been recognised by the Foreign and Commonwealth Office and in 2008 won Last year’s BA Fun Run raised in excess of the Business Language Champion Partnership £55,000 for Cancer Research UK. During of the Year Award. We are seeking official 2008/09 our World Cargo team collected accreditation for the programme which will and delivered over 95 tonnes of high- allow the test to earn university points. Over quality gifts, donated by employees from 1,500 young people have gained a flag award across the airline. in languages ranging from French to Urdu. Charitable donations Partnerships BITC reported our total direct and in-kind In partnership with the Natural History donations for 2008/09 at £5.4 million Museum, we have developed programmes (2008: £5.7 million). Of these, direct allowing pupils from Heathrow schools to charitable donations amounted to visit the museum, meet scientists and £444,000 (2008: £398,000). experience the work of the Darwin Centre. Overview Our business Corporate governance Financial statements 2008/09 Annual Report and Accounts / 49 and Accounts Report Annual 2008/09 British Airways British Our Community Learning Centre – close to our Waterside – close to Centre Our Community Learning nearly 50,000 young – has welcomed Heathrow at headquarters programmes education of people and adult learners on a range the school to relevant its opening in 1999. Programmes since Nations run in partnership with the United curriculum are (UNICEF) focusing Fund Emergency Children’s International service, on customer using workshops fly to, on we places and the environment. technology communication information, 50 / British Airways 2008/09 Annual Report and Accounts The way we run our business Environment

“In March 2009 our carbon offset scheme became the Climate change 21,000 tonnes of fuel. In addition, we

first airline offset product Climate change is an issue of huge have reduced CO2 emissions associated to meet the requirements importance to us and we have a long-term with our UK property portfolio by nearly of the UK Government’s commitment to address it. Our climate 11 per cent. change programme covers four main areas: Quality Assurance Scheme.” In 2008 our carbon efficiency, expressed policy measures to curb emissions growth; in grammes of CO per passenger kilometre voluntary carbon offsetting; fuel efficiency; 2 (gCO /pkm), was just over 107 grammes. and support for scientific research. 2 Our target is to improve that figure to 83

Our target is to reduce our net CO2 gCO2/pkm by 2025. Our carbon footprint

emissions by 50 per cent by 2050, relative was 17.6 million tonnes of CO2 in 2008. to 2005. Meeting this target will require We are also supporting a number of investment in new technology, sustainable scientific research projects. These include biojet fuels and in cost-effective emissions the European Commission’s IAGOS reductions in other sectors of the economy project which is investigating whether through the creation of effective global aircraft can be used to collect atmospheric carbon trading markets. data in-flight and a partnership to develop Governments will come together in new policies on preventing deforestation. December 2009 to discuss a future global agreement on climate change. International Waste aviation emissions were not included in We aim to minimise waste, reduce disposal the Kyoto Protocol, but we believe that to landfill and increase reuse and recycling. they must be incorporated into this new Where we cannot prevent waste disposal, Over agreement. We are playing a leading role we aim to manage our waste responsibly. in aviation groups to develop a global In 2008 we recycled 35 per cent of dry policy approach for the sector. 55,000 waste at Heathrow and Gatwick (up from In December 2008 the European Union 30 per cent the year before). We have set tonnes of CO2 were offset by customers in 2008. finalised the conditions for including ourselves the target of recycling 50 per aviation in its Emissions Trading System cent by 2010. We will achieve this through (ETS). With our experience of emissions the provision of more recycling centres, trading since 2002 we are well placed handling a wider range of materials and by 35% to meet the EU ETS requirements. encouraging better segregation of waste. of dry waste at Heathrow Our offsetting scheme allows passengers The amount of waste at Heathrow and and Gatwick was recycled to add a carbon offset when they book a Gatwick sent to landfill fell by 7.2 per cent in 2008. flight through ba.com. During 2008, some to 3,424 tonnes, during the year. Our non- 150,000 customers offset over 55,000 recyclable waste at Heathrow and Gatwick

tonnes of CO2 in this way and their will be processed through a waste to contributions have helped fund UN- energy plant before the end of 2009, certified carbon cutting initiatives in China helping us to meet our target of zero and Brazil. In March 2009 our scheme waste to landfill by 2010. became the first airline offset product to meet the requirements of the UK Noise Government’s Quality Assurance Scheme We are investing in quieter aircraft and for Carbon Offsetting – a guarantee that technology and aim to change the way we are achieving genuine, additional and we fly to reduce the noise of our activities. measurable carbon reductions. We have set a target to reduce our average noise per flight by 15 per cent by 2015. We continue to look for ways to improve fuel efficiency and over 600 projects have Night noise is a particular concern for so far been assessed. Of these, 55 have people living near Heathrow and is one of been implemented, delivering over 65,000 the key issues we want to address. During

tonnes of CO2 savings, equivalent to nearly 2008, we contravened the noise limits at Overview Our business Corporate governance Financial statements 2008/09 Annual Report and Accounts / 51 and Accounts Report Annual 2008/09 British Airways British emissions by 50 per cent by emissions by 50 per cent 2 We are investing in quieter aircraft and technology and aim and technology aircraft in quieter investing are We our activities. the noise of reduce fly to we the way change to noise per flight our average reduce to a target set have We by 2015. by 15 per cent our CO reduce also aim to We 2050, relative to 2005. Meeting this target will require investment will require this target 2005. Meeting to 2050, relative fuels and in cost-effective biojet sustainable technology, in new through the economy of sectors in other emissions reductions markets. global carbon trading effective of the creation 52 / British Airways 2008/09 Annual Report and Accounts The way we run our business Environment continued

Heathrow 36 times, a reduction of 23 per are now developing similar procedures cent compared with 2007. This year, these to taxi out to the runway. These measures

were principally a result of Boeing 747- will cumulatively reduce CO2 and NOX 400 departures being delayed. emissions, fuel consumption and noise.

At Heathrow, we use a Continuous Fleet modernisation Descent Approach on landing to save fuel In response to delivery delays for our and cut noise. During 2008, 95 per cent new efficient Boeing 787 aircraft, we have of all day and night flights operated this contracted for six Boeing 777-300ER way, compared with an airport average of aircraft (two acquired, four leased) due to 82 per cent for daytime and 88 per cent start arriving in 2010, with options on a for night time flights. further four. We have ordered two Airbus A318 aircraft for our transatlantic services Air quality from London City Airport. Additionally, We have a number of operating initiatives we have ordered six Embraer E190SR and to improve our air quality performance. We five E170 aircraft to replace the RJ85 and have already achieved a reduction in NO X RJ100 aircraft currently operated from emissions (nitrogen oxide – a greenhouse London City Airport. gas) through the modification of Boeing 747 (RB211) engines and Boeing 777 We are also improving our performance (GE90) engines. We plan to further modify on the ground. At Terminal 5, we have our Boeing 737 engines to deliver a invested in buses specified to the future

20 per cent reduction in NOX. Euro 5 exhaust emission standard and a fleet of electric baggage tugs. Remote At Terminal 5 and other airports monitoring by telematics technology is worldwide, we are able to use aircraft being used to manage fleet efficiency and stands with fixed ground power and pre- an automatic fuel management system has conditioned air which means we will rely been fitted to refuelling equipment at less on aircraft auxiliary power units. We Heathrow. We continue to be a member of have developed procedures for aircraft to the Heathrow Clean Vehicles Programme. taxi on one less engine after landing, and

Summary of environmental achievements and targets Target 2008 a 2007 a 2006 a

b Carbon efficiency gCO2/pkm 83 by 2025 107 110 110

CO2 emissions (million tonnes) 17.6 17.7 16.6 Heathrow departure noise violations – day 4 1 9 Heathrow departure noise violations – night 32 46 56 Continuous Descent Approach (Heathrow) % – day 95 95 95 84 Continuous Descent Approach (Heathrow) % – night 95 95 94 88 Total waste at Heathrow and Gatwick – including our catering companies (metric tonnes) 26,184 27,121c 26,920 % recycling (Heathrow and Gatwick) 50 per cent by 2010 35.1 30.1 28.9 Waste to landfill (tonnes) (Heathrow and Gatwick) Zero by 2010 3,424 3,688 4,063 Waste per passenger (kg) (Heathrow and Gatwick) reduce by 2 per cent per annum 0.78 0.79 c 0.78

Heathrow air quality/NOX emissions to 1,000ft (metric tonnes) 1,081 1,107 1,096 a Calendar years. b With effect from 2008, traffic statistics now include data related to customers who have flown on ‘frequent flyer’ mileage redemption tickets. This change brings the Group into line with industry standards, and also into line with all major scheduled carriers. c Increased due to revised data on catering waste.