InvestorNovember 2003 Issue number 31 www.bashareholders.com Incorporating the 2003-2004 Summary Interim Financial Statement Available at over 145 destinations worldwide BRITISH AIRWAYS INVESTOR NOVEMBER 2003 YOUR COMPANY’S PERFORMANCE Lord Marshall explains the airline’s performance during the first half of the year GROUP pre-tax profit for the six months to record how distressing it was to witness profile, in the face of difficult economic ended September 30 was £60 million, a fall the misery heaped on our customers by this conditions and an evolving global market of £250 million over the corresponding hasty ‘wildcat’ action. We have apologised place. These strategies are partly reactive to period of 2002. Profit attributable to unreservedly to all those caught up in the circumstance but essentially, they are shareholders amounted to £35 million, disruption. This was not an episode to be designed to innovate, develop new compared to £192 million. The directors proud of. opportunities and improve our margins, over have decided against payment of an interim It has been important for all sides to learn the long term. dividend. At the operating level, profit for lessons from this unfortunate incident and to Third Heathrow Runway the six months came to £235 million. This move on together constructively, in the best was a reduction of £171 million on the interests of the shareholders, customers and Consultation on proposals for a new air previous year of which some £40 million can employees of British Airways. I believe we transport policy to span the next 30 years be attributed to the unofficial strike at are doing so. ended in June and the Government’s Heathrow in July. proposals are expected before the end of the Otherwise, as the results show, our people year. Your company was extremely active For the second quarter of the financial year, have continued to work hard and creatively during the consultation process, in its pre-tax profit was £105 million, £140 million against very difficult odds. As always, I thank concern to ensure that the right policy less than the previous year. Operating profit them. for the three months was £195 million, a emerges for this industry and the national economy. In our very carefully considered reduction of £53 million. Concorde view, this would promote the construction of The half-year saw the final months of Half Year Review a third, ‘short’ runway at Heathrow as an supersonic service, following the absolute priority. It is self-evident that the Results over the first six months of the announcement in April of our intention to best interests of UK civil aviation, as a whole, financial year reflect the continuing, retire Concorde this year. The decision was would be served by building on the strength depressive effects of adverse world events not made out of choice, but from technical of Heathrow, as the UK’s only global hub over the past two years and their implications and economic necessity following a thorough airport. It has been estimated that a third for economic uncertainty. They also take review of Concorde operations carried out in Heathrow runway would generate net into account the fast-changing nature of conjunction with the manufacturer, Airbus economic benefits to the UK of £37 billion. airline competition in all major markets. Industrie. As previously reported to Certainly, there are environmental concerns, While the business climate led to lower shareholders, Airbus made it totally clear but we believe a new runway can be built - revenues and reduced yields, performance that Concorde operations could not be and these benefits achieved - in a way, which was somewhat offset by the programme of maintained, under any circumstance, after is consistent with Government policies for cost saving under the ‘Future Size and Shape’ the end of October 2003. sustainable development. strategy and associated initiatives. In this situation, we decided to continue Nevertheless, towards the end of the half- supersonic commercial service until the last- Alliance Development and Industry year, there were encouraging signs of stability possible moment. Unsurprisingly, the Consolidation in passenger volumes and yields. remaining months of service saw exceptional Good progress is being made in alliance demand for Concorde flights, with much Over the six-month period, revenue totalled development, both on a bi-lateral basis with welcome, additional revenue. We then £3.8 billion, a year-on-year reduction of eight individual partner airlines and within the sought to make arrangements for Concorde per cent, on a marginally increased flying multi-lateral context of the oneworld to retire in triumph and with dignity. The programme. Passenger yield decreased by consortium. As a consequence, our global public reaction we subsequently received in nine per cent, although seat factor showed a market reach has improved considerably. this country and around the world to the small improvement at 74.2 per cent. Cargo A particularly significant development was Concorde ‘finale’ programme during volumes were down only slightly, but yields the major commercial agreement concluded October indicates that this objective was decreased by eight per cent. with Swiss International Air Lines and the achieved. We have been extremely proud to associated acquisition of slots at Heathrow. Progress continues to be made in cost have this unique aircraft as our flagship for At the same time, our pivotal partnership reduction. Over the six months, unit costs almost 30 years and were pleased to be able with Iberia continues to develop and we are improved by 4.5 per cent, reflecting a net to share our celebration of Concorde with so working towards even closer co-operation in cost reduction of four per cent on slightly many people in the UK and overseas. higher capacity. the near future. During the period in which this edition of Net debt was reduced by £342 million to Investor is distributed to shareholders, our Our alliance development takes place against £4.8 billion, the lowest since June 1998. Concorde aircraft will be delivered to the the background of negotiations between the chosen places of honour where they will go EU Commission and the US government, Industrial Relations on public display. The fleet may no longer be aimed at creating a single market in trans- Easily the most damaging incident of the half flying, but we want to ensure that Concorde Atlantic air transport. Talks opened in year, was the unofficial strike by some remains with us as an enduring symbol of Washington DC during October and will Customer Service staff at Heathrow during British aerospace excellence. resume in Brussels in December. If the peak summer month of July. It has cost successful, they will allow the long awaited your company approximately £40 million in Competition and Business Restructure and much-needed, full merger and compensation, emergency customer support As the Chief Executive explains in more acquisition process to take place within the measures and lost revenues. The Chief detail, your company is accelerating efforts to European airline industry without Executive reports on this and other industrial raise significantly its competitive jeopardising vital trans-Atlantic route rights. relations issues elsewhere, but it is important performance and to restructure our business Achieving ‘open skies’ will take time and 2 BRITISH AIRWAYS INVESTOR NOVEMBER 2003 YOUR COMPANY’S PERFORMANCE Lord Marshall explains the airline’s performance during the first half of the year much effort, but they are in prospect. Our 2000, who becomes Deputy Chairman US is a welcome development, but is not yet objective is to secure a good strategic immediately. showing in forward bookings. In the soft position with our key European partners, in revenue environment, continued delivery of In another move, we have recruited Alison increased business efficiency and cost order to take full advantage when the time Reed, Group Finance Director of Marks and reduction is core to improving profitability. is right. Spencer plc, to the Board as a non-executive director. She joins us on 1 December, 2003. Board Changes Further details of these Board changes, Shareholders will be aware that I have made together with my comments, are given below. public my intention to retire as Chairman at the close of our next Annual General Outlook Meeting on 20 July, 2004. We have also Trading patterns seen over the last few announced that I will be succeeded by Martin months point to a stable outlook for revenue. Lord Marshall of Knightsbridge Broughton, a member of our Board since The recent, positive economic news from the Chairman BOARD CHANGES Board Members Lord Marshall has announced his intention we have recently experienced. I am delighted to retire as Chairman of British Airways at he has agreed to take on the role of Chairman the close of the company’s next Annual Chairman following my planned departure General Meeting on 20 July, 2004. next year and have no doubt he will provide Lord Marshall of Knightsbridge wise, effective and inspiring leadership. I will He joined the company as Chief Executive in Executive Directors be working closely February, 1983, became Chairman and Chief with Martin over Rod Eddington Executive in 1993 and then part-time the next eight Chief Executive Chairman in 1996. months to ensure a John Rishton Lord Marshall will be succeeded as Chairman smooth handover.” Chief Financial Officer next July by Martin Broughton, 56, currently Alison Reed, 46, senior independent director. In preparation Mike Street will become a for this change, the Board of British Airways Director of Customer Service British Airways has appointed Mr. Broughton as Deputy and Operations non-executive Chairman, with immediate effect. director as from 1 Non-Executive Directors At the same time, Lord Marshall has December, this Martin Broughton (Deputy Chairman) announced the appointment of Alison Reed, year.