British Airways British Airways 2008/09 Annual Report and Accounts 2008/09 Annual Report www.ba.com Our investor relations website is www.bashares.com Our website for individual shareholders is www.bashareholders.com 2008/09 Annual Report and Accounts Where we fly to as at May 21, 2009 Principal activities The main activities of British Airways Plc and its subsidiary undertakings are the operation of international and domestic scheduled air services for the carriage of passengers, freight and mail and the provision of ancillary services. Our mainline network is shown below. 9 67 38 UK Europe Americas 12 Middle East and South Asia 15 7 Africa Asia/Pacific Americas UK Europe Africa Middle East Asia/Pacific and South Asia Designed and produced by Likemind. www.likemind.com Antigua Philadelphia Aberdeen Alicante Gibraltar Paphos Abuja Abu Dhabi Bangkok Atlanta Phoenix Edinburgh Amsterdam Hamburg Paris Accra Bahrain Beijing Printed by CTD on behalf of RR Donnelley Baltimore Port of Spain Glasgow Antalya Helsinki Pisa Algiers Bangalore Hong Kong Barbados Providenciales Jersey Athens Istanbul Prague Cairo Chennai Shanghai Bermuda Rio de Janeiro London (City) Barcelona Izmir Pristina Cape Town Doha Singapore Boston San Francisco London (Gatwick) Bari Kiev Rome Dar es Salaam Dubai Sydney Buenos Aires Sao Paulo London (Heathrow) Basle Krakow Salzburg Entebbe Hyderabad Tokyo Calgary Seattle Manchester Belgrade Larnaca Sofia Johannesburg Kuwait Chicago St Kitts Newcastle Berlin Lisbon St Petersburg Lagos Mumbai Dallas St Lucia Bologna Luxembourg Stockholm Luanda Muscat This report is printed on Revive 100 Uncoated which contains Denver Tampa Bordeaux Lyon Stuttgart Lusaka New Delhi 100% recycled and de-inked pulp from post consumer waste Grand Cayman Toronto Brussels Madrid Thessaloniki Mauritius Tel Aviv Grenada Trinidad & Tobago Bucharest Malaga Tirana Nairobi which has been FSC (Forest Stewardship Council) certified. Houston Vancouver Budapest Malta Toulouse Tripoli It is 100% recyclable and biodegradable and has been printed Kingston Washington Cagliari Marseille Turin Tunis Los Angeles Catania Milan (Linate) Varna by CTD using an alcohol-free process; the printing inks are Mexico City Copenhagen Milan (Malpensa) Venice made with non-hazardous vegetable oil from renewable sources. Miami Dubrovnik Moscow Verona Montreal Dusseldorf Munich Vienna Over 90% of solvents and developers are recycled for further Nassau Faro Naples Warsaw use and recycling initiatives are in place for all other waste New York (JFK) Frankfurt Nice Zurich New York (Newark) Geneva Oslo associated with this production. CTD are FSC and ISO 14001 Orlando Genoa Palma certified with strict procedures in place to safeguard the environment through all our processes. British Airways 2008/09 Annual Report and Accounts / 1 Contents 2 Who we are and business review report Directors’ Overview 3 Financial and operational highlights 4 Chairman’s statement 8 Chief Executive’s review 12 Chief Financial Officer’s report Overview 19 The markets we operate in and business review report Directors’ Our business 24 Our strategy and objectives 29 Our Key Performance Indicators 32 Principal risks and uncertainties 34 The way we run our business Our business governance Corporate Financial statements 35 The workplace 42 The marketplace 48 Community investment 50 Environment 54 Board of directors and business review report Directors’ Corporate governance 55 Management Board 56 Corporate governance statement 62 Report of the Audit Committee 64 Report of the Nominations Committee 64 Report of the Safety Review Committee 65 Report of the Remuneration Committee 74 Responsibilities statements 76 Independent auditor’s report Financial statements 77 Group consolidated income statement 78 Balance sheets 79 Cash flow statements 80 Statements of changes in equity 82 Notes to the accounts 132 Operating and financial statistics 134 Principal investments 135 Shareholder information 136 Glossary The directors present their Report and Accounts for the year ended March 31, 2009, which includes the Business Review as per section 417 of the Companies Act 2006 and DTR 4.1.8 of the Disclosure and Transparency Rules of the UK Listing Authority, and the corporate governance statements. The financial statements are set out on pages 77 to 131. 2 / British Airways 2008/09 Annual Report and Accounts Who we are British Airways is the UK’s largest Our fleet international scheduled airline, 245 aircraft flying to 148 destinations at Boeing 747s convenient times, to the best 55 located airports. Boeing 777s We are one of the world’s leading scheduled premium 42 international airlines. Our principal place of business is Boeing 737s Heathrow, one of the world’s premier airport locations, which serves a large geographical area with a comparatively 22 high proportion of point-to-point business. We also operate a worldwide air cargo business, largely in conjunction with Boeing 767s our scheduled passenger services. Operating one of the most extensive international scheduled airline route 21 networks, together with our codeshare and franchise Boeing 757s partners, we fly to more than 300 destinations worldwide. In 2008/09, we carried more than 33 million passengers. 15 Our airline network generates economic value by meeting Airbus A320s the demand for business travel, by offering vital arteries for trade and investment, as well as providing leisure travel opportunities for individuals and families. In 2008/09, we 35 earned nearly £9 billion in revenue, up 2.7 per cent on the Airbus A319s previous year. Passenger traffic accounted for 87.1 per cent of this revenue, while 7.5 per cent came from cargo and 33 5.4 per cent from other activities. We carried 777,000 tonnes of cargo to destinations in Europe, the Americas and Airbus A321s throughout the world. At the end of March 2009 we had 245 aircraft in service. 11 Avro RJ100s 9 Avro RJ85s 2 British Airways 2008/09 Annual Report and Accounts / 3 Financial and operational highlights Overview Financially, this is a very difficult time for our business. Operationally however, we are achieving levels of excellence today never seen before in this airline. Revenue Loss before tax Group revenue by area of original sale 2008/09 £ million £8,992m £401m Our business governance Corporate Financial statements Group revenue for 2008/09 Group loss before tax for 2008/09 was £8,992 million, compared with was £401 million, compared with £8,758 million (restated) in the a profit before tax of £922 million UK 4,197 previous year. (restated) in the previous year. Continental Europe 1,420 The Americas 1,719 Africa, Middle East and Indian sub-continent 875 Far East and Australasia 781 Operating loss Basic loss per share £220m 32.6p Group operating loss for 2008/09 Group loss per share for 2008/09 was £220 million, compared with was 32.6 pence, compared with a profit of £878 million (restated) earnings per share of 61.9 pence in the previous year. (restated) in the previous year. Ready to Go Shortlanded baggage performance 53% 19.2 bags per 1,000 passengers at Heathrow Network-wide Ready to Go performance Shortlanded baggage at Heathrow in of 53 per cent, compared with 34 per cent March 2009 was 19.2 bags per 1,000 in the previous year. passengers, 72.3 per cent better than March 2008. 4 / British Airways 2008/09 Annual Report and Accounts Chairman’s statement We are in the grip of a devastating global economic downturn and the next year will be extremely difficult for us. In times of crisis, it is essential that we keep our sights fixed on the future. That is why we are continuing with our plans to firmly establish British Airways as a high-performing, market-focused, global premium airline. British Airways 2008/09 Annual Report and Accounts / 5 We have made no secret of the fact that we believe in the next 10 or 20 years the industry will be dominated by a small number of global airline groups. We want to be leaders Overview in that consolidation process. Twelve months ago we reported record recommend either a dividend profits, achieving a 10 per cent operating to shareholders or a bonus to our profit margin for the first time in our history. senior executives. We knew then that the year ahead would We have looked at these two issues be far more difficult, but the pace of through the same lens. Our long-term Our business governance Corporate Financial statements economic slowdown has taken almost aim is to provide our shareholders with everybody by surprise. Barely a month has a consistent and growing dividend stream passed without us seeing a sharp revision and to pay meaningful executive and downwards in economic forecasts and an employee bonuses. But we cannot justify equally quick decline in business activity either at the moment. and consumer confidence. Government action Financial results During these challenging times, the In the first six months of the year we need for clear-sighted leadership from delivered a good performance given the policy makers – both nationally and incredibly difficult trading conditions, internationally – is greater than ever. with an operating profit of £140 million The UK Government showed just Loss before tax on revenue, up 6.4 per cent. such leadership in tackling the financial for year For the full year, we have fallen into crisis last autumn. The collapse of the losses on the back of a sharp fall in banking system was closer than any of £401m premium traffic of 13.0 per cent in the us dared imagine. second half year, last year’s record oil Efforts to ease the credit squeeze on prices and adverse currency movements. business and homeowners, to restore Fuel costs Total revenue grew by 2.7 per cent to confidence and to stem rising £8,992 million and we recorded a pre- unemployment will take time. We are tax loss of £401 million for 2008/09, £2,969m hopeful that efforts by the G20 countries compared with a pre-tax profit last year to coordinate action both on the banking of £922 million (restated).