Chief Executive's review (124kb pdf) - British Airways

British Airways 2008/09 Annual Report and Accounts / 9We must and will take toughaction this year to ensurewe come through. However,mixed with the challengeswe see opportunities ahead.It is hard to exaggerate the severity ofthe current economic conditions.During the year the credit crisis spreadquickly from the US to the rest of theworld provoking a global downturn thathas left no single region and very fewbusiness sectors untouched.Added to that, we saw the value of sterlingplunge; a collapse in consumer confidence;the continuing suffocation of credit markets;record oil prices; and a rout among thebusinesses that are among our mostimportant customers, most particularlyfinancial services.Airlines across the world are beingbattered by this storm. We have seensome 35 carriers go out of business orforced into rushed mergers.Despite some fantastic progress in ourbusiness, our profits went into reversefalling to a pre-tax loss of £401 million.Meanwhile, competition remains fierce,particularly at Heathrow and on importanttransatlantic routes. The need to deliverworld-leading customer service andoperational performance, to invest boldlyand meet stringent environmentalstandards are, if anything, more acutethan ever before.But we went into this recession financiallystrong and we are absolutely convincedthat we have the team, the talent, theshort-term strategy and the long-termvision to overcome the current challengesand emerge as a better, leaner, moresustainable business.We must and will take tough actionthis year to ensure we come through.However, mixed with the challengeswe see opportunity ahead.Service improvementsI am greatly encouraged by the operationalprogress we made during the year.This time last year we were struggling torecover from the disastrous opening ofTerminal 5 at Heathrow. I predicted thenthat, within a year, Terminal 5 would haveproved itself to be a really magnificentfacility. Sure enough it has.During the year we saw satisfactionratings across our network rise by eightpercentage points to 72 per cent. Some21 million passengers have passed throughTerminal 5 in its first year. Satisfactionlevels among them have risen steadilythrough the year to 76 per cent.We continue to beat our targets onpunctuality, achieving a 20 percentagepoint improvement over the year. AtTerminal 5 some 82.5 per cent of flightsdeparted within 15 minutes of theirscheduled time and we also achieved99.5 per cent regularity.We have significantly reduced mislaid ormisdirected bags during the year. By Marchwe were running at fewer than 20 bagsper 1,000 passengers at Heathrow, some72 per cent better than a year earlier.The successful transfer of 21 of ourservices to Terminal 3 at Heathrow inFebruary and March, where premiumcheck-in is consolidated with ouroneworld partners, is also helping.We have had a similar improvement insatisfaction with the new Club Worldcabin, now rolled out to all our Boeing747s and over half of our Boeing 777fleet. We expect our new two by two seatconfiguration in Club Europe to be equallywell received.“At Terminal 5 some82.5 per cent of flightsdeparted within 15 minutesof their scheduled timeand we also achieved99.5 per cent regularity.”Overview Our business Corporate governance Financial statements

10 / British Airways 2008/09 Annual Report and AccountsChief Executive’s review continued“So our work right nowis all about getting theright balance betweennecessary short-termaction to weather the storm,and sensible long-termplanning and investmentfor the future.”Statistics like these are the lifeblood ofa successful premium carrier focused ondelivering great service, and they put usin exactly the right place to achieve ourlong-term goal.Global premium airlineWe have set our sights on being theworld’s leading global premium airline.We have five key goals. They are to:• Be the airline of choice for longhaulpremium customers;• Deliver an outstanding service forcustomers at every touch point;• Grow our presence in key global cities;• Build on our leading position inLondon; and• Meet our customers’ needs and improvemargins through new revenue streams.On pages 26 to 28 we describe the stepswe plan to take to meet these objectivesand we describe what this will mean forour people.This focus on premium markets may lookstrange at a time when premium traffic,according to IATA’s latest figures, hasdeclined by around 19 per cent in thefirst three months of 2009, and whenwe have been forced to cut back ourpremium capacity by parking aircraftand reducing flying.We check our vision against our shorttermactions regularly and are convincedit remains valid. For a start, it marks acontinuation of the work we have alreadydone to improve our products andservices. We remain convinced that this isthe part of the market where we need tobe powerfully represented when conditionsimprove – as they inevitably will.We are backing the vision with sharperleadership. During the year we created aManagement Board focusing on strategyand the operational and financial healthof the business, and a Customer andOperations Executive whose job is toensure we continue to make big stridesin improving customer service.Getting the right balanceSo our work right now is all about gettingthe right balance between necessaryshort-term action to weather the storm,and sensible long-term planning andinvestment for the future.For instance, we believe we can cut costsand boost efficiency while continuing toimprove customer service significantly.Over the last year we reduced ourmanpower equivalents (MPE) by some1,750, including 478 managers whoelected to take voluntary severance. Therewill be further headcount reductions thiscoming year and we have said that therewill be no increases in basic pay rates.We have had a similarimprovement in satisfactionwith the new Club World cabin,now rolled out to all our Boeing747s and over half of ourBoeing 777 fleet. We expectour new two by two seatconfiguration in Club Europeto be equally well received.

British Airways 2008/09 Annual Report and Accounts / 11These vital short-term changes are also partof a radical three-year change programme –Compete 2012. This programme is anexcellent example of the long-termmeasures we are taking to make surewe perform at our peak.Despite an increase in underlying non-fuelcosts of some 3.7 per cent in the firsthalf of 2008/09, our response to theeconomic decline in the second halfresulted in a full year increase of only0.3 per cent.As a result of sensible advanced planning,we already have in place significantfinancing for the new Airbus A380 and theBoeing 787 aircraft that will join our fleetand transform our operations from 2012.We will also continue to invest in ourlounges, a new in-flight entertainmentsystem, cabin upgrades across our longhaulfleet and premium service training.We are continuing to innovate. Ourdecision to buy two Airbus A318s andlaunch a 32-seat all-premium service fromLondon City to New York is groundbreaking.Our OpenSkies subsidiary, flying premiumservices to New York from Paris andAmsterdam, is another example of greatinnovation, and customer feedback hasbeen excellent.We are continuing to build our networkwith new and important destinations,such as Hyderabad added last year andresuming flights to Riyadh and Jeddahstarting in this summer’s schedule.These investments are the sort ofcarefully considered initiatives we mustmake, even in these challenging times,to sustain our business.Environmental responsibilitySome companies might be tempted to usethe current recession as an excuse tobacktrack on their social and environmentalcommitments. That is not our approach.We remain absolutely committed to beinga responsible airline.We believe we are in a strong position toanswer the critics who say a third runwayat Heathrow will be an environmentaldisaster. So it is vital that we keepproviding rationally argued proof.That is one reason why we have gonefurther than the rest of our industry insetting targets for reducing our emissions.We have committed to cutting our carbonemissions from 110 to 83 grammes perpassenger kilometre between 2005 and2025. Our longer-term goal is to halveour net CO 2 emissions by 2050.OutlookWe anticipate a very difficult operatingenvironment through the rest of this year.We have responded quickly, announcing a2 per cent reduction in our schedule overthe summer. This coming winter we expectto reduce shorthaul services at Gatwick by10 per cent and we will reduce our fleetthere from 32 to 24 aircraft. Our capacityat London City will also be further cut.The next few months will be uncomfortablefor everyone within our business. We needto make lasting changes in the way we workand serve our customers. If we do, we willbe ready for recovery when it comes.Our people within the business understandthis. The remarkable improvement in ourperformance that they have achievedalready is proof of that. I know I can counton our colleagues to support our efforts tosee out the recession and firmly establishBritish Airways as the world’s leadingglobal premium airline.Willie Walsh, Chief ExecutiveDuring the year we sawsatisfaction ratings acrossour network rise by eightpoints to 72 per cent. Some21 million passengers havepassed through Terminal 5in its first year. Satisfactionlevels among them haverisen steadily through theyear to 76 per cent.Our OpenSkies subsidiary –flying a premium service toNew York from Paris andAmsterdam – is anotherexample of great innovationand customer feedback hasbeen excellent.Overview Our business Corporate governance Financial statements