Interim Management Report First Half Results 2010/11 October 29, 2010
Disclaimer Certain information included in these statements is forward-looking and involves risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward looking statements. Forward-looking statements include, without limitation, projections relating to results of operations and financial conditions and the Company's plans and objectives for future operations, including, without limitation, discussions of the Company's Business Plan programs, expected future revenues, financing plans and expected expenditures and divestments. All forward-looking statements in this report are based upon information known to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. It is not reasonably possible to itemise all of the many factors and specific events that could cause the Company's forward looking statements to be incorrect or that could otherwise have a material adverse effect on the future operations or results of an airline operating in the global economy.
Martin Broughton Chairman
Keith Williams Chief Financial Officer
First quarter Cost driven recovery Hit by volcanic ash and disruption Second quarter Revenue improvement Driven by yield recovery Continuing cost control Back to profitability
m 400 Operating Profit + 387m 300 m vly Q2 Revenue +391 200 Net costs +4 Op Profit +387 100 m vly Q1 0 Revenue -46-100 -200 + 22m Q1 2009/10 2010/11 Q2 Net costs -68 Op Profit +22
...built on strong second quarter yields. 25 20 15 % change VLY PASSENGER BUSINESS +16.0 +20.4 10 5 0-5 -1.6-1.4-0.2 RPKs ASKs Seat Factor (pts) Yield/RPK constant exchange 3 months ended September 30, 2010 Yield/RPK
Looking at passenger yield performance in detail. Yield/RPK % vly 25 20 15 10 5 0-5 -10-15 -20-25 -30 20.4 13.5 16.0 12.7-9.7-13.1-14.6-22.9 Q1 09/10 Q2 09/10 Q1 10/11 Q2 10/11 Reported yield Underlying yield
Longhaul Premium Volume by Fare Type Volume (PSJs) Q2 0708 Q3 0708 Q4 0708 Q1 0809 Q2 0809 Q3 0809 Q4 0809 Q1 0910 Q2 0910 Q3 0910 Q4 0910 Q1 1011 Q2 1011 Flexible Fares Leisure / Redemption
Shorthaul Premium Volume by Fare Type Volume (PSJs) Q2 0708 Q3 0708 Q4 0708 Q1 0809 Q2 0809 Q3 0809 Q4 0809 Q1 0910 Q2 0910 Q3 0910 Q4 0910 Q1 1011 Q2 1011 Flexible Fares Leisure / Redemption
A similar yield story in Cargo. 45 40 35 30 25 20 15 10 5 0 +2.7 % change VLY CARGO BUSINESS +0.6 +31.5 CTKS ATKS Yield/CTK constant exchange 3 months ended September 30, 2010 +38.5 Yield/CTK
Headline numbers second quarter Jul - Sep m Better/ (worse) vly Turnover 2,510 18.5% Fuel costs 665 (5.2)% Non fuel costs 1,475 1.9% Operating profit 370 nm Operating margin 14.7% 15.5pts EBITDAR 588 195% Pre-tax profit 322 nm Period ended September 30, 2010
Headline numbers first half Apr - Sep m Better/ (worse) vly Turnover 4,447 8.4% Fuel costs 1,257 (2.4)% Non fuel costs 2,892 3.1% Operating profit 298 nm Operating margin 6.7% 9.4pts EBITDAR 727 129% Pre-tax profit 158 nm Period ended September 30, 2010
Revenue continues to grow m Apr-Sep vly Jul-Sep vly Passenger 3,878 7.9% 2,212 17.5% Cargo 350 39.4% 175 42.3% Other 219 (15.1)% 123 7.9% 4,447 8.4% 2,510 18.5% Period ended September 30, 2010
Q2 Costs held despite exchange. 3 months July to September 2010 m % vly Employee costs 508 0.8 up Restructuring 0 nm Engineering & other aircraft 142 21.4 up Landing & en route charges 163 3.8 up Handling, catering etc 263 0.0 flat Selling costs 75 1.3 down Other costs (inc. retranslation) 324 6.9 down TOTAL COSTS (excl. fuel) 1,475 1.9 down Fuel & oil 665 5.2 up REPORTED TOTAL COSTS 2,140 0.2 up Period ended September 30, 2010
First Half Costs down 6 months April to September 2010 m % vly Employee costs 1,003 2.7 down Restructuring 0 nm Engineering & other aircraft 278 12.6 up Landing & en route charges 313 2.8 down Handling, catering etc 506 4.3 down Selling costs 145 0.7 up Other costs (inc. retranslation) 647 2.6 down TOTAL COSTS (excl. fuel) 2,892 3.1 down Fuel & oil 1,257 2.4 up REPORTED TOTAL COSTS 4,149 1.5 down Period ended September 30, 2010
A solid hedging position for the year. Hedging Q1 Q2 Q3 Q4 11/12 $/bbl Price Paid by BA 100 90 80 70 % Cover 75 81 82 67 30 FY 1011 BA Price Market Price $1 oil = +/- 5m cost (approx) 60 60 70 80 90 100 $/bbl Crude Price
With fuel cost increase as anticipated. m 850 750 650 First Half: + 29m vly m H2 Volume +80 Price (net of hedging) +70 Exchange +20 Total +170 550 450 Q1 Q2 Q3 Q4 2009/10 2010/11
A reminder of winter capacity ASK VLY% 10 Tactical cancellations and disruption in winter base 5 0 3% underlying (5) (10) Winter 09/10 Full Year 09/10 Winter 10/11 Full Year 10/11
Capacity outlook for summer 2011 ASKs VLY% 20 15 10-1 777-200 +3 777-300 ER +2 747-400 7 th JFK service Tokyo (Haneda) San Diego & Buenos Aires direct + 1 777-200 increased flying to Caribbean 5 Underlying increase 4-5% 0 (5) LHR longhaul LGW longhaul Shorthaul Total Underlying increase Disruption in base
Cash and net debt continuing to improve. Cash generated from operations 554m (up 468m vly) Cash balance increased to 1,857 million m 2,500 2,000 General facilities Cash 1,500 1,000 500 0 Mar-09 Sep-09 Mar-10 Sep-10 Net debt reduced to 2,047 million
% 25 20 15 10 5 0-5 -10-15 -20 Yield/RPK vly Q1 Q2 Winter 2009/10 2010/11
90 80 70 60 50 40 30 20 10 0 domestic/up to 2000 miles UK Air Passenger Duty - economy 2001-4000 miles 4001-6000 miles over 6000 miles 1994 Oct-10 Nov-10
OPPORTUNITIES Joint Business with AA/IB New routes Underlying economic growth RISKS APD Competitor capacity UK consumer confidence
Willie Walsh Chief Executive Officer
Delivering on our agenda Merger with Iberia Joint Business Pension Recovery Plan Restoring Profitability Structural cost base T5 transformation Investing for the future
Our merger
Iberia timetable Publication of key documents October 26 Shareholder meetings November 29 Closing January 2011
Our Joint Business
Why is the Joint Business necessary? Star and SkyTeam alliance members with broad-based immunity protections have a distinct advantage over AA, BA and IB competitive position at LHR Joint Business structure enhances relationships, global reach and the ability to coordinate, schedule and market the network ATI/Joint Business brings substantial benefits to our customers
Our customer vision: how they benefit Access to broader network via extensive codeshare Superior customer experience and service integration Greater convenience through coordinated schedules Corporate customers benefit from joint sales agreements across larger network Frequent flyer programme consistency
New timings give greater choice ORD >>> LHR - Departure Times Pre-ATI BA = Blue AA = Orange Post-ATI BA = Blue AA = Orange 6:00 8:00 10:00 12:00 14:00 16:00 18:00 20:00 22:00 0:00 Local Time 6:00 8:00 10:00 12:00 14:00 16:00 18:00 20:00 22:00 0:00 Local Time ORD >>> LHR - Arrival Times Pre-ATI BA = Blue AA = Orange Post-ATI BA = Blue AA = Orange 6:00 8:00 10:00 12:00 14:00 16:00 18:00 20:00 22:00 0:00 Local Time 6:00 8:00 10:00 12:00 14:00 16:00 18:00 20:00 22:00 0:00 Local Time
Five exciting new Joint Business routes Delivering profitable growth & improved customer choice New York JFK Budapest 7pw Chicago Helsinki 7pw London LHR San Diego 7pw MIA BCN Madrid Los Angeles 4pw Barcelona Miami 7pw
Pension recovery plan Agreement reached with pension trustees Approved by Pensions Regulator Contributions to remain at 330m in real terms Benefit changes introduced for future service from October 1, 2010
Restoring profitability 400 350 300 250 200 150 100 50 0-50 July - September Operating Result ( m) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Cost actions the key to profitability m 5000 4500 4000 H1 2007-08 5000 4500 4000 H1 2010-11 Structural cost savings 3500 3000 2500 Non Fuel 3500 3000 2500 Non Fuel 2000 2000 1500 1500 1000 500 0 Fuel 1000 500 0 Fuel Non operating costs Revenue Costs Revenue Costs Since 2007-08 Revenue Flat Fuel up 28% Non-fuel Flat, after annualised savings of 400m
Structural changes Management reduction December 2008 Engineering efficiencies June 2009 Flight crew efficiencies October 2009 Cabin crew changes November 2009 Passenger service efficiencies Agreed August 2010
T5 Transformation
Step change in departure punctuality 100% Mainline departures on time performance 90% Post-T5 Opening 80% 70% 60% 50% Aug-06 Oct-06 Dec-06 Pre-T5 Opening Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10
Heathrow baggage regularly beating target LHR Overall Shortlanded Baggage Performance Shortlanded Bags / 1000 Pax 120 Shortlanded Bags / 1000 Pax 100 80 60 40 20 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2006/7 2007/8 2008/9 2009/10 2010/11 Target
Investing for the future
Start of an exciting new chapter
Q & A