Essay About Annual Report Statement And Annual Report

Financial Analysis Of British Airways
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4. Analysis
4.1 Revenue
From the graph, “Overall Revenue Trend” in appendix C we can see that during the period
2001 – 2006 revenues have fallen by 8.2%, from Ј9,278m to Ј8,515m. Revenues fell for 3
consecutive years; at the end of 2004 revenues were Ј1,718m or 19% lower than in 2001.
The following years saw revenues rise Ј955m or 13% above this. Let us now consider these
changes in more detail. British Airways earns revenue from 3 published sources: Passenger
services, cargo services and other, being mainly fuel surcharges.
Revenues fell their sharpest during y/e 31 Mar 2002, by 10.1% or Ј938m. The atrocities of
the terrorist attacks in New York on September 11 hit the airline hard in the third quarter of
trading. In addition there was a general economic downturn and foot and mouth disease in
the UK. These factors led to a reduction in passenger numbers of 10.0% or 4.5m (from 44.5m
to 40.0m). Consequently passenger revenues made up 81.8% of the decrease. Decreases
were experienced across all geographical regions except for Africa, the Middle East and Indian
Sub-continent. Any falls in this area were offset by increasing traffic to the rapidly developing
economies of Indian cities. The company also was experiencing increasing pressure from the
no-frills carriers. In his annual report statement the chief executive commented “Our shorthaul
business must adapt to provide a strong competitive response to the no-frills carriers
and are now giving business travellers and holiday makers lower fares” (Rod Eddington, May
2002)
During 2003 revenues fell again, this time by 7.8% or Ј652m. In his Q4 presentation to
investors, Lord Marshall noted that this was a period of “unprecedented difficulty for an already
weakened transport industry” (Lord Marshall, May 2003). In the first half of the year the
company were still feeling the shock of September 11 together with an acceleration of the
worldwide economic downturn. The threat and actual war in the middle east and the SARS
epidemic in the far-east saw passenger numbers fall a further 2.0m or 5%. Passenger
revenues made up a high proportion of the decrease (75.3%). Cargo revenues remained fairly
static; Fuel Surcharges and other revenues fell by 20.2% largely due to a dilution in the
shareholding in Australian carrier Qantas with who British Airways have a joint services
agreement.
Decreases were experienced in all geographical sectors. Looking at the graph “indexed
revenue changes by geography” in Appendix C we can see that see that the geographical
sectors are starting to show differing trends. Decreases were sharpest within the domestic
routes with a decrease of 11.4%. This was attributable to a new short-haul low fares initiative
that was launched in response to the no-frills carriers, beginning with the Domestic market.
Revenues fell again in 2004, but at a much slower rate than the previous two periods; a 1.7%
or Ј128m reduction compared to the previous year. Passenger numbers weakened again by a
similar amount to the previous year (2.0m). Because revenue falls were much less this year,
it indicates that the amount of revenue contributed per passenger increased. This is supported
by a statement in the annual report for the period, “intercontinental premium travel [business
and first class] volumes are recovering” These cabin classes produce much higher revenues
for the company.
Passenger revenues again made up the highest proportion of the decrease (66.4%). The UK
sector saw a recovery of 2.7% or Ј100m, but the remaining 4 sectors all experienced
decreases, most notably The Americas (-9.1%) and Europe (-4.9%). The fall in Europe is
largely due to the realisation of the reduced short-haul fares being rolled out across European
destinations this year.
The first rise in Revenues was experienced in 2005; an increase of 3.3% or Ј253m. Passenger
numbers dipped again by 386,000. Passenger revenues remained relatively steady, only
accounting for 9.5%, or Ј24m of the increase. Looking at the graph “Indexed revenue
changes by segment” in appendix B we can see a large swing upwards in revenues from Fuel
Surcharges and other sources. 88%, or Ј224m of the increase was from this area. Early on in
the period a journalist for the Financial Times noted “British Airways has become the first
European airline to impose a surcharge on its passenger fares in response to the rapid rise in
oil prices” (ft.com, 12 May 2004)
Increases were seen across all geographical regions of between 3 and 5%. Europe was the one
exception to this where revenues fell 2.8%, again due to continued pressure on ticket prices
and aggressive competition from