George Stinnes. Head of Investor Relations

Transcription

1 George Stinnes Head of Investor Relations

2 Health Warning Certain information included in this statement 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 Future Size and Shape programme, 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 forwardlooking 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. Information on some factors which could result in material difference to the results is available in the Company s SEC filings, including, without limitation the Company s Report on Form 20-F for the year ended March 2003.

3 Fire Alarm Fire Health and Safety continuous alarm: evacuate building assembly point: courtyard Americas house do not use lifts, do not stop to collect belongings Accidents first-aider at reception advise emergency services by calling at reception No Smoking Smoking area in Americas courtyard PLEASE TURN OFF ALL MOBILE PHONES

4 Waterside Plan

5 Feedback

6 What does the customer think about the industry and our company?

7 Its not just about costs

8 Our strategic priorities Strengthen the balance sheet Develop a high performing organisation Strengthen BA s reputation Deliver a competitive cost base Deliver the customer promise consistently Deliver a superior experience for premium customers Maintain the best UK based network and schedule Simplify the business

9 Best frequent flyer programme Awards Best business class Best business class Best short haul airline Best First class The Guardian, voted by their readers Best airline Silver Award - Best Travel Trade Promotion for the Be There trade promotion Design Week Award 97- Industrial Product - First Class Best first class Best low cost carrier Best long haul airline Best Airline in Western Europe Conde Nast Traveller Awards Most parent friendly airline 2003 (voted for by the public) Design in business association: International Design Effectiveness Award 97- First Class Gold Award - Best Business Press Campaign for recent Club World print advertising Chartered Institute of Marketing Travel Industry Group (CIMTIG) (1 October 2002) *Gold Award - Best Creative Media Plan Best cabin staff Best short haul airline Gold Award - Best Television Advertisement - Business Best International First Class Design in business association: International Design Effectiveness Awards Club World (flat bed) Best Transatlantic Airline Best medium haul airline Best airline Gold Award - Best Outdoor Advertisement Business Traveller Awards October Tommy s the baby Charity Best frequent flyer programme Best shorthaul flights Most innovative airline Design Council Millennium Product Award - First Class

10 Only costs? New routes Codeshares ba.com Manage my booking Boarding cards Flat beds Lounges Premium Check in Wireless internet Flight switch Self Service Kiosks Sleeper service New family product Shorthaul catering JFK Spa Exec club JFK Terminal Club / First product

11 Agenda Introduction Company Overview Future Size and Shape Review Revenue and Cost Issues Balance Sheet Innovations for our Customers Regulatory Framework Environment Issues The BA Way and Q&A George Stinnes Lord Marshall John Rishton Keith Williams Simon Parks-Smith Andrew Cahn Andrew Sentance Rod Eddington

12 Last Year

13

14 Lord Marshall Chairman

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16 John Rishton Chief Financial Officer

17 Our strategic priorities Strengthen the balance sheet Develop a high performing organisation Strengthen BA s reputation Deliver a competitive cost base Deliver the customer promise consistently Deliver a superior experience for premium customers Maintain the best UK based network and schedule Simplify the business

18 Profitability Future size and shape Simplification What we said Competing with No Frills Manpower

19 MPEs FSAS targets Achieved by 31/12/03 Cumulative target end 2003/04 Status Manpower reductions 12,652 13,000 m m Manpower cost savings Distribution cost savings Procurement / IT savings Total Disposals

20 Distribution delivering 212m Restructuring agent remuneration Channel shift Selling efficiencies

21 Selling cost as % of revenue % Year end 31 March

22 Future distribution plans Dealing systems Continued channel shift Global distribution systems Plan G Call centres

23 Channel shift 100% 90% 80% % of Bookings 70% 60% 50% 40% 30% 20% 10% 0% 2003/ / / /2207 ba.com Call centres Online agents Traditional agents

24 Global distribution systems Direct bookings 28% GDS bookings 72% Agreements with the four major GDSs

25 Plan G 1% UK commission etickets Debit card on ba.com Service fees

26 UK call centre volumes Millions of calls

27 Procurement Price Demand control Specification.... a step change in company behaviour

28 Simplification Terminal control BA 2 Buy Dealing Engineering wide system Dusk 767 Pilot pay structure CitiExpress ceba OPIP Next Generation DCS Dusk 777 MPD Flight Operations manuals epay Executive Club Cargo LH Pricing proposition

29 Keith Williams Group Treasurer & Head of Tax

30 Balance sheet improvement Cash and liquidity Debt Currency/interest rate management Capex and disposals

31 Balance sheet post September 11th What we said.. Sufficient liquidity Comfortable debt repayment profile 900m disposals plan Partial Capex holiday

32 Balance sheet post September 11th = No rights issue!

33 Cash & Facilities m 2250 SEPT 11th Sufficient liquidity GULF WAR 1500 Committed 1250 Facilities 1000 Cash Q2 01/ Estimate Year Ending

34 Debt repayment profile at December m equivalent Year Ending

35 Debt repayment profile now m equivalent m Year Ending 31 March Reduction post Sept 11 th 220m 30m 15m 40m 20m

36 m 8,000 Net debt including leases 7,000 6,000 5,000 4,000 3,000 Dec-01 Mar-02 Mar-03 Jun-03 Sep-03 Dec-03 Gearing 70% 69.1% 64.2% 63.2% 61.8% 59.6%

37 bn We have taken advantage of currency rates Dec-01 Dec Yen US$

38 Cumulative Yen saving Year Ending Translation P&L Charge (Credit) Transaction Interest Saving Total To Year to date TOTAL

39 Our fixed interest ratio % Year Ending (Forecast)

40 And this is our interest rate position * Average rate of interest on debt 5.9% 5.2% 4.6% 4.3% 4.5% * allowing for a modest increase in UK and US rates of around 0.5%

41 Capex and disposals m 1,600 1,400 1,433 1,200 1, < Capex Disposals

42 Mainline Fleet Flexibility (1) Nr of Aircraft Total Unencumbered Aircraft Operating Lease Returns

43 No of Aircraft Mainline Fleet Flexibility (2) 6 Minimal orders Utilisation Reconfiguration Orders

44 Summary Improved cash and liquidity More early debt repayment opportunities Debt to reduce further Fleet flexibility

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47 Revenue down 1.9 billion m 9,500 Rolling 12 months revenue since March ,278 9,265 9,000 8,964 8,500 8,508 8,340 8,000 8,095 7,948 7,966 7,688 7,500 7,468 7,347 7,381 7,000 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

48 Mainline revenue 01/02 02/03 03/04 Volume Mix Price

49 Longhaul premium LH premium : RPKs (m) 2000/1 2001/2 2002/3 2003/4 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

50 Shorthaul premium SH premium : RPKs (m) 2000/1 2001/2 2002/3 2003/4 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

51 65 Total market propensity to fly in premium cabins % of business travellers in premium cabins, 4 quarter moving average Sources: TMS, CAA survey, IPS Feb 04 Longhaul Shorthaul

52 Longhaul non premium LH non premium : RPKs (m) 2000/1 2001/2 2002/3 2003/4 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

53 Shorthaul non premium SH non premium : RPKs (m) 2000/1 2001/2 2002/3 2003/4 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

54 Revenue outlook Capacity Volume Yield Revenue

55 We have saved 1.7bn of costs m 9,500 Rolling 12 months costs since March ,000 8,898 8,932 8,823 8,634 8,500 8,450 8,097 8,000 7,774 7,500 7,552 7,393 7,291 7,223 7,172 7,000 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

56 Cost headwinds Pensions Pay Fuel Volume related costs Landing charges

57 Business Plan initiatives m External spend 300 ceba & other initiatives 150 Employee costs 300

58 Tackling costs across the business Where does every 100 of revenue go? Margin Landing & en-route charges 7.30 Accom & Other Employee costs Depreciation Selling costs Engineering Aircraft leasing Fuel Catering & handling

59 Summary Gradual recovery of revenue FSAS delivered New cost initiatives set 10% operating target remains We will deliver

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61 Simon Parks-Smith Head of ecommerce

62 A time of innovation for our customers

63 Customer Enabled BA plays a major part in our strategic priorities Strengthen the balance sheet Develop a high performing organisation Strengthen BA s reputation Deliver a competitive cost base Deliver the customer promise consistently Deliver a superior experience for premium customers Maintain the best UK based network and schedule Simplify the business

64 A vision for a Customer Enabled BA Dealing with BA will be so easy that our customers can choose to serve themselves

65 A strategy for simplification and a richer customer experience Customer Enabled BA is a strategy to simplify the way we do business It is a cross-functional programme that covers the end-to-end customer experience It is streamlining our product set, bringing consistency to our delivery and removing duplicate processes This change should be worth 100m of annualised benefit to the company

66 It is also about an easier, richer experience for customers BA s products and services are simple to understand I am re-assured that my transactions are successful I am clear about what I have bought If there is disruption BA tells me about it and helps me manage my travel plans I get the same answer whoever I ask I can do all my routine transactions myself on ba.com Simplicity, Self-Service, Structural change

67 Making it easy is the hard bit Millions of fare-types, 72 selling classes, 7 cabins, 15 types of passenger, 10 ways to pay, 9 kinds of check-in.. 12,000 staff translators employed to carry out everyday transactions for customers Different sources of information mean that customers rarely get the same answer to the same question Myriad of system and process dependencies that makes change and improvement impossibly slow

68 Year 1 transformational targets 50% of our UK shorthaul leisure business booked on ba.com 100% of our core Executive Club transactions available on ba.com, with 60% usage 50% reduction in the number of fares Doubling in usage of eticket and Easy-to-understand fare conditions on all routes A new way for customers to manager their bookings on ba.com Renewal of our estate of Self Service Kiosks at airports

69 Driving growth of online booking

70 And channel shift in UK&I 70% % of Total UK&I bookings 60% 50% 40% 30% 20% 10% % Call centres ba.com Traditional agents Online agents 2002 (APR-DEC) 2003 (APR-DEC)

71 With eticket growing towards its 100% target 60% 50% 40% 30% 20% 10% 0% F M A M J J A S O N D J F M A M J J A S O N D J

72 ba.com is still booming ba.com sells almost five times as many tickets than the phone in the UK Tripled from 5m a week to 15m a week in 18 months 51% of all low value shorthaul fares are booked online 1.5m visitors to the site every week 60% of all redemptions tickets are sold online in UK

73 Most importantly, our customers love the experience % BA UK customers who think ba.com is Very Good to Excellent 70% 65% 60% 55% 50% Spring Summer Autumn Winter Spring Summer Autumn

74 We have radically simplified our fares More than 1.3 million fares removed 3000 fare rules simplified to 3 basic types of flexibility A myriad of variations by route and market has been made globally consistent Selling classes now have tightly defined yield bands and common conditions New rules are manageable, deliverable and easy for customers to understand

75 The foundations are laid for an end-to-end self service experience Researc h & book Pay & get ticket Follow-up & preairport queries Check-in and fly Arrive home & check miles Simple, consistent rules & processes eticket, , online self-service

76 Fare Explorer is being enhanced Handling larger groups Payment by Debit Card Facility to buy tickets for other people Pay for tickets from another country Instant tickets in 5 languages Secure payment for Visa/MC

77 Allowing us to do more up-selling

78 As well as the facility for customers to change and update bookings on ba.com

79 We have launched a new way to manage bookings

80 Including a popular facility to select seats

81 And we are launching homeprinted boarding passes for internet check-in

82 We have renewed our estate of self service kiosks

83 Alongside other new products for our customers Sleeper service for Club World Wireless Internet access in 80 lounges Molton Brown Travel Spa at JFK New catering for Club Europe New family product

84 Again driven by transformational targets 100% eticket 50% self-service check-in at automated airports 80% of Executive Club transactions carried out online 85% of direct bookings contain an address And an aspiration for 50% of all BA customers to use ba.com before they fly

85 In summary The ceba programme is running to plan for performance targets, cost & benefits and key milestones We are confident we can deliver the ambitious year planned for 04/05 The combination of business simplification and customer self service is already generating significant benefits for BA and our customers In less than 12 months we will have an end-to-end self-service experience that is way ahead of our competitors

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87 Andrew Cahn Head of Government Affairs

88 Introduction Heavily regulated industry Post 9-11 increase in regulation Power shifting from Whitehall/CAA to EU BA comparative advantage in handling regulators Potential for cost reduction, pressure on competitors, new business opportunities

89 Issues Traffic rights Airport infrastructure Security and immigration Consumer legislation Future challenges

90 Traffic rights Mixed competence in air transport negotiations with 3rd countries EU and UK Continuing role for HMG in negotiating bilaterals Business markets of Libya and Algeria opened Hong Kong agreement referred to the Commission China significant liberalisation India next major UK negotiation

91 Traffic rights - USA Commission has mandate to negotiate an open aviation area with the United States US attempting to conclude an unbalanced agreement Key negotiations for future of industry Bilateralism or multilateralism?

92 Third runway at Heathrow Government accepted LHR hub argument Heathrow third runway to be built between 2015 and 2020 Subject to resolution of NOx issues BAA, NATS and HMG engaged in delivery challenge Long term growth perspective for BA No cross subsidy for Stansted

93 Mixed mode operation at Heathrow Mixed mode could increase slots by c % +/or increase operational robustness NATS work/consultation needed for change likely in HMG committed to mixed mode Phasing possible. Benefit to changing schedule pattern Medium-term growth prospective

94 Slots Revised slot regulation (technical revision) satisfies the two main BA goals: provides for secondary trading preserves grandfather rights/ flexibility of retiming historics Second phase review on market mechanisms BA has grown its share of Heathrow slots to more than 40% Future key tasks: retain secondary trading (EC still wants to prohibit it) ensure that BA gets fair share of future capacity increases at LHR

95 Border controls Airlines required to act as agents for government Heavy fines for inadequately documented passengers. MoUs have saved us Ms UK transit visas placing UK carriers at competitive disadvantage. BA political effort has mitigated impact Airlines to collect and transmit passenger information to the control authorities

96 US security issues Since 9-11 USA has introduced many new laws Advance Passenger Information (APIS) requirements place heavy data collection burden on airlines Access to passenger booking records (PNRs): carriers caught in conflict between US demands and EU data privacy laws New proposals from USA (CAPPS II) will use passenger data to identify security risk Global issue needs global standards

97 Consumer legislation New Denied Boarding Compensation rules: doubles DBC rates includes DBC entitlement for any flight cancelled within 14 days, unless outside carrier s control care provisions apply without exception to delayed and cancelled flights Pax with reduced mobility Competition law state aids, Charleroi full competence to DG Comp on alliances/mergers

98 Cost reduction IATA and AEA new focus on improving competitive position of airlines Other players in the value chain protected from market forces airports - classic monopolies, airport profitability is relatively impervious to external effects GDSs - only 4 global distribution systems groundhandling EU trying to open market Area of significant cost saving via EU regulation and industry-wide negotiation

99 Future challenges Deliver infrastructure white paper Focus EU on effective, limited regulatory function Regulatory overlap and differentiation Develop aviation competition law Slot trading Consumer legislation APD, kerosene tax, other environmental taxes

100

101 Andrew Sentance Chief Economist and Head of Environmental Affairs

102 Environmental issues

103 Outline Why the environment matters to BA Our environmental priorities and performance Global warming, taxes and emissions trading The Heathrow air quality challenge

104 The environment - a key issue for BA Supporting long-term strategy Strengthening corporate reputation and brand Managing key business risks Increasing business efficiency

105 Our environmental priorities Reducing noise and improving air quality around airports, especially at Heathrow Reducing global warming impact Cutting waste and improving waste management High standard of environmental management throughout our business and supply chain

106 We have a good track record Annual environmental report produced since 1990 Clear policies and robust management systems in place Record of performance improvement on noise and emissions Engagement with government, NGOs and local communities on key issues Active nationally and internationally to promote responsible industry practice/policies and agree new standards External recognition FTSE4Good, Dow Jones Sustainability Index, Business in the Community, etc

107 Noise impact halved over five years BA fleet - noise energy measured in QC equivalents (millions) /98 98/99 99/00 00/01 01/02 02/03

108 2002/3 report -noise and local emissions BA noise energy cut by over half in last 5 years 78% of our fleet now Chapter 4 compliant - we have one of the quietest aircraft fleets in the world Support for voluntary initiatives to limit noise Cutting NOx emissions (20% down at Heathrow since 99/00) Supporting air quality research and modelling around Heathrow

109 Environment and corporate responsibility Management of environment being integrated with corporate responsibility (CSR) within BA We aim to be a responsible company, by protecting and enhancing the welfare of: our customers our employees communities affected by our business activities Annual Social and Environmental Report produced since 2000 Internal Corporate Responsibility Board established in 2003, chaired by Robert Webb, General Counsel BA contributing to business and government CSR initiatives (eg BiTC, DTI Academy)

110 Aviation and global warming Aviation a small but growing source of CO 2 Radiative forcing effects (clouds/contrails) may be more significant but great scientific uncertainty International aviation has special treatment in Kyoto protocol ICAO to find way forward Airport opposition groups exaggerating impact and cost to try and stall runway decisions Aviation could be c. 30% of UK global warming emissions in if 60% cut in CO 2 achieved in other sectors

111 Cutting global warming emissions 19 Million tonnes of aircraft CO 2 emissions from BA fleet /99 99/00 00/01 01/02 02/03

112 BA global warming response Open and honest reporting of emissions Aircraft fuel efficiency target 30% improvement Property energy efficiency 2% per annum improvement Support for emissions trading and opposition to taxes Participation in (voluntary) UK Emissions Trading Scheme Support for research into upper atmosphere effects

113 What is emissions trading? Cap on emissions, reducing over time Overall cap allocated to participants in scheme Permits must be held for emissions produced Permits must be purchased if allocation is exceeded, and can be sold if not required Financial benefits from cutting emissions below cap, costs incurred for exceeding cap As long as allocations are grandfathered, no net financial burden on participants (unlike tax) Environmentally effective and economically efficient

114 UK Emissions Trading Scheme Voluntary scheme incentive payments to induce participation Around 30 participants - BA is only airline Emissions of CO 2 from domestic aviation and UK property covered (6-7% of our total emissions) Targeting 12.5% cut over five years on baseline - already achieved 16% (2002) Benefits from participation: financial leadership and reputation learning by doing

115 Emissions trading next steps EU scheme aviation could join in 2008 UK government supportive a White Paper victory BA is well-positioned to influence and benefit Terms and conditions will be very important Progress at ICAO? Kyoto 2?

116 Heathrow air quality The key issue which needs to be resolved for third runway BA will be actively engaged in government-led programme of work Targeting 2006 for decision Already supporting monitoring of NO 2 which demonstrates problem has been overstated Road traffic accounts for bulk of emissions but significant improvements are expected Airlines may need to make commitments on aircraft emissions, ground vehicle use and employee travel

117 Key messages Environmental issues are key business issues for BA We are a responsible company, seeking to reduce our environmental impact and promote good industry performance We are well positioned within our industry to face future challenges, including emissions trading

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119 Rod Eddington Chief Executive

120 The BA Way

121 Objective: Profitable British full service network airline Goal: Achieve 10% profit margin How we compete How we manage our business Strategies: Maintain the best UK based network & schedule Strengthen BA s reputation: Great value, great service, reliability & reassurance, safety & security Deliver the customer promise consistently Strategies: Develop a high performing organisation Deliver a competitive cost base Simplify the business Strengthen the balance sheet Deliver a superior experience for premium customers

122 Our strategic priorities Strengthen the balance sheet Develop a high performing organisation Strengthen BA s reputation Deliver a competitive cost base Deliver the customer promise consistently Deliver a superior experience for premium customers Maintain the best UK based network and schedule Simplify the business

123 The BA Way Networked British Airline Service that matters For people who value how they fly

124 The BA Way Networked No way Disconnected Not JUST point to point The customer benefit Wide range of destinations Looked after the whole way British Airline Service that matters For people who value how they fly

125 The BA Way Networked British Airline No way Disconnected Not JUST point to point Jingoistic, Arrogant The customer benefit Wide range of destinations Looked after the whole way Our Brand - Reassuring British values of professional, reliable, responsive, safe and secure Service that matters For people who value how they fly

126 The BA Way Networked British Airline Service that matters For people who value how they fly No way Disconnected Not JUST point to point Jingoistic, Arrogant Jack of all trades The customer benefit Wide range of destinations Looked after the whole way Our Brand - Reassuring British values of professional, reliable, responsive, safe and secure We are focused and expert at what we do

127 The BA Way Networked British Airline Service that matters For people who value how they fly No way Disconnected Not JUST point to point Jingoistic, Arrogant Jack of all trades No frills Too many frills The customer benefit Wide range of destinations Looked after the whole way Our Brand - Reassuring British values of professional, reliable, responsive, safe and secure We are focused and expert at what we do We give you what you value most

128 The BA Way Networked British Airline Service that matters For people who value how they fly No way Disconnected Not JUST point to point Jingoistic, Arrogant Jack of all trades No frills Too many frills For people who want ONLY a cheap fare (don t care how they fly) The customer benefit Wide range of destinations Looked after the whole way Our Brand - Reassuring British values of professional, reliable, responsive, safe and secure We are focused and expert at what we do We give you what you value most We provide better quality service than our competitors at reasonable prices

129 How do we measure success? Achieve 10% operating margin

130 Q & A

131