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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 revenue's 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


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


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 it's passenger fares in response to the rapid rise in

oil prices" (, 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



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