British Airways said passenger traffic edged up in September as capacity increased.

BA reported 10 billion revenue passenger kilometers in September, up 1.5 percent from the prior-year period. A revenue passenger kilometer equals one paying passenger flown one kilometer.

Capacity increased 2.5 percent to 12.68 billion available seat kilometers. Capacity and traffic both grew about 11 percent in Africa and the Middle East, while declining in the Americas and Asia Pacific.

Full statement

In September 2006, passenger capacity, measured in Available Seat Kilometers, was 2.5 percent above September 2005. Traffic, measured in Revenue Passenger Kilometers, was higher by 1.5 percent. This resulted in a passenger load factor down 0.8 points versus last year, to 78.8 percent. The increase in traffic comprised a 1.5 percent increase in premium traffic and a 1.5 percent increase in non-premium traffic. Cargo, measured in Cargo Ton Kilometers, decreased by 5.2 percent. Overall load factor increased by 0.8 points to 73 percent.

For the July to September quarter, ASKs rose by 3.5 percent, with RPKs rising by 3.6 percent. This resulted in an increase in passenger load factor of 0.1 points, to 79.7 percent. This comprised a 6.5 percent increase in premium traffic and a 3.1 percent increase in non-premium traffic. CTKs fell by 1.1 percent.

Market conditions

Market conditions continue to be good, and most segments of the business are recovering well from the events of August. However, as expected, September transfer traffic volumes, in particular in the premium cabins, were affected by carry on baggage restrictions. Volume in premium shorthaul also continues to be soft for the same reason. The reintroduction of standard carry on bag sizes agreed at the end of the month, and harmonization of rules on liquids planned for the end of October are expected to support the gradual recovery of these segments of the business. As a result of the volume shortfall, total revenue is now expected to grow at 5-6% for the financial year, down from 6-7%.

Costs

After the recent major falls in the fuel price, the cost of fuel is now expected to be some 450 million Pounds higher than last year, down from our previous forecast of 550-600 million Pounds.

Strategic Developments

The airline announced that the actuarial deficit in its New Airways Pension Scheme (NAPS) is set to rise from 928 million Pounds to some 2.1 billion Pounds, despite a doubling of BA’s contributions and a recovery of the stock market. The trustees confirmed that annual contributions at the unsustainable level of 497 million Pounds would be needed to fund the scheme unless changes to future benefits proposed earlier this year are introduced. This means the company’s contributions would go up from five to 12 times members’ contributions.

Negotiations between British Airways and the trustees are now underway to agree on a funding plan including proposed benefit changes. Consultation continues with the trades unions.

British Airways urged the Civil Aviation Authority to cut the profits BAA receives from its asset base to ensure that the airport operator builds cost-effective facilities that generate additional airport capacity. The CAA is currently consulting on the level of user charges at Heathrow, Gatwick and Stansted airports for a five year period from April 2008, in its role as an economic regulator.

During the current charging period between April 2003 and March 2008, BAA receives a 7.75 percent return on it asset base. British Airways said this should be set at around 5.6 percent in the next charging period, a reduction of almost one third.

It was announced that James A Lawrence will be joining the board as a non-executive director with effect from 1 November, 2006. He is currently vice chairman and chief financial officer of General Mills Inc., one of the largest food companies in North America. His range of experience covers strategic consultancy, leading U.S. multi-nationals in consumer products and the U.S. airline industry.
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