September was a month of considerable disruption for passenger traffic, cargo and aircraft flying. On September 11, 29 flights were diverted. North Atlantic capacity was grounded until the evening of September 14 and a full schedule was only operating again on September 23. In the week of September 11, traffic to the US was down around 60 per cent. The revenue loss for the week was some £48 million and operating results were impacted by some £40 million. The costs associated with the disruption and taking care of passengers were considerable. The impact of immediate security and restrictions on cargo were also considerable.
Immediate action was taken to conserve cash and analyse the impact on the business. On September 17, an extensive series of cost cutting measures was announced, including a further headcount reduction of 5,200 and the plan to take 20 aircraft out of the flying programme. On September 24 a revised network plan was announced for the winter programme that will reduce capacity by around 9 per cent more than the previous plan of some 8 per cent.
Summary of the headline figures
Capacity in September, measured in Available Seat Kilometres, was 13.8 per cent below September 2000. Traffic, measured in Revenue Passenger Kilometres, fell 22.0 per cent. The reduction in traffic comprised a 33.2 per cent decline in premium traffic and a 20.0 per cent fall in non-premium traffic. Passenger load factor of 69.2 per cent was down 7.3 points on September 2000. Cargo, measured in Cargo Tonne Kilometres, fell by 38.0 per cent.
For the July - September quarter, ASKs were down 10.5 per cent, with RPKs down 14.0 per cent. Premium traffic fell by 19.3 per cent, while non-premium traffic fell by 13.2 per cent. Cargo Tonne Kilometres fell by 23.1 per cent.
Trading is difficult. In the seven days following the attacks, traffic was down by around 36 per cent, and subsequently recovered to be down 28 per cent in the last week of the month. In that last week, seat factor on North America was down some 30 per cent, Middle East was down some 10 per cent and Far East was down some 10 percent (against a market that was already weaker than the previous year). Shorthaul was down some 12 per cent but this is largely driven by the reduction in transfer flows from the longhaul network. Business traffic has been more heavily affected as many companies introduced restrictions due to concerns about travel risk. Equally we would expect this segment of the market to recover more quickly as any perceived risks are better understood. Until any retaliatory action becomes clear, the outlook will remain unpredictable. Forward bookings for October are indicating that traffic for that month will be down by around 25-30 per cent versus last year, with capacity down at least 15 per cent. Clearly, forward bookings are volatile; a further update will be given at the interim results on November 6.
Costs for insurance and security are expected to rise significantly going forward.
Expected fuel costs for the year have fallen due to lower prices and a reduced flying programme to around £50 million less than last year.
The events of September 11 have in no way reduced the company’s focus on its core strategy of reducing capacity and exposure to the unprofitable business segments. In response to the weaker travel outlook both longhaul and shorthaul capacity have been reduced and some of the Gatwick restructuring plans that were announced 10 months ago have been brought forward. The fleet and network plans are working towards aligning capacity with expected demand while maintaining the flexibility to respond to further market changes. As the revenue outlook becomes clearer we will make the necessary changes to align supply with our view of stable demand.
Meetings with the UK Government continue to discuss airport security and insurance, as well as the need to maintain a level playing field with respect to any government support. The company has restated its view that liberalisation is core to the long-term success of the airline industry.
British Airways is in a sound position in spite of the immediate revenue pressures, having responded quickly with a series of measures to reduce the scale of our business. We continue to assess the demand outlook, and will take all necessary actions.