BA`s premium traffic rises for sixth consecutive month. The market is continuing to develop in line with BA`s expectations. These figures represent a further step in the delivery of the company`s strategy of reducing capacity and exposure to non-premium traffic. We look forward to these positive achievements being continued in the coming months.

Against the background of tough market conditions, premium traffic figures increased for the sixth month in a row, by 5.2% in December, once again demonstrating that the company is meeting the challenge on premium. [Premium traffic increases for July 1999 up 3.2%; August 1999 up 3.8%; September 1999 up 1.5%; October 1999 up 8.2%; November 1999 up 6.5%]

Capacity was reduced with Available Seat Kilometres (ASKS) down 0.5% in December and Revenue Passenger Kilometres (RPKS) 6.4% lower, the benefit showing through in a reduction of exposure to economy where there is most price competition: non premium traffic in December fell by a further 8. 1 %, in line with our strategy. This week BA has launched its biggest ever promotion of undersold seats, including a mailing of special fares to 23 million homes around the country and gift vouchers for online bookings.

 

Summary of the headline figures
In line with the British Airways strategy, December capacity was below a year ago, premium traffic was higher and non-premium traffic was lower. The month’s result was also impacted by the reduced demand during the millennium holiday period.

British Airways mainline scheduled Available Seat Kilometres (ASKs) in December were 0.5 per cent below December 1998. Traffic, measured in Revenue Passenger Kilometres (RPKs), was 6.4 per cent lower, including 35% lower in the Millennium week commencing December 27. Millennium travel patterns will also feature in January’s results. Passenger load factor for December was 3.8 points lower than last year at 61.1 per cent.

Premium traffic rose by 5.2% (December saw last winter’s largest monthly year on year decline in premium traffic of 3.6%), with Club World the strongest performer. This reflected successful selling activity and is expected to continue in the coming months. Non-premium traffic fell by 8.1%. Cargo tonne kilometres rose by 15.3%, with Asia Pacific traffic continuing to be particularly buoyant. For the December quarter, passenger load factor for the mainline scheduled business fell one point to 66.7%, on ASKs up by 0.1%. Scheduled RPKs fell by 1.4%, with premium traffic up 6.8% and non premium traffic down 2.8%.

 

Market conditions
Trading conditions are still competitive. British Airways has this week launched its biggest ever promotion of unsold seats, including a mailing of special fares to 23 million homes and gift vouchers for on-line bookings.

Costs
Fuel prices continued to rise, with jet kerosene ending the quarter around 30% higher than the September quarter. Although most of the fuel requirement is hedged for this fiscal year, there remains around 10% of the year’s requirement unhedged and exposed to these movements in the fuel price.

The yen continued to strengthen against sterling. At the end of December, the value of the yen stood at Yen 165.20 to the pound, compared to Yen 175.70 at the end of September 1999. The Group will therefore have a non-cash accounting charge of £50 million in the third quarter financial results.

Strategic developments
British Airways concluded the agreements for it to acquire a 9% stake in Iberia Aereas de Espana SA. The value of the investment will be in the region of £155 million (Ptas 41 billion). If the value of the shares in Iberia offered through its public flotation is less, the sum paid by British Airways will be reduced accordingly. The oneworld partner American Airlines will take a 1% holding in Iberia.

As foreshadowed last month, Aer Lingus became the ninth member of the oneworld alliance. This followed the signature of a co-operative agreement between British Airways and Aer Lingus to codeshare on 14 routes across the Irish Sea and to eight continental European destinations.

Other highlights
British Airways completed the sale of a second tranche of 1.1 million shares in Equant. This raised £58 million after costs, and resulted in a £58 million book profit which will be recognised in the 3rd quarter financial results. Following this sale, British Airways remains the beneficial owner of 2.1 million shares in Equant.

British Airways announced the doubling of hand baggage allowances on Club World, effective from 3 January. The maximum allowance will now be 18 kg, to be split between two separate items such as a garment bag/suit carrier and a computer or brief case.

The Millennium change passed without incident. Although schedules were significantly reduced to reflect reduced demand, British Airways had 15 flights in the air at midnight on 31 December.

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