Good Progress in Tough Quarter

British Airways today announced a pre-tax profit of £105 million (2002: £245m) for the three months ended September 30, 2003. Yields in the second quarter were down 5.9 per cent
(2002: 1.2 per cent up).

The three-month pre-tax figures took the result for the half-year to £60 million profit
(2002: £310 million).

Operating profit for the quarter was £195 million (2002: £248 million). The figure for the
half-year was £235 million (2002: £406 million). There will be no interim dividend.

Rod Eddington, British Airways chief executive, said: “Despite a difficult quarter, which included unofficial industrial action at Heathrow, the results show that both our Future Size and Shape recovery programme and other business plan initiatives are helping to offset the continued deterioration in revenue.

“We have made good progress in taking costs out of the business and have delivered £701 million of annualised cost savings against a target of £650 million. Manpower reductions are at 12,087 and on track to achieve our 13,000 target by March 2004.


“However, in the soft revenue environment, we must do more to remove costs. We will continue to simplify and modernise our business while enhancing the customer experience with improved service and better air fares.

“New technology is key to simplifying processes for our customers and they are embracing it enthusiastically. E-tickets are now used by nearly half our customers and internet bookings on continue to increase with 46 per cent of all shorthaul non-premium point-to-point bookings being made on-line. Customers now also monitor and manage their reservations on-line. More than 60 per cent of our customers choose to communicate with us by email.

“On the ground and in the air we have world beating, award winning products. We have more flat beds than any other airline - nearly 6,000 on our aircraft. In addition, we continue to open new airport lounges across our network, refurbish existing ones and provide more customer self-service options than ever before.?E
Lord Marshall, the airline’s chairman, said: “Trading patterns seen over the last few months point to a more stable outlook for revenue. The recent positive economic news from the United States is a welcome development, but is not yet showing in forward bookings. In the soft revenue environment, continued delivery of business efficiency and cost improvement is core to improving profitability.?E
Group turnover for the second quarter was nearly 6 per cent down at £1,983 million
(2002: £2,104 million), on a flying programme up by 1.7 per cent, measured in available tonne kilometres (ATKs). Traffic volumes, measured in revenue passenger kilometres (RPKs), were up 0.9 per cent. Seat factor was down 0.2 points at 76.5 per cent on capacity 1.0 per cent higher in available seat kilometres (ASKs).

Operating cashflow for the six months was £520 million (2002: £756 million). After disposal proceeds, capital expenditure and interest, cash inflow was £367 million (2002: £738 million).
Net debt was £4,807 million, down by £342 million since the start of the year, its lowest level since June 1998.

Unit costs improved by 4.4 per cent on the same period last year. This reflects a net cost reduction of 2.8 per cent on capacity 1.7 per cent higher in ATKs. Reductions were achieved in most categories of operating costs, including selling costs (down 22.3 per cent), engineering and other aircraft costs (down 11.3 per cent). Fuel costs increased by 21.1 per cent and employee costs increased by 1 per cent.

Future Size and Shape achievements
á Achieved £701 million of annualised cost savings against March 2004 £650 million target.
á Achieved manpower cost savings of £437 million. Reduced manpower equivalent by
12,087 since August 2001 - on track to achieve 13,000 March 2004.
á Achieved £148 million savings on sales and distribution costs against £100 million target.
á Achieved £116 million savings on procurement against £100 million target.
á Disposals of £694 million against March 2004 £900 million target.
á Hangars reduced by a third and engineering inventory and spares reduced by £135 million.
á Introduced 46 per cent of the lowest shorthaul leisure fares on 180 routes sold on line against 50 per cent target.
á Achieved 44 per cent usage of e-ticket instead of paper tickets.
á Made available 100 per cent of Executive Club transactions on line.
á allows all customers to check bookings online.
á 60 per cent of customers who book tickets communicate by email.
á Reduced fare types by 500,000 from 1.8 million to 1.3 million.

British Airways presentation to city analysts can be accessed via the internet at 9am. A webcast of British Airways?Econference call to city analysts can also be accessed via the internet at 2pm.

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 forward-looking 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.