British Airways Plc - UK Airlines  -  Category Directory

+44-20-8562-4444

Waterside, PO Box 365

Harmondsworth, UB7 0GB England

www.british-airways.com

Sales

$14 billion (U.S. dollars)

Business Description 

British Airways is one of the world’s leading scheduled international passenger airlines. Its main activity is the operation of international and domestic scheduled passenger airline services. The Group’s principal place of business is London, one of the world’s premier airport locations, which serves a large geographical area and a comparatively high proportion of point-to-point business. The Group also operates a worldwide air cargo business in conjunction with its scheduled passenger services. The Group currently operates one of the world’s most extensive international scheduled airline route networks, comprising 154 destinations in 75 countries at March 31, 2004. In fiscal 2004, the Group carried more than 36 million passengers on its services.

British Airways Plc was incorporated in 1983 with Registered Number 1777777. It is domiciled in England and has its registered offices at Waterside, PO Box 365, Harmondsworth UB7 0GB, England, Telephone: +44 (0) 870 850 9 850. It is a public limited company organized and operating under the laws of England and Wales. Its agent in the US is Paul C. Jasinski, 75-80 Astoria Boulevard, Jackson Heights, NY 11370.

Route Network

BA’s scheduled route network forms the basis of its business and is one of the world’s most extensive. As of March, 2004, BA (including subsidiary carrier British Airways CitiExpress) served some 154 destinations in 75 countries. Including codesharing and franchise arrangements, flights with BA codes served some 337 destinations in 107 countries. Adding the services of BA’s alliance partners, the global network served some 551 destinations in 131 countries.

During the year ended March 2004, BA introduced services to Algiers, Bari, Dubrovnik and Turin and reintroduced services to Islamabad. Services to Bremen, Guernsey, Lilongwe, Liverpool, Newquay, Plymouth, San Diego and Zagreb were discontinued.

A major new codesharing agreement with American commenced during September, 2003 which involves BA codesharing on 104 American routes in the Americas, adding 72 new destinations to the BA marketed network. American has placed its code on 68 BA routes in Europe, Africa and the Middle East.

Aircraft fleet

The number of Group aircraft in service at March 31, 2004 was 291, a reduction of 39 on the prior year. Aircraft returns to lessors comprised five British Aerospace ATP and five ATR72 aircraft. In addition, a further five ATP and four Boeing 737-400 aircraft were stood-down pending return to lessors. The five remaining Concorde aircraft were retired from service in October 2003 and 16 Boeing 737-300 aircraft were disposed of as part of the dba sale in June, 2003. In addition, British Airways CitiExpress sub-leased three ATP aircraft to Loganair. Deliveries comprised three Airbus A320 aircraft whilst one Boeing 747-400 aircraft was returned to service having been previously sub-leased to Qantas.

Operations

Operational Centers

Heathrow is BA’s principal base, and BA carries an estimated 38% of the airport’s passengers. In addition, BA has a second base of operations at Gatwick. The construction of a fifth passenger terminal (‘Terminal 5’) at Heathrow has commenced and BA expects to consolidate its operations into Terminal 5, in 2008. The strategy at Gatwick is now focused towards direct (point-to-point) business. As a result, BA has significantly reduced longhaul destinations at Gatwick, cancelled certain unprofitable routes and moved others to Heathrow. As at May 31, 2004, BA served 12 longhaul destinations from Gatwick, compared to a peak of 48 destinations served in 1999. 

Offices, maintenance hangars and other support facilities used by BA at Heathrow, Gatwick and other UK airports are either owned freehold or held under long-term leases from the respective airport owners, principally BAA plc or its subsidiaries. In addition, BA occupies space and desks under lease or license in other airports throughout the UK including (but not limited to) Manchester, Birmingham, Newcastle, Edinburgh and Glasgow.

BA’s most important overseas base is at New York’s John F. Kennedy International Airport (“JFK”), where it leases its terminal building. At other overseas airports, BA generally obtains premises as required on a short-term basis from the relevant authorities.

Details of BA’s principal non-aircraft properties are given under “Item 4 — Information on the Company — Property, Plant and Equipment”.

Operational Services

In the UK, BA itself provides most of the operational services it requires for the handling of passengers and cargo. At overseas airports, BA subcontracts the provision of the majority of its ground handling requirements.

Runway, ramp and terminal facilities are provided by airport operators that charge airlines for the use of these facilities, principally through landing, parking and passenger charges. Navigation services are provided to aircraft by countries through whose airspace they fly or by international bodies such as Eurocontrol. Navigation charges are generally based on distance flown and weight of aircraft.

BA’s ability to obtain slots at airports for the purpose of producing schedules attractive to passengers is very important. Allocation of slots at a significant number of airports where BA operates, including Heathrow and Gatwick, is decided by the Airport Coordinator, who acts in accordance with guidelines laid down by the International Air Transport Association (“IATA”), sometimes supported by the local Scheduling Committee or Co-ordination Committee. These committees include representatives from the carriers flying to the relevant airport who may mediate disputes over slots. The Airport Coordinator makes the initial slot allocations within IATA guidelines, which give priority to the historic rights of existing users. Pursuant to Council Regulation (EC) No. 95/93, which is implemented in accordance with UK regulations, the UK government must ensure the Airport Coordinator advises BA at the biannual IATA Schedule Co-ordination Conference of their slot allocations. These provide the basis for slot negotiations with the Airport Coordinator and other airlines. Most congested airports in the world apply IATA guidelines. Co-ordination of European airports is governed by the Council Regulation. Pursuant to the Council Regulation, the UK government must ensure that the Airport Coordinator acts independently and in a non-discriminatory manner. This regulation remains under review by the European Commission and a revised regulation is expected in the future. Regulations governing the allocation of slots in the US are different, but the US has stated that it is committed by its international obligations to treat all carriers in a non-discriminatory manner.

Fuel

BA obtains aviation fuel, which is priced entirely in US Dollars, from a number of sources and locations throughout its network. In most countries, aviation fuel is supplied under term contracts, generally with major oil companies. Most fuel is purchased from suppliers under contracts, which have a duration of one or two years. Prices under these contracts are determined either by formulae applicable for the duration of the contract or are subject to review by the parties in light of market conditions. If agreement on a price adjustment is not reached, the contracts can normally be terminated. BA also enters into forward contracts and other hedging arrangements in an attempt to counter fluctuations in the price of jet fuel. See “Item 11 — Quantitative and Qualitative Disclosures about Market Risk – Fuel Risk”. In the US, BA is a member of a number of consortia that own or lease fuel distribution facilities at certain airports so that aviation fuel may be purchased from a wide range of suppliers. In both the UK and the US, BA also buys aviation fuel in the spot market and in the futures market. In certain countries, aviation fuel is only obtainable through government sources.

Aircraft Maintenance

The Group’s engineering and maintenance facilities are centered at Heathrow, Gatwick, Glasgow and at three facilities in South Wales: the Boeing 747 maintenance facility at Cardiff Airport, an avionics repair operation in Llantrisant and an aircraft seat and interior repair operation at Blackwood. In addition, maintenance capability exists at most airports served by BA.

The engineering department is a cost center within the Group and approximately 90% of its airframe maintenance capacity is dedicated to maintaining BA aircraft. In addition to supporting BA’s needs, the engineering department pursues third party business with respect to certain maintenance services.

Marketing and Sales

Longhaul Products

On longhaul services, BA has a portfolio of four cabins to suit the needs of different customers: First, Club World with its space-efficient flat beds, World Traveller Plus, which offers more space and legroom for premium economy customers and World Traveller, the standard economy cabin.

During fiscal 2004, BA continued to roll out its Club World flat bed, the new World Traveller Plus cabin and the refurbishment of First. By March 31, 2004, 88% of the longhaul fleet was fully embodied with new products in every cabin, including all of the Heathrow 747 and 777 fleets. These investments have helped BA to maintain market share in a severely depressed business travel market.

Shorthaul Products

On shorthaul services BA provides a choice of two cabins: Club Europe, its business class cabin and Eurotraveller, its economy cabin. On UK domestic services only one cabin is available.

Pricing and inventory management strategies for economy fares were refined on European and UK domestic routes during the year, supported by value advertising campaigns to enable us to compete vigorously with no frills competitors. Further improvements to our website booking engine were also implemented, including the acceptance of debit cards for payment. As a result, market share on these routes has stabilized against aggressive growth by competitors.

The overall European business class market has remained severely depressed but the investment in an improved product in fiscal 2001 has continued to help defend Club Europe market share through fiscal 2004 against other full service carrier competition.

Updated and relocated self-service check-in kiosks have ensured increased usage by customers and helped them move more quickly and efficiently through the airport. In March, 2004,17% of all customers checking-in at self-service European and UK airports used such a kiosk, being almost double the rate of the prior year.

As part of BA’s FSAS program, BA improved the cost efficiency of all of its products and services with the objective of minimizing delivery costs while maintaining quality standards. This was achieved successfully while maintaining or in some cases increasing customer satisfaction scores.

Concorde

Due to the severe economic downturn and the view of Airbus that technical support for Concorde was no longer economically viable, Concorde was retired from service in October, 2003.

Executive Club

The Executive Club is BA’s worldwide customer loyalty program for recognizing, retaining and communicating with our most valuable customers. For people who travel frequently, the Executive Club seeks to provide an exceptional level of service, preferential treatment, enhanced travel related benefits, as well as mileage awards on eligible fares.

As part of the FSAS program, work took place to simplify the Executive Club from five regional programs to a single global program. This improved customer understanding will make it easier and less costly to develop in the future. It is also more cost efficient to run. This was launched to customers in March, 2003 and went live on July 1, 2003.

Sales

British Airways has built and maintains relationships with all its key customer groups around the world (both in countries where it flies as well as selected other countries). This includes large corporations, small and medium sized enterprises, governments, tour operators, individual customers, etc. Relationships are also maintained with business and leisure travel agents and the computer reservation systems and the credit card companies. In addition, BA itself operates contactBA call centers around the world, airport ticket desks, BA Travel Shops and our on-line booking channel, ba.com.

Franchising

As at March 31, 2004, BA had six franchise partner airlines: Loganair, GB Airways, British Mediterranean Airways, Sun Air of Scandinavia, Comair of South Africa and Regional Air of Kenya.

During the year, Maersk Air UK ceased to be a BA franchise.

These six carriers carried approximately 3.86 million passengers during the fiscal year to 84 destinations (66 destinations in addition to the mainline network) in the UK, continental Europe, the Middle East and Africa, using BA flight numbers. In addition to providing connecting passengers to BA’s mainline services, the franchisees pay a franchise fee and pay for any services provided to them by British Airways.

Computer Systems

IT and telecommunications systems are vital to the running of the Group’s business. Most areas of BA’s business are facilitated by IT systems, which are closely interconnected.

Many of these systems have been developed, and most of them integrated, by BA’s Information Management (IM) department. The majority of systems are operated within BA’s two data centre facilities at Heathrow. Major exceptions to this are Reservations, Departure Control (check-in), Inventory, Flight Planning and other transaction processing facility (TPF) platform systems, which are operated by Amadeus SA in Germany.

The following major technical infrastructure elements are provided to BA by third party suppliers:

• The wide-area data network – provided by SITA and some other telecommunications

• The campus network in London – provided by Omnetica Limited

• Desktop, provision and support – provided by Specialist Computer Centres (SCC)

Over the last year a core element of the IT strategy has been supporting simplification of the airline’s business processes through IT. We have achieved this through a number of initiatives including the customer enabled BA (ceBA) program. The vision of this program is to make BA so easy a company to do business with that customers can choose to serve themselves. The same principles are being applied internally for our employees through our employee self-service program.

Over the last year we have increased the capability and functionality of ba.com. In July, 2003 we made the core Executive Club transactions available online and, with the introduction of “manage my booking”, we have introduced the ability for our customers to request a seat and, in many countries, offer our customers the opportunity to check in at home and then pick up their boarding pass at the airport. In certain trial cities customers can also print their boarding pass at home.

Another important element has been the use of e-ticket and the introduction of upgraded self-service kiosks at key airports around the world. The airline has now installed over 200 kiosks in airports such as Heathrow, New York JFK and Paris Charles De Gaulle. E-ticket continues in its growth. By July 1, 2004 e-tickets were being issued on approximately 60% of all BA tickets worldwide, approximately 85% of all journeys are eligible for e-ticket.

Simplifying the way our employees do their business within BA is as important as how our customers do business with us. We have developed a self-service portal, as part of our business plan to reduce our paper based processes. For example, we are replacing payslips with online forms. 85% of staff go online from the workplace or home for a variety of functions including updating personal records, booking training courses, logging faults, asking questions and procurement.

Within BA we have substantially completed a desktop computer refresh program, which has improved speed and reliability. This has resulted in substantial savings by standardizing hardware and software utilized at BA locations around the world. We also achieved savings by reducing the number of laptops by a quarter. The replacement of legacy networks with simpler, internet-based networks has also reduced maintenance support costs. Other improvements introduced include the provision of standardized, licensed software packages with upgrades performed remotely out of office hours. Another key element of this program is that the new desktop PCs also have improved security.

IT security and control has been an increasing area of management focus over the last two years and the IM department is working closely with BA’s Internal Control department to protect BA’s systems, processes
and data.

Cargo

BA’s cargo business is operated as a contribution center. The majority of its cargo is carried in the holds of passenger aircraft, the balance on leased or part-chartered freighter aircraft where market conditions allow their deployment. This allows the Group to maximize the use of its scheduled route network to provide a worldwide cargo service. In Europe, the Group utilizes trucks to feed cargo from continental Europe to BA’s Heathrow and Gatwick based intercontinental services.

Ancillary Airline Activities

Other Services

The Group provides a variety of services to other airlines. The most important of these are cargo handling at airports, airframe maintenance, computer and communications services and consultancy services.

Eurostar

In 1999, BA took a 10% equity stake in Inter-Capital & Regional Rail Limited (“ICRRL”), a consortium company jointly held with National Express Group plc along with the French and Belgian railway companies, SNCF and SNCB, which was selected by the UK government to manage Eurostar UK Ltd (“EUKL”). EUKL is responsible for operating Eurostar trains between London, Lille, Paris and Brussels. The contract expiry date is December 31, 2010.

Under the terms of the contract with EUKL, ICRRL receives an annual management fee and is subject to a mechanism allowing it to share in the upside or downside of EUKL’s performance by reference to a pre-determined forecast. In February 2004, ICRRL shareholders were required to contribute additional funding to the company to enable it to satisfy its obligations under the performance mechanism for its year ended December 31, 2003. BA’s share of this funding requirement was £968,000. In February 2003, BA’s share of the funding requirement was £1,030,000.
 

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