Right, I’m gonna sound completely thick now, but can someone explain to me what all this means.

I know revenue is all the income that a company gets so I know that BA will get it from selling flights for example.

Is operating profit once all the deductions have been made e.g. wages, fuel bill etc?

Finally, what is an operating margin?

OK. Airline economics 101.

Revenue is indeed income, for airlines it comes in two varieties, direct and indirect. The former is what it gets from flying passengers and freight, the latter is what it gets from being an airline (eg, marketing incentives, grants, money made on aircraft/fuel/forex trading etc etc etc)

From profit, take your costs – firstly, taking off the marginal costs of putting passengers on the aircraft (so that is reservation system costs, pax handling etc etc), then direct costs (fuel, landing, parking, nav charges etc).

Operating profit is technically operating revenue minus operating costs, so should be direct revenue minus direct costs (so Willie’s remuneration shouldn’t figure in it, since he is an overhead), but the aircraft standing charges and corporate overheads can get in the mix. All depends on how the airline in question accounts (remember that to a certain degree, the airline decides on how it presents its numbers, so long as they are on a consistent assumption base year on year).

The margin is just an expression of operating profit as a percentage of operating revenue – eg, from BA’s 2006/07 results, revenue was £8,492m, operating profit £602m – a margin of 7.1%. (Note that BA use an overall figure for revenue, rather than the more precise direct revenue measure – this is not uncommon).

Hope this helps.

TA