TIDMIAG
RNS Number : 2470M
International Cons Airlines Group
07 May 2020
International Consolidated Airlines Group (IAG) today (May 7,
2020) presented Group consolidated results for the three months to
March 31, 2020.
The results for the quarter were significantly impacted by the
outbreak of COVID-19, which has had a devastating impact on the
global airline and travel sectors, with the spread of the virus
worldwide, resulting in lockdowns and travel restrictions and
advisories, particularly from late February 2020 onwards.
COVID-19 situation and management actions:
-- Passenger capacity has been reduced by 94 per cent from late
March with most aircraft grounded and those retained for operating
limited passenger, repatriation and cargo-only flights being
appropriately-sized and new-generation, where practical
-- Going into the crisis, IAG had a strong balance sheet and
liquidity, with cash and undrawn facilities at 31 (st) March of
EUR9.5 billion and at 30(th) April increasing to EUR10.0
billion
-- Actions have been taken to boost liquidity, such as accessing
the UK's Coronavirus Corporate Finance Facility (CCFF) and Spain's
Instituto de Crédito Oficial ('ICO') facility and extending British
Airways' Revolving Credit Facility
-- For April and May the normal run-rate cash operating costs
have been reduced from EUR440 million per week to EUR200 million
per week
-- Capital spending for 2020 has been reduced by EUR1.2 billion,
with most of the remaining EUR3.0 billion covered by committed and
agreed financing
-- IAG is planning a meaningful return to service in July with a
planning scenario that could see an overall reduction in passenger
capacity of c.50 per cent in 2020, but these plans are highly
uncertain and subject to the easing of lockdowns and travel
restrictions
-- IAG expects that its second quarter will be significantly worse than the first quarter
-- IAG does not expect the level of passenger demand in 2019 to
recover before 2023, making further Group-wide restructuring
measures essential; as a result IAG expects to defer deliveries of
68 aircraft
-- As previously announced, and required by UK labour
legislation, British Airways has formally notified its trade unions
about a proposed restructuring and redundancy programme which is
subject to consultation
IAG period highlights on results:
-- Capacity operated in the quarter down 10.5 per cent on 2019
-- First quarter operating loss before exceptional items EUR535
million (2019: EUR135 million operating profit)
-- Net foreign exchange operating result impact for the quarter adverse EUR68 million
-- Exceptional charge in the quarter of EUR1,325 million on
derecognition of fuel and foreign exchange hedges for 2020
-- Loss after tax before exceptional items for the quarter
EUR556 million (2020 statutory loss after tax and exceptional
items: EUR1,683 million, 2019 profit: EUR70 million)
-- Cash of EUR6,945 million at March 31, 2020 was up EUR262 million on December 31, 2019
Performance summary:
Three months to March
31
-----------------------
Higher /
Highlights EUR million 2020 2019(1) (lower)
Passenger revenue 3,953 4,623 (14.5)%
Total revenue 4,585 5,295 (13.4)%
-------------------------------------------- ----------- ---------- --------
Operating (loss)/profit before exceptional
items (535) 135 nm
Exceptional items (1,325) - nm
-------------------------------------------- ----------- ---------- --------
Operating (loss)/profit after exceptional
items (1,860) 135 nm
Available seat kilometres (ASK million) 67,522 75,423 (10.5)%
Passenger revenue per ASK (EUR cents) 5.85 6.13 (4.5)%
Non-fuel costs per ASK (EUR cents) 5.79 5.03 15.1%
-------------------------------------------- ----------- ---------- --------
Higher /
Alternative performance measures 2020 2019 (lower)
(Loss)/profit after tax before exceptional
items (EUR million) (556) 70 nm
Adjusted (loss)/earnings per share (EUR
cents) (28.0) 3.7 nm
-------------------------------------------- ----------- ---------- --------
Net debt (EUR million)(2) 7,508 7,571 (0.8)%
Net debt to EBITDA(2) 1.6 1.4 0.2x
-------------------------------------------- ----------- ---------- --------
Higher /
Statutory results EUR million 2020 2019 (lower)
(Loss)/profit after tax and exceptional
items (1,683) 70 nm
Basic (loss)/earnings per share (EUR cents) (84.8) 3.7 nm
-------------------------------------------- ----------- ---------- --------
Cash and interest-bearing deposits(2) 6,945 6,683 3.9%
Interest-bearing long-term borrowings(2) 14,453 14,254 1.4%
-------------------------------------------- ----------- ---------- --------
For definitions refer to the IAG Annual report and accounts 2019.
(1) March 31, 2019 comparatives are the Group's restated
statutory results as reported. The 2019 results have been restated
to reclassify the costs the Group incurs in relation to
compensation for flight delays and cancellations as a deduction
from revenue as opposed to an operating expense. There is no change
in operating profit. The amount reclassified for the period to
March 31, 2019 was EUR23 million. Further information is given in
the IAG Annual report and accounts 2019.
(2) The prior year comparative is December 31, 2019
Willie Walsh, IAG Chief Executive Officer, said:
"In quarter 1 we're reporting a substantial operating loss of
EUR535 million before exceptional items compared to an operating
profit of EUR135 million last year. Total operating losses
including exceptional items relating to fuel and foreign currency
hedges came to EUR1,860 million.
"The operating result up to the end of February was in line with
a year ago. However, March's performance was severely affected by
government travel restrictions due to the rapid spread of COVID-19
which significantly impacted demand. Most of the loss in the
quarter occurred in the last two weeks of March.
"We had a strong balance sheet and liquidity position coming
into this crisis. We are taking all appropriate actions to preserve
cash, reduce and defer both capital spending and operating costs
and secure additional financing in order to strengthen and maintain
our liquidity. At the end of April our liquidity stood at EUR10.0
billion.
"We are planning for a meaningful return to service in July 2020
at the earliest, depending on the easing of lockdowns and travel
restrictions around the world. We will adapt our operating
procedures to ensure our customers and our people are properly
protected in this new environment. We are working with the various
regulatory bodies and are confident that changes in regulations
will enable a safe and organised return to service. The industry
will adapt to new requirements in the same way that it has adapted
to developments in security requirements in the past.
"However, we do not expect passenger demand to recover to the
level of 2019 before 2023 at the earliest. This means Group-wide
restructuring is essential in order to get through the crisis and
preserve an adequate level of liquidity. We intend to come out of
the crisis as a stronger Group."
Trading outlook
As announced on February 28, 2020, given the uncertainty on the
impact and duration of COVID-19, IAG is not currently providing
profit guidance for 2020. However, as announced on 28(th) April,
the Group expects its operating loss before exceptional items in
the second quarter to be significantly worse than in the first
quarter, given the substantial decline in passenger capacity and
traffic and despite some relief on employee costs from government
wage support schemes and various management actions.
EI: 959800TZHQRUSH1ESL13
This announcement contains inside information and is disclosed
in accordance with the Company's obligations under the Market Abuse
Regulation (EU) No 596/2014.
Steve Gunning, Chief Financial Officer
Forward-looking statements:
Certain statements included in this announcement are
forward-looking. These statements can be identified by the fact
that they do not relate only to historical or current facts. By
their nature, they involve risk and uncertainties because they
relate to events and depend on circumstances that will occur in the
future. Actual results could differ materially from those expressed
or implied by such forward-looking statements.
Forward-looking statements often use words such as "expects",
"may", "will", "could", "should", "intends", "plans", "predicts",
"envisages" or "anticipates" or other words of similar meaning.
They include, without limitation, any and all projections relating
to the results of operations and financial conditions of
International Consolidated Airlines Group, S.A. and its subsidiary
undertakings from time to time (the 'Group'), as well as plans and
objectives for future operations, expected future revenues,
financing plans, expected expenditure and divestments relating to
the Group and discussions of the Group's business plan. All
forward-looking statements in this announcement are based upon
information known to the Group on the date of this announcement and
speak as of the date of this announcement. Other than in accordance
with its legal or regulatory obligations, the Group does not
undertake to update or revise any forward-looking statement to
reflect any changes in events, conditions or circumstances on which
any such statement is based.
Actual results may differ from those expressed or implied in the
forward-looking statements in this announcement as a result of any
number of known and unknown risks, uncertainties and other factors,
many of which are difficult to predict and are generally beyond the
control of the Group, and it is not reasonably possible to itemise
each item. Accordingly, readers of this announcement are cautioned
against relying on forward-looking statements. Further information
on the primary risks of the business and the Group's risk
management process is set out in the Risk management and principal
risk factors section in the Annual Report and Accounts 2019; these
documents are available on www.iairgroup.com . All forward-looking
statements made on or after the date of this announcement and
attributable to IAG are expressly qualified in their entirety by
the primary risks set out in that section.
IAG Investor Relations
Waterside (HAA2),
PO Box 365,
Harmondsworth,
Middlesex,
UB7 0GB
Tel: +44 (0)208 564 2990
Investor.relations@iairgroup.com
CONSOLIDATED INCOME STATEMENT
Three months to March 31
Before
exceptional
items Exceptional Total Total Higher/
EUR million 2020 items 2020 2019(1) (lower)
Passenger revenue 3,953 3,953 4,623 (14.5)%
Cargo revenue 246 246 275 (10.5)%
Other revenue 386 386 397 (2.8)%
-------------------------------------- ------------ -------- --------
Total revenue 4,585 4,585 5,295 (13.4)%
-------------------------------------- ------------ ----------- ------- --------
Employee costs 1,234 1,234 1,204 2.5%
Fuel, oil costs and emissions
charges 1,209 1,325 2,534 1,366 (11.5)%
Handling, catering and other
operating costs 652 652 664 (1.8)%
Landing fees and en-route charges 451 451 485 (7.0)%
Engineering and other aircraft
costs 504 504 485 3.9%
Property, IT and other costs 225 225 169 33.1%
Selling costs 211 211 281 (24.9)%
Depreciation, amortisation and
impairment 570 570 515 10.7%
Currency differences 64 64 (9) nm
-------------------------------------- -------- --------
Total expenditure on operations 5,120 1,325 6,445 5,160 (0.8)%
-------------------------------------- ------------ ----------- ------- -------- --------
Operating (loss)/profit (535) (1,325) (1,860) 135 nm
Finance costs (151) (151) (137) 10.2%
Finance income 11 11 10 10.0%
Net financing credit relating
to pensions 1 1 6 (83.3)%
Net currency retranslation credits 77 77 70 10.0%
Other non-operating credits 40 40 2 nm
-------------------------------------- --------
Total net non-operating costs (22) (22) (49) (55.1)%
-------------------------------------- --------
(Loss)/profit before tax (557) (1,325) (1,882) 86 nm
Tax 1 198 199 (16) nm
-------------------------------------- ------------ ----------- ------- -------- --------
(Loss)/profit after tax for the
period (556) (1,127) (1,683) 70 nm
-------------------------------------- ------------ ----------- ------- -------- --------
Higher/
Operating figures 2020 2019 (lower)
Available seat kilometres (ASK
million) 67,522 75,423 (10.5)%
Revenue passenger kilometres
(RPK million) 51,617 60,878 (15.2)%
Seat factor (per cent) 76.4 80.7 (4.3)pts
Passenger numbers (thousands) 19,877 24,382 (18.5)%
Cargo tonne kilometres (CTK million) 1,173 1,391 (15.7)%
Sold cargo tonnes (thousands) 148 174 (14.9)%
Sectors 143,969 169,010 (14.8)%
Block hours (hours) 434,244 501,362 (13.4)%
-------------------------------------- ------------ ----------- ------- -------- --------
Average manpower equivalent 64,365 63,751 1.0%
Aircraft in service 595 582 2.2%
-------------------------------------- ------------ ----------- ------- -------- --------
Passenger revenue per RPK (EUR
cents) 7.66 7.59 0.8%
Passenger revenue per ASK (EUR
cents) 5.85 6.13 (4.5)%
Cargo revenue per CTK (EUR cents) 20.97 19.77 6.1%
Fuel cost per ASK (EUR cents) 1.79 1.81 (1.1)%
Non-fuel costs per ASK (EUR cents) 5.79 5.03 15.1%
Total cost per ASK (EUR cents) 7.58 6.84 10.8%
-------------------------------------- ------------ ----------- ------- -------- --------
(1) March 31, 2019 comparatives are the Group's restated
statutory results as reported. The 2019 results have been restated
to reclassify the costs the Group incurs in relation to
compensation for flight delays and cancellations as a deduction
from revenue as opposed to an operating expense. There is no change
in operating profit. The amount reclassified for the period to
March 31, 2019 was EUR23 million. Further information is given in
the IAG Annual report and accounts 2019.
COVID-19 Summary - Quarter 1
The results for the quarter were significantly impacted by the
outbreak and escalation of COVID-19, particularly in March. In
January and most of February the direct impact was mainly in the
Asia and Pacific region, with suspension of services to China at
the end of January and other capacity reductions in the Asia
Pacific region. From late February, as the virus spread across the
globe, many governments placed significant restrictions on the
movement of people and on travel across international borders. This
led to the cancellation of all flights to, from and within Italy
and extensive reductions across the whole network.
The Group has taken action to preserve cash and boost liquidity.
Some of the actions, such as employee furlough schemes, supported
by national governments and trades unions, have only applied from
April and consequently the costs saved in March were mainly those
which are directly variable with capacity in the very
short-term.
Commodity prices for jet fuel have more than halved since the
start of the year, leading to significant losses on fuel hedging
derivatives, which would normally be offset against lower costs for
purchasing jet fuel. The Group announced on April 2 that capacity
plans for April and May would be approximately 90 per cent lower
than in 2019, and therefore in 2020 the Group expects capacity to
be significantly lower than that anticipated when its fuel hedging
derivatives were put in place. The reduced capacity forecast has
led to an exceptional charge of EUR1,325 million relating to
overhedging, being the losses on fuel hedging derivatives maturing
in 2020 for which there will be no matching volume of fuel
purchased, calculated using the forward fuel curve and exchange
rates at March 31, 2020.
Strategic overview - other developments
On January 17, IAG announced that the cap on non-EU shareholders
buying IAG shares, put in place in February 2019, had been lifted.
Under EU regulations, IAG's airlines must be majority owned and
controlled by EU shareholders. The Group reached a 47.5 per cent
non-EU shareholding in February 2019 so took action to limit non-EU
shareholders buying shares. On January 17, this figure had dropped
to 39.5 per cent and therefore the cap was removed. The IAG Board
continues to monitor the relevant non-EU persons ownership level,
and the Board is authorised to re-impose the Permitted Maximum at
any time if necessary.
In January, British Airways began offsetting carbon emissions on
all its flights within the UK. The airline will be investing in
high quality, verified and certified carbon reduction projects
around the world.
On March 16, IAG announced that in light of the exceptional
circumstances facing the aviation industry due to COVID-19, and in
particular the developing situation in Spain, it has been decided
that Luis Gallego will continue in his role as Iberia Chief
Executive for the next few months to lead the response in Spain. In
the meantime, Willie Walsh will continue to act as Group Chief
Executive and Javier Sánchez-Prieto will remain in place as Vueling
Chief Executive.
On March 30, IAG announced that British Airways has extended its
US dollar secured revolving credit facility for one year from June
23, 2020 to June 23, 2021. The amount available under the facility
is $1.38 billion.
Basis of preparation
The 2019 results have been restated to reclassify the costs the
Group incurs in relation to compensation for flight delays and
cancellations as a deduction from revenue as opposed to an
operating expense. There is no change in operating profit. The
amount reclassified for the three months to March 31, 2019 was
EUR23 million. For further information see note 33 of IAG's 2019
Annual Report and Accounts.
Principal risks and uncertainties
The Group has continued to maintain and operate its structure
and processes to identify, assess and manage risks. The principal
risks and uncertainties affecting the Group, detailed on pages 62
to 69 of the 2019 Annual Report and Accounts, remain relevant and
have been subject to re-evaluation in light of COVID-19. The
principal risks include the risk of pandemic within "Event causing
significant network disruption". The Board has been assessing and
monitoring the evolution of the pandemic, regulatory and
governmental responses and mitigation actions on a regular
basis.
Operating and market environment
Average commodity fuel prices for the quarter were slightly
lower than in the first quarter of 2019, although prices fell
sharply during March and spot prices at the end of the month are
less than half of the price a year ago. Foreign exchange rates for
the euro were weaker than the same period last year, with the euro
down around five per cent against sterling and three per cent
against the US dollar.
IAG's results are impacted by exchange rates used for the
translation of British Airways' and IAG Loyalty's financial results
from sterling to the Group's reporting currency of euro. For the
three months, the net impact of translation was EUR11 million
adverse.
From a transactional perspective, the Group's financial
performance is impacted by fluctuations in exchange rates,
primarily from the US dollar, euro and pound sterling. The Group
generates a surplus in most currencies in which it does business,
except for the US dollar, as capital expenditure, debt repayments
and fuel purchases typically create a deficit. The Group hedges a
portion of its transaction exposures. The net transaction impact on
operating profit was adverse by EUR57 million for the period,
increasing revenues by EUR14 million and costs by EUR71
million.
The net impact of translation and transaction exchange for the
Group was EUR68 million adverse.
Capacity
In the first three months of 2020, IAG capacity, measured in
available seat kilometres (ASKs), was lower by 10.5 per cent, with
reductions across all regions. Increases in capacity of 1.4 per
cent and 2.9 per cent for January and February respectively were
offset by significant reductions due to COVID-19 in March reducing
capacity by 33.5 per cent versus March 2019. Capacity reductions
were first seen in the Asia Pacific region in January and February,
with extensive reductions from late February, as the pandemic
spread to Italy, the rest of Europe and then to many countries
across the globe.
Aer Lingus capacity was broadly flat for January and February
with increases in North Atlantic routes, from the route to
Minneapolis launched in July 2019, and increased frequencies to
Boston and San Francisco, offset by reductions in shorthaul
capacity. British Airways capacity was flat for January and
February, with increases from new destinations including Dammam,
Islamabad and Pittsburg, offset by COVID-19 related cancellations
to destinations in Asia Pacific. LEVEL longhaul capacity growth
reflected the annualisation of new routes launched in 2019 to
Santiago de Chile and New York JFK and additional frequencies on
routes to the French Caribbean. All LEVEL longhaul operations were
grounded in March due to COVID-19. Iberia increased its capacity in
January and February primarily on its Latin American routes with a
new route to Guayaquil, Ecuador and additional frequencies on
routes to Colombia, Peru and Brazil. Vueling reduced its capacity
in January and February primarily in Italy as it continued to focus
on its core markets, prior to the spread of COVID-19.
Revenue
Passenger revenue fell 14.5 per cent from the previous year.
Passenger unit revenue (passenger revenue per ASK) decreased 7.7
per cent at constant currency ('ccy'), due primarily to lower
yields (passenger revenue per revenue passenger kilometre) and
lower passenger load factors in March, associated with the impact
of COVID-19.
Cargo revenue was 10.5 per cent lower than in 2019 and 11.6 per
cent down at constant currency, also significantly impacted by
COVID-19, particularly given the impact across the quarter in Asia
Pacific. Cargo carried, measured in cargo tonne kilometres (CTKs),
fell by 15.7 per cent, due to the reduction in passenger schedules.
Yields at ccy were up 4.8 per cent on 2019 reflecting an increase
in our premium mix particularly in March as available market
capacity decreased.
Other revenue fell by 2.8 per cent and by 7.3 per cent at ccy,
as the growth of the Group's non-airline businesses was also
impacted by COVID-19 impact in March.
Costs
Employee costs increased 2.5 per cent compared to last year,
mainly as a result of inflation-linked pay awards and resourcing to
match the anticipated increase in capacity for the first half of
the year. The average number of employees was 1.0 per cent higher
than 2019, reflecting the anticipated growth in capacity. The
sudden drop in capacity in March led to an increase in unit
employee costs at ccy of 11.4 per cent. Various furlough and salary
reduction measures were put in place in response, although these
schemes were applied mainly from the start of April. Productivity,
measured as ASKs per average manpower equivalent, down 11.3 per
cent for the Group.
Fuel costs (excluding the exceptional charge for overhedging)
reduced by 11.5 per cent, reflecting the reduced capacity. Fuel
unit costs at ccy were down 3.9 per cent on 2019, linked to
continued efficiencies and the net impact of commodity prices
across the quarter and hedging losses versus the previous year.
Supplier costs increased by 1.5 per cent, and on a unit basis at
ccy were 5.9 per cent higher than last year.
Ownership costs increased 10.7 per cent on the previous year, in
line with the fleet replacement programme. The number of aircraft
in service decreased from 598 in December 2019 to 595 at the end of
March 2020. Ownership costs on a unit basis and at ccy were up 19.9
per cent on 2019, as the grounded aircraft continue to have
depreciated charged.
Overall airline non-fuel unit costs at ccy were up 10.2 per cent
versus a year ago, linked to the sudden capacity reduction.
Operating loss before exceptional items
The Group's operating loss before exceptional items for the
period was EUR535 million (2019: operating profit of EUR135
million), representing a decrease of EUR670 million versus
2019.
Exceptional items
The Group has a strategy of hedging both the price risk and
foreign currency risk of future fuel purchases up to three years in
advance. Hedging volumes are based on hedging a percentage of the
anticipated capacity to be operated in future periods. As a result
of the impact of COVID-19, the capacity to be operated in 2020 will
be significantly lower than that on which the hedging programme was
based and hence certain hedging instruments no longer correspond to
future purchases of jet fuel or foreign currency purchases. As
such, hedge accounting for these derivatives has been discontinued
and the associated loss on these instruments of EUR1,325 million,
split between a loss of EUR1,350 million on fuel price hedges and a
gain of EUR25 million on the foreign currency hedges, has been
charged to the Income statement in the first quarter as an
exceptional operating cost. There is an associated tax credit of
EUR198 million. There were no exceptional items in the first
quarter of 2019.
Net non-operating costs, taxation and profit after tax
The Group's net non-operating costs for the quarter were EUR22
million in 2020, compared with EUR49 million in 2019, mainly due to
minor gains on derivatives not qualifying for hedge accounting.
The tax credit for the period (2019: charge) was EUR1 million
before exceptional items, with an effective tax rate for the Group
of 0 per cent (2019: 19 per cent). The effective tax rate in the
period was different to the expected rate of 20 per cent due to the
cancellation of the UK rate reduction and its impact on UK deferred
tax balances, and due to not recognising tax credits in respect of
certain current period losses.
The loss after tax and exceptional items for the quarter was
EUR1,683 million (2019: profit after tax EUR70 million), driven by
the impact of COVID-19 on operating profit and the exceptional item
relating to the overhedged position on fuel.
Cash and leverage
The Group's cash position of EUR6,945 million was EUR262 million
higher than December 31, 2019, despite adverse translation impacts
on sterling balances of EUR329 million since the end of 2019. Net
debt at the end of the quarter, including the debt associated with
right of use assets, was EUR7,508 million and net debt to EBITDA,
based on the 12 months to March 31, 2020, was 1.6 times.
Other recent developments
On April 2, as a result of the impact of the situation created
by COVID-19, the Board resolved to withdraw the proposal to the
next Annual Shareholders' Meeting to pay a dividend of 17 EUR cents
per share.
At the same time, the Board resolved to delay the date of the
Annual Shareholders' Meeting 2020, originally scheduled for June,
until the end of September 2020.
On April 28, IAG announced that in light of the impact of
COVID-19 on current operations and the expectation that the
recovery of passenger demand to 2019 levels would take several
years, British Airways was to formally notify its trade unions
about a proposed restructuring and redundancy programme. The
proposals remain subject to consultation but it is likely that they
will affect most of British Airways' employees and may result in
the redundancy of up to 12,000 of them.
On May 1, 2020 Iberia and Vueling signed syndicated financing
agreements for EUR750 million and EUR260 million respectively. The
loans to be drawn from these agreements are conditional on the
Instituto de Crédito Oficial ('ICO') in Spain granting guarantees
for 70 per cent of the value of loans. The loans will have a
five-year term, amortising from April 30, 2023, repayable at any
time on notice from Iberia or Vueling respectively. The loans
contain a number of non-financial covenants to protect the position
of the banks involved, including restrictions on the upstreaming of
cash to the rest of the IAG companies.
This information is provided by RNS, the news service of the
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of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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