TIDMIAG
RNS Number : 7414D
International Cons Airlines Group
30 October 2020
NINE MONTHS RESULTS ANNOUNCEMENT
International Consolidated Airlines Group (IAG) today (October
30, 2020) presented Group consolidated results for the nine months
to September 30, 2020.
The results for the nine months were significantly impacted by
the outbreak of COVID-19, which has had a material impact on the
global airline and travel sectors, particularly from late February
2020 onwards and with no immediate signs of recovery.
COVID-19 situation and management actions:
-- Increased flying programme in quarter 3 versus quarter 2,
partly driven by summer leisure demand, with additional operating
procedures implemented to protect customers and staff, including
facemask use and additional cleaning. Demand continues to be
adversely affected by volatile government restrictions and
quarantine requirements
-- 1,115 additional cargo flights operated in quarter 3 to
transport critical equipment and essential supplies
-- In response to the high uncertainty of the current
environment IAG now plans for capacity in quarter 4 to be no more
than 30 per cent compared to 2019. As a result, the Group no longer
expects to reach breakeven in terms of Net cash flows from
operating activities during quarter 4
-- Cost reduction actions implemented across the Group,
including employee cost reductions in Spain through the use of ERTE
arrangements and wage support schemes in Ireland and the UK,
together with supplier cost reductions, leading to cash operating
costs for quarter 3 reducing by 54 per cent from original plans to
EUR205 million per week
-- Agreements reached with most employee groups at British
Airways. Exceptional cost of EUR275 million in quarter 3 related to
British Airways and Aer Lingus, corresponding to a reduction in
employee numbers of approximately 10,000
-- Liquidity in quarter 3 was boosted by renewal of the
multi-year agreement with American Express, including an EUR830
million payment, a significant part of which is for Avios
pre-purchase
-- Capital increase successfully completed, with gross proceeds
of EUR2.7 billion received in October
IAG period highlights on results:
-- Passenger capacity operated in quarter 3 down 78.6 per cent
on 2019 and for the period of nine months down 64.3 per cent on
2019
-- Third quarter operating loss EUR1,300 million before
exceptional items (2019 operating profit: EUR1,425 million)
-- Operating loss before exceptional items for the nine months
EUR3,200 million (2019 operating profit: EUR2,520 million)
-- Exceptional charge in the period of nine months of EUR2,755
million on derecognition of fuel and foreign exchange hedges,
impairment of fleet and restructuring costs; exceptional charge for
quarter 3 EUR618 million
-- Loss after tax before exceptional items for the period of
nine months EUR3,176 million, and nine months statutory loss after
tax and exceptional items: EUR5,567 million (2019 profit: EUR1,814
million)
-- Cash of EUR5,011 million at September 30, 2020 down EUR1,672
million on December 31, 2019. Committed and undrawn general and
aircraft facilities were EUR1.6 billion, bringing total liquidity
to EUR6.6 billion. Including EUR2.7 billion gross proceeds from the
capital increase (received in early October) gives total pro-forma
liquidity of EUR9.3 billion
Performance summary:
Nine months to September
30
----------------------------
Higher
/
Highlights EUR million 2020 2019 (1) (lower)
Passenger revenue 4,888 17,078 (71.4)%
Total revenue 6,565 19,292 (66.0)%
------------------------------------------------- -------- -------- --------
Operating (loss)/profit before exceptional items (3,200) 2,520 nm
Exceptional items (2,755) - -
------------------------------------------------- -------- -------- --------
Operating (loss)/profit after exceptional items (5,955) 2,520 nm
Available seat kilometres (ASK million) 91,394 255,749 (64.3)%
Passenger revenue per ASK (EUR cents) 5.35 6.68 (19.9)%
Non-fuel costs per ASK (EUR cents) 8.84 4.77 85.3 %
------------------------------------------------- -------- -------- --------
Higher
/
Alternative performance measures 2020 2019 (lower)
(Loss)/profit after tax before exceptional items
(EUR million) (3,176) 1,814 nm
Adjusted (loss)/earnings per share (EUR cents) (159.9) 88.7 nm
------------------------------------------------- -------- -------- --------
Net debt (EUR million)(2) 11,096 7,571 46.6 %
Net debt to EBITDA(2) nm 1.4 nm
------------------------------------------------- -------- -------- --------
Higher
/
Statutory results EUR million 2020 2019 (lower)
(Loss)/profit after tax and exceptional items (5,567) 1,814 nm
Basic (loss)/earnings per share (EUR cents) (280.3) 91.4 nm
------------------------------------------------- -------- -------- --------
Cash and interest-bearing deposits (2) 5,011 6,683 (25.0)%
Interest-bearing long-term borrowings (2) 16,107 14,254 13.0 %
------------------------------------------------- -------- -------- --------
For definitions refer to the IAG Annual report and accounts 2019.
(1) The 2019 results include a reclassification of 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 nine months to September 30, 2019 was
EUR107 million. Further information is given in the IAG Annual
report and accounts 2019.
(2) The prior year comparative is December 31, 2019.
Luis Gallego, IAG's Chief Executive Officer, said:
"In quarter 3 we're reporting an operating loss of EUR1,300
million before exceptional items compared to an operating profit of
EUR1,425 million last year. The total operating loss was EUR1,918
million, including exceptional items relating to fuel hedges plus
restructuring costs at British Airways and Aer Lingus.
"These results demonstrate the negative impact of COVID 19 on
our business but they're exacerbated by constantly changing
government restrictions. This creates uncertainty for customers and
makes it harder to plan our business effectively.
"We are calling on governments to adopt pre-departure testing
using reliable and affordable tests with the option of post flight
testing to release people from quarantine where they are arriving
from countries with high infection rates. This would open routes,
stimulate economies and get people travelling with confidence. When
we open routes, there is pent up demand for travel. However, we
continue to expect that it will take until at least 2023 for
passenger demand to recover to 2019 levels.
"The Group has made significant progress on restructuring and we
continue to reduce our cost base and increase the proportion of our
variable costs.
"We have also successfully completed a EUR2.74 billion capital
increase in the quarter. It strengthens our financial and strategic
position and makes IAG better placed to take advantage of a
recovery in air travel demand."
Trading outlook
As announced on February 28, 2020, given the uncertainty on the
impact and duration of COVID-19, IAG is not providing profit
guidance for 2020.
LEI: 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,
including, but not limited to, the effects of the COVID-19 pandemic
and uncertainties about its impact and duration, 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. Many of these risks are,
and will be, exacerbated by the COVID-19 pandemic and any further
disruption to the global airline industry and economic environment
as a result.
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
Nine months to September 30
---------------------------------------------
Before
exceptional
items Exceptional Total Total Higher/
EUR million 2020 items 2020 2019(1) (lower)
Passenger revenue 4,888 (60) 4,828 17,078 (71.4)%
11.2
Cargo revenue 917 917 825 %
Other revenue 760 760 1,389 (45.3)%
------------------------------------------- ------------ ----------- ------- --------- ---------
Total revenue 6,565 (60) 6,505 19,292 (66.0)%
------------------------------------------- ------------ ----------- ------- --------- ---------
Employee costs 2,598 269 2,867 3,713 (30.0)%
Fuel, oil costs and emissions charges 1,683 1,599 3,282 4,569 (63.2)%
Handling, catering and other operating
costs 1,080 1,080 2,236 (51.7)%
Landing fees and en-route charges 737 737 1,699 (56.6)%
Engineering and other aircraft costs 1,052 83 1,135 1,587 (33.7)%
Property, IT and other costs 569 28 597 582 (2.2)%
Selling costs 340 340 813 (58.2)%
Depreciation, amortisation and impairment 1,619 716 2,335 1,554 4.2 %
Currency differences 87 87 19 nm
------------------------------------------- ------------ ----------- ------- --------- ---------
Total expenditure on operations 9,765 2,695 12,460 16,772 (41.8)%
------------------------------------------- ------------ ----------- ------- --------- ---------
Operating (loss)/profit (3,200) (2,755) (5,955) 2,520 nm
12.8
Finance costs (503) (503) (446) %
Finance income 27 27 33 (18.2)%
Net financing credit relating to pensions 4 4 19 (78.9)%
96.8
Net currency retranslation credits 183 183 93 %
Other non-operating credits 43 43 50 (14.0)%
------------------------------------------- ------------ ----------- ------- --------- ---------
Total net non-operating costs (246) (246) (251) (2.0)%
------------------------------------------- ------------ ----------- ------- --------- ---------
(Loss)/profit before tax (3,446) (2,755) (6,201) 2,269 nm
Tax 270 364 634 (455) nm
------------------------------------------- ------------ ----------- ------- --------- ---------
(Loss)/profit after tax for the period (3,176) (2,391) (5,567) 1,814 nm
------------------------------------------- ------------ ----------- ------- --------- ---------
Higher/
Operating figures 2020 2019 (lower)
Available seat kilometres (ASK million) 91,394 255,749 (64.3)%
Revenue passenger kilometres (RPK million) 62,445 216,607 (71.2)%
Seat factor (per cent) 68.3 84.7 (16.4)pts
Passenger numbers (thousands) 26,977 90,448 (70.2)%
Cargo tonne kilometres (CTK million) 2,471 4,148 (40.4)%
Sold cargo tonnes (thousands) 326 508 (35.8)%
Sectors 219,553 591,954 (62.9)%
Block hours (hours) 678,196 1,730,731 (60.8)%
------------------------------------------- ------------ ----------- ------- --------- ---------
Average manpower equivalent(2) 61,639 65,808 (6.3)%
Aircraft in service 542 601 (9.8)%
------------------------------------------- ------------ ----------- ------- --------- ---------
Passenger revenue per RPK (EUR cents) 7.83 7.88 (0.7)%
Passenger revenue per ASK (EUR cents) 5.35 6.68 (19.9)%
86.6
Cargo revenue per CTK (EUR cents) 37.11 19.89 %
Fuel cost per ASK (EUR cents) 1.84 1.79 3.1 %
85.3
Non-fuel costs per ASK (EUR cents) 8.84 4.77 %
62.9
Total cost per ASK (EUR cents) 10.68 6.56 %
------------------------------------------- ------------ ----------- ------- --------- ---------
(1) The 2019 results include a reclassification of 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 nine months to September 30, 2019 was
EUR107 million. Further information is given in the IAG Annual
report and accounts 2019.
(2) Included in the average manpower equivalent are staff on
furlough, wage support and equivalent schemes, including the
Temporary Redundancy Plan arrangements in Spain.
CONSOLIDATED INCOME STATEMENT
Three months to September 30
--------------------------------------------
Before
exceptional
items Exceptional Total Total Higher/
EUR million 2020 items 2020 2019(1) (lower)
Passenger revenue 737 (22) 715 6,492 (88.6)%
12.3
Cargo revenue 302 302 269 %
Other revenue 200 200 505 (60.4)%
--------------------------------------------- ------------ ----------- ------- -------- ---------
Total revenue 1,239 (22) 1,217 7,266 (82.9)%
--------------------------------------------- ------------ ----------- ------- -------- ---------
Employee costs 708 269 977 1,221 (42.0)%
Fuel, oil costs and emissions charges 370 330 700 1,633 (77.3)%
Handling, catering and other operating
costs 227 227 823 (72.4)%
Landing fees and en-route charges 198 198 618 (68.0)%
Engineering and other aircraft costs 286 6 292 556 (48.6)%
Property, IT and other costs 163 6 169 202 (19.3)%
Selling costs 72 72 262 (72.5)%
Depreciation, amortisation and impairment 505 (15) 490 519 (2.7)%
42.9
Currency differences 10 10 7 %
--------------------------------------------- ------------ ----------- ------- -------- ---------
Total expenditure on operations 2,539 596 3,135 5,841 (56.5)%
--------------------------------------------- ------------ ----------- ------- -------- ---------
Operating (loss)/profit (1,300) (618) (1,918) 1,425 nm
Finance costs (161) (161) (165) (2.4)%
Finance income 4 4 11 (63.6)%
Net financing credit relating to pensions 1 1 6 (83.3)%
Net currency retranslation credits/(charges) 86 86 (45) nm
Other non-operating (charges)/credits (7) (7) 30 nm
--------------------------------------------- ------------ ----------- ------- -------- ---------
Total net non-operating costs (77) (77) (163) (52.8)%
--------------------------------------------- ------------ ----------- ------- -------- ---------
(Loss)/profit before tax (1,377) (618) (1,995) 1,262 nm
Tax 166 68 234 (254) nm
--------------------------------------------- ------------ ----------- ------- -------- ---------
(Loss)/profit after tax for the period (1,211) (550) (1,761) 1,008 nm
--------------------------------------------- ------------ ----------- ------- -------- ---------
Higher/
Operating figures 2020 2019(1) (lower)
Available seat kilometres (ASK million) 19,769 92,318 (78.6)%
Revenue passenger kilometres (RPK million) 9,673 80,923 (88.0)%
Seat factor (per cent) 48.9 87.7 (38.8)pts
Passenger numbers (thousands) 6,592 34,562 (80.9)%
Cargo tonne kilometres (CTK million) 720 1,346 (46.5)%
Sold cargo tonnes (thousands) 94 162 (42.0)%
Sectors 64,288 215,920 (70.2)%
Block hours (hours) 185,681 628,707 (70.5)%
--------------------------------------------- ------------ ----------- ------- -------- ---------
Average manpower equivalent(2) 58,905 67,407 (12.6)%
--------------------------------------------- ------------ ----------- ------- -------- ---------
Passenger revenue per RPK (EUR cents) 7.62 8.02 (5.0)%
Passenger revenue per ASK (EUR cents) 3.73 7.03 (47.0)%
Cargo revenue per CTK (EUR cents) 41.94 19.99 nm
Fuel cost per ASK (EUR cents) 1.87 1.77 5.8 %
Non-fuel costs per ASK (EUR cents) 10.97 4.56 nm
Total cost per ASK (EUR cents) 12.84 6.33 nm
--------------------------------------------- ------------ ----------- ------- -------- ---------
(1) The 2019 results include a reclassification of 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 September 30, 2019 was
EUR44 million. Further information is given in the IAG Annual
report and accounts 2019.
(2) Included in the average manpower equivalent are staff on
furlough, wage support and equivalent schemes, including the
Temporary Redundancy Plan arrangements in Spain.
FINANCIAL REVIEW
COVID-19 Summary - nine months to September 30
The results for the nine months to September 30, 2020, were
significantly impacted by the outbreak and escalation of COVID-19.
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 and
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, with capacity in
the first quarter down 10.5 per cent on 2019.
In the second quarter, due to the impact of the virus worldwide
and the associated travel and border restrictions applying in most
countries, the Group was only able to operate a skeleton passenger
schedule, with capacity operated only 5 per cent of that operated
in the same quarter last year. The Group was able to operate
additional cargo flights to assist in moving medical items and
essential supplies, leading to record cargo revenue for the
quarter. In the third quarter additional capacity was introduced,
mainly driven by leisure demand and for those visiting friends and
relatives, however, capacity was down 79 per cent on the previous
year.
The Group has taken action to preserve cash and boost liquidity.
Cost savings have included the impact of employee furlough and
equivalent schemes following measures taken by national
governments, which were applied from April and these, together with
other employee cost reductions and supplier cost reductions, have
partially offset the impact of the significant fall in passenger
revenue. The Group has also entered into additional borrowing
facilities. Additional non-aircraft debt of EUR1,010 million was
drawn down in Spain as part of the Instituto de Crédito Oficial
('ICO') facility and British Airways issued commercial paper worth
EUR325 million (GBP298 million) using the UK's Coronavirus
Corporate Finance Facility (CCFF). The main British Airways
Revolving Credit Facility was extended by one year to June 2021 and
other credit facilities have also been added within the Group. The
Group also agreed additional one-year aircraft financing facilities
for old and new aircraft, with a total value of EUR870 million. In
quarter 3 a multi-year renewal was signed with American Express,
including an upfront payment of EUR830 million. During quarter 3
the Group launched a capital increase, which successfully completed
at the start of quarter 4, raising gross proceeds of EUR2.7
billion, which were received in early October. The Group has agreed
to defer 68 aircraft scheduled for delivery over the period 2020 to
2022, and, together with reductions in non-aircraft capital
expenditure, has reduced its total capital expenditure for 2020 by
EUR1.5 billion from the level planned at the start of the year.
Commodity fuel prices have fallen sharply since the start of the
year. The fall in fuel prices has led to significant losses on fuel
hedging derivatives, which would normally be offset against lower
costs for purchasing jet fuel. The impact of COVID-19 has led to a
significant reduction in the requirement to purchase jet fuel, with
a significantly reduced flying programme. As a consequence the
Group has recognised an exceptional charge for the nine months to
September 30, 2020 of EUR1,599 million relating to overhedging,
being the losses on fuel hedging derivatives for which there will
be no matching volume of fuel purchased, together with related
foreign currency gains, calculated using the forward fuel curve and
exchange rates at September 30, 2020.
The Group expects that it will take until at least 2023 for
passenger demand to reach the levels of 2019 . As a result the
Group is actively involved in restructuring its cost base to adjust
to significantly lower levels of demand, including actions to
reduce fixed costs and to increase the variable proportion of the
cost structure . British Airways has reached agreements with trade
unions representing most of its employee groups. An exceptional
cost of EUR275 million has been recognised in quarter 3, relating
to employee restructuring in British Airways and Aer Lingus,
corresponding to a reduction in employee numbers of approximately
10,000, of whom over 9,000 had left by September 30. The Group has
retired legacy aircraft early and has stood down additional
aircraft in advance of the end of lease contracts, with the two
main fleet retirements being the Boeing 747 fleet of British
Airways and the Airbus A340-600 fleet of Iberia.
Basis of preparation
In light of the COVID-19 pandemic the Group has undertaken
scenario modelling and the Directors have a reasonable expectation
that the Group has sufficient liquidity for the foreseeable future
and accordingly the Directors have adopted the going concern basis
in preparing the consolidated results for the nine months to
September 30, 2020. While the Group has successfully completed the
capital increase of EUR2.7 billion and received an upfront payment
of EUR0.8 billion in relation to the renewal of the multi-year
agreement with American Express, there remains uncertainty created
by COVID-19 and the potential for future waves of the pandemic and
the impact on travel restrictions and/or demand. As such the Group
is not able to provide certainty that there could not be more
severe downside scenarios than those it has considered, including
the stresses it has considered in relation to factors such as the
impact on yield, capacity operated, cost mitigations achieved and
fuel price variations. In the event that such a scenario were to
occur the Group will likely need to secure additional funding over
and above that which is contractually committed at October 30,
2020.
Principal risks and uncertainties
The Group has continued to maintain its framework 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 included
the risk of pandemic within "Event causing significant network
disruption".
As the pandemic continues to impact the aviation industry
worldwide, the risk landscape has evolved and the Group continues
to assess how the principal risks have changed in impact and
likelihood and how best to respond. As a result, where additional
mitigating actions have been identified they have been implemented
and embedded to minimise the continued impact to the Group and
protect its businesses and people. These actions have been
discussed with the Board through regular updates and include
consideration of potential scenarios, outlining the impact of
further stress on the Group driven by the wider political and
economic environment.
From the risks identified in the 2019 Annual Report and
Accounts, the main risks impacted by the COVID-19 pandemic are
highlighted below, with business responses implemented by
management and reflected in the Group's latest business plan and
scenarios. No new principal risks were identified through the risk
management assessment discussions across the business.
-- Airports, infrastructure and critical third parties.
Restrictions at hubs and airports have required capacity
adjustments, including fleet adjustments and new operating
procedures to recommence flying. The Group has pro-actively worked
with suppliers to ensure operations are maintained and the impact
to their businesses understood, with mitigations implemented where
necessary.
-- Competition, consolidation and government regulation. The
scale of governmental support and aviation specific state-aid
measures have varied in different countries and the potential
impact to the competitive landscape is under continuous assessment.
Governmental restrictions have been fragmented and volatile and
have required significant agility within our networks to manage the
impact on our customers and business.
-- Cyber attack and data security. The Group has continued with
its planned investment in cyber security, and taken steps to
mitigate IT and other risks as a result of remote working.
-- People, culture and employee relations. Additional safety
procedures have been introduced to protect the Group's staff and
customers, in line with industry recommendations. Where possible,
the Group's staff worked from home and in line with governments'
recommendations. Employee consultations have been undertaken as
required and appropriate in relation to restructuring necessitated
by COVID-19.
-- Political and economic environment. National governments are
imposing a range of travel and quarantine restrictions, which will
continue to impact Group operations. These are being actively
monitored and near-term capacity plans are refreshed dynamically,
according to the latest status. If the economic impact of COVID-19
continues, the Group will adjust its future capacity plans
accordingly, retaining flexibility to adapt as required.
-- Debt funding and financial risk. Despite disruption in the
financial markets since the spread of COVID-19, the Group has
focused on protecting liquidity by renewing and extending credit
facilities and agreeing new aircraft leases, together with agreeing
additional one-year funding facilities in advance of an improvement
in market conditions and the anticipated availability of regular
aircraft financing arrangements. The Group raised additional
equity, with gross proceeds of EUR2.7 billion received in early
October. The Group has an established process to monitor financial
and counterparty risk on an ongoing basis.
The Board and its sub committees have been appraised of
regulatory, competitor and governmental responses on an ongoing
basis. The Group also continues to evaluate and monitor the
arrangements over Brexit as the UK prepares to end the transition
period with the European Union on December 31, 2020.
Operating and market environment
Average commodity fuel prices for the nine months to September
30, 2020 were significantly lower than the equivalent period of
2019 as prices fell during March and remain well below last year's
levels. Due to the level of fuel hedging in place reflecting
previously anticipated fuel consumption, the Group has not
benefited from this reduction during the period, with the overall
impact of lower prices in the short-term adverse. Foreign exchange
rates for the euro and pound sterling against the US dollar were
both approximately one per cent weaker than the same period last
year.
IAG's results are impacted by exchange rates used for the
translation of British Airways' and IAG Loyalty's financial results
from pound sterling to the Group's reporting currency of euro. For
the nine months to September 30, 2020, the net impact of
translation on the operating result was EUR19 million
favourable.
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
normally 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 the operating result was adverse by EUR53 million for the
period, increasing revenues by EUR49 million and costs by EUR102
million.
The net impact of translation and transaction exchange on the
operating result for the Group was EUR34 million adverse.
Capacity
In the nine months to September 30, 2020 IAG capacity, measured
in available seat kilometres (ASKs), was lower by 64.3 per cent
with the impact of the COVID-19 pandemic felt across all regions.
Capacity was significantly affected by travel restrictions put in
place by national governments, the severest of which have been in
Ireland, although restrictions by the UK government and in Spain
have also had a significant negative impact.
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. Since the main impact of COVID-19 from late February
onwards, Aer Lingus' capacity has been mainly driven by cargo
needs, with flights operating regularly to New York, Chicago and
Boston, together with additional flights to Seoul and China
carrying back Personal Protective Equipment (PPE).
British Airways capacity was flat for January and February, with
increases from new destinations including Dammam, Islamabad and
Pittsburgh, offset by COVID-19 related cancellations to
destinations in Asia Pacific. In quarter 2 daily flights were
operated to a number of US cities including New York, Boston and
Washington, mainly for cargo purposes, together with regular
flights to Hong Kong and limited flights to Beijing and Singapore.
Towards the end of the quarter some charter flights were operated
to Barbados and Antigua; British Airways' shorthaul programme was
very limited in quarter 2. In quarter 3 British Airways reopened a
number of longhaul routes including flights to Islamabad, Tokyo,
Dubai and a number of Caribbean destinations. Daily flights
continued to operate to several US cities for predominately cargo
purposes. Shorthaul routes benefitted from demand from UK
holidaymakers travelling to leisure destinations not subject to
government quarantine restrictions. The airline returned to routes
across the UK and Europe including routes to Belfast, Inverness,
Newquay, France, Germany, Greece, Italy and Turkey.
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.
In quarter 2 Iberia's longhaul operations were mainly for
repatriation and cargo purposes to South America, including
Argentina, Chile and Peru. In shorthaul Iberia maintained minimum
operations for domestic routes and to keep main European cities
connected, including Paris, Brussels and London. In quarter 3
Iberia resumed some additional longhaul operations to destinations
including Chicago, Panama City, Santo Domingo and Quito. Iberia's
shorthaul network expanded to meet summer leisure demand with
flights to Rome, Berlin, Amsterdam, and Prague added to the
schedule.
At the start of the year 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. LEVEL longhaul operations were
cancelled in quarter 2, with just one repatriation flight operated
from Buenos Aires. On June 19, 2020 the operations of LEVEL Europe
operating out of Vienna and Amsterdam were ceased. On July 8, 2020,
LEVEL France announced its intention to commence consultations with
the unions of its employees regarding the proposed cessation of its
operations out of Paris Orly. LEVEL Spain continues to operate out
of Barcelona and resumed limited operations to Buenos Aires and New
York, JFK in September.
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. Vueling operations in quarter 2 and quarter 3
were mainly focused on domestic flights, connecting the Spanish
peninsula with the Canary and Balearic Islands.
Unit measures have been rendered less meaningful than usual by
the significant reduction in capacity operated, particularly in the
second and third quarters of 2020, however the unit measures for
the nine months are included in the commentary below for
completeness.
Revenue
Passenger revenue for the nine months to September 30, 2020 fell
71.4 per cent from the previous year, with quarter 3 down 88.6 per
cent. Passenger unit revenue (passenger revenue per ASK) for the
nine months decreased 22.6 per cent at constant currency ('ccy'),
due primarily to lower passenger seat factors from March onwards,
together with lower passenger yields (passenger revenue per revenue
passenger kilometre), associated with the impact of COVID-19.
Cargo revenue was 11.2 per cent higher than in 2019 and was up
12.0 per cent at constant currency, with cargo revenue boosted
significantly by the additional flights operated for moving medical
equipment and supplies, with an additional 1,875 cargo flights
operated in quarter 2 and 1,115 in quarter 3. Cargo revenue for
quarter 3 was EUR302 million, a record for quarter 3 and up from
EUR269 million in quarter 3 2019. Cargo carried for the nine months
to September 30, 2020, measured in cargo tonne kilometres (CTKs),
fell by 40.4 per cent, due to the reduction in passenger schedules,
but yields were significantly higher, as cargo-only flights have no
passenger revenue and so the cost of operating cargo-only flights
is entirely funded by the cargo revenue.
Other revenue fell by 45.3 per cent and by 46.3 per cent at ccy,
as the Group's non-airline businesses were also impacted by
COVID-19 from March.
Costs
Employee costs before exceptional items for the nine months to
September 30 decreased by EUR1,115 million compared with 2019.
Almost half of this reduction was as a result of furlough and
equivalent temporary cost reduction schemes, together with
reductions to either hours worked or pay in quarters 2 and 3.
Reductions were made at all levels and in all functions within the
Group. Despite all these measures, the reduction in employee costs
of 30.0 per cent was less than the 64.3 per cent reduction in
passenger capacity and as a consequence employee unit costs at ccy
rose 94.4 per cent.
Fuel costs (excluding the exceptional charge for overhedging)
reduced by 63.2 per cent, reflecting the reduced capacity operated.
Fuel unit costs at ccy were unchanged on 2019.
Supplier costs decreased by 44.3 per cent, linked to
volume-related savings due to the lower capacity operated, together
with a reduction in non-essential expenditure as a result of
COVID-19. The savings were lower than the reduction in volume,
reflecting fixed costs and the rapid escalation of the virus in
March, which led to capacity falling at a greater level than it was
possible to reduce costs. Supplier unit costs for the nine months
to September 30, 2020, were up 50.7 per cent at ccy.
Ownership costs before exceptional items increased 4.2 per cent
on the previous year, in line with the fleet replacement programme.
The number of aircraft in service, which includes those aircraft
temporarily grounded due to COVID-19, decreased from 598 in
December 2019 to 542 at the end of September 2020, mainly
reflecting the early retirement of Boeing 747s in British Airways
and Airbus A340-600s in Iberia. Ownership costs before exceptional
items on a unit basis and at ccy were up 190.5 per cent on 2019, as
the grounded aircraft continue to have depreciation charged.
Overall airline non-fuel unit costs at ccy were up 85.2 per cent
versus a year ago, linked to the significant capacity
reduction.
Operating loss before exceptional items
The Group's operating loss before exceptional items for the nine
months to September 30, 2020, was EUR3,200 million (2019: operating
profit of EUR2,520 million).
Exceptional items
Exceptional items have been recognised as a result of the
COVID-19 related capacity reductions. The principal exceptional
items relate to the following: the overhedging of fuel and foreign
currency derivatives (a loss of EUR1,599 million) and passenger
revenue derivatives (a loss of EUR60 million); the impairment
expense of EUR716 million, EUR71 million and EUR12 million, related
to fleet and other assets, associated inventory and contractual end
of lease payments in respect of surplus aircraft, respectively; and
employee restructuring of EUR275 million in relation to British
Airways and Aer Lingus. A provision of EUR22 million has been made
in relation to the fine on the theft of customer data at British
Airways in 2018 ; this amount was confirmed on October 16, 2020 by
the UK Information Commissioner's Office (ICO) . The impairment
relating to fleet and other assets is slightly lower than reported
at June 30, 2020 as impairments on nine additional aircraft have
been offset by a reversal of engine impairments resulting from
disposal proceeds being higher than anticipated.
There were no exceptional items in the nine months to September
30, 2019.
Net non-operating costs, taxation and loss after tax
The Group's net non-operating costs for the nine months to
September 30, 2020, were EUR246 million compared with EUR251
million in 2019, mainly relating to arrangement fees and interest
for new debt and facilities and costs associated with restructuring
certain derivative contracts, offset by higher net currency
retranslation credits.
The tax credit for the period was EUR270 million before
exceptional items (2019: tax charge of EUR455 million), with an
effective tax rate for the Group of 8 per cent (2019: 20 per cent).
The effective tax rate in the period was different to the expected
rate of 21 per cent. The difference was due to not recognising tax
credits in respect of certain current and prior period losses and
deductible temporary differences, and the cancellation of the UK
rate reduction.
The loss after tax and exceptional items for the nine months to
September 30, 2020 was EUR5,567 million (2019: profit after tax
EUR1,814 million), driven by the impact of COVID-19 on operating
profit, together with the exceptional items relating to the
overhedged position on fuel, the impairment of fleet assets and
employee restructuring costs, which were also the result of
COVID-19.
Cash and leverage
The Group's cash position of EUR5,011 million was EUR1,672
million lower than December 31, 2019, although cash was increased
significantly on October 2, 2020 with the receipt of EUR2,741
million of gross proceeds from the capital increase. Net debt at
the end of the period, including the debt associated with lease
liabilities, was EUR11,096 million compared with EUR7,571 million
at December 31, 2019. Net debt to EBITDA is (42.8) based on the
rolling 4 quarters; EBITDA was significantly reduced by the impact
of COVID-19.
Other recent developments
On October 2, 2020 the Group announced the successful conclusion
of its capital increase. The capital increase resulted in the issue
of 2,979,443,376 additional shares, bringing the total issued share
capital to 4,971,476,010 ordinary shares of EUR0.10 each. Gross
proceeds of the capital increase were EUR2,741 million.
On October 12, 2020 the Group announced changes to its senior
management team with immediate effect. Alex Cruz, British Airways
chairman and chief executive, stepped down as chief executive and
remains the airline's non-executive chairman. Sean Doyle,
previously Aer Lingus chairman and chief executive, was appointed
the new chief executive of British Airways and will take over as
chairman after a transition period. Donal Moriarty, Aer Lingus'
chief corporate affairs officer, will become interim chief
executive and a permanent appointment will be announced in due
course. Fernando Candela, LEVEL chief executive, has joined the
Group's management committee in a new role of chief transformation
officer.
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