TIDMIAG
RNS Number : 4134E
International Cons Airlines Group
28 October 2022
NINE MONTHS RESULTS ANNOUNCEMENT
International Consolidated Airlines Group (IAG) today (October
28, 2022) presents Group consolidated results for the nine months
to September 30, 2022.
IAG achieves a significant step up in profitability for all its
airlines in quarter three
IAG financial results highlights for the period:
-- Operating profit for the third quarter EUR1,208 million
(2021: operating loss EUR452 million), and operating profit before
exceptional items EUR1,206 million (2021: operating loss before
exceptional items EUR485 million)
-- Operating profit for the nine months EUR770 million (2021:
operating loss EUR2,487 million), and operating profit before
exceptional items EUR739 million (2021: operating loss before
exceptional items EUR2,665 million)
-- Profit after tax and exceptional items for the third quarter
EUR853 million (2021: loss EUR574 million) and profit after tax
before exceptional items EUR853 million (2021: loss EUR606
million)
-- Profit after tax and exceptional items for the nine months
EUR199 million (2021: loss EUR2,622 million) and profit after tax
before exceptional items EUR170 million (2021: loss EUR2,775
million)
-- Strong liquidity at September 30, 2022:
-- Total liquidity increased to EUR13,488 million (December 31, 2021: EUR11,986 million)
-- Cash(1) of EUR9,260 million, up EUR1,317 million on December 31, 2021
-- Committed and undrawn general and aircraft financing
facilities of EUR4,228 million (December 31, 2021: EUR4,043
million); availability of $1,755 million revolving credit facility
extended by one year to March 2025
-- Net debt at September 30, 2022 was down EUR609 million since
December 31, 2021 to EUR11,058 million
Total revenue fully recovered despite lower capacity than in
2019
-- Total revenue for quarter 3 of EUR7,329 million, 0.9 per cent
higher than in 2019, despite the restrictions imposed at London
Heathrow airport and the Asia Pacific network remaining
substantially closed
-- Passenger unit revenue increased in quarter 3 by 21.9% vs 2019 (quarter 2 up 6.4%)
-- Passenger capacity in quarter 3 was 81.1% of 2019 up from
78.0% in quarter 2, driven primarily by IAG's key regions of
European shorthaul (91% of 2019), North America (92%) and Latin
America & Caribbean (75%)
-- Passenger yield for quarter 3 was 22.9% higher than in 2019
and load factor of 87.0% was only 0.7pts lower
-- By the end of quarter 3, premium leisure revenue had fully
recovered to 2019's level, despite capacity being significantly
lower. Business channel revenue had recovered to c.75% of 2019's
level
-- Non-fuel unit costs were 25.5% higher than 2019 in quarter 3,
driven by the lower capacity operated, adverse foreign exchange and
inflation
-- British Airways' capacity for the quarter was in line with
previous guidance and operational performance significantly
improved during the quarter, with further improvements planned in
order to achieve the levels we expect
-- IAG's overall passenger capacity plans are for c.87% of 2019
capacity for quarter 4 and c.78% for the full year 2022
-- British Airways' main pension scheme (NAPS) - heads of terms
for 2021 valuation agreed with Trustees, with no deficit reduction
contributions expected under the existing overfunding protection
mechanism
Performance summary:
Nine months to September
30
----------------------------
Higher
/
Reported results (EUR million) 2022 2021 (lower)
Passenger revenue 14,020 3,140 nm
Total revenue 16,680 4,921 nm
Operating profit/(loss) 770 (2,487) nm
Profit/(loss) after tax 199 (2,622) nm
Basic earnings/(loss) per share (EUR cents) 4.0 (52.8) nm
----------------------------------------------------- -------- -------- --------
Cash, cash equivalents and interest-bearing deposits
(2) 9,260 7,943 16.6 %
Borrowings (2) 20,318 19,610 3.6 %
----------------------------------------------------- -------- -------- --------
Higher
/
Alternative performance measures(3) (EUR million) 2022 2021 (lower)
Passenger revenue before exceptional items 14,020 3,135 nm
Total revenue before exceptional items 16,680 4,916 nm
Operating profit/(loss) before exceptional items 739 (2,665) nm
Profit/(loss) after tax before exceptional items 170 (2,775) nm
Adjusted earnings/(loss) per share (EUR cents) 0.4 (55.9) nm
----------------------------------------------------- -------- -------- --------
Net debt(2) 11,058 11,667 (5.2)%
----------------------------------------------------- -------- -------- --------
Available seat kilometres (ASK million) 192,544 74,123 nm
Passenger revenue per ASK (EUR cents) 7.28 4.23 72.2 %
Non-fuel costs per ASK (EUR cents) 5.99 8.61 (30.4)%
----------------------------------------------------- -------- -------- --------
(1) Cash comprises cash, cash equivalents and interest-bearing deposits.
(2) The prior year comparative is December 31, 2021.
(3) For definitions refer to the IAG 2021 Annual
Report and Accounts.
Luis Gallego, IAG Chief Executive Officer, said:
"We achieved another strong performance in the third quarter,
with an operating profit of EUR1.2 billion and liquidity of over
EUR13 billion. All our airlines were significantly profitable and
we are continuing to see strong passenger demand, while capacity
and load factors recover.
"Leisure demand is particularly healthy and leisure revenue has
recovered to pre-pandemic levels. Business travel continues to
recover steadily.
"I would like to thank our employees across the Group for their
hard work which has been key to our recovery. This strong trading
performance allows us to continue to invest in our customers, our
people and our industry-leading sustainability agenda.
"We're pleased that our shareholders have recently approved the
acquisition of 87 new shorthaul aircraft that will bring us
long-term cost savings, lower carbon emissions as well as an
improved customer experience.
"While demand remains strong, we are conscious of the
uncertainties in the economic outlook and the ongoing pressures on
households. Against this backdrop, we are focused on adapting our
operations to meet demand, strengthening our balance sheet by
re-building our profitability and cashflows and capitalising on our
high level of liquidity. This will allow us to allocate capital
while investing in a disciplined way in our service and our people,
to build capacity and enable future growth.
"As we build back our operational resilience, we are confident
in our strengths as a Group: first, a portfolio of leading airline
brands; second, leading positions in our key markets and hubs; and
third, the flexibility afforded by IAG to drive operational
efficiency and innovation. These will enable us to return to
pre-COVID levels of profit and generate long-term value for all our
stakeholders."
Trading outlook
At current fuel prices and exchange rates, IAG expects its 2022
pre-exceptional operating profit to be approximately EUR1.1
billion. Net cash flow from operating activities is expected to be
significantly positive for the year. This assumes no further
setbacks related to COVID-19 and material impacts from geopolitical
developments. Net debt is expected to increase by year end, linked
to seasonal booking patterns and capital expenditure associated
with aircraft deliveries in quarter 4.
Quarter 4 2022 capacity, measured in ASKs, is expected to be
approximately 87% of 2019, resulting in full year 2022 capacity of
c.78% of the 2019 level. Capacity in the first quarter of 2023 is
expected to be approximately 95% of 2019.
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, acquisitions and divestments
relating to the Group and discussions of the Group's business
plans. 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 current economic and
geopolitical environment and ongoing recovery from the COVID-19
pandemic and uncertainties about its future 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 2021 Annual Report and Accounts; this
document is 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 ongoing recovery from the COVID-19
pandemic and uncertainties about its future impact and duration of
any further disruption to the global airline industry as well as
the current economic and geopolitical environment.
IAG Investor Relations
Waterside (HAA2),
PO Box 365,
Harmondsworth,
Middlesex,
UB7 0GB
Investor.relations@iairgroup.com
CONSOLIDATED INCOME STATEMENT
Nine months to September 30 Three months to September 30
------------------------------- --------------------------------
Higher/ Higher/
EUR million 2022 2021(1) (lower) 2022 2021(1) (lower)
Passenger revenue 14,020 3,140 nm 6,416 1,999 nm
Cargo revenue 1,216 1,174 3.6 % 373 405 (7.9)%
Other revenue 1,444 607 nm 540 305 77.0 %
------------------------------------------------- --------- --------- --------- -------- --------- -----------
Total revenue 16,680 4,921 nm 7,329 2,709 nm
------------------------------------------------- --------- --------- --------- -------- --------- -----------
Employee costs 3,417 2,099 62.8 % 1,250 811 54.1 %
Fuel, oil costs and emissions charges 4,400 1,049 nm 1,834 552 nm
Handling, catering and other operating costs 2,143 788 nm 821 421 95.0 %
Landing fees and en-route charges 1,391 598 nm 544 311 74.9 %
Engineering and other aircraft costs 1,507 702 nm 579 283 nm
Property, IT and other costs 670 540 24.1 % 235 187 25.7 %
Selling costs 671 280 nm 229 121 89.3 %
Depreciation, amortisation and impairment 1,531 1,384 10.6 % 516 464 11.2 %
Currency differences 180 (32) nm 113 11 nm
------------------------------------------------- --------- --------- --------- -------- --------- -----------
Total expenditure on operations 15,910 7,408 nm 6,121 3,161 93.6 %
------------------------------------------------- --------- --------- --------- -------- --------- -----------
Operating profit/(loss) 770 (2,487) nm 1,208 (452) nm
Finance costs (723) (612) 18.1 % (243) (211) 15.2 %
Finance income 11 5 nm 8 1 nm
Net change in fair value of financial instruments 132 4 nm 2 (34) nm
Net financing credit relating to pensions 19 2 nm 6 1 nm
Net currency retranslation charges (305) (63) nm (108) (50) nm
Other non-operating credits 262 101 nm 136 31 nm
------------------------------------------------- --------- --------- --------- -------- --------- -----------
Total net non-operating costs (604) (563) 7.3 % (199) (262) (24.0)%
------------------------------------------------- --------- --------- --------- -------- --------- -----------
Profit/(loss) before tax 166 (3,050) nm 1,009 (714) nm
Tax 33 428 (92.3)% (156) 140 nm
------------------------------------------------- --------- --------- --------- -------- --------- -----------
Profit/(loss) after tax for the period 199 (2,622) nm 853 (574) nm
------------------------------------------------- --------- --------- --------- -------- --------- -----------
(1) The 2021 results include a reclassification to conform with the presentation adopted
in the 2021 Annual Report and Accounts regarding the fair value movements of the convertible
bond, which increased total finance costs by EUR4 million for the nine months to September
30, 2021, with a corresponding impact in Net change in the fair value of financial instruments.
There is no net impact on the result after tax.
ALTERNATIVE PERFORMANCE MEASURES
All figures in the tables below are before exceptional
items.
Nine months to September 30 Three months to September 30
------------------------------- --------------------------------
Before exceptional items Before exceptional items
------------------------------- --------------------------------
Higher/ Higher/
EUR million 2022 2021(1) (lower) 2022 2021(1) (lower)
Passenger revenue 14,020 3,135 nm 6,416 1,999 nm
Cargo revenue 1,216 1,174 3.6 % 373 405 (7.9)%
Other revenue 1,444 607 nm 540 305 77.0 %
------------------------------------------------- ----------- -------- -------- --------- --------- ----------
Total revenue 16,680 4,916 nm 7,329 2,709 nm
------------------------------------------------- ----------- -------- -------- --------- --------- ----------
Employee costs 3,417 2,099 62.8 % 1,250 811 54.1 %
Fuel, oil costs and emissions charges 4,400 1,202 nm 1,834 565 nm
Handling, catering and other operating costs 2,143 788 nm 821 421 95.0 %
Landing fees and en-route charges 1,391 598 nm 544 311 74.9 %
Engineering and other aircraft costs 1,507 709 nm 579 290 99.7 %
Property, IT and other costs 693 540 28.3 % 235 187 25.7 %
Selling costs 671 280 nm 229 121 89.3 %
Depreciation, amortisation and impairment 1,539 1,397 10.2 % 518 477 8.6 %
Currency differences 180 (32) nm 113 11 nm
------------------------------------------------- ----------- -------- -------- --------- --------- ----------
Total expenditure on operations 15,941 7,581 nm 6,123 3,194 91.7 %
------------------------------------------------- ----------- -------- -------- --------- --------- ----------
Operating profit/(loss) 739 (2,665) nm 1,206 (485) nm
Finance costs (723) (612) 18.1 % (243) (211) 15.2 %
Finance income 11 5 nm 8 1 nm
Net change in fair value of financial instruments 132 4 nm 2 (34) nm
Net financing credit relating to pensions 19 2 nm 6 1 nm
Net currency retranslation charges (305) (63) nm (108) (50) nm
Other non-operating credits 262 101 nm 136 31 nm
------------------------------------------------- ----------- -------- -------- --------- --------- ----------
Total net non-operating costs (604) (563) 7.3 % (199) (262) (24.0)%
------------------------------------------------- ----------- -------- -------- --------- --------- ----------
Profit/(loss) before tax 135 (3,228) nm 1,007 (747) nm
Tax 35 453 (92.3)% (154) 141 nm
------------------------------------------------- ----------- -------- -------- --------- --------- ----------
Profit/(loss) after tax for the period 170 (2,775) nm 853 (606) nm
------------------------------------------------- ----------- -------- -------- --------- --------- ----------
Higher/ Higher/
Operating figures (2) 2022 2021(1) (lower) 2022 2021(1) (lower)
Available seat kilometres (ASK million) 192,544 74,123 nm 74,834 40,082 86.7 %
Revenue passenger kilometres (RPK million) 156,624 44,464 nm 65,078 27,716 nm
Seat factor (per cent) 81.3 60.0 21.3pts 87.0 69.1 17.9pts
Passenger numbers (thousands) 69,504 23,555 nm 29,535 15,475 90.9 %
Cargo tonne kilometres (CTK million) 2,890 2,841 1.7 % 951 988 (3.7)%
Sold cargo tonnes (thousands) 407 382 6.5 % 132 134 (1.5)%
Sectors 456,837 192,833 nm 179,469 114,877 56.2 %
Block hours (hours) 1,308,318 563,716 nm 511,599 303,622 68.5 %
------------------------------------------------- ----------- -------- -------- --------- --------- ----------
Average manpower equivalent(3) 58,077 50,601 14.8 % 62,916 50,202 25.3 %
Aircraft in service 552 533 3.6 % n/a n/a -
------------------------------------------------- ----------- -------- -------- --------- --------- ----------
Passenger revenue per RPK (EUR cents) 8.95 7.05 27.0 % 9.86 7.21 36.7 %
Passenger revenue per ASK (EUR cents) 7.28 4.23 72.2 % 8.57 4.99 71.9 %
Cargo revenue per CTK (EUR cents) 42.08 41.32 1.8 % 39.22 40.99 (4.3)%
Fuel cost per ASK (EUR cents) 2.29 1.62 40.9 % 2.45 1.41 73.9 %
Non-fuel costs per ASK (EUR cents) 5.99 8.61 (30.4)% 5.73 6.56 (12.6)%
Total cost per ASK (EUR cents) 8.28 10.23 (19.1)% 8.18 7.97 2.7 %
------------------------------------------------- ----------- -------- -------- --------- --------- ----------
(1) The 2021 results include a reclassification to conform with the presentation adopted
in the 2021 Annual Report and Accounts regarding the fair value movements of the convertible
bond, which increased total finance costs by EUR4 million for the nine months to September
30, 2021, with a corresponding impact in Net change in the fair value of financial instruments.
There is no net impact on the result after tax.
(2) Financial ratios are before exceptional items. Refer to Alternative performance measures
section for detail.
(3) 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
Developments since last report (July 29, 2022)
On August 16, the Group announced that it had exercised its
option to exchange the Group's EUR100 million seven-year unsecured
convertible loan to Globalia for a 20 per cent equity stake in Air
Europa.
On October 26, IAG's shareholders approved the purchase of 50
Boeing 737 aircraft and 37 Airbus A320neo aircraft. These aircraft,
for delivery between 2023 and 2028, will replace existing Airbus
A320ceo family aircraft and will contribute to the Group's climate
commitments, as well as bringing long-term cost benefits.
Basis of preparation
At September 30, 2022, the Group had total liquidity of
EUR13,488 million, comprising cash and interest-bearing deposits of
EUR9,260 million, EUR3,259 million of committed and undrawn general
facilities and a further EUR969 million of committed and undrawn
aircraft specific facilities. The Group has been successful in
raising financing since the outbreak of COVID-19, having financed
all aircraft deliveries in 2020 and 2021 and has continued to
successfully finance aircraft in the nine months to September 30,
2022; the Group continues to secure aircraft financing on long-term
arrangements.
In its assessment of going concern over the period to December
31, 2023 (the 'going concern period'), prepared in the third
quarter of 2022, the Group has prepared extensive modelling,
including considering a plausible but severe downside scenario and
further sensitivities to the downside scenario. Having reviewed
these scenarios and sensitivities, the Directors have a reasonable
expectation that the Group has sufficient liquidity to continue in
operational existence over the going concern period and hence
continue to adopt the going concern basis in preparing the
condensed consolidated interim financial statements for the nine
months to September 30, 2022.
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 100 to 121 of
the 2021 Annual Report and Accounts, remain relevant. The Board
reviews and challenges management on the risk landscape in the
light of changes that influence the Group and the aviation
industry.
The Group continually assesses how its principal risks are
evolving and how the severity or likelihood of occurrence of risks
change with the return to operations as markets have re-opened. It
reviews macro-economic and geopolitical events to identify emerging
risks and implications for existing principal risks as well as
competition and market risk changes, particularly those that could
impact operational resilience. Where further action has been
required the Board has considered potential mitigations and, where
appropriate or feasible, the Group has implemented or confirmed
plans that would address those risks or retain them within the
Board's determined Group risk appetite.
From the risks identified in the 2021 Annual Report and
Accounts, the main risks that continue to be a key area of focus,
due to their potential implications for the Group's resilience, are
outlined below. Business responses implemented by management and
that effectively mitigate or reduce the risk are reflected in the
Group's latest business plan and related downside scenarios. No new
principal risks were identified through the risk management
assessment discussions across the business in the nine months to
September 30, 2022.
-- Brand and customer trust . Operational resilience and
customer satisfaction build brand value and customer trust. The
Group is pro-actively addressing its customer service processes and
systems to deliver excellent customer service and support customers
through disruption, which will help ensure that our customers
choose to fly with the Group's airlines.
-- Critical third parties in the supply chain . Operational
staffing shortages at hubs and airports have required capacity
adjustments, including managing the impact on British Airways'
customers and operations of the decision by Heathrow airport to cap
passenger numbers. The Group has pro-actively assessed its
schedules to ensure that our customers have sufficient notice of
any changes to their flight plans wherever possible and within our
control. Learnings from the summer disruptions have been identified
and actions to improve resilience have been implemented. The Group
continues to work with all critical suppliers to understand any
potential disruption within their supply chains from either a
shortage of available resource or production delays which could
delay the availability of new fleet, engines or critical goods or
services.
-- Cyber attack and data security . The threat of ransomware
attacks on critical infrastructure and services has increased as a
result of the war in Ukraine and the potential for state sponsored
cyber attacks. The Group continues to focus its efforts on
appropriate monitoring to mitigate the risk.
-- Debt funding. Access to the unsecured debt markets could be
restricted for some sub investment grade organisations, which could
reduce the external funding options available to the Group. Rising
interest rates will also increase the cost for the Group where it
chooses to re-finance upcoming maturities due in the next year. The
Group continues to successfully secure aircraft financing.
-- Economic, political and regulatory environment. The economic
impact of energy shortages and increases in commodity and wage
costs has driven significant inflation and uncertainty over the
economic outlook. The Group is closely reviewing the impacts of
wage and supplier inflation on margins and customer demand. The
Group will continue to adjust its future capacity plans
accordingly, retaining flexibility to adapt as required and where
possible.
-- Event causing significant network disruption. Ongoing labour
shortages, threat of strike action and staff sickness from COVID-19
infections have impacted the operational environment of the Group's
airlines as well as the operations of the businesses on which the
Group relies. Many of these events can occur within a close
timeframe and challenge operational resilience. In addition, the
Group has significant IT infrastructure changes to complete which
could impact operations. The Group is focused on minimising any
unplanned outages or disruption to customers with additional
resilience built into the airline's' networks.
-- Financial and treasury related risk. Fuel cost increases have
been partly mitigated by the Group's fuel hedging policy. Access to
fuel hedging instruments or the ability to pass increased fuel
costs on to consumers could impact the Group's profitability. The
Group continues to assess the strengthening of the US dollar
against the euro and pound sterling and the potential impacts on
the Group's operating results. All airlines hedge in line with the
Group hedging policy.
-- IT systems and IT infrastructure. The Group is reliant upon
the resilience of IT systems for key customer and business
processes and is exposed to risks that relate to poor performance,
obsolescence or failure of these systems. The Group is currently
engaged in a number of major programmes to modernise and upgrade
its IT systems, digital capability, customer propositions and core
IT infrastructure and network, where required. Mitigating actions
that prioritise operational stability and resilience have been
built into all cutover plans.
-- People, culture and employee relations. The Group recognises
the efforts of our staff and their resilience and commitment
supporting the ramp up of operations. Resource shortages and the
timelines to secure resource, particularly in UK and Ireland, can
impact operational readiness and resilience. The Group is focused
on measures to attract and secure flight and ground staff into its
airlines to enable them to fulfil their schedules and maintain
competitiveness. Across the Group, collective bargaining is in
place with various unions. The Group is exposed to the risk of the
industrial relations action and the operating companies continue to
engage in discussions with unions to address and resolve disputes
arising within the negotiations.
The Board and its sub committees have been apprised of
regulatory, competitor and governmental responses on an ongoing
basis.
Impact of commodity prices and foreign exchange movements
Average commodity fuel prices for the nine months to September
30, 2022 were significantly higher than in the previous period,
with average spot prices of jet fuel almost double the level of the
previous year. Jet fuel spot prices reduced from $1,235 per metric
tonne on June 30, 2022 to $965 per metric tonne on September 30,
2022, although prices fluctuated within the quarter and remain
volatile.
The average foreign exchange rates for the first nine months of
2022 resulted in the US dollar strengthening 10 per cent against
the euro and 7 per cent stronger against the pound sterling,
compared with the average of the first nine months of 2021.
The net impact of transaction and translation exchange for the
Group for the nine months was EUR316 million adverse (EUR90 million
adverse in quarter 1, EUR106 million adverse in quarter 2 and
EUR120 million adverse in quarter 3).
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
the operating result was adverse by EUR296 million for the nine
months, increasing revenues by EUR394 million and costs by EUR690
million.
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
nine months, the net impact of translation was EUR20 million
adverse (EUR26 million adverse in quarter one, EUR2 million
favourable in quarter two and EUR4 million favourable in quarter
three).
Unless stated otherwise, all variances quoted below compare the
first nine months of 2022 with the first nine months of 2021 on a
statutory basis (including exceptional items).
Capacity
In the first nine months of 2022, IAG capacity, measured in
available seat kilometres (ASKs) reached 75.3 per cent of that
operated in the first nine months of 2019. Capacity was steadily
increased through the period, with quarter 1 at 65.1 per cent of
2019, quarter 2 at 78.0 per cent of 2019 and quarter 3 at 81.1 per
cent of 2019.
The impact of COVID-19 and related travel restrictions was
significantly less than in the first nine months of 2021, when many
countries were in lockdown or had severe travel restrictions in
place. The passenger load factor reached 81.3 per cent in the first
nine months of 2022, again increasing across the period, with the
passenger load factor in quarter 1 at 72.2 per cent, in quarter 2
at 81.8 per cent and in quarter 3 at 87.0 per cent, which was just
0.7 points lower than in quarter 3 of 2019. There was some impact
from the Omicron variant of COVID-19 early in the year, mainly in
January and February. Capacity operated out of London Heathrow
airport was lower than originally planned at the start of the year
and British Airways' capacity was limited to 74.2 per cent of 2019
in quarter 3, up from 57.4 per cent in quarter 1 and 69.1 per cent
in quarter 2.
Revenue
Passenger revenue rose EUR10,880 million to EUR14,020 million,
reflecting the significant increase in capacity operated, together
with the positive impact of a 21.3 percentage point increase in the
passenger load factor and passenger yields per revenue passenger
kilometre (RPK) up 27.0 per cent. The resulting passenger unit
revenue (passenger revenue per ASK) was 72.2 per cent higher than
the previous year and was up to 91.0 per cent of that seen in the
first nine months of 2019. Passenger unit revenue was 11.7 per cent
lower than 2019 in the first quarter, 6.4 per cent higher than 2019
in the second quarter and 21.9 per cent higher in the third
quarter.
Cargo revenue was up EUR42 million to EUR1,216 million, 3.6 per
cent higher than in the first nine months of 2021, despite only 480
cargo flights operated in the period, down from 3,334 in the first
nine months of 2021, due to the significant increase in the
passenger capacity operated. Yields increased 1.8 per cent on 2021,
supported by continued global supply chain disruption, particularly
in the first half of the year. Cargo carried, measured in cargo
tonne kilometres (CTKs), rose by 1.7 per cent. Compared with 2019,
Cargo revenue increased by EUR391 million, or 47.4 per cent.
Other revenue increased by EUR837 million to EUR1,444 million,
reflecting the recovery in the Group's non-airline businesses,
including BA Holidays, Iberia's maintenance and third party
handling businesses and IAG Loyalty. Other revenue was 4.0 per cent
higher than in the first nine months of 2019.
Costs
Costs were impacted by the significant increase in capacity
versus 2021, together with costs in the first half of the year
reflecting the need to complete training and maintenance activities
ahead of the Group airlines' Summer flying programmes.
Employee costs increased by EUR1,318 million to EUR3,417
million, with only minimal use of government wage support and
related schemes in the period, as staff were required to resource
the significantly increased flying programme, as well as for
training and preparation ahead of the Summer flying season.
Fuel costs increased by EUR3,351 million to EUR4,400 million.
The impact of the increase in commodity fuel price was mainly seen
from March and the impact was reduced by the Group's hedging
programme. Fuel costs also benefitted from the reduced volume of
cargo flights versus the previous year.
Supplier costs increased by EUR3,686 million to EUR6,562
million, mainly linked to the significant increase in capacity
operated, together with inflationary increases, which were partly
offset by the Group's procurement initiatives.
Depreciation, amortisation and impairment costs increased to
EUR1,531 million, partly driven by aircraft deliveries during 2021
and the first nine months of 2022.
Operating costs include a EUR180 million currency differences
charge in 2022 (classified within Supplier costs), versus a EUR32
million currency differences credit in 2021; currency differences
mainly reflect the retranslation of current financial assets and
liabilities at the closing foreign exchange rate for the period,
which in 2022 reflects the strengthening of the US dollar against
both the euro and the pound sterling.
Operating result
The Group's operating profit for the period was EUR770 million,
an improvement of EUR3,257 million versus 2021. Excluding
exceptional items, the operating profit for the period improved
EUR3,404 million versus the previous year, to EUR739 million.
Exceptional items
In the nine month period, the Group recorded an exceptional
credit of EUR23 million relating to the partial reversal of the
fine previously issued by the European Commission, in 2010, to
British Airways. There was also an exceptional credit of EUR8
million, reflecting the partial reversal of aircraft impairments
made in 2020, as six Airbus A320 aircraft previously assumed
permanently stood down have now been added back to the Group's
fleet plans. In the first nine months of 2021, exceptional items
included: gains on those fuel and foreign exchange hedges
de-recognised in 2020, totalling EUR158 million; an exceptional
credit of EUR7 million relating to the reversal of lease provisions
made in 2020; and an exceptional credit of EUR13 million relating
to the partial reversal of impairments relating to four Airbus A320
aircraft in 2020. See Reconciliation of Alternative performance
measures for further information.
Net non-operating costs, taxation and loss after tax
The Group's net non-operating costs for the nine months were
EUR604 million in 2022, compared with EUR563 million in 2021. The
net change in the fair value of financial instruments of EUR132
million reflects fair value adjustments as at September 30, 2022 of
IAG's convertible bond maturing in 2028 and its convertible loan to
Globalia, which was made during quarter 2 and converted into a 20
per cent equity stake in Air Europa in quarter 3. Net currency
retranslation charges of EUR305 million reflected the weakening of
the euro and pound sterling against the US dollar since the start
of the year. Other non-operating credits of EUR262 million
principally reflect gains on derivatives not qualifying for hedge
accounting.
The substantial majority of the Group's activities are taxed
where the main operations are based: in the UK, Spain and Ireland
which have statutory corporation tax rates of 19 per cent, 25 per
cent and 12.5 per cent respectively for 2022. The expected
effective tax rate for the Group is determined by applying the
relevant corporation tax rate to the profits or losses of each
jurisdiction. The geographical distribution of profits and losses
in the Group, with the average corporation tax rate for entities
with losses being lower than the average corporation tax rate for
entities with profits, results in the expected effective tax rate
being 32 per cent for the nine months to September 30, 2022. The
difference between the actual effective tax rate of negative 20 per
cent and the expected effective tax rate of 32 per cent is
primarily due to the partial utilisation of previously unrecognised
tax losses in the Group's Spanish companies, and the impact of the
increase in the UK rate from 19 to 25 per cent from April 2023.
The profit after tax for the nine months was EUR199 million
(2021: loss of EUR2,622 million).
Cash, liquidity and leverage
The Group's cash balance of EUR9,260 million at September 30,
2022 was up EUR1,317 million on December 31, 2021. During the nine
months 20 Airbus aircraft were delivered (five A350-1000s, five
A350-900s, nine A320 Neos and one A321 Neo), together with one
Boeing 787-10. Of the aircraft delivered in the period, 13 were
financed by the end of September (one A350-1000, three A350-900s,
seven A320 Neos, one A321 Neo and one Boeing 787-10).
Total liquidity at September 30, 2022 was EUR13,488 million, up
from EUR11,986 million at December 31, 2021. Committed and undrawn
general facilities were EUR3,259 million (December 31, 2021:
EUR2,917 million) and committed and undrawn aircraft facilities
EUR969 million (December 31, 2021: EUR1,126 million). During
quarter 3 the Group extended the availability of its $1,755 million
revolving credit facility by one year to March 2025.
Net debt at September 30, 2022 was EUR11,058 million, down
EUR609 million from December 31, 2021. The Group has seen a return
to the normal seasonality experience before the COVID-19 pandemic;
this seasonality typically results in deferred revenues rising
strongly in the first half of the year in advance of peak summer
travel, with deferred revenues then falling in the second half of
the year and reaching a natural trough in December. This pattern of
seasonality would normally result in lower cash and cash
equivalents at the end of December and an increase in Net debt.
RECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES
Profit after tax before exceptional items
Exceptional items are those that in management's view need to be
separately disclosed by virtue of their size or incidence in
understanding the entity's financial performance.
The tables below reconcile the reported income statement to the
income statement to the alternative performance measures statement
above:
Nine months to September 30
----------------------------------------------------------------------------------------------------
Before Before
Exceptional exceptional Exceptional exceptional
EUR million Reported 2022 items items 2022 Reported 2021 items items 2021
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Passenger
revenue 14,020 - 14,020 3,140 5 3,135
Cargo revenue 1,216 - 1,216 1,174 - 1,174
Other revenue 1,444 - 1,444 607 - 607
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Total revenue 16,680 - 16,680 4,921 5 4,916
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Fuel, oil costs
and emissions
charges(1) 4,400 - 4,400 1,049 (153) 1,202
Engineering and
other aircraft
costs(2) 1,507 - 1,507 702 (7) 709
Property, IT and
other costs(3) 670 (23) 693 540 - 540
Depreciation,
amortisation
and
impairment(4) 1,531 (8) 1,539 1,384 (13) 1,397
Other operating
charges 7,802 - 7,802 3,733 - 3,733
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Total
expenditure on
operations 15,910 (31) 15,941 7,408 (173) 7,581
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Operating
profit/(loss) 770 31 739 (2,487) 178 (2,665)
Total net
non-operating
costs (604) - (604) (563) - (563)
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Profit/(loss)
before tax 166 31 135 (3,050) 178 (3,228)
Tax 33 (2) 35 428 (25) 453
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Profit/(loss)
after tax for
the period 199 29 170 (2,622) 153 (2,775)
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Three months to September 30
----------------------------------------------------------------------------------------------------
Before Before
Exceptional exceptional Exceptional exceptional
EUR million Reported 2022 items items 2022 Reported 2021 items items 2021
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Passenger
revenue 6,416 - 6,416 1,999 - 1,999
Cargo revenue 373 - 373 405 - 405
Other revenue 540 - 540 305 - 305
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Total revenue 7,329 - 7,329 2,709 - 2,709
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Fuel, oil costs
and emissions
charges(1) 1,834 - 1,834 552 (13) 565
Engineering and
other aircraft
costs(2) 579 - 579 283 (7) 290
Property, IT and
other costs(3) 235 - 235 187 - 187
Depreciation,
amortisation
and
impairment(4) 516 (2) 518 464 (13) 477
Other operating
charges 2,957 - 2,957 1,675 - 1,675
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Total
expenditure on
operations 6,121 (2) 6,123 3,161 (33) 3,194
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Operating
profit/(loss) 1,208 2 1,206 (452) 33 (485)
Total net
non-operating
costs (199) - (199) (262) - (262)
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Profit/(loss)
before tax 1,009 2 1,007 (714) 33 (747)
Tax (156) (2) (154) 140 (1) 141
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Profit/(loss)
after tax for
the period 853 - 853 (574) 32 (606)
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
RECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES continued
(1) The exceptional credit to Fuel, oil costs and emissions
charges of EUR153 million recorded in the nine months to September
30, 2021 and the exceptional credit to Passenger revenue of EUR5
million related to the derecognition of hedge accounting of the
associated fuel derivatives and the foreign currency derivatives on
forecast revenue and fuel consumption. These amounts arose from the
substantial deterioration in demand for air travel caused by the
COVID-19 outbreak, which caused a significant level of hedged fuel
purchases in US dollars and hedged passenger revenue transactions
in a variety of foreign currencies to no longer be expected to
occur based on the Group's operating forecasts prevailing at the
balance sheet date. The credit related to revenue derivatives and
fuel derivatives was recorded in the Income statement within
Passenger revenue and Fuel, oil and emission charges,
respectively.
The related tax charge was EUR25 million.
(2) The exceptional credit recorded of EUR7 million recorded in
the nine months to September 30, 2021 related to the reversal of
contractual lease provisions for those aircraft in Vueling that
have been stood up during quarter 3 of 2021, where the estimated
costs to fulfil the hand back conditions will be recognised over
the remaining operating activity of the aircraft. The exceptional
credit was recorded within Engineering and other aircraft costs and
there was no tax impact on the recognition of this credit.
(3) The exceptional credit of EUR23 million recorded in the nine
months to September 30, 2022 relates to the partial reversal of the
fine, plus accrued interest, initially issued by the European
Commission, in 2010, to British Airways regarding its involvement
in cartel activity in the air cargo sector and that had been
recognised as an exceptional charge. The exceptional credit has
been recorded within Property, IT and other costs in the Income
statement with no resultant tax charge arising.
(4) The exceptional impairment reversal of EUR8 million recorded
in the nine months to September 30, 2022 (nine months to September
30, 2021: credit of EUR13 million) related to six Airbus A320s in
Vueling (nine months to September 30, 2021: four Airbus A320 in
Vueling), previously stood down in the fourth quarter of 2020 and
subsequently stood up during 2022 (nine months to September 30,
2021: previously stood down in the fourth quarter of 2020 and
subsequently stood up during 2021). The exceptional impairment
reversal was recorded within Right of use assets on the Balance
sheet and within Depreciation, amortisation and impairment in the
Income statement. The related tax charge was EUR2 million.
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October 28, 2022 02:00 ET (06:00 GMT)
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