Earnings Release • Nov 21, 2023
Earnings Release
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Capital Markets Day 21 November 2023
Luis Gallego Chief Executive Officer
Full year lease-adjusted operating margin1 (%) by IAG airline OpCo
Long-term secular growth Travel remains a priority
Ongoing shift in spending from goods to services
of Gen-Z and Millennial respondents agree that they would rather take a dream vacation than purchase a new luxury item 1
Premium consumer trends remain supportive
care more about creating a travel experience that meets their expectations vs the cost
Aircraft deliveries / orders ('000) Aircraft retirements vs orders for European hub carriers2
Total Market Size by O&D to/from Europe (€bn)1
Source: IATA, DDS (excl. Russia and Turkey). 1. Total Market Revenues by Original & Destination ("O&D ") to/from Europe, LTM Q2-2023 (€B).
European airports by total revenue1 , LTM Q2-2023 (€bn)
Our home markets provide a competitive advantage Geographical advantage
Strategic rationale
Note: Acquisitions and joint business agreements, 2011-2020. Year represents the year the deal was completed; Air Europa acquisition is still under negotiation and pending regulatory approval; Synergies stopped being tracked beyond 2015.
Fully committed to delivering on our emissions targets:
Delivered through:
• Multi-year agreements bring stability to develop an efficient growth plan and drive Transformation
Lynne Embleton, Sean Doyle, Fernando Candela, Marco Sansavini CEO Aer Lingus, CEO British Airways, CEO Iberia, CEO Vueling
Geographical advantage of our hubs, languages and cultural links
Highly attractive and sizeable market at €33bn1
Largest US – Europe joint business
High premium demand and bestin-class customer proposition
• Sustainable returns and cash generation
US IAG US Industry Rest-ofworld industry Premium Non-Premium
Share of US flights by aircraft type
Sources: OAG; Iberia excludes LEVEL, IAG internal data. *2028 based on assumptions for regional allocation of next gen delivery / replacements Note: Old Gen = 747, 757, A340; Mid Gen = 777, A330, A380; Next Gen = 787, A321LR/XLR, A350, 777-9x
Share of Europe – US by market (revenue) Share of Europe – US by joint business (passengers)
US non-stop destinations served by each joint business
Total LatAm-Europe revenue by European country of origin/destination (€bn)
European airports ranked by LatAm exposure, revenue LTM Q2-2023 (€bn)
%
LatAm revenue contribution out of airline total revenue (Q2 LTM 2023)
Iberia's fleet improvement - more efficient A350 vs A340, higher utilisation
Iberia's improved network offering in big cities
"Rich Latin Americans transform Madrid into the new Miami" Bloomberg 2 June 2023
Revenues by O&D Top 15 country pairs, LTM Q2-2023 (€bn)
Source: DDS Note: Excludes Turkey and Russia
IAG narrow bodied fleet1
The world's largest and unique amongst peers
Working with the world's largest Cargo airline
Cargo
co-operation
Group-wide synergies
Major joint maintenance and procurement activities
Julio Rodriguez Contreras Chief Commercial Strategy Officer
IAG's world-class airline brands have distinct identities, customer propositions and strategies
Our brands leverage IAG's scale, efficient platforms, and best practice sharing
Customers benefit from Avios, which rewards loyal customers and provides global reach and access to an extensive portfolio of partnerships
• Low fares and promotions
• Travel experience
Our customers are global travellers
5 continents are offered by British Airways, connecting London worldwide
Our customers are willing to pay for a premium experience
66% of BA's customers live in the more affluent South-East of the UK
Our customer base is becoming more leisure-focused
75% of BA's customers are travelling for leisure purposes
New dedicated training for lounge colleagues
100% Club Suite at Heathrow by end 2026
Our customers use Madrid as Europe's hub to Latin America
Madrid is Europe's largest gateway to LatAm twice the size of the next
Our customers are increasingly choosing our premium cabins
+8 ppts increase in customers travelling in the premium cabins since the pandemic Our customers are digitally savvy and expect a seamless travel experience
72% of customers recognise that we are constantly innovating
Introduction of GenAI to WhatsApp and voice Bot and smart voice assistant to the call centre
Rollout of the award winning 350 Next: state-of-the-art suitestyle seat with direct aisle access
Introduction of XL overhead bins on A320 family aircraft
2 nd iteration of "Todo Empieza Conmigo", our cultural change programme focused on the delivery of a customer-centric service
• Improvement to all baggage-related processes
Our customers have strong cultural and business links with North America
~60% of long-haul revenue generated in the USA
Our customers benefit from pre-clearance in Dublin
>1.2 m customers use the US Customs 82% of bookings made directly and Border Protection pre-clearance every year
Our customers prefer digital channels
| 12:43.4 | 11:54 | $11:54$ $4$ |
|---|---|---|
| Review and Purchase WESTERN ESCAPES ON EXPERIENCE COUNTRIES AND GALLERY Thu, 14 Mai 2019, 07:25 - 09:05 Flight Ellist |
$\overline{\phantom{a}}$ Book a Flight ≕ = One Way Henath |
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| HASSANIAN DETAILS | ERISM | Dublin Amsterdam |
| Bob Dobbs $\sim$ |
Dublin (DUB) | AMS DUB |
| BREVASTIN AVAILE | $\langle \hat{v} \rangle$ Amsterdam (AMS) |
9:35 10:15 Saver |
| You have 1,202,790 Avios to spend ⊖ |
用 06 1 Passenger |
PRIORITY BOARDING |
| 479 Off - 14,375 Avios | Choose Dates | AerClub Green 1234567891011121 |
| REGISTER TYPE | SAVED SEARCHES | NAME FLIGHT E1605 Mike Smith |
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| *Pay Apple Pay | DATE GATE CLOSES BEERBEACE 6FEB19 21774F 9:25 |
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Our customers seek an elevated low-cost experience
~100% increase in ancillary revenue per passenger vs 2019 Our customers look for leisure experiences across Europe
~90% of customers fly for leisure reasons
Our customers are young and digitally savvy
~40% use Vueling App to manage their trip
Real-time, relevant information for the journey
Fixing our basics and co-creating new experiences and signature moments to elevate our service
1 st long-haul airline in Barcelona
Digital and innovative, allowing you to tailor your journey: "Fly your way"
We offer a great experience, ranging from a "no-frills" option to an "allin" premium cabin, all at an affordable price
Adam Daniels Chairman & CEO IAG Loyalty
We are investing in additional Avios issuance for our customers
Our partnerships are making it easier to collect
Across the group we continue to invest margins into enhanced loyalty propositions for customers, including:
PWA: Pay with Avios – our proposition that enables Avios to be redeemed in place of cash RFS: Reward Flight Saver – our proposition to make reward flights more attractive, by limiting the cash amounts required to cover taxes and fees (UK issue)
Fernando Candela Chairman & CEO, Iberia
Top 3 performance in
Product adapted to target demand space
Transformed airline and highly competitive CASK
Europe1
✓ Transformation will ensure that IAG and its businesses are stronger in the future
✓ Forensic governance and oversight at Group level
✓ Significant number of initiatives driving improvements to revenue, costs and operations
✓ Leading to profit opportunity in all of our operating companies
World-class customer experience
Leading edge commercial platform
Modernisation of the IT estate
Operational and technical excellence
Total BA Transformation investment 2024-26 including fleet
Our transformation is a key enabler for enhanced customer experience, revenue optimisation and cost efficiency
Building Our Brand
Ground Experience
Onboard
Experience
Cabin
Crew
Customer
Care
2023: Launch of homepage and first flight booking
2024+ capability ramp-up and full route roll-out
2024: cutover to new tech platform
next-gen capability
2024: first new forms of payment
fo r t ra n s fo r m a t i o n i n op e ra t i o n s
Improved colleague experience and engagement
I m p ro v i n g p u n c t u a l i t y i s a t t h e h e a r t o f d e l i ve r i n g a w o r l d- c l a s s o p e ra t i o n
Recognised punctuality performance gap… …driven by both internal and external delays
Four key levers… …driving up On-Time Performance
Tra n sfo r m i n g o u r H e a t h ro w g ro u n d o p e ra t i o n s i s t h e fo c u s o f s i g n i f i c a n t i nve s t m e n t
Resilience During Disruption
• Clear accountability for performance, safety and
• Team Zones2 with specialists delivering an expert, world-
Team-based
Working
engagement1
class service
Leadership, Oversight
• Driving an 'on-time' performance culture • Investment in resources and equipment
Tools and
Training
Ta rge t e d s c h e d u l i n g e n h a n c e m e n t s a re s u p p o r t i n g t h e d e l i ve ra b i l i t y o f o u r o p e ra t i o n
Dynamic optimisation of scheduled block times and realigned turnaround buffers across the schedule New schedule smoothing to even out handling workload across hours
Revised standard for turnaround times and fully re-designed Precision Time Schedule
Re-shaped T5 Minimum Connection Times to reduce missed connections
We a re b u i l d i n g a m a i n t e n a n c e c a p a b i l i t y t h a t w i l l d e l i ve r fo r t h e b u s i n e s s n o w a n d i n t o t h e f u t u re
We w i l l e m p o w e r t h e b u s i n e s s t o m a ke e f fe c t i ve u s e o f t e c h n o l o g y, d a t a a n d a n a l y t i c s
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Leveraging data from across the operation to create a single source of truth
Using digital tools to support decision making and optimise outcomes
EMPOWERING OUR COLLEAGUES TO MAKE BETTER DECISIONS FOR OUR CUSTOMERS AND OUR OPERATION
[ B A T R A N S F O R M AT I O N V I D E O ]
Focus on handling improvements is delivering results
World-class customer experience
Leading edge commercial platform
Modernisation of the IT estate
Operational and technical excellence
We are investing in new aircraft, operational efficiencies, market-based measures and SAF
We are quickly introducing new aircraft … … which are far more fuel efficient
Innovative technology – engaging with cutting edge technologies via Hangar 51 to provide multiple decarbonisation solutions
| Partner Partner |
Location Location |
Pathway Pathway |
% of 2030 target % of 2030 target |
|---|---|---|---|
| Alcohol-to-Jet | 10 | ||
| Alcohol-to-Jet | 13 | ||
| HEFA | 2 |
Hydrotreated Esters and Fatty Acids (HEFA) refines vegetable oils, waste oils, or fats into SAF through a process that uses hydrogen (hydrogenation).
Provides best SAF production policy support; focused on incentives and not mandates. Evidence strongly demonstrates that projects follow policy support.
Emissions Trading Scheme tightened, and free allowances removed by 2026. SAF mandate legislated, reaching 6% by 2030. Incentive available in the form of 20m ETS Allowances.
Emissions Trading Scheme tightened, and free allowances removed by 2026. There will be a SAF mandate of 10% by 2030 and some level of support is expected; details to be confirmed.
Some countries are progressing carbon pricing mechanisms and looking to implement SAF mandates.
Forensic transformation plans
| • Investing in commercial technology and skills |
Cost Category |
Key Drivers and Actions – airline unit costs * |
|
|---|---|---|---|
| • Upgrading customer journey experiences Revenue • Developing products and services enhancements |
Ownership | Investment in fleet partially offset by fuel efficient new aircraft • Fleet and product investment driving higher depreciation |
|
| Cost and efficiency |
• Group scale providing procurement advantages • Share best practices – e.g. fuel efficiency • End to end process re-engineering • Improve OTP and minimising disruption |
Supplier | Operational efficiencies, technology and procurement offsetting inflation • Investing in On Time Performance and resilience to reduce disruption • Leveraging Group scale and data analytics with supplier • Reduce selling costs through digital, NDC and direct channels • Leveraging technology and data to enhance supplier management |
| Operational improvements |
• Digital and analytical transformation • Forensic process assessments and adjustments • Building skill sets and optimising structures |
Employee | Investing in 2023/24 to drive long term operational efficiencies Multi-year agreements agreed with most teams • Provides stability to develop an efficient growth plan and transformation • Recognises employees' efforts and provides competitive salaries • Increasing salary link to company performance |
| Technology | • Building resilience – replacing legacy systems • Enhancing customer on-line experience • Automating and speeding up processes • Connecting teams and simplifying |
Efficiency plans in all operating companies to help offset wage inflation, including: • Transformation of airport process through technology (e.g. further rollout of e-gates and push back devices, next generation kiosks and self bag-drops) • Increasing seasonal flexibility and new contracts |
*Figures are on a pre-exceptional items basis. Historic results are restated for the treatment of administration cost associated with the Group's defined-benefit pension schemes
Pro-active de-risking of our balance sheet: £2.0bn UKEF-backed loan and €0.8bn ICO-guaranteed loans repaid
Note: Excludes aircraft secured loans, finance and operating leases
defined-benefit pension deficit payments
Both APS and NAPS schemes are in a technical surplus position. BA is not anticipating a need to make deficit recovery payments
Continue to secure balance sheet strength
*Figures are on a pre-exceptional items basis. 2019 results are restated for the treatment of administration cost associated with the Group's defined-benefit pension schemes ** Subject to seasonal working capital movement
Invest in rebuilding our fleet
Airbus A321LR/XLRs are included in long-haul aircraft count above. Long-haul aircraft includes direct leases
A fleet ownership decision making process
in sustainability
We will return to dividends carefully and sustainably once investment programme and balance sheet secure
Excess cash returned to shareholders if no inorganic opportunities exist
F 20% stake acquired in August 2022 by exercising option on €100m convertible loan
F Purchase price of €400m for the remaining 80%
Payment deferred: €100m in IAG ordinary shares and €300m cash*
F Completion expected by the end of 2024
Expected limited impact on IAG's financial leverage ratios
Agreement is subject to receipt of regulatory clearance
Q&A
Quiz!
Luis Gallego Chief Executive Officer
| Measure | IFRS/APM | Definition | Source of calculation |
|---|---|---|---|
| Operating profit (and other Income statement items) before exceptional items |
APM | See IAG 2022 ARA (APMs section) and accounting policies | IAG 2022 ARA (Reconciliation of alternative performance measures section, note a: Profit/(loss) after tax before exceptional items) |
| EBITDA before exceptional items | APM | EBITDA excluding exceptional items | IAG 2022 ARA (Reconciliation of alternative performance measures section, note e: Net debt to EBITDA before exceptional items) |
| Unit measures (PRASK, Fuel CASK, Non Fuel CASK) |
APM | Passenger revenue, fuel costs, non-fuel costs (before exceptional items) divided by capacity (ASKs) |
IAG 2022 ARA (Glossary section) |
| Gross debt | IFRS | Total borrowings (current and non-current) | Direct from Balance sheet (Current liabilities, Non-current liabilities) |
| Cash | IFRS | Cash and cash equivalents and Current interest-bearing deposits | Direct from Balance sheet (Current assets) |
| Net debt | IFRS | Gross debt less Cash | IAG 2022 ARA (Reconciliation of alternative performance measures section (note e: Net debt to EBITDA before exceptional items) |
| Net debt to EBITDA before exceptional items (or Leverage) |
APM | Based on Net debt per above and EBITDA excluding exceptional items |
IAG 2022 ARA (Reconciliation of alternative performance measures section), note e: Net debt to EBITDA before exceptional items) |
| Liquidity (or Total liquidity) | APM | Cash (per above) plus committed and undrawn general and overdraft facilities, and aircraft-specific financing facilities |
IAG 2022 ARA (Reconciliation of alternative performance measures section, note h: Liquidity) |
| Return on invested capital (RoIC) | APM | EBITDA before exceptional items, less fleet depreciation adjusted for inflation, depreciation of other property, plant and equipment, and amortisation of software intangibles, divided by average invested capital and is expressed as a percentage |
IAG 2022 ARA (Reconciliation of alternative performance measures section (note f: Return on invested capital) |
| Capex (or Gross Capital Expenditure) | IFRS | Acquisition of property, plant and equipment and intangible assets per cash flow statement |
Direct from Cash flow statement (Cash flows from investing activities) |
Certain statements included in this document and any related conference call or webcast (including any related Q&A session) 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 document and any related conference call or webcast (including any related Q&A session) are based upon information known to the Group on that date and speak as of that date. 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 document and any related conference call or webcast (including any related Q&A session) 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 document and participants in any related conference call or webcast (including any related Q&A session) 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 2022; this document is available on www.iairgroup.com. All forward-looking statements made on or after the date of this document 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 and any further disruption to the global airline industry as well as the current economic and geopolitical environment.
This document and any related conference call or webcast (including any related Q&A session) contain, in addition to the financial information prepared in accordance with International Financial Reporting Standards ('IFRS') and derived from the Group's financial statements, alternative performance measures ('APMs') as defined in the Guidelines on alternative performance measures issued by the European Securities and Markets Authority (ESMA) on October 5, 2015. The performance of the Group is assessed using a number of APMs. These measures are not defined under IFRS, should be considered in addition to IFRS measurements, may differ to definitions given by regulatory bodies relevant to the Group and may differ to similarly titled measures presented by other companies. They are used to measure the outcome of the Group's strategy based on 'Unrivalled customer proposition', 'Value accretive and sustainable growth' and 'Efficiency and innovation'.
For definitions and explanations of alternative performance measures, refer to the Alternative performance measures section in the IAG Annual report and accounts 2022 (IAG Annual Report and Accounts 2022 (iairgroup.com)) and the Interim Management Report for the nine months to September 30, 2023 (IAG Q3 2023 Results (iairgroup.com)). These documents are available on www.iairgroup.com
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