REG - Intl Con Airline Grp - IAG 3rd Quarter Results
28/10/2022 07:01
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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 €1,208 million (2021:
operating loss €452 million), and operating profit before exceptional items
€1,206 million (2021: operating loss before exceptional items €485
million)
· Operating profit for the nine months €770 million (2021:
operating loss €2,487 million), and operating profit before exceptional
items €739 million (2021: operating loss before exceptional items €2,665
million)
· Profit after tax and exceptional items for the third quarter
€853 million (2021: loss €574 million) and profit after tax before
exceptional items €853 million (2021: loss €606 million)
· Profit after tax and exceptional items for the nine months €199
million (2021: loss €2,622 million) and profit after tax before exceptional
items €170 million (2021: loss €2,775 million)
· Strong liquidity at September 30, 2022:
· Total liquidity increased to €13,488 million (December 31,
2021: €11,986 million)
· Cash(1) of €9,260 million, up €1,317 million on December 31,
2021
· Committed and undrawn general and aircraft financing facilities
of €4,228 million (December 31, 2021: €4,043 million); availability of
$1,755 million revolving credit facility extended by one year to March 2025
· Net debt at September 30, 2022 was down €609 million since
December 31, 2021 to €11,058 million
Total revenue fully recovered despite lower capacity than in 2019
· Total revenue for quarter 3 of €7,329 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
Reported results (€ million) 2022 2021 Higher /
(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 (€ 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 %
( )
Alternative performance measures(3) (€ million) 2022 2021 Higher /
(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 (€ 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 (€ cents) 7.28 4.23 72.2 %
Non-fuel costs per ASK (€ 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 €1.2 billion and liquidity of over €13 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 €1.1 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
€ million 2022 2021(1) Higher/ 2022 2021(1) Higher/
(lower) (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 €4 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
€ million 2022 2021(1) Higher/ 2022 2021(1) Higher/
(lower) (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
( )Operating figures(2) 2022 2021(1) Higher/ 2022 2021(1) Higher/
(lower) (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 (€ cents) 8.95 7.05 27.0 % 9.86 7.21 36.7 %
Passenger revenue per ASK (€ cents) 7.28 4.23 72.2 % 8.57 4.99 71.9 %
Cargo revenue per CTK (€ cents) 42.08 41.32 1.8 % 39.22 40.99 (4.3)%
Fuel cost per ASK (€ cents) 2.29 1.62 40.9 % 2.45 1.41 73.9 %
Non-fuel costs per ASK (€ cents) 5.99 8.61 (30.4)% 5.73 6.56 (12.6)%
Total cost per ASK (€ 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 €4 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 €100 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 €13,488 million,
comprising cash and interest-bearing deposits of €9,260 million, €3,259
million of committed and undrawn general facilities and a further €969
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 €316 million adverse (€90 million adverse in quarter 1,
€106 million adverse in quarter 2 and €120 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 €296 million for the nine months, increasing
revenues by €394 million and costs by €690 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 €20 million adverse (€26 million adverse in quarter one,
€2 million favourable in quarter two and €4 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 €10,880 million to €14,020 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 €42 million to €1,216 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 €391 million, or 47.4 per cent.
Other revenue increased by €837 million to €1,444 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 €1,318 million to €3,417 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 €3,351 million to €4,400 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 €3,686 million to €6,562 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 €1,531 million,
partly driven by aircraft deliveries during 2021 and the first nine months of
2022.
Operating costs include a €180 million currency differences charge in 2022
(classified within Supplier costs), versus a €32 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 €770 million, an improvement
of €3,257 million versus 2021. Excluding exceptional items, the operating
profit for the period improved €3,404 million versus the previous year, to
€739 million.
Exceptional items
In the nine month period, the Group recorded an exceptional credit of €23
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 €8 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 €158
million; an exceptional credit of €7 million relating to the reversal of
lease provisions made in 2020; and an exceptional credit of €13 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 €604 million in
2022, compared with €563 million in 2021. The net change in the fair value
of financial instruments of €132 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 €305 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 €262 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 €199 million (2021: loss of
€2,622 million).
Cash, liquidity and leverage
The Group's cash balance of €9,260 million at September 30, 2022 was up
€1,317 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 €13,488 million, up from €11,986
million at December 31, 2021. Committed and undrawn general facilities were
€3,259 million (December 31, 2021: €2,917 million) and committed and
undrawn aircraft facilities €969 million (December 31, 2021: €1,126
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 €11,058 million, down €609 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
€ million Reported 2022 Exceptional items Before exceptional items 2022 Reported 2021 Exceptional items Before exceptional 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
€ million Reported 2022 Exceptional items Before exceptional items 2022 Reported 2021 Exceptional items Before exceptional 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 €153
million recorded in the nine months to September 30, 2021 and the exceptional
credit to Passenger revenue of €5 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 €25 million.
(2) The exceptional credit recorded of €7 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 €23 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 €8 million recorded in the nine
months to September 30, 2022 (nine months to September 30, 2021: credit of
€13 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 €2 million.
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