IAG Capital Markets Day. Analysis.

Every year, IAG, the company that owns Aer Lingus, British Airways, Iberia, Level and Vueling, hosts a capital markets day.  This is a presentation for financial analysts about what the group is doing and where they are taking the airlines they run and as a consequence can be rather dry.  As a frequent flier, it is usually a worth a scan through as there are usually a few pointers about where they’re taking the product.  It’s a long deck, which you can read yourself here however I’ve attempted to summarise the non-financial points of interest in today’s post.  If there’s something that you think I’ve missed, let me know!

British Airways

The big news in this section is that they are spending more money on the new Club World product.  So far, Alex Cruz has trumpeted a €400m investment in the new Club World product; today that’s being raised to €600m.  But still won’t be start to roll out until 2019.

I think there’s a number of conclusions that we can draw from this:

  • They are spending more on the seat and/or
  • They plan to outfit more aircraft with it and/or
  • The project is running over-budget

Given the product that Singapore Airlines announced yesterday that will be flying from next month, I still question if this is still too little, too late.

There was nothing at all on first class, which I found curious by it’s very omission.

I wrote about NDC (New Distribution Capability) in a previous article and this seems to be a key future focus for British Airways, alongside a number of other “digital” initiatives, which is mirrored across the group as a whole.

There was a section from the person that replaced Troy Warfield as head of customer experience, Carolina Martinoli.  There, the focus was on “premium positioning for all customers”.  It will be interesting if this actually turns into anything more than just words on a slide, as the current Euro Traveller and World Traveller products are anything but premium.

In seat power and wifi will be coming to the fleet, however we’ve heard this for a while, and no details on timescales were on the slides.  The Gatwick 777’s will be refurbished, to go 10 across and some of the 747s will also be refurbished too, starting in 2018.  Given the state that some of the aircraft are in, this is welcome news.

A new first wing will will open at JFK, as well as new lounges, again from 2018.  It will be interesting to see how this works with the staff there.  My experience there have always been superb, however they’re all being outsourced so they may end up with a shiny new lounge, but no-one to fix things when stuff goes wrong.

Automated boarding gates are coming to international flights at Heathrow.  This will be welcome provided they’re programmed to allow people to board in status order; the current domestic ones are not.

Finally, the other notable news is that the 747 is now planned to be retired in February 2024.  That’s clearly someway off, and later on in the presentation, they talk about some flexibility in their plans there, including the option to accelerate the retirement if there is over-capacity in the market.  Either way, given the way United has gone to town on their 747 retirement celebrations, it’s got to be a hell of a party!

Other IAG Airlines

The Iberia slides were very positive compared to the story a few years ago.  Their focus is clearly around growth, as well as leveraging cost savings from being part of the wider IAG group.

The Vueling story was more nuanced.  They are almost done “fixing the basics” (presumably after the mess that Alex Cruz left the airline in) and are looking a returning to controllable growth (my emphasis).

Level slides were next and to my mind are some of the most interesting in the deck.  This is a straight compete with the likes of Norwegian, however from the slides there’s clearly significant money to be made.  The fact that they can leverage the centralised IAG platforms and processes and simply layer this new brand on top, is very smart.  The group’s progress on initiatives like NDC should allow them to easily monetise their low cost model.  Whilst it’s not a brand and product that I’m personally attracted to, it should have broad appeal.  They expect to have a fleet of anywhere between 15 to 30 aircraft by 2022.  That’s a lot of capacity in a pretty short period.

Finally, there were the Aer Lingus slides.  There was a bunch of financial metrics, but what I think was interesting is their intention to have a significant fleet of A321 NEO LR aircraft to drive long haul growth – up to twelve of them.

Digital and IT

There were 19 slides in total on the topic of IT and Digital – it’s clearly a focus for the group.  There was nothing on the IT issues experienced by British Airways in May, nor any learnings, or results from the investigation.

Transformation and making their systems and processes customer centric was the clear message.

It wouldn’t be a set of IT slides without reference to the cloud, and there was lots of that – going to a hybrid stack, but short on detail there in terms of expected cost savings or operational benefits.  However the group is clearly going to be outsourcing a significant chunk of their operations to global systems integrators.  That will be interesting to watch.

IAG and Fleet Plan

The final slides were focused around the financial health of the group overall, as well as the fleet plan, which is now done centrally, as opposed to in each of the member airlines.

Level and Iberia are the two key focus areas for the group in terms of growth.  BA, Aer Lingus and Vueling all had small increases for the period up to 2022, but their Level brand leads the way.  It’s clearly here to be a significant focus for the group.

In terms of aircraft, some interesting changes.

  • The Boeing 767s will be gone by the end of the year
  • No further A380 order.  There were suggestions about acquiring a further six aircraft, however that appears to have been dropped.
  • BA will be down to 22 747s by 2020, with them all going by 2024.
  • Three 777-200s will be replaced with 777-300ERs.  It’s likely this will be the oldest ZZZA/B/C aircraft.

There was another comment about Boeing 787 densification.  The existing 787-8s are already very dense, however the 787-9s only carry two more people due to having a first class cabin, but being significantly larger.  To my mind, this can only mean the removal of first class on these aircraft, which speaks to the curious omission of any mention of first class in the BA slides.  If anyone has a better idea, I’m all ears.

Finally, there was some interesting clues as to the future direction of Avios and the wider group strategy on frequent flier programmes.  Two bullets in particular:

  • Progressive introduction of dynamic pricing from 2018
  • Group loyalty review in progress

Delta has been the leader in dynamic pricing for its frequent flier currency, SkyMiles so I suspect that the people at IAG have been watching what they’ve been doing very closely.

Air France / KLM Flying Blue is rumoured to announce a wholesale change to their programme on Monday as well.


Overall, an interesting deck with a lot to digest.  The new Club World reveal will be critical and I hope they get it right, however we have another 15 months at least before they start to roll it out.

Nothing at all on first class to my mind means that it’s going to be substantially reduced – this probably needs to happen for them to make it a truly premium product again.

BA also didn’t mention anything on NPS (Net Promoter Score) i.e. customer satisfaction, however Iberia, Vueling and Aer Lingus all did.  That’s telling.


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