IAG FY2017 Financial Results.

This morning, IAG, the parent company of Aer Lingus, British Airways, Iberia, LEVEL and Vueling released their 2017 financial results.

The full PowerPoint deck with all of the details is here.

As with all company results, they make for interesting reading.  On the face of it, IAG are doing very well indeed.  So lets dive into a couple of the slides.

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IAG increased their profit by €480m to over €3bn – that’s a 19% growth year on year.  Revenue was up too, traffic was up and costs were down.

By means of a quick primer, here’s a couple of the acronyms from slide explained:

  • ASK – available seat kilometres.
  • RPK – revenue passenger kilometers
  • CASK – cost per available seat kilometre
  • RASK – revenue per available passenger kilometre

So lets take a look at how each individual airline (or OpCo) performed.

Screen Shot 2018-02-23 at 14.47.09

All the individual airlines improved their performances with Iberia up around 30% and Vueling up around 70% (although last year was awful for them).

One notable figure was CASK which increased over 5% at British Airways, however still more slowly than revenue grew.

In fact, that was the story of much of the deck – CASK and costs in general increasing across the group.

Lets take this slide, which ostensibly shows a 10% reduction in costs across the group since 2010.  However the key message that I take away is that for the past three years, costs have broadly grown across the business.  During the question and answer section they said that they expected “negative growth in costs into FY18”.

Screen Shot 2018-02-23 at 15.25.12

What’s also interesting is the current British Airways investment plan, known as Plan4, is being described here as a cost reduction initiative.  That does seem to jar with how Alex Cruz, the CEO of British Airways has described Plan4 in the past as that’s the vehicle they’re using to introduce the new Club World product.

The other major area that I picked out of the deck was LEVEL.  IAG are betting big on this airline and expect it to have over 15 aircraft by 2022.  There were a number of slides on the market reaction to it as well as their growth plans.  Whilst personally I don’t think their product appeals to me, I can see why it does appeal given the value proposition it provides and clearly is a direct compete against the like of Norwegian.

Brexit was mentioned with the emphasis that IAG remains a Spanish company and there are no plans to change their corporate structure.  I’m not quite sure how that will work out if there’s a hard Brexit leaving the UK’s largest airline owned by a European entity, however I have no doubt there are many, many expensive lawyers on the case!

The questions and answers section form industry analysts was also interesting.

  • Expected costs to continue to rise in FY18
  • LEVEL has exceeded their expectations.  They’re in discussions with Boeing about potentially getting 787s.
  • NPS (Net Promoter Score) at British Airways has been “evolving positively”
  • Investing in their direct distribution models which they expect to break even in 2018, but will still be dealing with the GDSs
  • Monarch slots have only been used for short-haul flights due to difficulties in sourcing long-haul aircraft for Gatwick.
    I find this very interesting as they can clearly get new long-haul aircraft quickly for LEVEL, so why not Gatwick?
  • LEVEL is part of the trans-atlantic joint business and there’s a very good relationship with American Airlines
  • Qatar Airways aircraft won’t be leased to cover the purchase of Monarch slots.  Vueling and Aer Lingus will help with the majority of back-filling, with some other leasing required.
  • Avios has been performing very strongly, however there is a refresh proposal that will go to the IAG board in March to be approved.

At the time of writing, IAG shares are down about 5%.

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