Company Announcements

Developments since the last report (February 24, 2023)

There have been no significant developments for the purposes of this financial review since the Group reported its full year 2022 results.

Basis of preparation

At March 31, 2023, the Group had total liquidity of €15,081 million, comprising cash and interest-bearing deposits of €11,369 million, €3,302 million of committed and undrawn general and overdraft facilities and a further €410 million of committed and undrawn aircraft specific facilities.

Based on the extensive modelling the Group has undertaken, including considering a plausible but severe downside scenario and further sensitivities to the downside scenario, the Directors have a reasonable expectation that the Group has sufficient liquidity to continue in operational existence over the going concern assessment period to June 30, 2024, and hence continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements for the three months to March 31, 2023.

Principal risks and uncertainties

The Group has continued to maintain its framework and processes to identify, assess and manage risk and prioritise investment to address the risks it faces. The principal risks and uncertainties affecting the Group are detailed in the Risk management and principal risk factors section of the 2022 Annual report and accounts and these remain relevant. The Board has continued to monitor and assess risks in the light of changes that influence the Group and the aviation industry. The combination of weaknesses in the resilience of the aviation sector's supply chain, operational disruption and customer impacts from the threat of/or employee industrial action in critical third parties and airport services, further market uncertainty driven by increased global tensions, volatility in the banking sector, the inflationary environment and pressure on interest rates, are receiving significant management focus. Mitigating actions have been identified where possible to enable the Group to continue to respond to its exposure to the external risk environment whilst continuing to deliver its ambitious transformation and change agenda.

Operating and market environment

Commodity fuel prices have continued to be volatile in 2023, with no signs of the volatility easing in the near-term. The average jet fuel spot price in quarter 1, 2023 was $910 per metric tonne, approximately five per cent lower than the average spot price in quarter 1, 2022 of $955 per metric tonne. The shape of price movements within the first quarter was markedly different in 2023 than in 2022. In 2022, there was a significant rise in fuel prices from late February, following the outbreak of the war in Ukraine, with the commodity price of jet fuel at the end of quarter 1, 2022 rising to $1,135 per metric tonne. By contrast, in 2023 the fuel price fell towards the end of the quarter, from a peak of $1,140 per metric tonne in late January to $805 per metric tonne at the end of March. Jet fuel supply contracts are typically based on pricing up to one month in arrears, which results in the average price paid for jet fuel supply being higher in quarter 1, 2023 than in the same period in 2022.

The average foreign exchange rates for the first three months of 2023 resulted in the US dollar strengthening 5 per cent against the euro and 10 per cent stronger against the pound sterling, compared with the average of the first three months of 2022. The closing exchange rates, applied for balance sheet translations, represented a weakening of the US dollar of 1 per cent against both the euro and pound sterling since December 31, 2022.

The net impact of transaction and translation exchange for the Group for the first quarter was €54 million adverse versus quarter 1, 2022.

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 €48 million for the quarter, increasing revenues by €148 million and costs by €196 million.

IAG's results are impacted by exchange rates used for the translation of British Airways' and IAG Loyalty's financial results from pound sterling to the Group's reporting currency of euro. For the first quarter, the net impact of translation was €6 million adverse versus quarter 1, 2022.

Unless stated otherwise, all variances quoted below compare the first three months of 2023 with the first three months of 2022 on a reported basis (including exceptional items). Results for 2022 include a reclassification to conform with the 2023 presentation for Net gain on sale of property, plant and equipment within Operating profit/(loss), with €13 million of gains in 2022 reclassified from Other non-operating (charges)/credits to Expenditure on operations.

Capacity and passenger traffic

The Group continued to restore its passenger capacity, following the significant reductions due to COVID-19, with passenger capacity now close to pre-pandemic levels. In the first three months of 2023, IAG capacity, measured in available seat kilometres (ASKs), was 46.0 per cent higher than in quarter 1, 2022, which was impacted by the Omicron variant of COVID-19. Passenger capacity was only 5.0 per cent lower than in quarter 1, 2019. Passenger load factor for the quarter was 81.5 per cent, up 9.3 points on the previous year and 0.8 points higher than in 2019.

Summary of passenger capacity and load factor by region

As can be seen in the table above, the remaining capacity shortfall to 2019 is principally attributable to the pace of capacity restoration in the Asia Pacific region, linked to the late lifting of COVID-19 restrictions. British Airways' schedule to the region is planned to increase during 2023, with services resuming to Shanghai and Beijing from the summer travel season and increased frequencies to Hong Kong and Tokyo Haneda.

Revenue

Passenger revenue rose €2,386 million from quarter 1, 2022 to €5,041 million, reflecting the 46.0 per cent increase in capacity operated, together with the positive impact of the 9.3 percentage point increase in the passenger load factor and passenger yields per revenue passenger kilometre (RPK) up 15.2 per cent. The resulting passenger unit revenue (passenger revenue per ASK) was 30.0 per cent higher than the previous year and 14.8 per cent higher than quarter 1, 2019. Leisure traffic performed particularly strongly, with corporate traffic recovering more slowly.

Cargo revenue was down €109 million versus the previous year to €323 million. Cargo carried, measured in cargo tonne kilometres (CTKs), rose by 13.6 per cent. Yields were 34.2 per cent lower than in the previous year, reflecting the increase in global passenger airline capacity across the industry and the normalisation of the global supply chain disruption seen in quarter 1, 2022. Cargo revenue was up €48 million, or 17.5 per cent, versus the same period in 2019, with cargo yields up 45.4 per cent versus 2019.

Other revenue increased by €177 million to €525 million, reflecting the recovery in the Group's non-airline businesses, including Iberia's third party maintenance business, BA Holidays, and the growth of IAG Loyalty. Other revenue was 32 per cent higher than in quarter 1, 2019.

Costs

Costs were impacted by the increase in capacity versus 2022, with Total expenditure on operations 40.8 per cent higher than the previous year and Non-fuel costs per ASK down 13.4 per cent.

Employee costs increased by €212 million versus quarter 1, 2022 to €1,257 million, reflecting the increase in airline operations since quarter 1, 2022 and the related increase in employee numbers, together with pay increases.

Fuel costs increased by €840 million to €1,758 million, principally reflecting the impact of the higher capacity operated, the increase in the average price of physical fuel purchased in the quarter, lower hedging gains and the impact of a stronger US dollar. Fuel costs are hedged up to two years in advance and hence the impact of the significant price rises in quarter 1, 2022 was mitigated by hedging gains, whereas in quarter 1, 2023 the hedging gains were significantly lower. Fuel costs continue to benefit from the Group's investment in new, more fuel-efficient aircraft.

Supplier costs increased by €694 million to €2,389 million, mainly linked to the increase in capacity operated, together with inflationary increases, partly offset by the Group's procurement initiatives.

Depreciation, amortisation and impairment costs in the quarter were €486 million and the Net gain from the sale of property, plant and equipment was €10 million, representing the disposal of assets, mainly connected with the disposal of aircraft and related parts.

Operating result

The Group's operating profit for the period was €9 million, an improvement of €727 million versus the operating loss of €718 million for quarter 1, 2022. Excluding exceptional items the operating result improved €750 million versus the previous year.

Exceptional items

There were no exceptional items in the quarter. In 2022, quarter 1 included an exceptional credit of €23 million relating to the partial reversal of a fine previously issued by the European Commission, in 2010, to British Airways. 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 quarter were €130 million in 2023, compared with €198 million in 2022, mainly reflecting €60 million of Net currency retranslation credits in 2023, versus charges of €61 million in 2022.

The tax credit on the loss for the period was €34 million (2022: tax credit of €129 million), and the effective tax rate was 28.1 per cent (2022: 14.1 per cent).

The substantial majority of the Group's activities are taxed where the main operations are based: in the UK, Spain and Ireland, which have corporation tax rates during 2023 of 23.5 per cent, 25 per cent and 12.5 per cent, respectively. The expected 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 results in the expected tax rate being 14 per cent for the three months to March 31, 2023. The difference between the actual effective tax rate of 28.1 per cent and the expected tax rate of 14 per cent is due to the Group having recorded an adjustment to deferred tax in respect of prior periods resulting from changes made to the tax base of certain property, plant and equipment.

The loss after tax for the quarter was €87 million (2022: €787 million).

Cash, debt and liquidity

The Group's cash balance (defined as cash, cash equivalents and current interest-bearing deposits) of €11,369 million at March 31, 2023 was up €1,770 million on December 31, 2022, in line with the normal seasonal pattern of working capital movements. The Group's airlines typically experience a rise in deferred revenue in the first half of the year, linked to bookings for future travel, particularly leisure bookings for summer travel; deferred revenue then usually falls in the second half of the year. Cash was also increased by the drawing of debt during the quarter for five aircraft that were delivered in 2022; this financing had been agreed at December 31, 2022 and was reported in undrawn aircraft facilities.

During the quarter, the Group took delivery of three shorthaul aircraft: one Airbus A320neo for Iberia and two Airbus A321neos for Vueling; financing for these aircraft will be drawn later in 2023.

The Group's total borrowings at March 31, 2023 were €19,767 million, down €217 million from December 31, 2022, principally due to foreign exchange movements, with the net impact of new debt drawn in the quarter and repayments of existing debt broadly neutral. Debt maturities in 2023, aside from regular lease payments, include the repayment of a €500 million IAG bond in July.

Net debt (total borrowings less cash, cash equivalents and current interest-bearing deposits) was €8,398 million at March 31, 2023, a reduction of €1,987 million since December 31, 2022, mainly due to the increase in cash outlined above.

The Group's EBITDA before exceptional items for the rolling four quarters to March 31, 2023 was €4,030 million. Net debt to EBITDA before exceptional items was 2.1 times at March 31, 2023. See Reconciliation of Alternative performance measures and Alternative performance measures section of IAG's 2022 Annual report and accounts for further information.

Total liquidity at March 31, 2023 was €15,081 million, up €1,082 million from €13,999 million at December 31, 2022. Committed and undrawn general and overdraft facilities were €3,302 million (December 31, 2022: €3,284 million) and committed and undrawn aircraft facilities were €410 million (December 31, 2022: €1,116 million).