Full Year 2019 Guidance Update Call Thursday, 26 th September 2019 - PDF document

Full Year 2019 Guidance Update Call Thursday, 26 th September 2019

International Airlines Group Update Call Thursday, 26 th September 2019 Willie Walsh Chief Executive Officer, International Airlines Group Overview Summary Thank you and good morning. Thank you for joining us on the call. I hope by now, you have had an opportunity to read the statement that we issued earlier this morning. But just to summarise, the industrial action by BALPA, British Airline’s Pilot Association, led to the initial cancellation of 4,521 flights over a period of seven days. So, although the strikes were scheduled for three days, the 9 th , 10 th and 27 th , the strikes also impacted the days before and after. So, in effect, it was impacting schedules on the 8 th , 9 th , 10 th and 11 th of September, the 26 th , 27 th and 28 th of September. Subsequently, 2,196 flights were reinstated which left 2,325 flights cancelled. And in addition, British Airways introduced a flexible commercial policy on an additional 4,070 flights which enabled customers to rebook or seek a refund on flights that were operating in or around the dates of the industrial action. We estimate that the ne t financial impact of the industrial action is € 137 million. And in addition to this, BA also suffered some further disruption during the quarter, including the threatened strikes by Heathrow Airport employees, which was impacting both on the schedule and also on bookings. A nd we believe that the net financial impact of that was €33 million. We also then estimate that based on latest booking trends, and this is literally in the last week, that in our low-cost segments, and this is primarily Vueling and LEVEL, we are seeing adverse booking volumes and yields. And we estimate the financial impact of that is € 45 million. So, at current fuel prices and exchange rates, IAG therefore expects its 2019 operating profit, before exceptional items, to be €215 million lower than the 2018 pro forma which was € 3.485 billion. Passenger unit revenue is expected to be slightly down at constant currency compared to the flat guidance that we gave you previously. And non-fuel unit costs are expected to improve at constant currency, which is unchanged from previous guidance. Capacity measured in ASK in the fourth quarter is now expected to be about 2%, which is 1.2 points below previous guidance, and full year capacity growth is expected to be about 4%, compared to the 5% that we guided previously. Just for clarity, there have been no further formal talks between British Airways and BALPA on the pay-related issues and the airline’s offer of 11.5% over three years still stands. And as you know that has been accepted by the vast majority of BA employees by the unions representing about 90% of the employees. Clearly, any further industrial action will additionally impact on our full-year results for 2019. So, I would like to hand over now for questions. As the operator said, given the time constraints, if possible, we would like to limit it to two questions each please. And I now hand back to the operator. 2

International Airlines Group Update Call Thursday, 26 th September 2019 Q&A Gerald Castle (UBS): Thank you very much. Good morning, gentlemen. Just on the unit revenues being weaker, you say this is really due to the low-cost segment. But we have also seen comments, obviously, about 2.5 weeks ago from Air France, about Asia and North America. So, the first question is, is that still holding up relative to your previous expectation? And then the second question, you have maintained your ex-fuel unit cost guidance in terms of improvement. But just given this disruption, etc., has that meant that it is slightly weaker than expected or is this literally still in line, or even better than expected? Thank you. Willie Walsh: Okay, thank you. In relation to Asia, we previously indicated that we were seeing weakness in Hong Kong as everybody is – that is the only area where we have seen particular weakness. And that is part of the additional disruption that I highlighted in the ₤33 million, so that is definitely a factor that, I think, is impacting on all airlines. Outside of that, Asia is holding up well. On North America, we have clearly had some disruption to the schedule as a result of this industrial action on North America, but when we strip out that, the underlying performance continues to be as previously guided. On our costs, clearly, we are taking action to reduce costs and net off against the revenue impact of the industrial action, hence the reason we are guiding there to the net impact of ₤ 137 million. So, there is, behind that, cost action that British Airways has taken and that has enabled us to maintain our guidance in relation to our non-fuel unit cost, which is broadly the same as we have previously guided. Gerald Castle: Thanks, very much. Damian Brewer (Royal Bank of Canada): Good morning, everybody. So, first question. Just on saying the lower-cost segments are weak and you highlighted LEVEL and Vueling. Can you say a little bit more where that is across the board in all parts of those markets, where there is any particular markets? I am just quite curious why – clearly Aer Lingus has a very competitive low-price product. Is that still holding up? Then the second question, given the unresolved issues with BALPA at BA, could you confirm, given there might be some tension on the goodwill between BA and the pilots, whether you have sufficient pilots in BA to run the schedule without relying on overtime? And, if you do, given that the 2% growth you are seeing for Q4, does that reflect operating a full schedule? Thank you. Willie Walsh: Okay, thank you. Yeah, we have particularly highlighted with – LEVEL is a continuing issue in relation to Argentina, principally, although the Santiago bookings are lagging behind where we had expected them to be. But it is principally Argentina in Latin America, and then the French operation which we had expected to start improving, given the difficulties that a number of French carriers are experiencing. However, as we have seen, there tends to be French solutions to these problems and these airlines, which are effectively bankrupt, have continued to operate. So, I would expect that the French situation should improve over time, given what we expect to see happening there. 3