Q1 2020 Earnings Thursday, 7 th May 2020
Thursday, 7 th May 2020 Q1 2020 Earnings Willie Walsh Chief Executive Officer, International Airlines Group Thank and good morning, everyone. Thank you for joining us. So before I hand over to Steve Gunning to take you through a more detailed presentation , I’d just like to make a few opening comments. So I probably don’t need to tell you guys that this is not a normal quarter. In fact, far from it, as evidenced by the fact that I’m presenting when I should be retired. So we are reporting an unusual quarterly pre-exceptional operating loss of €535 millio n compared to a profit last year of €135 million. I mentioned on the last call that the first two months , while slightly loss- making, were actually very similar to last year and in line with our plan, and that was despite the suspension of flights from China and the impact on flights around Asia due to the COVID- 19. So all of the reduction in the operating result occurred in March, and that followed the introduction of significant government restrictions on travel. March ASKs were down 33.5%. Traffic in March was down over 50%, and in fact, most of that you will see was in the last three weeks of March. The operating result, most of that incurred by British Airways then followed by Iberia, Aer Lingus, and Vueling experienced a modest increase in its operating loss. And then we had an exceptional loss of €1.3 billion on fuel and foreign currency, which Steve will take you through the details of that. We have given you an update on liquidity today, both as of 31 st March, and again, for your benefit, as of 30 th April, where we have €10 billion made up of cash and cash equivalents of €6.4 billion and undrawn facilities of €3.6 billion. And we are in discussions around additional facilities. We’ve taken a lot of action, as you would expect, in order to preserve cash. Our weekly cash operating costs have reduced to €200 million from around €4 40 million in April and May. And we’ve also significantly adjusted our CAPEX and fleet deliveries with deliveries expected to be reduced by 68 between 2020 and 2022, and Steve will give you some details in relation to that. So it’s a highly uncertain environment in which we’re operating. Passenger capacity in ASK terms would be down around 94%, 95% in April and May and we’re only undertaking flights for essential travel for repatriation and cargo – and in fact, cargo demand is quite strong. And that reflects the significant reduction in passenger aircraft flying. So we’ve operated 422 dedicated cargo flights in April and we expect to do more than that in May. We’ve carried over 2,000 tonnes of PPE , so we’re doing quite a bit on the cargo front. Passenger capacity from June depends on the timing and the easing of the lockdown and res trictions, and as we have mentioned previously, we’re expecting a substantially worse operating loss in the second quarter compared to the first quarter. But to be honest, it’s impossible to give accurate guidance at this stage. 2
Thursday, 7 th May 2020 Q1 2020 Earnings So our current planning assumption – and I’ll talk about it later on – is for a reduction in passenger capacity of about 50% in 2020. And then looking forward to the medium term, we don’t expect passenger demand to recover to the 2019 levels before 2023, and just reinforces yet again the need for further group-wide restructuring. So I’ll hand over to Steve, who will take you through some of the details, and then I’ll come back to you in a few minutes. Steve? Steve Gunning Chief Financial Officer, International Airlines Group Thanks, Willie. I’m going to take you through seven slides – two primarily on the Q1 numbers and then five slides on how we’re facing up to the COVID-19 challenge. If I take you to slide 5, as Will ie’s alr eady alluded to, a significant loss in the quarter: €535 million , which is a €670 million swing on the position from last year where we were €135 million profit. €68 million of that is due to FX, but clearly the big story is the impact of COVID- 19. And as Wil lie’s alluded to, the first two months of the quarter were going pretty well, but it was March where we saw a significant deterioration in passengers demand because of the travel restrictions put in place. And this had an impact on also the no-show rates as well as the amount of capacity we were putting into the market. We reduced our March capacity by 33.5%. But for the quarter overall, ASKs were down 10.5% and seat-factor was at 76.4, which was 4.3 points down on last year. So this weakness in passenger demand and this reduction in capacity also had a significant hit in passenger unit revenues, which in constant currency were down 7.7%. but it would be fair to say that all of our revenue streams have been impacted during the quarter, but clearly the passenger stream affected the most. So overall, total unit revenues in constant currency were down 6.5%. If I turn to unit costs, in terms of non-fuel unit costs, the airline non-fuel unit costs at constant currency were up 10.2%, and this basically reflects the reality that the capacity came out so quickly the cost reductions could not keep up with that. So you had an inefficient reduction in capacity because it came out so quickly. Clearly there was an FX hit. So our reported non-fuel unit costs are up, actually, 15%. Normal fuel costs – and we’ll talk about fuel a bit more in a minute – normal fuel costs were slightly beneficial in the quarter and so total unit costs were up 6% for the quarter at constant currency. 3
Thursday, 7 th May 2020 Q1 2020 Earnings So a very difficult quarter and one where two months of the quarter were reasonable and the last month of the quarter very difficult because of the sudden contraction in the size of demand, and therefore in the size of the business. I shall now talk a bit more about fuel. So if we turn over to the next page, slide 6, two big things happening with fuel. Clearly with the reduction in capacity, our actual volume requirements for physical fuel have reduced greatly – and I’ll touch on that more in a moment. And also the other factor that we’ve seen is the price of jet fuel reduced from being in the $650/mt at the start of the year to around – spot at the end of March was about $225/mt. And what we’ve seen in April is it goes low as about $110/mt. So the jet fuel price really come off an awful long way. Now, if you look at our income statement , you’ll see two elements to the fuel bill for Q1 – or in the Q1 numbers, should I say. First of all, you’ll see an ordinary fuel cost of €1.2 billion – €1.209 billion – and that relates to the physical fuel that we’ve purchased at the effective hedge price that we’ve paid for it. So this is business as usual. It’s the physical fuel that we’ve purchased. We have hedging contracts against that physical fuel and when you combine those two we’ve had a normal fuel bill of €1.2 billion . But what you’ll also see in the Q1 numbers is an exceptional charge of €1.325 billion, and this is the exceptional charge related to our over-hedged position for the rest of the year. Now what we’ve had to do is come up with a planning scenario – and it’s not a forecast, but we’ve come up with a planning scenario for the rest of the year as to how much flying we’re going to do. And Willie will allude to this a bit more later on, but we’ve basically assumed our ASK s for the year will be down 50%. Having established that planning scenario , we’ve then looked at our hedge position and determined how many hedges have we got that are in excess of our requirement of physical fuel. And we’ve taken that – those excess fuel hedges and then marked them to market at the end of March. So it’s the full portfolio of fuel hedge positions for the year , what’s excess to our requirements and we then mark those to market and booked that in Q1. And that’s the €1.3 billion. So those are the two components of the fuel price in the Q1 numbers. If we look out for the full year, once again you’ll h ave the same two elements, but for the full-year position. So in terms of our ordinary cost fuel bill for 2020, we base it on our planning scenario. We think the cost of the physical fuel and the related hedge positions will be about €2.9 billion, and th en if we look at the latest prices – we did this as of 1 st May – if we look at the latest forward curves for the excess hedging positions, we think that mark to market at €1.5 billion. So our best estimate at the moment for the fuel bill for 2020 would be the €2.9 billion and the €1.5 billion combined, which would be €4.4 billion . So that’s the position on fuel. I hope that made it clearer to you. I ’d probably make one last point. The excess hedge position is a mark-to-market position at the end of March. As those excess hed ges unwind during the course of the year, it’s at that point you will see a cash outflow 4
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