Q1 2019 Earnings Conference Call Friday, 10 May 2019
IAG Q1 2019 Earnings Conference Call Friday, 10 May 2019 IAG Results Presentation Willie Walsh Chief Executive Officer, IAG Highlights Overview Okay, thank you very much and good morning. Thank you for joining us for the call. Before I hand over to Enrique to take you through the detailed presentation, just allow me to make a few comments. We are very pleased with our first quarter performance. As you know, it was a challenging quarter for European airlines, and we have highlighted some of those issues, talking about the fuel and FX headwinds and the timing of Easter, which we always said would impact on our Q1 performance and market capacity in the quarter, which clearly impacted on yields. Our passenger unit revenue declined by 1.4% at constant currency, but we saw a further reduction in our non-fuel unit cost, down by 0.6% at constant currency. And as Enrique will show you later on, when you take out the non-ASK-related costs associated with Iberia MRO and BA Holidays it improved even better than that. And while we saw a slight decline in our ROIC, it is still ahead of our 15% target. And we are sticking to our guidance for the full year. We expect to get there in a slightly different way. We are now saying passenger unit revenue is expected to be flat at constant currency and non-fuel unit costs expected to improve at constant currency, and therefore, for the avoidance of any doubt, we expect passenger unit revenue at constant currency to improve for the remainder of the year. We are also adjusting capacity and now forecasting full-year capacity growth of 5.3% compared to the 5.9% that we gave for our previous call, and we will go through that in a moment. You may have seen yesterday we announced our AGM to be held on 20 th June and, subject to the approval of our shareholders at that meeting, you will see some very generous cash returns to our shareholders, with a final dividend of €0. 165 per share and a special dividend of €0. 35 per share. Financial Results Enrique Dupuy Chief Financial Officer, IAG Profitable Quarter Good morning, everybody; thank you, Willie. So, as has been just said, Q1 ’19 has been a challenging quarter for IAG and for the industry, especially the European industry. We will be probably the only, or one of the only European companies to achieve positive operating profits and positive net earnings figure for this quarter, and it shows our resilience and 2
IAG Q1 2019 Earnings Conference Call Friday, 10 May 2019 determination to reach and to commit to our targets, the ones that we share with you from time to time. Operating profit Operating profit then for this quarter has been reaching € 135 million, which is € 205 million lower than last year, but if we carve out the negative impact of FX, especially the strength of the dollar in respect of last year through the quarter, this means the real comparable constant currency terms has been a drop of € 144 million. And as you will see, most of this drop is basically referred to Easter holiday change in timing, and that is basically confirmation of the messages that we have been sharing with you through the last months. Unit revenue In terms of how this € 135 million has been built up, we have to mention positive passenger unit revenue performance at constant currency basis of -1.4% and total unit revenues, again at constant currency terms, of -1%. The difference shows again the growth of our third-party MRO business and handling business in the case of Iberia, and also British Airways Holidays. Costs On the cost side, we have been probably beating our expectations, the ones that we had for this first quarter, and achieving a -0.6% improvement constant currency and pro forma compared with last year. And as Willie was advancing, if we carve out the costs that are related to these non-ASK activities as Iberia, third-party MRO, British Airways Holidays etc, the real underlying positive performance on the non-fuel unit cost basis has been -2%. Of course, fuel has not been helpful through quarter; it has been a significant headwind for us, for the rest of the industry, and has then driven total non-unit costs, again constant currency basis and pro forma, to a positive 2.2%. Basically the duration of the margins this quarter refers to the difference between this total unit revenue slightly negative performance and the total unit cost increase. We have been producing a capacity increase of 6.1% against last year, and then RPK figure of 6.4%. It also shows in some way that revenue weakness has been more related to yield pressure than to real passenger numbers flying in our network. Non-fuel cost performance If we can pass to the second slide, basically we are trying to split and detail how the difference between the operating profit in ’18 and the first quarter ’19 has been doing. So first, remind you again, this negative net impact of FX, again stating that it is basically transaction-related, so strong-dollar-related. Of course we have been growing 6%. and there is a margin increase having to do in this chart to volume increases. It is about € 21 million. Impact of Easter And then again having to mention the negative impact of passenger revenues, which is basically related to yield, as I was saying, and very much referred to Easter holiday migration on the timetable between somewhere in the middle between Q1 and Q2 last year and the full 3
IAG Q1 2019 Earnings Conference Call Friday, 10 May 2019 Q2 in this year. It is always difficult to evaluate precisely, surgically, what is the impact of Easter holidays. A reasonable guess it has been around € 65 million. Non-passenger revenue improvement again worth a mention; the improvement in activity and then margins related to Iberia, MRO, also marginally British Airways Holidays; and then of course fuel costs. Fuel cost increases for the quarter have been a very relevant combination of market prices and hedges, which has been creating for us this headwind that in unit terms will be in the range of 15% out-turn and 11% on constant currency terms. The positive is coming on the management and the achievements on the non-fuel costs, which has been bringing us a positive contribution of around € 22 million for the quarter, leaving then the operating profit for the first quarter at the € 135 million level. Unit revenue and capacity So, unit revenue and capacity. These couple of pies is a chart that we bring to you every quarter. This quarter probably is showing in terms of RASK one of the weaker performances that we have seen in the last quarters. It is related to capacity. It is also related to weak demand in some cases, and also, very specifically in the case of Europe, to Easter holidays. Domestic and European So very quickly going through it, domestic is still benefiting from this positive performance on the Iberia specifically and also a little bit of Vueling domestic networks. It has to do again with incentivisation of traffic attached with subsidies for islanders, Balearic and Canary Islands. And then there is Europe revenue, unit revenue weakness, which is very much related to Easter and weaker demand. And, surprisingly or not, the UK does not appear as the weaker region in these charts in this quarter. It is more around Germany, Spain and other areas that have been basically concentrating their weak revenue profile. Asia Pacific Asia Pacific, again a very similar picture as the last quarters we have been sharing with you, and again very specific weakness on some specific areas, again mentioning in this case Hong Kong and maybe a little bit of Tokyo; Hong Kong having to do basically with overcapacity developments lately on some of our competitors. Africa, Middle East and South Asia Africa, Middle East and South Asia has had probably one of the best performances for the group on a low capacity increase. Latin America and Caribbean Latin America and Caribbean is of course basically again a quite concentrated negative impact, and we have to refer here again to Argentina, basically, and Brazil. Although there is a difference; Brazil we believe is already bottoming and may be showing some spikes of brightness. In the case of Argentina it is again a very troubled market and is probably bumping on the bottom and will only get better probably through Q3 and especially Q4 when the impact of devaluation last year gets fully rolled over. North America In the case of North America we have a -2.3%, but if we basically split or carve out the negative implications of the high growth we have been producing there in LEVEL, Aer Lingus 4
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