IAG International Consolidated Airlines Group S.a.

FINANCIAL REVIEW for the three months to 31 March 2024

IAG capacity

In the first three months of 2024, passenger capacity operated, measured in available seat kilometres (ASKs), rose by 7.0% versus the same period in 2023.

Capacity operated by airline

Iberia's growth of 15.4% versus the first quarter of 2023 is principally driven by the increase in the number of Airbus A350-900 aircraft in service flying to North and South America, with 22 A350-900 aircraft in service at the end of the first quarter, compared with 16 at 31 March 2023.

Basis of preparation

In its assessment of going concern over the period of at least 12 months from the date of approval of this report (the 'going concern period'), the Group has considered the impact of a severe but plausible downside scenario and sensitivities, together with aircraft financing requirements, and the Directors have a reasonable expectation that the Group has sufficient liquidity to continue in operational existence over the going concern period, and hence continue to adopt the going concern basis.

Unless stated otherwise, all figures and variances quoted below relate to the first three months of 2024 compared with the first three months of 2023 on a reported basis (including exceptional items).

Summary

The Group's operating profit for the first quarter increased by €59 million versus the first quarter of 2023, driven by higher passenger unit revenues and lower effective fuel prices after hedging, net of the impact of an expected increase in non-fuel unit costs, as discussed further below.

Summary of exceptional items

On 18 January 2024 the Tribunal Constitucional (Constitutional Court) in Spain ruled that the Royal Decree-Law 3/2016, introducing a number of amendments to the corporate income tax law, was unconstitutional. The amendments were accordingly revoked, leading to the recognition of an exceptional tax credit of €89 million relating to the 2023 tax year. See Alternative performance measures section for further information.

There were no exceptional items in the first three months of 2023.

Revenue

Total revenue increased €540 million versus 2023, driven by an increase in passenger traffic and yields, partially offset by a reduction in Cargo revenue and a small reduction in Other revenue.

Passenger revenue

The increase in Passenger revenue of €591 million, or 11.7%, was ahead of the increase in passenger capacity of 7.0%, driven by higher yields, measured as passenger revenue per revenue passenger kilometre ('RPK'), up 2.4%, together with higher passenger load factors, with the Group passenger load factor 1.6 points higher. These improvements led to an increase in passenger unit revenue, measured as passenger revenue per ASK, of 4.4%; at constant currency, passenger unit revenue increased by 4.0%. The growth in Passenger revenue was linked to the increase in capacity, strong leisure demand and the earlier timing of Easter than in the previous year. Leisure travel demand remains strong and corporate travel continues to recover.

Cargo revenue

Cargo revenue, at €283 million, was €40 million lower than in 2023. Cargo volumes, measured in cargo tonne kilometres (CTKs), were 8.2% higher than the previous year. Cargo yields, measured as cargo revenue per cargo tonne kilometre, were 19.0% below those of 2023, impacted by the increase in global passenger airline capacity across the industry and elevated prices in the first three months of 2023. An increased demand for sea-to-air freight conversion from South Asia and the Middle East helped to partially offset the decline in revenue versus the previous year.

Other revenue

Other revenue, at €514 million was down €11 million versus 2023, mainly due to lower third-party maintenance revenue within Iberia.

Operating costs

Total operating expenditure rose from €5,880 million in 2023 to €6,361 million in 2024, an increase of 8.2%, linked to the higher volume of flights, lower fuel unit costs and an increase in non-fuel unit costs, which increased by 3.7% versus the first quarter of 2023. At constant currency and excluding the impact of non-flying activity, airline non-fuel unit costs rose by 4.6%, in line with investments in the business, the impact of wage increases during the course of 2023 and supplier cost increases, partially mitigated by the impact of the Group's transformation initiatives. See Alternative performance measures for further information.

Employee costs

The rise in Employee costs of €180 million or 14.3% versus 2023 reflected the timing of wage settlements, with a number of the Group's wage settlements in 2023 occurring after the first quarter. Employee numbers also rose as the airlines increase their flying activity and prepare for increased flying schedules for the summer period.

Fuel costs and emissions charges

Fuel costs and emissions charges were up €31 million, or 1.8% versus 2023, reflecting increased flying volumes, but with lower commodity fuel prices than in the first three months of 2023, and a neutral position on hedging, versus a small gain on fuel and related foreign exchange hedging in 2023. Within Fuel costs and emissions charges, the provision for complying with emissions trading schemes was €69 million, up from €47 million in 2023.

Supplier costs

Total Supplier costs rose by €186 million, or 7.8%, to €2,575 million, with the impact of the Group's cost transformation initiatives partially mitigating the impacts of inflation and the additional operating cost arising from the Group's conscious investment in customer experience and IT. Supplier unit costs were up by 0.7% versus 2023.

Ownership costs

Ownership costs include Depreciation, amortisation and impairment of tangible and intangible assets, including right of use assets, and the Net loss/(gain) on sale of property, plant and equipment.

The increase in ownership costs versus 2023 is mainly driven by the increase in the Group's fleet of aircraft, which is linked to the airlines' growth in capacity and their investments in new, more fuel-efficient aircraft, together with customer-focused investments, such as new and improved seats in business cabins. The Net loss on sale of property, plant and equipment was €1 million, reflecting the disposal of aircraft withdrawn from service and related spare parts.

Exchange rate impact

Exchange rate impacts are calculated by retranslating current year results at prior year exchange rates. The reported revenues and expenditures are impacted by the translation of currencies other than euro to the Group's reporting currency of euro, primarily pound sterling related to British Airways and IAG Loyalty. From a transaction perspective, the Group's performance is impacted by the fluctuation of exchange rates, primarily exposure to the pound sterling, euro and US dollar. The Group typically generates a surplus in most currencies in which it does business, except the US dollar, for which capital expenditure, debt repayments and fuel purchases typically create a deficit which is managed and partially hedged. The Group hedges its economic exposure from transacting in foreign currencies but does not hedge the translation impact of reporting in euro.

Overall, in the first three months of 2024 the Group operating profit before exceptional items was reduced by €1 million due to adverse exchange rate impacts.

Exchange rate impact before exceptional items

Operating profit/(loss) before exceptional items by operating company

Typically, the first quarter of the year is the least profitable for the Group's airlines and the operating losses in Aer Lingus and Vueling reflect the nature of their businesses, with proportionately more focus on leisure segments, which are more seasonal.

Total net non-operating costs

Total net non-operating costs for the three months were €155 million, versus €130 million in 2023. Finance costs of €228 million were €46 million lower than in 2023, mainly reflecting the voluntary early repayment in the second half of 2023 of debt drawn as a result of the impact of the COVID-19 pandemic in 2020 and 2021. Net currency retranslation resulted in a charge of €44 million in 2024, principally reflecting US dollar foreign exchange movements, versus a credit of €60 million in 2023. Other non-operating credits of €37 million (2023: charges of €8 million) mainly represent net gains on derivative contracts for which hedge accounting is not applied.

Tax

The tax credit on the loss for the three months was €83 million (2023: tax credit of €34 million), with an effective tax rate of 95.4%  (2023: 28.1%). Excluding the exceptional tax credit outlined above, the tax charge on the loss for the three months was €6 million.

The substantial majority of the Group's activities are taxed where the main operations are based: in Spain, the UK and Ireland, which have statutory corporation tax rates of 25%, 25% and 12.5% respectively for 2024. The expected effective 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 11.5% for the three months to 31 March 2024.

The difference between the actual effective tax rate of 95.4% and the expected tax rate of 11.5% is principally due to the Group having recorded an adjustment to current and deferred tax in respect of prior periods which arose as a result of the revocation of Royal Decree-Law 3/2016 in Spain. See Alternative performance measures section for further information.

Aircraft deliveries and financing

During the three months, the Group took delivery of four aircraft, all of which were financed, including two Airbus A320ceo aircraft for Vueling to provide backfill for additional aircraft maintenance requirements linked to Pratt and Whitney 'GTF' engines. The Group also financed two aircraft delivered in 2023.

Net debt and leverage

The main driver of the reduction in leverage versus 31 December 2023 was the increase in cash during the quarter, which increased mainly due to the normal seasonal inflow of bookings for future travel periods during the first quarter of the year.

Liquidity

The reduction in committed and undrawn aircraft facilities was due to the financing of two aircraft for British Airways, for which the financing was agreed and committed during 2023.

PRINCIPAL RISKS AND UNCERTAINTIES

The Group has continued to maintain its framework and processes to identify, assess, and manage risks. The principal risks and uncertainties affecting the Group are detailed in the Risk management and principal risk factors section of the 2023 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 and continues to closely review how risks combine to create increased threats. In assessing its principal risks, the Group has considered its risk environment including: (i) geopolitical tensions and conflicts and their impact on financial markets, fuel price, operations and customer sentiment towards travel, particularly business travel; (ii) operational resilience, including the impacts of the continued delays in the supply chain, especially engines and component availability and reliability; (iii) how the Group's airlines respond to disruption from geopolitical and other operational events to manage disrupted customers; (iv) regulator or government reviews into capacity at airports or pricing, particularly ancillaries, which could disrupt airlines' revenue models; (v) the Group's industrial relations landscape and the risk of breakdown in industrial negotiations; and (vi) people engagement, including the culture, talent and skillsets needed to accelerate the change agenda and maximise the opportunities offered by Artificial Intelligence (AI) adoption. Where further action has been required, the Board has considered potential mitigations, and, where appropriate or feasible, the Group has implemented or confirmed plans that would address those risks or retain them within the Board's determined Group risk appetite.

Traffic and capacity statistics - Group

Traffic and capacity statistics - by airline