OREANDA-NEWS. International Consolidated Airlines Group (IAG) today (April 29, 2016) presented Group consolidated results for the three months to March 31, 2016. 

IAG period highlights on results: 

·      First quarter operating profit €155 million before exceptional items (2015: operating profit of €25 million), excluding Aer Lingus €181 million

·      Passenger unit revenue for the quarter down 3.5 per cent and at constant currency down 4.7 per cent (excluding Aer Lingus and at constant currency down 5.2 per cent)

·      Non-fuel unit costs for the quarter up 1.3 per cent and at constant currency up 0.6 per cent (excluding Aer Lingus and at constant currency down 0.5 per cent)

·      Fuel unit costs before exceptional items for the quarter down 23.4 per cent, down 30.4 per cent at constant currency

·    Cash of €6,824 million at March 31, 2016 was up €968 million on 2015 year end

·      Adjusted gearing remained constant at 54 per cent and adjusted net debt to EBITDAR down 0.1 points to 1.8 times

 Performance summary:

 

   

        

   

Three months to March 31

    

 Financial data € million  

2016 

2015 

Higher / (lower)

 
 

 Passenger revenue

4,465 

4,136 

8.0 %

  

 Total revenue

5,078 

4,707 

7.9 %

  

 Operating profit

155 

25 

520.0 %

  

 Exceptional items

13 

- 

    

 Operating profit after exceptional items

168 

25 

572.0 %

  

 Profit/(loss) after tax

104 

(26)

500.0 %

  

 Basic earnings/(loss) per share (€ cents)

4.9 

(1.5)

6.4pts

  

 Operating figures  

2016 

2015 

Higher / (lower)

 
 

 Available seat kilometres (ASK million)

66,151 

59,105 

11.9 %

  

 Seat factor (per cent)

78.9 

77.7 

1.2pts

  

 Passenger unit revenue per ASK (€ cents)

6.75 

7.00 

(3.5)%

  

 Non-fuel unit costs per ASK (€ cents)

5.64 

5.57 

1.3 %

  

 € million

March 31,

December 31,

Higher / (lower)

 

2016

2015

  

 Cash and interest-bearing deposits

6,824 

5,856 

16.5 %

  

 Adjusted net debt(1)

8,264 

8,510 

(2.9)%

  

 Adjusted net debt to EBITDAR

1.8 

1.9 

(0.1)pts

  

 Adjusted gearing(2)

54%

54%

0pts

  

   

        

(1)Adjusted net debt is net debt plus capitalised rolling four quarter aircraft operating lease costs.

  

(2)Adjusted gearing is adjusted net debt, divided by adjusted net debt and adjusted equity.

  

Willie Walsh, IAG Chief Executive Officer, said: 

"We're reporting an operating profit of €155 million before exceptional items which is up by €130 million compared to last year. This is a good performance with a strong increase in what is traditionally the weakest quarter. Total revenue was up 7.9 per cent and total cost per ASK decreased by 6.1 per cent.

"January and February's revenue was in line with Q4 2015 trends. March revenue was affected by the timing of Easter and the Brussels terrorist attacks with the latter continuing into quarter two.

"Our productivity has improved 5.9 per cent and the underlying non-fuel unit costs performance continued to show improvement across our companies."

Trading outlook 

Revenue trends in quarter two have been affected by the aftermath of the Brussels terrorist attacks, as well as some softness in underlying premium demand. As a result, IAG has moderated its short term capacity growth plans. The Group also expects to reduce its underlying ex-fuel unit costs for the full year by around one per cent. Consequently, in 2016, IAG still expects to generate an absolute operating profit increase similar to 2015.

 CONSOLIDATED INCOME STATEMENT

  

  

  

  

  

    

  

  

  

Three months to March 31

  

 € million

Before exceptional items  

Exceptional

items

Total

2016

  

Higher/

(lower)

2016

2015 (1)

  

  

    

  

  

 Passenger revenue

4,465 

  

4,465 

4,136 

8.0 %

 Cargo revenue

262 

 

262 

266 

(1.5)%

 Other revenue

351 

 

351 

305 

15.1 %

 Total revenue

5,078 

 

5,078 

4,707 

7.9 %

  

  

    

  

  

 Employee costs

1,226 

 

1,226 

1,124 

9.1 %

 Fuel, oil costs and emissions charges

1,191 

(13)

1,178 

1,389 

(14.3)%

 Handling, catering and other operating costs

607 

 

607 

551 

10.2 %

 Landing fees and en-route charges

474 

 

474 

362 

30.9 %

 Engineering and other aircraft costs

404 

 

404 

334 

21.0 %

 Property, IT and other costs

224 

 

224 

199 

12.6 %

 Selling costs

252 

 

252 

227 

11.0 %

 Depreciation, amortisation and impairment

338 

 

338 

306 

10.5 %

 Aircraft operating lease costs

188 

 

188 

144 

30.6 %

 Currency differences

19 

 

19 

46 

(58.7)%

 Total expenditure on operations

4,923 

(13)

4,910 

4,682 

5.1 %

 Operating profit

155 

13 

168 

25 

520.0 %

 Net non-operating costs

(44)

 

(44)

(62)

(29.0)%

 Profit/(loss) before tax

111 

13 

124 

(37)

400.0 %

 Tax

(18)

(2)

(20)

11 

(263.6)%

 Profit/(loss) after tax for the period

93 

11 

104 

(26)

457.7 %

  

  

    

  

  

 Operating figures

2016 (2)

    

2015 

Higher/ (lower)

 Available seat kilometres (ASK million)

66,151 

    

59,105 

11.9 %

 Revenue passenger kilometres (RPK million)

52,222 

    

45,898 

13.8 %

 Seat factor (per cent)

78.9 

    

77.7 

1.2pts

 Cargo tonne kilometres (CTK million)

1,320 

    

1,314 

0.5 %

 Passenger numbers (thousands)

20,369 

    

16,678 

22.1 %

 Tonnes of cargo carried (thousands)

205 

    

218 

(6.0)%

 Sectors

152,063 

    

135,168 

12.5 %

 Block hours (hours)

450,128 

    

391,504 

15.0 %

 Average manpower equivalent

61,342 

    

58,057 

5.7 %

 Aircraft in service

533 

    

466 

14.4 %

 Passenger revenue per RPK (€ cents)

8.55 

    

9.01 

(5.1)%

 Passenger unit revenue per ASK (€ cents)

6.75 

    

7.00 

(3.5)%

 Cargo revenue per CTK (€ cents)

19.85 

    

20.24 

(1.9)%

 Fuel cost per ASK (€ cents)

1.80 

    

2.35 

(23.4)%

 Non-fuel unit costs per ASK (€ cents)

5.64 

    

5.57 

1.3 %

 Total cost per ASK (€ cents)

7.44 

    

7.92 

(6.1)%

  

  

    

  

  

(1)The prior year Consolidated income statement includes reclassifications to conform to the current year presentation. Refer to the Financial review for further details.

(2)Financial ratios are before exceptional items.

 

Financial review:

Operating and market environment

The three month period has seen decreasing fuel prices partially offset by adverse exchange from a stronger US dollar against both the euro and the pound sterling. The Group has had minimal translation impact as the pound sterling has strengthened only marginally versus the euro. The impact of transaction foreign exchange was €62 million adverse.

Basis of presentation

The Group's performance for the three month period to March 31, 2016 includes Aer Lingus' operations. Aer Lingus was acquired on August 18, 2015, therefore the Group's quarter to March 31, 2015 excludes Aer Lingus' performance.

In 2016 the Group reviewed and amended the reporting of individual line items in the income statement to better reflect the nature of underlying transactions and improve comparability between reporting periods. As a result, for the three months to March 31, 2015, revenue of €40 million previously reported as Other revenue has been reclassified to Passenger revenue (€20 million) and Cargo revenue (€20 million). Expenditure of €40 million in respect of certain subcontracted services, previously allocated to Property, IT and other costs, has been reclassified to Handling, catering and other operating costs. These reclassifications have not affected reported total revenue, expenditure or operating profit for the three months to March 31, 2015.

 

Capacity

IAG increased capacity (ASKs) by 11.9 per cent in the first three months of the year, traffic volumes rose higher and seat factor improved 1.2 points to 78.9 per cent. Excluding Aer Lingus, capacity was increased by 4.8 per cent partially due to the extra day in February. Vueling and Iberia continued their growth patterns while British Airways' capacity increase reflects some changes to its network and aircraft. All four airlines had seat factor improvements.

Revenue

Passenger revenue increased 8.0 per cent compared to the same period last year, 0.7 per cent excluding Aer Lingus. Passenger unit revenue (passenger revenue per ASK) was down 4.7 per cent at constant currency ('ccy') from lower yields (passenger revenue/revenue passenger kilometre) partially offset by higher volumes. At ccy, passenger yields decreased due to fare pressure on oil related routes from lower fuel prices and on corporate accounts from the shift of Easter and a slowdown in market demand. Passenger revenue performance was also impacted by terrorist attacks in Brussels. Passengers carried by the Group rose to 20,369 million, an increase of 22.1 per cent, 10.2 per cent excluding Aer Lingus.

Cargo revenue for the period decreased by 1.5 per cent, 5.9 per cent excluding Aer Lingus. The Cargo premium mix remained strong but overall market conditions were weaker than last year which benefited from the US port strike.

Other revenue was up 15.1 per cent from an increase in activity at BA Holidays and in Iberia's third party maintenance. Avios revenue rose through increased customer redemptions.

Costs

Employee costs increased 9.1 per cent, 2.4 per cent excluding Aer Lingus. At ccy, employee unit costs improved 3.0 per cent with salary awards more than offset by efficient growth. The average number of employees increased 5.7 per cent for the Group driven primarily by the addition of Aer Lingus while productivity improved 5.9 per cent.

Fuel costs decreased by 14.3 per cent, with fuel unit costs down 23.4 per cent from lower average fuel prices net of hedging. The introduction of new fleet and improved operational procedures continued to drive efficiencies.

Supplier costs increased 15.2 per cent, 5.6 per cent excluding Aer Lingus. At ccy, supplier unit costs were up 2.6 per cent with 2 points due to Aer Lingus' shorter stage length. The prior year period saw reductions in maintenance and in landing fees from one time benefits. The underlying supplier unit cost performance versus last year improved in selling costs through efficient growth and from reductions in handling as more activity is performed within the Group.

Ownership costs increased 16.9 per cent, 8.7 per cent excluding Aer Lingus from the additional aircraft, strength of the US dollar and accelerated depreciation of Iberia's Airbus A340-300s.

Exceptional items

Under the Business combination standard, gains or losses on cash flow hedges acquired should not be recycled to the income statement but recognised in equity. Following the acquisition of Aer Lingus, IAG continued to unwind the cash flow fuel hedges acquired in the before exceptional items column. A credit was recognised in the exceptional column reversing the impact of unwinding the cash flow hedges to reach the total Fuel, oil costs and emissions charges.

Non-operating costs, taxation and profit after tax

Net non-operating costs were €44 million for the quarter compared to €62 million in 2015. Net currency retranslation credits increased, partially offset by losses on derivatives not qualifying for hedge accounting and an increase in net financing costs. Net financing costs increased €13 million.

The profit before tax after exceptional items for the quarter was €124 million (2015: €37 million loss), a €161 million improvement in the period.

The tax charge for the period was €20 million with an effective tax rate for the Group of 16 per cent impacted by the mix of profits and losses earned by jurisdiction (2015: 30 per cent).

Cash and leverage

The Group's cash position was €6,824 million up €968 million from December 31, 2015. Compared to December 31, 2015, the Group's adjusted net debt decreased €246 million to €8,264 million, adjusted net debt to EBITDAR was lower by 0.1 points to 1.8 times, and adjusted gearing was flat at 54 per cent.