International Airlines Group 3rd Quarter Results

International Airlines Group has released its financial results for the 3rd quarter of 2018 and provided a strategic update on the group.

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International Airlines Group Airlines & Businesses
International Airlines Group Airlines & Businesses

International Airlines Group released its 3rd quarter results on Friday 26 October 2018.

There are no great surprises in the numbers themselves. It reported a modest increase in operating profit year-on-year to €1,460 million as rising revenues offset rising fuel costs, which has affected all airlines.

As usual, the results announcement is more interesting for comments from the group during analyst question and answer sessions:

BA Cyber Attack

IAG was limited in what it could say about the cyber attack on BA in light of the fact that a criminal investigation is underway.

Before the results announcement, IAG and BA confirmed that in addition to its first announcement in September, it had also identified that the attacker had viewed personal financial data of passengers making Avios redemptions between Saturday 21 April 2018 and Saturday 28 July 2018.

Two cyber security firms have carried out a forensic investigation on the cyber attack. IAG has also been working with the National Cyber Security Centre, which is part of GCHQ, and the National Crime Agency. The identity of the individual or organisation that carried out the cyber attack is not known.

However, IAG knows that it was a single attacker doing different things over a period of time. IAG considers that it understands exactly how the attacker secured access to BA’s systems, what the attacker did, and when, and what data was viewed.

Whilst there is evidence that customer data was viewed, there is no evidence to indicate that customer data was actually extracted from BA’s systems. It appears that it was not the billing and payment systems that were specifically compromised.

Although IAG will remain limited in what it can say for some time, it does seem prepared to eventually give a full account so that others can learn from it.

Rolls-Royce Engine Dreamliner Issues

IAG CEO Willie Walsh reiterated his unhappiness at ongoing issues with Rolls Royce engines on its fleet of Boeing 787 Dreamliner aircraft.

This has continued to affected BA as aircraft are grounded. It has had to selectively cancel flights – with Doha bearing the brunt of cancellations – and wet lease aircraft from Air Belgium to cover flights to Abu Dhabi and Dubai.

These issues will continue into 2019, when it had been expected to be resolved by the end of the summer. IAG is receiving cash and non-monetary compensation from Rolls-Royce, which has not been disclosed for reasons of commercial confidentiality.

Deliveries of Airbus A321 Long Range aircraft to Aer Lingus next year may be also delayed, which may have an impact on its expansion plans for next year.

Norwegian Bid

There have been no further conversations between IAG and Norwegian on a possible bid.

IAG seems happy to leave the bid on the back burner and reiterated that it does not plan to maintain a long term shareholding in the airline.

BA Product Investments

Improvements to Club Europe and Club World catering and amenities have driven positive Net Promoter Score improvements in the third quarter for BA, more than any other IAG airline.

It can’t be emphasised enough that the Net Promoter Score, derived from post-flight surveys, drive all decision making on product improvements, including whether positive changes are maintained and introduced across other IAG airlines.

In IAG’s world, social media, press comment and online postings are all simply noise.

Joint-Ventures

The planned joint-venture between BA, Iberia and LATAM covering flights between Europe and Latin America is still awaiting regulatory approval.

IAG seems to have been caught by surprise by the Competition and Market Authority’s announcement that it is to review of the American Airlines, BA, Finnair and Iberia transatlantic joint-venture. It is not second guessing the outcome of the review.

Avios Frequent Flyer Programme Changes

For some time, it has been expected that IAG airlines will introduce a signifiant changes to the Avios frequent flyer currency.

These are the introduction of single Avios bank balances across all IAG frequent flyer programmes; the issue of Avios by reference to the price paid for a ticket, rather than distance flown; and dynamic pricing of reward flights, rather pricing according to a fixed tariff.

Although not explicitly said, given that a lot of senior recruitment is underway in a number of areas of the Avios business, it seems likely that these changes are not going to happen in the short term.

IAG Capital Markets Day

IAG will be holding its annual Capital Markets Day next Friday, 2 November 2018.

We should learn more of individual airline plans for the next year. There are number of significant events for BA in 2019, namely its centenary, the delivery of the first Airbus A350-1000 aircraft, and a new Club World cabin.

Whilst it is unlikely that specific details of these will be announced next week, we should at least learn of broad brush plans for the next 12 months.

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