International Airlines Group 2019 Half Year Results

International Airlines Group has announced its half year results and provided a strategic update on its airlines.

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CGI Image of Heathrow Airport Masterplan 2050
CGI Image of Heathrow Airport Masterplan 2050 (Image Credit: Heathrow)

International Airlines Group announced its half-year results today, Friday 2 August 2019.

IAG is a group that prides itself on consistency, so there are no great surprises in the numbers.

Operating profit for the 2nd quarter increased to €960m compared to €900m in the previous year. Operating profit for the half year was down however to €1,095m from €1,240m.

The results are announced against a busy news background for IAG airlines, notably the threat of industrial action at BA and a proposed fine of £183m from the Information Commissioner’s Office following the data breach at ba.com in 2018.

Overall, markets are generally very steady with pockets of weakness as expected in Argentina and Brazil and over-capacity in China.

BA Industrial Relations

Both IAG CEO Willie Walsh and BA CEO Alex Cruz declined to give a running commentary on negotiations with the pilots union BALPA on pay negotiations with BA pilots.

Talks are currently taking place between BA and BALPA at the conciliation service ACAS. Willie Walsh made it clear that IAG is not getting involved in negotiations and it is a matter for BA to deal with – this is consistent with IAG’s structure from its founding in 2011.

Whilst Willie Walsh paid tribute to the professionalism of BA pilots, reading between the lines IAG seems conscious of not setting a precedent for other BA workgroups and employees of other IAG airlines. BA simply paying to make the matter go away would not be palatable to IAG who have always said that cost discipline must be maintained.

Willie Walsh did also intimate that the resources of other IAG airlines may be called upon in the event of industrial action at BA. Though, it is hard to see what can be done at the peak of the summer season. Trade unions representing employees of other IAG airlines would also not be prepared to cross the boundary of assisting in breaking another airline’s strike.

Aircraft Orders & Deliveries

Willie Walsh once again reiterated his disappointment with Airbus on late deliveries with Airbus and described talks with Boeing as constructive.

There’s no indication of when IAG’s Letter Of Intent to buy The Boeing 737 MAX will be converted into a firm order. However, some deliveries may be accelerated into 2022:

International Airlines Group Half Year Results 2019 (Image Credit: International Airlines Group)

And just to remind you that the recent aircraft orders that we have, including the LOI with Boeing is absolutely consistent with the planned aircraft deliveries that we gave you at Capital Markets Day. In fact, as you can see from this, we still have an outstanding aircraft to be decided on. So we’re pleased so far with what we’ve ordered, there is more work that we need to do. Disappointed, as you’ve heard me say previously, with the performance of Airbus, very poor delivery from Hamburg on the A321. It’s not just for us, as you know, I’m sure by now you’ve heard every airline that is excited about taking the 321LR express huge disappointment about the delays that they encountered.

We need Airbus to improve their performance. And they need to get working on that very quickly. Because quite honestly, the delays that we’re seeing are just completely unacceptable. And it is impacting on the growth plans that we have. That’s particularly true of we want to do with Aer Lingus on transatlantic. And we’re having very, very constructive discussions with Boeing and the LOI that we signed, talked about deliveries between 2023 and 2027, we’re actually looking to see if we can get some of those deliveries in 2022. And the engagement with Boeing has been very positive and very constructive.

Heathrow Expansion

Willie Walsh once again did not pull any punches that he does not believe that Heathrow Airport can deliver a third runway on budget.

The specific issue of concern is that the cost of expansion, cited as £14bn does not include new terminal infrastructure at Heathrow.

International Airlines Group Half Year Results 2019
International Airlines Group Half Year Results 2019 (Image Credit: International Airlines Group)

Willie Walsh had plenty to say on the matter:

And, you know, if you doubted my views on Heathrow, I want to just reassure you that I’m right and they’re wrong. There is absolutely no way Heathrow can expand in line with the promises that they’ve made. And you know, we will expose the promise of being untrue when they make them. The total cost of expansion is now £32 billion. If we just focus on what was originally talked about in terms of the third runway which the Airport Commission said would cost £17.6 billion, and Heathrow very publicly stated, when the Government supported the expansion back in October 2016, that they could do it for £14 billion. And you still hear them making comments that they do it for £14 billion, you know, what you get for £14 billion is not what was promised because that £14 billion does not give you any terminal infrastructure.

So in fact, if you look at what we’re now over originally promised £14 billion, and the fact that cost £17.5 billion. And that’s escalated. And there’s absolutely no way that Heathrow can deliver that. We’ve no confidence in their ability to do it. They’ve demonstrated zero evidence of them being able to do it. And we’re particularly concerned, the amount of money that is now being spent in advance of getting approval. This will have embedded about £3.3 billion of additional cost before they get approval. And the regulator needs to step in. This is completely unacceptable. The costs are, you know, out of control, and we still challenge Heathrow to demonstrate that they can do it. So the Government needs to be very focused on this.

You know that this is a really, really important issue. And it’s not just important for us, it is important for us, I don’t, you know, I don’t try and hide that. But it’s important for UK plc. You know, because you remember, Heathrow’s out there trying to con people that this is good for UK plc. It’s not. It’s good for them. And it’s them only to be honest with you, again, we’re not going to allow it because they’ve got away with this for too long. You know, they promise on time and on budget. It’s clearly you know, neither on time nor on budget, and it’s gone so far off budget we’ve got to call them out. You know, when they’re, they’re saying we can still do this for £14 billion, but they don’t mention that £14 billion gives you zero terminal infrastructure. And actually, to get the full value out of the runway, you have to spend £32 billion, You know, these are outrageous figures. And we really do need people to wake up to what’s going on here, because if we don’t stop it now and force them to even deliver to the original plans that they have or stop them, You know, what we’re going to be left with with is the most expensive piece of infrastructure that will be under-utilised because you’re not going to get people coming in here if the costs are driven up as they will be based on this ridiculous investment profile that Heathrow is looking at. So, you know, they should be honest and admit it that they can’t do it. And maybe there’s somebody else that could do it better for them. You know, there are others who are interested. We have more confidence in some of the others who’ve expressed an interest in developing the infrastructure. And maybe that’s what should be done. The CAA can’t turn a blind eye this. The Government can’t turn a blind eye to it.

Information Commissioner’s Office Fine

Following the announcement by the Information Commissioner’s Office that it intends to levy a fine of £183m on BA following the data breach at ba.com, IAG has advised the following:

On September 6, 2018 British Airways announced the theft of certain of its customers’ personal data.  Following an investigation into the theft, British Airways announced on October 25, 2018 that further personal data had potentially been compromised. On July 4, 2019, British Airways received a Notice of Intent from the Information Commissioner’s Office (ICO) in which it informed the airline of its intention to fine it approximately £183 million (€205 million) under the UK Data Protection Act. 
 
British Airways will be making representations to the ICO regarding the proposed fine.  The ICO will follow its own procedures to seek the views of other EU data protection authorities and, potentially, an external panel of advisers. It has six months from issuing the Notice of Intent to British Airways within which it could issue a penalty notice (subject to any extension agreed by the ICO and British Airways).  If a penalty notice is issued, British Airways has 28 days within which to lodge an appeal with the First-tier Tribunal in the General Regulatory Chamber. A decision by the First-tier Tribunal may, with permission, be appealed to the Upper Tribunal. Any appeal of the Upper Tribunal decision would be to the Court of Appeal. It is British Airways’ intention to vigorously defend itself in this matter, including using all available appeal routes should they be required.
 
It has not been proven that British Airways failed to comply with its obligations under GDPR and the UK Data Protection Act. Further, given the absence of the calculation methodology applied in determining the amount included in the Notice of Intent, the processes available to the company to challenge the Notice and the lack of precedent of final assessments under the new data protection regulations, the Directors do not believe that a fine, should it be issued by the ICO, can be estimated reliably at this stage.  As such no provision has been made at June 30, 2019.

The next major strategic update from IAG should be at its Capital Markets Day in early November 2019.

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