International Airlines Group 2019 Capital Markets Day

A wrap up of the major themes and trends from International Airlines Group’s annual Capital Markets Day event.

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International Airlines Group
International Airlines Group

International Airlines Group, the parent company of Aer Lingus, British Airways, Iberia, LEVEL and Vueling, held its annual Capital Markets Day today, Friday 8 November 2019.

The event followed a different format to previous years in that there were no individual airline presentations, so there’s not much news on that front.

You can download the full slide deck here. If you want to compare notes to what was announced 12 months ago, here’s our wrap up of last year.

The one significant piece of BA related news was the first published plan for the roll-out of its Club Suite at London Heathrow, which you can view here.

The roll-out of the new seat is crucial to improving Net Promoter Scores across for Club World. Whilst improvements to amenities and catering have delivered higher NPS scores in other cabins, the impact in long-haul premium cabins has been quite limited.

British Airways Net Promoter Scores 2017-2019
British Airways Net Promoter Scores 2017-2019 (Image Credit: International Airlines Group)

In terms of over-arching themes and trends for the day.

IAG Is Slowing Down Planned Growth

As last year’s Capital Markets Day, IAG said that it would grow its Available Seat Kilometres by 6% on a compound basis by 2023.

This will now be at a rate of 3.4%. In 2020, Aer Lingus, BA and Iberia will grow at a rate of 2-3%. However, there will be no growth at all for Vueling, where demand is softening in Barcelona.

IAG Is Moving To Greater Centralisation

Since its formation in 2011, the basic structure of IAG has been to centralise back-office functions, with day-to-day operations left to individual airlines.

A theme from last year was that IAG is placing more emphasis on looking at the relative positioning of its airlines against rivals in certain “demand spaces”. By its own admission, in certain market segments designed by IAG, there is scope to improve against competitors:

IAG Airline Brand Positioning
IAG Airline Brand Positioning (Image Credit: International Airlines Group)

Many functions such as the design of aircraft cabins, in-flight service design and airline branding which have been hitherto left to individual airlines will come under central direction from IAG.

Other activities such as pricing, revenue management, sales and distribution, and loyalty will move entirely to IAG. This could, for example, result in IAG implementing a single booking engine across all of its airlines.

Group Loyalty – Avios

The Avios currency and the various frequent flyer programmes that adopt them are an extremely important part of IAG, both in terms of generating revenues in their own right and driving loyalty to IAG airlines.

IAG is also exploring implementing a single loyalty programme across all of its airlines, as hotel groups do. The big difference between IAG airlines and hotels is that separate hotel brands tend not to dominate specific geographic markets.

In the UK, the BA Executive Club has a very high profile and replacing it with a new IAG-wide name could result in significant brand dilution. (One way it might get around that is an interim partial rebrand of individual schemes based around a new name, before a wholesale transfer to one programme.)

Dynamism and greater personalisation is becoming a stronger theme (eg no e-mails offering redemptions you’re not interested in!), whilst maintaining some of the prominent fixed milestones that customers can easily identify (eg the tiers of the BA Executive Club).

IAG is also looking at more opportunities to redeem Avios. Options to reduce the amount of cash payable, such as short-haul redemptions with a £1 payment and part-pay with Avios which have proven very popular. This is even where, on a scientific basis, they are not the best value use of Avios. However, it does create an important perception that Avios are easy to redeem.

At some point all IAG frequent flyer programmes will move to a single platform with a single account balance as Aer Lingus and Vueling do at the moment. This will enable, for example, a member of the BA Executive Club to use their Avios when paying for food on Vueling.

IAG is also in active discussions to add new Avios partners, particularly in the financial services sector. As you can’t fail to notice when spending any time in London, a lot of new “fin tech” companies have to spend significant amounts of advertising to acquire new customers, and partnering with Avios is seen as a way of reducing the cost of customer acquisitions.

IAG’s Fleet Plans

Over the past few months, IAG airlines have announced orders for new aircraft, notably the Airbus A321 XLR for Aer Lingus and Iberia, the Boeing 737 MAX for BA at Gatwick and Vueling, and the Boeing 777-9 for BA.

Taking into account the above orders, IAG’s fleet plan is largely unchanged. BA still plans to retire the Boeing 747 by 2024 and there have been some very slight changes to the planned pace of retirement.

BA will also begin retiring some Boeing 777-200 aircraft. This will begin next year with three “odd ball” aircraft being retired. 8 Boeing 777-200 aircraft will be left in service by 2029.

IAG still plans to order the Boeing 737 MAX, citing the need for competition between Airbus and Boeing though has yet to convert its Letter Of Intent into a firm order.

International Airlines Group Fleet Plan
International Airlines Group Fleet Plan (Image Credit: International Airlines Group)
International Airlines Group Short-Haul Fleet Plan To 2029
International Airlines Group Short-Haul Fleet Plan To 2029 (Image Credit: International Airlines Group)
International Airlines Group Long-Haul Fleet Plan To 2029
International Airlines Group Long-Haul Fleet Plan To 2029 (Image Credit: International Airlines Group)

IAG In Spain

Earlier this week, IAG announced it had reached an agreement to acquire Air Europa.

IAG is clearly framing this as a means to transform Madrid as a hub, pointing to its relative lack of scale compared to other European hubs and how Aer Lingus has grown at Dublin under IAG.

IAG also cites the fact that the acquisition of Air Europa will have a relative limited impact on its market share on international flights from Spain and when looking at domestic market share, you have to take account of high speed rail in Spain.

Spain International Market Share
Spain International Market Share (Image Credit: International Airlines Group)
Spain Domestic Market Share
Spain Domestic Market Share (Image Credit: International Airlines Group)

Though, it has to be said, that is not how regulators will view it. There is a clear precedent for regulators looking at individual city pairs and they will require remedies where competition is reduced.

IAG confirmed that it is looking at the number of brands it has in Spain which will number five after the Air Europa acquisition. This will be reduced, though it is likely that it will maintain a “dual brand” strategy for long-haul at Madrid.

Sustainability

The theme of sustainability features prominently.

Whilst aviation’s contribution to global CO2 emissions is low at 2.4%. As aviation grows and other sectors reduce emissions, that percentage will increase. IAG has committed to net zero emissions by 2050.

IAG has said that some practices such as tankering, where fuel for an inbound trip is carried on the outbound trip for economic or fuel supply reliability reasons, will end.

IAG has long been a vocal opponent to aviation taxes such as Air Passenger Duty and remains opposed to these, preferring market based measures such as carbon-offsetting.

Digital and IT

BA has had some high-profile IT failures in recent years, notably the power failure at BA, and theft of data from ba.com

A new Chief Information Officer has been appointed over a restructured IT team who now sits on the IAG Management Committee.

And finally…

Willie Walsh confirmed that he plans to retire from International Airlines Group within the next two years, before he reaches the age of 60 in October 2021.

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