COVID-19 situation and management actions:
Passenger capacity in quarter 1 was 19.6 per cent of 2019 and continues to be adversely affected by the COVID-19 pandemic, together with government restrictions and quarantine requirements
Current passenger capacity plans for quarter 2 are for around 25 per cent of 2019 capacity, but remain uncertain and subject to review
1,306 cargo-only flights operated in quarter 1, up from 969 in quarter 4, 2020
Strong liquidity, increased to
Drawdown of previously committed borrowing for
Additional
New 3-year
Agreement for
Cash operating costs for the quarter reduced to
First quarter operating loss
Exceptional credit before tax in the quarter of
Loss after tax and exceptional items for the quarter
Cash of
'In quarter 1, we're reporting an operating loss of
'We've acted decisively to build resilience by boosting liquidity and reducing our cost base. At
'Cargo has enabled us to operate a more extensive passenger longhaul network. In addition, we operated 1,306 cargo-only flights and generated
'We're taking all necessary actions to ensure the financial health of our business for the long-term, including last year's successful
'Despite the challenges posed by the current pandemic, our focus on the safety of our people and customers remains paramount alongside our climate commitments. Our pledge to powering 10 per cent of our flights with sustainable aviation fuel by 2030 shows that we will not back down from our ambition to lead aviation's efforts to reduce its carbon footprint.
'We're doing everything in our power to emerge in a stronger competitive position. We're absolutely confident that a safe re-start to travel can happen as shown by the scientific data. We're ready to fly, but government action is needed through four key measures:
Travel corridors without restrictions between countries with successful vaccination rollouts and effective testing such us the
Affordable, simple and proportionate testing to replace quarantine and costly, multi-layered testing.
Well-staffed borders using contactless technology including e-gates to ensure a safe, smooth flow of people and frictionless travel.
Digital passes for testing and vaccination documentation to facilitate international travel.
'These measures will enable a safe re-opening of our skies. Travel underpins a global industry that supports 13 million jobs in
Trading outlook
Given the uncertainty over the timing of the lifting of government travel restrictions and the continued impact and duration of COVID-19,
Forward-looking statements:
Certain statements included in this announcement are forward-looking. These statements can be identified by the fact that they do not relate only to historical or current facts. By their nature, they involve risk and uncertainties because they relate to events and depend on circumstances that will
occur in the future. Actual results could differ materially from those expressed or implied by such forward-looking statements.
Forward-looking statements often use words such as 'expects', 'may', 'will', 'could', 'should', 'intends', 'plans', 'predicts', 'envisages' or 'anticipates' or other words of similar meaning. They include, without limitation, any and all projections relating to the results of operations and financial conditions of
Actual results may differ from those expressed or implied in the forward-looking statements in this announcement as a result of any number of known and unknown risks, uncertainties and other factors, including, but not limited to, the effects of the COVID-19 pandemic and uncertainties about its impact and duration, many of which are difficult to predict and are generally beyond the control of the Group, and it is not reasonably possible to itemise each item. Accordingly, readers of this announcement are cautioned against relying on forward-looking statements. Further information on the primary risks of the business and the Group's risk management process is set out in the Risk management and principal risk factors section in the Annual Report and Accounts 2020; these documents are available on www.iairgroup.com. All forward-looking statements made on or after the date of this announcement and attributable to
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Investor.relations@iairgroup.co
1 Discontinuation of hedge accounting
The exceptional credit to Fuel, oil costs and emissions charges of
fuel foreign currency derivatives, and the exceptional credit to Passenger revenue of
hedged passenger revenue transactions in a variety of foreign currencies to no longer be expected to occur, based on the Group's operating forecasts prevailing at the balance sheet date. The Group's risk management strategy has been to build up these hedges gradually over a three-year period when the level of forecast fuel consumption and passenger revenues were higher than current expectations. Accordingly, the hedge accounting for these transactions has been derecognised and the credits recognised in the Income statement. The credit relating to revenue derivatives and fuel derivatives has been recorded in the Income statement within Passenger revenue and Fuel, oil and emission charges, respectively.
The related tax charge was
FINANCIAL REVIEW FOR THE THREE MONTHS TO
COVID-19 Summary - Quarter 1
The Group's results continue to be impacted by COVID-19 and the related restrictions on travel. A detailed review of the impact of COVID-19 on the Group in 2020 was provided in the 2020 Annual Report and Accounts. This review focuses on further impacts during 2021.
In the first quarter of 2021, due to the continuing impact of the virus worldwide and the associated travel and border restrictions applying in many countries, the Group was only able to operate a limited passenger schedule, with capacity operated only 19.6 per cent of that operated in quarter 1, 2019 and 21.9 per cent of quarter 1, 2020. The Group operated 1,306 additional cargo flights, leading to record cargo revenue for the quarter.
The Group seeks to reduce the impact of volatile commodity prices by hedging fuel purchases in advance, based on expected capacity levels. The Group also hedges foreign exchange rates. The impact of COVID-19 has led to a significant reduction in the requirement to purchase jet fuel, due to the significantly reduced flying programme. As a consequence, the Group has derivative contracts for which there was no corresponding purchase of jet fuel, leading to discontinuance of hedge accounting for these fuel derivatives, together with the related foreign exchange derivatives. In aggregate there is a net loss
on these derivate contracts, as whilst the commodity fuel price has risen in recent months it is still below levels seen before COVID-19, when these derivative contracts were taken out. The credit in the quarter is mainly due to reduced losses on these contracts, due to rising fuel prices, net of an adjustment for the latest assessment of capacity for 2021 and foreign exchange movements.
In May, the Board approved a revised fuel hedging policy, which is designed to provide flexibility to both significant unexpected reductions in travel demand or capacity and/or material or sudden changes in jet fuel prices. The revised policy allows for differentiation within the Group, to match the nature of each operating company, including greater use of call options. The revised policy will operate on a two-year rolling basis, with hedging up to 60 per cent of anticipated requirements in the first twelve months and up to 30 per cent in the following twelve months and with flexibility for low cost airlines within the Group to adopt hedging up to 75 per cent in the first twelve months. For all Group airlines, hedging between 25 and 36 months ahead will only be undertaken in exceptional circumstances.
The Group continues to take action to preserve cash and boost liquidity. In the quarter the Group drew down on debt facilities agreed in 2020, namely
Revolving Credit Facility with a syndicate of banks for
Facility,
Total liquidity at the end of quarter remained strong at
The Group expects that it will take until at least 2023 for passenger demand to reach the levels of 2019. As a result the Group is actively involved in restructuring its cost base to adjust to significantly lower levels of demand, including actions to reduce fixed costs and to increase the variable proportion of the cost structure.
Basis of preparation
Based on the extensive modelling the Group has undertaken in light of the COVID-19 pandemic, the Directors have a reasonable expectation that the Group has sufficient liquidity for the foreseeable future and accordingly the Directors have adopted the going concern basis in preparing the consolidated results for the three months to
There are a number of significant factors related to COVID-19 that are outside of the control of the Group, including the status and impact of the pandemic worldwide, including the emergence of new variants of the virus and potential resurgence of existing strains of the virus; the availability of vaccines worldwide, together with the speed at which they are deployed; the efficacy of those vaccines; and the restrictions imposed by national governments in respect of the freedom of movement and travel. Due to the uncertainty that these factors create, the Group is not able to provide certainty that there could not
be more severe downside scenarios than those it has considered in its modelling, including the sensitivities it has considered in relation to factors such as the impact on yield, capacity operated, cost mitigations achieved and the availability of aircraft financing to offset capital expenditure. In the event that such a scenario were to occur, the Group would need to implement additional mitigation measures and would likely need to secure additional funding over and above that which is contractually
committed at
The Group has been successful in raising liquidity in the first quarter, including an additional
Principal risks and uncertainties
The Group has continued to maintain and operate its framework and processes to identify, assess and manage risks. The principal risks and uncertainties affecting the Group are detailed on pages 78 to 88 of the 2020 Annual Report and Accounts and remain relevant. The Board has continued to monitor and assess risks across the Group, in the light of changes that influence the Group and its operations and the related ongoing regulatory and governmental responses in the Group's markets, including in respect of COVID-19. Mitigating actions have been identified to enable the Group to continue to respond as necessary to the uncertain risk environment.
Operating and market environment
Average commodity fuel prices for the three months to
From a transactional perspective, the Group's financial performance is impacted by fluctuations in exchange rates, primarily from the US dollar, euro and pound sterling. The Group normally generates a surplus in most currencies in which it does business, except for the US dollar, as capital expenditure, debt repayments and fuel purchases typically create a deficit. The Group hedges a portion of its transaction exposures. The net transaction impact on the operating result before exceptional items was favourable by
The net impact of translation and transaction exchange on the operating result before exceptional items for the Group was
Capacity
In the first three months of 2021,
Iberia's longhaul operations were focussed on
still limited due to European travel restrictions.
Vueling operations were focussed on Domestic markets connecting the Spanish peninsula with the Canary and
LEVEL longhaul operations out of
Revenue
Passenger revenue for the three months to
Cargo revenue for the quarter was 42.3 per cent higher versus 2020 and up 50.0 per cent at constant currency. The strong cargo revenue performance was due to additional cargo flights, during the quarter 1,306 cargo flights were operated. Cargo revenue for quarter 1 was
passenger schedules. Yields were significantly higher versus last year reflecting the ongoing market supply and demand imbalance. During this pandemic, cargo revenue has had to cover the entire cost of operating a flight, without passenger revenue, on an aircraft configured for passengers.FINANCIAL REVIEW FOR THE THREE MONTHS TO
Other revenue fell by 58.8 per cent and by 52.1 per cent at ccy, mainly due to the impact of COVID-19 on the Group's nonairline businesses.
Costs
Employee costs for the quarter decreased by
Fuel costs, including an exceptional credit related to overhedging of
Supplier costs decreased by 65.9 per cent, linked to volume-related savings due to the lower capacity operated, together with a reduction in non-essential expenditure and negotiated savings as a result of COVID-19.
Depreciation, amortisation and impairment costs decreased 17.5 per cent on the previous year, linked to the reduction in the Group's fleet triggered by COVID-19, with the in-service fleet, which includes those aircraft temporarily grounded due to COVID-19, reduced from 595 aircraft at
Total non-fuel costs were down 53.7 per cent on the previous year and down 49.2 per cent at ccy.
Operating loss
The Group's operating loss for the three months to
The operating loss excluding exceptional credits and charges related to overhedging was
Net non-operating costs, taxation and loss after tax
The tax credit for the period was
On
The loss after tax and exceptional items for the quarter was
Cash and leverage
The Group's cash position at
Other recent developments
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