International Consolidated Airlines S A : IAG Q3 2020 Financial Results

NINE MONTHS RESULTS ANNOUNCEMENT

International Consolidated Airlines Group (IAG) today (October 30, 2020) presented Group consolidated results for the nine months to September 30, 2020.

The results for the nine months were significantly impacted by the outbreak of COVID-19, which has had a material impact on the global airline and travel sectors, particularly from late February 2020 onwards and with no immediate signs of recovery.

COVID-19 situation and management actions:

• Increased flying programme in quarter 3 versus quarter 2, partly driven by summer leisure demand, with additional operating procedures implemented to protect customers and staff, including facemask use and additional cleaning. Demand continues to be adversely affected by volatile government restrictions and quarantine requirements
• 1,115 additional cargo flights operated in quarter 3 to transport critical equipment and essential supplies
• In response to the high uncertainty of the current environment IAG now plans for capacity in quarter 4 to be no more than 30 per cent compared to 2019. As a result, the Group no longer expects to reach breakeven in terms of Net cash flows from operating activities during quarter 4
• Cost reduction actions implemented across the Group, including employee cost reductions in Spain through the use of ERTE arrangements and wage support schemes in Ireland and the UK, together with supplier cost reductions, leading to cash operating costs for quarter 3 reducing by 54 per cent from original plans to €205 million per week
• Agreements reached with most employee groups at British Airways. Exceptional cost of €275 million in quarter 3 related to British Airways and Aer Lingus, corresponding to a reduction in employee numbers of approximately 10,000
• Liquidity in quarter 3 was boosted by renewal of the multi-year agreement with American Express, including an €830 million payment, a significant part of which is for Avios pre-purchase
• Capital increase successfully completed, with gross proceeds of €2.7 billion received in October

IAG period highlights on results:

• Passenger capacity operated in quarter 3 down 78.6 per cent on 2019 and for the period of nine months down 64.3 per cent on 2019
• Third quarter operating loss €1,300 million before exceptional items (2019 operating profit: €1,425 million)
• Operating loss before exceptional items for the nine months €3,200 million (2019 operating profit: €2,520 million)
• Exceptional charge in the period of nine months of €2,755 million on derecognition of fuel and foreign exchange hedges, impairment of fleet and restructuring costs; exceptional charge for quarter 3 €618 million
• Loss after tax before exceptional items for the period of nine months €3,176 million, and nine months statutory loss after tax and exceptional items: €5,567 million (2019 profit: €1,814 million)
• Cash of €5,011 million at September 30, 2020 down €1,672 million on December 31, 2019. Committed and undrawn general and aircraft facilities were €1.6 billion, bringing total liquidity to €6.6 billion. Including €2.7 billion gross proceeds from the capital increase (received in early October) gives total pro-forma liquidity of €9.3 billion

Performance summary:
				Nine months to September 30
	Highlights € million			2020			20191	Higher /
					(lower)
	Passenger revenue	4,888	17,078	(71.4)%
	Total revenue	6,565	19,292	(66.0)%
	Operating (loss)/profit before exceptional items	(3,200)	2,520	nm
	Exceptional items	(2,755)	-	-
	Operating (loss)/profit after exceptional items	(5,955)	2,520	nm
	Available seat kilometres (ASK million)	91,394		255,749	(64.3)%
	Passenger revenue per ASK (€ cents)	5.35		6.68	(19.9)%
	Non-fuel costs per ASK (€ cents)	8.84		4.77	85.3 %
	Alternative performance measures			2020				Higher /
					2019	(lower)
	(Loss)/profit after tax before exceptional items (€ million)	(3,176)	1,814	nm
	Adjusted (loss)/earnings per share (€ cents)	(159.9)	88.7	nm
	Net debt (€ million)2	11,096		7,571	46.6 %
	Net debt to EBITDA2		nm	1.4	nm
	Statutory results € million			2020				Higher /
					2019	(lower)
	(Loss)/profit after tax and exceptional items	(5,567)	1,814	nm
	Basic (loss)/earnings per share (€ cents)	(280.3)	91.4	nm
	Cash and interest-bearing deposits2	5,011	6,683	(25.0)%
	Interest-bearinglong-term borrowings2	16,107		14,254	13.0 %

For definitions refer to the IAG Annual report and accounts 2019.

1. The 2019 results include a reclassification of the costs the Group incurs in relation to compensation for flight delays and cancellations as a deduction from revenue as opposed to an operating expense. There is no change in operating profit. The amount reclassified for the nine months to September 30, 2019 was €107 million. Further information is given in the IAG Annual report and accounts 2019.
2. The prior year comparative is December 31, 2019.

Luis Gallego, IAG's Chief Executive Officer, said:

"In quarter 3 we're reporting an operating loss of €1,300 million before exceptional items compared to an operating profit of €1,425 million last year. The total operating loss was €1,918 million, including exceptional items relating to fuel hedges plus restructuring costs at British Airways and Aer Lingus.

"These results demonstrate the negative impact of COVID 19 on our business but they're exacerbated by constantly changing government restrictions. This creates uncertainty for customers and makes it harder to plan our business effectively.

"We are calling on governments to adopt pre-departure testing using reliable and affordable tests with the option of post flight testing to release people from quarantine where they are arriving from countries with high infection rates. This would open routes, stimulate economies and get people travelling with confidence. When we open routes, there is pent up demand for travel. However, we continue to expect that it will take until at least 2023 for passenger demand to recover to 2019 levels.

"The Group has made significant progress on restructuring and we continue to reduce our cost base and increase the proportion of our variable costs.

"We have also successfully completed a €2.74 billion capital increase in the quarter. It strengthens our financial and strategic position and makes IAG better placed to take advantage of a recovery in air travel demand."

Trading outlook

As announced on February 28, 2020, given the uncertainty on the impact and duration of COVID-19, IAG is not providing profit guidance for 2020.

LEI: 959800TZHQRUSH1ESL13

This announcement contains inside information and is disclosed in accordance with the Company's obligations under the Market Abuse Regulation (EU) No 596/2014.

Steve Gunning, Chief Financial Officer

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 International Consolidated Airlines Group, S.A. and its subsidiary undertakings from time to time (the 'Group'), as well as plans and objectives for future operations, expected future revenues, financing plans, expected expenditure and divestments relating to the Group and discussions of the Group's business plan. All forward-looking statements in this announcement are based upon information known to the Group on the date of this announcement and speak as of the date of this announcement. Other than in accordance with its legal or regulatory obligations, the Group does not undertake to update or revise any forward-looking statement to reflect any changes in events, conditions or circumstances on which any such statement is based.

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 2019; these documents are available on www.iairgroup.com. All forward-looking statements made on or after the date of this announcement and attributable to IAG are expressly qualified in their entirety by the primary risks set out in that section. Many of these risks are, and will be, exacerbated by the COVID-19 pandemic and any further disruption to the global airline industry and economic environment as a result.

IAG Investor Relations

Waterside (HAA2),

PO Box 365,

Harmondsworth,

Middlesex,

UB7 0GB

Tel: [phone]

[e-mail]

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CONSOLIDATED INCOME STATEMENT

				Nine months to September 30
				Before
				exceptional
				items		Exceptional	Total	Total	Higher/
	€ million			2020		items	2020	20191	(lower)
	Passenger revenue	4,888	(60)	4,828	17,078	(71.4)%
	Cargo revenue	917		917	825	11.2 %
	Other revenue	760		760	1,389	(45.3)%
	Total revenue	6,565	(60)	6,505	19,292	(66.0)%
	Employee costs	2,598	269	2,867	3,713	(30.0)%
	Fuel, oil costs and emissions charges	1,683	1,599	3,282	4,569	(63.2)%
	Handling, catering and other operating costs	1,080		1,080	2,236	(51.7)%
	Landing fees and en-route charges	737		737	1,699	(56.6)%
	Engineering and other aircraft costs	1,052	83	1,135	1,587	(33.7)%
	Property, IT and other costs	569	28	597	582	(2.2)%
	Selling costs	340		340	813	(58.2)%
	Depreciation, amortisation and impairment	1,619	716	2,335	1,554	4.2 %
	Currency differences	87		87	19	nm
	Total expenditure on operations	9,765	2,695	12,460	16,772	(41.8)%
	Operating (loss)/profit	(3,200)	(2,755)	(5,955)	2,520	nm
	Finance costs	(503)		(503)	(446)	12.8 %
	Finance income	27		27	33	(18.2)%
	Net financing credit relating to pensions	4		4	19	(78.9)%
	Net currency retranslation credits	183		183	93	96.8 %
	Other non-operating credits	43		43	50	(14.0)%
	Total net non-operating costs	(246)		(246)	(251)	(2.0)%
	(Loss)/profit before tax	(3,446)	(2,755)	(6,201)	2,269	nm
	Tax	270	364	634	(455)	nm
	(Loss)/profit after tax for the period	(3,176)	(2,391)	(5,567)	1,814	nm
	Operating figures			2020					Higher/
						2019	(lower)
	Available seat kilometres (ASK million)	91,394			255,749	(64.3)%
	Revenue passenger kilometres (RPK million)	62,445			216,607	(71.2)%
	Seat factor (per cent)	68.3			84.7	(16.4)pts
	Passenger numbers (thousands)	26,977			90,448	(70.2)%
	Cargo tonne kilometres (CTK million)	2,471			4,148	(40.4)%
	Sold cargo tonnes (thousands)	326			508	(35.8)%
	Sectors	219,553			591,954	(62.9)%
	Block hours (hours)	678,196			1,730,731	(60.8)%
	Average manpower equivalent2	61,639			65,808	(6.3)%
	Aircraft in service	542			601	(9.8)%
	Passenger revenue per RPK (€ cents)	7.83			7.88	(0.7)%
	Passenger revenue per ASK (€ cents)	5.35			6.68	(19.9)%
	Cargo revenue per CTK (€ cents)	37.11			19.89	86.6 %
	Fuel cost per ASK (€ cents)	1.84			1.79	3.1 %
	Non-fuel costs per ASK (€ cents)	8.84			4.77	85.3 %
	Total cost per ASK (€ cents)	10.68			6.56	62.9 %

1. The 2019 results include a reclassification of the costs the Group incurs in relation to compensation for flight delays and cancellations as a deduction from revenue as opposed to an operating expense. There is no change in operating profit. The amount reclassified for the nine months to September 30, 2019 was €107 million. Further information is given in the IAG Annual report and accounts 2019.
2. Included in the average manpower equivalent are staff on furlough, wage support and equivalent schemes, including the Temporary Redundancy Plan arrangements in Spain.

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CONSOLIDATED INCOME STATEMENT

				Three months to September 30
				Before
				exceptional
				items		Exceptional	Total	Total	Higher/
	€ million			2020		items	2020	20191	(lower)
	Passenger revenue	737	(22)	715	6,492	(88.6)%
	Cargo revenue	302		302	269	12.3 %
	Other revenue	200		200	505	(60.4)%
	Total revenue	1,239	(22)	1,217	7,266	(82.9)%
	Employee costs	708	269	977	1,221	(42.0)%
	Fuel, oil costs and emissions charges	370	330	700	1,633	(77.3)%
	Handling, catering and other operating costs	227		227	823	(72.4)%
	Landing fees and en-route charges	198		198	618	(68.0)%
	Engineering and other aircraft costs	286	6	292	556	(48.6)%
	Property, IT and other costs	163	6	169	202	(19.3)%
	Selling costs	72		72	262	(72.5)%
	Depreciation, amortisation and impairment	505	(15)	490	519	(2.7)%
	Currency differences	10		10	7	42.9 %
	Total expenditure on operations	2,539	596	3,135	5,841	(56.5)%
	Operating (loss)/profit	(1,300)	(618)	(1,918)	1,425	nm
	Finance costs	(161)		(161)	(165)	(2.4)%
	Finance income	4		4	11	(63.6)%
	Net financing credit relating to pensions	1		1	6	(83.3)%
	Net currency retranslation credits/(charges)	86		86	(45)	nm
	Other non-operating (charges)/credits	(7)		(7)	30	nm
	Total net non-operating costs	(77)		(77)	(163)	(52.8)%
	(Loss)/profit before tax	(1,377)	(618)	(1,995)	1,262	nm
	Tax	166	68	234	(254)	nm
	(Loss)/profit after tax for the period	(1,211)	(550)	(1,761)	1,008	nm
	Operating figures			2020					Higher/
						20191	(lower)
	Available seat kilometres (ASK million)	19,769			92,318	(78.6)%
	Revenue passenger kilometres (RPK million)	9,673			80,923	(88.0)%
	Seat factor (per cent)	48.9			87.7	(38.8)pts
	Passenger numbers (thousands)	6,592			34,562	(80.9)%
	Cargo tonne kilometres (CTK million)	720			1,346	(46.5)%
	Sold cargo tonnes (thousands)	94			162	(42.0)%
	Sectors	64,288			215,920	(70.2)%
	Block hours (hours)	185,681			628,707	(70.5)%
	Average manpower equivalent2	58,905			67,407	(12.6)%
	Passenger revenue per RPK (€ cents)	7.62			8.02	(5.0)%
	Passenger revenue per ASK (€ cents)	3.73			7.03	(47.0)%
	Cargo revenue per CTK (€ cents)	41.94			19.99	nm
	Fuel cost per ASK (€ cents)	1.87			1.77	5.8 %
	Non-fuel costs per ASK (€ cents)	10.97			4.56	nm
	Total cost per ASK (€ cents)	12.84			6.33	nm

1. The 2019 results include a reclassification of the costs the Group incurs in relation to compensation for flight delays and cancellations as a deduction from revenue as opposed to an operating expense. There is no change in operating profit. The amount reclassified for the three months to September 30, 2019 was €44 million. Further information is given in the IAG Annual report and accounts 2019.
2. Included in the average manpower equivalent are staff on furlough, wage support and equivalent schemes, including the Temporary Redundancy Plan arrangements in Spain.

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