IAG: NINE MONTHS RESULTS ANNOUNCEMENT

International Consolidated Airlines Group (IAG) today (November 9, 2012) presented Group consolidated results for the nine months ended September 30, 2012 and 2011. In addition, IAG presented combined results for the nine months comparative period ended September 30, 2011, including Iberia’s first 21 days of January 2011.

IAG period highlights:
§ Third quarter operating profit of €270 million, before exceptional items, €301 million excluding bmi (2011: operating profit €363 million, before exceptional items)
§ Passenger unit revenue up 9.1 per cent for the quarter, flat at constant currency
§ Fuel unit costs up 15.4 per cent for the quarter, up 1.6 per cent at constant currency
§ Non fuel unit costs before exceptional items up 8.5 per cent for the quarter, up 1.6 per cent at constant currency
§ IAG made an operating profit in the nine months of €17 million, British Airways an operating profit of €286 million, and Iberia an operating loss of €262 million
§ Passenger revenue in the nine months up 12.7 per cent, passenger unit revenue up 9.1 per cent, on top of volume increases of 3.3 per cent
§ Fuel costs up 23.5 per cent to €4,633 million (2011: €3,751 million before exceptional items)
§ Non fuel costs before exceptional items, up 10.9 per cent. Non fuel unit costs up 7.4 per cent, or 2.6 per cent at constant currency
§ Cash for the nine months down €170 million to €3,565 million, net debt up €360 million to €1,508 million, adjusted gearing up 1pt to 45 per cent

Willie Walsh, IAG chief executive, said:
IAG chief executive Willie Walsh said: "In this quarter we made an operating profit of €270 million before exceptional items. Total revenue at constant currency was up 3.7 per cent. Fuel costs were up 20.9 per cent and underlying non fuel unit costs down 1.0 per cent.

“The group performance is coming back to the levels seen in 2011 and this is particularly true if you strip out the bmi losses of €31 million in the quarter. However, there remains a strong difference between the performances of British Airways and Iberia.

“British Airways’ sponsorship of the London Olympics received many plaudits and the airline successfully stimulated premium leisure demand by encouraging holidaymakers to trade up to premium cabins. However, as predicted, business demand was reduced leading to a one-off negative impact on underlying unit revenue this quarter.

“The full integration of bmi into British Airways was completed last month and has been achieved smoothly and efficiently.

“Iberia continues to cause concern and we are announcing today a restructuring plan to introduce permanent structural change across the airline. Iberia is in a fight for survival and we will transform it to reduce its cost base so it can grow profitably in the future.”

Financial review:
Basis of presentation
The consolidated results include Iberia from the acquisition date January 21, 2011. The combined results for 2011 include Iberia’s results from January 1, 2011.

The nine month performance to September 30, 2012 includes bmi’s results from April 20, 2012. bmi represented 1.9 per cent of the capacity growth, 2.2 per cent of the revenue growth and 2.9 per cent of the operating expenses growth.

Exchange rates

Translation of British Airways’ operating results from sterling to euro for the nine months to September 30 resulted in a €646 million benefit to revenues and increased operating expenses by €607 million, reflecting a 6.6 per cent weakening of the euro. The Group realised transactional exchange gains of €31 million on revenues and exchange losses of €136 million on operating expenses.

The net adverse impact of translation and transactional exchange rates on the nine month results was €66 million.

Results – 2012 consolidated results compared to 2011 combined results

Revenue for the nine months to September 2012 increased by 10.8 per cent to €13,588 million, 5.3 per cent at constant exchange rates and 3.3 per cent excluding bmi. Passenger revenue was up 12.7 per cent on an increase in capacity of 3.3 per cent; passenger unit revenues improved 9.1 per cent, 3.4 per cent at constant exchange rates.

Cargo revenue was up 0.9 per cent though decreased 3.4 per cent at constant exchange rates on capacity increase of 3.6 per cent.
Operating costs before exceptional items for the nine months were up 14.9 per cent to €13,571 million; at constant currency up 8.6 per cent, reflecting increased capacity and significant fuel price increases.

Fuel costs for the nine months increased 23.5 per cent to €4,633 million, reflecting price increases, decreased hedging benefits, additional volume and emissions trading credits.

Non fuel costs for the nine months increased 10.9 per cent, before exceptional items, and 6.0 per cent at constant exchange rates; non fuel unit costs (€cents/ASK) were up 7.4 per cent and up 2.6 per cent at constant exchange rates. Non fuel unit costs have been adversely impacted by bmi, Avios accounting and industrial action, net of these impacts non fuel unit costs were up 0.4 per cent.

IAG operating profit, before exceptional items, for the nine months was €17 million compared to a profit of €451 million for the nine months of 2011.

Non-operating costs, before exceptional items, for the nine months were €178 million compared to €107 million in 2011.

The loss before tax for the nine months was €169 million, after exceptional items, compared to a profit of €355 million in 2011.

The tax credit for the nine months reflects the deferred tax benefit from the reduction in the UK corporation tax rates and the losses incurred in Spain at a higher tax rate versus the profits earned in the UK at a lower tax rate.

The Group’s cash balance of €3,565 million at September 30, 2012 was down €170 million from December 31, 2011. The cash balance at September 30, 2012 comprised €2,485 million held by British Airways, €1,054 million held by Iberia and €26 million held by IAG.

Trading outlook:
The revenue trend in quarter 3 was restrained somewhat due to the London Olympics, but we are so far observing that underlying unit revenue is returning to its positive trend in quarter 4.

Including the impact of Hurricane Sandy and continued weakness in Iberia, we now expect to make an operating loss for 2012 in the region of €120 million, after bmi trading losses and exceptional items. The expectation does not take into account any impact of the Iberia restructuring plans.