AIRLINES & ALLIANCES

IAG full year results 2023: Strong growth in operating profit in 2023

Investing in the structurally growing South Atlantic market

IAG and its joint business partners have market share of 32% on the attractive South Atlantic market representing 19% of IAG’s total capacity by ASK. IAG operates 45 flights each day to and from Latin America.

Iberia

• Iberia has strong cultural links to Latin America. It is also well-placed to build on the growing traffic from Latin America to Madrid as investment and migration of a wealthier demographic increases

• 2023: Increasing frequencies to primary cities in core LATAM markets, including Bogotá, Mexico City, Lima, Montevideo and Quito

• 2024: further development of frequencies to core markets

• Using new A350-900 is more efficient and supports higher utilisation, helping to drive a 10 percentage point improvement in unit

  operating cost versus the previous generation A340-600

• Opportunities to deploy A321 XLR to select geographies and secondary cities

  LEVEL

  • Strengthened its network between Barcelona and Latin America, including resuming the Santiago de Chile route. Further investment in 2024

  British Airways

  • Adding frequencies to Rio de Janeiro and adding a tag flight to Buenos Aires

  We announced our proposed Air Europa acquisition in 2023, which will allow for network development in Latin America. We submitted our regulatory application to the European Commission in December; this moved to Phase 2 in early 2024 with a resolution expected in late 2024.

  European short-haul market

  This represents 34% of IAG’s total capacity and is served by our network carriers delivering feeder traffic, alongside our efficient low cost operations providing a combination of feeder and point-to-point services. Our disciplined approach to capital allocation gives us the flexibility to focus investment in order to maximise sustainable, profitable growth.

  Vueling

  • Delivering efficient growth through higher utilisation and up-gauging of existing fleet
  • De-seasonalising its network, with a focus on winter sun destinations
  • Strengthening its Spanish domestic position through investment in Barcelona and Bilbao
  • Leader in select European hubs, such as Paris-Orly to Spain; investing in London Gatwick to Spain

  Strong performance from Iberia Express, including to the Spanish Islands throughout the year.

  BA Euroflyer started operations under its own Air Operator Certificate (‘AOC’) in January 2023, focusing on the leisure point-to- point market in Europe. Its fleet increased from five to 20 aircraft during the year.

  Once LEVEL has established a new AOC this gives the Group further flexibility in considering its options in short-haul operations.

  Strengthening our portfolio of world-class brands and operations

  Investing in our products and services to drive better customer experiences

  We recognise that we need to continue to drive investment in the propositions of all our airlines to improve the customer experience. We are investing in our propositions to ensure we are competitive and remain attractive to our loyal customers.

  Investing in our fleet:

• 34 aircraft delivered in 2023, of which 32 were new generation, efficient and sustainable aircraft with the latest onboard seat offerings

• British Airways now has 68% of its Heathrow-based long-haul fleet embodied with the Club Suite product. The focus in 2024 will be on the Boeing 787 fleet

• Iberia is delivering a step-change in customer experience with its new A350 fleet, retrofitting its A330 fleet with its new cabins and its A320-family fleet for the new ‘L’ overhead bins

• In 2023 we converted 10 A320neo options to firm deliveries in 2028 as replacement aircraft for our short-haul network

• We also announced a new order for six Boeing 787-10 aircraft to be delivered to British Airways in 2025 and 2026 to accelerate its

  premium widebody capacity recovery; and one new Airbus A350-900 aircraft for Iberia

  Investing in our products and services:

• Aer Lingus aims to maximise the benefits of its unique customer base with a competitive onboard product, including its next generation business seat, digital self-service capability, as well as a differentiated service from our Connected Crew programme

• British Airways is focused on investing in a premium proposition across its cabins, including its lounges (London Heathrow, Edinburgh, Glasgow, Miami, New York JFK), onboard food and in-flight entertainment content. Investment in all of its customers across every cabin includes further development of its call centre in Delhi, using better IT and systems as well as a proactive customer care team

• Iberia similarly continues to invest in its highly-rated customer proposition, including at check-in and in its Madrid lounges; rolling out new Do&Co menus in all cabins; and making further progress in the digitalisation of our customers’ journey, specifically with the digital concierge, WhatsApp text assistant and call-centre Smart Voice assistant

• Vueling’s positioning as a value low-cost carrier sees a focus on its digital proposition across the customer journey: digital touchpoints across the airport journey, better digital self-service in disruption and digital assistance in the customer care channels

  During 2023 our customer Net Promoter Score (‘NPS’) increased very slightly, which was driven positively by our investments in new products and services but negatively affected mostly by the impact of disruption, much of which is outside our control.

  Investing in our operations

  Efficient operations are a major driver of both customer satisfaction and direct financial (revenue and cost) performance.

  • Iberia continues to deliver excellent operational performance. In 2023 Iberia was the most punctual airline in Europe and the fifth- most punctual airline in the world with On-Time Performance (‘OTP’) at 88.6%. 

• • Vueling’s OTP in 2023 was 80.0% after benefiting from the integrated approach to planning, scheduling and operations implemented over the last few years

  • Aer Lingus’ OTP was 67.5% as it was affected in particular by ATC issues in the UK and France

  • British Airways was affected by similar issues, as well as still recovering its full operational capability at London Heathrow, with

    OTP in 2023 of 59.7%. As a result significant resource has been invested to drive better performance and some early initiatives are now starting to deliver improvement:

    • Improved OTP in December 2023 at 67.2% and a strong start to 2024. British Airways’ OTP in January 2024 up 16 points to

      79.8%, significantly better than January 2023 and close to January 2019 levels

    • First wave departures improved to 87% through dedicated resource, integrated planning, ongoing recruitment and training and

      better performance management

    • Integrated operations programme tools already adding value (performance dashboard, predictive maintenance, schedule,

      aircraft assignment)

    • A new operating model for London Heathrow will be rolled out for the summer

      Transforming our businesses to drive sustainable earnings growth

      IAG’s transformation programmes are designed to create better businesses at each of its operating companies that are more efficient and resilient in order to sustain long-term competitive advantage

      Customer and Innovation

      Many of our revenue transformation initiatives are driven by technology and data. Some examples are as follows:

  • British Airways is in the middle of a major transformation of its commercial digital platforms which it expects to deliver significant

    revenue benefits over the next three years. Improvements to British Airways’ ‘ba.com’ website and app are expected in 2024,

    including a better content management system, as well as improvements in the revenue management system to follow

  • Iberia is developing its personalisation capability, which will allow for greater content differentiation and digital marketing

    optimisation

  • Vueling is continuing to improve its customer offering to drive ancillary revenue through developing its bundles and products

  • The Qatar Joint Business is an opportunity for IAG to develop its network and customer proposition, particularly into the African

    and Asian markets. This includes greater commercial integration, as well as through the use of Avios

    Efficiency

  • Disruption was a major cause of cost inflation in 2023, as well as impacting customer NPS. British Airways has invested significantly to improve its On Time Performance in 2024, which will lead to cost savings through greater productivity and efficiency, as well as reducing EU261 costs and improving customer satisfaction

  • IAG’s investment in new aircraft will drive significant efficiency gains, as well as network benefits. New generation aircraft are typically c.20% more fuel-efficient than the previous generation and Iberia’s new A350s’ superiority over the A340s is allowing more capacity to be added to Latin America much more productively

  • As well as supporting revenue growth, New Distribution Capability will drive cost savings across all of our carriers

  • Third party supplier costs have seen significant inflation over the past couple of years and this is a big area of focus across all parts

    of IAG. Savings will be made through procurement in engineering and maintenance, and food and beverage; efficiencies in handling; and pricing across the supply chain

    2 Driving earnings growth through asset-light businesses

    Growing IAG Loyalty

    Our loyalty business has continued to deliver a very strong performance, supporting higher earnings growth and margins, as well as strong cash flow.

  • Record operating profit £280 million, up 17% year-on-year and 59% higher than 2019 operating profit

  • Driven by our better customer engagement as we re-invest our margin in more attractive products:

    • 4.9 million new members enrolled in 2023 (17% increase in new members versus 2022) to support future value growth

    • More Avios are being collected through demand to fly on our airlines and strong third-party partnerships, with issuance up 37%

    • More Avios are being redeemed through increasing our range of offerings: 27 Avios-only flights on offer to a range of 11 popular

      destinations; or using Avios as payment for BA Holidays (c.20% of holidays sold have used some Avios as payment)

    • Opportunity to develop BA Holidays further, as part of an integrated loyalty ecosystem

      Leveraging our strategic airline partnerships

      IAG also seeks to generate capital-light value through its strategic airline partnerships, mainly through joint businesses that provide customers with a worldwide network of destinations and flights.

  • In 2023 Iberia joined the Qatar Joint Business (QJB) and launched a service from Madrid to Doha

  • As a result the QJB became the largest joint business in the world by number of countries, with Qatar bringing a strong network

    across Africa and Asia

  • In 2024 British Airways will fly two daily services to Doha, giving its passengers access to that strong onward network

  • Iberia will also start flying to Tokyo in 2024 as part of the Siberian Joint Business and British Airways will be back to two daily

    flights there in the summer

    3 Operating under a strengthened financial and sustainability framework

    Industry leader to Net Zero

    We continue to state the case for the positive social impact of aviation. Specifically, we are making further progress in our initiatives to deliver our sustainability targets:

  • IAG has been awarded Eco-Airline of the year by Air Transport World for industry leadership and best-in-class Sustainable

    Aviation Fuel (SAF) programme

  • We are taking an active role in EU and UK discussions on SAF, in particular around mandate design and potential pricing

    mechanisms

  • IAG was the third largest user of SAF globally in 2023. We have now announced our largest-ever SAF purchase with Twelve, to

    provide advanced power-to-liquid SAF with a lifecycle emissions reduction of at least 80%. Our total contracted SAF commitment

    is now at approximately one third of our 2030 target

  • We are investing in 178 new aircraft between 2023 and 2028. New aircraft are generally around 20% more fuel-efficient than the

    previous generation and significantly quieter. 24% of IAG’s short-haul fleet is currently new generation and 42% of long-haul

    • Carbon intensity reduced by 3.6% year-on-year and is more than 10% down on 2019 levels
    • CORSIA and ETS – IAG spent €264 million on carbon credits in 2023 and supports the proposed global CORSIA offset scheme

    Disciplined capital allocation and balance sheet management

    IAG has historically delivered market-leading Return on Invested Capital through its disciplined allocation of capital to its operating companies. As disclosed at our Capital Markets Day in 2023, through our strategy we are targeting the following metrics for the Group in the medium term:
    • Operating margins of 12% to 15%.

    • Return on Invested Capital of 13% to 16%
    • Organic average annual capacity growth of 4% to 5% between 2024 and 2026

    Our operational and financial performance in 2023 has allowed us to strengthen the balance sheet, while investing in our continued transformation. We ended the year at 1.7 times leverage, below our target of 1.8 times through the cycle.

    Given the Group’s strong cash-generation capability, in 2024 we expect to generate significant free cash flow, prior to the benefit of any leasing transactions and after capital expenditure of around €3.7 billion in the year.

    This is further strengthened by the fact that we have no additional pension payments or non-aircraft debt repayments in 2024. Our first priority is to maintain our strong balance sheet.
    We will continue to invest in our business to support sustainable growth and margins.
    We are committed to sustainable shareholder value creation and cash returns.