IAG Quarter One 2021 Results Presentation

IAG Quarter One 2021

Results Presentation

Friday, 7th May 2021

IAG Quarter One 2021 Results Presentation Friday, 7th May 2021

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Luis Gallego

Chief Executive Officer, International Airlines Group

Operator: Good day and thank you for standing by. Welcome to the First Quarter 2021

International Airlines Group conference call. During the call all participants will be on a listen-

only mode. After the speaker’s presentation there will be a question and answer session. To

ask a question during this time you will need to press star one on your telephone keypad. I

must advise you that today’s conference is being recorded Friday, 7th May 2021. If you require

any operator assistance during the call you can press star zero on your phone. I would now

like to hand the conference over to your first speaker for today Luis Gallego, Chief Executive

Officer. Please go ahead.

Luis Gallego: Thank you. Good morning everyone and thank you again for joining us for our

first quarter update. I’m joined today by Steve Gunning our Chief Financial Officer and our

airline CEOs Lynne Embleton, Sean Doyle, Javier Sanchez and Marco Sansavini Before sSteve

get’s into the detail of IAG’s performance over the last quarter I would like to set out some

context.

There is no question and it’s clear when you see our exceptional loss of €1,135 million in the

first quarter that environment for IAG and all the airlines that we operate has been extremely

challenging. It is also extremely uncertain. The rate at which corridors are opening is slower

than we hope and when travel is possible the requirements imposed on travellers are having a

big impact on passenger traffic. In the first quarter the capacity was only 20% of 2019 levels.

And although IAG went into the pandemic in excellent shape, both strategically and financially,

having made significant improvements in profitability and in returns on invested capital, we

needed to take decisive actions.

During these months the safety of our people and our customers have been paramount. And

as you know very well another key focus area has been ensuring that IAG and our airlines are

as financially robust as possible to withstand whatever the next few months may hold. And to

ensure that operationally we are organized for the current circumstances.

At the end of March liquidity in terms of cash and undrawn facilities remained strong at €10.5

billion compared with €10.3 billion at the end of 2020 as a result of several debt market

initiatives during the quarter. We have also undertaken significant restructuring of our business

to reduce our cost base and be better prepared for the future. And we need to ensure that we

are as efficient as possible because that’s what enables us to continue investing in delivering a

great service to our customers. That in turn is what inspires all our people. The core mission

of all our brands is bringing people together, enabling them to travel around the world to visit

family and friends, for work, or for leisure.

And from the booking pattern we see that our customers are ready to travel again and we are

ready for them. Unfortunately, we expect a low level of passenger capacity to continue in the

second quarter at around 25% of the level that we had in 2019. But we expect to increase

capacity quite strongly from the end of the end of May. Vaccination rates have been a success

in the UK. You know that almost 70% of adults they have received at least one dose and 30%

the complete package. And US has a similar rate. COVID infection rates have been declining

in many of our main markets. Also testing capabilities have been increasing and digital apps


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are available so that passengers can demonstrate their certification of their vaccination and

their testing results.

This all means that from our point of view air travel can return safely at large scale from May

and it can be increased into the summer months. The UK government should reap the benefit

of its success in managing the pandemic by opening up the country to meaningful air travel on

17th May. In particular we hope that the US is recognised by the UK as a green country, which

the COVID and vaccination data supports, as a first step towards establishing a travel corridor

between the two countries from June.

And finally despite the pandemic we remain committed to the future on our climate change

goals. On Earth Day on 22nd April we made the two following commitments. First to powering

10% of our flights with sustainable aviation fuel by 2030 and second to extend our net zero

emissions by 2050 commitment to also include the Scope 3 emissions of our supply chain in

addition to our Scope 1 and Scope 2 emissions. And now Steve will give you the details of the

first quarter.

Steve Gunning

Chief Financial Officer, International Airlines Group

Thanks Luis, good morning everybody. I’ll take you through the key points now in relation to

the quarter one results. So turning to slide five, this slide shows the quarter one pre-exceptional

operating results. We’ve provided two comparators this time round, last year so 2020 Q1 and

the last normal year which is 2019 Q1. So a v2y and a vly. I don’t intend to go through each

line but just highlight some key points. In terms of pre-exceptional operating loss of €1,135

million demonstrates the ongoing impact of the pandemic. The loss is a little lower than the

previous quarter. In Q3 it was €1.3 billion, in Q4 the loss was about €60 million greater. The

capacity in the quarter was 78% lower than 2020 and 80% lower than 2019 but it was in line

with the guidance we’d provided to you at the year-end results at the end of February.

In terms of the passenger revenue it fell 88.5% year-on-year driven by the lower capacity and

the combined impact of lower load factors which were down nearly 31% year-on-year and lower

unit revenues which were down nearly 50% at constant currency. And long-haul continued to

outperform the short-haul revenues consistent with the trends that we saw in quarter four.

Cargo continues to be a bright spot. Cargo revenue was €350 million which is a record first

quarter for IAG Cargo and over €100 million up year-on-year. Revenues were boosted by 1,306

cargo-only flights in the quarter. The revenue performance was also strong due to strong yields

which increased by 95% year-on-year. Actual volumes were down about 27%. It needs to be

noted that Cargo is playing an important role supporting the long-haul passenger network

where many flights could not be justified by the passenger demand alone.

If we turn to costs, costs fell 59% year-on-year as a result of cost cutting efforts and the impact

of the reduced capacity. Employee cost reductions of nearly 50% showed the effect of last

year’s restructuring programmes together with the positive impact of the various employee

furlough schemes across our businesses. These schemes account for approximately a third of


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the year-on-year reduction. Supplier costs decreased about 86% at constant currency driven

by the capacity reduction and also the numerous cost saving initiatives in the Group. In terms

of depreciation, amortisation and impairment costs, these decreased due primarily to the

reduction in the Group’s fleet. The in-service fleet reduced from 595 aircraft at the March 2020

to 531 aircraft at the end of March 2021.

If we now move to slide six. We talked about the pre-exceptional results, let’s talk about the

exceptional items. In quarter one there is an exceptional gain of €67 million relating principally

to the over-hedged fuel position. I’ve explained the over-hedged position in previous

presentations. This write-back is driven by the increase in fuel prices in quarter one or to put

it another way, when the excess hedge positions that we have are marked-to-market with a

higher fuel price the overall loss is smaller. Given our experience of over-hedging losses during

the pandemic we’ve been reviewing our hedging policy and we’ve just approved with the Board

a revised policy.

This revised policy is designed to give greater flexibility and to reduce the negative impact of

our hedge book when there is a significant unexpected drop in demand or capacity and a

material or sudden drop in fuel prices. We have set out the revised policy in the interim

management statement that we’ve issued. It’s on page six. But the key amendments are

we’ve moved from a three-year rolling policy to a two-year rolling policy and we’ve reduced the

maximum levels up to 60% in the first 12 months and up to 30% in the second 12 months.

If we move now onto slide seven and look at how our different airlines are tackling different

challenges and different headwinds. We don’t typically use this slide at the first quarter but we

thought it was useful to show the differentiation of performance and challenges for each of the

operating companies. In terms of Aer Lingus, Ireland at the moment has a uniquely stringent

set of travel restrictions. In fact Ireland probably has the most severe travel restrictions in the

whole of Europe. As a consequence, Aer Lingus is flying 96% less capacity than 2019 and its

results are the most challenged in the Group.

If you look at British Airways the UK has also in quarter one suffered very severe travel

restrictions. However, it has benefitted significantly from its cargo flying which has generated

more revenue than the passenger business and also has supported the BA long-haul network.

if I turn to Iberia clearly the best financial performance in the quarter of any of our airlines.

Iberia has been able to fly significantly higher capacity reflecting less travel restrictions in Latin

America and a stronger domestic market. Finally, Iberia has also benefitted from its significant

maintenance business and also its handling business.

If you look at Vueling, Vueling’s business is very seasonal and hence quarter one is always a

loss-making quarter. However, in this quarter one the loss was much lower than that that

we’ve seen in the previous three quarters during the pandemic, where the operating loss has

been about €180 million. So this improvement in the performance in Q1 largely driven by

positive unit revenue due to very tight capacity provision and also some significant cost

improvement as well.

If we turn now to slide eight and turn now to liquidity which clearly has been a principle focus

for us. During quarter one we continued to strengthen our liquidity position. The quarter

demonstrates that the Group has good access and continuing access to capital markets. We

finalised and drew down on the €2.2 billion UK export finance facility. We successfully issued


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a new unsecured bond for €1.2 billion. This was heavily over-subscribed so we were able to

upsize it. And we also introduced a new three-year revolving credit facility which is available

to British Airways, Iberia and Aer Lingus. By the end of quarter one we had €10.5 billion of

liquidity which is higher than the pre-pandemic level of €9.1 billion. That said, we will continue

to focus on liquidity until the path to recovery becomes more certain. Whilst that outlook is

uncertain, we do actually have flexibility so if we do recover faster than we were anticipating

we do have the ability to pay off debt with no penalties to quite a significant level.

If we move now to slide nine, this slide provides an update on the Group’s net debt position.

Compared to the year-end position net debt has increased €1.8 billion. Three main drivers to

this. Clearly gross debt is up €3.9 billion which primarily relates to the UK export finance

drawdown of €2.2 billion and the issuance of the unsecured bond. Cash is up €2.1 billion as a

consequence of these funds coming in, less the cash used during the period. And finally there

are two non-cash items that are contributing to the increase in debt. There’s the impact of

€0.4 billion which is effectively foreign exchange difference where the dollar has strengthened.

And also there’s €0.2 billion of direct lease liabilities that we’ve added during the quarter.

Moving now to the final financial slide looking at the cash operating costs. We’ve shared this

information with you before but not quite in this format. Just a reminder on definition, we

appreciate airlines are all defining cash burn in different ways. We use Group gross operating

cash costs because we think it’s helpful in two ways. It doesn’t just focus on P&L costs but

looks at all operating cash costs. It excludes any revenues or forward bookings simply because

we think those are so uncertain at the moment that to provide that as guidance we think would

be misrepresenting it.

If we look at Q1 the normal operating environment in Q1 we would have expected a €410

million per week operating cash burn. We guided you to €185 million per week and the actual

outcome has been somewhat below that at €175 million. If we look at quarter two we’re now

guiding you to €200 million per week which is a 55% reduction from a normal pre-COVID-19

flying programme cost. As a reference, we are running a similar level of ASKs in quarter two

as we did in quarter four of last year. And in quarter four last year our operating cash costs

were €215 million and we’re guiding you this time round to €200 million.

A couple of factors that are driving that cost higher than say Q1. Firstly the obvious factor

which is capacity is higher in Q2 than Q1 and secondly we are anticipating a decent summer

season from July onward and so we are anticipating there’ll be increased selling costs during

the quarter as a consequence of that. Those are the key highlights on the financial section and

now I’ll hand back to Luis.

Luis Gallego

Chief Executive Officer, International Airlines Group

Thanks Steve. So we’ve shown this booking chart several times over the last year. I think the

last time was 21st February, the day before Prime Minister Boris Johnson revealed the UK’s plan

to exit from lockdown. And since then as you can see bookings have been quite volatile.

Initially rising towards the end of February and then settling back again by the end of March

and rising again in April. Going into May we would expect bookings to recover assuming that

governments are serious about opening up the tourism. There is plenty of evidence of a strong


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pent-up demand when and where travel is allowed. And in previous presentations we have

shown that this is happening in all the markets.

Currently, for example, in the Spanish domestic market we are receiving the most bookings

and we are more than 50% of the 2019 levels. And as you can see, this is followed by the

long-haul at around 30% of normal – of the normal – if we consider normal, 2019. And

international short-haul at around 25%. If the UK government indicates a meaningful number

of countries on its green list we will expect international short-haul and long-haul bookings to

increase significantly from later this month.

And we can see in this slide seat capacity last month by the major travel flows compared to

2019. And as Steve said before, Europe is the most restricted region in the world in terms of

air travel. Intra-European travel is the most restrictive intra-region market and you can see

that we are -73% of capacity compared to April 2019. And within Europe, Ireland, that we said

before, and UK are the most restricted markets in terms of air travel. We see that other

domestic markets, for example China, they have 19% more seats now on sale than they had

in April 2019. The US domestic market, the largest domestic market in the world, had seat

capacity down by -27% in April. Intra-Latin America, for example, was down -39%. But if we

look also to other large markets for us, the North Atlantic, seat capacity was down -77% in

April followed by the South Atlantic and you can see a range between -60% and -70% less

capacity.

It’s also true that US border remains open for most countries except for European countries.

We are also calling for the ending of US restrictions on travellers from Europe. Under the US

Presidential Section 212(f) Order of the Immigration and Nationality Act, Europeans are

forbidden to enter in the US because of the prevalence of COVID-19. And the only other

countries where the US government applies this border closure are Brazil, China, India, Iran

and South Africa. And in order to have a travel corridor between the UK and the US this order

needs to be rescinded.

Our industry and the Group, IAG we are well-prepared for a meaningful restart this summer.

You can see that airlines and airports are operating to globally agreed health and operating

protocols and our aircraft have the safest and healthiest of any environment you can find.

Testing infrastructure is extensive at most airports. Tests now can be done remotely at home

or while travelling and we have developed digital solutions to demonstrate verification of vaccine

and testing records. We also have aircraft fleet and crew readiness plans in place at each of

our airlines.

Governments in Europe and around the world have made good progress in dealing with the

pandemic. We think that the UK has the lowest infection rate in Europe as well as the highest

vaccination rate for a major country. And European governments and the EU have made

significant developments in preparing for a restart of air travel, such as reopening roadmaps,

traffic light systems, COVID-19 digital certificates and online passenger locator forms.

But we need further government actions. We now need governments to build on the good work

they have done in dealing with the pandemic and preparing for a restart of air travel. In this

slide you have a long list of actions that we request of our governments. I’m not going to go

through all of them but I would like to highlight four of the most important actions that we


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require. We need travel corridors without restrictions between countries with successful

vaccination rollouts and effective testing. In particular between the UK and the US. Testing

should replace quarantine and must be affordable, simple and proportionate. Borders at the

airports must be well-staffed and use contactless technology and electronic gates to ensure a

safe, smooth flow of people and frictionless travel when the recovery comes. And finally digital

passes for testing and vaccinations documentation to facilitate international travel.

And the despite the pandemic IAG remains focused on our long-term climate change

commitments. IAG has always been a leader in this field. In October 2019 we were the first

airline group worldwide to commit to achieve net zero carbon emissions by 2050, covering

Scope 1 and Scope 2 emissions. Two weeks ago on Earth Day we extended our net zero

commitment further by also including Scope 3 emissions. You know that Scope 3 emissions

are those that are produced by our suppliers and partners and represent around 23% of our

total emissions. As an interim measure on the way to 2050 we are also targeting a 20%

reduction in Scope 3 emissions by 2030.

IAG’s also the first European airline group to commit to powering 10% of our flights with

sustainable aviation fuel by 2030. This new target is in addition to our existing target of 45%

sustainable aviation fuel by 2050. Sustainable aviation fuel produces 70% fewer carbon

emissions than fossil fuel and we intend to purchase at least one million tonnes of sustainable

aviation fuel annually by 2030. To meet this target we need also the UK government to set

policy and incentives to enable construction of at least 14 sustainable aviation fuel plants in

seven locations in the UK.

Finally the outlook remains uncertain. We operated only 20% of our normal capacity in the

first quarter, as you saw before. For the second quarter we currently plan a slight increase to

25% of 2019 levels and would expect it to be higher than this as travel restrictions in the UK

start to be relaxed from later this month. At this stage because of this uncertainty we cannot

give capacity guidance for the rest of the year but we are confident that it will be a lot more

meaningful in the second half than in the first half of the year once we know where people can

fly and what level of travel restrictions will apply, especially in our home markets.

IAG is ready for a safe restart this summer and governments have taken important first steps

to improve health conditions and control the virus. But as I said before, we need our

governments to take further actions to enable a meaningful restart this summer. And in

particular again we need travel corridors where vaccination rates are high such as between the

UK and US, affordable and simple testing to replace quarantines, well-staffed borders using

contactless technology and electronic gates, and digital passes for testing and vaccination

documentation to enable seamless international travel.

As you can see the industry is facing great challenges and change, but the good news is that

people want to fly. We are ready also to fly and we will be ready to take advantage of the

opportunities for profitable growth that we will have in the future. Thank you for your attention

and now we are available to answer all your questions.

Q&A

Operator: Thank you. As a reminder, to ask a question you will need to press star one on your

telephone keypad. To ensure everyone has the opportunity to ask a question today please limit


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yourself to just two questions. Please also ensure that you are close to your microphone and

not on loudspeaker. This will help with ensuring the audio is clear and that your question is

understood. Thank you. Our first question for today is from Daniel Roeska from Bernstein.

Please go ahead, your line’s open.

Daniel Roeska (Bernstein): Good morning gentlemen. While you and I think all of us are

waiting to travel again and for traffic to return, I’d like to touch down on maybe two more

strategic questions. The first one on short-haul. If we’re assuming that long-haul travel will

return a little bit slower and business travel will return a little bit slower, isn’t there a risk in

short-haul of some over-capacity? And I think the question is, if connecting passengers and

business travellers are not as abundant on short-haul where do you think your cost position

can be? So maybe focusing on short-haul, do you think you can reduce your short-haul cost

position? And especially at the network airline’s, below where it was pre-pandemic. And then

secondly could you talk a little bit about distribution? You didn’t touch on it right now but kind

of what are the next steps that will be enabled by the direct distribution? Can you give us kind

of the next three or four major milestones in your direct distribution strategy? Thanks.

Luis Gallego: Okay. I think about the first question about the short-haul, it’s true what you

said that we see that recovery of the short-haul is going to be earlier. I think, for example,

you see the volume plan for this summer. They are ready to fly almost 100% of the capacity

that they had in 2019. So demand is there. When we don’t have restrictions we can fly and I

think, as you say, in the – in our hubs we are adjusting also our network to try to have the

feeding necessary when we can fly to the long-haul destinations. But I think in the short-haul

we have much more flexibility than we can have in the long-haul. I don’t know, Sean, if you

want to add anything to that.

Sean Doyle (CEO, British Airways): Yeah, I think we’ve been adapting and kind of if you

look at British Airways there’s been a lot of structural change initiated. So the airline is leaner

and smaller and has fleet flexibility to align capacity with demand. But there’s also structural

cost efficiencies which are going to come through and make us competitive. So I think we have

agility but we’re also more competitive coming out of the pandemic as a result of the

restructuring that was undertaken last year.

Daniel Roeska: If we’re staying on cost, I mean, if you think about your short-haul cabin on

BA specifically then, right, we’re going to a period of time where you’ll have fewer connecting

travellers on that short-haul and fewer business travellers on that short-haul. And I think the

underlying question is, you know, will the cost reduction be enough to deal with the yield

dilution?

Sean Doyle: I think, you know, there’s a couple of kind of dimensions here about the kind of

markets we serve. So number one, you’re right business travel is important to us but we do

see pent-up demand for business travel and frustration with things like Teams meetings and

Zoom calls. And that’s beginning to scale as we look at surveys and look at our corporate

intelligence. But secondly, I wouldn’t underestimate the relevance that we have built up in the

leisure segment. So if you look at the BA short-haul network it’s been pivoting to much more

relevance out of all of our airports to leisure and we’ve been very dynamic in planning our

capacity. The third thing is we do have flexible configurations so we can actually reconfigure

our aircraft on short-haul to have a variety of business and economy configurations because of

the way we have kind of set up our aircraft structures. And the fourth thing which we have is


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a very strong BA Holidays business which has grown 15-fold over the last ten years. We’ve got

a lot of overlap between people who fly from our Executive Club base and people who use our

BA Holidays business. So I think we’re well able to kind of offer products not just air fares but

package products and we’re very flexible in adapting to leisure demand as it emerges and VFR

demand.

Luis Gallego: Okay. And your second question about the distribution, I think in the last results

presentation we announced also the agreement that we reached with Amadeus. And I think

that’s part of our strategy first of all to reduce our distribution costs and also to have better

customised proposal for our customers. In the plan that we are developing for the different

airlines I think we explained that to have additional price points and dynamic pricing is going

to be key and to develop also the ancillary revenue. And I think the future is to be more

efficient, more efficient in the part of the cost, but also, as I said, to make dynamic personalised

offers. So that’s something we are working on it and I think we are at a good speed in order

to achieve that.

Daniel Roeska: Okay, thanks.

Operator: Our next question is from Savi Syth from Raymond James. Please go ahead.

Savi Syth (Raymond James): Hi, good morning everybody. Just first question from me, you

know, as markets open up assuming demand supports it, up to what level of 2019 capacity do

you think you can ramp out based on, you know, what your current staffing and other, you

know, potential limitations might be? And then just a slightly different line of – along what

Daniel asked. On a bit more of a medium and longer-term basis, you know, if you look at your

fleet retirements and configurations in the fleets that are coming in and some of the costs that

you are kind of taking out, you know, how much of a loss of that business premium traffic can

the model handle and still generate pre-crisis kind of low double-digit margins? And I’m

referring to business because I’m guessing that kind of premium leisure will bounce back pretty

well. So just longer-term, not necessarily thinking about short-term but, you know, how much

of that business demand could you lose and still be profitable given the changes in the system?

Luis Gallego: Okay, thank you. I think about the first question, as I explained before, we have

a lot of uncertainty about the future but in the same way we have a lot of flexibility. So at a

Group level we can operate between 70-75% of the 2019 capacity in the third quarter. We

could operate between 80% and 85% in the fourth quarter. It’s true that we can have a little

more flexibility in Iberia and Vueling. Iberia for example, they can operate 80% in the third

quarter and 90% in fourth quarter. And Vueling, as I said before, they can operate 100% in

third quarter/fourth quarter. The main reason for that is because the Spanish furlough

programme, what we call ERTE, it works in a different way and the people that we have in the

ERTE, the main part of them they maintain the recent experience and they are ready to fly.

But it’s true also that we have reduced the capacity in both companies, in Iberia and BA sorry.

In Iberia, for example, with the retirement of 15 A340-600 a year ago and also in BA with the

747.

So that is connected to your second question that this how do we see the future and for example

the retirement of the 747 implies a reduction of -24% seats if we compare with the situation

that we had previously, with a mix of -33% in premium and -22% in non-premium. So we are

reducing the premium seats that we have and what we are doing is to have a flexible model for


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the future. I think the configuration of the aircraft is going to be key. The premium economy

class is working very well and we consider that, as Steve said before also, we are going to be

smaller and we need to be leaner. And we still don’t know how it’s going to be the behaviour

of the customers. So what we need to be is more flexible. And I think we have the flexibility

with the different fleets that we have to adapt ourselves to the demand that we can have in the

future. And one important thing that we repeat in every results presentation also is that for us

corporate travel is only, I would say, 13% of our revenues. That’s important.

Savi Syth: And just a clarification. Was that the – the 33% reduction in kind of premium seats,

is that overall system versus kind of pre-crisis?

Steve Gunning: Let me pick up on that. So what’s interesting to us is when we look at the

corporate sales position, you know, our sort of working assumption is there’ll be a sort of 15%

diminution in that based on the COVID experience and people wanting to use Teams and Zoom

rather than get on an aircraft. So our sort of working hypothesis is about 15% and we’ve seen

lots of surveys that have seemed to support that kind of quantum. If we look at the way the

fleet will progress by about 2023, say if you look at British Airways due to the taking out of the

747s which are very high premium we think actually that the premium seats will reduce by a

similar percentage. And so there’s quite an elegant match between that reduction and the

change in seat configuration. And that’s a combination of a much bigger reduction in First

because we were already going through a process of reducing the size of the First cabin. And

a reduction in economy due to taking out the 747s and the fact that we’re going to a less dense

seats. So we think there’s quite a match between those two.

But the other factor that we would sort of stress on this is premium leisure. You know, we’ve

got a good history of driving premium leisure. In 2016 when British Airways corporate demand

was low, we were able to backfill that with premium leisure sales. And as Sean has highlighted

earlier this morning, BA Holidays is a very powerful vehicle for us to drive premium leisure as

well. And I know the team there are looking at ways of how do you combine the BA Holidays

proposition with the Loyalty proposition as well. So we’re very confident that due to the way

our fleet’s reconfigured and also what we can do on premium leisure, this shouldn’t cause us a

problem. Which takes us all the way back to the point where we’re very confident we can get

back to operating margins in the 12-15% range in 2023/2024 assuming we get up to the kinds

of capacity levels that we saw around 2019 and pre-COVID.

Savi Syth: That’s all very helpful, thank you.

Operator: Thank you. Our next question is from James Hollins from Exane BNP Paribas. Please

go ahead.

James Hollins (Exane BNP Paribas): Hiya, morning, two for me please. The first is on an

update on Air Europa please. Just wondering if you can give any detail on how negotiations

are. I think you’re speaking to the Spanish government, maybe the EU as well. And secondly

thank you in advance for being at our Sustainable Aviation Conference next week but on that

note just on sustainable aviation fuel this 10% of flights by 2030, I was wondering if you could

maybe give some detail on how you build up till then or is it sort of we have nothing until 2030

and hope the costs of SAF are much lower by then? Thanks.

Luis Gallego: Okay, about the first question, Air Europa, I can say that operations continue

according to the plan. I think we continue talking with the Spanish government and with SEPI


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on one hand. And in the other hand we continue working with the European Competition

Authorities. So about the second question, I think you know that we have a commitment of

net zero emissions in 2050 and what we are defining are middle points to arrive there. But that

doesn’t mean that we don’t do anything in the middle. Precisely to arrive to those points we

need to continue with the development of the different initiatives. For example, you know that

we continue investing in the new fleet and we continue with the delivery of new generation

aircraft that they help a lot in the reduction of the consumption of fuel. Also we are increasing

the percentage of sustainable aviation fuel that we are using. At the point that we have there

is that aircraft are prepared to fly with more sustainable aviation fuel but we need availability

of sustainable aviation fuel and also we need to have a competitive price.

And that’s the reason we are saying that we need also the commitment from the government

to develop additional plants because otherwise it’s impossible. So I think we need investment

and also we have explained several times that for example we need innovation. We need

initiatives for carbon capture and storage development. We also need that investment for the

aircraft of the future. One thing that we have repeated several times also is that it’s time to

go ahead with the Single European Sky. It’s something that can reduce, I would say quickly,

the emissions around 10%. So I think all these things are happening and it’s not that in 2030

that year we are going to have 10% of sustainable aviation fuel. It’s a process we are doing

every day a little.

James Hollins: That’s very interesting, thanks. Just following up on that, I think the German

government yesterday or recently announced it was putting €1 billion into the development of

sustainable fuel. I was wondering if you were seeing any signs of any sort of investment by I

guess particularly the Spanish and UK governments on something similar.

Steve Gunning: No, the key things we’ve been involved with as IAG has been to invest in

sustainable aviation fuel production through Velocys and LanzaJet so those are the two areas

we’ve been investing ourselves. We have lobbied the UK government a fair bit. I’m sure Sean’s

got views on that but, you know, we’re still calling on them to further support the increased

production of SAF fuels. You know, I think the last time we looked at it we were sort of saying

the UK would probably need something like 14 production plants in the UK to be able to produce

enough sustainable aviation fuel to support a 10% target that we’re having for 2030. So as

Luis said, you know, there’s no one silver bullet for this, you know. We’re looking at this from

four or five angles, you know. What we do on fleet, what’s done with air traffic control and

operating activities to be more efficient. And also what can be done to produce more

sustainable aviation fuel in a price competitive way.

Sean Doyle: Yeah, just to add to that. We’re very active in the Jet Zero Council and sustainable

aviation fuel is very much in the sights of the Jet Zero Council here in the UK. We need match

funding to build plants from the government. The demand is there because you see airlines

coming out and actually committing to proportions of fuel which will be driven by SAF. But we

also need the market structures in terms of price certainty which I think policy should support

as well. So I think there is a huge amount of engagement in SAF in the UK but that needs to

convert into commitment.

James Hollins: That’s great, thanks very much.


12

Operator: Our next question is from Stephen Furlong from Davy Stockbrokers. Please go

ahead.

Stephen Furlong (Davy Stockbrokers): Morning gentlemen. Maybe for Steve, just one

clarification first. I mean, I know you don’t talk about the balance sheet in the Q1 and maybe

it’s just more accounting thing but I assume that with the losses in Q1 and Q2 the equity goes

negative. And is that something that is of concern or basically it’s not cash related? So I just

wanted to ask that. And second point then, assuming you get back to, you know, 2019 levels

of capacity in say 2023, would you be confident that unit cost levels will be lower? And just

thinking more about cost pressures like in airport charges, say Heathrow or I see Aena are

talking about proposals to increase user charges across its airports. Thanks very much.

Steve Gunning: So on the first question, you’re absolutely right Stephen, we do anticipate

that as a Group we’ll go into negative equity probably during the middle of the year. From a

Group perspective that doesn’t really have any ramifications. At an ICAG, so the parent

company level we would expect equity to stay positive. But where it does have some

ramifications is, you know, there are equity tests in Spain under Spanish regulations and for

Iberia and Vueling we would expect to do some degree of equity restoration as a consequence

of not meeting some of those targets. Now, there’s alleviation from those tests at the moment

so if we needed to do some work to put some further equity into those two businesses we

wouldn’t need to do until February 2022. And we’re comfortable with the modelling that we’ve

got that capability and the ability to do it. So it’s a good question but from everything we’re

seeing at the moment we’re in good shape. But we wouldn’t need any new equity at the parent

level. This would just be down at the operating company level.

With regards to your second question, in terms of 2023 unit cost levels we’re confident that

they will be lower than they were 2019, as you say, based on the premise that capacity is back

at sort of 2019 levels. All the modelling we’ve done suggests that that’s the case. We are very

aware that there are inflationary pressures as well as, you know, the initiatives that we have.

So, you know, as you’ve rightly mentioned some of the airports and some of the handlers are

also going to be looking to recover the positions that they’ve suffered during COVID-19. But,

you know, one of the things I would reassure you is, you know, Luis has built the Management

Committee, put a Chief Transformation Officer. We’ve got a new Director of Strategy and whilst

we’re dealing with the short-term challenges of COVID-19, we’re also at the same time planning

what 2023 and 2024 look like. So there’s a lot of work going on there in terms of what are the

right transformation initiatives and what can we do to reach our full potential. So we’re

confident we’ll get back to 12-15% operating margin. If anything Luis is pushing us all for more

than that. So we’re comfortable with the unit cost performance.

Stephen Furlong: Great, thank you Steve.

Operator: And our next question is from Jarrod Castle from UBS. Please go ahead.

Jarrod Castle (UBS): Thank you. Good morning everyone. Firstly, any views on families

travelling, you know, with young children given at the moment, you know, they can’t be

vaccinated. Seems like there’s a bit of progress there though but at the moment. And also,

you know, those travelling, you know, who need to undertake testing because they haven’t

been vaccinated, i.e., you know, views on your ability to recover traffic. And then secondly,

you know, we’re obviously going to get some clarity from the UK government but we’ve had


13

kind of the announcement about the green passports from the EU but specifically where do

things currently stand as you see them in Spain and Ireland looking out towards summer?

Thanks.

Luis Gallego: Okay, I think that for your first question about the testing and the vaccines and

the families, I think we are constantly analysing what the customer wants. And I think what

we are defending is that vaccination plus testing is the future. I think the people that they are

fully vaccinated they don’t need to have any restrictions to fly. But we know that not everybody

can be fully vaccinated so we consider that testing, affordable testing and easy testing is

required to fly. And when you talk about families we consider that now the solution is testing.

You can have part of the family vaccinated, you can have children, okay but testing can be

required for the people that they are not vaccinated. And that is enough because what we have

seen is that with the data that we have testing is better than quarantine. At the end quarantines

are not the solution. In some way you rely on people staying at home but you don’t have any

evidence that this is happening. So what we see in general is that people are excited with the

possibility to fly. In the surveys we are doing, 60% of the people in UK they want to fly and

they want to go on holiday this summer. And that’s something that, as I said before, we have

that pent-up demand. We are ready to fly.

And about the second question?

Steve Gunning: Spain and Ireland restrictions.

Luis Gallego: Okay Spain and Ireland restrictions. I think Spain the state of alarm will finish

9th May and I think from that moment we hope that everything is going to be easier. We know

that the Spanish government is working hard to have tourism during this summer, it’s key for

the economy of the country. We hope that at least part of the destinations in Spain can be also

in the green list that we are going to have soon. And about Ireland the situation, as Steve

explained before, I would say it cannot be worse because, to be honest, we cannot fly so we

are in a situation that we are considering what are the necessary steps we need to take there

in order to survive, to be honest. And I don’t know Javier, Marco you can maybe give further

information about Spain and Lynne about Ireland?

Javier Sanchez-Prieto (Chairman and CEO, Iberia): Hi, it’s Javier here. Well, as you said,

the 9th of this month is when the state of alarm will end. We are expecting and we are ready

in our government also to actually restore the back to normal. So no restrictions to fly among

the different regions in Spain. And in fact if we think about what you were saying before and

the map that you shared before, when we look to Europe and to the traffic into Europe, the

capacity is reduced by 73% it’s let’s say the worst region in the world in terms of capacity. And

that that’s a reflection on the number of different constraints and restrictions that we have

among the different countries. And this needs to change because it is no sense that Europe is

the region with more restrictions than we have nowadays. I mean, with the vaccinations, the

progress on the vaccination processes and also the tests, the situation needs to be restored to

the previous one and ease the way of travelling.

Lynne Embleton (Chairman and CEO, Aer Lingus): Yeah, hi, it’s Lynne here. Just firstly

on your question of families, I can’t believe a government would be able to sustain a policy

where families are split up so I’m confident that that will get resolved. But on the Ireland

situation without a doubt the Irish government are taking a way more cautious approach than


14

any of the other governments, particularly in Europe. And their recent actions such as putting

the USA onto the mandatory hotel quarantine list has devastated the ability to sustain flying.

We do have an Aviation Restart Plan that is sponsored by the airlines and all of the stakeholders.

And we’ve worked closely with government on that. And we are in dialogue with the

government about what needs to happen. Opening up the common travel area between the

UK and Ireland is an obvious first step, which we believe is very low risk. Adopting the EU

Traffic Light system and the digital green certificate is an obvious step we can take. And

therefore we believe there is a safe path and we’re in dialogue to try and encourage that

because, you know, as you know the summer is more important than the winter from an

aviation perspective. And the summer months are still to play for and we’re encouraging the

Irish government not to be as cautious if they’re going to give us any support.

Jarrod Castle: Okay, thanks very much.

Operator: Our next question for today is from Neil Glynn from Credit Suisse. Please go ahead.

Neil Glynn (Credit Suisse): Good morning everybody. Just that firstly just as we, I guess,

await the update from the UK and anticipate some kind of a step up in forward bookings, I

mean, if you look at the percentages of forward bookings that you outlined earlier, if I look at

25-30% of third quarter revenues pre the pandemic, that might suggest the possibility of

around €2 billion of cash to come in the door at some point of the next few months. And without

getting too ahead of myself, I just wanted to understand Steve your thinking on decision making

on whatever level of incoming cashflows might come in. With your liquidity position certainly

seems fine. It’s higher than pre-pandemic. But the debt clearly will eventually be repaid so

what kind of cashflow position do you think about to start actually repaying that debt? And any

guidance on what are the top priorities for debt repayment when the time is eventually right,

would be helpful. And then a second question. At the full-year you mentioned, maybe just for

Luis or Sean but at the full-year there was mention of OEM negotiations continuing. And I

wonder as large domestic markets rebound how are those discussions advancing? I assume

they’re somewhat influenced by traffic restarting and can you give us any latest guidance on

fleet planning and capex for 2022 or 2023 to the extent you can now?

Steve Gunning: Hi Neil. I think somehow you’ve managed to put about ten questions into two

questions there which was quite impressive. If I deal with the first one with regards to forward

bookings, cash coming in, liquidity and what’s your priority to de-lever. In terms of that, you’re

absolutely right. We’re assuming that there will be a decent summer of flying. Clearly it’s

going to be more Q3 than Q2 and it’s probably a little bit later than we were hoping for but

we’re still confident that we’ll get a decent summer of flying in. And clearly if that does come

through with green list announcements, etc, you know, the first list and maybe the subsequent

list, you know, we would expect to then see an inflow of cash through forward bookings late Q2

and going into Q3. That would be our expectation and clearly if you get into Q3 then and you

are having a significant summer then clearly that will help from an EBITDA perspective as well.

So you’re right, if that sort of base case prevails, you know, we would start to see the liquidity

position enhanced to some degree. And clearly, you know, there’s such a wide variety of

potential outcomes at the moment that, as I said earlier, we’re still focusing heavily on

maintaining and optimising our liquidity. And so we continue to look at other ways as to how

we can bolster that if we thought that was appropriate.


15

But it does raise the point and I did allude to this when I was sort of presenting the slides, you

know, we are mindful to the fact that, you know, there could be a situation, and it would be a

lovely problem to have, that maybe in a few months’ time, you know, maybe you’re sitting

there saying, ‘We’ve got more liquidity than we need.’ That would be a lovely problem to have

and the point I was making earlier is we’ve got quite a lot of flexibility. With a lot of the debt

instruments that we’ve taken out we can repay those early without cost. And so, you know,

we’ve got a number of different ways we could go. I think what we’d have to do is judge that

when we get to that situation because it’ll depend on what the situation is for each of the

different operating companies. Because as we’ve highlighted in this presentation, you know,

the challenges faced by each of the operating companies is very different. You know, the

challenge for Aer Lingus at the moment is very different to the challenge facing BA when you

look to the future. So we’ve got lots of flexibility. Clearly some of the things we’d like to do is

remove some of the debt that has restrictions to it, whether those are dividend restrictions or

other things. But really we’ll make those judgements and we’ll discuss that with the Board

when we get to that what I hope would be nice dilemma in a few months’ time.

Luis Gallego: Yes, and the second question was about the fleet. I think the quick answer is,

no, we haven’t changed our aircraft deliveries. We maintain what we told you before. We

maintain the capex that we explained in February. We are going to have 15 new aircraft

deliveries, including nine aircraft that were delayed from 2020. And for 2022 in principle we

have already explained that we will not have more than 29 deliveries additional.

Neil Glynn: Thank you.

Operator: Your next question today is from Andrew Lobbenberg from HSBC. Please go ahead.

Andrew Lobbenberg (HSBC): Hi there. You’ve spoken quite a bit about the hopes and

aspirations of the US/UK travel corridor but you’ve been rather more circumspect about the

EU/US. What are your expectations around visions for that reopening, I guess particularly

relevant to Aer Lingus and to a lesser degree to Iberia? And then can I ask what your

expectations are around the slot rules for the winter 2021/2022? And in that context, you

know, how you think about managing the Gatwick environment, you know, depending on the

potential different outcomes of, you know, what if normal 80/20 rules are reintroduced. Thank

you.

Luis Gallego: Okay, thank you. I think on the first question we said that UK/US market, a

part that is important, as you say very important for us is also because we consider that with

the scientific data that we have it’s a corridor that must be open. I think the vaccination rate

in US is similar to UK. It’s true that in US there is a relatively, I would say, high infection rate.

I think 196 new cases per million if you compare with around 40 that we have in the UK. But

I think that it’s very important to include the US in the green list. I said before that it’s not

only a question to include in the green list. We also need action from the other side. So we

hope that in June we can be flying that market that, as you say, is key for us.

And about the slots, also we hope that we are going to have an alleviation for the following

season. I think it makes a lot of sense. And also linked, we say always, to the sustainability

issues. I think it doesn’t make sense that the airlines we are flying empty, to try to maintain

a slot where we are trying in some way to reduce the CO2 emissions. So I am sure that we’re

going to continue with alleviation. And in Gatwick – sorry?


16

Andrew Lobbenberg: Sorry I was going to coming back. The question about the transatlantic

I was actually asking about the EU to US rather than the UK to the US.

Luis Gallego: Okay, EU to US I think we’ve had good news also last week and EU said that

they are ready to open the market to US citizens that they are vaccinated. I think that’s a very

good step. So we hope that market is going to be opening also in the second half.

Andrew Lobbenberg: Thanks. Sorry for interrupting you. You were just going to say

something about Gatwick. Sorry about that.

Luis Gallego: Okay. No, no, I was going to say that Gatwick is an important decision that we

need to take as a Group. It’s true that we’ve had the issue with slots but for us Gatwick has

strategic value but we need to be competitive there. These prices are going to change the

profile, I would say, of the demand and we need to be flexible and competitive there. So we

are analysing the different options that we can have in Gatwick and we will explain to you when

we take a decision. I don’t know Sean if you want to add anything else.

Sean Doyle: I think as Luis said, we’ve got to figure out a number of things first as well. One

is, as you said, the slot rules and that’s undergoing consultation. But it’s probably a couple of

months before we get clarity. And secondly it’s fundamentally, you know, market access going

forward. So the green list today is a start. But those variables will be at play as we look into

the winter. But at the minute we’re operating our short-haul services out of Heathrow and that

will carry on for the foreseeable.

Andrew Lobbenberg: Okay, thanks.

Operator: Thank you. Our next question is from Johannes Braun from Stifel. Please go ahead.

Johannes Braun (Stifel): Yes, thanks for taking my questions, also two obviously. Firstly

how will you react to jetBlue starting transatlantic flights to and from Heathrow this autumn?

So for example would there be a need for some reaction from a product perspective? And also

how would you see jetBlue competition compared with the Norwegian competition that you

used to have? And second question, could you remind us of the various partial activity and

furlough schemes in the various countries you operate, especially when they all end and what

that means for the development of labour costs?

Luis Gallego: Okay. About the first question about jetBlue, I think there are two things about

that. First of all you know that we have a good relationship with jetBlue. For example, with

Aer Lingus we are working very well a long time ago. You know also that they are developing

their relationship with American Airlines, that is our partner in the joint business. So we have

a lot of things to work together and that’s something we are exploring now. But it's true also

that they are going to start flying North Atlantic with the narrow-body aircraft and I think it’s

going to be an interesting product. But we have also that opportunity and Aer Lingus they’re

flying also the A321 Long Range. And it’s an opportunity that we have now with, for example,

the new flights that we are expecting from Manchester. And I think with that type of aircraft

it’s an area that we can develop in the Group. So maybe Sean you can add something, your

vision from British Airways.

Sean Doyle: Well, I think you mentioned product and we are continuing to re-embody and

take delivery of aircraft with the brand new Club World Suite and we’re absolutely delighted

with the feedback we’re getting on people’s experience of that business class product. So I


17

think that will make us, you know, very differentiated as we look ahead in the business class

segment. And I think, look, the way we’ll compete with all the carriers in the North Atlantic is

the combination of scheduled, product, service and loyalty. And I’m very confident that we’ll

be able to compete very effectively through all those levers going forward. Yeah, Aer Lingus

launched the A321 LR. I think, you know, that’s going to be replacing a lot of the narrow body

missions the B757 used to do. So it’s new in one respect in that it’s, you know, a new variant

but we have seen narrow body operations before that we’ve competed against.

Luis Gallego: Okay, about your second question about the different furlough schemes that we

have in the different countries, as a summary in Spain it will finish in May and Javier and Marco

now can talk about that. We hope it’s going to be extended. This crisis is taking longer than

everybody expected so we require and we need the help from the different governments. And

in Ireland now it will finish in June and now Lynne can explain where we are. And the UK in

September. So maybe Lynne you can explain that.

Lynne Embleton: Yes, as Luis said, the current scheme formally ends in June but I fully expect

the government will extend it. And we’ve been in dialogue and they know the situation we’re

in. I’d be very surprised if they didn’t extend that from there.

Luis Gallego: Okay and Javier, Marco about Spain?

Marco Sansavini (Chairman and CEO, Vueling): Yeah, with regard to Spain, indeed the 31st

May is when the current ERTE Force Majeure terminates but the expectation is that it will be

extended until the end of September. And would the conditions remain the same, we definitely,

fully intend to also extend it as it is the ideal instrument to have flexible labour costs in relation

to the overall activity. Maybe I can also comment with regard to the Norwegian element. There

of course, the retrenchment of Norwegian is generating opportunities, in particular for Vueling

in terms of the flow between the Nordic areas and Spain. And in this respect we have launched

recently nine new routes, some of them to Barcelona, some of them to other places in Spain as

these represent opportunities for us to develop those relevant markets.

Johannes Braun: Okay, thank you, that’s very helpful.

Operator: Our next question today is from Gerald Khoo from Liberum. Please go ahead.

Gerald Khoo (Liberum): Morning all, thanks very much. Two from me. Firstly on Cargo,

clearly a very strong performance in Q1 but supported by the lack of passenger capacity, the

lack of belly hold capacity. At what level of passenger capacity versus 2019 do Cargo yields

start to come under pressure again? And secondly on the balance sheet, I think you flagged

that you repaid the UK’s CCFF loan in April. Can you just remind us what other maturities of

facilities there are through the rest of this year please?

Luis Gallego: I’ll do the first one. I think Steve can answer the second one. About Cargo, it’s

a very good question and you know that the performance of Cargo is very good and in some

cases or in a lot of cases it’s supporting the operation. What we think is we have two effects

there. One is that we have a specific mix of cargo linked to the pandemic that they are there.

We don’t know how much of that will be in the future. And also as we have less aircraft flying

the capacity available is lower and as a consequence of that the yields are higher. So as soon

as the people are increasing capacity we consider that this advantage in yields can be reduced.

That from our point of view this can take minimum 2-3 years and also assuming that


18

everybody’s going to be there in the future but we are going to have very weak companies with

a lot of debt that they need to repay that burden that they have. So we consider that part of

that can be there in the future. But Steve, the second one?

Steve Gunning: Thanks Luis. Hi Gerald. In terms of your question what might be helpful is if

you go back and look at the IR deck for the year-end results. We put actually a debt repayment

schedule in there. And that that showed for 2021 is that we would be paying back about €400

million of debt in 2021 and the vast bulk of that, all but about €60 million of it related to CCFF.

So to answer your question directly there’s not really any left that needs to be repaid in 2021.

And just sort of going beyond that the next significant repayment would be in 2022 which would

be the convertible that matures in I think it’s November 2022 for about €500 million. So the

debt maturity burden 2021/2022 is relatively modest to be frank.

Luis Gallego: I think the good thing of this Group is we have a lot of talent moving around the

Group so we have Lynne today that until 6th April she was in Cargo and she would like to add

something about…

Lynne Embleton: Yes, just coming back to your question on the yields and the trajectory in

Cargo. As you’ve seen in the results IAG Cargo have been able to take advantage of the high

yields in the market, more than doubling at constant currency. Now, the disadvantage that

IAG Cargo has is, without freighters and without much passenger flying, to take advantage of

that in any term has got to get the aircraft up in the air. And Cargo is therefore incurring costs

of putting effectively empty passenger aircraft and full belly up in the air. So even as the yields

fall that will happen as more passenger aircraft come up and that means that Cargo no longer

has to sustain empty cabin aircraft and so the costs will come down. So in a way there’s a kind

of natural hedge between as the yields come down the costs will come down as well for Cargo.

But we do believe that there’ll be a relatively strong market environment for Cargo for some

time. So we’re actually looking forward to the capacity coming back in. We see that as a good

thing for Cargo.

Gerald Khoo: Okay, thanks very much.

Operator: Our next question is from Alex Paterson from Peel Hunt. Please go ahead.

Alex Paterson (Peel Hunt): Morning everybody. Can I ask two questions please? Firstly just

can you say a little bit around the exceptional cash flows this year what should we expect for

hedge gains? Is there anything we should put in for restructuring? And then secondly I see

the CAA is reviewing customer deposits for ATOL-protected holidays from the UK. If they could

no longer be used for corporate purposes could you just say how much you would be exposed

in that and how you would replace that capital? Thank you.

Steve Gunning: Okay Alex, on the first question in terms of exceptionals, you know, the fuel

price has been relatively flat and stable over the last couple of months. Clearly it moved up I

think about 10%. I think it was – I’m doing this off memory. It was somewhere in the region

of $450 Jet at the year-end and it’s over $500 now currently and has been relatively stable. So

there was a small gain in Q1 because we had to re-mark-to-market the over-hedge position.

I’m not expecting there to be – unless there’s a very volatile fuel price I’m not expecting there

to be significant exceptional items as a consequence of the over-hedging positions on fuel. In

terms of restructuring costs we don’t currently have significant restructuring costs built into our


19

models at the moment. So I think it will, God willing, be a relatively quiet year from an

exceptional perspective, to answer your question.

With regards to the ATOL question I think you’ve got us on that one. So we’ll come back to

you on that one. There’s a lot of faces looking at each other going, ‘Yeah, that was a good

question. We weren’t – we don’t know the answer to that.’ So we’ll come back to you.

Alex Paterson: Thank you very much indeed.

Operator: Thank you. Our next question is from Jaime Rowbotham from Deutsche Bank.

Please go ahead.

Jaime Rowbotham (Deutsche Bank): Morning everyone and thanks for the detailed update.

I just wanted to ask a couple of fleet-related questions. Firstly Luis you mentioned taking

advantage of opportunities for profitable growth and Vueling being ready to fly. And Javier just

mentioned specific opportunities for Vueling linked to the retrenchment of Norwegian. Some

of the ultra-low cost carriers with Ryanair have been taking deliveries of new aircraft throughout

the crisis or planning to increase their fleets as we come out of it. They see clearly lots of

opportunities. Just wondered whether Vueling has any specific plans or aspirations against that

backdrop and how many of the narrow bodies you have on order might be destined for Vueling.

And then a quick one on the A380. So a couple of weeks ago another carrier, Etihad, announced

a plan I think to end A380 operations. I just wondered what your latest thoughts are as one of

the few remaining potential operators of that aircraft and in terms of the opening up, your hope

for a travel corridor with the US from June. Could you see a scenario in which you might be

think about bringing those 12 aircraft out of storage later in the year? Thanks.

Luis Gallego: About your first question, yes, it’s something we are reviewing at a Group level.

We know the necessities of fleet that we have for the future and we have different scenarios of

growth. But as you know there is a lot of uncertainty. And that’s something we are analysing,

the size of the fleet that we are going to require and when is the right time to approach the

market. But we are analysing that and we are analysing our narrow body fleet and Vueling is

included in that for sure. But also we are analysing the long-haul fleet for the future. So yes,

I think it’s a window of opportunity that we are analysing and as soon as we decide something

we will come back to you.

And about the 380s, Sean can give you further details but we have explained several times that

380s is an aircraft that has worked very well for BA in several destinations and I think part of

those destinations are in the East Coast of the US. It’s going to be useful to have them but

Sean, please.

Sean Doyle: Yeah, I think, you know, the context as well is we’ve retired 31 747s so when you

look at our overall long-haul fleet the A380 is part of it going forward. It’s not operating at the

moment but when we would see a recovery later in the year it would be part of those plans.

It’s a very effective aircraft in a slot-constrained airport like Heathrow because it does give you

optimal capacity deployment and it works in markets like Hong Kong and Singapore. But it’s

also worked very well in places like Chicago, Boston, Washington and Miami. So we’ve

demonstrated it’s mission capability across various ranges and parts of our network.

Steve Gunning: Yes, I think I’d just add one further point. You know, we have continued to

take aircraft deliveries during the course of the pandemic. So we took 29 new aircraft during


20

2020. We’re anticipating taking 15 new aircraft this year and as we indicated at the full-year

results, you know, we would not expect to take more deliveries than 2020 but we would still

expect to take significant deliveries in 2022 as well. So, you know, we think continuing to

upgrade the fleet, particularly given our carbon commitments and our need for fuel efficiency,

has been the right move.

Jaime Rowbotham: Super, thanks.

Operator: Our final question for today is from Carolina Dores from Morgan Stanley. Please go

ahead.

Carolina Dores (Morgan Stanley): Hello, good morning everyone. Two questions. I guess

you’ve spoken about affordable testing for COVID. I guess would you be willing to take part of

this cost if it would help increase demand? And my second question is assuming you are able

to reach 70% of capacity in the third quarter, how much of this €200 million cash cost that you

expect for the second quarter will you need to increase to match the increase in capacity?

Thank you.

Luis Gallego: Sorry because I didn’t understand very well your first question. So about the

affordable tests and sorry, can you repeat that?

Carolina Dores: Yeah, would you contribute part of the cost of the tests to help passenger

demand?

Luis Gallego: Okay, our point of view is that in the same way vaccines are free for a population,

I think tests must be free for a population. But I think that if they are not free they need to be

at least affordable and quick. And we have several initiatives in the different operators to try

to help and now, for example, BA you have – Sean you have reached an agreement for £33, if

I remember well.

Sean Doyle: Yeah, we have rapid antigen tests which are very affordable. We’ve also got

agreements on PCR tests which are now £45. So I think the cost of PCR testing for amber

corridor travel has come down dramatically and we’d hope to, you know, drive that down

further. But I think when it comes to testing as well I think the green corridor should revert to

free lateral flow testing. That is a very effective solution for travel and it also removes the

affordability issue.

Steve Gunning: Carolina, in regards to your second question, you know, we’re not giving cash

burn guidance for Q3. We are sort of sympathetic to the fact that the amount of guidance

we’ve been able to give you over the last 12 months is relatively modest due to the uncertainty

but, you know, the 70% maximum capacity that we can get up to in Q3 doesn’t give you all the

information we would need to be able to give you good cash burn guidance. We’d need to know

where we were flying that capacity. We’d need to be confident as to when the restrictions were

unlocked and hence how quickly the cash could come in. So there’s a number of different

factors that prevent us giving you an answer to that question but I do have a sympathy that

you’re trying to put your models together and we can’t give you as much guidance as would be

helpful. So apologies for that.

Carolina Dores: Okay, thank you.

Operator: There are no further questions at this time. I’ll now hand back to the speakers for

closing comments. Thank you.


21

Luis Gallego: Okay. So thank you everybody for this call and as I said last time and I hope

this time it can be true, I hope the next results presentation we can do it seeing all of you.

That’s what we want. I think we have the conditions to do that and I hope we can fly a lot

more during this summer. Thank you very much.

Steve Gunning: Thank you.

Operator: Thank you. That does conclude the call for today. Thank you all for participating.

You may now disconnect your lines.

[END OF TRANSCRIPT]

Documents

IAG Quarter One 2021 Results Presentation