Q1 2020 Earnings - International Airlines Group/media/Files/I/IAG/...Q1 2020 Earnings Thursday, 7th May 2020 2 Willie Walsh Chief Executive Officer, International Airlines Group Thank

Q1 2020 Earnings

Thursday, 7th May 2020

Q1 2020 Earnings Thursday, 7th May 2020

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Willie Walsh

Chief Executive Officer, International Airlines Group

Thank and good morning, everyone. Thank you for joining us. So before I hand over to Steve

Gunning to take you through a more detailed presentation, I’d just like to make a few opening

comments.

So I probably don’t need to tell you guys that this is not a normal quarter. In fact, far from it,

as evidenced by the fact that I’m presenting when I should be retired. So we are reporting an

unusual quarterly pre-exceptional operating loss of €535 million compared to a profit last year

of €135 million. I mentioned on the last call that the first two months, while slightly loss-

making, were actually very similar to last year and in line with our plan, and that was despite

the suspension of flights from China and the impact on flights around Asia due to the COVID-

19.

So all of the reduction in the operating result occurred in March, and that followed the

introduction of significant government restrictions on travel. March ASKs were down 33.5%.

Traffic in March was down over 50%, and in fact, most of that you will see was in the last three

weeks of March.

The operating result, most of that incurred by British Airways then followed by Iberia,

Aer Lingus, and Vueling experienced a modest increase in its operating loss. And then we had

an exceptional loss of €1.3 billion on fuel and foreign currency, which Steve will take you

through the details of that.

We have given you an update on liquidity today, both as of 31st March, and again, for your

benefit, as of 30th April, where we have €10 billion made up of cash and cash equivalents of

€6.4 billion and undrawn facilities of €3.6 billion. And we are in discussions around additional

facilities.

We’ve taken a lot of action, as you would expect, in order to preserve cash. Our weekly cash

operating costs have reduced to €200 million from around €440 million in April and May. And

we’ve also significantly adjusted our CAPEX and fleet deliveries with deliveries expected to be

reduced by 68 between 2020 and 2022, and Steve will give you some details in relation to that.

So it’s a highly uncertain environment in which we’re operating. Passenger capacity in ASK

terms would be down around 94%, 95% in April and May and we’re only undertaking flights for

essential travel for repatriation and cargo – and in fact, cargo demand is quite strong. And that

reflects the significant reduction in passenger aircraft flying. So we’ve operated 422 dedicated

cargo flights in April and we expect to do more than that in May. We’ve carried over 2,000

tonnes of PPE, so we’re doing quite a bit on the cargo front.

Passenger capacity from June depends on the timing and the easing of the lockdown and

restrictions, and as we have mentioned previously, we’re expecting a substantially worse

operating loss in the second quarter compared to the first quarter. But to be honest, it’s

impossible to give accurate guidance at this stage.


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So our current planning assumption – and I’ll talk about it later on – is for a reduction in

passenger capacity of about 50% in 2020. And then looking forward to the medium term, we

don’t expect passenger demand to recover to the 2019 levels before 2023, and just reinforces

yet again the need for further group-wide restructuring.

So I’ll hand over to Steve, who will take you through some of the details, and then I’ll come

back to you in a few minutes. Steve?

Steve Gunning

Chief Financial Officer, International Airlines Group

Thanks, Willie. I’m going to take you through seven slides – two primarily on the Q1 numbers

and then five slides on how we’re facing up to the COVID-19 challenge.

If I take you to slide 5, as Willie’s already alluded to, a significant loss in the quarter:

€535 million, which is a €670 million swing on the position from last year where we were €135

million profit. €68 million of that is due to FX, but clearly the big story is the impact of COVID-

19. And as Willie’s alluded to, the first two months of the quarter were going pretty well, but

it was March where we saw a significant deterioration in passengers demand because of the

travel restrictions put in place. And this had an impact on also the no-show rates as well as

the amount of capacity we were putting into the market. We reduced our March capacity by

33.5%.

But for the quarter overall, ASKs were down 10.5% and seat-factor was at 76.4, which was 4.3

points down on last year. So this weakness in passenger demand and this reduction in capacity

also had a significant hit in passenger unit revenues, which in constant currency were down

7.7%. but it would be fair to say that all of our revenue streams have been impacted during

the quarter, but clearly the passenger stream affected the most.

So overall, total unit revenues in constant currency were down 6.5%.

If I turn to unit costs, in terms of non-fuel unit costs, the airline non-fuel unit costs at constant

currency were up 10.2%, and this basically reflects the reality that the capacity came out so

quickly the cost reductions could not keep up with that. So you had an inefficient reduction in

capacity because it came out so quickly.

Clearly there was an FX hit. So our reported non-fuel unit costs are up, actually, 15%. Normal

fuel costs – and we’ll talk about fuel a bit more in a minute – normal fuel costs were slightly

beneficial in the quarter and so total unit costs were up 6% for the quarter at constant currency.


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So a very difficult quarter and one where two months of the quarter were reasonable and the

last month of the quarter very difficult because of the sudden contraction in the size of demand,

and therefore in the size of the business.

I shall now talk a bit more about fuel. So if we turn over to the next page, slide 6, two big

things happening with fuel. Clearly with the reduction in capacity, our actual volume

requirements for physical fuel have reduced greatly – and I’ll touch on that more in a moment.

And also the other factor that we’ve seen is the price of jet fuel reduced from being in the

$650/mt at the start of the year to around – spot at the end of March was about $225/mt. And

what we’ve seen in April is it goes low as about $110/mt. So the jet fuel price really come off

an awful long way.

Now, if you look at our income statement, you’ll see two elements to the fuel bill for Q1 – or in

the Q1 numbers, should I say. First of all, you’ll see an ordinary fuel cost of €1.2 billion –

€1.209 billion – and that relates to the physical fuel that we’ve purchased at the effective hedge

price that we’ve paid for it. So this is business as usual. It’s the physical fuel that we’ve

purchased. We have hedging contracts against that physical fuel and when you combine those

two we’ve had a normal fuel bill of €1.2 billion.

But what you’ll also see in the Q1 numbers is an exceptional charge of €1.325 billion, and this

is the exceptional charge related to our over-hedged position for the rest of the year. Now

what we’ve had to do is come up with a planning scenario – and it’s not a forecast, but we’ve

come up with a planning scenario for the rest of the year as to how much flying we’re going to

do. And Willie will allude to this a bit more later on, but we’ve basically assumed our ASKs for

the year will be down 50%.

Having established that planning scenario, we’ve then looked at our hedge position and

determined how many hedges have we got that are in excess of our requirement of physical

fuel. And we’ve taken that – those excess fuel hedges and then marked them to market at the

end of March. So it’s the full portfolio of fuel hedge positions for the year, what’s excess to our

requirements and we then mark those to market and booked that in Q1. And that’s the €1.3

billion.

So those are the two components of the fuel price in the Q1 numbers. If we look out for the

full year, once again you’ll have the same two elements, but for the full-year position. So in

terms of our ordinary cost fuel bill for 2020, we base it on our planning scenario. We think the

cost of the physical fuel and the related hedge positions will be about €2.9 billion, and then if

we look at the latest prices – we did this as of 1st May – if we look at the latest forward curves

for the excess hedging positions, we think that mark to market at €1.5 billion. So our best

estimate at the moment for the fuel bill for 2020 would be the €2.9 billion and the €1.5 billion

combined, which would be €4.4 billion.

So that’s the position on fuel. I hope that made it clearer to you. I’d probably make one last

point. The excess hedge position is a mark-to-market position at the end of March. As those

excess hedges unwind during the course of the year, it’s at that point you will see a cash outflow


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taking place. So the €1.3 billion is primarily a book charge at the end of March, then you’ll see

the hedge positions unwind, and that’s when you’ll see the cash outflow.

Let’s move on. Slide 7. We wanted to emphasise the fact that going into this crisis – so coming

out of 2019 going into Q1, we were in rude health. Our cash position was very strong. Cash

as a percentage of last 12 months’ revenues was at 26% and liquidity was at 34%. During the

course of the quarter, actually net debt has come down a little bit, and our cash position had

increased from €6.7 billion to €6.9 billion.

So during the course of Q1, we’ve managed to maintain our liquidity position and our cash

position. It would be fair to say in the normal cycle of the business we would normally have

expected the cash position to have increased even more, but due to the lack of forward

bookings, clearly that’s not taken place.

If we turn to the next slide, clearly our principle focus in the last few months has been

maintaining our liquidity position. And what you see on the slide 8 is our position at the end of

the year 2019, our position at the end of the quarter and our position at the end of April. And

what you can see there is we’ve continued to grow the liquidity position up to €10 billion as of

the end of April. And as you can see, within that €10 billion, €3.6 billion of it is aircraft and

undrawn general facilities, and €6.4 billion of it is cash.

In terms of the management actions that have sat behind this, as you know we’ve put out an

RNS in March to say we’d extended the British Airways revolving credit facility. We’ve also, as

Willie’s alluded to earlier, availed ourselves of the UK CCFF facility to the tune of €0.3 billion. I

think it’s worth saying, the scale of the facility available to us depends on the credit rating as

of 1st March, and so as of 1st March our credit rating qualified us for €300 million. So the size

of the programme available to a company is primarily based on your credit rating rather than

the size of the company.

One of the other things that we’ve done during the period is make our application to the ICO in

Spain for €1 billion of term loans, and we wait final final approval of that in the next few days.

So those are some of the factors that have enabled us to build up the facility position and

maintain the cash position. The last point that I would make on this is of those facilities that

we’ve produced and put in place, the only one that we’ve drawn on is this CCFF for the tune of

€300 million.

If that’s talking about liquidity, clearly one of the ways to protect liquidity is to reduce your

cash outflow. And we move to slide 9, we’ve tried to address this question that everybody

asks, ‘What about cash burn?’

And what you see on the slide here is our operating cash costs per week for April and May.

Based on our regular flying programme, based on our financial planning, we would have

expected to have burnt through cash of about €440 million per week during April and May. Due

to the actions we’ve taken, including availing ourselves of the wage subsidy schemes in all of

the countries that we operate in, in Spain, Ireland and the UK primarily, we’ve managed to


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bring that rate of cash cost down to €200 million. Clearly one of the primary factors behind

that is reducing our capacity, so the variable costs come out.

So we've come – gone down from EUR440 million to EUR200 million. It's important to

emphasise the challenge with the cash burn metrics is always what's in, what's out. And just

to be very clear, the items that are in here are items such as employee costs, fuel and including

the impact of the over-hedging contracts maturing, handling, landing fees, engineering and

aircraft costs, property, IT and other costs, selling costs, lease costs and interest costs.

So pretty much all of the operating costs. What we haven't put in here is any revenue, including

revenue from the cargo-only flights that we've been operating. So this is to give you a feel of

the cash burn.

Now this slide seems to suggest a static picture. This isn't a static picture for us. We continue

to work very hard to reduce the operating cash costs of the business in May and in the periods

going forward.

If – operating cash costs is one of the outflows. If we turn to the next page, one of the other

outflows of the business is capital expenditure.

And what you'll see on Slide 10 is starting off with what we said at the Capital Markets Day.

We guided you for 2020 that our capital – our gross capital expenditure would be EUR4.2 billion.

Our current management expectations for CapEx are down now at EUR3 billion. We've halved

the non-fleet CapEx expectations, and we continue to work on that. We're not finished there.

And we've also, through our discussions with the OEMs, brought down our expectations in terms

of fleet CapEx to EUR2.7 billion. And of that EUR2.7 billion, 91% of it we are highly confident

or completely committed in terms of the financing for it. So 41% is committed financing and

50% of the CapEx, we're highly confident, we've got the financing approved. We're just going

through the papering exercise. So we have 9% of the EUR2.7 billion of fleet CapEx yet to be

financed, which is about EUR240 million.

And clearly, the target for us as a business is to get that financed as well. So there would be

no cash outflow for our fleet CapEx in 2020. And clearly, we will continue to try to minimise

our non-fleet CapEx.

If – that's looking primarily at 2020. If we turn to Page 11, we can look out over the three

years of the business plan that we presented to you at Capital Markets Day in early November,

and it will show you what we've done with fleet deliveries. So what we said at Capital Markets

Day in November 2019 was, we'd be taking 143 aircraft deliveries over the next three years.

Our expectation now, based on our discussions and negotiations with the OEMs, is, that would

be down to 75 aircraft. So a 68 aircraft reduction. So six aircraft out of 2020, 27 aircraft out

of 2021 and 35 aircraft out of 2022. So significant reductions through those negotiations, and

that's where our expectations sit at the moment.

But in addition to changing the fleet deliveries, we have significant further flexibility in our fleet,

which we've talked about in the past. So we'll still look to finalise our retirement plans for our


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fleet. We've retired a few aircraft thus far, but we're still working through those plans at the

moment. But just to remind you, our fleet at the moment has 31 747s, which are all owned.

We have 15 A340s, nine of which are owned; and we have 45 777-2s, 36 of which are owned.

So there is some significant flexibility in our fleet from that perspective.

And the other key statistic that we've shown you on here is the lease expiries that take place

in both 2021 and 2022. So 42 lease expires in '21 and 54 in '22. So very significant optionality

that we have over fleet in the coming two or three years.

So overall, we've made very significant progress in preserving the liquidity. We brought the

cash burn down significantly and continue to work on that. And we've done what I would think

is a good job in minimising the CapEx cash outflow for the year.

At this point, I'll hand you back to Willie.

Willie Walsh

CEO, International Airlines Group

Thanks, Steve. So if we look now at going back towards a return to service, it's clear that most

of our aircraft are currently grounded. You all have seen photographs of aircraft parked all

around Europe. We are operating a small fleet of aircraft. Our preference is to fly the new-

generation aircraft, 350s and 787s, where possible, but we are also operating 78 – sorry, 777s

and A330s in addition to the narrow-body fleet that we have.

But we’re trying to get the appropriate sized aircraft for the limited passenger repatriation

flights that we're doing. And then get the right sized aircraft for cargo-only. Like other airlines,

we will look at modifying a couple of our 777s. These are aircraft that will be reconfigured, and

therefore, the seats will be coming out. So while they're doing that, we'll use those aircraft to

carry cargo in the passenger cabin without the seats being installed. So we're adapting where

possible, to fulfil the cargo demands that exist. And as I said, that's quite robust at the moment.

So we're planning for a meaningful return to service in July at the earliest. And clearly, that

depends on the easing of lockdowns and travel restrictions.

We’ll adapt our operating procedures to ensure that our customers and our people will be

properly protected in the new environment. We welcome the announcements from airports and

particularly Heathrow about the introduction of temperature monitoring on departure and on

arrival, we support that.

We have also said we publicly support the wearing of face covering, whether that's a mask or

a more informal face covering, and we will continue to work with regulators. We're in contact

and active dialogue with a number of regulatory bodies. And we're very confident that whatever

regulations are put in place, it will enable a safe and organised return towards a more normal

service.


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Our industry has had to adapt to many changes in regulations over the years, and you've seen

what we've been able to do when significant changes to security regulations are introduced. So

we're very confident that any new regulation that is introduced will facilitate operations for

airlines, and we will continue to actively support these initiatives.

But at this stage, as I said earlier on, we don't expect the level of passenger demand that we

saw in 2019 to recover before 2023, and that just reinforces the need for restructuring

measures across the group.

Now some people have interpreted the announcement that we made in relation to British

Airways as indicating that we're only looking at restructuring in British Airways. That is not the

case. However, the UK labour legislation has a specific framework that we must comply with.

So in the first place, we are, as you know, availing of the coronavirus job retention scheme.

There's nothing in that, that prevents us from engaging in consultation on redundancies, and

indeed, the chancellor has made clear that normal employment laws continue to apply. But we

have an obligation under the Trade Union Labour Relations Act of 1992 to collectively consult

where redundancies may arise. And that is what we are doing. That requires us to serve a

formal notice to the government, a form called the HR1 and then send specific detail to

employee representatives under Section 188 of the Act. The consultation must be with

appropriate representatives. It must start in good time. It must be genuine, it must be

meaningful, and it must be with a view to reaching agreement. And that's exactly what we're

doing.

So we're not going to provide any detail or commentary on the consultation. As I said, this is

a legal obligation, and we intend to fully comply with our obligations under the law in the UK.

We will equally do so where required to comply with legislation in Spain for Iberia and Vueling,

and in Ireland, where restructuring of Aer Lingus will be taking place as well.

Now Steve has mentioned, our planning scenario. And we've been very clear that this is a

scenario because we do need to see more visibility on what the government restrictions on

travel will be. But at this stage, we're looking at about a 50% cut in capacity in 2020 versus

2019. And we've tried to give you some visibility as to how we see that developing with Q2

down 90%, Q3 about 55%, Q4 down about 30%.

And it's more or less the same across all of the airlines, plus or minus 1%. So I think that's

the best scenario we can give you at this stage. We will continue to look at that and modify it

as the environment changes.

And finally, if I just turn to the formal guidance. As we announced on the 28th of February,

given the uncertainty on the impact and the duration of the COVID-19, we're not currently

providing profit guidance for 2020. Again, as we announced on the 28th April, we expect

operating loss before exceptional items in the second quarter to be significantly worse than in

the first quarter, given the substantial decline in passenger capacity and traffic and despite

some relief on employee costs from government wage support schemes and the various

management actions that we have already taken.


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So difficult environment. I'm very pleased with the actions that we've taken. We've got strong

liquidity, but we have to be very careful in terms of how we operate the business during a

period where we're effectively shut down from a passenger point of view and put ourselves in

a position to recover in a sensible way, complying with all regulations, and I'm confident that

we will be able to do that.

We'll seek to take advantage of any cargo opportunity that exists in the short and medium

term. And we will continue to fulfil all of our legal obligations with regard to consultations with

our people as we go through the necessary restructuring of the business to ensure that we

respond, not just to the immediate threat that we face, but to the long-term structural change

that we believe is taking place, and will take place in the industry.

I'm going to pause now and hand back to the operator, we can start taking your questions.

Q&A

Neil Glynn (Credit Suisse): Good morning, everybody. I'll take two then. So, the first

question, Willie, just with respect to your planning on resuming nearly half of normal service

for the third quarter. Just interested in terms of how you think about this as stimulating

passenger demand and cash from forward bookings in the third quarter and beyond versus an

expectation that flying that level of capacity can actually generate EBITDA or contribution based

on demand prospects?

And then the second question, just with respect to labour cost reset. As you've touched on,

clearly, there's been a lot of focus on it. But post the global financial crisis, we obviously saw

the intro of Mixed Fleet at BA and a big reset at Iberia. So I'm interested in your view on, can

you convert the contracts that are retained after this process? Can you convert those to modern

standards that achieve major structural changes for employees remaining within the group?

Willie Walsh: Thank you, Neil. In relation to the third quarter, actually; one of the things that

we've become very good at in the current environment is to assess the cash breakeven and

cash value of everything we're operating. And we're actually doing that.

It's a bit strange at the moment because what we've seen is the passenger is now the – it's the

incremental cost of the passenger that we're looking at, rather than traditionally, which was

the incremental cost of the cargo.

So the fact that we're seeing good, strong cargo demand has enabled us to operate passenger

flights that without the cargo would be cash negative. So all of the flights that we're operating

at the moment are positive from a cash point of view. And therefore, we have a very detailed

matrix, if you like, that enables us to assess the cash contribution of any and all flying that we

do, and we will apply that as we go through the third quarter. So I think all airlines are having

to adapt to a different environment.

In terms of pricing in the third quarter, it's still too early to call because, quite honestly, we're

doing a lot of research in relation to consumer attitude towards flying and whether that attitude

will be influenced by some pricing stimulation. We're not clear that, that will be the case. So

therefore, you shouldn't expect us to sort of respond in a more traditional way to try and


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encourage passengers to fly because I think it may take a little bit of time before people become

comfortable themselves with flying in this new environment.

One of the things we do know is that we have seen quite a number of our customers volunteer

to take a voucher as opposed to a refund.

And in fact, a number of them already transferring their bookings from April, May and June into

bookings in August, September.

So we're looking at that pattern very closely as well to understand what we think the consumer

behaviour will be in the third quarter. And that's why we have to stress again that these are

scenarios that we're looking at. It's not a plan.

So what we will do is, based on that scenario, we'll look at what aircraft makes sense to return

back into service.

As I said earlier, most of our aircraft are actually grounded, which means they are under a

different maintenance regime, most of them are parked away from our base. So we need to

bring them back to base and do maintenance on them. So it's looking at these various inputs

that will influence the final schedule that will operate in the third quarter.

In relation to labour, as I said, particularly given the sensitivity of the issue and the obligations

under the legal environment in the UK, would be inappropriate for me to comment because the

final outcome of what it is we do in British Airways, will be very much influenced by the

consultation that we have with representatives of the employees in BA. And I'm not going to

prejudge those consultations. So we'll wait to see.

We have to consult for a minimum of 45 days. That consultation period started last week, I

think it was. That would – the 45-day period would finish around the middle of June. So while

that consultation is on-going, we're not going to be commenting on any aspects of it. I hope

you'll understand it is a very sensitive issue, but there is a legal obligation to engage in good

faith consultations, and we want to give the representatives an opportunity to influence the

outcome of our final plan.

Neil Glynn: Absolutely. Just to follow-up actually on the first one. I'm just interested. Do you

expect meaningful recovery in corporate demand this year? Or do you think that's more of a

2021 thing as you make your own scenario analysis?

Willie Walsh: Yes. We're in dialogue with a lot of corporates and with TMCs to get a view from

them as to how we see that. And it's quite mixed. We've had feedback from some corporates

that say that they need to get going straight away. I'm sure all of us are used to dealing with

Zoom or Teams. Quite honestly, it's crap. So anybody who thinks that you can conduct normal

business using these means, we know from experience, you can't. And that's the feedback

we're getting from a lot of people.

So I think it's going to vary. But as I said, some corporates have said they want to get going

as quickly as possible and that will influence our scheduling plans. And some have said they

will be taking a slow recovery and there are others who have said that given the financial

distress that they're facing themselves, they're unclear as to what it is they do. So I think it's

going to be a mixed bag, Neil.


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But as we get closer to the third quarter, going through May and June, I think we'll get a much

better picture on this.

Neil Glynn: Understood. Many thanks.

Jarrod Castle (UBS): I hope everyone is well on the call. Two kind of, I guess, more medium-

term questions. Willie, you kind of referred in the guidance slide to kind of long-term structural

changes. I think during the GFC, you didn't use those words. So I'm not saying people would

disagree with that, but it'd be interesting to get your views on how you see those long-term

structural changes over the next few years?

And then just secondly, just in terms of state aid, you've tended to be very vocal about forms

of state aid and anti-state aid. So just a question in terms of why in terms of enhancing balance

sheets, et cetera, you didn't go towards the public markets?

Willie Walsh: Thank you, Jarrod. Yes, I think the situation is very different to the global

financial crisis for – and the way we see this, it's a combination of the impact on the airline

industry and how that will follow through structurally.

So, how many airlines are going to be in place? What size fleets will those airlines have? What

the consumer demand will be whether consumer and corporate behaviour has changed as a

result of experience through this period?

And the economic impact of the downturn, which is likely to be severe, the extent to which

governments will be able to stimulate recovery in economic demand. So there's a number of

factors that are playing into this, which are very different to what we had seen during the global

financial crisis. We all believed back in 2008 following the collapse of Lehman's in September

that there would be a shock, but that things would recover.

The only question we had then was how long would it take to recover. We see this being quite

different because of the layering of various different issues. And it's clear from everything

we've seen that the period of recovery is going to take much longer than anything we had

witnessed before. The fall we've witnessed is significantly greater than anything we've ever

seen. So this is an unprecedented decline in demand for aviation.

And it is an unprecedented situation in the way different governments have responded to the

threat faced by the spread of the coronavirus. And we hope going forward that we see a

coordinated approach.

But to be honest, that's more of a hope than an expectation. So for various reasons, we do

see this as being significantly different to anything we've seen before. And while we focus on

liquidity, you guys will recognise that in boosting our liquidity, we're doing that through raising

additional debt. So balance sheets in the airline industry are going to be very different when

we come out of this when we went into it. And that's why we think structural reform is going

to be required on an industry basis, not just on an individual airline basis.

And in relation to state aid, what I've always been opposed to is, where inefficient, failing

companies receive bailouts from governments. I've been very clear that where airlines have

been unwilling or unable to reform, they should not be bailed out by receiving government aid,

by receiving free money. This is a different situation. You have excellent airlines who through

no fault of their own are suffering a crisis. And I mean it's everybody.


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So I have no hesitation in saying, and I've said it publicly that where general facilities are being

made that we will avail of those facilities, if they make sense. I was very open in saying we

would avail of all employee support programs that were being made available, and we're doing

that in the UK, Spain and Ireland.

And where general facilities, in other words, facilities that are made available to all companies,

not to specific companies. My objection is to where it's specific to individuals, and particularly

where it's specific to failing businesses. Most of the companies that will receive support under

the CCFF are good companies who through no fault of their own have encountered significant

difficulty. So that's my position. It's no different. I've always held that view, and I will continue

to hold that view. So if there are general facilities available and it makes sense for us to avail

of them, we will do so. And clearly, we will disclose whatever it is we are doing.

James Hollins (Exane BNP Paribas): Hi, good morning, Willie and Steve. First question is

for Steve. Just on your cash burn data, problem doing results on the same day as someone

else is that there's a fairly stark difference Air France-KLM talking about 80% reduction in their

cash OpEx. And you guys are at 55% reduction. Is there anything, Steve, you and your team

have done any maths. I think as far as I see it, they're done on the same sort of KPIs, et

cetera. I was wondering why big difference would come.

The only thing I can think of is social and tax deferrals, maybe you're not receiving. Any

thoughts would be great there.

And the second probably for Willie is on – was on Air Europa. I've seen some headlines that

they – their owners have said they probably go bust without some sort of help and or M&A. I

was wondering – also, I've seen some headlines on you renegotiating. I was wondering if you

can give an update on that.

Willie Walsh: Okay. Steve will take your first one, James.

Steve Gunning: Thanks, James. Good to hear that you're doing okay. In terms of the

comparison, I haven't had the opportunity to do a detailed comparison with the Air France-KLM

numbers. I think a couple of things I would – I’d be keen to look at.

As I said when I went through the slide, the challenge with cash burn is that what's in, what's

out. A couple of things. One is we have included the over-hedging losses in these numbers. I

don't know whether Air France-KLM have done so in theirs. Then potentially, the difference in

the way we finance our aircraft in terms of debt payments versus lease payments, we put all

of our lease costs into this. I don't know how that distinguishes between us and Air France-

KLM.

I think there's a number of things that I suspect we've included that Air France haven't and vice

versa. I think it's interesting to do the comparison. But at the end of the day, as I said with

this slide, this is not a static situation. We'll be doing everything we can to further minimise

those cash outflows in terms of the operating costs. So I suspect any chunk of it in terms of

the definitions, I think, places I would go and look at is the leases and the over-hedging losses

in terms of the fuel.

But that's until I've had a chance to fully scrutinise their numbers. That would be the comments

I'd make at this point.


13

Willie Walsh: And James, in relation to Air Europa, we know that they are as challenged,

maybe even more so than we are and have been taking action to survive the crisis as its impacts

on them. The deal still makes strategic sense to us. That is clear.

However, we do need to understand whether the price adjustment mechanism that's in the

agreement is relevant, and we've got to go through the competition process still. So there's

still quite a bit to do in relation to Air Europa. And we'll keep that under review and let you

know if there's any development.

But there is a price adjustment mechanism in the agreement that we have with them. And

there's still quite a bit of work to do on the competition front before we need to address whether

the deal proceeds or not. I don't think there's anything else I can add at this stage.

But we are conscious of the fact that their business has been particularly stressed. I think

they're effectively grounded as well through this period. I'm not sure they're taking in any

revenues. And I'm not – I don't have visibility on the actions that they've taken to reduce their

cash outflow. That is something that we will see, but I don't have visibility on that at this stage.

James Hollins: That’s great. Thanks very much.

Carolina Dores (Morgan Stanley): Hi, hello. Can you hear me?

Willie Walsh: Yes, go ahead.

Carolina Dores: Yes. Okay. Apologies. I think – well, two questions. In terms of liquidity,

do you think of any alternative of asset monetisation? Could you think about, I don't know,

any agreement or deal that you can do with Avios, for example? Is that in the cards?

And my second question is with the EUR10 billion liquidity, how long do you think you can go

assuming full ground without having to tap financial markets?

Willie Walsh: Thank you, Carolina. Avios is clearly a significant opportunity that is open to

us. Maybe, Steve, do you want to comment?

Steve Gunning: Yes. No, there are a number of opportunities to us and potential sort of a

presale of Avios points is something that's been done in the past. It's something we would

consider in the future. So that's one of the plays we could go to if we wanted to raise further

liquidity such a – but there are a number of different options for us.

We haven't tapped into capital markets either. So you're right, that is an option play for us.

Willie Walsh: And the liquidity – we'll update you on liquidity. As we've said, at the moment,

our focus is on conserving cash, adjusting the CapEx. And I think we've done an excellent job

in relation to fleet.

We clearly will be turning to how we maximise the cash inflow now through the third and fourth

quarter of this year and continue with the negotiations that we've had with a number of

organisations to avail of additional facilities. So we are actively in discussions.

I think as you look at it today, the measures that we've taken since the outbreak of this

coronavirus in strengthening the liquidity position of the business has been particularly positive.

And we will continue to work in that form, but advise you if there's any additional measures

that we will or have taken.

Carolina Dores: No, no. I'm good. Thank you.


14

Willie Walsh: I think we should move on to next question.

Willie Walsh: Hello?

Daniel Roeska (Bernstein): Hello?

Willie Walsh: Who’s that?

Daniel Roeska: This is Daniel from Bernstein. Can you hear me?

Willie Walsh: Yes, Daniel. Can you hear me?

Daniel Roeska: Perfect. Yes, here we go. Excellent.

Willie Walsh: This goes to prove that this technology does not work, so –

Daniel Roeska: There you go. Yes. Well, there you go. So two, if I may. Number one, on

the fleet plan. You're not moving delivery of the long-haul aircraft in 2020/2021 a lot. There's

also less flex from the op leases in that time frame. Is that – is long-haul fleet plan more

reflection of the inability to change the plan? The opportunity to retire some of the older ones

or kind of a conviction that long-haul travel will actually recover fairly quickly?

And then just following on the cash burn question. You mentioned in the presentation that

you're continuing to looking at kind of expanding your cost-saving measures. Any view on

where you would want to be kind of by the end of June if you continue really hard at it? Are

you expanding that by a couple of percentage points from 55 upwards? Or is there still

meaningful flex you would hope to gain by then?

Willie Walsh: Thanks. In relation to fleet, it's a combination of factors actually. It won't come

as a surprise to know that given that a number of the aircraft are already financed from a cash

point of view, it makes sense for us to take the aircraft because we will have paid pre-delivery

payments. So when we take the aircraft and then put the financing in place, there's actually a

cash benefit to us. So it's a reflection of a number of issues, it reflects the current fleet that

we have, the need to replace that, the availability of the aircraft to fit with some of the network

plans that we have. So it's not a single issue.

I would say that both Boeing and Airbus and the engine manufacturers but given that most of

this is direct discussion with Boeing and Airbus have been very positive in their engagement

with us. We've had great cooperation from both of them. I think it demonstrates the strategic

nature of the relationship that we have with both of the major OEMS.

I think when we look at our fleet plan, we've seen a very significant shift in what the plan was

when we announced it in November of last year to what it will be for 2021 and '22. And you

do need to, as we had mentioned earlier, also factor in the flexibility we have with the existing

fleet and with the leased aircraft that we have.

In relation to cost saving, to be honest, we're going to do everything we can. This is a very

detailed analysis of every single aspect of the cost base to see what can be deferred, what can

be eliminated, what can be reduced. And we're not going to stop on that. We're going back

over everything. We get to a position, and we try again. So as Steve said, it's not static, it's

very dynamic. And we've got a lot of people in all of the airlines and here at the centre working

to ensure that we can minimise the cash outflow as we go through this period. Steve, I don't

know if you want to add anything?


15

Steve Gunning: No, I think that's fair, Willie. I think the static versus dynamic point is the

key one.

Willie Walsh: Thanks, Daniel.

Daniel Roeska: All right, thanks.

Willie Walsh: Hi, Jamie.

Jaime Rowbotham (Deutsche Bank): Can you hear me?

Willie Walsh: Yes, I can hear you, Jaime.

Jaime Rowbotham: Good, good. Okay. Yes. So two quick ones from me. One is a revisit

on an earlier topic. I appreciate you don't have a crystal ball, and you can't speak for Air

France-KLM. But the scenarios of the 2 airlines for Q3, Air France-KLM planning for capacity

down 80%, IAG planning for capacity down 55%. I'm trying to work out if that is partly to do

with some of the cash breakeven levels perhaps differing between the 2 companies, as alluded

to earlier, versus differing views on when European borders sort of might reopen. So just

grateful for any additional observations you might want to make there.

Then secondly, a puzzle for many analysts, I think, right now, is thinking about post-crisis

balance sheets and financial leverage. And Steve, in the past, you've talked about sort of 1.8x

net debt-to-EBITDA for a sort of comfortable investment grade. I was just wondering,

obviously, right now, the focus is on having enough liquidity to not burn cash reserves to 0 as

a function of the crisis. But as you come out of it, do you think you'll have to reconsider

naturally how much gross cash IAG has on the balance sheet to be prepared for any future

crisis?

Willie Walsh: Thanks. Yes, to be honest, I have no idea of what Air France-KLM are looking

at, and we don't have any conversations with them.

If I'm honest, we don't really spend much time looking at the decisions that they have taken to

better understand them. We're spending quite a bit of time running through various different

scenarios.

One of the advantages we have is that we have four main operating airlines, and we task them

all to independently come up with what they saw the recovery plan would be for 2021 – sorry,

2020, 2021, 2022. We did some work at the centre as to what our view would be. But then

individually, we task them.

It was amazing how similar they were, not completely aligned. There were differences. But

one of the advantages we have with the group structure is to be able to get sort of, if you like,

expert assessment and opinion internally without having to worry too much about what some

of our competitors are doing.

So one thing I will tell you is that the scenario I've outlined will not be what happens. And I'm

sure the scenario that Air France has announced will not be what happens. That's what my

crystal ball tells me. But it is a planning scenario, which gives us input into some of the other

decisions that we need to take fleet being a critical part of that, and we'll continue to modify it.

We've had different scenarios. If I go back to February, we were looking at an impact that was

significantly less than this. During March, we had a scenario with recovery in May, towards the

end. Now we're talking about towards the end of June and into July. So it's a very different


16

environment. And you're right, different companies will take input from various different

sources. This is the best scenario that we can give.

I'm not being critical of Air France-KLM. Their scenario will be based on information they have.

But I don't think it's going to ultimately be a million miles away from what we all do.

On the balance sheet, I think it's an excellent question, and it's one that we've been spending

quite a bit of time on. So maybe, Steve, do you want to give some brief comments on that?

Steve Gunning: Yes. Thanks, Willie. Jaime, you're absolutely right. Our immediate focus in

the last couple of months has been the immediate challenge of liquidity and boosting the

immediate position. But as you rightly say, and you don't need a crystal ball for this. The 1.8

net debt-to-EBITDA, it's going to be a while before we get back to that. So we are doing a lot

of work looking at what the structure of the balance sheet would look like in the future. One of

the things we also have to consider is, as we draw on some of these facilities, a lot of these

facilities are short-term facilities. So how do we refinance those.

In terms of your specific point in terms of the amount of cash on the balance sheet, I think it

served us excellently well as we've come into this year to hold 26% of cash in terms of the last

12 months revenues.

I'm very keen to get us to continue at that level because even if we get through this shock for

this year, there's no guarantees there won't be further shocks down the road. So to restore

the – or maintain the liquidity position and to restore the cash balance is going to be very

important for us.

We wouldn't move away from that sort of guidance of having 20% of the last 12-month

revenues up on the balance sheet because we need that resilience going forward. It's not

enough for us to get through this year and go into next year. We need to be resilient in that.

And that's a lot of the thinking that's going into working out how we restructure our balance

sheet in the future.

Jaime Rowbotham: Very good. Thanks, guys.

Willie Walsh: Thanks, Jamie.

Andrew Lobbenberg (HSBC): Hi. Try again. Can you hear me, guys?

Willie Walsh: Yes, Andrew, good morning.

Andrew Lobbenberg: Good morning. Can I ask how you think about the future split of the

business between business and leisure? Obviously, when we first went into the crisis, you were

talking about continuing full scale ahead with the reconfiguration of the aircraft for BA, and all

that good stuff. As you think about what you will be doing in the future, are you going to be

wanting to change the balance of premium against non-premium seats? And then separately,

can I ask about Gatwick because there’s been obviously some stuff in the press, and obviously,

you can’t prejudice your talks with labour. But there’s been some talk in the press about

potentially pulling out of Gatwick, but surely the slot opportunity in Gatwick in control of the

airport capacity in London, is fundamental to the strategic position of IAG. So how are we

meant to think about that prognosis for Gatwick?

Willie Walsh: Thanks, Andrew. I think you’re right. One of the things we will have to look at

is the business mix between premium and non-premium. Clearly post the global financial crisis,


17

we did see a shift in that mix. You know, the level of premium traffic did not recover to the

level we witnessed, if we look at this on a global basis prior to the Global Financial Crisis. And,

you know, that is an issue that I think we do have to better understand. It’s coming out of

point where we do have a lot of flexibility to adjust if necessary our premium, non-premium

mix and it’s definitely going to influence issues like fleet selection and fleet configuration of new

aircraft in addition to decisions around the potential retirement of existing aircraft.

As you know, we have quite a bit of flexibility because of the different configurations of the

existing fleet to make a quick adjustment to that in terms of which if any of the existing aircraft

we decide to retire, so it’s definitely a feature of our thinking. We haven’t completed a detailed

analysis of that. But again, my crystal ball tells me that the mix is going to be different post

this than what we had seen before.

And in relation to Gatwick, yeah, obviously, I don’t want to say anything to prejudice the

consultation. I’ll give you a personal view and it’s a view that I have expressed but it’s nothing

more than a view and that is that I would like to see us continuing to have a presence at Gatwick

but that’s just a personal opinion. It’s not going to influence the consultation that we take place

but that consultation clearly is going to be a detailed and meaningful consultation with the

representatives and we’ll see what happens through that. And that clearly will influence the

decisions that we ultimately take in relation to the restructuring of British Airways.

Andrew Lobbenberg: Thanks, Willie.

Savi Syth (Raymond James): Hi, could you hear me? Hello?

Willie Walsh: Yes, we’ve got you this time.

Savi Syth: Oh, great. Alright. Great. Thank you, good morning. Just actually a couple of

follow up questions just for clarity, you know, on the financing side, I was wondering if you can

describe, you know, what opportunities are kind of available in the financing market today. And

generally your – maybe the priority between kind of sale/lease-back versus equity raises versus

other kind of opportunities that are out there. And just secondly, I realise things are fluid and

I’m just trying to understand the kind of the cash out flow beyond the cash operating cost you

provided. I’m wondering if you can provide, you know, what the level of debt and pension

payments are left yet for 2020? And any colour on, you know, how we could thinking about

working capital?

Willie Walsh: Okay, Steve is saying that he wants to answer all of those questions. So I think

I’ll pass over to him.

Steve Gunning: Thanks, Savi. Yeah. In terms of financing options out there at the moment,

I think it would be fair to say that EETC market’s been pretty much closed over the last month

or two. I think it’s starting to open at the moment. We seeing one US and one non-US airline

look like they’re going into the market on EETC, so I think that’s slowly starting to open. Sale

and lease back transactions, those have been challenging in the last month or two as well.

We’ve seen situations which we haven’t seen before where you have signed letters of intent on

those of the then re-priced later on, which, you know, historically you’d never see. So, you

know, it’s been challenging from an aircraft financing perspective.


18

We’ve made a lot of progress with that in the last few weeks, which is why on the slide that we

showed you, we’re confident now that – of financing 90% of the deliveries that we’ve got coming

this year. But it has been a challenge and much more difficult than we’ve seen in the past.

In terms of your question about the sort of non-operating cash items coming through, in terms

of pensions as we’ve disclosed in the past, we pay £450 million deficit recovery payments per

annum. That’s one of the items that sits outside of this. In terms of debt repayments, relatively

minimal to be honest, the group does not have a lot of non-aircraft related debt. So I think it

might be €100 million per annum off the top of my head, but it’s not a high level compared to

some other groups, because we have intended to raise our financing secured on the back of

aircraft.

Hopefully that gives you some help.

Savi Syth: That’s great. And just in terms of equity raises, any thoughts on kind of where that

sits on the priority of financing?

Steve Gunning: Well, I think, that relates to the question that was asked earlier in terms of

what do you want the shape of the balance sheet to be and how quickly do you want to try and

return back to investment grade? Clearly that’s an area we’re doing a lot of work on at the

moment but not anything that we’d be prepared to share at this time.

Savi Syth: Thank you.

Malte Schulz (Commerzbank): Hi. Good morning and thank you for taking my question.

First of all maybe one question on the vouchers, as the EU wasn’t very reluctant to approve

refund and voucher, is this something that you would consider offering your customers maybe

a bonus of 5% or 10% bonus if they take up a voucher to avoid a cash drain? Maybe also on

your strategy going forward with – probably the first time in a long time that London Heathrow

will be not as constrained as it used to be, does it involve also in your planning kind of change

in strategy either moving more leisure business into Heathrow or to changing generally the size

of your aircraft to a more specific need? Sorry.

Willie Walsh: Okay. Thank you. Yeah. I think we’ve seen at the European level about 16 of

the EU 27 countries have come out in favour of vouchers rather than cash refunds, but the

commission and particularly the transport commissioner has been reluctant to amend the

legislation EU 261. So what we’re doing is it’s – it’s voluntary, the – if the customer wants a

refund, the customer is entitled to a refund and will get a refund. Aer Lingus has offered a

bonus, if you like, if people want to take the voucher. So we have trialled some issues to see

what the appetite would be, whether that would incentivise people to take a voucher rather

than a cash refund.

What we’re doing at the moment – and we’re trying to be as flexible as possible with the

voucher. You know, we’re offering vouchers to people who want to cancel now for flights that

are planned to operate in the future, you know, in case their needs have changed. And that

clearly applies to people with non-refundable tickets. And there is appetite for that where

people don’t avail of that and then don’t take the flights, obviously they lose their ticket. If we

cancel the flight, they’re entitled to a refund. So it’s a complete mixed bag, but we do see an

appetite for vouchers at the moment, in the same way as we’ve seen an appetite for customers

who’ve had bookings on flights that were cancelled to book a new flight. So it’s quite a dynamic


19

situation and we are keeping the situation under review. I know there are moves at a number

of country levels to try and get the voucher accepted under the legislation or the regulations as

an alternative to – for cash but we’re not planning on that happening. And in relation to our

strategy on London, clearly again that will be influenced by the consultation that we’re

undertaking with the representatives but it would be fair to say we do have flexibility in relation

to what it is we could and might do at all of the airports that we operate but particularly at

airports like Heathrow, Gatwick and London City.

Malte Schulz: Thanks.

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

you mentioned a need to get some aircraft back to your hub and to then provide maintenance.

Could you just say how many aircraft that is and what the kind of costs are, i.e., is there are

big cost for aircraft that have been grounded for three or four weeks, whatever it is to get them

flying again? And secondly, it’s just broadly, if I look at your Q1, you were saying in March

basically you lost – you know, most of the operating loss was incurred, you know, let’s call it

€500 million, something like that, do you expect that to be your worst month for this year, i.e.,

as you go through Q2, the cost reduction measures will be sufficient to mean that those monthly

losses are less than that? Thank you.

Willie Walsh: So we have about 440 of our aircraft are technically grounded. The cost of

reintroducing them to service is small, we’re talking – to bring that total fleet would be less

than €10 million, so it’s not a significant cost. So yeah, I don’t have an exact figure but it’s not

a meaningful cost in the overall scale of things and, you know, clearly, the number of aircraft

we take back into service will be very much dependent on the ramp up of business against the

scenario that we’ve shown you in the slide.

I think we – we’re not going to give you a monthly breakdown but the one thing I would say is,

you know, the ability to take cost out in March was clearly not as great as we would normally

have and I was looking at some figures, you know, in the beginning of March I think for the –

up until the 8th March, we were effectively operating the same number of flights as a group as

we did in March 2019 and then by the end of March, the number of flights we were operating

had fallen by 90%, so it was a very sudden and sharp fall off during March. It was easy for us

to take the aircraft operations out but, you know, you do need a bit of time to take the costs

associated with those aircrafts.

So we did get some cost saving in March but it’s not of the same scale as we would have had

in April, May and clearly in June but I don’t want to give you a – sort of a breakdown on a

monthly basis but it would be fair to say that cost reduction in March was not as strong as it

was in April, May nor in what we would expect to achieve in June.

Alex Patterson: Understood. Thank you very much.

Johannes Braun (Mainfirst): Yes, hi. Thank you. Just one from me. Can I just ask about

the current status of the CMA investigation into your transatlantic JV? I’m not completely sure

what the status is here but related to that, in a scenario where Virgin Atlantic and Norwegian

shrink or even disappear, would that put more risk off the CMA taking a tougher stance because

of your even more dominant position on the transatlantic in that kind of scenario?


20

Willie Walsh: We don’t have a dominant position. I’d like to think, other carriers do, but our

position at Heathrow relative to other hubs is actually significantly lower. So I’m aware of what

the CMA is likely to do but unfortunately, I can’t disclose it but it’s something that we will

disclose in the very near future. There has been significant progress in relation to that but I’m

not in a position to give you details but suffice to say, the outcome of that investigation is not

something that’s on my agenda at the moment.

Johannes Braun: Thank you.

Muneeba Kayani (BofA): Hi, Willie and Steve. So wanted to understand you talked about

your fleet plans, how does that result in kind of capacity for next year versus pre-crisis levels

and what’s your expectation for the industry capacity next year? And then secondly, on – just

following up from a question earlier, what do you think is your breakeven load factor and how

does that relate with the debate currently on leaving the middle seat empty?

Willie Walsh: Okay, well, we don’t see a situation where we will be leaving the middle seat

empty on a – yeah, will be expecting to see a return to normal service where all seats are

available for sale. Social distancing, I don’t believe it’s possible to do that on an aircraft and I

think it’s important to point out, you know, the average width of an economy seat on a narrow

body aircraft is about 18 inches. So when people talk about social distancing, it’s not really

something that is appropriate and we believe that the appropriate mitigating action is for

mandating masks or face covering onboard the aircraft associated with all of the additional work

that will be done to disinfect the aircraft but we don’t expect to see a situation whereby people

try and impose social distancing that is relevant to outdoor and large public areas, but really

doesn’t apply onboard an aircraft in the same way as it can’t apply onboard a train or a tube or

a taxi or a bus or many other forms of transport.

In relation to capacity, I expect capacity in 2021 to be down. I can’t give you a figure both

from an individual point of view and from an industry point of view, so that’s down, down. And

break-even, you know, clearly break-even ‒ there’s a number of factors that go into that and

the, you know, including yields and unit revenues, fuel prices, so there’s – it changes all the

time. But as I said, we’re able to assess, and the way we’re doing it at the moment with cargo

is we know what the demand for the cargo capacity is.

We know what the yield is and we can decide 24 hours in advance and that’s the way we’re

doing all our contracts with cargo whether that will be cash positive. If it’s not cash positive,

we don’t operate the flight. And in some cases, we’ve had situations where suppliers who are

desperate to move their product, you know, we point out to them that we can’t operate the

flights at the yields that we’re getting and we’ll give them yields that will make us operate the

flights and if they’re prepared to pay that, we’ll operate it. So it’s very different on the cargo

side of the business to the passenger side of the business. So, you know, we clearly will monitor

that and we become quite expert at doing it in the current environment and that will help us

make decisions as we go through the rest of this year.

But I can’t give you a figure. I know IATA gives, you know, a general breakeven load factor,

but there’s so many different variables and that it’s meaningless for me to give you a figure at

this stage.

Muneeba Kayani: Thank you.


21

James Goodall (Redburn): Hi, good morning, everyone. So, can I just ask how your thoughts

have progressed regarding consolidation? At the start of this disruption, I think your view is

that we’d see a number of airlines exiting stage left. So I guess given the abundance of state

aid that we’re seeing across Europe, I guess, the exception being the UK, have your views on

consolidation changed? Thanks.

Willie Walsh: No, they haven’t fundamentally changed because, you know, what we are seeing

is if airlines remain in place in the short-term, they’re significantly smaller and there are still, I

think, very big questions to ask about their, never mind long-term, but medium-term viability

given the, you know, state of the business as they go through this.

So I still believe that there will be failures. We have seen some. I think we will see more. I

think there are businesses that are in denial about the need to restructure and that doesn’t just

apply to the airline industry. I think it applies more widespread as well. You know, there is,

you know, temporary alleviation for some people given the government stimulus packages that

exists. They’re not going to exist for long.

So I still fundamentally believe that the industry will change and those that have received some

aid, you know, some of the conditions associated with that aid will require them to do things in

a different way and it’s also important to recognise that a lot of that state aid is debt. Now, it

maybe, you know, cheap in the current environment, but it’s actually quite expensive relative

to where the industry was. That debt is going to have to be repaid. That debt will influence

decisions that these airlines will be able to take going forward. All of that points to an industry

that’s going to behave in a different way in the future to the way it’s been behaving.

So I still believe that there will be consolidation. But regardless of whether that’s in the form

of failures or M&A, we will see capacity being significantly reduced at an industry level in 2021

and beyond as a result of what’s happening at the moment.

James Goodall: Very clear, thank you.

Miguel Cebrian (Blantyre Capital): Thank you very much. My question is around the

unearned revenues. The latest figure is as of December ‘19, roughly 3 billion excluding the

Avios side. Wondering in this kind of like worst-case scenario, do you expect, you know, that

get unwound all the way, then how much time do you think is going to be required to start

seeing cash inflows from there? Thank you very much.

Willie Walsh: Yes. So we update that figure at half-year when we give you the balance sheet.

So clearly, we’re not going to, yeah, give you a figure today. We don’t do it at Q1 or Q3. But,

you know, that figure has changed with flights that have been operated, tickets that have been

refunded. And then we’ve got people who have bought tickets. We’re still seeing some people

buy tickets. The activity is significantly lower. So there’s a number of moving parts to that.

But at half-year, we’ll give you more visibility around that when we give you the balance sheet

at the half-year point.

Miguel Cebrian: Thank you very much.

Willie Walsh: Okay, I don’t think there are any additional ‒ or maybe we have just one here.

No, I saw ‒

Willie Walsh: No, I think ‒ no, we don’t see any more questions here from people on our list.

So at this point, can I just thank everybody for joining us on the call. We appreciate you taking


22

time out. I think we’ve proven that technology doesn’t work and we need to get back to face-

to-face activity as soon as we can. Difficult quarter for us and for the industry. We’re very

pleased with the progress that we’re making. We’re very confident that we’re going to steer

our way through this, we recognise that fundamental restructuring is required not just for us

but for everybody in the industry to reflect what is a fundamental change in the way the industry

needs to operate and we’re determined to do everything that is required to ensure that we

come through this in a stronger fashion. So I look forward to speaking to you again.

I will be handing over to Luis formally at the AGM, which is scheduled to take place on the 24th

September, but I’ll have an opportunity, I think, to talk to some of you if not all of you before

that date. And if I don’t, I wish you well. But I’d be around for a little while anyway and Luis

and I will be working more closely together over the next couple of months as we manage the

transition from my leadership to his and I’m looking forward to him taking over and I’m sure

he’s looking forward to taking over as well. So thank you very much for joining us and we’ll

talk to you again soon.

Willie Walsh: Thank you.

[END OF TRANSCRIPT]

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Q1 2020 Earnings - International Airlines Group/media/Files/I/IAG/...Q1 2020 Earnings Thursday, 7th May 2020 2 Willie Walsh Chief Executive Officer, International Airlines Group Thank