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Iag annual report and accounts 2020
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MANAGING
THE CRISIS
TRANSFORMING
OUR BUSINESS
SHAPING
OUR FUTURE
ANNUAL REPORT AND ACCOUNTS 2020
INTERNATIONAL AIRLINES GROUP
“
IAG has proven resilient and
flexible in a challenging year
which saw the devastating
effects of the COVID-
pandemic. We took swift
action to mitigate the impact
of the crisis and have worked
hard to transform our
business. This enables us to
shape our future as we remain
a leading player in the airline
industry.
”
Luis Gallego Chief Executive Officer
Contents
Strategic Report 2 Our highlights 3 Previous Chairman’s letter 5 Q&A with the Chairman 6 Chief Executive Officer’s review 8 Management Committee 9 Q&A with the Chief Executive Officer 10 Business model 12 Section 172 statement 18 Strategic priorities and key performance indicators 22 Financial overview 23 Financial review 36 British Airways 37 Iberia 38 Vueling 39 Aer Lingus 40 LEVEL 40 IAG Platform 41 IAG GBS 42 IAG Cargo 43 IAG Loyalty 44 IAG Tech 45 Sustainability 78 Risk management and principal risk factors 89 Regulatory environment
Capital increase
Total liquidity at December 31, 2020 1
CAPEX savings (2020-22) 2
Additional cargo-only flights
Renewal of Amex global partnership 3
OUR HIGHLIGHTS
Acting quickly to respond
to the pandemic
IAG acted quickly to mitigate
the negative impacts, bolster liquidity
and protect its long-term future
1 Total liquidity, measured as cash and interest-bearing deposits and committed and undrawn general and aircraft facilities, was €9 billion at December 31, 2019. 2 Saving versus planned spend announced at Capital Markets Day 2019. 3 Advance cash receipt of £750 million, a significant part of which is a pre-purchase of Avios points. For definitions see Glossary
The COVID-19 pandemic has caused substantial losses
for the global airline industry and IAG
Our performance in summary:
Statutory operating loss
Capacity change ASKs vly
Net Promoter Score
Operating loss before exceptional items
Total revenue before exceptional items
More information on the impact of COVID-19 and IAG’s response can be found in the following sections: 6 Chief Executive Officer’s review 23 Financial review 78 Risk management and principal risk factors 146 Note 2 to the financial statements 202 Alternative performance measures
####### €7,
####### million
-€10,039m vly
####### €8.
####### billion
####### -66%
####### €7.
####### billion
####### 36.
+10 pts vly
####### €
####### million
####### €4,
####### million
-€7,650m vly
####### 4,
####### €7,
####### million
-69% vly
####### €2.
####### billion
2 INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2020
Staying competitive
and resilient
in a changed world
“
In 2020 aviation faced the
devastating effects of COVID-19. At
a testing time, we took swift action
to ensure we emerge from this
unprecedented crisis well
positioned to compete in a
structurally changed industry.
”
The COVID-19 pandemic’s impact on people, communities, companies and countries has been overwhelming. The toll on our sector has been particularly heavy, with IATA estimating that global traffic will not reach 2019 levels until around 2024. In 2020 IAG made an operating loss of €4,365 million before exceptional items on revenues of €7,868 million. This compares with an operating profit before exceptional items of €3,285 million in 2019. Passenger traffic and capacity reduced by 74 per cent and 66 per cent, respectively, with all our airlines making losses far exceeding those recorded in the 2001 crisis and the 2009 financial shock.
CHAIRMAN’S LETTER
These results reflect the negative effect of the COVID-19 pandemic on our business, exacerbated by constant changes in government travel restrictions. We acted swiftly to mitigate the pandemic’s impact, bolster liquidity and protect our long-term future. We’ve made significant progress on restructuring, reducing our cost base and increasing the proportion of our variable costs, to ensure IAG not only weathers the present storm, but emerges from the crisis well positioned to compete in a structurally changed industry. Much of that is down to our successful business model, bringing together a portfolio of world-class, market-leading brands coupled with a record of financial discipline that has seen us become one of the world’s best performing airline groups in terms of financial returns.
Antonio Vázquez Former Chairman
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Additional Information
Q:
What attracted you to joining the IAG Board? A: Ten years ago, IAG disrupted aviation by creating a successful business model which has delivered industry-leading returns. Its unique structure underpinned by the best European airline brands has seen it become one of the world’s best performing airline groups pre-pandemic. This is testament to the fantastic work and innovative thinking of its employees. I’m particularly grateful for their commitment throughout this crisis and for their hard work to help the business navigate these testing times. IAG has shown an extraordinary ability to take advantage of market opportunities, maximise synergies and play a leading role in consolidation. The airline industry is truly fascinating, and the Group has demonstrated its agility to adapt and overcome challenges through this current difficult period. I’m extremely proud of being part of IAG.
Q:
What’s the strength of the IAG Board? A: IAG’s Board members have vast experience, diverse backgrounds and deep knowledge of the corporate world. We started 2021 with the appointments of Peggy Bruzelius, Eva Castillo and Heather Ann McSharry who have extensive experience in top-tier companies across various industries. Diversity enables effective leadership and decision-making and is an essential part of our nomination processes. I’m pleased that 45 per cent of our Board
Q&A with the
Chairman Javier Ferrán
QUESTIONS AND ANSWERS WITH THE CHAIRMAN
financial discipline is crucial to our strategy and we’ve got a very experienced management team under Luis’s leadership with significant expertise in business transformation. Over the long term, the critical drivers of success will be our culture and the talent of our employees; a culture that allows each individual to grow and give the best of themselves.
Q:
Sustainability is becoming even more critical and aviation is likely to change significantly in the coming years. Is IAG ready to adapt? A: For a decade, IAG has been leading the airline industry on sustainability. It was the first airline group worldwide to commit to achieving net zero carbon emissions by 2050. It’s also investing US$400 million in sustainable aviation fuel in the next 20 years. IAG was an aviation pioneer in signing the United Nations Climate Ambition Alliance and one of the ten global companies recognised by the UN for their ambitious carbon targets. Despite the current crisis, we will not back down from our ambition to lead aviation’s efforts to reduce its carbon footprint. We’re determined to play our full part in tackling climate change and support the long-term prosperity of the communities we serve.
members are women. It’s a great honour to enjoy the trust of my fellow directors and chair IAG’s Board in this challenging and fast-moving environment.
Q:
What changes will COVID-19’s impact bring to the industry? A: The global impact of COVID-19 has been unprecedented. Aviation is going through a structural change and we are transforming our business to adjust it to a ‘new normal’. Last year, we acted swiftly to strengthen liquidity and protect our long-term future by adapting to the new circumstances. Reducing our cost base and increasing the proportion of our variable costs will give us flexibility to compete and take advantage of a recovery in air travel demand. Customer needs are also rapidly changing. The industry must be ahead of the game in developing user-friendly digital solutions to provide the tools and reassurance passengers need to travel. Both innovation and technology are critical in driving efficiencies as we navigate our way out of the crisis and towards recovery.
Q:
What’s critical for the long-term success of the business? A: IAG has a proven and successful operating model with a great portfolio of market-leading brands. Its pre-COVID- track record on profitability, sustainable growth, return on invested capital and shareholder value creation provide a solid foundation for the Group’s long-term success. In these extremely challenging times, we are demonstrating our resilience to overcome COVID-19’s impact. Our
Javier Ferrán Chairman
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Additional Information
Securing our business,
building for the future
It is hard to exaggerate how severe the impact of the COVID-19 pandemic has been on our industry. The disruption and financial damage it has caused airlines across the world has, quite simply, been unprecedented.
We’ve been through crises before, not least after 9/11 and the financial shock of 2008/9. 2020 will go down as the worst year in the history of aviation.
Not surprisingly, our own airlines have felt the effects of this crisis very deeply. With overall capacity reduced by two-thirds, all of them recorded heavy losses and a steep revenue decline. Against that background, we reported a Group operating loss of €4,365 million before exceptional items. The contrast to 2019, where we recorded an operating profit before exceptional items of €3,285 million, could not be more stark.
But we believe that a crisis, even one as profound and unpredictable as the pandemic, always presents significant opportunities as well as challenges.
It is in this spirit that we have approached these extraordinary times, taking swift action to secure the business in the short term, while taking steps to transform our business so that it is more competitive in the future.
Managing the crisis At the beginning of the pandemic we were in a strong position as one of the best performing airline groups in our industry in terms of growing profitability. We have had to take swift and decisive action to conserve cash and reduce our cost base. Additionally, where we can we are converting fixed costs to variable costs to more closely reflect levels of demand in the market. That is not a simple task. In the airline industry, fixed costs are traditionally very high. As an example, we can change part of our fixed price for fleet maintenance to a so-called “power-by-the-hour” arrangement. Ideally you want to match cost reductions to capacity. Our capacity decreased by 66 per cent during the year compared to 2019 and we cut our non-fuel costs by 37 per cent, an extraordinary effort by all our airlines. Longer term, the crisis has taught us that we will need a higher degree of variability in our cost base in a much-changed world. Boosting liquidity Our second priority was to improve liquidity. Again, we started in a strong position, with €6 billion in cash at the end of 2019, a resource strong enough to see us through the crises we have experienced in the past. But it very quickly became clear that we would need further resources and took a series of steps to boost our cash position. Our €2 billion successful rights issue in October was a tremendous vote of confidence from investors in the underlying strength of our business and our ability to manage the crisis. Among our other activities, British Airways received commitments for a £2 billion five-year loan facility, partly guaranteed by UK Export Finance along with a £ million loan from the Bank of England. Also, we drew down additional debt of €1 billion for our Spanish airlines as part of the Instituto de Crédito Oficial (ICO) facility. These are all commercial loans, even if some are partially underwritten by governments.
Luis Gallego Group Chief Executive
“
Our immediate focus in 2020 was navigating the
deepest crisis in aviation history and then
making sure our airlines emerge competitive in
the future. Across the business, our people have
made an incredible contribution to this effort.
”
CHIEF EXECUTIVE OFFICER’S REVIEW
Before I detail the actions we have taken, I want to put on record my thanks to people right across the business who have played such a central role in all we have achieved. The commitment, resilience and flexibility they have shown is really exceptional. They have had to adapt at high speed to new ways of working and all the difficulties that come with that. They have made big sacrifices in terms of salary and working time. We have been forced to reduce our workforce by 20 per cent to just under 58,000, with 75 per cent of all redundancies achieved voluntarily. At British Airways, while the airline did everything it could to protect as many jobs as possible, we sadly saw the departure of over 10,000 employees as a result of the pandemic. We are very grateful for their contribution over the years to the airline’s success. Finally, almost 50,000 employees have been on job retention schemes. These government initiatives, providing a valuable support for our staff and for the business, have been important in helping us navigate the crisis.
6 INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2020
MANAGEMENT COMMITTEE
David Podolsky Chief Strategy Officer
Chris Haynes General Counsel
Steve Gunning Chief Financial Officer
Javier Sánchez-Prieto Chairman and Chief Executive Officer of Iberia
Sean Doyle Chief Executive Officer of British Airways
Marco Sansavini Chairman and Chief Executive Officer of Vueling
John Gibbs Chief Information Officer
Adam Daniels Chairman and Chief Executive Officer of IAG Loyalty
Lynne Embleton Chairman and Chief Executive Officer of IAG Cargo
Dónal Moriarty Interim Chief Executive Officer of Aer Lingus
Fernando Candela Chief Transformation Officer
Management Committee The IAG Management Committee, led by Luis Gallego, is responsible for the overall execution and delivery of the strategy of the Group, the delivery of synergies and coordination of central functions.
For further information visit the IAG website
Executive Directors not pictured: Luis Gallego, Group Chief Executive Officer Board of Directors section
Julia Simpson Chief of Staff
8 INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2020
Luis Gallego addresses some of the
key questions on the minds of
investors, customers and
employees.
Q&A with
Group Chief
Executive
Officer Luis
Gallego
Luis Gallego Group Chief Executive
Q:
What actions have you taken to ensure IAG gets through the COVID-19 pandemic? A: Once the scale of the crisis became clear, we moved quickly with a series of critical initiatives. Firstly, we took action to preserve cash; secondly, we raised funding to improve liquidity; thirdly we reduced costs and additionally we have been converting fixed costs to variable costs. On the revenue side, we have operated 4,003 cargo only flights using passenger aircraft which was an important contributor to the Group. Finally, we have pressed for a common standard of testing across the world so that we can get passengers flying again soon.
Q:
Why do you think IAG will come out of the pandemic well positioned to compete? A: We were in a very good position before the pandemic, with all the airlines in the Group performing well in the preceding years. I firmly believe we have the right team and the right commitment to take us forward and, importantly, we are taking steps to transform the business that others are not taking. That should put us in a very good position to emerge more competitive even though it is undoubtedly the most severe crisis in the history of aviation.
Q:
How do you think governments can best support the re-opening of international travel? A: I think coordinated measures are key. We need to avoid quarantine and travel restrictions, replacing them with harmonised testing protocols. Now with the vaccines being rolled out, we need to develop technologies and apps to help people to travel more easily. This approach will allow passengers to use their phones to show that they have met local travel rules – whether that is applying for flight passes, filling in flight locator notifications, proving they have the required COVID-19 tests or have been vaccinated.
Q:
Why is the Air Europa acquisition still worth doing? A: It is a strategic transaction for us. It will allow us to develop Madrid as a major and highly competitive international hub, with IAG at its centre. It will bring significant benefits to consumers, to Madrid and the wider Spanish economy. We have now renegotiated the deal at a reduced value of €500 million and on a deferred payment basis, allowing us to conserve cash as we recover from the current crisis and to be competitive when demand returns.
Q:
What is your management style? A: Perhaps others can answer this question better than me! But I try to behave in the same way as I want the people in my team to behave. The values I think are key are commitment, willingness to embrace change, teamwork and loyalty. I am lucky to be working with a very skilled team of colleagues who share these values and who know and understand the strengths of our business model very well.
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QUESTIONS AND ANSWERS WITH THE CHIEF EXECUTIVE OFFICER
Our strategic priorities Tracking our
performance
Value accretive and
sustainable growth
- Pursue value-accretive organic and inorganic growth options to reinforce existing, or pursue new, global leadership positions
- Attract and develop the best people in the industry
- Set the industry standard for environmental and societal stewardship, safety and security
Efficiency and innovation
- Reduce costs and improve efficiency by leveraging Group scale and synergy opportunities
- Engage in Group-wide innovation and digital mindset to enhance productivity and best serve our customers
- Drive incremental value with new business-to-business and business-to- customer services
Unrivalled customer propositions
- Ensure our operating companies collectively deliver an unrivalled proposition able to fulfil customers’ needs across the full spectrum of travel occasions
- Use consolidation and develop organic options to differentiate the Group from its competitors and ensure customer demands are met where they are currently under-served
- Deepen customer-centricity to win a disproportionate share in each customer segment
Efficiency and innovation
Unrivalled customer proposition
Strengthening a portfolio of world-class brands and operations
1
2 3 Growing global leadership positions
Enhancing IAG’s common integrated platform Value- accretive and sustainable growth
Und erpin ned by sustainab ility
We use a combination of financial and non-financial metrics to measure the performance and progress of our strategy:
Financial and growth KPIs •Operating result •ASKs See section Strategic priorities and key performance indicators
Investor measures •RoIC •EPS See section Strategic priorities and key performance indicators
Customers •NPS See section Strategic priorities and key performance indicators
Employees •Average manpower equivalent •Gender diversity See section Sustainability
Environment •Grams of CO 2 /pkm See section Sustainability
Underpinned by sustainability
The Group’s strategy is underpinned by its target to be the leading airline group on sustainability. We remain committed to reducing our carbon footprint and to reach the goal of net zero CO 2 emissions by 2050 and continue to prioritise other key sustainability issues including waste management, stakeholder engagement and employee engagement and welfare.
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12 INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2020
SECTION 172 STATEMENT
Introduction The commitment made in IAG’s Board Regulations, in accordance with the Spanish corporate governance framework and equivalent to that of section 172 of the UK Companies Act, is clearly present in the work of IAG’s Board of Directors. This section aims to describe how directors have applied and complied with these principles in the reporting year. Further details of how the directors’ duties have been discharged are included in the Corporate Governance section.
Although IAG has multiple stakeholder groups, the Board considers the most significant stakeholder groups to be customers, shareholders and other financial stakeholders, employees, suppliers, governments and regulators, and airline partners and industry associations. The relationship with all stakeholders is informed by the overarching need to ensure the sustainability of our business in all its different aspects, including the impact of our operations on the community and the environment.
The Group’s third strategic priority is enhancing IAG’s common platform, improving efficiency and focusing on digital and innovation. Our employees are enablers of change and we strive to create a working environment in which they can innovate to help deliver efficiency improvements and new ways of working. In addition, the realisation of these objectives needs to be built through cooperation and engagement with our key suppliers. Encouragingly, throughout the COVID-19 pandemic, IAG witnessed robust and pragmatic discussions taking place with key suppliers over affording IAG flexibility with its supplier spend, as evidenced with aircraft manufacturers, who have supported the Group by agreeing to defer deliveries of new aircraft. As part of the Group’s vision, the focus on the sustainability of the business informs all its strategic priorities. In particular, the Group’s commitment to play an active role in tackling climate change continues to be a priority. Engagement with all key stakeholders in this regard underpins the Group’s future. During 2021, IAG will undertake a full-scale materiality assessment with all of its major stakeholder groups, which will include issues that have arisen during the COVID-19 pandemic. For more details please read ‘Business model’, ‘Strategic priorities and key performance indicators’, ‘Risk management and principal risk factors’ and ‘Sustainability’ sections.
Engaging with our stakeholders
Article 3 of IAG’s Board of Directors regulations establishes: The Board of Directors shall perform its duties with unity of purpose and independent judgement, giving the same treatment to all shareholders in the same position and being guided by the corporate interest, understood to be the achievement of a profitable and sustainable business in the long term, which promotes its continuity and the maximisation of the Company’s value. In seeking to serve the corporate interest, in addition to respecting the applicable legislation and maintaining conduct based on good faith, ethics and respect for the generally accepted good practices and customs, the Board of Directors shall endeavour to reconcile the corporate interest with the legitimate interests, as applicable, of the employees, suppliers, customers and other stakeholders that might be affected, also taking into consideration the impact of its activities on the community as a whole and on the environment.
Long-term vision, strategic priorities and key stakeholder groups IAG’s vision is to be the world’s leading airline group, maximising sustainable value creation for its shareholders and customers. The first strategic priority for the Group is to strengthen its existing portfolio of world-class brands, particularly through ensuring that its well-regarded and complementary brands, which are each focused on delivering to a specific set of customer needs in their target demand spaces and geographies, are able to differentiate their product and service offering against their competitors. The employees across the Group play a fundamental part in delivering the unique identity and culture of each of our brands. It is also key to ensure the necessary cooperation and support from our suppliers to help develop and deliver such distinguising products and service. The Group is also dependent on the performance of key suppliers that provide services to our customers and the Group itself, such as airport operators, border control and caterers. In addition, the airlines’ operations are dependent on the timely entry of aircraft and also on the necessary engine performance and reliability of our aircraft to improve operational efficiency and resilience. Aircraft and engine performance are also crucial to support the delivery of our Group sustainability programme, meaning close engagement with airline and engine manufacturers is key. The second strategic priority for IAG is to grow its leadership positions, including through participating in the consolidation of the airline sector. For example, the proposed acquisition of Air Europa and the addition of Aer Lingus to the Group’s Atlantic Joint Business with American Airlines and Finnair. Open competition and markets are in the long-term best interests of consumers. IAG is a strong proponent for continued deregulation and consolidation and we sustain our position with the support of and by engaging with relevant stakeholders such as industry associations, governments and regulators. With these stakeholder groups, we seek to mitigate the risk of excessive government intervention or changes to the regulations that can have a significant detrimental impact on operations.
14 INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2020
SECTION 172 STATEMENT CONTINUED
Mapping our stakeholders to our strategic objectives Why is this stakeholder relevant to the Group?
Which are our engagement mechanisms with this stakeholder group and the principal matters considered in the reporting period? Customers Our customers are central to the success of IAG and we maintain a relentless focus on delivering outstanding customer experience at all levels of the business. Our diverse portfolio of brands gives us a leading position in meeting the specific requirements of customers across different demand spaces.
We engage and listen to our customers through a range of customer satisfaction and market research surveys and focus groups. Their invaluable feedback is analysed by our expert customer insight teams and is used to drive product and service initiatives that will deliver the greatest value to the customer. Through our IAG Loyalty schemes we develop strong, long-term relationships with our customers. This helps us to deliver an experience tailored to individual customer needs and engage in a way that suits them. All IAG airlines have dedicated and highly-skilled customer relations teams, working around the clock to deliver the highest level of support and assistance to our customers. The customer relations teams are also responsible for resolving any customer complaints or claims, such as those covered under EC Regulation 261/2004. They engage with our customers across a range of channels, including our websites, call centres, social media accounts, e-mail and postal mail. In addition, our customers receive help and guidance throughout their journey from our renowned on-board and airport colleagues. Engagement with customers has been key during the year in understanding the changes in the needs and expectations of different customer types and to face the challenges created by the COVID-19 pandemic. This enabled the Group’s airlines to adapt their customer journey by introducing a range of measures to support consumer confidence and to implement commercial reassurance measures for customers. All brands have changed their customer communications to provide clear guidance on the new airport and on-board procedures. Customer response to these and other reassurance measures has been very positive, as shown in the NPS result this year. For further information see ‘Strategic priorities and key performance indicators’ section. Employees Across the Group, employees play a vital role in delivering the service experience that customers expect, whether on the ground or in the air. Our employees bring a diverse range of talent and perspectives that contribute to the values and culture of our companies. Creating an environment where employees feel motivated, safe and able to thrive and deliver for customers is central to the continued success of the Group. We recognise the critical role that employees will play in the recovery and transformation of IAG and across the Group we are focusing on improving employee engagement.
Each company in the Group has its own communication channels adapted to its culture and profile. In general terms, communication with employees is made using formal and informal channels which include: performance reviews, specific consultations, employee forums, internal social networks, local cascade meetings, newsletters, workshops, engagement surveys and Speak Up lines. IAG has a European Works Council (EWC) which brings together representatives from the different European Economic Area (EEA) countries in which the Group operates. EWC representatives are informed about and, where appropriate, consulted on transnational matters which may impact employees in two or more EEA countries. Engagement with employees has been challenging given the social impact of the COVID-19 pandemic on the operations of the Group and therefore the workforce. The vast majority of employees were either furloughed for much of 2020 or working remotely from home, however, several surveys were completed during the year to adequately respond to changes in working practices and environments. Each company in the Group launched initiatives to support the wellbeing of their employees, their mental health and ensure COVID-19 safety. At the same time, IAG Tech has worked to enable employees across the Group to work in the most secure, efficient and effective manner. Employee consultations have been undertaken as required and appropriate in relation to restructuring necessitated to adapt to a new business environment.
Key stakeholders and engagement mechanisms Our stakeholders engagement framework is articulated in line with our unique value proposition and business model. Accordingly, the relationship with certain stakeholders is undertaken by the operating companies, while others are managed at IAG level or are treated as a cross-group responsibility and managed by IAG’s common integrated platform.
As the parent company, IAG is responsible for capital allocation decisions as its independence from the operating companies enables dispassionate,
disciplined and efficient decision-making while ensuring they are aligned with the Group’s strategic focus and long-term vision. Consistent with this approach, IAG is responsible for the maintenance of relationships with shareholders, strategic suppliers and key financing counterparties. In contrast, customer engagement is undertaken by the operating companies, ensuring a deep and real- time understanding of customers’ needs and their cultural, social and economic environment. Similar principles apply to the relationship with
the workforce which is the direct responsibilitiy of each operating company. In the case of governments and regulators, as well as with airline partners and industry associations, the leading role in such engagement is either at Group level or assumed by the operating companies depending on the impact and relevance of the particular stakeholder and the matters involved. Finally, our common integrated platform drives efficiency, simplicity and consistency in our approach to our suppliers.
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Additional Information
Why are these stakeholders relevant to the Group?
Which are our engagement mechanisms with this stakeholder group and the principal matters considered in the reporting period?
Shareholders and other financial stakeholders
As an IBEX 35 and FTSE 100 company, IAG prides itself on being a multicultural group that has inherited the legacy of long-standing listed companies in Ireland, Spain and the United Kingdom. Shareholders and investors are main capital providers to both invest and grow the Group’s business. Shareholders’ and other financial stakeholders’ views are critical in supporting the Group to formulate its strategy, as well as the operational and financial performance, to generate and optimise returns in a sustainable way. Additionally, financial debt providers are key to support the operational and investment requirements of the Group in the short and long term. The access to adequate funding sources across different products and services enables the efficient management of the diverse funding requirements across the different geographies in which the Group operates. Finally, over half of IAG’s fleet of aircraft is made up of aircraft on operating leases, which were either purchased by IAG and then sold and leased back from lessors or sourced directly from lessors. Strong relationships with our lessors are essential to allow for the smooth financing of new aircraft deliveries and to manage the aircraft during a typical 12-year operating lease. This has proved especially important in 2020 where IAG has been able to engage extensively with its leasing partners on new and existing leases.
IAG actively and frequently communicates with shareholders and other financial stakeholders through an open and transparent dialogue so they can understand performance and also raise any possible concerns. IAG usually holds at least six formal meetings every year (Annual General Meeting, Capital Markets Day and four quarterly results briefings), where shareholders and investors have the opportunity to interact with management Company also attends numerous investor conferences throughout the year and organise roadshows around the world to meet investors with diverse perspectives and from different locations. Some of these include both management and Board members, and have a business focus as well as a corporate governance and ESG focus. Additionally, the Group Investor Relations team maintains an ongoing dialogue with equity research analysts, to understand investors’ and shareholders’ views of the Company. Through the corporate website, annual reports and press activity IAG keeps shareholders informed of the development of the business. Engagement with debt and lease providers is done at IAG level to ensure strategic and consistent approach across the Group, with the support of the Fleet and Finance teams at the Group’s airlines. IAG fosters a long-term relationship by actively and frequently engaging with the debt and lease providers across the different geographies and areas of expertise. The Group maintains an open and transparent dialogue, so they are familiar with its financial performance and long-term strategy, can understand the financial strategy and financing requirements. IAG outlines its financing priorities and expectations whilst they provide ideas, solutions and lending capabilities. 2020 was the first year since its creation, that IAG did not hold its usual Capital Markets Day due to the COVID-19 pandemic. However, the Company provided more detailed and extended quarterly presentations, including a presentation focused on the capital increase completed in 2020 and at the second quarter results. The Group also continued to interact with investors in a very intensive manner, including investor calls, roadshows and conferences, with the format moving from physical events to virtual events. Finally, ESG continued being an area of focus and the Company launched an investor survey to the Top 100 shareholders in December to better understand their approach towards it. In 2020, the Group focused on obtaining access to liquidity across different markets such as the bank loan market and capital markets in Europe, Japan and United States. Moreover, IAG worked closely with the financial institutions on maintaining available derivatives trading credit lines to support the business needs. Finally, on the aircraft leasing front, during the early months of the COVID- pandemic, IAG approached its lessors and agreed the deferral of lease payments. Most lessors supported IAG at this time and more recently, many lessors have entered into further agreements to provide additional support, working together on more structural changes to our existing lease agreements that better suit the evolving business needs of both IAG and our lessor partners. During 2020 IAG also entered into a number of new sale and lease back transactions with lessors to finance new aircraft deliveries, as well as agreeing terms that have facilitated the delivery of already committed direct lease aircraft, to the benefit of IAG and the lessors involved.
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Additional Information
Why is this stakeholder relevant to the Group?
Which are our engagement mechanisms with this stakeholder group and the principal matters considered in the reporting period?
Airline partners and industry associations
IAG participates in different national and international associations in order to develop common positions and to improve the effectiveness of the associations’ work in developing and promoting the airline industry. IAG and its operating companies rely on a number of partnerships with airlines across the world. These partnerships are an efficient way to strengthen the operating companies’ marketing and distribution presence in “non-home” markets, and to extend the number of destinations we can offer to our customers. The customer bases of these partners also provide a vital source of traffic to sustain the overall scale of our airlines.
IAG takes a leading role in the international associations of which its airlines are members, in particular IATA and A4E (Airlines for Europe) as well as the national airline associations in Spain (ACETA) and the UK (Airlines UK), participating through the relevant corporate governance structures. As far as partnerships are concerned, each has formal governance structures in place, with regular meetings to monitor progress against a set of agreed outcomes. Informal working level engagement on a continuous basis also occurs, usually to progress specific initiatives that require additional focus. Many of our partnerships have emanated through our participation in the oneworld alliance. They can vary in size from simple bilateral agreements between an operating company and a partner airline to market the services of each other on a number of routes, to a fully comprehensive immunised joint business extending across a number of regions and allowing participants to coordinate on pricing and capacity decisions. Participation in industry bodies has been particularly important this year, with an emphasis on delivering common messaging and influencing of governments, calling for unified and consistent measures to better allow the industry to navigate the impacts of the COVID-19 pandemic. Despite very low levels of flying, the Group’s partnerships and the oneworld alliance have remained a central focus as the IAG airlines think about how to rebuild their networks and offer the best possible proposition to customers during the recovery. IAG has also worked closely with the oneworld alliance in trialling COVID-19 testing across the Atlantic as a way of safely reopening markets.
Why is this stakeholder relevant to the Group?
Which are our engagement mechanisms with this stakeholder group and the principal matters considered in the reporting period?
Governments and regulators
The nature of aviation, providing international connections in a safety and security critical environment, means that governments will always take a close interest in the industry’s developments and that regulators will make rules that directly affect our operations. IAG therefore engages closely with the national governments, regulators and parliamentarians in the states in which its airlines are based, as well as with relevant supra-national organisations such as the International Civil Aviation Organisation (ICAO), the European Commission and other European institutions. The expected close involvement of governments and regulators in aviation has been even more clearly demonstrated this year due to the COVID-19 pandemic The Group engages to understand and mitigate the impacts of regulatory change but also to ensure that policymakers and regulators take decisions with an understanding of the nature of IAG’s business and of the economic and social benefits flying delivers.
IAG manages its engagement with government and regulatory stakeholders through a small team reporting to the Chief of Staff. This is supported by representatives in Madrid and Dublin who can engage quickly with local stakeholders where necessary. In doing so IAG’s government affairs team regularly includes operating company colleagues to ensure technical expertise and local knowledge is leveraged. This approach has been particularly beneficial to the Group in responding to the actions of governments around the world in response to the COVID-19 pandemic. In 2020, IAG continued to engage closely with the national governments, regulators and parliamentarians in the states in which its airlines are based, as well as other key jurisdictions (in particular the US) as well as with relevant supra-national organisations such as the International Civil Aviation Organisation (ICAO), the European Commission and other European Institutions. The Group employs informal and formal mechanisms for engagement. These include taking part in individual meetings with ministers, officials, parliamentarians and industry regulators; providing written input to formal consultations; and membership of industry expert groups. This is often done collectively through trade associations, in particular International Air Transport Association (IATA), A4E and national airlines associations, as well as directly and through bilateral IAG representation. In 2020, engagement has focused on COVID-19, Brexit and sustainability. In response to the pandemic, government decisions have tended to be more rapid than usual and the direct impacts on IAG operating companies have been more profound as authorities around the world have restricted air travel. In addition to restricting movement of citizens by various means, including through flight bans and immigration controls, governments have introduced a range of measures directly affecting airline operations. The Group has contributed directly to the response to the COVID- pandemic, helping develop national and EU guidance, particularly on safety and security isues and including health protection measures, passenger facilitation processes and requirements to provide authorities with passenger data. The Group aims to help develop best practices and workable solutions that can allow travel to continue while restricting the spread of the virus. In the lead up to the agreement of the EU-UK Trade and Cooperation Agreement, IAG was in regular contact through individual meetings with national regulators and ministers on both sides of the negotiations to explain the Group position. IAG’s input into sustainability policies continued, including the IAG Chief Executive Officer’s engagement with European Commissioners through A4E, and British Airways’ as a member of the UK’s Jet Zero Council.
Strategic priorities and key
performance indicators
Unrivalled customer proposition
Our activity in 2020 In the wake of the COVID-19 pandemic, the Group’s portfolio of brands focused on supporting the wider community in tackling the impacts of the pandemic. In order to aid the COVID-19 relief efforts, the Group has flown critical equipment and essential medical supplies across the world, and each of the Group’s airlines offered repatriation flights to bring customers safely home after the introduction of COVID-19-related travel restrictions and border closures. Each brand and operation also focused on supporting their local communities through charitable work such as volunteering at local hospitals, donating supplies and delivering care packages. IAG’s airlines have adapted the customer journey by introducing a range of measures to support consumer confidence. With the COVID- pandemic resulting in variable and unpredictable travel rules, the Group’s airlines have implemented commercial reassurance measures for customers,
such as extending flexible booking policies and guaranteeing flights that will operate. In addition, IAG supported the development of a COVID- insurance product aimed to support and protect customers against travel restrictions and health concerns. The Group has influenced and trialled industry guidelines for safe travel, such as ICAO’s Council Aviation Recovery Taskforce (CART) ‘Take-off’ Guidance. IAG has also been working with government and industry bodies to call for an effective COVID-19 testing procedure which could be used to reduce or remove quarantine requirements and enhance passenger safety onboard. In support of this, British Airways, together with its joint business partner American Airlines and the oneworld alliance, has trialled COVID-19 testing on routes from the USA to London Heathrow. All brands have also updated their customer communications to provide clear guidance on the new airport and onboard procedures, COVID-19 specific
entry requirements for relevant destinations and an overview of the enhanced cleaning measures adopted by the airline. Our priorities for 2021 The Group will continue its leading work on safety, aiming to ensure its businesses can deliver an unrivalled customer proposition that adapts to meet changing customer expectations, regulatory requirements and drives customer trust as well as satisfaction. The brands will continue to deepen their understanding of changes in the needs and expectations of different customer types, in particular as a result of the COVID-19 pandemic and will evolve their products and services to best deliver against the needs of the customer. Strong emphasis will be placed on digitalisation, including automating disruption management and delivering touchless travel solutions.
Net Promoter Score (NPS)
Strategic priority
How we create value
Our performance
KPI or industry measure
Strengthening a portfolio of world-class
1 brands and operations
2020
36.
+10 pts vly
Definition and purpose NPS is a non-financial metric which measures the customer’s sentiment and loyalty to a brand. At IAG a transactional NPS is measured: customers respond about their likelihood of recommending an IAG operating carrier no more than seven days after taking a flight. Including NPS targets in the Group’s employee bonus scheme has driven a stronger focus on improving the customer experience, which together with customer advocacy drives competitive
advantage, leading to faster organic growth. Performance IAG’s NPS in 2020 increased 10 points versus 2019, achieving record levels of customer satisfaction and growth across all IAG airlines. However, this score must be viewed in the context of the pandemic. The COVID-19 pandemic has altered customer expectations and demanded a significant change in the flying experience. IAG has adapted the customer journey by introducing a range of reassurance measures to protect the safety and wellbeing of our customers, including revised service routines to promote social distancing, increased levels of aircraft cleaning and the provision of complimentary personal protection packs to all customers on board. The customer response to these and other
reassurance measures has been overwhelmingly positive. At the same time, the reduced flying schedule in 2020 has helped deliver improved on-time performance whilst the decrease in customer demand has contributed to lower load factors, both of which have historically been closely correlated with customer satisfaction. The impact of the COVID-19 pandemic on the flying experience makes comparisons with prior and future periods challenging, however the Group’s NPS performance in the first two months of 2020 (when customer demand was similar to that of the prior year) exceeded equivalent 2019 levels, suggesting a continuation of the positive customer satisfaction trends exhibited in recent years in the absence of the COVID-19 pandemic.
18 INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2020
STRATEGIC PRIORITIES AND KEY PERFORMANCE INDICATORS
Iag annual report and accounts 2020
Assignatura: Telecomunicacions en el sector aeronàutic (101763)
Universitat: Universitat Autònoma de Barcelona
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