International Consolidated Airlines Group S.A.

Good morning, everyone. Thank you for joining us. So before I hand over to Steve Gunning to take you through a more detailed presentation, 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. The House was 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 euros 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 results 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 results, 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've given you an update on liquidity today, both as of 31st of March and again, for your benefit, as of 30th of April, where we have 10 billion euros made up of cash, 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 about 200 million euros from around 440 million euros 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 will 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. 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 sort of 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.

Thanks Willie. Good morning. 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 five, 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 profits. $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 passenger 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 in 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 at 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 at constant currency were down 6.5%. We'll 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's 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 of constant currency. So a very difficult quarter and one where two months of the quarter were reasonable and then the last month of the quarter very difficult because of the sudden contraction in the size of demand and therefore the size of the business. I said I'd talk a bit more about fuel. So we turn over to the next page, slide six. 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 600s at the start of the year to around spot that at the end of March was about 225. And what we've seen in April is it go as low as about 110. 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. 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 we 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. 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 AS case 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 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, if 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 euros. And then if we look at the latest prices, we did this as of the 1st of May, if we look at the latest forward curves for the excess hedging positions, we think that to market at 1.5. So our best estimate at the moment of the fuel bill for 2020 would be the 2.9 and the 1.5 combined, which would be 4.4 billion. So that's the position on fuel. I hope that made it clearer to you. Probably make one last point. The excess hedge position is a market 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 taking place. So the 1.3 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 seven, we wanted to emphasize 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 was a percentage of the last 12 months. Revenues was at 28%, and liquidity was at 38%, sorry, 26%. and 34%. During the course of the quarter, actually net debt has come down a little bit and our cash position has increased from 6.7 to 6.9. 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 taking place. If we turn to the next slide, clearly our principal focus in the last few months has been maintaining our liquidity position. And what you see on slide eight 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 of it is... aircraft and undrawn general facilities, and 6.4 billion of it is cash. In terms of the management actions that sat behind this, as you know, we put out an R&S 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 UKCCFF 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 the 1st of March. And so as of the 1st of March, our credit rating qualified us for $300 million. So the size of the program 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 a 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 the 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 if we move to slide nine, 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 program, based on our financial planning, we would have expected to have burned through cash of about 440 million euros 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 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 gone down from 440 to 200. It's important to emphasize 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 businesses 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 Capital Markets Day. We guided you for 2020 that our gross capital expenditure would be 4.2 billion. Our current management expectations for CAPEX are down now at 3 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 2.7 billion. And of that $2.7 billion, 91% of it we're 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 exercises. So we have 9% of the 2.7 billion of fleet capex yet to be financed, which is about 240 million euros. And clearly the target for us as a business is to get that financed as well. So there will be no cash outflow for our fleet capex in 2020. And clearly we will continue to try to minimize 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'll 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 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 will still look to finalise our retirement plans for our 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 7772s, 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 expires that take place in both 2021 and 2022. So 42 lease expires in 21 and 54 in 22. So very significant flexibility 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've 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 minimizing the capex cash outflow for the year. At this point, I'll hand you back to Willy.

Thanks, Steve. If we look now at going back towards a return to service, it's clear that most of our aircraft are currently grounded. You will 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 787s and 8330s in addition to the narrow body fleet that we have. But we're trying to get the appropriate size aircraft for the limited passenger repatriation flights that we're doing and then get the right size aircraft for cargo only. Like other airlines, we will look at modifying a couple of our triple sevens. 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 fulfill 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 will 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 mask. 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. Our industry has had to adopt to many changes in regulations over the years and you've seen what we've been able to do and 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 H01, 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 we're required to comply with legislation in Spain for Iberia and Welling and in Ireland where restructuring of Erlingus will be taking place as well. Now, Steve has mentioned our planning scenario and we've I'm 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, you know, 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 discussed, announced on the 28th of February, given the uncertainty on the impact and the duration of the COVID-19, were not currently providing profit guidance for 2020. Again, as we announced on the 28th of April, we expect operating loss before exceptional item 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 supports, and the various management actions that we have already taken. 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 threats that we face but the long-term structural change that we believe is taking place and will take place in the industry. So I'm going to pause now and hand back to the operator, and we can start taking your questions.