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LEADING
SUSTAINABLE
AVIATION
INTERNATIONAL
AIRLINES
GROUP
ANNUAL REPORT
AND ACCOUNTS 2019
“We’ve always led the industry
in addressing climate change.
Launching Flightpath net
zero, our commitment
to net zero CO2 emissions by
2050, puts environmental
sustainability firmly
at the heart of our business
and reaffirms our leadership
in this critical area.”
Willie Walsh
Chief Executive Officer
Contents
Strategic Report
2
3
Our highlights
Chairman’s letter
4 Our network
6
Chief Executive Officer’s review
10 Management Committee
11 Question and answers
with the Chief Executive Officer
12 Our investment case
14
16
22
26
28
Business model
Section 172 Statement
Strategic priorities and key
performance indicators
British Airways
Iberia
30 Vueling
31
32
33
35
36
37
39
62
Aer Lingus
LEVEL
IAG Platform
IAG Cargo
IAG Loyalty
IAG Tech
Sustainability
Risk management and principal
risk factors
70 Regulatory environment
72
73
Financial overview
Financial review
Corporate Governance
Financial Statements
Management Report
86 Chairman’s introduction
to corporate governance
88
Board of Directors
132 Consolidated income statement
133 Consolidated statement
of other comprehensive income
90 Corporate governance
134 Consolidated balance sheet
102 Report of the Audit and
Compliance Committee
105 Report of the
Nominations Committee
135 Consolidated cash flow statement
136 Consolidated statement
of changes in equity
138 Notes to the consolidated
109 Report of the Safety Committee
financial statements
110 Report of the
Remuneration Committee
187 Alternative performance measures
193 Group investments
Statement of Directors’ Responsibilities
Independent Auditors’ Report
Additional Information
206 Glossary
208 Operating and financial statistics
IBC Shareholder information
IAG is required to prepare a
Management Report in accordance with
Article 262 of the Spanish Companies
Act and Article 49 of the Spanish
Commercial Code. Pursuant to this
legislation, this Management Report
must contain a fair review of the
progress of the business and the
performance of the Group, together
with a description of the principal risks
and uncertainties that it faces. In the
preparation of this report, IAG has taken
into consideration the guide published
in 2013 by the Spanish National
Securities Market Commission
(CNMV) which establishes a number
of recommendations for the
preparation of management reports
of listed companies.
The Management Report is composed
of the following sections:
14 Business model
22 Our strategic priorities and key
performance indicators
33 IAG Platform
39 Sustainability
62 Risk management
and principal risk factors
70 Regulatory environment
72 Financial overview
73 Financial review
The Annual Corporate
Governance Report is part of this
Management Report but has been
presented separately.
This report has been filed with the
CNMV, together with the required
statistical annex, in accordance with the
CNMV Circular 2/2018, dated June 12.
The Annual Corporate Governance
Report and the statistical annex are also
available on the Company’s website
(www.iairgroup.com).
The Non-Financial Information
Statement in response to the
requirements of Law 11/2018, of
December 28 (amending the
Commercial Code, the revised Capital
Companies Law approved by
Legislative Royal Decree 1/2010,
of July 2, 2010 and Audit Law 22/2015,
of July 20, 2015), is part of this
Management Report and is available
on the Company’s website
(www.iairgroup.com).
OUR HIGHLIGHTS
A year of maintaining and
strengthening our business
IAG continues to deliver in a changing industry...
Total revenue (€m)3
Operating profit before
exceptional items (€m)1 2
+€1,248 million vly
-€200 million vly
2019
2018
25,506
24,258
2019
2018
3,285
3,485
...investing in the future of our customers,
people and airlines...
Net Promoter Score
25.8
+9.5 pts vly
Commitment to
net zero
CO2 emissions
by 2050
...while continuing to achieve sustainable
returns to shareholders
Return on Invested
Capital1 2
14.7%
-2.2 pts vly
Adjusted
EPS2
116.8€c
+1.9€c vly
1 2018 pro forma financial information is based on the Group's restated statutory results with an adjustment to reflect the estimated impact of IFRS 16
‘Leases’ from January 1, 2018. A reconciliation of the pro forma financial information to the Group's statutory results is included in the Alternative
performance measures section.
2 For detailed calculations refer to the Alternative performance measures section.
3 The 2018 results have been restated to reclassify the costs the Group incurs in relation to compensation for flight delays and cancellations as a
deduction from revenue as opposed to an operating expense. There is no change in operating profit.
For definitions see Glossary.
2
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 CHAIRMAN’S LETTER
Building on our commitment to
sustainable growth
“A warm welcome to
our annual report for
2019, a year in which
we sustained our
financial performance,
prepared for
significant transition in
the Group’s leadership
and took a strong lead
in tackling climate
change.”
We believe consolidation in Europe will
continue and our model means that we are
ready to seize the right opportunities at
the right time, as we did in November
when we announced Iberia’s agreement to
buy Air Europa for €1 billion, a deal which,
once approved, will add a sixth, cost-
effective airline to the Group.
As Brexit negotiations proceed, we are
confident the EU and the UK will sign a
comprehensive air transport agreement
in the months ahead, safeguarding the
huge consumer and employment benefits
of an open aviation market. Our ownership
and control plans have been accepted
by regulators in Spain, France, Ireland
and Austria.
For 10 years we’ve led our industry in
tackling climate change, and last year we
became the first airline group to commit to
achieving net zero carbon emissions by
2050, backed by a comprehensive action
programme and stretching, but achievable,
targets. Environmental, social and
governance issues have risen to the top
of the agenda for all our stakeholders,
including investors. They now see
sustainability as a test of a company’s
value, as well as its values.
From day one we saw it as our vocation
to reward shareholders as soon as our
finances permitted. Since 2015 we have
returned €4.4 billion in dividends and
share buybacks, and are determined to
maintain that record.
It’s been another extraordinary year for
IAG, made possible by the tremendous
contribution people across the Group
make each day.
It is a time of change for us, but also
continuity. I believe we can all look ahead
with great confidence and excitement.
Antonio Vázquez
Chairman
For IAG, 2019 was a year of continued
progress and a time of significant change.
Willie Walsh is stepping down as our Chief
Executive in March, and will leave the
Company in June as part of a careful
process of transition in the IAG
management team.
Willie has played a formidable role in
shaping the Group since British Airways
and Iberia merged in 2011 – the architect
of our unique business model and our
acquisition strategy, bringing real discipline
to IAG’s finances, and advocating
powerfully for change in our industry.
I thank him wholeheartedly for his
fantastic leadership.
Luis Gallego will replace Willie, having
overseen a profound transformation of
Iberia as the airline’s CEO since 2014. The
Board is confident he is the right person to
lead us in our next stage of development.
His appointment is part of a series of
leadership changes, including the
appointment of a new Chief Financial
Officer, and new CEOs at both Iberia and
Vueling. The fact that these posts have
been filled by internal candidates, after
exhaustive succession planning, is proof
of the depth of talent we have in IAG.
In 2019 our airlines carried 118 million
passengers, up by 4.7 per cent. But,
despite our revenues growing to
€25.5 billion, operating profits before
exceptional items declined by 5.7 per cent
versus 2018 pro forma, to €3.3 billion.
Nevertheless, we remain financially strong.
In November we updated investors on our
medium-term financial goals, maintaining
our ambitious targets on return on
invested capital and operating margins
for the next three years. We expect lower
capacity growth in that period and have
adjusted EPS growth accordingly. The
market has responded very positively to
these numbers.
In December 2019, the International Air
Transport Association forecast that the
global industry will increase net profits to
US$29.3 billion in 2020. However, the
spread of COVID-19 will affect global
demand during the year, but it’s too early
to estimate its full impact on global
profitability.
3
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information OUR NETWORK
Our business
around the world
IAG combines leading airlines in the UK, Spain and Ireland, enabling
them to enhance their presence in their target market while retaining
their individual brands and operations. The airlines’ customers benefit
from a larger combined network for both passengers and cargo, and
its scale enables an ability to invest more efficiently in new products
and services.
Our longhaul operations
4
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Passengers
Destinations
Aircraft
Cargo tonnes kilometres
118million
+4.7% vly
279
+11 vly
598
+25 vly
5,577million
-2.4% vly
Our shorthaul operations
British Airways
Iberia
Vueling
Aer Lingus
LEVEL
5
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information CHIEF EXECUTIVE OFFICER’S REVIEW
Demonstrating the continued
strength and flexibility of our
business model
Some problems were internal. The strike
by British Airways pilots in September had
an impact on our operations, our
customers and finances. Nobody wants
to see industrial action especially with a
highly valued group like our pilots and I
am glad the situation has been resolved.
These are strong results and ones we will
be able to look back on in a few years as
very impressive. It confirms our view that
we continue to make good progress and
remain firmly placed among the leaders of
a much-improved industry.
Air Europa
We were really delighted that Iberia’s €1
billion acquisition of Air Europa was
agreed during the year, subject to
regulatory approvals. This will be a
transformational deal for the two airlines
and for IAG. Above all it will allow us to
transform Madrid, turning it into a genuine
global hub. It’s already a powerful hub for
Latin America, but our aim is to further
extend its reach into Africa and Asia.
I think this opportunity to transform
Madrid explains why the deal has been
so well received in Spain – by trade
unions, politicians, the airport itself and
the travel industry.
But for me it also demonstrates that
people now really understand how
IAG works.
When we make acquisitions we can point
to a solid track record of achievement. We
can demonstrate what we have done with
Vueling, for instance. We can show what
we have achieved for Aer Lingus and for
Dublin by turning that airport into an
exciting and expanding transatlantic hub,
with huge benefits for consumers and the
Irish economy. People now know we
honour our commitments, and often far
exceed them.
We expect to receive approval for the deal
in the second half of 2020. Our plan is to
maintain the Air Europa brand initially,
giving ourselves time to decide how best
to integrate our operations in Spain, where
we will eventually have five brands,
including Iberia, Iberia Express, Vueling
and LEVEL. Although we think Spain is
both a diverse and big enough market to
support a multi-brand strategy, we need to
really understand what the brands mean in
different segments of the market.
Willie Walsh
Group Chief Executive
“Although our results
for 2019 were down
slightly, they are still
very impressive and
are proof that we
remain firmly among
the leaders in our
industry.”
6
In many ways 2019 was a bittersweet
year for International Airlines Group
but one where, once again, we proved
the underlying strength of our business
model and our flexibility to respond to
market conditions and challenges within
the Group.
Our results showed a 5.7 per cent decline
in our operating profits to €3.3 billion,
which came despite our revenues climbing
to €25.5 billion.
A number of external factors contributed
to that result, including a sharp increase
in our fuel bill to €6 billion and continuing
volatility in the oil price throughout the
year which we were able to partly offset
through our hedging policies. The general
economic environment was also softer,
but we responded well, modifying our
capacity where necessary to match
underlying demand.
2019 was also the second-worst year on
record for air traffic control disruption in
Europe, following an even worse situation
the year before. Our airlines coped well
with this situation, especially Vueling
which was particularly exposed to ATC
strikes in France.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Net promoter scores
I talked extensively about our use of Net
Promoter Scores (NPS) within our airlines
last year and this was one of the big
positives in 2019. The NPS provides a
fantastically sensitive tool to weigh up and
balance financial and customer investment
decisions, providing a mass of highly
granular data. I’m glad to say all our airlines
saw their scores climb during the year.
The increase was particularly strong at
Vueling as the team responded to the ATC
disruption last summer in an exceptional
manner, adjusting the network, providing
additional standby aircraft, and using data
analytics to predict disruption and its
effects more accurately from patterns
they’d seen in 2018. As a result customer
satisfaction rose significantly.
British Airways also performed strongly.
The NPS was affected by the pilot strike,
but recovered quickly. We have seen a
great example of how the scores help us
to track customer reactions with British
Airways’ Euro Traveller product, where we
introduced buy-on-board a few years
ago in our economy cabin. Customers
were not happy at first, but, much as we
expected, there has been a shift in opinion
and scores are now higher than before we
made the change.
We measure reactions in all our cabins
and, where we see things going wrong,
move very quickly to make changes. We
have now set new targets for 2020 and
2021 and there are very clear investment
plans in place for all the airlines to either
maintain NPS at high levels or
to improve further.
We continue to keep our eyes open for
other consolidation opportunities in
Europe. One of our key strengths is the
fact that we have a dedicated team
working on the Air Europa integration and
plenty of extra capacity to scan the market
for further opportunities.
Although we see no immediate prospects
right now, it’s clear that 2020 will be a
challenging year in Europe, even before we
take account of the impact of COVID-19.
Economic growth continues to soften,
although not to the point where recession
is likely, and some airlines will fail. That is
never nice to see, but it does provide us
with the opportunity to grow into gaps in
the market left by carriers that disappear.
Climate change
Once again we took an industry-leading
position on climate change, becoming the
first airline group to commit to net zero
carbon emissions by 2050, through our
Flightpath net zero programme unveiled
in October.
This is a vitally important initiative for IAG
and our industry. I am convinced we can
achieve that goal and am pleased that we
have a 30-year programme, backed by
tough targets, that is based on the hard
science of keeping rises in global
temperatures to below 1.5 degrees Celsius.
Ten years ago the industry pledged to
halve CO2 emissions, but the science
makes it clear we must go much faster.
Powerful new aviation technologies are
on our side, as we demonstrated during
the year on a promotional flight by one
of British Airways’ new Airbus A350s
from London to Toronto. It allowed us to
compare fuel burn in this new aircraft with
a Boeing 747 carrying an identical payload.
It was reduced by a huge 38 per cent,
with the same reduction in emissions.
This represents a real step-change
in technology.
Operational highlights
British Airways celebrated its centenary
during the year and it was great to see the
airline proudly trace its roots right back to
1919 when, under the name Air Transport
and Travel, it launched its inaugural flight
– with just one passenger on board –
between London and Paris.
A highlight of the year was the
introduction of the Airbus A350 fitted
with our new Club Suite product, which
customers love. The airline is investing
heavily in this product but retrofitting it to
our existing longhaul fleet will take time
and we will have the challenge of having
two products – one new, one old – on our
aircraft for a while.
Iberia is prospering following some five
years of work to transform its brand,
operations, culture and financial
performance. People often talk to me
about how Iberia is so different to ten or
even five years ago. They can really see
the difference. The product is great,
and the service is excellent. It’s a
fantastic achievement.
Vueling has done an excellent job in
dealing with the disruption I mentioned
earlier and has also had to overcome a
softening in key markets, particularly Italy
and France. It has done this well.
Aer Lingus continues to focus on
expanding its transatlantic services, helped
by the introduction of the long-range
version of the Airbus A321. This aircraft is a
game-changer. It allows Aer Lingus to
target cities on the eastern side of North
America where there is unlikely to be
demand for a direct service with a larger
aircraft. Replacing one Airbus A330 with
two Airbus A321LRs also allows the airline
to operate multiple frequencies, opening
up better connecting opportunities. A
service to Minneapolis, St. Paul was
launched in 2019. However, the planned
service to Montreal was postponed
because of delays to aircraft deliveries.
Aer Lingus also continues to compete
effectively with Ryanair on shorthaul
routes, providing an efficient and profitable
feed for flights across the Atlantic.
7
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED
LEVEL – our low-cost longhaul brand
– had a mixed year. Its popular Barcelona
to Buenos Aires service was performing
exceptionally well, ahead of the
devaluation of the Argentinian peso.
With a very strong point of sale in
Argentina and with continuing strong
demand locally, the financial performance
was, nevertheless, hit hard as the currency
declined by between 50 and 60 per cent.
Opening a second longhaul base in Paris
also proved more difficult than expected,
although things improved in the second
half. We were delighted to appoint
Fernando Candela as LEVEL’s new CEO,
during the year. He has achieved great
things at Iberia Express and we are sure
he will do the same in this new role.
Our cargo operations had a very difficult
year as world trade faltered and as the
trade war between China and the US
intensified. There is still a disconnect
between supply and demand, made worse
by the growing number of airlines making
hold space available for freight on wide
body passenger aircraft. This year will be
tough too, and, given China’s vital role in
the global supply chain, is likely to be
exacerbated by COVID-19. I see an
opportunity here. When production
returns to normal there will be many
looking to move cargo quickly, and
airfreight will play a central role in that.
It was an exceptional year for IAG Loyalty,
but to me the most important
development was the chance to explore
new ways to look at its role within the
Group. While its main business is loyalty,
it is data-driven and we see a huge
opportunity to turn it into a centre of
excellence for data, for the benefit of all
our airlines.
Digital transformation
It’s vital we strengthen and transform
our digital infrastructure and we were very
fortunate to recruit John Gibbs as our new
Chief Information Officer on the
Management Committee.
Our airlines still rely on a range of
embedded legacy systems that need to
be completely overhauled to take full
advantage of digital technology. John can
lead us in making sure our systems are fit
for the future. We are heavily investing in
this effort but it’s a complex task.
A new leadership team
I’m delighted that Luis Gallego is replacing
me as CEO of the Group. For several years
I have seen him as a natural successor in
this role and I know he will do a superb job.
At Iberia he has demonstrated he is a
world-class leader of this or, indeed, any
industry. His style is different from mine,
but I am sure the transition will be smooth.
We commit to net zero CO2
emissions by 2050
We are under no illusions, the challenge
ahead is great. Aviation brings great
benefits and 80 per cent of emissions are
for journeys over 1,500km where there are
no reasonable alternatives to flying.
As an industry, we are currently reliant on
fossil fuels and the low-carbon solutions
for aviation are more complex than for
many other sectors. But we believe our
ambitious goal is achievable.
With Flightpath net zero, we are putting
environmental sustainability at the heart
of our business, ready to meet the
task ahead.
We are also using our influence to
encourage industry partners to play
their part and calling on governments to
create the policies and incentives that will
ensure we collectively meet our global
climate goals.
IAG has led aviation
action on climate
change for over a
decade. Now, we are
stepping up our
commitment with a
package of new
measures to reduce
our carbon footprint
and a long-term goal
to reach net zero CO₂
emissions by 2050.
8
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 His move creates a domino effect,
meaning an extensive transition in IAG’s
leadership team. Javier Sánchez-Prieto
returns to Iberia as CEO from Vueling, with
Marco Sansavini moving from Iberia to
replace him. This follows the appointment
last year of Steve Gunning as IAG’s Chief
Financial Officer to replace Enrique Dupuy
de Lôme, who stood down at our Annual
General Meeting in June. Recently we also
announced that Adam Daniels will become
the new CEO of IAG Loyalty, following
Drew Crawley’s decision to pursue a new
challenge outside the business.
These internal moves have been planned
with great care over a long period,
during which time we also searched
the external market to assess other
potential candidates.
It’s great to have a mix of internal and
external candidates, but really pleasing
that we can fill these positions with tried
and tested talent from within our own
ranks. I’d say one of the things about IAG
that makes me most proud is that people
in the business feel there is real scope to
progress in their careers.
Outlook
Our updated medium-term financial
targets for the next three years, released
to the market last November, demonstrate
our great confidence in the future. Almost
all our goals are unchanged, including
those on Return on Invested Capital and
operating margin.
We did moderate our expectations on
capacity growth, but that was to send a
clear message. In the past we have often
talked about our ability to quickly manage
capacity down if and when demand drops
off. Here we are saying that we also have
the flexibility to increase capacity rapidly
should the economy improve faster than
expected, or if opportunities to grow into
gaps in the market do emerge. Our
overall capacity flexibility will help us to
face the new challenge of COVID-19
which is affecting many businesses,
including airlines.
Despite this, we remain as confident and
ambitious as ever.
It’s been a tremendous privilege to lead
IAG. I have enjoyed working at the front
line of this amazing industry and I will miss
the fantastic colleagues I have been lucky
enough to work with across the business.
But I believe our business is in very good
shape and I leave it in the hands of an
experienced and very capable leadership
team who are ready to take IAG on the
next stage of its development.
Willie Walsh
Chief Executive Officer
First airline group
worldwide to commit
to achieve net zero
carbon emissions
by 2050
In line with United
Nations’ objective
to limit global
warming to 1.5
degrees Celsius
Contributing to
UK government’s
goal of a net zero
carbon economy
by 2050
Establishing
management
incentives
aligned to our
climate targets
British Airways target
10% reduction in
CO2 per passenger
kilometre
20% reduction
in net CO2
New targets:
From 2020
By 2025
By 2030
Net zero
CO2
By 2050
British Airways will
offset carbon
emissions for all its
UK domestic flights,
making them net
zero carbon
IAG Group targets
9
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
MANAGEMENT COMMITTEE
Management Committee
The IAG Management Committee led by Willie Walsh is responsible for the overall
direction and strategy of the Group, the delivery of synergies and coordination of
central functions.
For further information visit the IAG website
Willie Walsh
Group Chief Executive
Julia Simpson
Chief of Staff
Alex Cruz
Chairman and Chief Executive
Officer of British Airways
Steve Gunning
Chief Financial Officer
Chris Haynes
General Counsel
Luis Gallego Martín
Chairman and Chief Executive
Officer of Iberia
Chief Executive of IAG designate
Alistair Hartley
Director of Strategy
John Gibbs
Chief Information Officer
Javier Sánchez-Prieto
Chairman and Chief Executive
Officer of Vueling
Chairman and Chief Executive Officer
of Iberia designate
Sean Doyle
Chief Executive Officer of Aer Lingus
Andrew Crawley
Chairman and Chief Executive
Officer of IAG Loyalty
Lynne Embleton
Chairman and Chief Executive
Officer of IAG Cargo
10
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 QUESTION AND ANSWERS WITH THE CHIEF EXECUTIVE OFFICER
Q&A with Group
Chief Executive
Willie Walsh
As he steps down as CEO, Willie Walsh answers some key
questions to explain why he believes IAG is so well-placed to
continue leading the airline industry.
Q: Why is IAG in a stronger position than some of its
global peers?
A: I think it’s because of the talent, focus and clarity we have within
the business. The airline industry is better today than it has ever
been and we believe we are the strongest because we try harder,
have a better track record and are determined to succeed and
excel like no one else is. We are a great company in a great
industry.
Q: What will Air Europa bring to the Group?
A: Air Europa is going to be a transformational acquisition for IAG in
Spain. It will enable us to truly transform Madrid into a hub airport. It
has a great reputation as a hub for Latin America already. But we
want to make it a true global hub, expanding not just in Latin
America but into Africa and Asia as well. This deal will help us do
that.
Q: Can IAG really achieve net zero carbon emissions
by 2050?
A: I’m absolutely convinced we can and, let’s be honest, we must.
Back in 2009, the airline industry committed to reducing net
emissions by 50 per cent. But the scientific evidence now demands
we move faster. We have always shown leadership on this issue.
We have committed to this challenging target because we think we
can do it and believe we can lead the industry in achieving it too.
Q: What has driven the Group’s improved customer
satisfaction scores (NPS)?
A: Our Group NPS figures have improved thanks mostly to a great
performance by Vueling, responding to very difficult air traffic
control challenges. 2019 was the second-worst year on record for
ATC disruption in Europe. Despite that, Vueling responded far
better, learning from an even worse situation in 2018. NPS
improvements at British Airways also played a big part, but I’m very
pleased that satisfaction scores for all our airlines are rising.
Q: You have appointed a new Group Chief Information
Officer at a more senior level. What are his priorities?
A: John Gibbs has come in as the new CIO and is a member of the
Management Committee. He has a great track record as a leader in
technology, particularly in the area of change. His role is to make
sure we continue to transform our IT platform, so that we can take
full advantage of digital technology for the benefit of our
customers.
Willie Walsh
Group Chief Executive
Q: What do you feel has been your greatest achievement
at IAG?
A: The thing I’m most proud about is that my successor comes from
within the Group. I’ve always seen it as one of my responsibilities as
CEO to make sure we have talented people within the business,
capable of stepping into any roles that become vacant. We have
done a great deal of succession planning in recent years. So it’s
great for me to see Luis Gallego – someone who I truly admire, and
who has already demonstrated superb leadership – taking on the
role. I have no doubt he will be a great leader for IAG.
11
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information OUR INVESTMENT CASE
Our unique value proposition
Our unique structure unlocks growth and innovation to generate
industry-leading shareholder returns.
Unique approach
Corporate parent
• Makes capital
allocation decisions
• Defines portfolio
attractiveness
• Exerts vertical and
horizontal influence
across the Group
• Sets the long-term
vision for the Group
Airline operating companies
• Deep and real-time
understanding of
customer and competitive
environment
• Define product
• Standalone profit
strategy for target
customer segments
centres and independent
credit identities
• Individual brand,
cultural identity and
management teams
Portfolio of world-class brands
and operations
• Portfolio caters to a diversified customer base
• Distinct brands with clear customer focus
• Complementary networks
• Airlines focused on operational performance
• IAG’s common integrated platform allows the Group to exploit
revenue and cost synergies
Global leadership
positions
• IAG holds attractive
leadership positions in each
of its home markets:
Barcelona, Dublin, London
and Madrid
• Leading the consolidation
of the airline sector
• Joint businesses help
grow our global reach
Cost
efficiency
11.0%
Reduction in CASK ex-fuel at constant
currency since IAG’s formation in 2011
Innovation
• Dynamic and creative culture
• Driving digital innovation in the airline industry
• Digital platform to grow revenue
streams, enhance customer loyalty
and drive cost efficiencies
12
INTERNATIONAL AIRLINES GROUP
Underpinned
Annual Report and Accounts 2019 Our structure creates additional
shareholder value over and above the
individual value generated by the
operating companies. We have a unique
structure with a strong parent company
that strictly adheres to the principle of
parent neutrality. This is the key point of
differentiation between IAG and other
European airline groups. IAG’s
independence enables dispassionate,
flexible and rapid decision making. We are
disciplined and allocate capital to our
operating companies based on strict
return criteria in line with our Return on
Invested Capital (RoIC) target of 15 per
cent. We manage a great portfolio of
profitable businesses, each with an
attractive and distinct market positioning
which diversifies our exposure to both
mature versus fast-growing customer
segments and business versus leisure
customer segments in addition to new and
evolving market segments. The result of
our unique structure is superior returns to
shareholders, with both EPS and dividend
growth and additional capital returns. Our
RoIC exceeded our targets between 2015
and 2018, and nearly reached our target of
15 per cent in 2019, just being slightly
below at 14.7 per cent. The operating
margin of all our companies has improved
since they joined IAG and we continue to
benefit from the synergies of our
combined airlines.
Total
shareholder
returns
m
0
1
3
,
1
€
5
9
6
7
2
3
m
5
2
6
€
7
3
3
8
8
2
8
8
2
m
1
5
0
,
1
€
0
0
5
5
9
2
6
5
2
m
5
9
9
€
0
0
5
2
6
2
3
3
2
m
5
1
4
€
2
1
2
3
0
2
‘15
‘16
‘17
‘18
‘19
Interim dividend
Final dividend
Share buyback/Special dividend
Sustainable
profitability
Return on
Invested
Capital
Operating
margin
Accretive
growth
Organic
Inorganic
EPS
growth
Sustainable
ordinary
dividend
Share
buyback/
Special
dividend
by environmental sustainability
13
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
BUSINESS MODEL
Our business model is built to
maximise choice and value creation
Our resources
A portfolio of world-class brands
and operations
The Group portfolio consists of unique operating
companies, from full service longhaul to low-cost
shorthaul carriers, each targeting specific customer
needs and geographies.
Global leadership positions
598
fleet
279
destinations
779
routes
4
joint businesses
A common integrated platform
IAG’s common integrated platform allows the Group to
exploit revenue and cost synergies that the operating
companies could not achieve alone.
Our vision is to be the
world’s leading airline
group, maximising
sustainable value creation
for our shareholders and
customers.
What we do
IAG combines leading airlines in Ireland,
the UK and Spain, with key non-airline
businesses, enabling them to enhance their
presence in the aviation market while
retaining their individual brand identities.
The airlines each target specific customer
markets and geographies, providing choice
across the full spectrum of customer needs
and travel occasions.
The airlines’ customers benefit from a
larger combined network for both
passengers and cargo and greater ability
to invest in new products and services
through improved financial robustness.
Our vision is to be the leading airline group
on sustainability. We are committed to
reducing our carbon footprint and to reach
the goal of net zero CO2 emissions by
2050 across all of the IAG businesses.
How we’re organised
IAG is the parent company of the Group,
exerting both direct and functional
influence over its portfolio of companies.
IAG is supported by its Management
Committee which is made up of CEOs
from across the operating companies and
IAG senior management. The portfolio sits
on a common integrated platform driving
efficiency and simplicity while allowing
each operating company to achieve its
individual performance targets and
maintain its unique identity.
14
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 How we create value
The value we deliver
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
Shareholders
31.5 € cents
Final dividend 17.0€ cents and total
returns to shareholders since 2015 of
€4.4 billion.
Unrivalled
customer
proposition
1
Strengthening
a portfolio of
world-class
brands and
operations
2
Growing
global
leadership
positions
3
Enhancing
IAG’s common
integrated
platform
Value-
accretive and
sustainable
growth
U
n
d
erpinned by environme n t a l
Efficiency
and innovation
b ilit y
a
a i n
t
s u s
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
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
• Set the industry standard for
• Drive incremental value with external
environmental stewardship, safety
and security
business-to-business services
Customers
25.8
Net Promoter Score
+9.5pts vly
Employees
66,034
Manpower equivalent
+2.0% vly
7%
Workforce voluntary turnover
-1.0% vly
30%
Female senior executives
Community and environment
89.8g CO2/pkm
Carbon efficiency
-1.8% vly
Commitment
to net zero CO2
emissions by 2050
15
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information SECTION 172 STATEMENT
Engaging with our stakeholders
Introduction
The commitment made in section 3 of our
Board Regulations, in accordance with the
Spanish corporate governance framework,
is equivalent to that of section 172 of the
UK Companies Act. 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 complete Corporate
Governance section.
Although IAG has multiple stakeholder
groups, the Board considered the most
significant stakeholder groups to be
customers, shareholders and investors,
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.
Long term vision, strategic priorities and
key stakeholder groups
The Board's strategic and risk discussions
have been informed by different
stakeholder considerations, mostly by
having customers at the centre of what
IAG does. The Group’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 our portfolio of world-class
brands, particularly through continuous
improvements in net promoter scores
across the Group airlines, by looking across
each of the elements of the customer
journey, (i.e. investments on products and
services detailed in the ‘Strategic priorities
and key performance indicators’ section).
In order to achieve this objective, it is key
to ensure the necessary cooperation and
support from our suppliers, for example
the new British Airways business class seat
“Club Suite” or catering investments. In
effect, our operations are dependent on
the timely entry of new aircraft and also on
Article 3.6 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.
Our key stakeholders
Airline partners
and industry
associations
Customers
Governments
and
regulators
Sustainability
Employees
Suppliers
Shareholders
and investors
16
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Mapping our stakeholders to our strategic objectives
Customers
Employees
Shareholders
and investors
Airline partners
and industry
associations
Value-
accretive and
sustainable
growth
U
Unrivalled
customer
proposition
1
Strengthening
a portfolio of
world-class
brands and
operations
2
Growing
global
leadership
positions
3
Enhancing
IAG’s common
integrated
platform
Suppliers
Efficiency
and innovation
b ilit y
a
a i n
t
s u s
n
d
erpinned by environme n t a l
Governments and regulators
the necessary engine performance of these
aircraft to improve our operational
efficiency and resilience, as well as to
support the delivery of our Group
sustainability programme, for example
Rolls Royce Trent engines and fleet
modernisation. From our customers’
experience, the Group is dependent on the
performance of key suppliers that provide
services to our customers and the Group
itself, such as airports operators, border
control and caterers.
The second strategic priority for IAG is
growing our leadership positions, heading
the consolidation of the airline sector,
either through acquisitions or developing
joint businesses that help the Group grow
its global reach, for example the proposed
Air Europa acquisition or joint business
agreements, such as the British Airways
joint business with China Southern. Open
competition and markets are in the
long-term best interests of the airline
industry and consumers. IAG has a high
appetite for continued deregulation and
consolidation and we sustain our position
in the relevant industry organisations and
with governments and regulators, seeking
to mitigate the risk from government
intervention or changes to the regulations
that can have a significant impact
on operations.
Lastly, the Group’s third strategic priority is
enhancing IAG’s common platform,
improving efficiency and focusing on
digital and innovation. The realisation of
these objectives needs to be built through
cooperation and engagement with our key
suppliers, for example New Distribution
Channel certification for British Airways
and Iberia, and our Hangar 51 initiatives.
Under the Group’s new CIO, IAG Tech was
launched with the vision of bringing
“Technology Excellence” to everything the
Group does, aiming to increase
shareholder value, accelerate business
performance, delight customers, enable
employees, and protect the Group’s
business through the innovative and agile
use of technology and data. At the same
time, the Group’s focus on the customer’s
experience, together with this exploitation
of technology, reduces the impact digital
disruptors can have.
Regulation of the airline industry covers
many of our activities, and our ability to
comply with and influence changes to
regulations is key to maintaining
operational and financial performance.
Namely, the Group is dependent on
resilience within the operations of Air
Traffic Control (ATC) services to ensure
that our flight operations are delivered as
17
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
SECTION 172 STATEMENT CONTINUED
scheduled. At the same time, the delivery
of a positive customer journey also
depends on the timely, on-budget delivery
of the required infrastructure changes,
particularly at key airports (i.e. ATC
challenges, Dublin airport, London
Heathrow third runway project).
As part of our vision and informing all our
strategic priorities, as well as the Group’s
stakeholder, engagement is our focus on
the sustainability of our business. In
particular, the Group’s commitment to be
the leading airline group on sustainability,
integrating environmental considerations
into the business strategy at every level
and, increasingly, as part of our customer
proposition, for example the launch of
Flightpath net zero.
For more details please read ‘Business
model’ and ‘Strategic priorities and key
performance indicators’, ‘Risk management
and principal risk factors' and
‘Sustainability’ sections.
Key stakeholders and engagement
mechanisms
Our stakeholders engagement framework
is articulated in line with our unique value
proposition and business model and,
consequently, the relationship with certain
stakeholders remains an operating
company matter, while others are
managed at IAG level or are treated as a
cross-group responsibility sitting on IAG’s
common integrated platform. In this sense,
the fact that customer engagement is
undertaken by the different operating
companies ensures a deep and real-time
understanding of customers’ needs and of
their cultural, social and economic
environment. At the same time, our
common integrated platform drives
efficiency, simplicity and consistency in our
approach to our suppliers. As the parent
company, IAG is responsible for capital
allocation decisions which are considered
in a specialised, neutral and disciplined
manner, as its independence from the
operating companies enables
dispassionate and efficient decision-
making while ensuring strategic focus and
long term vision. Finally, our value
proposition is underpinned by a general
commitment to environmental
sustainability as a vision that unites all of
our companies. For further details refer to
‘Our investment case’ and ‘Our business
model’ sections.
Customers
Why is this stakeholder
relevant to the Group?
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.
Employees
In all the operating companies,
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.
18
Which are our engagement
mechanisms with this stakeholder group?
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 in-person throughout their
journey from our renowned on-board and airport colleagues.
Each operating company 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, covering around 95 per cent of
the Group’s total workforce. EWC representatives are informed about
and, where appropriate, consulted on transnational matters which may
impact employees in two or more EEA countries.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Shareholders
and Investors
Suppliers
Why is this stakeholder
relevant to the Group?
As an IBEX 35 and FTSE 100 company,
we pride ourselves on being a
multicultural group that has inherited the
legacy of longstanding listed companies
in Ireland, Spain and the United Kingdom.
Shareholders and investors are our main
capital providers to both invest and grow
our business. Our shareholders' and
investors’ views are critical in supporting
the Group to formulate our strategy, as
well as the operational and financial
performance, to generate and optimise
returns in a sustainable way.
IAG is dependent on the performance
of key suppliers that provide services to
our customers and the Group, including
aircraft and engine suppliers, airport
operators and caterers. Any sub-optimal
service delivery or asset supplied by a
critical supplier can impact on the
Group’s airlines’ operational and financial
performance as well as disrupting
our customers.
In addition, the Group’s suppliers are
fundamental to ensuring our companies
meet the high standards of conduct that
customers and other key stakeholders
expect. Supply chain integrity is critical to
our business as we rely on our suppliers
to help meet our customers’ needs and to
ensure the reliability of our services.
Which are our engagement
mechanisms with this stakeholder group?
We actively and frequently communicate with shareholders and
investors, through an open and transparent dialogue so they can
understand our performance and also raise any possible concerns.
We hold at least six formal meetings every year (Annual General
Meeting, Capital Markets Day and four quarterly results briefings),
where they have the opportunity to interact with our management
and communicate directly with them. We also attend 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, we maintain an
ongoing dialogue with equity research analysts, to understand our
investors and shareholders’ views of the Company.
Through our website, annual reports and press activity we keep our
shareholders informed of the development of our business.
IAG Global Business Services (GBS) provides a centralised
procurement function for the Group and manages supplier
engagement. IAG GBS engages with approximately 27,000
suppliers on behalf of IAG and its operating companies. IAG GBS
strives to conduct business and build relationships with suppliers
sharing the Group's values: acting with honesty and integrity in all
business dealings, reducing environmental footprints, improving
safety, and strengthening contributions to building better societies,
locally and globally. In additional to usual procurement processes,
the Group engages with supplier using joint projects, including our
Hangar 51 accelerator programme, industry conferences and
supplier workshops.
IAG GBS has built on its sustainable supply chain strategy
throughout 2019, by screening an additional 13,000 existing
suppliers to the Group. Screening includes third-party assessments
of legal, social, environmental and financial risks. As part of our
Procurement Sustainability Programme, IAG GBS has built a
Corporate Social Responsibility (CSR) audit plan and is increasing
the number of external specialised audits carried out each year,
with a focus on suppliers located in countries where there are
human rights or environmental concerns. IAG GBS also has
collaboration projects with key suppliers to encourage sustainability
innovation and identify ways to reduce emissions.
19
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
SECTION 172 STATEMENT CONTINUED
Governments
and
Regulators
Why is this stakeholder
relevant to the Group?
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. We do so to
ensure that policymakers and regulators
understand the nature of IAG’s business
and the wider benefits flying delivers. We
seek to ensure that they see the impact
of their decisions on our business and,
where possible, to influence them to
adopt the most advantageous position
for IAG’s customers.
Which are our engagement
mechanisms with this stakeholder group?
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 states
where IAG has major airline bases we engage frequently through
informal and formal mechanisms. This includes taking part in face
to face meetings with ministers and economic regulators as well as
providing written input to formal consultations and taking part in
on-going industry groups such as local Airport Operator
Committees, particularly where they have a close regulatory
involvement, such as at Heathrow.
As explained further in section ‘Regulatory environment’, in 2019
IAG has met and corresponded frequently with government
stakeholders, in particular with AESA (L’Agencia Estatal de
Seguridad Aérea) in Spain and with the Commission for Aviation
Regulation (CAR) in Ireland to explain the Group’s position on
Brexit and ensure support for the ownership and control status of
its airlines. IAG also engages on all policy topics affecting its
business in Spain, Ireland and in the UK, where IAG staff have met
government ministers and officials to provide input on a range of
issues including the government’s potential aviation strategy,
sustainability and the environment and on airline insolvency. IAG
also provides regular input to the CAA through its structured
constructive engagement process as well as on a one-to-one basis
on the issue of Heathrow prices.
Key decisions made in the year
1
Product investments: the Board has considered several
investment decisions during the year aimed to address
specific needs of the different airlines’ target customer
segments. All these initiatives require the involvement of
key suppliers and the support of the airline’s employees.
Examples of these decisions are:
• roll out of British Airways’ new longhaul business class
seat “Club Suite”
• refurbishment of British Airways and Iberia lounges in
key markets
• renewal of British Airways and Iberia catering
propositions
• implementation of new boarding procedures in Iberia
• improving connections experience for Aer Lingus
passengers
• Vueling’s development of in-house digital solutions to
improve disruption management
20
2
Distribution policy: it is IAG’s intention to distribute regular
cash returns to shareholders in the medium- and long-term.
Levered free cash flow is a key performance indicator,
which represents the cash generating ability of the
Group that is available to return to shareholders, to
improve leverage and to undertake inorganic growth
opportunities. In determining returns to shareholders, the
Board considers the financial headroom enabled by the
Group’s financial leverage target needed to sustain an
investment grade rating.
When considering cash returns to shareholders, IAG has a
disciplined capital allocation process. The first priority that
the Board considers is the requirement to re-invest in the
business through accretive organic growth. The second
priority is to pay a sustainable ordinary dividend to
shareholders, which, since 2015 has been at a rate broadly
four times covered by profit after tax before exceptional
items. In it’s decision making, the Board takes into account
the use of cash for and the impact on financial leverage of
inorganic acquisition opportunities, such as IAG’s proposed
acquisition of Air Europa in 2020. If no foreseeable
inorganic opportunities exist, the Board would consider the
return of surplus cash to shareholders in the forms of share
buybacks and special dividends, as was the case in respect
of the 2016 to 2018 financial years.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Airline
Partners and
Industry
Associations
Why is this stakeholder
relevant to the Group?
IAG participates in different national and
international associations in order to
develop common positions in alignment
with those of IAG 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 all
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.
Which are our engagement
mechanisms with this stakeholder group?
IAG takes a leading role in the international associations of which its
airlines are members, in particular the International Air Transport
Association 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.
The majority of our partnerships have emanated through our
participation in the oneworld alliance. They can vary in size from
simple bi-lateral 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 co-ordinate
on pricing and capacity decisions.
3
Flightpath net zero: A specific session on sustainability was
included in the Board’s annual strategy meeting, held in
September 2019, where the Group’s strategic approach to
sustainability and, in particular, to climate change was
considered in depth . In line with this, IAG announced its
commitment to achieving net zero carbon emissions by
2050. By doing so, IAG is contributing to both the UK
Government’s commitment to a net zero carbon economy
by 2050 and the United Nations’ objective to limit global
warming to 1.5 degrees Celsius. The Group’s new emissions
goal will be achieved through numerous and diverse
environmental initiatives, including:
• investing in verified carbon reduction projects
• investing in sustainable aviation fuel
• the modernisation of IAG’s fleet including more
environmentally-friendly aircrafts
• exploring innovative technologies to reduce the Group’s
carbon footprint
In addition to this, management incentives are being
developed, in line with IAG’s new targets, for employees to
reduce carbon emissions across the Group.
From an external perspective, the Group is committed to
support the search for a global solution to climate change.
For this reason IAG is participating, amongst others, in the
new United Nations’ aviation offsetting scheme which allows
our industry to invest in carbon reduction in other sectors.
Read more about IAG’s commitment to achieving net zero
carbon emissions in the CEO review and sustainability report
21
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Strategic priorities and key
performance indicators
Following the adoption of the new lease
accounting standard IFRS 16 ‘Leases’ on
January 1, 2019, the IAG Management
Committee has changed how it monitors
the performance of the Group and has also
taken the opportunity to evaluate the
definitions and appropriateness of the
remaining KPIs. Lease adjusted operating
margin has changed to operating margin.
Capital expenditure (CAPEX) will now be
measured using average gross CAPEX
replacing average net CAPEX. Equity free
cash flow has been replaced with levered
free cash flow and adjusted net debt to
EBITDAR has been replaced with net debt
to EBITDA. For further detail see the
Alternative performance measures section
and for definitions refer to the Glossary.
Strategic priority
1
Strengthening a portfolio of world-class
brands and operations
How we
create value
Our
performance
Unrivalled customer proposition
Our activity in 2019
In 2019, IAG customer satisfaction
scores improved across all touch-points
with each of its brands maintaining
focus on addressing the specific needs
of their target customer segments. At
British Airways, investments in
refurbishing lounges in key longhaul
markets such as San Francisco and New
York JFK were well received by
customers, as was the additional
investment in catering across the
cabins. British Airways also began the
roll-out of the new longhaul business
class seat, “Club Suite”, with excellent
reviews from industry commentators.
The new seat will provide gate-to-gate
in-flight entertainment, increased
privacy and stowage, as well as all-aisle
access. Over the same period, Iberia
completed the refurbishment of its
lounges in the Madrid hub, implemented
a new set of boarding procedures
designed to improve on-time
performance and added new channels
of communication with the customer
such as WhatsApp. Aer Lingus
continued to achieve the highest Net
Promoter Score amongst the IAG
airlines with investment focused on
improving the connections experience,
aided by a new flight connections
facility in Pier 4 at its Dublin hub, as well
as enhancements to its catering
proposition including complimentary
beer and wine in longhaul economy.
With Air Traffic Control (ATC)
challenges continuing into 2019,
disruption management remained a
priority issue for Vueling. It developed
in-house digital solutions and combined
these with new business rules that
empowered decision making to
front-line staff. Additionally, the
automation of how Vueling responds to
customers in the event of a flight delay
or cancellation has significantly reduced
processing times, improving the overall
quality of passenger service in times of
disruption, and the speed and accuracy
with which hotels are assigned to
disrupted customers.
Our priorities for 2020
IAG will continue to strengthen its
customer propositions to ensure
competitiveness in its chosen priority
customer demand spaces. Particular
focus will be paid to the proposition
attributes that matter most to the
customer, namely food and drink,
service, Wi-Fi and seat comfort. Major
initiatives will include the roll-out of
British Airways' new Club Suite to
gain coverage across a wider number
of its longhaul aircraft and Wi-Fi
provisioning across the Group.
KPI or industry
measure
Net Promoter Score (NPS)
2022
target
33.0
2019
25.8
+9.5pts vly
R
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 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 2019 increased 9.5 points
versus last year's reported figure.
Product upgrades and service
enhancements, alongside improved
operational performance, helped
deliver improvements in customer
satisfaction across all key journey
touch-points. All IAG airlines delivered
NPS growth or maintained industry-
leading levels of customer
recommendation. Vueling contributed
solidly to the IAG NPS increase,
achieving substantial growth in
satisfaction through greatly improved
operational performance and the
successful delivery of multiple
disruption management initiatives.
Customer highlights for 2019 included
British Airways’ 100th anniversary
celebrations and the launch of the new
Club Suite product.
22
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Strategic priority
2
Growing global leadership
positions
How we
create value
Our
performance
Value accretive and sustainable growth
Our activity in 2019
IAG maintained leadership revenue
positions in its home markets of
Barcelona, Dublin, London and Madrid.
During the period, the Group managed
to grow capacity by 1.7 per cent and
1.4 per cent to Europe and North
America respectively, IAG’s two most
important markets.
In May 2019, Chile’s Supreme Court
rejected an appeal for the proposed
South American joint business between
IAG and LATAM. Prior to the appeal, the
joint business had received clearance
by Chile’s anti-trust tribunal and also
secured approvals from Brazil,
Colombia and Uruguay. Subsequently
on December 6, 2019, IAG and LATAM
confirmed that plans to develop a joint
business agreement had been
terminated.
On November 4, 2019, IAG announced
that definitive transaction agreements
had been signed to acquire the entire
issued share capital of Air Europa for
€1 billion to be satisfied in cash. The
deal will transform the Madrid hub into
a true rival to Europe’s four largest
hubs: Amsterdam, Frankfurt, London
Heathrow and Paris Charles De Gaulle.
This transaction will also clearly position
IAG as a leader on the important
Europe to Latin America and Caribbean
market. It is anticipated that the deal
will complete in the second half of 2020
following receipt of the relevant
competition approvals.
In December 2019, British Airways
entered a revenue sharing joint business
with China Southern on services
between the Peoples Republic of China
and the United Kingdom. The deal is
designed to improve services to
consumers, in particular by offering
enhanced connectivity in the respective
hubs in London and China. Currently
China is the sixth largest longhaul
destination from the UK, and the UK is
the largest European destination from
China by passenger volumes. With 31
per cent share of seats the joint
business is the market leader between
China and the UK.
Our priorities for 2020
IAG will focus on obtaining
competition clearance to complete
the Air Europa acquisition. IAG will
then prioritise the integration of Air
Europa into the Group and commence
delivering the synergies brought
about by the acquisition.
Growth will be focused on building
network depth in core markets with
limited investment in new markets.
This growth strategy is expected to
deliver incremental value and to be
RoIC-accretive, whilst at the same
time improving resilience to
demand shocks.
IAG will continue to prioritise its
assessment of consolidation
opportunities in Europe to further
enhance its existing portfolio, and
shape industry consolidation where
strategically attractive targets are
identified for growth or entry into new
markets.
KPI or industry
measure
RoIC (%)1 2 4
A
Targeting
sustainable
15%
.
9
6
1
.
7
4
1
’18
’19
Operating margin (%)1 2 3
A
Targeting
12-15%
.
4
4
1
.
9
2
1
’18
’19
A
R
Alternative
performance
measure
Measure linked
to remuneration
of Management
Committee
R
Performance
The Group’s RoIC fell 2.2 points versus
last year. The decrease reflects a
reduction in EBITDA of 1.6 per cent on
7.2 per cent higher invested capital.
Definition and purpose
Return on Invested Capital (RoIC) is
defined as EBITDA2, less adjusted fleet
depreciation, other depreciation and
software amortisation, divided by
average invested capital. We use 12
months rolling RoIC to assess how well
the Group generates returns in relation
to the capital invested in the
business together with its ability to
fund growth and to pay dividends.
Definition and purpose
Operating margin is the Group
operating result before exceptional
items as a percentage of revenue. We
use this indicator to measure the
efficiency and profitability of our
business and improvement in the
financial performance of the Group.
Performance
Operating margin remains within our
target range of 12 to 15 per cent with a
1.5 points decline to 12.9 per cent. This
was supported by strong revenue and
continued focus on non-fuel costs
which helped offset the significant rise
in fuel costs, and the impact of strikes
at British Airways.
1 2018 pro forma financial information is based on the Group's restated statutory
results with an adjustment to reflect the estimated impact of IFRS 16 ‘Leases’
from January 1, 2018.
2 For detailed calculations refer to the Alternative performance measures section.
3 The 2018 results have been restated to reclassify the costs the Group incurs in
relation to compensation for flight delays and cancellations as a deduction
from revenue as opposed to an operating expense. There is no change in
operating profit.
4 During 2019, management amended the methodology for calculating RoIC.
Refer to the Alternative performance measures section for the definition.
23
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information KPI or industry
measure
Average growth (ASKs)
2020-2022
3.4%*
per annum
2019
4.0%
Definition and purpose
Capacity in the airline industry is
measured in available seat kilometres
(ASKs) which is the number of seats
available for sale multiplied by
the distance flown.
Planned growth
IAG is moderating its growth
expectations over the next three years
in response to the current economic
environment and expected market
demand. Capacity forecasts have been
reduced from 7.4 per cent to 3.4 per
cent over the three-year period. IAG
has good flexibility in our fleet plans to
reduce or increase our capacity
as needed.
Average gross CAPEX (€m)
2020-2022
4,700
per annum
2019
3,465
* Last year’s growth target over 2020–2022 was 7.4% per annum.
Definition and purpose
Gross CAPEX (capital expenditure) is
the total investment in fleet, customer
product, IT and infrastructure before
any proceeds from the sale of
property, plant and equipment.
Planned CAPEX
IAG recognises the need to continue to
invest in fleet, customer product, IT
and infrastructure projects which will
all improve our customer offerings and
competitiveness in the market.
We track the planned capital
expenditure through our business
planning cycle to ensure it is in line
with achieving our other
financial targets.
Our 2019 gross CAPEX of €3,465
million reflects the level of fleet
additions during the year and the
additional investment in customer
propositions including British Airways'
new Club Suite. In 2019, we announced
our average gross CAPEX forecast
spend for 2020 to 2022 of €4,700
million per annum, of which the
majority is replacement fleet spend
and reflects the aircraft that are due
for delivery in that period.
Levered free cash flow (€m)2
A
2020-2022
2,100
6
9
4
,
1
6
3
7
’18
’19
Definition and purpose
Levered free cash flow is the cash
generated in the year before returns to
shareholders. It is used, in conjunction
with leverage (measured as net debt
to EBITDA), to measure the underlying
cash generation of the business.
Performance
The Group’s levered free cash flow was
€760 million higher than 2018, with net
debt increasing by €1.1 billion,
reflecting the increased investments
the Group is making in fleet, customer
and IT. The Group continues to focus
on its capital discipline and flexibility.
24
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Strategic priority
3
Enhancing IAG's common
integrated platform
How we
create value
Our
performance
Efficiency and innovation
Our activity in 2019
IAG delivered strong progress over the
last year in the areas of efficiency and
innovation. Central to this has been the
Group’s focus on leveraging the
capabilities brought about by digital
technology.
In the last quarter of 2019, British
Airways and Iberia reached the highest
IATA New Distribution Channel (NDC)
certification. NDC has allowed both
carriers to reduce their indirect sales
and distribution costs and enhance their
content offering, such as creating
additional longhaul price points across
the North Atlantic which have helped
increase yields.
Through its Hangar 51 accelerator
programme, IAG continued to make
strategic investments in promising
early-stage and emerging technology
partners such as ‘Assaia’ and
‘Importwise’, with whom IAG Cargo has
partnered. Assaia provides an artificial
intelligence solution to monitor aircraft
turnarounds as a means to generate
predictive analysis to help airlines
reduce delays and increase utilisation,
benchmark handler performance and
implement optimal service-level
agreements. Importwise is focused on
small and medium sized importers of
freight, offering them access to a digital
platform that allows them to create and
manage new imports. The platform
reduces paperwork, increases price
transparency and ultimately lowers cost
for the importer.
During the period, IAG also
accelerated the development of its
Nexus Global Data Platform. This
platform is core to driving advanced
analytics within the Group, with IAG's
maintenance function already relying on
its functionality to build predictive
maintenance capabilities.
The Group has also accelerated its
journey to transform its approach to
loyalty, recognising the integral nature
of loyalty across multiple business units.
Central to this is the modernisation of
the Group’s core loyalty technology
that will enable significant
improvements in the speed of partner
integration and customer changes.
Accompanying this has been the
merging of IAG customer data with
the opportunities offered through
artificial intelligence to increase
customer engagement.
Our priorities in 2020
In 2020, IAG will continue to invest in
enhancing its common integrated
platform to provide quality services
and solutions across the Group at a
faster pace and lower unit cost, while
supporting innovation across the
Group. A refreshed IT operating
model will be introduced that brings
together IAG’s digital and IT teams to
better transform existing areas of
legacy systems and processes. IAG
will continue to make investments
through its Hangar 51 programme
and support IAG operating
companies to accelerate their
digital transformations.
KPI or industry
measure
Adjusted EPS (€ cents)1 2
A
2020-2022
Average
10%+
per annum
.
9
4
1
1
.
8
6
1
1
’18
’19
R
Definition and purpose
Adjusted earnings per share represents
the diluted earnings for the year before
exceptional items attributable to
ordinary shareholders. This indicator
reflects the profitability of the business
and the core elements of value
creation for IAG's shareholders.
Performance
Adjusted earnings per share increased
by 1.7 per cent from 2018 pro forma.
Profit after tax before exceptional
items declined by 1.4 per cent, but the
number of dilutive shares also fell,
reflecting the full year impact of the
2018 €500 million share buyback
programme and redemption of a
€500 million convertible bond in 2019.
Net debt to EBITDA1 2
4
.
1
2
.
1
’18
’19
A
Definition and purpose
Net debt to EBITDA is calculated as
long-term borrowings (both current
and non-current), less cash, cash
equivalents and less other current
interest-bearing deposits. This is
divided by EBITDA.
Ceiling
1.8
IAG uses this measure to monitor
leverage, to assess financial headroom
and to maintain the investment
grade rating.
Performance
The Group’s financial headroom
remained strong in 2019 with net
debt to EBITDA at 1.4 times.
Net debt rose by €1,141 million to
€7,571 million primarily from an
increase in borrowings reflecting
additions to the fleet in the year.
1 2018 pro forma financial information is based on the Group's restated
statutory results with an adjustment to reflect the estimated impact of
IFRS 16 ‘Leases’ from January 1, 2018.
2 For detailed calculations refer to the Alternative performance
measures section.
A
R
Alternative
performance
measure
Measure linked
to remuneration
of Management
Committee
25
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
A future based
on sustainable growth
“During our centenary year – a landmark in global
aviation – we continued to deliver our investment
programme for our customers and colleagues,
and we made industry-leading strides towards
the future of sustainable aviation.”
Overview
2019 was an extraordinary year for British
Airways which saw us celebrate 100 years
of flying, lead the way in creating a
sustainable future for the industry and
deliver on our strategic priorities: achieve
higher network growth, invest where our
customers and people value it most and
sustain a financial performance for the
long-term. In December we saw evidence
that our strategy was working as the
prestigious Centre for Aviation
(CAPA) awarded us the title Airline
of the Year 2019.
We welcomed four brand-new Airbus
A350 aircraft to our increasingly fuel-
efficient fleet and with those aircraft came
our much-anticipated new business cabin
seat, the Club Suite, a real milestone in our
£6.5 billion investment plan. We also
refreshed our Boeing 777 fleet with new
interiors, refurbished several of our lounges
around the world and introduced new-look
amenities in our First and World Traveller
Plus cabins.
But 2019 was also a tough year. While we
remained on track to meet our stretching
financial targets in the first half of the year,
the summer months were challenging for
the aviation industry as a whole and for us
at British Airways.
Operationally we faced a range of
adversities including unseasonably bad
weather and Air Traffic Control issues
across Europe, reducing airport flow rates
and inconveniencing customers.
The disruption caused by the pilots' union
BALPA’s industrial action in September
added to these challenges both
operationally and financially. In total, 4,521
flights were originally cancelled over seven
days to account for anticipated disruption
on September 9, 10 and 27, and to provide
our customers with as much certainty as
possible about their travel plans. The
planned action on September 27 was
cancelled by BALPA and our teams
worked hard to reinstate flights so as
many of our customers as possible were
able to travel as planned. As a result,
2,196 flights were reinstated leaving
2,325 cancellations over the period.
This disruption was compounded by an
error which saw some customers
incorrectly informed that their flights were
cancelled. We immediately apologised and
rebooked or refunded our customers,
enlisting the help of hundreds of
colleagues from around the business to
assist our Customer Service team in
speedily resolving complaints and meeting
our compensation obligations.
The financial impact of this disruption was
clear in our results for the third quarter and
the market was informed that IAG would
not meet its profit target for the year.
Our revenues have slightly increased
compared with 2018 at £13,290 million.
Throughout 2019 we continued to operate
efficiently while investing for customers
and our teams worked hard to deliver an
operating profit of £1,921 million and RoIC
of 14.7 per cent.
I am incredibly proud of all we were able
to accomplish in celebration of our
centenary in 2019. My personal highlight
was the visit to our headquarters from Her
Majesty the Queen. We also initiated our
future-facing programme, BA: 2119, which
saw us lead the conversation on the future
of sustainable aviation fuels and the
evolution of customer experience for the
years to come.
Alex Cruz
Chairman and Chief Executive Officer
of British Airways
British Airways statistics
Operating margin
14.5%
-1.1pts vly1 2
RoIC
14.7%
-1.1pts vly1
ASK growth
per annum
0.9%
Fleet
302
2020-2022
15%+
2020-2022
15%+
2020-2022
c.3%
2020-2022
316
1 Comparisons vly are on a like-for-like basis, as
the 2018 figures are based on the Group’s
restated statutory results with an adjustment
to reflect the estimated impact of IFRS 16
‘Leases’ from January 1, 2018.
2 Comparisons vly are on a like-for-like basis, as
the 2018 results have been restated to
reclassify the costs the Group incurs in relation
to compensation for flight delays and
cancellations as a deduction from revenue as
opposed to an operating expense. There is no
change in operating profit.
26
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Significant investment in customers
2019 saw us continue our investment
programme for customers with new
aircraft, new cabins, new technology, new
routes, new in-flight dining and refreshed
lounges. We are pleased that customers
are noticing the difference, and that our
customer satisfaction scores versus 2018
have improved. While we fell slightly short
of meeting our profit target for the year,
we have solid financial foundations and will
continue our investment programme
throughout 2020.
We debuted our new business cabin seat
Club Suite on our new Airbus A350
aircraft. The Club Suite features a door for
greater privacy and gate-to-gate
programming via 18.5-inch in-flight
entertainment screens. The strategic
roll-out of the Club Suite across our fleet
will continue over the coming years and
will significantly elevate our position within
the competitive business cabin market.
We introduced a new lounge design
concept and renewed our lounges in
Johannesburg, San Francisco, Milan and
Geneva. We also completed the
renovation of our First and Club lounges
at New York JFK Terminal 7, providing
the premium experience we know our
customers appreciate.
I am delighted that in 2019 our colleagues
were recognised by Skytrax as the Best
Airline Staff in Europe following the
introduction of our First Contact
Resolution programme at Heathrow, which
we expanded worldwide in 2019. The
programme transforms the airport
customer experience we offer by
empowering our people to resolve
customer issues at the first point of
contact. We also invested heavily in our
people, including equipping our
15,000-strong cabin crew with iPhone XRs,
so they can offer a more personalised
service to our customers.
Strategic growth
We will take delivery of a further 22 new
aircraft in 2020 and more than 100 over
the next five years to 2025. During 2019, 14
new aircraft (excluding wet leases) were
delivered, including four Airbus A350s,
three Airbus A320neos and seven Airbus
A321neos. These aircraft are 25 to 40 per
cent more fuel-efficient than those they
replace. Our Boeing 747 fleet will be
retired by 2024.
During the first half of 2020 we will receive
our first state-of-the-art Boeing 787-10
Dreamliner. Deliveries of the aircraft, which
will feature our newest cabins, are moving
at pace and we will take ownership of a
further six Boeing 787-10s throughout
2020.
These aircraft, which balance range and
capacity with enhanced fuel efficiency,
allow us to quickly and effectively expand
our route network and further grow our
presence in markets across the globe.
During summer 2019 we operated our
largest longhaul schedule in ten years and
launched eight new routes from London
Heathrow including Osaka, Islamabad,
Pittsburgh and Charleston. We are also
responding to increased demand for
leisure routes with new services from
London Gatwick to Milan Bergamo
and Kos.
We now serve 33 points in North America
making us the largest longhaul carrier into
the North Atlantic market and we will
continue our strategic growth with our
Atlantic Joint Business partner, American
Airlines, throughout 2020.
Sustainable aviation
In October IAG became the first airline
group worldwide to commit to achieving
net zero CO2 emissions by 2050. As part of
this commitment, British Airways became
the first UK airline to announce it would
offset carbon emissions on its domestic
flights from 2020.
We know that tackling our impact on the
climate requires a multi-faceted response
and we are committed to playing our part.
Since 2012, when the EU introduced
emissions reduction regulations, British
Airways has reduced emissions on
European flights by around 40 per cent on
every European flight.
From January 2020 we began offsetting
the carbon emissions for all customers
flying on one of our 75 flights a day within
the UK by investing in quality-assured
carbon reduction projects around the
world. Customers travelling further afield
who want to offset their individual
emissions can do so via our new carbon
calculator. Additionally, we are reviewing
minimising the carriage of additional fuel
on our flights to limit the impact on the
environment.
We believe that sustainable aviation fuels
will transform the industry, and we are
leading the way in sustainable fuels
development. Following the
announcement of our collaboration with
partners Shell and renewable fuels
company Velocys in 2017, Altalto
Immingham Limited, a subsidiary of
Velocys, submitted a planning application
in 2019 to develop Europe’s first plant to
transform waste into sustainable fuels in
Immingham, Lincolnshire. Every year the
plant will convert more than half a million
tonnes of non-recyclable domestic and
commercial waste into cleaner sustainable
aviation fuel and our ambition is to power
our entire fleet using this fuel.
Digitalisation and innovation
Introducing new technology and digital
solutions to increase efficiency, punctuality
and sustainability while providing our
customers with a seamless travel
experience continues to be a priority. We
trialled autonomous, emissions-free,
driverless baggage vehicles to speed up
the transportation of luggage and our
remote-controlled Mototok vehicles, which
are powered by 100 per cent renewable
electricity and save 7,400 tonnes of C02
every year, completed more than 100,000
pushbacks at Heathrow. We also
implemented artificial intelligence in many
areas of our business including within our
airside operation at Heathrow Terminal 5
to help colleagues ensure every flight
departs safely and on time.
We launched a new, comprehensive
section of ba.com to help customers if
their journeys are disrupted. We will make
a significant investment in the website in
2020 through major re-platforming and
enhanced functionality to vastly improve
the booking experience and drive an
increase in direct bookings.
Safety and security remain our highest
priority and, following the theft of
customer data in 2018, we have continued
to invest in cloud-based services, replace
legacy infrastructure and increased
cybersecurity investment.
Communities
At British Airways we are passionate about
community development across our global
network. During 2019, we announced
partnerships with the British Red Cross
and The Diana Project, and we supported
the relief effort to help those affected in
the Bahamas by Hurricane Dorian,
including delivering vital aid to the region.
In August 2019, BA Holidays announced a
new long-term partnership with the
international wildlife charity Born Free
Foundation and launched its new animal
welfare strategy, outlining the
travel company’s commitment to never
promote the captivity of wild animals and
discouraging its hotel partners from doing
so. Additionally, thanks to the generosity
of our customers and colleagues, we have
now raised a total of £24 million, since
2010, for Flying Start in partnership with
Comic Relief.
We made considerable improvements
to the service we provide customers with
hidden or visible disabilities including the
launch of a dedicated customer care team
to assist more than half a million travellers
with additional needs who fly with us each
year and pledged to make accessibility a
Board-level issue. We have continued to
invest in young people and will again fund
flying lessons for youngsters throughout
2020, inspiring them to pursue a career
in aviation.
Conclusion
Throughout a challenging year we have
demonstrated the resilience of our airline
and I am proud of the results achieved
through the hard work of our team. We
know there is more to do, and change
takes time. Meeting our financial targets
is our priority while delivering excellence
for our customers across the globe
and innovating to ensure our future
is sustainable.
27
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Continuous and rigorous
transformation to face
new challenges
“With the launch of Plan de Futuro 3, Iberia will
continue its efficient transformation focused on
digitalisation, customers and sustainability,
leveraging data capabilities and talent.”
Luis Gallego Martín
Chairman and Chief Executive
Officer of Iberia
Iberia statistics
Operating margin
8.8%
-1.5pts vly1 2
RoIC
14.1%
-2.7pts vly1
ASK growth
per annum
7.6%
Fleet
107
2020-2022
12%
2020-2022
15%
2020-2022
c.3%
2020-2022
112
Strong progress in the transformation
of Iberia
2019 was another very positive year in the
transformation of Iberia. We progressed
steadily in our Plan de Futuro Phase 2,
cementing our competitive positioning in
key markets, renewing our fleet,
completing our ongoing transformation
1 Comparisons vly are on a like-for-like basis, as
the 2018 figures are based on the Group’s
restated statutory results with an adjustment
to reflect the estimated impact of IFRS 16
‘Leases’ from January 1, 2018.
2 Comparisons vly are on a like-for-like basis, as
the 2018 results have been restated to
reclassify the costs the Group incurs in relation
to compensation for flight delays and
cancellations as a deduction from revenue as
opposed to an operating expense. There is no
change in operating profit.
28
initiatives and setting the base for Plan de
Futuro Phase 3, which we launched at the
end of the year, with a strong focus on
digitalisation, customer and sustainability.
We also took an important step in the
consolidation of our hub strategy by
announcing in early November the
acquisition of 100 per cent of the share
capital of Air Europa, subject to approvals.
In the second half of 2019 we reduced our
capacity growth, considering the early
indications of a potential global
macroeconomic slowdown and an
unstable political situation in some of our
strategic markets in Latin America. Our
swift reaction allowed us to shift capacity
from these markets towards others with
solid performance both in longhaul and
shorthaul. Additionally, we announced a
significant reduction of our growth plans
for 2020 to 2022, leveraging the
embedded flexibility in our fleet and
operating plans.
Our financial performance was in line with
the targets set out by the Group in 2018.
We recorded an operating profit of €497
million, with a margin of 8.8 per cent and a
Return on Invested Capital of 14.1 per cent,
thanks to the strength of our passenger
revenues and our continuous focus on
tight control of our cost base.
Solid growth in key geographies and
overall capacity discipline
During 2019, we increased overall capacity
by approximately 8 per cent with
expansion across our network, leveraging
our best-in-class cost base.
In longhaul we took delivery of four new
generation Airbus A350-900s, and
increased our depth in American markets.
We also continued our efforts to
strengthen Iberia’s presence in Asia,
enhancing connectivity to Tokyo while
improving the product.
In shorthaul, we achieved significant
growth mainly focused on Iberia Express,
strengthening our network and adding
six new destinations, improving our
seasonal proposition.
New sustainable fleet for new challenges
During 2019, we added four Airbus A350 and
four Airbus A320neos to our fleet, increasing
the number of fuel-efficient and environment-
friendly aircraft in our portfolio, as part of
IAG’s commitment to sustainability. Also,
we completed the implementation of our
Premium Economy cabin in all our
longhaul fleet.
In June 2019, Iberia became a launch customer
for the new Airbus A321XLR, due to arrive in
our fleet in 2023. This new aircraft model will
have an extended range of 50 per cent,
allowing for an increase in frequencies into
current destinations and for a potential
expansion into new destinations on the East
Coast of the United States. The new Airbus
A321XLR has an extremely competitive cost
base and comfort level equivalent to the
standard wide body aircraft in use.
In 2019 we maintained our 4-star status
with Skytrax and continued to invest in
our customers where it adds value.
Improvements in customer satisfaction
were achieved due to enhanced comfort,
providing extra legroom in the Airbus A350
and Airbus A320neo aircraft, and with the
optimisation of the boarding process based
on customer value segmentation and the
refurbishment of the Madrid lounges.
Launch of Plan de Futuro Phase 3
At the end of 2019 we concluded Phase 2 of
Plan de Futuro and started a new Phase 3 that
should allow Iberia to reach a sustainable
financial performance in line with IAG targets.
The Plan de Futuro 2 set the basis on which
we built up the new Plan de Futuro 3, as
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 without the strong focus in maximising our
revenues and reducing our cost structure
during the Plan de Futuro 2 phase,
combined with a fleet renewal and a new
network strategy, we would not be able to
initiate the next step in our transformation.
In order to give a new and fresh impulse to
the Plan de Futuro, Iberia has created Plan
de Futuro 3, which is mainly focused on
digitalisation, our customer and
sustainability, implying two key enablers
which guarantee the success of our plan:
new data strategy and talent.
Digitalisation for efficient operations
Real-time information and data analysis
are the pillars of one of our core projects
in the Plan, Connected Operations. We are
developing a more flexible, seamless
operation providing all stakeholders with
accurate and consistent information
allowing us to automate processes, make
quicker decisions and give customers
solutions even before any disruption
occurs. A good example of a seamless
digital initiative in this field is the biometric
boarding experience that we launched at
the end of 2019.
Accurate data at the right time will improve
the way we plan and manage our network,
increasing our revenue. We are developing
new distribution capabilities that will allow
us to offer a wider range of services and
products to our customers throughout their
journey with personalised interactions.
Iberia is creating some of the digital assets
that will reinvent the way we travel.
Innovation to fulfil our customers’
expectations
Boosting the communication and finding
new ways to interact with our customers
through using and implementing an omni
channel strategy, where the customer can
freely chose the channel to use depending
on the individual travel journey, has
improved our Net Promoter Score
significantly.
Plan de Futuro 3 will bring even more
alternatives to our customers to self-
manage their travel end to end. This will
generate more revenues, promote the sales
of ancillaries and reduce cost in comparison
with traditional channels.
Focus on sustainability
Thanks to the digitalisation process, our
initiatives have saved more than 20,000
kg/month of paper waste, avoiding around
482 tonnes of CO2 during 2019. The
reduction of fuel burn and emissions is core
and we have an ambitious plan to fulfil the
IAG commitment for net zero CO2
emissions by 2050.
Iberia is aware of the need to act
responsibly and with coherence in the fight
against climate change, responding in a
consistent manner to our social and
environmental commitment. Apart from the
objective of becoming a carbon neutral
company, we continued implementing our
sustainability strategy by reducing, reusing
and recycling plastics and waste,
supporting investigation, as well as
renewing and searching for ecofriendly
alternatives for our ground equipment.
Data and people as key enablers of our
transformation
We are becoming an even more customer-
centric company by exploiting data to
improve our customer experience, but data
goes further. We have redefined Iberia’s
data strategy and launched our Data
Centre of Excellence that will allow us to
improve real-time information, boosting
business intelligence capabilities and
developing advanced analytics models for
the whole company. The next two years are
key for capturing the value of data in both
revenues and cost efficiencies.
None of this will be possible without our
people and included in Plan de Futuro 3 is
the next phase of Plan person@. Since its
launch a year ago, it has been reinforced
through various initiatives of recognition,
participation, well-being and benefits for
people. Its commitment to the
management of diverse talent in an
inclusive way has achieved, among other
objectives, an increase in the number of
senior female executives from 10 per cent
in 2017 to 27 per cent in 2019.
In terms of collective negotiation, during
2019 a pre-agreement was reached for
the future signing of the XXI Collective
Agreement. In 2019, we also began
negotiations regarding the XVIII agreement
relating to passenger Cabin Crews. The
2017 Collective Dismissal agreement has
now expired and has resulted in the
departure of 955 employees from all
groups through early retirement,
withdrawals with incentives and
deferred relocations.
Non-airline businesses
2019 was also a positive year for
the transformation of our
non-airline businesses.
Through the GO UP! program, the
airports management has continued its
transformation process, structured in four
pillars: digitalisation of the processes both
in the airport terminal and in the operations
under the wing: business development;
commitment of people; and Hub Vision
(at the airports in Madrid and Barcelona).
2020 is a key year in continuing the
implementation of transformation initiatives
with a focus on efficiency and sustainability.
Acquisition of Air Europa - a strategic
move for the Madrid hub and IAG
In early November, IAG announced the
acquisition by Iberia from Globalia of 100
per cent of the shares of Air Europa, one
of the leading private airlines in Spain,
operating scheduled domestic and
international flights to 69 destinations,
including European and longhaul routes
to Latin America, the United States of
America, the Caribbean and North Africa.
The acquisition of Air Europa, which is still
subject to approval from competition
authorities, would add a new competitive,
cost-effective airline to IAG, consolidating
Madrid as a leading European hub and
resulting in IAG achieving South Atlantic
leadership, while unlocking further network
growth opportunities.
This will result in customers benefiting from
an increased choice and schedule flexibility
and greater opportunities to earn and
redeem miles.
Assuming satisfaction of all conditions to the
acquisition, completion is expected to take
place in the second half of 2020.
Outlook on 2020
2020 is expected to be a complex year for
the industry, due to economic and political
uncertainty. Our approach is based on
moderate growth of 3 per cent and focused
on the strongest markets (USA and domestic
profitable routes). We will launch a new
seasonal route to Washington DC, increase
flights to Puerto Rico and continue growing
capacity on routes to the West Coast of the
US. To consolidate our position in Asia we
will increase frequencies to Tokyo. We will
also add new shorthaul and mediumhaul
services to strengthen our position in Europe.
We will continue with our fleet renewal, our
customer impact projects and our focus on
giving a decisive boost to the digital
transformation of Iberia. We will continue
with the focus on costs, to keep improving
our non-fuel unit cost, which is the best
among our competitors, and we hope to
conclude the current labour negotiations
with the passenger cabin crew, which have
already started.
Finally, 2020 will hopefully be the year we
obtain competition authorities’ approval to
complete the acquisition of Air Europa and
we can commence its integration into IAG,
remaining as a separate company within
Iberia. The approval of the Air Europa
transaction would lead us to continue
implementing our strategy to develop
Madrid into a "360-degree hub” that reaches
new regions for the Group, and will also
develop traffic between Asia and Latin
America through the Madrid hub, which still
has great growth capacity, especially when
combined with that of Air Europa.
Through Phase 3 of the Plan de Futuro
we aim to reach the final objectives of the
transformation that we initiated several
years ago, to make Iberia a profitable
company, with a sustainable character
and focused on our customers thanks to
digitalisation and innovation.
29
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Consolidating Vueling’s position in
a changing environment
“Our investments in
customer experience
and operational
reliability created
measurable
improvements in 2019.”
2019: Navigating a changing environment
Higher fuel prices and softer demand drove
lower operating margin and RoIC versus
2018. Despite these challenges, Vueling
delivered revenues of €2.5 billion and
carried 34.6 million passengers, both the
highest totals in Vueling's history. Our fleet
surpassed 120 aircraft, we improved
operational reliability (operated 99.8% of
scheduled flights, up 0.7 points from 2018)
and punctuality (75.2% of flights departed
within 15 minutes of scheduled departure
time, up 6.9 points from 2018), and we
successfully implemented technologies such
as operational decision support tools.
Investments in our customer experience in
airports, in-flight and during disruptions led
to higher levels of customer satisfaction. We
delivered solid financial results by amplifying
our strengths.
We focused on market leadership. Our
markets continued to grow, albeit at a
slower pace, so we adjusted our growth too.
We maintained balance between capacity
and demand while still managing to
strengthen positions in key markets
throughout Spain and beyond, including
Barcelona, Valencia and Paris.
We kept improving our processes. We
invested greatly in our Integrated
Operations Control Centre to improve how
we operate. We improved our processes for
maintenance planning, crew scheduling and
handling, using automation where possible
to make us more agile.
Our customers enjoyed an improved
customer experience. We are making
significant progress toward our goal of
providing the number one customer
experience among European low-cost
carriers. Improvements in our cabins (such
as new slim seats throughout our fleet),
high-speed on-board Wi-Fi, disruption
self-management systems (such as
automated electronic vouchers for meals
and hotels), and customer-centric training
for our highly capable and professional crews
all contributed to achieve high levels of
customer satisfaction.
We strengthened our cost discipline. We
introduced new aircraft that are more
efficient than the ones they are replacing,
signed a new collective agreement with our
crews and created efficiencies in our
maintenance model without compromising on
safety. These actions have helped us maintain
our healthy cost position.
We continued investing in digital. Our digital,
innovation and data teams continue to
tirelessly deliver new tools that underpin our
performance. Our teams delivered models
that forecast passenger demand and predict
the ATC environment, tools that optimise
how aircraft are matched to flight lines, and
intelligent ancillary bundling. These
improvements have also fostered a better
customer experience by letting our customers
receive real-time, precise flight information,
anytime, anywhere.
We made sustainability a priority. Our efforts
are focused on climate and energy use, noise
reduction and waste management. With an
average age of 6.8 years, our fleet is the most
modern in Southern Europe, contributing to a
15 per cent reduction in CO2 emissions per
passenger kilometre since 2012. Our Airbus
A320neo aircraft reduce noise pollution by 50
per cent. We are actively reducing the use of
plastics on our aircraft and in our offices.
Looking ahead: Vueling NEXT in 2020
Following 15 years of growth and success,
Vueling is ready to continue as the leading
carrier in Barcelona and several major
shorthaul and mediumhaul markets. The next
phase of Vueling NEXT will implement an
enhanced network design, tighten our
operational model, and help us to maintain
and strengthen our cost position. It will also
position the company to become one of the
leading airlines in sustainability.
Conclusion
We look forward to 2020. We will tackle any
challenges with our usual mix of agility and
resolve. We remain focused on generating
strong profitability, supported by a leading
customer experience and a constructive
employee environment. Vueling will continue
to be the primary long-term vehicle for the
low-cost shorthaul expansion of IAG.
Javier Sánchez-Prieto
Chairman and Chief Executive Officer
of Vueling
Vueling statistics
Operating margin
9.8%
-1.5pts vly1 2
RoIC
13.1%
-4.6pts vly1
ASK growth
per annum
2.7%
Fleet
123
2020-2022
12%
2020-2022
15%
2020-2022
c.2%
2020-2022
128
Overview
In 2019, Vueling’s 15th year of operation, we
delivered better punctuality, higher levels of
customer satisfaction and solid financial
results. We pushed forward on innovation,
data-driven decision-making, and
implementation of the transformational
initiatives of our Vueling NEXT programme.
1 Comparisons vly are on a like-for-like basis, as
the 2018 figures are based on the Group’s
restated statutory results with an adjustment
to reflect the estimated impact of IFRS 16
‘Leases’ from January 1, 2018.
2 Comparisons vly are on a like-for-like basis, as
the 2018 results have been restated to
reclassify the costs the Group incurs in relation
to compensation for flight delays and
cancellations as a deduction from revenue as
opposed to an operating expense. There is no
change in operating profit.
30
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Maintaining financial performance
in a challenging market
“Following a record
2018, a solid financial
performance has
been maintained
with investments
made to facilitate
future growth.”
greater connectivity combined with
excellent service across more North
American routes than ever before.
Aer Lingus is delivering on this ambition,
with a compelling offering in the markets
we serve, creating the opportunity for
further profitable growth.
Aer Lingus has achieved an operating
result and Return on Invested Capital that
demonstrates our ability to respond to a
challenging environment. 2018 was an
exceptional result which benefited from
fuel being heavily hedged. 2019 capacity
increased by 4.2 per cent, even with
capacity growth being moderated against
initial plans given the competitive industry
backdrop. Our North Atlantic network had
a record 2.5 million seats between Ireland
and North America. Our strong revenue
performance has been delivered in the
context of the rising cost of fuel,
operational disruption at Dublin Airport
and a heavy 2019 maintenance year
compared with a light one in 2018. We
have maintained high levels of guest
satisfaction and our results are
underpinned by continued focus on cost
efficiency and productivity. We believe
that our 2019 performance can be
sustained and the opportunity remains for
Aer Lingus to continue to grow Dublin
Airport as a major hub connecting Europe
and North America.
Our value model
Our value model is centred on cost,
product and service. It has delivered
growth in our business, created new jobs
in Aer Lingus and driven significant
broader economic benefits, with more
North American visitors coming to Ireland
than ever before.
Our model is also underpinned by a strong
Net Promoter Score (NPS) performance.
Feedback from our ‘Voice of the Guest’
surveys is fundamental to the design and
delivery of our product and service, with
investment decisions being made in line with
our value principles. We have received
external validation by retaining our status in
2019 as Ireland’s only 4-Star Airline in the
Skytrax Ratings and achieving a top five
finish in the annual Ireland RepTrak® 2019
study of 100 leading organisations in Ireland.
Our product and brand are well positioned
We have continued to innovate and evolve
our product offering in 2019 – launching new
ways to pay with ‘Apple Pay’ and ‘Pay with
Avios’, introducing AerSpace, our new
premium shorthaul travel experience and
launching a new co-brand credit card, ‘Aer
Credit Card’, with Bank of Ireland. We have
also invested in a new baggage tracking
system, partnered with PressReader giving
guests free access to various media and
welcomed our most fuel-efficient aircraft yet
as three Airbus A321neoLRs joined our fleet.
The continued investment in our fleet is one
of a range of initiatives focused on reducing
carbon emissions. Other initiatives include
reducing the use of single-use plastics
onboard and increasing the number of
electric vehicles in our ground fleet.
We are also part of the first airline group to
commit to achieving net zero carbon
emissions by 2050.
We have expanded our network in 2019
introducing direct routes to Minneapolis – St.
Paul from Dublin and to Dubrovnik and Nice
from Cork. Finally, we continue to invest in
our people with hundreds of new cabin crew,
pilot and ground positions created to keep
pace with new aircraft and routes.
Conclusion
Aer Lingus remains committed to delivering
on our ambition to be the leading value
carrier across the North Atlantic. In 2020 we
will continue to develop opportunities for
growth by further enhancing the depth,
breadth and connectivity of our network with
the arrival of additional new engine
technology aircraft, whilst remaining
committed to delivering high levels of guest
satisfaction and operating performance. Our
brand will be further enhanced in 2020 with
the introduction of a new uniform. We
believe the successful execution of our
strategy will continue to deliver compelling
results for IAG, our stakeholders and for the
Irish economy.
31
Sean Doyle
Chief Executive Officer of Aer Lingus
Aer Lingus statistics
Operating margin
13.0%
-2.5pts vly1 2
RoIC
22.0%
-5.0pts vly1
ASK growth
per annum
4.2%
Fleet
573
2020-2022
12%+
2020-2022
15%+
2020-2022
c.5%
2020-2022
60
Overview
Aer Lingus started off 2019 by unveiling a
refreshed brand reflecting our position as a
modern contemporary Irish brand
competing on the international stage. This
was part of our continuing mission to be
the leading value carrier across the North
Atlantic. Our commitment is to deliver
1 Comparisons vly are on a like-for-like basis, as
the 2018 figures are based on the Group’s
restated statutory results with an adjustment
to reflect the estimated impact of IFRS 16
‘Leases’ from January 1, 2018.
2 Comparisons vly are on a like-for-like basis, as
the 2018 results have been restated to
reclassify the costs the Group incurs in relation
to compensation for flight delays and
cancellations as a deduction from revenue as
opposed to an operating expense. There is no
change in operating profit.
3 Includes four wet leases, two Boeing 757 and
two Avro RJ85.
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Scaling up IAG’s low-cost brand
Longhaul routes
Shorthaul routes
Passengers carried
in 2019
Aircraft in service at
December 31, 2019
Passengers carried
in 2019
Aircraft in service at
December 31, 2019
849 thousand
7
1,028 thousand
6
Overview
LEVEL is IAG’s new low-cost airline brand, built on the belief that the world is a better place when we all get out and experience it.
LEVEL makes travel more affordable, allowing customers to choose what’s important to them on their journey. The LEVEL brand
operates longhaul flights from Paris and Barcelona with a fleet of seven Airbus A330-200 aircraft and shorthaul flights from Vienna and
Amsterdam with six Airbus A320 aircraft. In 2019 LEVEL carried close to two million passengers across 24 routes.
LEVEL continues to collaborate and harmonise with other IAG operating companies whilst remaining true to LEVEL’s low-cost DNA,
including increased flight connectivity with Vueling and Iberia. During the year Fernando Candela joined LEVEL as CEO having
previously held the CEO position at Iberia Express.
Longhaul operation
During 2019, LEVEL continued scaling up its operations, adding an
additional longhaul A330-200 aircraft to each of its Paris and
Barcelona longhaul bases. LEVEL opened new longhaul routes
from Barcelona to Santiago de Chile and New York along with
Paris to Las Vegas.
Shorthaul operation
In shorthaul two additional Airbus A320 aircraft were added to
the Vienna and Amsterdam operations. In March, LEVEL Europe
opened a shorthaul base in Amsterdam, with three Airbus A320
aircraft and routes including Barcelona, London, Vienna, Milan and
Rome.
LEVEL has continued to improve key low-cost carrier value
drivers including unit cost, ancillary revenue per passenger and
improving yields across most markets as routes mature and the
business cements its presence in new markets. The brand
continues to stimulate demand particularly in longhaul markets as
its unbundled product grows IAG’s presence in the frugal fun
longhaul segment.
LEVEL Europe continues to develop an added focus on charter
and tour operator segments operating in Austria, Germany and
Switzerland (DACH region) with destinations in Spain and the rest
of the Mediterranean. Strong NPS results continue to demonstrate
a positive customer reaction to the LEVEL Europe value
proposition, despite ongoing and significant disruption in the
Central European airspace.
Looking forward
2020 will be a year of network stabilisation, with no plans to add
new aircraft to the fleet, which is aligned to IAG’s broader
capacity rationalisation. The business will focus on cementing a
robust foundation for future sustainable growth, with a focus on
unit cost, brand, Net Promoter Score (NPS) and operational
resilience, ensuring we deliver on our promise to customers.
The LEVEL Europe operation continues to harmonise with other
IAG airlines, especially Vueling where LEVEL is building enhanced
connection opportunities for its customers.
Looking forward
As with the longhaul business, 2020 will be a year of stabilisation
and capacity discipline for LEVEL Europe, leveraging high
customer satisfaction, solid operational performance and product
consistency. The business will continue to build a solid foundation
for future growth with investment in partnerships, connectivity
and digital-owned channels.
32
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 IAG PLATFORM
Enabling quality, innovation and
efficiency across the Group
The IAG Platform is now a well-established part of the Group’s delivery model. It
allows IAG to achieve revenue and cost synergies that the operating companies
could not attain alone and provides a "plug and play" platform that new operating
companies can efficiently join and rapidly exploit. The Group has already extracted
significant value from the IAG Platform with opportunities identified to further
enhance synergies and support innovation.
IAG Platform
The IAG Platform enables IAG operating
companies to access centres of excellence,
quality resources and systems that
would be hard to achieve as a
standalone organisation.
Global Business Services (GBS)
IAG GBS was established in 2014,
following which it was engaged in a
period of fast-paced start up activity
centralising the core finance, IT and
procurement functions across the Group,
starting with British Airways and Iberia
and rolling out to Aer Lingus and Vueling.
In 2019, GBS has focused on consolidating
the considerable achievements to date
while also continuing to drive further
improvements across the Group in areas
such as supplier management, automation
of processes and operational resilience
through the introduction of common
cross Group systems.
Procurement
In 2019, Group Procurement integrated
the procurement platform into the new
common finance system enabling
enhanced streamlined processes and
further synergies for the Group. These
include simplification of the end-to-end
supply chain from sourcing through to
payments; a standardised workflow for
all operating companies; and improved
supplier spend analytics across the Group
to identify potential savings. New digital
tools have also been deployed to provide
a more robust and automated approach
to supplier relationship management.
Non-fuel cost savings of more than €280
million were delivered across the Group
in 2019.
In 2020 Group Procurement will continue
to focus on streamlining the supply base to
progress towards stability and effective
Corporate Social Responsibility with the
Group’s partners. It will continue to
develop its key supplier relationships to
deliver value to the Group.
Finance
2019 saw the continued roll-out of the
common finance system across the Group,
with GBS Finance joining the platform in
the first half of the year and British Airways
from July 2019. GBS Finance continues to
focus on the simplification, harmonisation
and automation of processes to improve
efficiency and constantly evaluates
opportunities for further cost savings.
Moving forwards and with a growing
demand for services, in 2020 GBS Finance
will continue to transform migrated
functions through the optimisation of
processes, and a review of insource,
outsource and onshore and offshore
opportunities.
IAG Connect and .air portal
IAG Connect enables airlines to leverage a
connected fleet with the development of
digital in-flight services across
entertainment, retail and loyalty through
the universal platform, .air. Throughout
2019 the embodiment of the Group’s
aircraft with Wi-Fi capabilities continued.
IAG Connect commenced shorthaul
connectivity on British Airways, Iberia and
Vueling aircraft enabling a Wi-Fi offering
to customers on over 300 aircraft. The IAG
Connect .air portal has been installed and
operates on all newly connected aircraft
across the Group. The portal provides a
scalable platform removing complexity
and cost across the Group, enabling the
carriers to provide consistent customer
experiences across three connectivity
providers, regardless of the aircraft.
2020 will continue to be a year of delivery
for IAG Connect. The Group is on track to
have 90 per cent of aircraft enabled with
Wi-Fi connectivity by the second half of
2020, enabling a consolidated product
offering across the Group. IAG Connect
will continue to develop the .air portal
with the introduction of new features and
services to further enhance customers’
in-flight experience.
Maintenance, repair
and overhaul (MRO) and fleet
In 2019 the Group’s MRO organisations
remained focused on further strengthening
their operations and ensuring
competitiveness in cost, quality and
sustainability. The main achievements
delivered were:
• completion of outsourcing of inventory
management and repair activities for
British Airways' narrow-bodied fleet
including the transfer of assets
ownership to the supplier;
• consolidation of line maintenance
suppliers across regions to leverage
Group volume;
• transformation of the wide-bodied
airframe maintenance division through
the roll-out of a new organisation and
implementation of further lean practices
to improve quality and cost
performance; and
33
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information IAG PLATFORM CONTINUED
• continued optimisation of the supply
chain together with IAG GBS
Procurement.
The main areas of focus in 2020
will include:
• further outsourcing of inventory
management and repair activities for
additional selected fleets across the
operating companies;
• continued optimisation of supply chain
including the restructuring of selected
airframe and components contracts,
leveraging new fleets;
• preparation for the future introduction
of new narrow-bodied engine types,
repair and overhaul capabilities; and
• continued improvement of the
competitiveness of wide-bodied
maintenance to reach our objective of
best in class performance.
In 2019, the Group has incorporated new,
more efficient aircraft into the fleet,
reducing fuel consumption, noise and
CO2 emissions.
Aircraft Fleet
Airbus A318
Airbus A319
Airbus A320
Airbus A321
Airbus A330–200
Airbus A330–300
Airbus A340–600
Airbus A350
Airbus A380
Boeing 747–400
Boeing 777–200
Boeing 777–300
Boeing 777–9
Boeing 787–8
Boeing 787–9
Boeing 787–10
Embraer E170
Embraer E190
Owned
Right of use1
Total
December 31, 2019
Total
December 31, 2018
Changes since
December 31, 2018
Future
deliveries
Options
1
17
50
20
5
2
9
5
2
32
36
2
–
–
1
–
6
9
–
40
204
46
19
14
6
4
10
–
10
10
–
12
17
–
–
9
1
57
254
66
24
16
15
9
12
32
46
12
–
12
18
–
6
18
1
61
241
56
22
16
17
2
12
35
46
12
–
12
18
–
6
16
573
–
(4)
13
10
2
–
(2)
7
–
(3)
–
–
–
–
–
–
–
2
25
–
–
34
45
–
1
–
33
–
–
–
4
18
–
–
12
–
–
–
–
76
14
–
–
–
52
–
–
–
–
24
–
–
–
–
–
147
166
Group total
1 Includes 108 finance leased aircraft transferred to ROU assets on adoption of IFRS 16.
598
401
197
As well as those aircraft in service the Group also holds 10 aircraft (2018: 5) not in service.
The table above excludes one wet lease which is recognised as a right of use asset on the Balance sheet.
34
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Staying focused on our strategy
during challenging market conditions
Premium products, including Constant
Climate, Critical and Prioritise, performed
better than general freight. Our new
temperature-controlled facility in Madrid,
which gained Good Distribution Practice
certification in February, has been
welcomed by our customers and unlocked
new revenues for our Spanish hub. Whilst
industry sectors such as automotive parts
were significantly down, our Constant
Fresh perishable movements saw some
year-on-year growth, particularly out of
Latin America and Africa.
Digitalising in commercial
2019 was an important year for advancing
our commercial capability, with the
adoption of integrated Customer
Relationship Management tools and the
application of machine learning to spot
pricing. These foundation steps set the
basis for further benefits in 2020.
We have invested in IAGCargo.com with
our website now accounting for around 30
per cent of our bookings. We have also
developed digital Application
Programming Interfaces (APIs) which
provide instant access to rates, route
availability and enable customers to
manage bookings in real time. Customers
can directly integrate these APIs into their
websites or access them through
partnerships with third parties.
In 2019, we implemented a single Cargo
Revenue Accounting system and despite
initial challenges with our cut-over we are
beginning to benefit from efficiencies in
our processes.
Our comprehensive product offering has
been boosted by the introduction
of several ancillary products. In April,
we became the first air freight carrier to
offer a home relocation service directly to
consumers and in October, we partnered
with Cargo Signal to offer our customers
advanced end-to-end tracking services.
Lynne Embleton
Chairman and
Chief Executive Officer of IAG Cargo
“In a year characterised
by a declining market,
at IAG Cargo we have
continued to invest in
our business and focus
on our customers.”
Market overview
2019 proved to be a difficult year for global
airfreight, with industry-wide revenues
down versus 2018, a result of declines in
both volumes and yields. According to
IATA this was the steepest drop in
demand since 2009 during the global
financial crisis. A combination of trade
tariffs, market uncertainty and some
economic softening affected air cargo
flows across almost every region.
Against this backdrop, IAG Cargo revenues
held up relatively well at €1,117 million. At
the end of 2019 IAG Cargo revenues were
down 4.8 per cent, trending more than two
percentage points above the industry
average decline.
Innovation in operations
To continue to improve our operational
performance and customer service, we
have been busy with an extensive
programme of innovation.
We have again led a category in IAG’s
Hangar 51 global innovation programme,
working with exciting start-ups who are
helping us to improve how air cargo works.
The 2018 winner, EmuAnalytics, has used
its data visualisation platform to identify
problem areas that prevent cargo getting
on a flight on time. A finalist from this
year’s programme, AllRead, has spent ten
weeks working alongside our team in
Madrid using its machine learning
technology to optimise data extraction
processes within our operations.
We have trialled 3D scanning technology
to streamline the way we scan and
identify freight, and in December we
announced significant advances in the trial
of autonomous drone technology within
our Madrid warehouse.
In our London hub, we have worked
with a virtual reality (VR) partner to create
immersive VR training to cut induction
time for new recruits.
These technology steps sit alongside
a programme of investment in our
warehouse facilities, upgrading of systems
and adoption of continuous improvement
methodologies to drive operational
excellence across our hubs.
Sustainability
Our sustainability agenda has progressed
in 2019. We replaced 957 of our Unit Load
Devices (ULD) with lightweight
alternatives, reducing on-board weight and
fuel burn. This brings our total lightweight
ULDs over 50 per cent. New recycling
initiatives are aimed at industrial wood and
plastic waste at our hubs. In London and
Dublin we are trialling electric tugs as a
low-carbon alternative to our current
vehicle fleet of over 100 diesel models.
Conclusion
2019 was a tough year for global airfreight
and we expect the market to continue to
be challenging into 2020.
IAG Cargo has continued its strategy
focused on customer service, growth
and investment in data, technology and
operations to become the carrier of
choice worldwide.
35
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information IAG’s centre
of excellence for loyalty
Overview
IAG’s centre of excellence for loyalty,
IAG Loyalty, was developed to reflect the
more comprehensive loyalty services that
we now provide to our airlines and
commercial partners, beyond the
management of the Avios currency.
IAG Loyalty offers a wide range of loyalty
services; these include the Avios currency,
customer programmes, loyalty
management tools, technology solutions,
data and customer insights.
Customers remain at the heart of what we
do at IAG Loyalty. Through our loyalty
services we offer commercial and airline
partners ways to attract, acquire and retain
customers, through using the Avios
rewards currency and other data services.
Key successes in 2019
Central to the growth of loyalty across IAG
is the implementation of a new Global
Loyalty Platform – bringing together our
customer data into a single integrated
Group platform. With a focus on safely and
securely safeguarding customer data,
Phase 1 of the programme was delivered in
2019 and saw 13 million accounts migrated
and 10 billion Avios moved to the new
platform. Through the new platform IAG
Loyalty can deliver a more personalised
and richer experience for our members
and simplify the onboarding process for
new partners. We plan to complete the
next phase of the project in 2020.
New digital and technological solutions are
also key to future growth; we’re continuing
to build our capabilities to position IAG
Loyalty as a technology-driven company.
In 2019 our Developer Portal was opened
to over 500 developers, enabling them to
test APIs in seconds. We’re adopting a
product-driven, agile method for delivering
new services and products and
continuously updating and improving our
products.
We launched nine new Non-Air Partners
in 2019 and introduced the Amex Small
Business Card to reward small business
owners.
Our e-store platform, our online portal
with over 1,000 retailers issuing Avios,
continues to grow and in 2019 we
launched an e-store for our AerClub
members.
Another product going from strength to
strength is the British Airways Executive
Club Rewards app. Throughout the year it
has been continually updated with new
features. The new flight finder has seen a
significant increase in customers clicking
from the app to make a booking and
geolocation features make sure the app is
relevant for the customer.
Pay with Avios was introduced across
Aer Lingus and members can now use the
product to pay for baggage on British
Airways flights. We launched new £1
Reward Flight Saver fares, which has been
greeted very positively by members,
driving them to also collect more Avios.
Whilst we delivered a strong performance
against profit targets, issuance growth in
some of our non-air partnerships was just
below our expectations. We are confident
this will turn around in 2020.
IAG Loyalty place significant emphasis on
open channels of communication and
two-way dialogue between colleagues and
management. The introduction of the
“OpenBlend” tool supports IAG Loyalty by
upskilling managers in coaching
capabilities, creating engaging
performance reviews, empowering
managers to effectively lead their people,
providing real-time analytics on employee
wellbeing and building an open and honest
culture where people want to work.
Future
In 2020, IAG Loyalty will continue to focus
on expanding its data capabilities through
the integration of Group data sources. This
helps better segmentation and
communication for Avios members, with
more personalised and targeted content
relevant to them.
The next phase of our Global Loyalty
Platform will be progressed, and we will
continue to introduce new features to
enhance our members’ experience across
our loyalty programmes.
We remain focused on securing new
strategic partnerships across the travel,
retail and financial services sectors;
growing our member base and providing
even more ways for members to collect
and spend.
Andrew Crawley
Chairman and Chief Executive
Officer of IAG Loyalty
“2019 saw a
continuation of
underlying profit
growth and delivery of
key projects to drive
future growth and
value. The exciting
transition of Avios
Group Limited to IAG
Loyalty will see
continued investment
in new products and
technology, as well as
loyalty and data
capabilities.”
36
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Our journey
to Technology Excellence
John Gibbs
Chief Information Officer
“IAG Tech has the
simple vision of
bringing Technology
Excellence to
everything we do with
a renewed mission to
increase shareholder
value and enhance the
experience of our
other stakeholders.”
In September 2019, IAG created the role of
Chief Information Officer (CIO),
recognising the importance of digital and
IT to the future of the business. Under the
new CIO, IAG Tech was launched. IAG
Tech brings together over 1,500 digital and
IT professionals across the Group, with the
simple vision of bringing “Technology
Excellence” to everything we do with a
renewed mission to increase shareholder
value, accelerate business performance,
delight customers, enable employees, and
protect our business through the
innovative and agile use of technology and
data.
The focus continues to be on cyber
security, leveraging the expertise of
strategic global partners to help ensure
early detection of future threats through
an enhanced 24/7 Security Operations
Centre. IAG Tech has continued to partner
with world-class global providers whose
expertise is helping support a resilient and
scalable IT platform for the Group.
The streamlined organisation now has over
40 per cent of IAG’s technology experts
working in product centric, agile teams
with more teams working in this way every
week. In 2020 IAG Tech will strive to
deliver technology excellence, driving to
become industry leaders in the use of
technology and data, through the
development of highly innovative leaders,
strong relationships and partnerships,
consistently delivering products and
projects to time, cost and quality in a
secure and compliant environment.
Digital
IT
Over 1,500 internal and external experts and a world
class IT supply chain
Focused on delivering ‘Technology Excellence’
To deliver the vision of Technology
Excellence IAG Tech has refocused around
a common purpose. We will do this by:
• running a professional function,
delivering great value and developing
our capabilities;
• researching and piloting innovative use
of technology across all our value
streams;
• developing a new technology vision,
strategy and enterprise architecture;
• delivering new business and
technology capabilities in an efficient
and effective manner;
• providing resilient services that
deliver required levels of availability
and performance;
• protecting the business from cyber
threats and risks, and ensuring our
compliance with external regulations;
• partnering with the individual businesses
to understand and exceed their
expectations;
• leveraging the power of our capabilities
for the benefit of the community and
environment;
• providing world-class, trusted
technology leadership and partnerships;
and
• leveraging all of this across the Group to
maximise the opportunities.
IAG continues to lead the industry in
innovation and digital transformation. A
2019 Frost & Sullivan Global Airline Digital
Transformation report benchmarked us
alongside 65 other global airlines and
airline groups – IAG was ranked #1.
37
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information IAG TECH CONTINUED
Our five key transformations
SHOP ORDER
SETTLE
4k+
Connected NDC
partners
INCREASED
REVENUE
IMPROVED
CUSTOMER
EXPERIENCE
AI AND DATA
MARKETPLACES
AUTOMATION
DIGITAL MINDSET
£30+million
AI / Data plan
3
Venture pilots
£90million
Cost savings
1,700+
Technologies
screened
ADVANCED
DECISION-
MAKING
EXPLORE NEW
MARKETS
COST
EFFICIENCIES
RAPID
IMPLEMENTATION
REAL-TIME
VISIBILITY
RAPID
EXPERIMENTATION
SEAMLESS
JOURNEY
INDUSTRY FIRST
INNOVATION
We remain focused on our five key
transformations and have been
encouraged by the early wins and value
that is being generated from these
initiatives. Beyond our proof of concepts,
we are now seeing, through
implementation, the generation of real
value for our shareholders, operating
companies, employees and other
stakeholders.
Shop Order Settle (SOS)
Our SOS transformation is committed to
delivering revenue and customer
satisfaction benefits along with realising
cost reduction opportunities. During 2019
our focus has been on confirming the
vision and direction of the core commercial
strategy, and 2020 will see the
introduction of the initial modules of the
new retail platform supporting IAG.
Specific SOS focus areas during this
period included:
• continued development of our new retail
pricing engine and its introduction
across Iberia point to point routes;
• completion of further trials supporting
dynamic Iberia Express Bag Pricing –
demonstrating significant potential
improvements to ancillary revenues;
• driving industry forward through
participation in work on ONE Order
Transition and the creation of a new
“Retail & Supply” agreement as the
future of interline; and
• achieving the New Distribution
Capability (NDC) at scale certification
for both British Airways and Iberia.
Artificial Intelligence and data
Continuing our strategy commitment, we
set out last year to make a step-change in
the way we collect, connect and drive
business value from data across the Group,
we have accelerated the development of
our Nexus Global Data Platform.
38
Working in collaboration with data teams
from the operating companies across the
Group, we have made the core data
capabilities for this future platform
available. This lays the foundation for
greater collaboration and sharing, building
not only a closer community of data
expertise but a catalogue of capability and
products to drive advanced analytics and
AI based within the Group.
Throughout 2019 we have continued to
pilot these capabilities, working with teams
across the business in engineering, loyalty,
operations and back-office functions.
Marketplaces
IAG continues to actively identify and
explore new revenue streams and is
currently evaluating new opportunities
with further proof of concepts and pilots
being considered for 2020.
Previous marketplace initiatives, including
LEVEL, Zenda and RouteStack, continue to
grow demonstrating the value of
supporting and incubating new business
models centrally at Group level.
Automation
We continue to drive forward our
automation agenda both above and below
the wing to transform operational safety,
efficiency and customer satisfaction.
On the ramp, more remote controlled
Mototok aircraft pushback devices are
being introduced, with 30 new units at
Iberia. In addition, we are trialling Smart
Ramp initiatives at Heathrow, such as
automated Foreign Object Damage (FOD)
detection, event time stamping, automated
passenger boarding bridges and Digital
Twins.
2019 has seen the first operational trials of
autonomous dolly and baggage tugs. In
2020, the next phase of the autonomous
dolly will continue to be developed
alongside live trials of autonomous vehicles
with Iberia.
Our cargo colleagues have been trialling
autonomous drone technology to enhance
inventory management and in 2020 we
will extend this technology to other areas
of our business.
Above the wing, our focus remains on
customer digital identity. 2019 saw Iberia
introduce digital mobile enrolment for
customers, offering a seamless biometric
airport experience. British Airways has
been building on the success of customer
touch-points combined with self-service
bag drop and boarding.
To date we have realised £90 million of
cost savings within British Airways above
and below the wing.
Digital mindset
Attracting and working with the leading
digital talent globally is core to our Digital
Mindset strategy. 2019 represented the
fourth iteration of IAG’s Hangar 51
acceleration programme, being hosted in
Madrid and Barcelona, which will span
seven business focus areas including
Airport Operations and Logistics, Future of
Customer Interaction, Disruption
Management, Future Cargo Logistics, New
Products and Services, Sustainability, plus
a Wildcard category. Hangar 51 welcomes
start-ups and innovation partners to bring
new thinking and the latest technologies
to help drive faster innovation across our
business.
Since the programme’s inception in 2016
we have screened over 1,700 technologies
from over 40 countries and have run
demonstrable pilots with 35 start-ups
focused on delivering real world outcomes
to the aviation industry. To date 60 per
cent of these pilots have resulted in either
follow-on trials, commercial contracts and/
or investment funding.
We have a clear journey, and there has
never been a more exciting time to be part
of IAG Tech.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 SUSTAINABILITY
A world-first commitment
to net zero emissions
“We’ve led our industry
in tackling climate
change in the last ten
years and are
continuing to take
bold steps to ensure
environmental
sustainability is fully
integrated into our
strategy and decision
making.”
We were instrumental in setting up
CORSIA, the UN’s first global offsetting
scheme. This will enable our industry to cut
emissions by 2.5 billion tonnes in the next
15 years through a $40 billion investment
in verified carbon reduction projects.
From January 2020, British Airways began
offsetting emissions for all its domestic
flights through investments in, for example,
solar and forestry projects in South
America, Africa and Asia, while Iberia is
offering companies the chance to offset
emissions created when their employees
fly by funding a forest protection scheme
in Peru.
Our efforts have also accelerated in other
areas such as recycling and reducing
plastic, glass, metal cans, paper and food
waste. For example, we cut 160 tonnes of
single-use plastics during the year. Iberia is
leading an EU project to develop best
practice guidance on sustainable cabin
waste management.
All these moves are backed by a
commitment to build sustainability into our
strategy, our risk management systems
and our day-to-day decision making.
We know that sustainability in its widest
sense, and climate change in particular, are
of growing concern to our stakeholders –
including the communities we serve, our
customers, employees and investors. It is
an issue that will only grow in importance.
I hope this report will prove that it is an
issue we treat with the utmost seriousness
and that we take on as our commitment.
Antonio Vázquez
Chairman
2019 was a momentous year for our
sustainability programme and we have
restructured this part of the report to
highlight the bold environmental actions
we are taking and our engagement with
stakeholders on this increasingly
pressing issue.
For over a decade we have led the aviation
industry in taking action on climate change
and this remained our main focus during
the year.
In October, we became the world’s first
airline group to commit to achieving
net zero carbon emissions by 2050. Our
Flightpath net zero commitment is built
on a 30-year programme of far-reaching
initiatives, backed by challenging targets.
These include improving carbon efficiency
by 10 per cent to 80gCO2/pkm by 2025
and reducing net emissions by 20 per cent
to 22 million tonnes by 2030. This year
we will introduce management incentives
to encourage senior executives to act to
reduce emissions.
The actions we are taking are based on
the science needed to keep global
temperature rises to below 1.5 degrees
Celsius and we underlined our
determination to meet that objective
when, in December, we became the only
airline group to sign the UN’s Business
Ambition for 1.5 degrees Celsius pledge.
Achieving our net zero goal will involve a
whole range of actions, including
improving operational efficiency, renewing
our aircraft fleets, investing in sustainable
fuel and offsetting and removing carbon.
We will take delivery of 143 new aircraft
in the next three years that are between
20 to 40 per cent more carbon efficient,
and 50 per cent quieter, than those
they replace.
Over the next two decades we plan
to invest $400 million (€360 million) in
sustainable aviation fuels, including British
Airways’ groundbreaking venture with
Velocys to build Europe’s first household-
waste-to-jet-fuel plant in Humberside. It is
due to begin operations in 2024, turning
waste destined for landfill into fuel
producing 70 per cent less CO2 emissions
over their lifecycle. We are also exploring
carbon capture technologies through our
Hangar 51 accelerator programme.
www.iairgroup.com
39
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information SUSTAINABILITY CONTINUED
Sustainability
overview
Sustainability governance structure
Proposals, updates
Strategic direction,
approvals, guidance,
challenge
IAG Board
IAG Audit and Compliance Committee
IAG Management Committee
IAG
sustainability
Operating company management committees
Sustainability network comprising operating company representatives
Sustainability governance
IAG's sustainability strategy sets the
context and ambition for our sustainability
programmes, which are coordinated at
Group level. It covers our Group policies
and objectives, governance structure, risk
management, strategy and targets on
climate change and noise, sustainability
performance indicators, communications
and stakeholder engagement plans. Each
individual operating company within the
Group has a distinct sustainability
programme that is aligned with the
Group strategy.
The IAG Management Committee provides
the forum for review, challenge and setting
strategic direction of these programmes.
Further oversight and direction are
provided by the IAG Board and the IAG
Audit and Compliance Committee. The
above diagram depicts how sustainability
is governed across the Group.
In addition, we have continued to progress
our environmental management with the
adoption of the International Air Transport
Association (IATA) Environmental
Assessment (IEnvA) management system.
IEnvA is the airline industry version of
ISO 14001 (the international standard for
environmental management systems)
tailored specifically for airlines and is fully
compatible with the International
Organisation for Standardisation (ISO).
British Airways achieved Stage 1
certification in 2019 and all other Group
airlines are progressing on Stage 1
certification in 2020.
40
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Sustainability
strategy
Sustainability underpins our business
strategy and is fundamental to our
long-term growth. We have set our vision
to be the world’s leading airline group on
sustainability and are committed to
minimising our environmental impact. We
are also committed to delivering best
practice solutions and demonstrating
thought leadership to drive global
improvements in the aviation industry’s
sustainability performance.
We have aligned our sustainability strategy
to IAG’s strategic priorities, as
demonstrated in the diagram below.
We measure our progress against our
vision to be the leading airline group on
sustainability against five strategic aims.
opportunities, and Engagement with
stakeholders on sustainability subsections,
as well as relevant case studies.
1 Clear and ambitious targets relating to
our most material issues
2 Low-carbon transition pathway
embedded in business strategy
3 Management incentives aligned to
delivering low-carbon transition plan
4 Leadership in carbon disclosures
5 Accelerating progress in sustainable
aviation fuels, future aircraft and low
carbon technologies
More details on our 2019 progress can be
found in the Climate change - Overview
and targets, Sustainability risks and
In 2019 we further embedded our
consideration of sustainability issues into
core business processes: IAG three-year
business plans, one–year financial plans,
enterprise risk management, procurement
and financial approvals now address
climate and sustainability impacts.
We have also committed to developing
management incentives aligned to our
climate targets, to improve the alignment
of our business strategy and
decarbonisation pathway. We will
implement these incentives in 2020.
1
1
Strengthening
a portfolio
of world-class
brands and
operations
2
Growing global
leadership
positions
2
3
Enhancing
IAG’s common
integrated
platform
3
1
2
3
Ensuring customers have
visibility of, and are
engaged in, our
sustainability
programmes
see “Engagement with
stakeholders on
sustainability” section
Demonstrating industry
leadership e.g. through
commitment to ambitious
carbon reduction targets
see “Engagement with
stakeholders on
sustainability” section
Maturing our transition
pathway towards a low-
carbon economy
see “Climate change”
section
Leadership in carbon
disclosures
see “Engagement with
stakeholders on
sustainability” section
Investing in efficient
aircraft fleet and
delivering best practice
in operational
efficiency
see “Key climate change
case studies” section
Innovating and investing
to accelerate progress in
sustainable aviation fuels,
future aircraft and low-
carbon technologies
see “Key climate change
case studies” section
Materiality
Disclosure and reporting
standards
To ensure we disclose relevant and
meaningful data about our sustainability
performance, we align our reporting with
relevant and emerging disclosure
standards. This includes compliance with
our obligations under EU Directive
2014/95/EU on non-financial reporting and
its transposition in the UK and Spain. Our
secondary reference point is the
Sustainability Reporting Standards from
the Global Reporting Initiative (GRI). We
align our reporting with the Airlines
Reporting Handbook, which we worked
with the International Air Transport
Association (IATA) and GRI to develop.
The latest ratings from key frameworks
are as follows:
Key metrics in this section are included in
the IAG Non-Financial Information
Statement, which has been third-party
verified to limited assurance and in line
with ISAE3000 (Revised) standards
(see "Climate change - Data
governance" section).
We also submit information to several
external global frameworks. These include
the Carbon Disclosure Project (CDP), the
Transition Pathways Initiative (TPI) and the
Workforce Disclosure Initiative (WDI).
• B (Management) rating maintained
in the CDP 2019 Climate Change
questionnaire, based on our submitted
response and activities in the 2018
calendar year. The progress made
in 2019 will be reflected in our
2020 submission.
• Level 3 of 4 in the second TPI
Management Quality ratings, based on
publicly available disclosures prior to
November 2019.
• Most improved IBEX company, first in
sector for FTSE 100 companies, and
top ten in IBEX companies in the
EcoAct 2019 global review of
sustainability reporting.
41
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
SUSTAINABILITY CONTINUED
Identifying material issues
IAG’s sustainability reporting is also based on an assessment of
the most material impacts of IAG business activities on the
environment. In 2017, we worked with key stakeholders to identify
these impacts in a materiality exercise facilitated by the charitable
trust Business in the Community. The process included
workshops, interviews with key stakeholders, benchmarking
against external materiality frameworks and the production of our
own materiality matrix.
Sixteen material sustainability issues were identified and are listed
below. We have realigned these, under the three headings below,
to reflect the new structure of this report.
These issues align with the issues identified by IATA and GRI for
the airline sector. Water consumption and biodiversity are
currently not assessed as material for IAG based on the small
scale of impacts in these areas and the relative importance of
other issues as assessed by our stakeholders. However, we keep
this under regular review.
We will repeat a materiality assessment in 2020.
Key material issues
Environment
• Climate
change1
• Carbon pricing
• Energy use
• Waste
• Noise
• Air quality
Workforce and
community
• Diversity and
equality
• Community
engagement and
charitable
support
• Local economic
impacts
• Employee
satisfaction
• Talent
Governance, integrity
and competitiveness
• Supply chain
management
• Compliance with
legislation and
regulation
• Customer
satisfaction
• Innovation,
research and
development
• Financial
management
performance2
Alignment with Sustainable Development Goals (see right)
1 Including GHG emissions, fleet modernisation, fuel efficiency and
sustainable aviation fuels (SAF).
2 Short-term investor returns and long-term sustainability.
42
Sustainable Development Goals
The UN has identified 17 Sustainable Development Goals (SDGs)
for all sectors to work towards as part of a 2030 Agenda for
Sustainable Development. The aim of this agenda is to “end
poverty, protect the planet and improve the lives and prospects
of everyone, everywhere”.
We draw links to nine SDGs, which align with those identified by
IATA and UK trade association Sustainable Aviation (SA). Four
priority SDGs - 5, 7, 8 and 13 - were identified by IAG as part of
our materiality assessment and are indicated in grey. How our
initiatives align with, and support, these goals is also indicated.
Goal 4:
Quality education
How IAG activities align with the SDGs
Goal 3:
Good health and
wellbeing
Initiatives on:
• Operational efficiency
• Fleet modernisation
• Noise
• Air quality
• Health and safety
• Modern slavery
• Accessibility
Initiatives on:
• Work experience
programmes
• Modern slavery
Goal 7:
Affordable and
clean energy
Initiatives on:
• Climate change
• Sustainable aviation
fuels
Goal 8:
Decent work
and economic
growth
Initiatives/metrics on:
• Work experience
programmes
• Revenue per
tonne CO2
Goal 11:
Sustainable cities
and communities
Initiatives on:
• Noise
• Air quality
• Community giving
• Accessibility
Goal 12:
Responsible
consumption
and production
Initiatives on:
• Waste
• Supply Chain
Goal 5:
Gender equality
Initiatives on:
• Work experience
programmes
• Workforce diversity
• Modern slavery
Goal 9:
Industry, innovation
and infrastructure
Initiatives on:
• Sustainable aviation
fuels
• Fleet modernisation
• Hanger 51
• Carbon capture,
utilisation and storage
(CCUS)
Goal 13:
Climate action
Initiatives on:
• Climate change
• Operational efficiency
• Sustainable aviation
fuels
• Carbon offsets and
removals
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Engagement with stakeholders on sustainability
We regularly engage with many stakeholders on sustainability issues to understand their requirements and interests, communicate our
initiatives, influence policy, and drive action to meet our sustainability objectives.
Examples of specific stakeholder engagement and 2019 actions are below. More detail on actions can be found in the Key climate
change case studies subsection, Waste and Noise case studies, and Workforce and community subsection.
Stakeholders
Communities
Why we engage
• Our operations can affect
quality of life in communities
near where we operate
• To maximise our positive
How we engage
• Participating in airport
community forums
• Community giving
campaigns
wider impact
• Engaging local schools in
sports, charity and
learning events
• To demonstrate our
• Sharing information on the
Customers
Key 2019 actions/outcomes
• We manage the noise performance of
our airlines and met our Group noise
reduction target a year early
• We maintained a range of charity
partnerships and raised over €4.2 million
for not-for-profit organisations
• See "Community giving" case study
• Flightpath net zero material available on
sustainability commitments
to action, initiatives and
leadership
• To facilitate passenger
action on the environment
• To stay attuned to changing
customer demands
• To offer employment
opportunities
IAG website
IAG website
• British Airways website for
passengers to offset their
flight emissions during
booking
• Social media
communications
• Onboard communications
e.g. in-flight entertainment
• Customer surveys
• Focus groups
• Meetings and interviews
• Regular facilitated
meetings of IAG staff in
sustainability roles
• Voluntary environmental
and waste champions
• British Airways enhanced its voluntary
offsetting option for passengers
• Iberia achieved over 12 million online and
offline media impressions from World
Environment Day activities
• British Airways is the first airline in the
UK to receive the“Autism Friendly
Award” by the National Autistic Society
• Bi-annual meetings of the IAG
Sustainability Network
• Inaugural meetings of new waste
reduction network and IAG Cargo
sustainability working group
Workforce
• To align individual airline
sustainability programmes
with IAG Group
• To share ideas and
best practice
• To respond to demands
• Staff awareness campaigns
• Vueling ran a staff awareness campaign
from internal stakeholders
• To drive positive employee
engagement
Shareholders
and other
financial
stakeholders
• To respond to legal
obligations and changing
expectations of financial
stakeholders
• To maintain and increase
transparency
Suppliers
• To demonstrate action and
leadership to external
stakeholders on our
initiatives
• To minimise exposure to
environmental, social and
governance (ESG) risks
• To support manufacturers in
improving aircraft efficiency
• To gain support for
sustainable aviation
fuels (SAF)
• To identify opportunities to
reduce supplier emissions
Engagement includes
institutional investors and
shareholders, debtholders,
debt providers and credit
rating agencies
• Via corporate website
• Corporate disclosure
initiatives
• Investor relations activity
• Conference calls with
institutional investors
• Procurement processes
• Screening and
on-site audits
• Joint projects
• Hangar 51 accelerator
programme
• Industry conferences
• Supplier sustainability
workshops
around quieter aircraft operations
• British Airways and Iberia ran World
Environment Day activities for staff
• Connected supplier representatives to
sustainability leads in the IAG operating
companies
• Significantly expanded sustainability
section of IAG website
• Disclosed information to CDP and TPI
external ratings and support for the
development of TPI framework
• Integrated into investment case
• Sustainability presentation at IAG Capital
Markets Day
• See “Supply chain” case study
• See “Sustainable aviation fuel” case study
• Partnerships with key fuel suppliers to
reduce emissions from road transport
of jet fuel
• Introduced new Hangar 51
“Sustainability” category
• Participated in Airbus and
Boeing workshops
43
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Stakeholders
Government
and regulators
Why we engage
• To influence UK, Spanish,
How we engage
• Attending UN summits and
Key 2019 actions/outcomes
• IAG representatives take leading roles
in ICAO and IATA steering and
working groups
• Ongoing engagement programmes in
Brussels and Westminster to promote
Flightpath net zero (see Climate
Change subsection)
Irish, EU and global policies
on taxes, SAF and carbon
pricing so that these policies
are effective and fair
working groups
• Through dialogue with trade
associations
• Meetings with government
officials, ministers and
parliamentarians
• Responding to EU and
national public policy
consultations
• To increase research and
funding for low-carbon
aircraft, SAF and carbon
removal technologies
• To support the UK
government commitment to
net zero emissions
• To build support for a net
zero emissions target for
aviation through the UN
aviation regulator
International Civil Aviation
Organisation (ICAO)
Industry
associations
Non-
governmental
organisations
(NGOs)
• To develop common policy
Global aviation associations:
• Joint statements and press releases
positions
• To improve lobbying
effectiveness
• To ensure alignment between
our sustainability goals and
the goals of associations we
are members of
• To share our expertise on
SAF and carbon pricing for
the benefit of industry
progress on the environment
• For independent reviews of
materiality
• To maintain an informed
position on sustainability
leadership
• To share our expertise on
SAF and carbon pricing for
the benefit of industry
progress on the environment
• IATA, Air Transport Action
Group (ATAG)
European trade associations:
• Airlines 4 Europe (A4E)
UK trade associations:
• Sustainable Aviation (SA),
Airlines UK
• Meetings and visits
• Industry conferences and
workshops
• Contributing to NGO
initiatives
with A4E, SA, Airlines UK
• Keynote speaking at numerous major
industry events on sustainability
• IAG staff are chairing the IATA
Sustainability and Environment
Advisory Council and Fuels Task
Group
• IAG staff are chairing the newly
formed Oneworld environment and
sustainability best practice group
• IAG hosted multiple workshops and
provided expertise for the SA
Decarbonisation Road-Map: A Path to
Net Zero
• Engaged with initiatives from the
Science Based Targets Initiative
(SBTi), World Wide Fund for Nature
(WWF), The Climate Group, and The
World Economic Forum's "Cleaner
Skies for Tomorrow" initiative
44
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Sustainability risks
and opportunities
Overview
The IAG Sustainability team is responsible
for identifying and monitoring
sustainability and climate-related risks and
challenges. These are reviewed by the
Enterprise Risk Management (ERM) team
and reported at least annually to the IAG
Management Committee and the IAG
Audit and Compliance Committee. The
Sustainability team considers risks over
medium-term (two to five years) and
long-term (five to 30 years) timescales as
part of its risk management processes.
IAG is subject to both risks and
opportunities related to sustainability,
which are assessed in line with the IAG
ERM methodology and are assessed for
likelihood and impact considered over
different time horizons. The four categories
of likelihood are “remote”, “possible”,
“probable” and “likely”, and the four
categories of impacts are “manageable”,
“moderate”, “serious” and “critical”.
Other risks relating to people and
employee relations and safety and security
are described within the business and
operational risks of our ERM framework.
We have identified and assessed longer-
term sustainability and climate-related
risks and opportunities for IAG through our
ERM process, materiality review and
applying scenario analysis techniques as
set out by the Task Force on Climate-
Related Financial Disclosures (TCFD)
process. We were one of the early
signatories to the TCFD, an initiative led by
the Financial Stability Board which
complements the Carbon Disclosure
Project (CDP) framework and sets
guidelines for how to review the resilience
of our business strategies in the context of
climate change.
We are also allocating significant resource
to environmental risk management
including investment of over €2 million
over five years in Honeywell GoDirect
Flight Efficiency software and over $400
million (€360 million) over the next 20
years in sustainable aviation
fuels infrastructure development and
offtake agreements.
Taskforce on Climate-
Related Financial
Disclosures
Scenario analysis
In 2018, we followed the TCFD process for
scenario analysis and analysed the
implications of climate change on our
business in 2030. 2030 was selected as a
nearer-term timeframe en route to 2050.
The analysis exercise included an initial
qualitative assessment of potential IAG
responses in terms of business model,
portfolio mix, investments in transition
capabilities and technologies and the
potential impact on strategic and financial
plans. We considered two scenarios:
• a two-degree temperature rise
scenario, consistent with the goals of
the Paris Agreement; and
• a four-degree temperature rise scenario,
as an alternative high-emission scenario.
We identified that IAG would incur
additional operating costs under both a
two-degree and four-degree scenario.
Under a two-degree scenario, most of this
increase would result from carbon prices
or climate-related policy interventions.
Under a four-degree scenario, IAG was
more likely to face increased costs from
operational disruption as a result of
extreme weather events becoming more
frequent. Key outcomes of this scenario
analysis were:
• raising climate change
awareness internally and further
integrating it into the business planning
process;
• driving engagement with the Hangar
51 accelerator programme; and
• identifying and disclosing several new
climate-related challenges.
We will review the results of scenario
analysis in line with the latest
recommendations and guidance and
intend to repeat it when relevant.
In 2019, we completed further analysis of
climate-related risks and opportunities.
See the Risk Management and principal
risk factors report for details on sustainable
aviation risks.
45
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information SUSTAINABILITY CONTINUED
Summary
Climate transition risks and opportunities
Description and potential impact
Emergence of global patchwork of uncoordinated national and
regional climate policies – regulation
Risk: use of inappropriate tax instruments may lead to
competitive distortion including potential carbon leakage and
result in increased compliance costs while failing to effectively
address aviation emissions.
Climate regulation – regional application
Risk: CORSIA has been agreed internationally however the risk
remains of regional regulatory duplication and/or inconsistent
application of agreed Monitoring Reporting and Verification
(MRV) requirements and eligible offsets which could create
inequitable costs and competitive distortion.
Sustainable aviation fuels – regulation
Risk: EU and Spanish proposals to mandate a proportion of
sustainable aviation fuels (SAF) would incentivise production but
could force airlines to purchase SAF at a price premium
compared with conventional fuels creating competitive distortion
and may lead to production of less sustainable fuels. IAG believes
sustainable fuel mandates, if applied, should only be at a global
level.
Consumer behaviour
Risk: trends in ethical and sustainability concerns being a factor
in consumer choices may mean some consumers choose to fly
less frequently.
Opportunity: to differentiate our brands by showing leadership,
innovation and action to mitigate climate impacts.
Sustainable aviation fuels - production
Opportunity: commercial and environmental opportunity to
source cost-effective sustainable fuel and reduce our CO2
emissions thereby reducing compliance costs for CORSIA and
the European Union Emissions Trading Scheme (EU ETS).
Higher carbon price and strong policy incentives
Risk: higher cost of carbon adds to our operating cost.
Opportunity: support stronger business case for investment
in low-carbon technologies which would accelerate
decarbonisation progress.
How we manage it
• Allocating resources to engage with governments, trade
associations, IATA and ICAO to lobby for and help deliver a
single effective global carbon-pricing solution for aviation via
CORSIA (Carbon Offsetting and Reduction Scheme for
International Aviation). Regular updates on progress are
provided to the IAG Management Committee and IAG Board
• Supporting implementation of CORSIA through IATA and
ICAO and engaging other airlines to ensure CORSIA is
effectively adopted
• Supporting development of robust rules for CORSIA on
Monitoring, Reporting and Verification (MRV), and Emissions
Unit Criteria
• Lobbying for universal adoption of CORSIA
• Lobbying to prevent mandates that create competitive
distortion, both directly and through industry organisations, at
EU and UK levels
• Supporting policy incentives that help deliver SAF at prices
competitive with conventional fuels through new technologies
reaching scale and becoming cost competitive
• Setting our vision to be the world’s leading airline group
on sustainability with ambitious goals on net emissions and
carbon efficiency
• Using all the tools at our disposal: modern aircraft, efficient
technology, best operational practice and sustainable fuels, as
well as influencing global policy and driving industry-wide
action, to minimise our carbon footprint
• Effectively communicating our practices to customers
and suppliers
• Ongoing lobbying for sustainable aviation fuel inclusion and
prioritisation in renewable fuel policies at the global, EU and
UK levels
• British Airways investing with partners in waste-to-jet fuel
production projects and launched Future of Fuels challenge to
UK universities to accelerate SAF development
• IAG supports ambitious climate targets and effective global
regulation and strong policies to meet global climate goals
• Continued investment in modern fleet and innovations to
ensure continual improvement in operational fuel efficiency
• Effective procurement strategy for carbon credits to protect
against price volatility
• Innovating and collaborating on future fuels and carbon
technologies through our Hangar 51 accelerator programme
46
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Climate physical risks and opportunities
Description and potential impact
Extreme weather impact on operating costs
Risk: for example, increased frequency of high winds, fog events,
storms, turbulence, sustained extreme heat events or stronger jet
stream would increase operating costs by increasing delays, fuel
burn and requiring additional cooling and maintenance costs.
Drought-induced water scarcity at outstations could also increase
fuel costs with increased potable water carriage.
Destinations becoming unattractive for visitors
Risk: for example, extreme weather events and physical impacts
of climate change such as flooding, drought, forest fires, heat
waves, algae blooms, coral bleaching, rising sea levels and
reduced snow cover in ski destinations could make certain
destinations less desirable and impact customer demand.
Opportunity: climate change could make certain destinations
more attractive or accessible to visitors, for example a longer
summer season.
Other sustainability risks and opportunities
Description and potential impact
Operational noise restrictions and charges
Risk: airport operators and regulators apply operational noise
restrictions and charging regimes which may restrict our ability to
operate especially in the night period and/or may introduce
additional cost.
Supply chain CSR compliance
Risk: potential breach of sustainability, corporate social
responsibility or anti-bribery compliance by an IAG supplier or
third party resulting in financial, legal, environmental, social and/or
reputational impacts.
How we manage it
• IAG climate strategy (see "Climate change" subsection) and our
support for strong global action to tackle climate change
• Partnerships to mitigate operational disruption. For example,
working with the UK National Air Traffic Service (NATS) and
other air navigation service providers, a “Linear Holding”
system called XMAN was launched at London Gatwick airport
in 2019. If arriving aircraft are delayed by more than seven
minutes, this system ensures they are slowed down, reducing
stack holding and fuel burn and therefore CO2 emissions
• Ongoing lobbying and engagement in projects and initiatives
designed to reduce the industry’s impact on climate change
• Teams dedicated to assessing and understanding changes in
customer demand and managing network developments to
respond to such changes
• Strategy to ensure aircraft and crew flexibility means we are
prepared and able to respond to shifting demand patterns
How we manage it
• Investing in new quieter aircraft
• Continually improving operational practices including
continuous descents, slightly steeper approaches, low-power
low-drag approaches and optimised departures
• Internal governance and training and external advocacy in UK,
Ireland and Spain to manage challenges
• Integrity, sanctions and CSR screenings for new suppliers, IAG
Know Your Counterparty due diligence for higher-risk third
parties, Supplier Code of Conduct, supplier compliance audits
• Internal governance including training and workshops to
identify challenges and mitigation
• Management IT systems for suppliers and higher-risk
third parties
Environment regulation compliance
• Adopting a Group-wide Environmental Management System,
Risk: an inadvertent breach of compliance requirements with
associated reputational damage and fines.
Potential target for direct action protests
Risk: direct action and civil disobedience protests could disrupt
flight operations and/or restrict staff and passenger access.
the IATA IEnvA programme
• Reviewing and strengthening sustainability governance
processes including embedding sustainability into business
plans, financial plan, and business cases
• Internal governance, training and assigning ownership for
environmental compliance obligations
• Engaging with carbon market advisors to understand and
mitigate compliance challenges and identify future
opportunities
• Close liaison with government agencies, airport operators and
commercial organisations to assess challenges
• Contingency planning
47
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information SUSTAINABILITY CONTINUED
Environment
Climate change
Overview and targets
Climate change is our most material
sustainability issue. IAG’s main impact on
climate change is via the jet fuel consumed
by our aircraft fleet. In 2019, the
greenhouse gases (GHGs) produced from
this activity contributed 99.8 per cent of
our Scope 1 emissions, and 77.1 per cent of
our combined Scope 1, 2 and 3 emissions1.
We also have an impact via our ground
operations – for example the use of ground
vehicles – and from the energy used in
terminals, hangars, offices, lounges and
other buildings.
We are committed to minimising our CO2
impacts and non-CO2 impacts on the
climate. Our Scope 1 activities in 2019
directly emitted 30.47 million tonnes (MT)
of carbon dioxide, 0.02 MT of methane,
and 0.29 MT of nitrogen oxide, measured
in units of CO2-equivalent. Given that CO2
is over 99 per cent of this impact, reducing
CO2 is our primary focus.
IAG is committed to IATA industry targets,
which are:
• 1.5 per cent per annum fuel efficiency
improvement until 2020; we have
averaged 1.6 per cent per annum
improvements between 2011 and 2019;
• Carbon-neutral growth from 2020
onwards; and
• 50 per cent reduction in net CO2
emissions by 2050, versus a
2005 baseline.
We have been working towards a fuel
efficiency target of 87.3 grammes of CO2
per passenger per km (gCO2/pkm) by
2020. This represents a 10 per cent
reduction from 97.5 gCO2/pkm in 2014.
In October 2019, IAG committed to a new
set of climate targets and became the first
airline group worldwide to commit to
net zero emissions of greenhouse gases by
2050. This Flightpath net zero programme
covers our Scope 1 and 2 CO2 emissions.
"Net zero” means that by 2050 any CO2
that IAG operations emit in a year will be
balanced by an equivalent amount of CO2
reduction. This is in line with UN science
requirements to keep global average
temperatures below a 1.5°C rise.
As part of the Flightpath net zero
programme, we set new short-, medium-
and long-term targets at Group level:
• 10 per cent improvement in fuel
efficiency between 2020 and 2025,
equating to 80 gCO2/pkm in 2025;
• 20 per cent reduction in net CO2
emissions by 2030, equating to 22
million tonnes (MT) of CO2 in 2030;
• Net zero CO2 emissions by 2050; and
• Net zero CO2 emissions for British
Airways UK domestic flights from 2020.
In addition, in December 2019 we became
one of 185 companies worldwide to sign
the Business Ambition for 1.5°C pledge
from the UN Global Compact and Science-
Based Targets initiative (SBTi). As part of
this pledge, we committed to climate
targets and decarbonisation pathways
which are consistent with keeping global
temperatures below a 1.5°C rise. In 2020
we intend to support efforts to develop
guidance on decarbonisation pathways
for aviation.
We rely on four areas to achieve our
Flightpath net zero 2050 programme:
operational efficiency, fleet modernisation,
sustainable aviation fuels, and structured
schemes to deliver carbon reductions in
other sectors. We have created a detailed
carbon reduction roadmap to quantify the
impact of each aspect of our plan and this
is shown below. Compared with a scenario
of growth at today’s efficiency, 39 per cent
of reductions in 2050 will come from new
aircraft and operations, and 43 per cent
from market-based measures and carbon-
removal projects such as carbon capture,
utilisation and storage (CCUS) technology.
We expect 30 per cent of IAG fuel in 2050
will be from sustainable aviation fuels.
We will regularly review this roadmap to
account for policy and technology
changes and new insight. In 2020 we
expect to update the roadmap to account
for IAG business changes and any relevant
insights from national, regional and global
carbon reduction roadmaps.
GHG emissions by scope,
in tonnes CO2-equivalent
Million tonnes CO2 (MT)
Scope 1
77.1%
30,781,0002
Scope 2
0.2%
69,0002
Scope 3
22.7%
9,043,0002
27MT
22MT
1 Definitions of Scope 1, 2 and 3 emission can be found next
to the metrics on pages 50 and 51.
2 Values rounded to the nearest thousand tonnes
48
D e m a n d g r o w t h
Gross emissions
Net emissions
39%
18%*
43%
)
0
5
0
2
n
i
l
e
u
f
f
o
%
0
3
s
i
F
A
S
(
s
n
o
i
t
c
u
d
e
r
2
O
C
e
g
a
t
n
e
c
r
e
P
2020
2025
2030
2035
2040
2045
2050
Demand growth
Gross emissions
Net emissions
2025: 80g CO2/pkm
New aircraft and operations
Sustainable aviation fuels (SAF)
Carbon offsets and removals
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Key climate change
case studies
The case studies below relate to the main
focus areas in our Flightpath net zero
emissions programme.
Operational efficiency
Operational efficiency means changing the
way we fly and operate our aircraft,
reducing CO2 saving fuel. Small
improvements can make a big difference,
and there are many ways to reduce fuel
consumption without negatively affecting
passenger experiences or flight schedules.
Fuel efficiency initiatives saved 77,386
tonnes of CO2e in 2019. Examples of 2019
initiatives include optimised engine
washes, reducing the use of Auxiliary
Power Units (APUs), reduced time for
landing light deployment, reduced engine
taxi in and out, continuous descent
operations, lighter main wheels and
reducing weight onboard. Vueling ran an
awareness campaign with flight crew
about how operational best practices can
reduce CO2. As part of meeting Group
efficiency targets to 2020 and 2025, an
expanded programme of initiatives is
planned for 2020.
IAG also has a strategic commitment to
fuel efficiency. Since 2018 we have been
using the GoDirect Flight Efficiency
software, developed by Honeywell, in
British Airways, Iberia, Vueling, and
Aer Lingus. This tool enables detailed
analysis of fuel use trends to identify
savings. In 2019 we launched the Group-
wide portal of this tool to enable
benchmarking across the Group.
Link to SDGs
Fleet modernisation
Fleet modernisation means investing
in new aircraft and engines as well as
upgrading existing aircraft. IAG’s
fleet modernisation programme will
play a major role in reducing our
emissions intensity per passenger
from 89.8 gCO2/pkm in 2019 to
87.3 gCO2/pkm in 2020 and then to
80 gCO2/pkm in 2025. As a result of our
fleet modernisation programme, the age
of our fleet is expected to drop from
11.4 years in 2019 to 10.2 years in 2022.
In 2019 we continued to invest in
modernising our fleet. Key examples are:
• across the Group 45 new aircraft
were delivered and 18 older aircraft
stood down
• Iberia introduced four new Airbus A350s
into their fleet
• Vueling now has the youngest fleet in
Southern Europe
• Aer Lingus added three new Airbus
A321neoLRs into its fleet, which
showed an average of 23 per cent fuel
saving compared with the Boeing
757s replaced
• British Airways retired three Boeing
747 aircraft and will completely phase
out these aircraft by 2024
• We continued to undertake engine
upgrades and weight saving initiatives
• Hangar 51 increased activity
focused on start-ups pioneering
low-carbon flight, including electric
aircraft development. This activity
focused on partnering with, and bringing
investment to, new low-carbon
technology companies
IAG fleet planning teams also factor
the current and future price of
carbon emissions into relevant fleet
planning decisions.
Link to SDGs
Sustainable aviation fuels
Sustainable aviation fuels (SAF) are made
from materials which have previously
absorbed carbon, such as organic waste
and food items. These fuels are chemically
almost identical to jet fuel from fossil fuels,
but over their recent life cycle emit 70 to
100 per cent less CO2. SAFs will play a key
role in enabling IAG to reduce our impact
on climate change.
We remain at the forefront of SAF
development and of influencing domestic,
regional and international policy to support
these fuels. We have committed to invest
$400 million in SAF over 20 years from
2017. In August 2019, the British Airways
partnership with Velocys and Shell
submitted a planning application for
Europe’s first household-waste-to-jet-fuel
plant in Immingham, England. Construction
of the plant is due to start in 2021 and the
plant will be operational in 2024. It is
expected to produce over 32,000 tonnes
of sustainable jet fuel per year.
IAG continues to work with several
technology developers to establish a
range of SAF supply options for the future.
We participate in academic boards and
public-private partnerships to support
new technologies and innovation. We
are also exploring options to use carbon
capture, utilisation and storage (CCUS)
technology as part of our Velocys
project in the near term.
We also support wider innovation on SAF.
In 2019, British Airways ran a Future of Fuels
competition, open to academics at UK
universities. The winners were announced
in May and awarded a £25,000 grant to
further their research, along with presenting
their winning proposal at the industry-
leading IATA Alternative Fuels Symposium
and ATAG Global Sustainable
Aviation Summit.
IAG contributes to the Fuels Task Group
at the UN International Civil Aviation
Organisation (ICAO), which is helping to
shape new legislation for SAF as part of the
upcoming CORSIA scheme. We are working
on new government policy options for
recycled fuels – i.e. non–biogenic, like plastics
which cannot be recycled – which we believe
have great potential to offer additional
CO2 reductions. We are also calling for
the UK government to set up a dedicated
cross-government body to provide
policy support to accelerate
UK SAF development.
Link to SDGs
Carbon fund,
offsets and removals
Carbon reductions can be achieved through
market-based measures and offsets:
• Contributing to emission reductions in
Europe through the European Emissions
Trading Scheme (ETS)
• Through the global CORSIA
scheme, preparing to purchase verified
carbon reduction units to offset our
emissions growth
• Voluntarily purchasing offsets for
emissions from specific groups of flights,
events and staff activities
• Offering customers the option to fund
carbon reduction projects to make their
flights carbon neutral
49
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• Investing in technology to capture
carbon dioxide out of the air and store
it underground – not yet implemented
by IAG but being explored
IAG reduced its net emissions by
3.2 million tonnes of CO2 in 2019, largely
through participation in the EU ETS. All
British Airways’ UK domestic flights will be
net zero carbon from 2020 onwards; a
volume of around 400,000 tonnes
achieved through emission reductions
under the EU ETS and carbon reductions
from investment in projects supporting
forest protection and renewable energy.
The British Airways Carbon Fund
continues to offer passengers the option
to voluntarily invest in community energy
efficiency projects in the UK and Africa.
Our partnership with charity Pure Leapfrog
completed nine projects in 2019 including
the installation of solar panels and
high-efficiency lighting, peatland
restoration and renewable energy.
In 2019, IAG continued to actively support
the use of smart market-based measures
to reduce emissions. Representatives
worked with IATA and ICAO to help
finalise the rules governing the CORSIA
scheme, the treatment of SAF and the
rules for airlines and carbon offsetting
programmes relating to eligible carbon
offsets. We continue to work with IATA,
trade associations and national
governments to call for effective carbon
regulation and effective regulatory
reforms.
In 2019, IAG selected two carbon offset
and removal start-ups to work with as part
of our Hangar 51 innovation accelerator
programme. Mosaic Materials has created
a material to absorb CO2 emissions from
the atmosphere. ClimateTrade uses
blockchain technology to track carbon
offset projects. These partnerships have
improved our understanding of how we
can incorporate these technologies into
our business.
In 2020 we plan to expand our voluntary
carbon reduction programmes and
continue to support smart market-based
measures to reduce emissions. We expect
the price of carbon per tonne to rise over
time and we are liaising with the UK
Government on options for the treatment
of aviation after the UK leaves the EU.
Link to SDGs
50
Data governance
The scope of our environment performance data includes all our airlines and cargo
operations. Some specific data from LEVEL is excluded but this is not considered
material, as LEVEL accounts for less than two per cent of our Scope 1 emissions.
Similarly, IAG Loyalty and IAG GBS functions are also not in scope of our environmental
metrics and form less than one per cent of material environmental impacts. Our
emissions data is calculated using UK Government greenhouse gas conversion factors
for company reporting and International Energy Agency (IEA) national electricity
emissions factors.
Metrics included in our Non-Financial Statement have been verified to limited assurance,
aligned with ISAE30001 (Revised) standards. In addition, Scope 1 emissions data is
subject to further verification for compliance with the EU ETS and CORSIA. This happens
after the publication of this report. Where full year data was not available for this report,
estimates have been applied and the methodology approved by our external auditors.
Our five key climate-related metrics are below and on the next page. Scope 2 emissions
only constitute 0.2 per cent of our carbon footprint so are in the “Additional climate-
related metrics” table. Where applicable, 2018 values have been restated based on the
latest available data.
Key climate change metrics
Indicator improved
Indicator not improved
+2.6%
-1.8%
6
2
8
2
.
6
7
8
2
.
9
9
9
2
.
.
8
7
0
3
.
4
6
2
.
2
2
5
2
.
6
5
9
.
8
4
9
.
3
2
9
5
.
1
9
.
8
9
8
‘14
’15
‘16
‘17
‘18
‘19
‘15
‘16
‘17
‘18*
‘19
Scope 1 emissions
(million tonnes CO2e)
Description
Scope 1 emissions are direct emissions
associated with our operations including
use of jet fuel, diesel, petrol, natural gas,
and halon. Sources of emissions include
aircraft engines, boilers, auxiliary power
units and ground vehicle engines.
These emissions are primarily CO2 but other
GHGs such as methane and nitrogen oxide
are also reported as part of our CO2-
equivalent metric.
Commentary
99.8% of Scope 1 emissions are from
jet fuel. Commercial aircraft remain
reliant on liquid kerosene for the
foreseeable future.
An improvement in flight only emissions
intensity of 1.8% has limited growth in
Scope 1 emissions to 2.6%, despite capacity
growth of 4.0%.
* Restated
Flight-only emissions intensity
(grammes of CO2/pkm)
Description
Grammes of CO2 per passenger
kilometre is a standard industry measure
of flight fuel efficiency.
This value is calculated by taking annual jet
fuel use and dividing by passenger-km
travelled, using a conversion factor to
account for the weight of cargo.
Commentary
The 2019 improvement is driven by the
strong performance of A320s, A350s and
B787s and higher load factors.
The 2018 value has been restated using the
latest verified data.
Between 2011 and 2019, our average annual
improvement in grammes of CO2/pkm was
1.6% per annum, ahead of the IATA industry
target of 1.5%.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Key climate change metrics
Indicator improved
Indicator not improved
+1.4%
7
1
.
6
2
2
2
7
2
.
0
6
7
2
.
+2.9%
9
7
8
.
4
0
9
.
4
6
7
.
8
8
7
.
2
4
5
.
‘17
‘18
‘19
‘15
‘16
‘17
‘18*
‘19
* Restated
+18.1pts
%
1
.
2
7
%
0
4
5
.
%
0
4
5
.
‘17
‘18*
‘19
* Restated
Net Scope 1 emissions
(million tonnes CO2e)
Scope 3 emissions
(million tonnes CO2e)
Renewable electricity
(% of kWh)
Description
This value is calculated by taking the total
GHG emissions from our operations and
subtracting the tonnes of carbon
reductions achieved through the EU ETS.
The methodology aligns with that used by
the European Union Aviation Safety
Agency (EASA).
Commentary
In 2019, our net Scope 1 emissions were 3.2
MT lower than our Scope 1 emissions due to
participation in the ETS.
From 2020 we expect our net emissions
from international flights to continue to
decline as a result of CORSIA, continued
participation in the EU ETS, and IAG
voluntary purchases of carbon offsets.
Description
Scope 3 emissions are indirect emissions
associated with products we buy and sell.
In 2019 we are reporting on four2 material
categories of our indirect emissions which
accounted for 98% of our 2018 Scope 3
footprint.
2018 Scope 3 emissions have been restated
based on these four categories, to enable a
year-on-year comparison with 2019.
Commentary
The increase in Scope 3 emissions was
primarily driven by activity growth and so
higher use of jet fuel.
The breakdown of Scope 3 emissions is:
• Fossil fuel production – 70%
• Aircraft manufacturing and disposal – 18%
• Franchises – 9%
• Downstream transportation and
distribution – 3%
Description
Our electricity use is measured in kilowatt-
hours (kWh). The above metric represents
the share of electricity generated by
renewable sources such as solar power and
wind. It includes the volume procured from
renewable electricity suppliers.
In cases where no information was
available on electricity sources, the
source of electricity is assumed to be
the national grid.
Commentary
This metric was first reported in 2017. The
2018 value has been restated using the
latest verified data.
The 2019 increase is driven by procurement
of renewables in Vueling and Iberia and at
UK airports where we operate.
Footnotes
1 ISAE3000 is the assurance standard for compliance, sustainability and outsourcing audits, issued by the International Federation of Accountants (IFAC).
2 These four Scope 3 categories are defined and calculated as follows:
Fossil fuel production represents the life-cycle emissions from producing and transporting the fuels that we consume – calculated using conversion factors
from the UK Government.
Aircraft manufacturing and disposal represents emissions from making and disposing of aircraft at the end of their usable life – calculated using a
standardised factor from the EU.
Franchises represent emissions from aircraft that are franchises to IAG – calculated based on the emissions from fuel use.
Downstream transportation and distribution represents emissions from subcontracted air and ground fleets, including for carrying freight – calculated
based on the emissions from fuel use.
51
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information SUSTAINABILITY CONTINUED
While our focus remains on climate
change, we are committed to addressing a
range of other sustainability issues. These
include local environmental impacts which
may affect the quality of life for
communities where we operate. For
example, minimising the noise impact of
our aircraft remains an important focus of
our sustainability programme, as well as
the impact of these aircraft on air quality.
We also recognise that waste, particularly
the use of single-use plastics, is an
important issue and one which we
are actively addressing.
Waste
We continue to make progress in recycling
and reducing plastic, glass, metal cans,
paper and food waste. In 2019, IAG
initiatives reduced over 160 tonnes of
single-use plastic waste. A new cross-
airline waste reduction group was also
established which involved representatives
from all airline.
Waste reduction initiatives include:
• At the IAG and British Airways Head
Office, over 1.5 million single-use
plastic items have been
removed since 2018
• British Airways and Iberia replaced
plastic swizzle sticks with sustainable
bamboo versions, saving 47.5 tonnes of
plastic a year
• Iberia saved 68.5 tonnes of plastic with
different plastic reduction measures
such as replacing the bags on pillows
and blankets with paper bands;
• Aer Lingus reduced plastics on 24 per
cent of their Bia and Boutique
onboard products
• Vueling has replaced plastic cups
on shorthaul flights with
biodegradable alternatives
52
• British Airways’ new World Traveller Plus
amenity kit was designed with
sustainability in mind, using material
from recycled plastic bottles
• Iberia is in the EU LIFE+ Zero Cabin
Waste programme, which aims to
recycle 80 per cent of the cabin waste
generated on board, including food
waste and plastics. Waste per flight has
dropped by 15 per cent since the
beginning of this project
• LEVEL is using an app to monitor and
reduce unnecessary water onboard
In 2019, British Airways’ waste per
shorthaul passenger improved by 26 per
cent while waste per longhaul passenger
improved by 10 per cent, due to the
expanded use of waste treatment options
and recyclable material onboard. Iberia
waste per flight dropped by 7 per cent due
to LIFE+ Zero Cabin Waste project
initiatives.
We will continue to take steps to reduce
and manage waste. From 2020, British
Airways will have a target to reduce
single-use plastics by 900 tonnes per
annum over the next five years. IAG will
also explore Group-wide waste targets.
Link to SDGs
Key waste metric
x
a
p
/
g
k
6
1
.
1
l
u
a
h
g
n
o
L
x
a
p
/
g
k
6
2
0
.
l
l
a
r
e
v
O
x
a
p
/
g
k
8
0
0
.
l
u
a
h
t
r
o
h
S
‘19
‘19
‘19
Average aircraft cabin waste
(kilogrammes per passenger)
(kg/pax)
Description
Onboard catering waste generated per
passenger, net of recycling, and split
between shorthaul and longhaul operations.
Some operating companies reported total
cabin waste due to limited data availability.
Passenger numbers are based on inbound
passengers at base airports e.g. Heathrow,
Madrid, Barcelona and Dublin.
Shorthaul and longhaul flights are defined
here by distance – for example, UK to
Europe as shorthaul.
Commentary
2019 is the first year we are reporting a
Group average. We expect to report Group
year-on-year trends from 2020.
There are large differences between
the waste per passenger metric for
individual operating companies due to
differences in business model, onboard
product, the availability of local waste
treatment options, and national waste-
related regulations.
The above methodology is considered a
good representation of overall waste.
Catering waste includes food and
packaging left over from onboard catering,
while non-catering cabin waste includes
items such as onboard newspapers.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Noise
IAG continues to make progress in
reducing aircraft noise over time. Between
2015 and 2019, we reduced the average
noise per landing/take-off cycle by 10 per
cent, meaning that we met our 2020 noise
target one year early. All our aircraft meet
ICAO Chapter 4 standards for noise and
over half now meet the more rigorous
ICAO Chapter 14 standards.
In 2019 we continued to invest in quieter
aircraft, as part of our fleet modernisation
programme. For example, Vueling and
Aer Lingus grew their fleet of Airbus
A320neos and Airbus A321neos, which
have noise levels 50 per cent lower than
the Airbus A320ceos and Airbus
A321ceos that they replace, respectively.
We continue to focus on best operational
practices to reduce our local noise
impacts. One of these is to carry out
continuous descent operations (CDOs).
82 per cent of Vueling’s UK flights over the
course of 2019 were CDOs, and the
company ran a bi-monthly staff awareness
campaign to promote CDOs across their
network. Aer Lingus and British Airways
also performed strongly in the Heathrow
“Fly Quiet and Green” league table of 50
airlines which use Heathrow airport:
Aer Lingus has consistently ranked in the
top five performing airlines since the
ranking began in 2017 and British Airways
shorthaul operations topped the league
table in the first half of 2019.
All our airlines monitor operational noise
performance to ensure flights are operated
sensitively and to identify improvements
where possible. In 2019, we continued to
engage with stakeholders including
community groups, regulators and
industry partners at our hub airports to
share operational insights and participate
in research and operational trials.
In 2020 IAG will set new Group-wide
noise targets to help support and drive
further progress.
Key metrics are below. Other noise metrics
are in the "Additional noise and air quality
metrics" table.
Link to SDGs
Key noise and air quality metrics
Indicator improved
Indicator not improved
-6.9%
1
1
.
1
8
0
.
1
6
0
.
1
7
0
.
1
0
0
.
1
‘15
‘16
‘17
‘18
‘19
-4.9%
1
7
9
.
3
2
9
.
‘18
*
‘19
* Restated
Noise per landing/
take-off cycle
(Quota Count per landing/
take-off cycle)
Description
This metric calculates the average noise per
flight considering arrival and departure
noise for each aircraft type. UK Government
Quota Count (QC) values are used to
create a relative categorisation based on
certified noise levels. For example, for a
single flight, a Boeing 747 would have a
score of 6.0 while an Airbus A320 would
have a score of 1.0.
The calculation is based on the number of
flights of all aircraft which operated during
the year, including leased aircraft.
Commentary
A key driver of the 2019 improvement
was the use of Airbus A320neos on
shorthaul routes.
Trends in noise per cycle can fluctuate due
to new aircraft, retirements, use of leased
aircraft, shorthaul versus longhaul routes
and changes to engine certification.
NOx per landing/
take-off cycle
(kilogrammes NOx per landing/
take-off cycle)
Description
This metric calculates the average
emissions of the air pollutant nitrogen oxide
(NOx) as aircraft take off and land. The
calculation considers the engine
certifications and aircraft types of the fleet,
using information from the ICAO emissions
database.
The calculation is based on the number of
flights of all aircraft which operated during
the year, including leased aircraft.
We monitor this performance as it is
important that we minimise our impacts on
local air quality.
Commentary
2018 was the first year we reported
this metric.
The 2018 value has been restated due to
the inclusion of aircraft which retired before
the end of the year, and the resolution of a
NOx calculation error.
The 2019 improvement is driven by our
ongoing programme of fleet modernisation.
53
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SUSTAINABILITY CONTINUED
Additional climate-related metrics
Unit
Metric
% 2018-19
+4.4%1
-2.5%1
million kWh
Electricity
Scope 2 emissions
(location-based)2
Scope 2 emissions
(market-based)3
Scope 2
energy intensity
(location-based)
thousand
tonnes CO2e
thousand
tonnes CO2e
gCO2/pkm
Fleet age
Jet fuel
Revenue
per tonne CO2e
years
million
tonnes fuel
euros/tonne
CO2e
–56.4%
-6.3%
+0.5%
+2.2%
+1.9%
Indicator improved
Indicator not improved
2018
2017
234.94
253.2
2016
n/a
2015
n/a
70.44
92.6
103.1
117.7
40.74
61.9
92.9
n/a
0.224
0.28
0.35
0.43
11.3
9.41
11.4
9.02
10.8
8.86
10.8
8.28
811
796
796
862
2019
245.3
68.6
17.8
0.20
11.4
9.65
827
Footnotes:
1 2019 kWh increased due to an expanded scope of reporting to include overseas offices and electrical power to aircraft. Using the same scope as
in 2018, this value would have dropped by 17%. Scope 2 emissions (location-based) would have dropped by 27%.
2 Scope 2 emissions are emissions associated with electricity use. The location-based metric is calculated by multiplying kWh of electricity by the
IEA national electricity emissions factors in each country or region of operation.
3 The market-based method is based on the specific CO2/kWh of the electricity purchased from suppliers, although where information is not
available the IEA national electricity emissions factors are used instead. The Scope 2 market-based measure is net of renewables and dropped
significantly in 2019 due to renewable electricity purchases.
4 Restated based on the latest verified data and not including overseas offices or electrical power to aircraft. The previously reported values were
based on the best available data but used provisional figures for the final months of the year.
Additional noise and air quality metrics5
Metric
Unit
ICAO Chapter 46
% compliance
ICAO Chapter 14
% compliance
ICAO CAEP 47
% compliance
ICAO CAEP 6
ICAO CAEP 8
% compliance
% compliance
Continuous descent
operations (CDO)8
% compliance
at UK airports
% 2018-19
–
+3pts
+1pt
+4pts
+6pts
-1.1pts
2019
100%
53%
98%
78%
35%
91.6%
2018
100%
50%
97%
74%
29%
2017
99%
46%
96%
69%
26%
2016
99%
46%
94%
68%
25%
2015
99%
n/a
93%
65%
n/a
92.7%
92.3%
2013 baseline: 91.0%
Footnotes:
5 IAG compliance with ICAO Noise and NOx standards is based on the fleet position at the end of 2019, excluding leased aircraft.
6 ICAO Chapter 4 and Chapter 14 standards are for noise from aircraft. They compare aircraft noise against standardised limits that are a
combination of lateral, approach, and flyover noise levels. The ICAO Chapter 4 technology standard applies to new aircraft certified from January
1, 2006 and Chapter 14 applies to new aircraft certified from January 1, 2017.
7 ICAO CAEP standards are for NOx emissions from aircraft engines. The standards have become increasingly stringent: the CAEP 8-certified
engines must emit less than half the NOx emitted by engines certified to the original CAEP standard. The CAEP 4 NOx standard applied to
engines manufactured from January 1, 2004, CAEP 6 applied from January 1, 2008 and CAEP 8 applied from January 1, 2014.
8 Continuous descent operations (CDO) employ a smooth approach angle when landing, allowing aircraft to fly higher for longer, compared with
stepped approaches to airports. This can help reduce fuel consumption as well as noise for those living under approach flightpaths. CDO scores
are calculated based on the share of flights employing this approach at UK airports, using data supplied by the National Air Traffic Services
(NATS). Data above is for all IAG airlines excluding LEVEL, with 2013 as the baseline year. The 2019 average for all airlines in the UK is 88.2%.
54
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 are required to run the following corporate
training courses for their employees:
• Code of Conduct
• Compliance with Competition Laws
• Anti-bribery and Corruption Compliance
• Data Privacy, Security and Protection
Over 95 per cent of our employees are based
in European countries which comply with the
conventions of the International Labour
Organization (ILO) covering subjects that are
considered as fundamental principles and
rights at work.
IAG has a European Works Council (EWC)
which brings together representatives from
the different European Economic Area (EEA)
countries in which the Group operates,
covering around 95 per cent of the Group’s
total workforce. There were two full
meetings of the EWC in 2019. EWC
representatives are informed about and,
where appropriate, consulted on
transnational matters which may impact
employees in two or more EEA countries.
IAG sustainability representatives presented
details of the FlightPath net zero plan to the
EWC in 2019.
Employee satisfaction is an important matter
for all operating companies within the Group.
Each company has its own established
methods of measuring employee satisfaction.
Talent management is also important
across the Group, and this is primarily
managed within the operating companies. At
the Group level we are focused on the IAG
Management Committee and their direct
reports and we have a good track record of
retaining and promoting talent into these roles.
We are currently working to align the talent
management framework across the Group.
Across all the markets we serve, our
growth continues to lead to improved local
employment opportunities and local
economic benefits for our supply chain
partners. These economic benefits extend
to the airports we serve and their related
supply chains, partners and tenants.
Link to SDGs
Workforce and
community
Workforce overview
At the end of 2019, 72,268 people were
employed across the Group in 83 countries,
an increase of 1.6 per cent in the year.
Employees across the Group play a vital role
in delivering the service experience that
customers expect, whether on the ground
or in the air. They bring a diverse range of
talent and perspectives that contribute to
the values and cultures of our operating
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 aim to provide employees with industry-
leading training and development
opportunities. Our individual operating
companies have responsibility for the
policies and procedures relating to their
employees, including appropriate reward
frameworks to ensure they can continue to
attract and retain the best talent for every
role. Our voluntary turnover rate for 2019
was 7 per cent, a level that reflects a
balance between a stable workforce whilst
enabling new talent to join the Group.
At the Group level, IAG has a Directors
Selection and Diversity Policy that sets out
the principles that govern the selection
process and the approach to diversity on
the Board of Directors and the IAG
Management Committee. IAG also has a
Group-wide Equal Opportunities policy to
address and eliminate discrimination and
promote equality of opportunity regardless
of age, gender, disability, ethnicity, religion
or sexual orientation.
In 2019, IAG implemented a new Code
of Conduct that applies to all directors,
managers and employees of the Group.
A new e-learning training to support the
new Code of Conduct, applicable to all
employees, was also rolled out.
Due to the diverse nature of our businesses,
both in terms of jurisdictions and operations,
all training policies and programmes are
implemented at operating company level
and each is responsible for determining the
specific courses offered within their
organisation, the frequency with which
training courses must be completed, and the
employees required to attend. However,
across the Group, all operating companies
Workforce diversity
The progression of women into leadership
roles is important to IAG and we have set a
target to reach 33 per cent women across our
senior executive levels (top 200 staff)
by 2025. We monitor and report on our
progress, including the management pipeline
across the Group. We have put in place an
extensive programme of action to help deliver
this.
Some key 2019 achievements included:
• 30 per cent women across senior executive
levels by the end of year, up from 24 per
cent in 2017
• Recruitment activity across the Group
continued to focus on roles where women
are under-represented including pilots,
engineering and technology
• British Airways and IAG Loyalty reported
their 2018 gender pay gap data in April
2019. Detailed reports are available at:
https://gender-pay-gap.service.gov.uk/
• Launched a cross-Group female mentoring
programme supported by Women Ahead.
For the second year, 11 British Airways
mentors and mentees joined the 30% Club
cross-company mentoring programme
• International Women’s Day was marked
with British Airways welcoming 100 young
women to its Global Learning Academy to
inspire more girls to become commercial
airline pilots
• At Iberia, the “Quiero Ser” (I Want to Be)
programme, part of the Diversity and
Inclusion Plan, gave young girls once again
the opportunity to meet female aviation
professionals in person. This programme
launched in 2018 to lend greater visibility to
female talent and to promote careers in
aviation for women at all levels and in all
company areas
• Aer Lingus partnered up with the Irish Girl
Guides to create the brand new ‘Aviation
Badge’. The badge aims to engage girls
from a young age with all things aviation,
by building interest for future study in
STEM subjects and encouraging them to
consider future aviation careers
At British Airways, within the UK, around 16
per cent of our employees have declared a
Black, Asian and Minority Ethnic (BAME)
background. We recognise that, as in many
companies, there are fewer people from a
BAME background in more senior roles and
this is something we are working to address.
In 2019, British Airways joined 80 other
organisations in making a public commitment
to the Business in the Community (BITC)
55
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information SUSTAINABILITY CONTINUED
Key workforce metrics
+2.0%
7
8
3
3
6
,
2
2
4
3
6
,
4
3
7
4
6
,
4
3
0
6
6
,
2
9
8
0
6
,
‘15
‘16
‘17
‘18
‘19
Employment
(average manpower
equivalent)
Description
Manpower equivalent is the
number of employees
adjusted to include part-time
workers, overtime and
contractors. The average
manpower equivalent is the
mean of the manpower
equivalent captured quarterly
to reflect seasonality.
Commentary
Our manpower equivalent
increased by 2.0% whilst our
ASKs grew by 4.0%. This has
provided improved
employment opportunities
whilst achieving productivity
gains to help maintain our
competitive cost base.
Race at Work Charter in tackling barriers to
BAME recruitment and career progression.
Link to SDGs
Work experience programmes
IAG sees work experience as a valuable way of
engaging young people with our business and
preparing them for potential careers in aviation.
British Airways launched the Flying Experience
Days across the summer holidays as a way to
engage more young people with a career in the
flight deck, in partnership with The Air League
Trust. Trial flights were offered to 200 students
(of which 25 per cent were girls) at Booker
Gliding Club and Airfield in High Wycombe in
either a glider or motor-powered aircraft, as
well as other activities that are focused around
becoming a pilot. As a result of the Flight
Experience Day, the share of students set on
becoming a pilot rose from 68 per cent to
95 per cent.
In the August summer holidays, British Airways
invited 45 former Inspire work experience
students to undergo a training programme that
looks at developing their presenting skills and
building confidence, as well as techniques for
representing British Airways at external events.
There are now 145 Inspire Student Ambassadors
in the programme. The award-winning Inspire
work experience programme allows young
people to experience the excitement of the
aviation industry and develop their
employability skills.
Similarly, the Aer Lingus Transition Year
Programme has been developed to provide
second-level transition year students with a
structured ‘behind the scenes’ glimpse into the
daily operations in Dublin and the various
potential career paths available within the airline.
Link to SDGs
Health and safety
Health and safety is fundamental to our business,
whether in the air or on the ground. It is our
highest priority. We are committed to operating
in a healthy, safe and secure way in compliance
with all applicable laws, regulations, company
policies and industry standards. This
commitment applies equally to our employees,
customers and all others affected by
our activities.
56
We have robust governance in place led by the
safety committees in each of our operating
companies. IAG’s Safety Committee, chaired by
the Group CEO, monitors all matters relating to
the operational safety of IAG’s airlines as well as
to the systems and resources dedicated to safety
activities across the Group.
Our customers travel on aircraft and through
buildings and environments that are subject to
regulations applicable to health and safety in
each country. Procedures, systems and
technology used in our operations are designed
to protect employees and customers alike.
Link to SDGs
Community giving
Community giving is a key way that IAG operating
companies contribute to their wider communities.
These efforts are often long-standing and
continue to support a variety of causes.
Here are some key 2019 achievements:
• The British Airways “Flying Start” global charity
programme, in partnership with Comic Relief,
raised over £3.4 million in 2019 and has raised
over £24 million since 2010. Customer
collections and fundraising have helped over
800,000 people in some of the world’s
poorest communities;
• British Airways continued its commitment to
international humanitarian response and
launched a new partnership with the British Red
Cross focusing on support for UK community
preparedness and crisis response work;
• Aer Lingus staff continued their commitment to
“Make a Difference” Day, where they
volunteered one day’s annual leave to help their
local communities. In 2019, the eighth year of
this programme, 140 employees from across all
departments transformed the outdoor grounds
of St Monica’s School in Dublin, benefitting
150 pupils;
• Since 2013, Iberia has been collecting customer
donations through the Iberia website for
UNICEF children’s vaccination programmes.
Over one million euros has been raised so far,
which have paid for the vaccinations for more
than a million children in Chad, Angola and
Cuba. €110k was raised in 2019; and
• Since 2016, Vueling has collected €950k in
donations for Save the Children, being the
second-largest sponsor of this NGO in Spain.
€194k was raised in 2019.
Link to SDGs
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Key workforce metrics
+1.6%
4
3
1
,
1
7
8
6
2
2
7
,
‘18
‘19
Employment
type 26%
Employment
contract
6%
74%
94%
Part-time
Full-time
Temporary
Permanent
11%
11%
35%
5%2% 1%
7%
17%
31%
54%
26%
Cabin crew
Airport
Corporate
Pilots
Maintenance
Headcount
(number of people)
Description
Headcount is the actual
number of people employed
across the Group (employees)
as at December 31, 2019.
Commentary
This metric was first reported
in 2018.
Overall headcount grew over
the year by 1.6%.
Composition
(% headcount by employment type, contract and
employee categories)
Description
Per cent headcount by employment type, contract and
employee categories.
Composition is a breakdown of headcount as at December 31, 2019.
The definitions of full-time and part-time vary across the Group.
A temporary employment contract has a defined end date.
Our employee category breakdown portrays the distribution of the
major groups within our workforce “in the air” – Pilots and Cabin Crew
– and “on the ground” – Airport, Corporate and Maintenance.
Commentary
This metric was reported for the first time in 2018.
There were no significant changes in 2019.
UK
Spain
Republic
of Ireland
Other
countries
India
USA
Employees by country
(number of people)
Description
This metric depicts the
distribution of the Group’s
employees according to the
country in which are based.
Commentary
This metric was reported for
the first time in 2018.
There were no significant
changes in 2019.
In 2019 IAG had employees
based in 83 countries, with
95% based in the European
Economic Area (EEA).
57
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information SUSTAINABILITY CONTINUED
%
4
4
%
4
4
%
4
4
%
5
4
%
4
4
%
5
2
%
4
2
%
5
2
%
3
2
%
5
2
%
4
2
%
3
3
%
7
2
%
3
3
%
0
3
‘15
‘16
‘17
‘18
‘19
Board
Senior executives
Group
Gender diversity
(% women at Board,
senior executive, and
Group level)
Description
The share of women as a
proportion of all staff at
specific levels of seniority
across the Group.
We have published objectives
for 33% women on the Board
by 2020 and 33% women
across the Group’s senior
executive levels by 2025.
Senior executive levels include
IAG and operating company
Management Committee
members, directors and other
senior/executive positions
reporting into them.
Commentary
There were 198
senior executives as at
December 31, 2019.
We continue to increase our
proportion of women in senior
executive levels, reaching 30%
by the end of 2019.
We achieved our 2020 Board
target in 2018 and have
maintained this level of
diversity since.
58
% voluntary and non-voluntary
turnover
Overall turnover by gender
and age band
%
8
%
8
%
7
%
2
%
3
%
2
53%
27% 37%
47%
36%
‘17
‘18
‘19
Age groups
Voluntary
Non-voluntary
<30
30-50
50+
Gender
Women
Men
Workforce turnover
(% voluntary and non-voluntary turnover)
Description
Workforce turnover is measured as the number of leavers as a
percentage of the average number of Group employees in the
year. The number of leavers excludes temporary contracts and
death in service.
Voluntary turnover occurs when employees choose to leave (e.g.
resignation, retirement, voluntary redundancy) and non-voluntary
turnover occurs when employees leave for reasons other than a
personal decision (e.g. compulsory redundancy, dismissal).
The right-hand chart above shows the overall breakdown of turnover
by gender and age.
Commentary
In 2019, the overall annual turnover was 9% - a total of 6,206
employees, of which 1,372 were non-voluntary leavers.
29%
21%
4%
41%
55%
50%
Managerial staff
<30
30-50
50+
Non-managerial staff
<30
30-50
50+
Age diversity
(% of staff in each
age band)
Description
Proportion of employees in
each age band, for both
managerial and non-
managerial employees.
Our on the ground (airport,
corporate and maintenance
categories) managerial
population includes all roles
equivalent to a manager
across the Group.
Our in the air (pilots and cabin
crew) managerial population
includes all roles equivalent
to Captains and Cabin
Service Managers).
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Additional workforce metrics
Metric
Unit
Social dialogue
and trade unions1
Average hours of
training2
Lost Time Injury
(LTI) frequency
rate3
LTI severity rate4
Fatalities5
% covered by
collective
bargaining
agreements
Average
hours per
employee per
year
LTI per
100,000
hours worked
Average days
lost per LTI
% 2018-19
+1.4%
2019
87%
2018
86%
2017
88%
2016
88%
2015
not
reported
+17.6%
48.4
+3.4%
2.09
+7.2%
22.64
n/a
0
41.1
restated
2.02
restated
21.12
1
45.8
34.9
36.1
Not reported previously
Not reported previously
Not reported previously
Footnotes:
1 Collective bargaining can cover a wide array of issues pertaining to working conditions, such as remuneration, working time, perks and benefits, and
occupational safety and health. This coverage rate refers to the proportion of employees who are covered by one or more collective agreements.
Calculated using headcounts at the end of the period.
2 Average hours of training is calculated by translating training data for operating companies per full-time equivalent (FTE) into training hours per Group
Average Manpower Equivalent (AME). All mandatory and non-mandatory training is in scope. 2018 data was restated, an improvement in data capture
during 2019 resulted in re-applying that methodology to 2018. There was an increase in average hours of training per employee in 2019 explained by the
additional number of pilot hours of training during the year. This was due to the introduction of new aircraft types, which in turn meant more conversion
courses to train existing and new pilots (employee category with the highest year-on-year headcount increase).
3 A lost time injury (LTI) is a non-fatal injury arising out of, or in the course of, work which will lead to a loss of productive work time. LTI frequency rate is
calculated using actual hours in the calculation. The 2018 LTI frequency rate has been restated at year-end due to improved method of tracking actual
hours worked.
4 LTI severity rate measures the impact of occupational accidents as reflected in time off work by the affected workers. LTI severity rate is calculated by
dividing the total lost days due to injuries by the total number of LTIs in the reporting period.
5 Fatalities as a result of commuting accidents are only included in cases where the transport has been organised by the business (e.g. company or
contracted bus or vehicle) (GRI 403 guidance), except for employees in Spain, as the inclusion of these is a legal requirement.
59
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SUSTAINABILITY CONTINUED
Governance
and integrity
Supply chain management
On behalf of IAG and its operating
companies, IAG Global Business Services
(GBS) works with approximately 27,000
suppliers. We aim to do business and build
relationships with suppliers who share our
Group values: acting with honesty and
integrity in all business dealings, reducing
our supply chain environmental footprint,
improving safety, and strengthening
contributions to building better societies,
locally and globally.
From 2019, our Supplier Code of Conduct,
which lays out expectations for suppliers
working with all IAG operating companies,
has been included as part of our supplier
onboarding process. This means all new
suppliers are asked to sign up to and
acknowledge the Code before we
establish any trading relationship and
helps ensure that established standards
are accepted and followed by all our
supply chain partners.
We have built on our sustainable supply
chain strategy throughout 2019 and have
screened an additional 13,000 existing
suppliers in the Group. This means that
approximately 18,400 IAG suppliers –
68 per cent - have been screened to
date. This includes third-party assessments
of legal, social, environmental and
financial risk.
As part of our Procurement Sustainability
Programme, we have built a Corporate
Social Responsibility (CSR) audit plan and
are increasing the number of audits carried
out each year, focusing on those suppliers
located in countries where there may be
human rights or environmental concerns.
These audits are carried out by trusted
third-party inspectors with CSR expertise,
who are aligned with the world-class
Sedex Members Ethical Trade Audit
(SMETA) methodology.
60
In 2019, the number of on-site supplier
audits was tripled compared with the same
period in 2018. Audits carried out with our
business partners did not show any
significant violations. However, the findings
that potentially deviated from our supplier
standards are being reviewed to determine
what, if any, corrective actions
are required.
We also have collaboration projects with
key suppliers to encourage sustainability
innovation and identify ways to reduce
emissions. Examples include shifting the
transport of jet fuel from road to rail, and
the Catering 2020 Project, which resulted
in sourcing suppliers from a 5-7 mile radius
of each London hub therefore reducing
transport emissions.
In 2020, we will continue to invest in
the development of our Procurement
Sustainability Programme. This means
we will focus on supply chain
sustainability, assessment, performance
and control by implementing new tools,
continuing to increase the number of CSR
audits, and introducing supplier self-
assessment and projects that recognise
sustainability contributions.
Link to SDGs
Ethics and integrity
All directors and employees are
expected to act with integrity and in
accordance with the laws of the countries
in which they operate. Resources are
available across the Group for employees
to get advice, report grievances or any
alleged or actual wrongdoing.
IAG and its operating companies have
policies in place setting out the general
guidelines that govern the conduct of
directors and employees of the Group
when carrying out their duties in their
business and professional relationships.
Various training and communications
activities are carried out for directors,
employees and third parties to support
awareness of the principles that govern
the conduct of the Group and its
employees. IAG also maintains a Supplier
Code of Conduct which outlines the
standards of behaviour we expect from
our suppliers.
In 2019, IAG implemented a new Code
of Conduct that applies to all directors,
managers and employees of the Group.
A new e-learning training to support the
new Code of Conduct, applicable to all
employees, was also rolled out.
There are Speak Up channels provided by
Safecall and Ethicspoint available
throughout the Group, where concerns can
be raised on a confidential basis. The IAG
Audit and Compliance Committee reviews
the effectiveness of Speak Up channels on
an annual basis. This annual review
considers the volume of reports by
category; timeliness of follow-up;
responsibility for follow-up; emerging
themes and lessons; and any issues raised
of significance to the financial statements.
The annual review is co-ordinated by the
Head of Group Audit.
In 2019, a total of 282 Speak Up reports
were received compared with 201 in 2018.
These reports concerned issues relating
to Employment Matters (62%), Dishonest
Behaviour/Reputation (23%), Health &
Safety (14%) and Regulatory Matters (1%).
All reports were followed up and
investigated where appropriate.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 IAG also supports the 2018 IATA
resolution denouncing human trafficking
and reaffirming a commitment to tackle
this issue.
In addition, British Airways, Aer Lingus and
Vueling run training for pilots and cabin
crew on identifying and responding to
human trafficking. Guidance and
procedures for flight crew and cabin crew
are also included in the Aer Lingus and
Vueling Operations Manuals.
Link to SDGs
Anti-money laundering
IAG has various processes and procedures
in place across the Group, such as supplier
vetting and management, Know Your
Counterparty procedures and financial
policies and controls which help to combat
money laundering in the business.
Modern slavery
Human trafficking is of real concern in the
airline industry.
Transporting over 118 million passengers
per year and with tens of thousands of
suppliers, slavery and human trafficking is
relevant to IAG. We have no known cases
of human rights violations within our
organisation and we are increasing our
screening of our suppliers to ensure that
this is also the case in their organisations.
We work closely with governments and
the airports in which we operate to ensure
that any suspected trafficking on our
flights is reported and dealt with
appropriately. We train our staff to
recognise the signs of potential human
trafficking situations and provide
procedures for reporting where any cases
are suspected.
In 2019, we published our third Group
Slavery and Human Trafficking Statement.
This statement is made under section 54,
part 5 of The Modern Slavery Act 2015
(MSA) and outlines the steps taken by IAG
to prevent modern slavery within the
Group and ensure it does not take place in
our business and supply chains. We ask
our suppliers to adhere to this statement.
Modern slavery clauses feature in all new
supplier contracts as well as those coming
up for renewal.
Anti-bribery and corruption
policy and programme
IAG and its operating companies do not
tolerate any form of bribery or corruption.
This is made clear in our Group policies
which are available to all directors and
employees. Each Group operating
company has a Compliance Department
responsible for managing the anti-bribery
programme in their business. The
compliance teams meet regularly through
Working Groups and Steering Groups and
annually they conduct a review of bribery
risks. In 2019, the main risks identified were
unchanged from the previous year and
relate to the use of third parties,
operational and commercial decisions
involving government agencies, and the
inappropriate use of gifts and hospitality.
Anti-bribery and corruption training is
mandatory for all IAG operating companies
and takes the form of either e-learning or
classroom sessions. Individual training
requirements are set by each operating
company and are determined by factors
such as the level and responsibilities of an
employee. In 2019, a new anti-bribery and
corruption e-learning course was rolled out
across the Group.
The programme’s risk-based third-party
due diligence includes screenings, external
reports, interviews and site visits
depending on the level of risk that a third
party presents. In 2019 a new third-party
management tool for higher-risk third-
parties was implemented, together with
updated Group-wide Know Your
Counterparty procedures. Any risks
identified during the due diligence process
are analysed and a mitigation plan put in
place as necessary. Certain risks could
result in termination of the proposed or
existing relationship with the counterparty.
The IAG Audit and Compliance Committee
receives an annual update on the anti-
bribery compliance programme.
61
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information RISK MANAGEMENT AND PRINCIPAL RISK FACTORS
Sustaining the risk
management culture
The Board of Directors has overall
responsibility for ensuring that IAG has an
appropriate risk management framework,
including the determination of the nature
and extent of risk it is willing to take to
achieve its strategic objectives. The Board
has oversight of the Group’s operations to
ensure that internal controls are in place
and operate effectively. Management is
responsible for the execution of the
agreed plans.
The Group has an Enterprise Risk
Management (ERM) policy which has been
approved by the Board. This policy sets
the framework for a comprehensive risk
management process and methodology,
ensuring a robust assessment of the risks
facing the Group, including emerging risks.
This process is led by the Management
Committee and best practices are shared
across the Group.
Risk owners are responsible for identifying
and managing risks in their area of
responsibility within the key underlying
business processes. All risks are assessed
for likelihood and impact against the
Group Business Plan and strategy. Key
controls and mitigations are documented
including appropriate response plans.
Every risk has clear Management
Committee oversight.
As part of the risk management
framework, potential emerging risks
and longer-term threats are considered
to identify new trends, regulations or
business disruptors that could impact the
Group’s business strategy and plans. These
emerging risks are monitored within the
overall risk framework until they are
re-assessed to be no longer a potential
threat to the business or where an
assessment of the risk impact can be
made, and appropriate mitigations can
be put in place.
IAG considers risks to the strategic
business plan over the short-term up
to two years, medium-term from three to
five years and in the longer-term beyond
five years.
Risk management professionals ensure
that the framework is embedded across
the Group. They maintain risk maps for
each operating company and at the Group
level, and ensure consistency over the risk
management process.
62
Risk maps are reviewed by each operating
company’s management committee, which
considers the accuracy and completeness
of the map, significant movements in risk
and any changes required to the response
plans addressing those risks. Each
operating company’s management
committee confirms to its operating
company board as to the identification,
quantification and management of
risks within its operating company as
a whole annually.
unrest, adverse weather or pandemic, fuel
price and foreign exchange volatility and
changes in the competitive landscape.
Risks are grouped into four categories:
strategic, business and operational,
financial including tax, compliance and
regulatory risks.
Guidance is provided below on the key
risks that may threaten the Group’s
business model, future performance,
solvency and liquidity.
The management committee of each
operating company escalates risks
that have a Group impact or require
Group consideration in line with the
Group ERM framework.
At the Group level, key risks from the
operating companies, together with
Group-wide risks, are maintained in a
Group risk map. The IAG Management
Committee reviews risk during the year
including the Group risk map semi-annually
in advance of reviews by the Audit and
Compliance Committee in accordance with
the 2018 UK Corporate Governance Code
and the Spanish Good Governance Code
for Listed Companies.
The IAG Board of Directors discusses risk
at a number of meetings in addition to the
risk map review, including a review of the
assessment of IAG’s performance against
its risk appetite.
IAG has a risk appetite framework which
includes statements informing the
business, either qualitatively or
quantitatively, on the Board’s appetite for
certain risks. Each risk appetite statement
formalises how performance is monitored
either on a Group-wide basis or within
major projects. These statements were
reviewed for relevance and
appropriateness of tolerances at the year
end and it was confirmed to the Board that
the Group continued to operate within
each of the risk appetite statements.
The highly regulated and commercially
competitive environment, together with
the businesses’ operational complexity,
exposes the Group to a number of risks.
IAG remains focused on mitigating these
risks at all levels in the business although
many remain outside our control; for
example, changes in political and
economic environment, government
regulation, external events causing
operational disruption including civil
Where there are particular circumstances
that mean that the risk is more likely to
materialise, those circumstances are
described below.
The list is not intended to be exhaustive.
Strategic risks
Open competition and markets are in the
long-term best interests of the airline
industry and consumers. IAG has a high
appetite for continued deregulation and
consolidation. The Group seeks to mitigate
the risk from government intervention or
changes to the regulations that can have
a significant impact on operations.
In general, the Group’s strategic risks
were stable during the year with
competitor capacity being monitored and
assessed within the Group. IAG continues
to support deregulation, manage its
supplier base and explore opportunities for
consolidation.
Business and operational risks
The safety and security of customers
and employees is a fundamental value.
The Group balances the resources devoted
to building resilience into operations and
the impact of disruption on customers.
The Group airlines are still highly exposed
to the significant level of Air Traffic Control
(ATC) airspace restrictions in Europe,
requiring additional resilience to be built
into the networks.
Strike action impacted British Airways,
Iberia and Vueling operations this year. IAG
continues to engage with the trade unions
representing our workforces to agree
collective bargaining agreements and
minimise disruption.
The cyber threat environment remains
challenging for all organisations including
the airline industry. The Group continues to
prioritise investment in the security
controls framework, to mitigate and
control these risks.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 The political and economic environment
remained volatile across the year, with the
risk of demand impact from changes in
trade relationships which could drive the
imposition of tariffs, increasing costs.
Financial risks
IAG balances the relatively high
business and operational risks inherent in
its business through adopting a
low appetite for financial risk. This
conservative approach involves
maintaining adequate cash balances
and substantial committed financing
facilities. There are clear hedging policies
for fuel price and currency risk exposure
which explicitly consider appetite for
fluctuations in cash and profitability
resulting from market movements.
However, the Group is also careful
to understand its hedging positions
compared to competitors to
ensure that it is not commercially
disadvantaged by being over-hedged
in a favourable market.
Compliance and regulatory
The Group has no tolerance for breaches
of legal or regulatory requirements.
Link to
strategy
Principal
risks
1, 2, 3, 4, 5,
7, 8, 9, 10
1
Strengthening
a portfolio of
world-class
brands and
operations
2
Growing
global
leadership
positions
3
Enhancing
IAG’s common
integrated
platform
Principal
risks
1, 3, 4, 5, 6, 10,
11, 12, 13,
14, 15, 16
Principal
risks
1, 3, 4, 6, 7, 8,
9, 12, 13,
14, 15, 16
See our Business
model and strategic
priorities sections
See our Sustainability section
Increase
Stable
Decrease
Key:
Risk trend
Strategic
1. Airports, infrastructure and critical third parties
1
2
3
Status The Group has been impacted by ongoing issues with Rolls-Royce Trent engines in the year, as well as the impact of the
new aircraft delivery delays from Airbus. The Group continues to lobby and raise awareness of the negative impacts of ATC
airspace restrictions and performance issues on the aviation sector and economies across Europe. In October 2016, the UK
Government confirmed a third runway expansion proposal at London Heathrow and IAG continues to promote an efficient, cost-
effective, ready-to-use and fit-for-purpose solution. The Group is also dependent on the timely delivery of appropriate facilities by
the Dublin Airport Authority.
Risk description
IAG is dependent on the timely
entry of new aircraft and the
engine performance of aircraft
to improve operational
efficiency and resilience and
support the delivery of the Group
sustainability programme.
IAG is dependent on the timely,
on-budget delivery of
infrastructure changes, particularly
at key airports.
IAG is dependent on resilience
within the operations of
ATC services to ensure that our
flight operations are delivered
as scheduled.
IAG is dependent on the
performance and costs of critical
third party suppliers that provide
services to our customers and the
Group such as airport operators,
border control and caterers.
Strategic relevance
Any sub-optimal service delivery
or asset supplied by a critical
supplier can impact on the Group
airlines’ operational and financial
performance as well as disrupting
our customers.
Infrastructure decisions or
changes in policy by governments,
regulators or other entities could
impact operations but are outside
of the Group’s control.
London Heathrow has no spare
runway capacity.
An uncontrolled increase in
the planned cost of expansion
could result in increased
landing charges.
Airport charges represent a
significant operating cost to
the airlines and have an impact
on operations.
Mitigations
• The Group mitigates engine and fleet performance
risks to the extent possible by working closely
with the engine and fleet manufacturers, as well
as retaining flexibility with existing aircraft
return requirements.
• The Group engages in regulatory reviews of supplier
pricing, such as the UK Civil Aviation Authority’s
periodic review of charges at London Heathrow and
London Gatwick airports.
• The Group is active at an EU policy level and in
consultations with airports covered by the EU Airport
Changes Directive.
• There is active supplier management including
contingency plans and the Group also enters into
long-term contracts with fuel suppliers.
63
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information RISK MANAGEMENT AND PRINCIPAL RISK FACTORS CONTINUED
Strategic continued
2. Brand reputation
1
Status IAG remains focused on strengthening its customer-centricity to ensure that its operating companies continue to adapt and
focus their business models to meet changing customer expectations. Customer product improvements were launched throughout
the year and there was an ongoing focus on systems underpinning the customer journey.
Risk description
Erosion of the brands, through
either a single event or a series
of events, may adversely impact
the Group’s leadership position
with customers and ultimately
affect future revenue
and profitability.
If the Group is unable to meet the
expectations of its customers and
does not engage effectively to
maintain their emotional
attachment, then the Group
may face brand erosion and loss
of market share.
Strategic relevance
The Group’s brands are well
positioned in their respective
markets and have significant
commercial value. Customers
will choose to fly because of the
brand proposition. Any change
in engagement could impact
the financial performance of
the Group.
IAG will continue to strengthen its
customer propositions to ensure
competitiveness in its chosen
priority customer demand spaces.
The Group is clear on the key
levers to improve brand
perception and satisfaction and
has specific initiatives in place to
achieve leadership for each of its
operating company brands.
Mitigations
• All IAG airlines are considered within the brand
portfolio review.
• Brand initiatives for each operating company have
been identified and are aligned to the Strategic
Business plan.
• Product investment to enhance the customer
experience supports the brand propositions.
• All airlines track and report internally on their
Net Promoter Score (NPS) to measure
customer satisfaction.
• The Group’s global loyalty strategy builds customer
loyalty within IAG airlines.
• The Group’s focus on sustainability and sustainable
aviation including the IAG Climate Change strategy to
meet the target of net zero carbon emissions
by 2050.
3. Competition, consolidation and government regulation
1
2
3
Status The Group announced plans in 2019 to acquire Air Europa, subject to regulatory approvals. In May 2019, Chile’s Supreme
Court rejected an appeal for the proposed South American joint business between IAG and LATAM. IAG and LATAM subsequently
confirmed the termination of plans to develop a joint business agreement. LATAM has announced its intention to leave the
oneworld alliance. The Group continues to monitor and discuss the negative impacts of government policies such as the imposition
of Air Passenger Duty (APD).
Risk description
Competitor capacity growth in
excess of demand growth could
materially impact margins.
Any failure of a joint business
or a joint business partner could
adversely impact our business
operations and financial
performance.
Some of the markets in which the
Group operates remain regulated
by governments, in some
instances controlling capacity
and/or restricting market entry.
Changes in such restrictions may
have a negative impact
on margins.
Strategic relevance
The markets in which the Group
operates are highly competitive.
The Group faces direct
competition on its routes, as
well as from indirect flights,
charter services and other
modes of transport. Some
competitors have other
competitive advantages such as
government support or benefits
from insolvency protection.
Regulation of the airline industry
covers many of our activities
including route flying rights,
airport landing rights, departure
taxes, security and environmental
controls. The Group’s ability to
comply with and influence
changes to regulations is key to
maintaining operational and
financial performance.
Mitigations
• The IAG Management Committee devotes one weekly
meeting per month to strategic issues.
• The Board of Directors discusses strategy throughout
the year and dedicates two days per year to review
the Group’s strategic plans.
• The Group strategy team supports the Management
Committee by identifying where resources can be
devoted to exploit profitable opportunities.
• The airlines’ revenue management departments and
systems optimise market share and yield through
pricing and inventory management activity.
• The Group maintains rigorous cost control and
targeted investment to remain competitive.
• The Group has the flexibility to react to market
opportunities.
• The portfolio of brands provides flexibility as capacity
can be deployed at short notice as needed.
• The IAG Management Committee regularly
reviews the commercial performance of joint
business agreements.
• The Group’s government affairs department monitors
government initiatives, represents the Group’s interest
and forecasts likely changes to laws and regulations.
64
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 4. Digital disruption
1
2
3
Status The Group’s focus on the customer experience, together with the Group’s exploitation of technology, reduces the impact
digital disruptors can have.
In the year, IAG Loyalty launched its Global Loyalty Platform first phase.
Risk description
Technology disruptors may
use tools to position
themselves between our
brands and our customers.
5. Sustainable aviation
Strategic relevance
Competitors and new entrants
to the travel market may
use technology more
effectively and disrupt the
Group’s business model.
Mitigations
• The Group continues to develop platforms such as the New
Distribution Capability, changing distribution arrangements
and moving from indirect to direct channels
• The Hangar 51 programme continues to create early
engagement and leverages new opportunities with
start-ups and technology disruptors
NEW
1
2
Status Aviation represents 2.4 per cent of carbon emissions. IAG is the first airline group to commit to a target of net zero carbon
emissions by 2050, including adding management targets. There is an emerging trend of aviation “eco taxes” in Europe and
governments are also targeting net zero emissions by 2050 including the UK and France.
Risk description
Increasing global concern
about climate change and the
impact of carbon affect Group
airlines’ performance as
customers seek alternative
methods of transport or reduce
their levels of travel.
New taxes and increasing price
of carbon costs impact on
demand for air travel.
Customers may choose to
reduce the amount they fly.
Strategic relevance
IAG is committed to be
the leading airline group
in sustainability. This
means that environmental
considerations are integrated
into the business strategy at
every level and the Group uses
its influence to drive progress
across the industry.
Mitigations
• IAG Climate Change strategy to meet target of net zero
carbon emissions by 2050.
• British Airways plans to offset UK domestic flight carbon
emissions from 2020.
• Fleet replacement plan introducing aircraft into the fleet
that are up to 40 per cent more carbon efficient.
• IAG investment in sustainable aviation fuels of
$400 million in the next 20 years, including British Airways’
partnership with Velocys.
• Management incentives under development to align to
IAG’s new targets.
• Partnering with Mosaic Materials to explore carbon
capture technology.
• Participating in CORSIA, the ICAO global aviation carbon
offsetting scheme.
Business and operational
6. Cyber attack and data security
Status The risks from cyber threats remain high and the regulatory regimes associated with those risks are becoming more
complex. In addition to privacy legislation such as GDPR, some Group airlines are subject to the requirements of the National
Information Security Directive (NISD) with varied approaches taken by the different member states as they apply those
requirements.
In relation to the theft of customer data in 2018, on July 4, 2019, the UK Information Commissioner’s Office (ICO) notified British
Airways that it proposed to impose a penalty. British Airways continues to make representations and as at the date of this report,
the ICO had not issued a final penalty notice. See note 31.
2
3
Risk description
The Group could face financial
loss, disruption or damage to
brand reputation arising from
an attack on the Group’s
systems by criminals, foreign
governments or hacktivists.
If the Group does not
adequately protect customer
and employee data, it could
breach regulation and face
penalties and loss of
customer trust.
Strategic relevance
The cyber threat environment
remains challenging for all
organisations, including the
airline industry. Cyber threat
actors, criminals, foreign
governments and hacktivists
are capable of and are
motivated to attack the airline
industry for financial gain and
other political or social reasons.
The fast-moving nature
of this risk means that the
Group will always retain a level
of vulnerability.
Mitigations
• The Group has a Board approved Cyber Strategy that
drives investment and operational planning. This is regularly
reviewed by the IAG Board, IAG Management Committee
and the IAG Tech leadership.
• There is oversight of critical systems and suppliers to
ensure that the Group understands the data it holds, that it
is secure and regulations are adhered to.
• A cyber risk management framework reviews the risk
across all operating companies.
• The Group Cyber Governance Board assesses the portfolio
of cyber projects quarterly and each operating company
reviews their own cyber projects.
• Threat Intelligence is used to analyse cyber risks to
the Group.
• Data Protection Officers are in place where required in all
operating companies.
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Business and operational continued
7. Event causing significant network disruption
1
3
Status The significant level of ATC airspace restrictions imposed in Europe impacted the Group airlines’ operational performance.
Many events remain outside of the Group’s control such as civil unrest seen in cities served by the Group’s airlines, terrorism,
adverse weather or pandemic.
Risk description
An event causing significant
network disruption may result in
lost revenue and additional costs
if customers or employees are
unable to travel.
Strategic relevance
The Group’s airlines may be
disrupted by a number of
different events.
A single prolonged event, or
a series of events in close
succession, impact on our
airlines’ operational capability
and brand strength.
Mitigations
• Management has business continuity plans to mitigate
this risk to the extent feasible with focus on
operational resilience and customer and colleague
safety and recovery.
• Additional resilience to minimise the impact of ATC
airspace restrictions and strike action on the Group’s
customers and operations are in place.
8. IT systems and IT infrastructure
1
3
Status The Group is increasing resilience by implementing agreed plans which include investing in new technology, data centres and
a robust operating platform. The Group has recognised the importance of technology across the business and has brought all of its
digital and IT resources together under a new team, IAG Tech, which reports into the new Chief Information Officer on the IAG
Management Committee.
Risk description
The failure of a critical system
may cause significant disruption
to the operation and lost revenue.
Strategic relevance
IAG is dependent on IT systems
for most key business processes.
Increasingly, the integration within
IAG’s supply chain means that the
Group is also dependent on the
performance of suppliers’ IT
infrastructure e.g. airport
baggage operators.
Mitigations
• IAG Tech works with the Group operating companies
to deliver digital and IT change initiatives to enhance
security and stability.
• Operating companies’ IT Boards are in place to review
delivery timelines.
• IAG Tech refresh of professional development
framework.
• Reversion plans are developed for migrations on
critical IT infrastructure.
• System controls, disaster recovery and business
continuity arrangements exist to mitigate the risk of
a critical system failure.
9. People, culture and employee relations
1
3
Status IAG is a major employer with 72,268 employees worldwide. IAG invests in high-quality talent to support and grow its
businesses, with a strong focus on customer and financial performance.
Across the Group, collective bargaining is in place with various unions. IAG airline operations were disrupted by strike action in 2019.
British Airways pilots represented by the BALPA union took strike action in September and Iberia ground handling staff took strike
action on dates across July through to September. Agreement has now been reached with the British Airways pilots represented by
BALPA and a pre-agreement reached with the Ground Handling unions in Iberia.
Risk description
Any breakdowns in the
bargaining process with the
unionised workforces may
result in subsequent strike
action which may disrupt
operations and adversely affect
business performance.
The failure to attract, motivate or
develop our people to deliver
service and brand excellence.
Strategic relevance
The Group has a large unionised
workforce represented by a
number of different trades unions.
IAG relies on the successful
agreement of collective
bargaining arrangements across
its operating companies to
operate its airlines.
If our people are not engaged or
they do not display the required
leadership behaviours then we
cannot evolve or grow our
business at the pace that we
would like to.
Mitigations
• Collective bargaining takes place on a regular basis
with the operating companies’ human resources
specialists with a strong skillset in industrial relations.
• Operating companies’ People Strategies.
• Succession planning within and across
operating companies.
• IAG Tech refresh of professional development
framework.
• Operating companies’ engagement surveys.
• IAG Code of Conduct.
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 10. Political and economic environment
1
2
Status Wider macro-economic trends are being monitored such as tensions between the US and China, US and Iran, currency
devaluation in Argentina and the changing political landscape. Following the referendum decision in 2016, the UK left the EU on
January 31, 2020 under the terms of the Withdrawal Agreement. The completion of the agreement preserves current aviation
arrangements until the end of the transition period in December 2020. The UK/EU political declaration envisages that the future
relationship would be set out in a comprehensive air transport agreement. The EU Council’s negotiating mandate of February 3,
2020 summary sets out the aspiration to agree a reciprocal partnership in aviation.
See the Regulatory environments section.
Risk description
Deterioration in either a domestic
market or the global economy
may have a material impact on the
Group’s financial position, while
foreign exchange, fuel price and
interest rate movements create
volatility.
Uncertainty or failure to plan and
respond to economic change or
downturn impacts the operations
of the Group, including Brexit.
11. Safety or security incident
Strategic relevance
IAG remains sensitive
to political and economic
conditions in the
markets globally.
Mitigations
• The Board of Directors and the Management Committee
review the financial outlook and business performance of
the Group through the financial planning process and
regular reforecasts.
• Reviews are used to drive the Group’s financial performance
through the management of capacity, together with cost
control, including management of capital expenditure and the
reduction of operation and financial leverage. External
economic outlook, fuel prices and exchange rates are carefully
considered when developing strategy and plans and are
regularly reviewed by the Board of Directors and IAG
Management Committee as part of business
performance monitoring.
• The Group’s engagement with national regulators under the
auspices of the EU Basic Air Connectivity Regulation. All the
relevant national authorities (Austria, France, Ireland and
Spain) confirmed that the Group’s individual airlines would
comply with the relevant EU ownership rules if the relevant
remedial plans were implemented.
• The Group has an established Brexit Working Group
represented by all Group businesses to understand, plan
and mitigate risks that could impact operations, including
mechanisms to permit flights between the UK and the EU
and how to ensure that arrangements are in place for the
mutual recognition of safety certification, approvals and
security regimes.
2
Status See the Safety Committee report.
Risk description
A failure to prevent or respond
effectively to a major safety or
security incident may adversely
impact the Group’s brands,
operations and
financial performance.
Strategic relevance
The safety and security of
our customers and
employees are
fundamental values for
the Group.
Mitigations
• The corresponding safety committees of each of the airlines
of the Group satisfy themselves that they have the appropriate
resources and procedures which include compliance with
Air Operator Certificate requirements.
• Incident centres respond in a structured way in the event of a
safety or security incident.
Financial
12. Debt funding
2
3
Status The Group continues to have good access to a range of financing solutions.
Risk description
Failure to finance ongoing
operations, committed
aircraft orders and future
fleet growth plans.
Strategic relevance
The Group has substantial debt that
will need to be repaid or refinanced.
The Group’s ability to finance
ongoing operations, committed
aircraft orders and future fleet
growth plans is vulnerable to
various factors including financial
market conditions and financial
institutions’ appetite for secured
aircraft financing.
Mitigations
• The IAG Management Committee regularly reviews
the Group’s financial position and financing strategy.
• The Group’s high cash balances and committed
financing facilities mitigate the risk of short-term
interruptions to the aircraft financing market.
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Financial continued
13. Financial risk
2
3
Status In 2019, events in the political and economic landscape continued to create uncertainty, increasing the volatility of the fuel
price and foreign exchange. The approach to fuel risk management, financial risk management, interest rate risk management,
proportions of fixed and floating debt management and financial counterparty credit risk management and the Group’s exposure by
geography is set out in note 25 to the Group financial statements.
Risk description
Failure to manage and respond
to volatility in the price of oil
and petroleum products.
Failure to manage currency risk
on revenue, purchases and
borrowings in foreign
currencies or identify
devaluation risk of cash held in
currencies other than the
airlines’ local currencies of euro
and sterling.
Failure to manage interest
rate risk.
Failure of financial
counterparties may result in
financial losses.
Strategic relevance
Volatility in the price of oil and
petroleum products can have
a material impact on the Group’s
operating results.
The Group is exposed to currency
risk on revenue, purchases and
borrowings in foreign currencies
and the devaluation of cash held in
currencies other than the airlines’
local currencies of euro and sterling.
Interest rate risk arises on floating
rate debt and floating rate leases.
The Group is exposed to non-
performance of financial contracts
by counterparties for activities such
as money market deposits, fuel and
currency hedging.
Mitigations
• Fuel price risk is partially hedged through the purchase
of oil derivatives in forward markets.
• All airlines hedge in line with the IAG hedging policy
with Group Treasury oversight.
• The IAG Management Committee regularly reviews its
fuel and currency positions.
• The Group seeks to reduce foreign exchange
exposures arising from transactions in various
currencies through a policy of matching and actively
managing the surplus or shortfall through treasury
hedging operations.
• Commercial policy review of routes when there are
delays in the repatriation of cash coupled with the risk
of devaluation.
• The impact of rising interest rates is mitigated through
structuring selected new debt and lease deals at fixed
rates throughout their term.
14. Tax
2
3
Status Tax is managed in accordance with the Tax Strategy, found in the Corporate Policies section of the IAG website. Further
information about taxes paid and collected by IAG is set out in note 9 of the Group financial statements.
Risk description
The Group is exposed to
systemic tax risks arising from
either changes to tax legislation
or a challenge by tax authorities
on interpretation of tax
legislation. There is a
reputational risk that the
Group’s tax affairs are
questioned by the media or
other representative bodies.
Strategic relevance
Payment of tax is a legal obligation.
Tax is one of Group’s positive
contributions to the economies and
wider societies of the countries in
which IAG operates. Tax issues
could be a potential source of
reputational damage.
Mitigations
• The Group adheres to the Tax Policy approved by the
IAG Board and is committed to complying with all tax
laws, to acting with integrity in all tax matters and to
working openly with tax authorities.
• Tax risk is managed by the operating companies with
oversight from the IAG Tax Department.
• Tax risk is overseen by the Board through the Audit
and Compliance Committee.
Compliance and regulatory
15. Group governance structure
Status The UK’s exit from the EU on January 31, 2020 may have certain implications for the regulatory environment in which the
Group operates, including the structure of the Group. See section 10 for more details.
2
3
Risk description
The governance structure the
Group put in place at the time of
the merger had a number of
complex features, including
nationality structures to protect
British Airways’ and Iberia’s route
and operating licences.
IAG could face a challenge to its
ownership and control structure.
Strategic relevance
Airlines are subject to a significant
degree of regulatory control. In
order for air carriers to hold EU
operating licences and therefore
comply with aviation regulations,
the airline must be majority
owned and effectively controlled
by EU members and/or member
states under the Group structure,
British Airways remains a
UK carrier.
Mitigations
• IAG will continue to engage with the relevant
regulatory bodies as appropriate regarding the
Group structure.
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
16. Non-compliance with key regulation and laws
Status A new Group-wide Code of Conduct was launched in 2019, supported by employee e-learning and additional
management training.
Risk description
The Group is exposed to the risk
of individual employees’ or groups
of employees’ inappropriate and/
or unethical behaviour resulting in
reputational damage, fines or
losses to the Group.
Strategic relevance
Carrying out business in a
compliant manner and with
integrity is fundamental to the
values of the Group, as well as the
expectation of the Group’s
customers and stakeholders.
Mitigations
• The Group has clear frameworks in place including
comprehensive Group-wide policies designed to
ensure compliance.
• There are mandatory training programmes in place
to educate employees as required for their roles in
these matters.
2
3
• Compliance professionals specialising in competition
law and anti-bribery legislation support and advise the
Group’s businesses.
• IAG Code of Conduct framework and training.
• Data Protection Officers are in place where required
in all operating companies.
Long-term viability assessment
Key trends defining the industry, emerging risks and risks that are longer-term in nature (including changes in regulation and
infrastructure developments that impact our operations) are considered by the IAG Management Committee as part of the annual
Strategic Business planning process. The Board also conducts an annual strategy session where these longer-term considerations are
assessed, opportunities are identified and action agreed.
More detail see the Investment case section.
When considering the viability of the Group, the directors evaluated the impact of severe but plausible downside scenarios (as
described below) on the three year Group Business Plan and assessed the likely effectiveness of the mitigations that management
reasonably believes would be available over this period. Each scenario considered the impact on liquidity, solvency and the ability to
raise financing. In addition, the directors reviewed the results of reverse stress testing, which demonstrated the level of margin decline
(before mitigations) that would result in the Group using all available cash balances. The directors therefore believe that the Group
could withstand further stresses beyond those modelled under the severe but plausible assumptions.
IAG has assessed the longer-term sustainability and climate related risks, applying scenario analysis techniques as set out by the Task
Force on Climate related Financial Disclosures (TCFD) process. For more details of the Group’s sustainability risks and opportunities,
see Sustainability section.
Scenarios modelled
Title
No.
A multi-year global economic downturn impacting all regions starting with
1
margin decline from the first year. This scenario assumes a downturn that
stressed all of the Group airlines with the greatest margin decline experienced
by any of them during the Global Financial Crisis. This scenario was considered
to be the most impactful scenario that could threaten the Group.
Link to principal risks
3, 10, 12, 13
2
3
A fuel price shock resulting in sustained fuel price increase in a weak economic
environment, across the duration of the Group Strategic three-year plan, with a
material increase above the fuel price assumption within the plan.
13
A fuel price increase combined with different and multiple disruptive events
within the Group airlines, occurring across the three-year period impacting their
results. As none of these individual events would materially threaten the viability
of the Group, the combined impact of these and the consequent impact to the
Group Strategic plan and targets has been evaluated.
1, 2, 3, 7, 8, 9, 10, 12, 13
Viability Statement
The directors have assessed the viability of the Group over three years to December 2022 considering the external environment,
strategy of the Group and the Board’s risk appetite. Although the prospects of the Group are considered over a longer period, the
directors have determined that a three-year period is an appropriate time frame for assessment as it is in line with the Group Business
Plan strategic planning period and recognises the pace of change in the competitive landscape and the Group’s flexibility to adjust fleet
plans to market conditions.
Based on this assessment, the directors have a reasonable expectation that the Group will be able to continue in operation, meet its
liabilities as they fall due and raise financing as required over the period to December 2022.
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www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information REGULATORY ENVIRONMENT
Regulatory environment
Overview
Airlines have been and will continue to
be subject to a significant degree of
regulatory control. As well as the essential
oversight of safety and security, the
international nature of civil aviation means
that airlines are affected by geo-political
and strategic issues more than businesses
in other sectors. To encourage the best
outcome for our customers, IAG
contributes to the discussion of global,
regional and national regulatory
developments, and engages with
policy proposals where appropriate.
European policy
In 2019, European policy continued to
be dominated by Brexit negotiations,
including preparations for a potential
no-deal scenario. But, in June the
European Council set out its overall
priorities that are likely to have as great an
impact on EU policy in the medium-term
as Brexit. The priority of “building a
climate-neutral, green, fair and social
Europe” supports the new European
Commission President Ursula von der
Leyen’s proposed Green Deal, which
includes measures to deliver net zero
emissions by 2050 and will have wide-
ranging impacts. New Transport
Commissioner Adina Vălean also
announced that she will consider taxes on
aviation among a “basket of measures” to
address the environmental challenge.
General EU aviation policy developments
were limited in 2019 as progress was held
up by Brexit and the election of the new
Parliament in July and the establishment
of the new Commission in November and
December took precedence. Nevertheless,
the EU did adopt rules on drones that
permit Member States to put in restrictions
on their use and signed an aviation
agreement with Qatar which promises
cooperation on standards and a gradual
liberalising of market access where it is
currently restricted.
In the context of the world-wide March
grounding of Boeing B737 MAX aircraft,
the European Council’s priority to promote
“European interests and values on the
global stage” raised further questions
about the overall relationship between
regulators since the European Aviation
Safety Agency stated in September that
it would not accept Federal Aviation
Administration certification of the aircraft
but instead conduct its own checks. The
trade dispute between the EU and USA
over subsidies to Airbus and Boeing adds
a further degree of uncertainty to high-
level future relations and IAG will continue
to monitor developments.
During 2019 IAG continued to engage with
the European Commission, EU Member
States and authorities including in key
jurisdictions in which its airlines operate
such as the USA on other policy issues.
These include explaining the Group’s
ground-breaking commitment to net zero
emissions by 2050, contributing expert
opinions on safety regulation and other
technical matters and promoting the
benefits to consumers of industry
integration.
We also continued to highlight the
inadequate progress being made to
address the congestion in the European
air traffic management system and, with
our trade association A4E (Airlines for
Europe), emphasised the significant
environmental benefits of more efficient
use of air navigation service provider
resources. The reform of airport charges
legislation was also a priority topic for
engagement.
Brexit
The updated Withdrawal Agreement
between the UK and the EU, reached in
September, was ratified by both the UK
Parliament (following the Conservative
Party victory in the General Election in
December) and by the European
Parliament in January 2020. Accordingly,
the UK formally left the EU on January 31,
2020 and entered a transition period that
preserves the overall status quo until the
end of December 2020. There is, therefore,
no change to the status of air services
between the EU and the UK until the end
of the transition period. Attention now
turns towards the negotiations for the
future EU-UK relationship, including on air
services, and which will take place from
March 2020.
During 2019 IAG continued to engage with
regulators and policy makers to ensure
that the needs of IAG’s customers after
Brexit are understood and, in particular,
that policymakers recognise the
importance of uninterrupted air services
between the EU and the UK. This
importance was reflected in the
preparations for a potential “no-deal”
scenario, when both sides put in place
separate plans to allow flights to continue,
and also in the way the preparations were
made – the EU passed two regulations,
one on connectivity and one on aviation
safety, with unprecedented speed, and
both sides also activated procedures to
provide airlines with the necessary
operating permits. The nature and rapidity
of these processes give us confidence that,
should the anticipated EU-UK air services
agreement not be ready by the end of the
transition period, similar contingency plans
would be put in place.
IAG’s engagement with national regulators
also continued on the issue of its
ownership and control in case of a no-deal
Brexit. During the summer, all the relevant
national authorities (Austria, France,
Ireland and Spain) confirmed that IAG’s
individual airlines would comply with the
relevant EU ownership rules if the relevant
remedial plans were implemented.
IAG’s assessment remains that, even in the
event of no-deal after the transition period,
Brexit will have no significant long-term
impact on its business.
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 UK aviation policy
IAG contributed to the Department for
Transport’s consultation on its Green
Paper for a future aviation strategy to
2050 which includes potential measures
to deliver sustainable growth, address
the perceived needs of passengers with
additional needs and to reform slot
allocation rules. We continue to advocate
that the Government abandon counter-
productive proposals to auction slots,
which would only push up prices to
customers, and instead to focus on
regulating monopoly suppliers, delivering
airspace modernisation and supporting the
UN’s scheme for Carbon Offsetting and
Reduction for International Aviation
(CORSIA).
In May, the Independent Airline Insolvency
Review made its final recommendations
which included a levy on departing
passengers and establishment of a special
administration regime. IAG continues to
register its objections and anticipates that
the eventual White Paper (delayed due to
Brexit) will include less stringent measures.
IAG also engaged regularly with the Civil
Aviation Authority (CAA) and Department
for Transport on the ongoing debate on
Heathrow expansion, highlighting the
excessive costs of the scheme to date. In
November the CAA stated that it would
“set clear expectations for Heathrow to
conduct its business economically and
efficiently” through the airport’s licence.
IAG looks to the CAA to regulate
Heathrow effectively to keep
expansion affordable.
Irish aviation policy
IAG continued to engage with the Irish
government during 2019 including as a key
participant in the National Civil Aviation
Development Forum. IAG welcomed the
outcome in October of the Commission for
Aviation Regulation’s (CAR) review of
future airport charges at Dublin Airport.
The CAR determined that charges must
reduce in the years 2020 to 2024 by an
average of 11 per cent compared with 2019
and set further potential reductions should
capital investments not be delivered as
planned and on time. The determination
confirmed that the CAR is supportive of
the projects in the Capital Investment
Programme (CIP) for Dublin Airport. IAG
believes that the determination incentivises
the delivery of the Dublin Airport hub
infrastructure that is required by the
Irish National Aviation Policy.
Spanish aviation policy
IAG welcomed the fact that AENA, the
Spanish airport operator, confirmed that it
will reduce its airport charges by 1.36 per
cent in 2020 compared with 2019, and that
ENAIRE, the Spanish air navigation
provider, will also reduce its en-route
charges by more than 12 per cent. These
actions will help alleviate the expected
slower Spanish GDP growth for 2020,
albeit this remains above the forecast EU
average growth rate.
The United Nations 25th Conference of the
Parties (COP 25) under the UN Framework
Convention on Climate Change was held
in Madrid during December, gathering
representatives from more than 200
countries to discuss how to tackle climate
change, including emissions from aviation.
In this context the Spanish Government
expressed that it is not in favour of setting
a green tax on aviation but instead it
favours a Sustainable Aviation Fuel
blending mandate within the framework
of the Renewable Energy Directive II.
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www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information FINANCIAL OVERVIEW
Demonstrating our resilience
“The Group has
delivered another
strong set of results
and shown its
resilience in the face
of challenges through
the year.”
Steve Gunning
Chief Financial Officer
IAG has delivered another strong set of
results in 2019, despite the challenges of
various forms of operational disruption
including industrial action, trading
weakness in specific markets and higher
fuel costs. This performance once again
demonstrates the agility and resilience of
the Group’s model.
The Group implemented the new lease
accounting standard, IFRS 16, from January
1, 2019 on a modified retrospective basis and
the 2018 comparative figures in this review
have been adjusted to reflect the estimated
impact of the new standard.
The Group achieved an operating profit of
€3,285 million before exceptional items, a
like-for-like deterioration of €200 million
versus the previous year. The impact of the
BALPA industrial action and Heathrow
disruption in the summer reduced operating
profit by €170 million and disruption and
weakness in the low-cost segments in the
second half of the year had an adverse
impact of approximately €45 million. GDP
growth was lower than in 2018 and certain
destinations were affected by local issues
affecting demand or disrupting services
during the year, including Hong Kong,
Barcelona, Buenos Aires and South Africa.
The Group’s fuel cost was over €700 million
higher than the previous year. In 2018 the
Group benefitted from significant hedging
profits as fuel prices rose, whereas in 2019
the Group’s effective fuel price was broadly
the same as the commodity price. Global
demand for cargo was also weaker, with
the impact on IAG partially mitigated by
its ongoing strategy to focus on
premium products.
The Group responded to the more
challenging market conditions by reducing
capacity and implementing additional cost
savings. Capacity growth was 4.0 per cent,
1.9 points lower than envisaged at the start
of the year, of which 0.4 points was due to
the BALPA strike action. On a constant
currency basis, passenger unit revenues
were 0.5 per cent lower and airline non-fuel
unit costs reduced by 0.9 per cent. This
resulted in an operating margin of 12.9 per
cent and a Return on Invested Capital of
14.7 per cent, down from 14.4 per cent and
16.9 per cent respectively.
The Group continued to invest in enhancing
customer experience through on-board and
ground products, including upgraded
catering and lounges, and taking delivery of
39 new-generation aircraft during the year.
As a result of these investments and
improvements in operational planning to
help mitigate continued Air Traffic Control
challenges within Europe, the Net Promoter
Score rose by 9.5 points. The investments in
fleet and customer led to an increase in
capital expenditure, with gross capital
expenditure up approximately €650 million,
at €3,465 million.
Following IAG’s investment grade rating
from S&P and Moody’s in 2018, the Group
successfully raised €1 billion through the
issue of two unsecured bonds in July 2019,
with part of the proceeds used to repay
convertible bonds totalling €500 million that
were due for repayment in 2020. Leverage,
measured as Net Debt to EBITDA, remained
strong at 1.4 times and well within the target
ceiling of 1.8 times. The Group agreed,
subject to regulatory approvals expected in
72
2020, to acquire Air Europa for €1 billion,
representing a further opportunity to
integrate another airline into the Group’s
unique model.
Cash generation remained strong,
demonstrating the Group’s ability to deliver
sustainable dividends to shareholders. The
Board proposed a final dividend of 17.0 euro
cents on February 27, 2020. Taken together
with the interim dividend paid in December
2019 this will represent a pay out ratio
in respect of 2019 of 26.2 per cent of
pre exceptional profit after tax.
Steve Gunning
Chief Financial Officer
In 2019 IAG adopted IFRS 16, the new
financial reporting standard on
accounting for leases.
IFRS 16 has no cash flow or economic
impact on the Group. IFRS 16 does
have an impact on the way that
expenditure is reported in the income
statement, together with how assets
and liabilities are reported on the
balance sheet and how cash flows are
classified in the cash flow statement.
The Group used the modified
retrospective transition approach and
variances in this report to 2018 are on
a pro forma basis, to provide a
consistent basis for comparison.
See “Basis of preparation" in this
report for more details.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 FINANCIAL REVIEW
IATA market growths
The air traffic industry had a positive year; however, performance
was impacted by a softer global economic backdrop than
previous years, slightly affecting demand. Global capacity grew at
a slower pace than demand, which translated into a record load
factor of 82.6 per cent, 0.7 points higher than in 2018.
In 2019, airline capacity growth in Europe softened, in line with
slowing economic activity, declining business confidence
heightened by industrial strikes, Brexit uncertainty and the
collapse of several airlines. Capacity still grew 3.6 per cent over
the previous year and passenger load factor increased, reaching
85.2 points, the highest throughout all regions.
North America performed slightly better than other regions,
sustaining a solid upward trend throughout the year. Despite
that, growth eased slightly from softer US economic activity and
weaker business confidence. Capacity increased 2.8 per cent, less
than the previous year, with passenger load factor up 0.8 points.
Latin America’s airline capacity growth slowed versus last year
due to social unrest and economic difficulties. Capacity growth of
2.9 per cent was significantly below 2018 growth of 6.6 per cent
and passenger load factor in this region increased.
Africa benefited from a generally supportive economic landscape
in 2019 and capacity grew significantly more than in 2018 and the
highest of all regions at 4.7 per cent, with passenger load factor
moderately higher.
Although the Middle East’s airline industry growth showed the
slowest growth of all the regions year on year, the last quarter
of the year saw a sharp increase in capacity, placing the region
as the highest in capacity increases globally for these months.
Load factor improved 1.4 points on the relatively flat capacity
for the year.
Airline capacity growth in the Asia Pacific region was slower than
in 2018, but remained relatively high, with an increase of 4.5 per
cent, impacted by the economic landscape. Passenger load factor
improved 0.4 points.
IAG capacity
In 2019, all of IAG's airlines grew capacity, with total Group
capacity up 4.0 per cent.
The increase mainly reflects additional frequencies and increased
aircraft gauge on longhaul routes and the full-year impact of
network changes in 2018 by British Airways, Aer Lingus and Iberia,
as well as growth in LEVEL. New routes were added at
Aer Lingus, connecting Dublin with Minneapolis; at British
Airways, with new routes such as London Heathrow to
Charleston, Pittsburgh, Islamabad and Osaka; and Iberia, with a
new service from Madrid to Guayaquil. Vueling’s capacity grew
through additional domestic frequencies, with expansion in the
Balearic and Canary Islands. IAG’s shorthaul network also saw
increases from the new LEVEL base in Amsterdam.
IAG passenger load factor was higher, once again, than any prior
year since the creation of IAG, reaching 84.6 points, up 1.3 points
from 2018 and higher than the IATA average.
IAG Network by region (measured in ASKs)
7.1%
8.1%
11.8%
18.0%
25.6%
29.4%
Domestic
Europe (excluding Domestic)
North America
Latin America and Caribbean
Africa, Middle East and South Asia
IATA market growths
Year to December 31, 2019
Europe
North America
Latin America
Africa
Middle East
Asia Pacific
Total market
Capacity
ASKs
Passenger
load factor
Higher/
(lower)
Asia Pacific
3.6%
2.8%
2.9%
4.7%
0.1%
4.5%
3.4%
85.2
84.9
82.6
71.7
76.2
81.9
0.4 pts
0.8 pts
1.0 pts
0.3 pts
1.4 pts
0.4 pts
Market segments
IAG capacity
Year to December 31, 2019
Domestic
Europe
82.6
0.7 pts
North America
Source: IATA Air Passenger Market Analysis
Latin America and Caribbean
Africa, Middle East
and South Asia
Asia Pacific
Total network
ASKs
higher/
(lower)
7.3%
1.7%
1.4%
13.3%
1.0%
3.7%
4.0%
Passenger
load factor
Higher/
(lower)
87.2
83.6
84.1
86.4
83.0
85.8
84.6
2.2 pts
0.4 pts
1.8 pts
1.7 pts
0.6 pts
1.1 pts
1.3 pts
73
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information FINANCIAL REVIEW CONTINUED
Europe
Eurozone GDP growth for the year was 1.2 per cent, lower than
expected by the IMF at the beginning of the year, and 0.7 points
lower than in 2018. As was the case for the UK, GDP growth
decelerated through the year, although to a lower extent than in
the UK. Like the UK, Eurozone consumer confidence and
unemployment remained at multi-year lows.
North America
US GDP growth was 2.3 per cent, only slightly lower than
expected by the IMF at the beginning of the year and 0.6 points
lower than in 2018. Growth accelerated in Q1 2019, reflecting an
upturn in government spending, private inventory investment and
in exports, then slowed in Q2 2019 and Q3 2019. The
unemployment rate continued to decline, hitting 3.5 per cent in
Q4 2019, the lowest rate since 1970.
GDP growth
%
3
8
.
GDP growth
%
1
.
4
%
3
4
.
%
6
2
.
%
4
.
1
%
9
.
1
%
2
2
.
%
5
.
1
%
6
.
1
%
0
2
.
%
3
.
1
%
2
.
1
%
9
2
.
%
9
.
1
%
5
2
.
%
9
.
1
%
3
2
.
%
5
.
1
Actual 2018
IMF 2019 forecast
January 2019
Actual 2019
Actual 2018
IMF 2019 forecast
January 2019
Actual 2019
UK
Spain
Ireland
Eurozone
US
Canada
IAG’s North American market accounts for almost 30 per cent of
the Group’s Available seat kilometres ('ASKs'). Capacity was
increased in Iberia, Aer Lingus and LEVEL, with a slight decrease
at British Airways, mainly reflecting the pilot's strike. British
Airways launched new routes, connecting London Heathrow with
Pittsburgh and Charleston and Aer Lingus started operations from
Dublin to Minneapolis. Capacity was also increased in Aer Lingus
through higher frequencies on several routes, such as Dublin to
San Francisco, Seattle and Philadelphia. LEVEL launched a new
route in 2019, connecting Barcelona with New York, and increased
capacity on its services from Barcelona to Boston and San
Francisco. The region’s capacity increase also reflects the full year
impact of routes launched during 2018. Seat factor for the region
was among the best for the Group.
North America passenger unit revenues at ccy were up against
last year. Aer Lingus passenger unit revenues were up strongly on
a capacity increase of 6.1 per cent. British Airways passenger unit
revenues were slightly better, on slightly lower capacity. In 2019,
LEVEL’s expansion again had a slightly dilutive impact on the
Group’s passenger unit revenues. Iberia’s passenger unit revenues
in North America decreased, with a 5.7 per cent capacity increase.
Together, IAG’s European and Domestic markets continue to
represent the Group’s largest region. Growth comes from both
capacity and frequency increases as well as new routes.
Capacity in IAG’s Domestic markets was higher by 7.3 per cent,
mostly from increases in Vueling and Iberia. Vueling launched a
number of new routes, including connections between several
cities in mainland Spain with the Canary Islands. Capacity at Iberia
was increased through increases in frequencies as well as new
routes connecting Melilla with Seville, Granada and Almeria.
Passenger load factor in IAG’s domestic markets increased by
2.2 points despite the strong increase in capacity.
Passenger unit revenues (passenger revenue per ASK) at
constant currency (‘ccy’) in the Domestic markets were up at
British Airways, Iberia and Vueling.
The Group’s capacity in Europe was increased 1.7 per cent year
on year. LEVEL’s operations in Vienna started in July 2018 and
therefore 2019 included the full year impact of routes from its
base into London, Barcelona and Paris, among others. British
Airways launched new routes from London Gatwick to Milan,
Bilbao and Almeria as well as new services connecting London
City with Munich and London Heathrow with Valencia, among
others. Iberia’s capacity grew mainly from frequency increases
and Vueling launched services from Paris to Mallorca,
Copenhagen, Porto and Alicante, among others. Load factor for
the Group’s European market was up 0.4 points.
The Group’s passenger unit revenue performance at ccy in its
European market was weaker driven by Vueling, British Airways
and Aer Lingus. Iberia’s passenger unit revenue performance was
flat on a slight capacity increase.
74
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Latin America and Caribbean
Latin America GDP was significantly lower than the IMF expected
at the beginning of year, particularly notable for Brazil and Mexico
compared to expectations. At a country level, there was a
slowdown in growth compared to 2018 in all countries, with
Ecuador slipping into recession and both Venezuela and
Argentina remaining in recession.
Asia Pacific
In Asia Pacific, the Group’s capacity was up against last year.
Iberia increased capacity significantly by 21.9 per cent, mainly
coming from added frequencies on its Madrid-Tokyo route. British
Airways increased capacity through a new route connecting
London Heathrow with Osaka. Passenger load factor was up
1.1 points on a capacity increase of 3.7 per cent.
Asia Pacific passenger unit revenues at ccy were up against last
year. Industry capacity continued to grow over the year following
the increases in 2018, but did so at a slower pace, impacted by
the economic landscape and challenges coming from US-China
trade tensions.
GDP growth
%
5
5
.
%
2
3
.
%
6
% 1
0
.
1
.
Actual 2018
Latin America
%
4
5
.
%
5
3
.
%
4
2
.
%
0
2
.
%
5
0
.
%
2
0
.
%
0
5
.
%
2
3
.
IMF 2019 forecast
January 2019
Actual 2019
Middle East, North Africa, Afghanistan and Pakistan
Subsaharan Africa
Asia
IAG’s capacity in Latin America and Caribbean was increased by
13.3 per cent, with the impact of the first full year of Paris
operations at LEVEL. Iberia launched a new route, connecting
Madrid with Guayaquil, and increased frequencies on its routes
from Madrid to San Salvador, Guatemala City, Bogotá and Lima.
British Airways capacity was increased through additional
capacity from densification of its London Gatwick Boeing 777
fleet and from additional frequencies added on its London
Gatwick to Cancún route. Passenger load factor in this region
improved and continued to be the highest for the Group, 3.8
points higher than the industry average.
Latin America and Caribbean passenger unit revenues at ccy were
down significantly against 2018, partly due to capacity increases
and a difficult economic and political landscape.
Africa, Middle East and South Asia (AMESA)
AMESA capacity was increased 1.0 per cent in 2019 primarily from
new routes at British Airways. The increase in capacity was mainly
due to new routes launched by British Airways, including
Dammam via Bahrain and to Islamabad, and increased
frequencies in routes from London Heathrow to Mumbai and from
London Heathrow and London Gatwick to Marrakech. Iberia
increased capacity through higher frequencies on its routes from
Madrid to Dakar, Casablanca and Marrakech. Vueling increased
capacity on its routes from Barcelona to Algiers, Tangier,
Marrakech, Tel Aviv, Beirut and Banjul. Passenger load factor was
higher than the previous year once again and was also higher than
the industry average.
Africa, Middle East and South Asia passenger unit revenue
performance at ccy was better in 2019, with improvements in
British Airways and Iberia and a lower performance at Vueling
driven by a capacity increase of 12.4 per cent.
75
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information FINANCIAL REVIEW CONTINUED
Basis of preparation
The Group has adopted the new accounting standard IFRS 16
‘Leases’ from January 1, 2019 and has used the modified
retrospective transition approach and has not restated
comparatives. IFRS 16 eliminates the classification of leases as
either operating leases or finance leases and introduces a single
lessee accounting model. On the Balance sheet, obligations to
make future payments under leases, previously classified as
operating leases, are recognised as debt with the associated right
of use (ROU) assets. In the Income statement, the operating lease
costs are replaced with depreciation (within operating
expenditure) and lease interest expense (within non-operating
expenditure). For further information see note 33 of the Group
financial statements.
The following review is against a pro forma basis for 2018, which
provides a consistent basis for comparison with 2019 results,
except where otherwise indicated. Pro forma results for 2018 are
the Group’s statutory results with an adjustment to reflect the
estimated impact of IFRS 16 from January 1, 2018, and have been
prepared using the same assumptions used for the IFRS 16
transition adjustment at January 1, 2019 (set out in note 33 of the
Group financial statements) adjusted for any new aircraft leases
entered into during 2018 and using the incremental borrowing
rates at January 1, 2019. The IFRS 16 adjustments for aircraft lease
liabilities are based on US dollar exchange rates at the transition
date. For further information see the Alternative performance
measures section.
The current year and comparative figures in this report have been
prepared on a pre-exceptional and pro forma basis unless
otherwise stated.
Revenue
€ million
Passenger revenue
Cargo revenue
Other revenue
Total revenue
Higher/(lower)
Year over
year at ccy
Per ASK
at ccy
(0.5)%
3.5%
(7.2)%
11.3%
3.5%
2019
22,468
1,117
1,921
25,506
Passenger revenue
Passenger revenue for the Group rose 5.0 per cent versus the
prior year, with 1.5 points of positive currency impact, while
capacity was increased by 4.0 per cent. At constant currency,
passenger unit revenue decreased 0.5 per cent from lower yields
(passenger revenue/revenue passenger kilometre), down 2.0 per
cent, but with an increase in passenger load factor of 1.3 points.
At the airline level, passenger unit revenue at ccy increased in
British Airways and Vueling, was flat in Aer Lingus and
decreased in Iberia.
The Group carried over 118 million passengers, an increase
of 4.7 per cent from last year, with higher passenger load factor
across the Group. The Group’s Net Promoter Score for 2019 was
25.8 per cent, an improvement of 9.5 points versus last year’s
figure. This came from better regularity, as well as continued
product and service improvements. Vueling made improvements
to disruption handling and resilience, which made a significant
difference for customers in light of the significant Air Traffic
Control ('ATC') disruption again in 2019. Net Promoter Score
improved at British Airways, Iberia and Vueling, and was flat at
Aer Lingus, in the context of increased punctuality challenges at
Dublin Airport.
Cargo revenue
2019 was a difficult year for global airfreight, with industry-wide
volumes down 3.3 per cent versus 2018. The reduction in demand
reflected US-China trade tensions and weaker manufacturing in
Europe, notably in Germany. IAG Cargo’s performance was better
than the market overall, reflecting its strategy to focus on
premium products. IAG volumes were down 2.4 per cent, with
yield down 4.9 per cent at constant currency, leading to a
decrease in Cargo revenue of 7.2 per cent at constant currency.
Premium products, including Constant Climate and Critical,
performed better than general freight, with a growth in the
Constant Fresh perishable movements, particularly out of Latin
America and Africa. Industry sectors such as automotive parts
were significantly down. IAG Cargo launched a new temperature-
controlled facility in Madrid, which gained Good Distribution
Practice certification in February. The new facility has been
welcomed by customers and has provided new revenue potential
for the Spanish hub.
Other revenue
Other revenue rose 14.1 per cent, 11.3 per cent at constant
currency. Revenues grew at Iberia’s third party maintenance
(MRO) business, assisted by greater engine overhaul activity. BA
Holidays continued to grow, benefitting from marketing and a
focus on IT improvements, resulting in higher conversions into
bookings. Other revenue was also boosted by IAG Loyalty, which
increased the sale of Avios points to its partners.
Total revenue
Total revenue for the Group rose 5.1 per cent and was up 3.5 per
cent at ccy.
76
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Fuel, oil and emissions costs
Fuel, oil and emissions costs rose by 14.0 per cent in 2019,
primarily due to hedging profits in 2018 not repeated in 2019,
partially offset by a weaker US dollar and operational efficiencies.
The Group hedges its fuel purchases in advance, typically
gradually building its cover over three years. This hedging
programme smooths the effects of rising (or falling) prices and
2018 benefitted particularly from prices locked in at lower rates in
previous years. The Group also gained fuel efficiencies from new
generation aircraft and fuel consumption was further reduced by
improved operational procedures implemented across the airlines.
At ccy and on a unit basis, fuel costs were 5.7 per cent higher.
Fuel, oil and emissions costs
€ million
Fuel, oil costs and emissions
charges
Higher/(lower)
Year over
year at ccy
Per ASK
at ccy
2019
6,021
10.0%
5.7%
See note 25 in our Financial statements for more information on our
hedging policy.
Jet Fuel price trend ($/mt)
800
700
600
500
400
300
200
5
1
-
n
a
J
5
1
-
r
p
A
5
1
-
l
u
J
5
1
-
t
c
O
6
1
-
n
a
J
6
1
-
r
p
A
6
1
-
l
u
J
6
1
-
t
c
O
7
1
-
n
a
J
7
1
-
r
p
A
7
1
-
l
u
J
7
1
-
t
c
O
8
1
-
n
a
J
8
1
-
r
p
A
8
1
-
l
u
J
8
1
-
t
c
O
9
1
-
n
a
J
9
1
-
r
p
A
9
1
-
l
u
J
9
1
-
t
c
O
9
1
-
c
e
D
Non-fuel unit costs
At constant currency, total non-fuel unit costs decreased 0.1 per
cent. Airline non-fuel unit costs (adjusted by the costs associated
with generating ‘Other revenue’, representing the costs of
handling and maintenance for other airlines, non-flight products in
BA Holidays and costs associated with other miscellaneous
non-flight revenue streams), was down 0.9 per cent. Airline
non-fuel unit costs improved at a Group level from cost-saving
initiatives and efficient growth, with Vueling’s investment in
resilience and disruption handling reducing passenger assistance
costs linked to continuing Air Traffic Control issues in Europe.
Expenditure before exceptional items
Employee costs
Employee costs increased 3.1 per cent before exceptional items
for the year. At constant currency, employee unit costs improved
1.4 per cent primarily linked to management initiatives,
productivity improvements, the impact of strikes at British
Airways on bonus payments and the final quarter of year-on-year
benefit from the NAPS pension closure at British Airways in March
2018. This was partially offset by pay increases at all airlines,
generally linked to price inflation.
In 2018 British Airways closed its New Airways Pension Scheme
(NAPS) to future accrual and British Airways Retirement Plan
(BARP) to future contributions from March 31, 2018. The schemes
have been replaced by a flexible defined contribution scheme, the
British Airways Pension Plan (BAPP). The changes resulted in a
reduction in the NAPS IAS 19 defined benefit liability of €872
million, transitional arrangement cash costs of €192 million
(recognised as an exceptional in the prior year) and a reduction in
current service cost.
Overall, the average number of employees rose by 2.0 per cent
for the Group bringing the average workforce to 66,034.
Productivity, measured as Available Seat Kilometre ('ASKs') per
manpower equivalent, increased 1.9 per cent with improvements
at British Airways, Iberia, Vueling and Aer Lingus.
Employee costs
€ million
Employee costs
Productivity
Productivity
Average manpower equivalent
Higher/(lower)
2019
4,962
Year over
year at ccy
Per ASK
at ccy
2.6%
(1.4)%
Higher/(lower)
2019
5,115
66,034
Year over
year
1.9%
2.0%
See note 7 in our Financial statements for more information on our
employee costs and numbers.
77
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
FINANCIAL REVIEW CONTINUED
Supplier costs
Total supplier costs for the year increased 5.1 per cent with 0.9
points of adverse currency impact. At ccy and on a unit basis,
supplier costs rose 0.2 per cent.
Supplier costs
€ million
Higher/(lower)
Year over
year at ccy
(proforma)
Year over
year at ccy
(statutory)
2019
Supplier costs per ASK at ccy
0.2%
Handling, catering and other
operating costs
Landing fees and en-route
charges
Engineering and other aircraft
costs
Property, IT and other costs
Selling costs
Currency differences
2,972
7.4%
7.1%
2,221
0.8%
0.8%
2,092
811
1,038
(7)
8.5%
1.9%
(2.8)%
nm
10.2%
(12.5)%
(2.8)%
nm
British Airways’ supplier unit costs at ccy were up due to
investment in customer (catering and lounges), incremental
BA Holidays costs (impacting Handling, catering and other
operating costs) and inflation, partially offset by one-off
compensation received in relation to an IT failure in 2017, aircraft
delivery delays and engine issues and from cost saving initiatives.
Iberia supplier unit costs at ccy were up from increased
Engineering and other aircraft costs related to its third-party MRO
business, with a corresponding increase in other revenue, partially
offset by lower selling costs due to direct channel growth and
continued cost saving initiatives. Vueling supplier unit costs at ccy
improved significantly from lower disruption costs in line with
improved operational performance as well as the introduction of
an action plan identifying saving opportunities from the demand
slowdown. This was partially offset by investment in operational
resilience for the business, aimed at mitigating the impact of ATC
disruption. Aer Lingus supplier unit costs at ccy were up from
increased maintenance and handling costs, partially offset by
continued cost saving initiatives and efficient growth.
Supplier costs
By supplier cost category:
Handling, catering and other operating costs rose 8.7 per cent,
excluding currency up 7.4 per cent. More than half of this increase
was linked to higher capacity, with 4.7 per cent additional
passengers carried in the year and higher activity at BA Holidays,
with the corresponding increase in Other revenue. Costs also rose
from the impact of disruption caused by the pilots strike at British
Airways and price increases in supplier contracts. The Group
continued its focus on improving the customer proposition by
investing in lounges, catering and service delivery.
Landing fees and en-route charges were higher by 1.7 per cent,
excluding currency up 0.8 per cent. Costs rose primarily from
higher activity, with flying hours up 3.0 per cent and sectors
flown up 2.8 per cent, offset by reductions of en-route charges
at Vueling and Aer Lingus, and London Gatwick rebates at
British Airways.
Engineering and other aircraft costs increased 12.7 per cent,
excluding currency up 8.5 per cent. Increases were driven by
increased flying hours, up 3.0 per cent, contractual price
escalation on maintenance contracts, additional component costs
at Aer Lingus and higher costs associated with Iberia's third-party
maintenance business. Cost increases were partly offset by
negotiated improvements in ‘pay-as-you-go’ contracts and
compensation received from manufacturers linked to aircraft
availability issues.
Property, IT and other costs were up 2.8 per cent, excluding
currency up 1.9 per cent. The increase is due to higher capacity,
with lower costs on a unit basis. The improvement reflects the
impact of one-off supplier compensation received from the
impact of the IT failure in 2017 at British Airways. This was
partially offset by investing in resilience and IT infrastructure and
from inflation increases on rent and rates.
Selling costs decreased 0.8 per cent, excluding currency down
2.8 per cent. Selling costs benefited from reduced commissions,
linked to growth of the new distribution model, together with
benefits from the mix of selling channels, with an increase in direct
sales. British Airways benefited from an initiative to reduce credit
card costs. Iberia achieved efficiencies from targeted marketing
spend, which was partially offset by British Airways’ investment in
its centenary year and new uniform development.
78
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Ownership costs
The Group’s ownership costs were up 5.8 per cent, excluding
currency up 5.4 per cent. The increase reflects additional
depreciation on new aircraft, as well as depreciation on
densification and connectivity investments and from the New
York JFK terminal project. The increase in ownership costs was
partially offset by a reduction in engine overhauls in line with
retirement of the Boeing 747 fleet at British Airways. New
aircraft are contributing to lower carbon emissions and reduced
fuel costs.
€ million
Per ASK at ccy
Ownership costs
Number of fleet
Shorthaul
Longhaul
Aircraft deliveries
Airbus A320 family
Airbus A330
Airbus A350
Boeing 787
Embraer E190
Total
Year over
year at ccy
(proforma)
Year over
year at ccy
(statutory)
1.4%
5.4%
(1.9)%
2019
2,111
Higher/(lower)
2019
394
204
598
Year over
year
3.7%
5.7%
4.4%
2019
32
3
8
-
2
45
2018
28
6
2
5
1
42
Exchange impact before exceptional items
Exchange rate impacts are calculated by retranslating current
year results at prior year exchange rates. The reported revenues
and expenditures are impacted by the translation of currencies
other than euro to the Group’s reporting currency of euro,
primarily British Airways and Avios. From a transaction
perspective, the Group performance is impacted by the
fluctuation of exchange rates, primarily exposure to the pound
sterling, euro and US dollar. The Group generates a surplus in
most currencies in which it does business, except the US dollar, as
capital expenditure, debt repayments and fuel purchases typically
create a deficit which is managed and partially hedged. Overall, in
2019 the Group operating profit before exceptional items
benefitted from €67 million of positive foreign exchange impacts.
The Group hedges its economic exposure from transacting in
foreign currencies. The Group does not hedge the translation
impact of reporting in euro.
€ million
Favourable/(adverse)
Translation
impact
Transaction
impact
2019
Total
exchange
impact
Total exchange impact on
revenue
Total exchange impact on
operating expenditures
Total exchange impact on
operating profit
68
325
393
(58)
(268)
(326)
10
57
67
The exchange rates for the Group were as follows:
Translation - Balance sheet
€ to £
Translation - Income
statement
(weighted average)
€ to £
Transaction
(weighted average)
€ to £
$ to €
$ to £
2019
2018
Higher/
(lower)
1.18
1.11
6.3%
1.13
1.13
1.13
1.12
1.27
1.13
1.18
1.33
–
–
(5.1)%
(4.5)%
Operating profit before exceptional items
In summary, the Group’s operating profit before exceptional
items for the year was €3,285 million, a €200 million decrease
from last year (on a statutory basis after exceptional items a
decrease of €1,065 million mainly due to the exceptional pension
credit in 2018 and exceptional pension expense in 2019). The
Group’s operating margin was lower by 1.5 points to 12.9 per cent.
These results reflect the industrial action at British Airways and
disruption at London Heathrow in the summer, which had an
adverse impact of approximately €170 million. In the second
half of the year, weakness and disruption faced by the Group’s
low-cost segments had a further adverse impact of
approximately €45 million.
79
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FINANCIAL REVIEW CONTINUED
Operating profit and loss performance of operating companies
British Airways
£ million
Aer Lingus
€ million
Iberia
€ million
Vueling
€ million
2019
186,170
Higher/
(lower)1
0.9%
Higher/
(lower)2
2019
0.9% 30,255
Higher/
(lower)1
4.2%
Higher/
(lower)2
2019
4.2% 73,354
Higher/
(lower)1
7.6%
Higher/
(lower)2
2019
7.6% 38,432
Higher/
(lower)1
Higher/
(lower)2
2.7%
2.7%
83.6
1.1pts
1.1pts
81.8
0.8pts 0.8pts
87.2
1.7pts
1.7pts
86.9
1.5pts
1.5pts
ASKs
Seat factor
(per cent)
Passenger revenue
11,899
2.9%
2.9% 2,060
711
(7.6)% (7.6)%
680
13,290
7.6%
2.5%
7.6%
2.5%
3,237
10.6% 10.6%
2,529 (0.2)% (0.2)%
4,497
3,027
1,106
(2.1)%
2.0% (0.7)%
1.8%
8.5%
3.7%
54
11
460
405
854
406
130
6.1%
0.6%
6.1% 4,053
0.6%
291
(16.8)% (16.8)%
1,301
5.8% 5,645
2,125
5.8%
7.3%
5.8%
16.2%
9.2%
7.3%
2,437
5.2%
5.2%
5.8%
16.2%
9.2%
–
–
18 (14.8)% (14.8)%
2,455
5.0%
5.0%
20.6% 20.6%
1,202
8.8%
5.9%
8.8%
1,164
11.9% 2,392
(9.6)% (17.3)%
(5.5)% (30.1)%
17.6%
6.7%
17.6%
6.7%
10.5% 10.6%
887 (0.5)% (0.9)%
8.8% (14.8)%
390
548
301
1,116
490
250
12.1%
8.2%
3.3%
0.0%
12.1%
8.2%
1.5%
4.0%
10.6% (7.7)%
(5.1)%
(1.6)%
1,921
14.5% (1.1)pts (0.6)pts
276
(11.4)% (9.5)%
13.0% (2.5)pts (2.2)pts
497 (6.7)%
13.8%
8.8% (1.5)pts 0.4pts
240 (9.3)%
9.8% (1.5)pts
19.7%
1.4pts
Cargo revenue
Other revenue
Total revenue
Fuel, oil costs and
emissions charges
Employee costs
Supplier costs
EBITDA
Ownership costs
Operating profit before
exceptional items
Operating margin
Pence/€ cents
Passenger yield per RPK
7.65
0.6%
0.6%
8.32
0.8%
0.8%
6.33 (2.3)% (2.3)%
7.30
0.7%
0.7%
2.0%
1.6%
2.0%
1.6%
6.81
7.02
1.8%
1.5%
1.8%
1.5%
5.52 (0.3)% (0.3)%
1.5%
1.5%
7.69
9.6%
9.6%
0.6% (0.3)%
2.3%
3.0%
1.52
4.59
6.11
15.6%
15.6%
1.2%
4.5%
0.8%
4.2%
1.64
5.38
7.02
9.3%
9.3%
1.4% (1.2)%
1.1%
3.2%
6.34
6.39
1.43
4.34
5.76
2.4%
2.3%
2.4%
2.3%
9.2%
9.2%
2.5% (1.5)%
4.1%
0.9%
Passenger revenue per
ASK
Total revenue per ASK
Fuel cost per ASK
Non–fuel costs per ASK
Total cost per ASK
1 Proforma
2 Statutory
6.39
7.14
1.74
4.37
6.11
80
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Financial performance
by Brand
Capacity
2.8%
11.4%
21.7%
9.0%
55.1%
Aer Lingus
British Airways
Iberia
Vueling
Other Group companies
Operating profit before
exceptionals
2.6%
6.2%
9.4%
13.5%
68.3%
Aer Lingus
British Airways
Iberia
Vueling
Other Group companies
British Airways' operating profit was
£1,921 million, excluding exceptional items,
down £104 million over the prior year on
a capacity increase of 0.9 per cent.
Passenger unit revenues were up for the
year, with higher yields, from strong
performance in the North American
premium sector, and an increase in load
factor.
Non-fuel unit costs were up for the
year, due to the growth of BA Holidays.
Excluding the impact of BA Holidays,
non-fuel unit costs decreased, driven
by management initiatives and
supplier compensation partly offset by
customer investment and contractual
price increases.
Overall, British Airways’ operating margin
declined 1.1 points to 14.5 per cent.
See British Airways section for more on its
performance and future plans.
Iberia’s operating profit before exceptional
items was €497 million, down by €36
million versus last year, achieving an
operating margin of 8.8 per cent. Capacity
for the year was up 7.6 per cent, with a
slight reduction in passenger unit revenue
from lower yields partially offset by higher
passenger load factor.
Iberia’s total unit cost performance was up
but improved at constant currency. Higher
costs were mainly from CPI related price
increases and higher maintenance works
performed by Iberia’s third-party MRO
business, as well as higher fuel costs. This
was partially offset by decreases in selling
costs from direct channel growth and
other marketing cost saving initiatives.
Employee unit costs continued to improve,
with strong increases in productivity
through efficiency initiatives.
In 2019, Iberia’s Other revenue also
increased by 16.2 per cent, primarily from
its MRO business.
See Iberia section for more on its
performance and future plans.
Aer Lingus' operating profit was
€276 million, a decrease of €35 million
over last year. Capacity increased 4.2 per
cent from the addition of a new route
connecting Dublin and Minneapolis and
increases in capacity to San Francisco,
Seattle and Philadelphia.
Aer Lingus’ operating margin was 2.5
points lower at 13.0 per cent. Passenger
unit revenues were up, with strong
longhaul performance and positive retail
performance, despite challenging
European market conditions.
Aer Lingus non-fuel unit costs were up,
primarily driven by increased maintenance
and handling costs as well as pay inflation
increases, partially offset by continued
cost saving initiatives and efficient growth.
Fuel unit costs were up versus last year,
reflecting higher market fuel prices, with
favourable hedge positions having
unwound during the year.
Vueling’s operating profit was €240
million, a decrease of €24 million. Its
operating margin of 9.8 per cent was 1.5
points down versus last year.
Vueling adjusted its capacity to offset
demand slowdown, however the impact of
incidents in Barcelona and strikes
impacted revenues. A new disruption
protection plan was put in place,
contributing to higher costs but offset by
Vueling’s action plan to identify saving
opportunities to cope with demand
slowdown. Further cost increases came
from a higher fuel bill and inflation-linked
price increases in supplier costs.
Vueling invested in an ATC protection
plan to safeguard its operations from
the impact of future disruption in line
with its NEXT strategy and in order to
reduce possible future disruption related
costs, such as compensation, and impact
to revenues.
See Aer Lingus section for more on its
performance and future plans.
See Vueling section for more on its
performance and future plans.
81
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FINANCIAL REVIEW CONTINUED
Exceptional items
For a full list of exceptional items, refer to note 4 of the Financial
statements. Below is a summary of the significant exceptional
items recorded.
Following British Airways reaching a settlement agreement
with the Trustee Directors of its APS pension scheme, the Group
recognised an exceptional non-cash net operating charge of
€672 million, reflecting the associated increased IAS 19 defined
benefit liability of APS. The settlement, approved by the High
Court in November 2019, puts an end to a legal dispute over
pension increases, which started in 2013.
In 2018 British Airways closed its NAPS pension scheme to future
accrual and its BARP pension scheme to future contributions,
replacing them with a new defined contribution scheme. The
changes led to an exceptional net credit of €678 million. British
Airways also reflected the cost of equalising the effects of
Guaranteed Minimum Pensions, leading to €94 million charge to
employee costs and had restructuring costs of €136 million.
Non-operating costs and taxation
Net non-operating costs after exceptional items were €338
million, down from €521 million last year. The translation of
non-hedged balance sheet items and movement on US dollar
denominated aircraft debt and hedging resulted in a net credit.
This was partially offset by higher finance costs due to
accelerated bond redemption and interest accrued on bonds
issued in 2019.
See note 8 in our Financial statements for more
on our non-operating costs.
Taxation
The substantial majority of the Group’s activities are taxed where
the main operations are based, UK, Spain and Ireland,
with corporation tax rates during 2019 of 19 per cent, 25 per cent
and 12.5 per cent respectively. The Group’s effective tax rate for
the year before exceptional items was 19 per cent (2018: 18 per
cent) and the income statement tax charge was €560 million
(2018: €542 million).
There is no associated Income statement tax credit linked to the
2019 exceptional item, as the value of the accounting surplus is
net of 35 per cent tax at source.
See note 9 in our Financial statements for more information
on our tax.
Profit after tax and Earnings per share (EPS)
Profit after tax before exceptional items was €2,387 million,
down 1.4 per cent. The decrease reflects a lower operating profit
from the effect of the pilot strike at British Airways and from
significantly higher fuel costs, partially offset by continued cost
saving initiatives and capacity adjustments in the face of slower
demand. Adjusted earnings per share before exceptional items is
a key performance indicator and increased by 1.7 per cent in the
year, reflecting the lower operating profit, offset by a lower share
base, following the share buyback programme in 2018 and
convertible bond redemption in 2019.
Profit after tax and exceptional items was €1,715 million (2018 pro
forma: €2,838 million, 2018 statutory: €2,897 million), down
39.6 per cent, due to the exceptional pension charge in 2019
versus an exceptional net gain in 2018.
See note 10 in our Financial statements for more information
on our EPS.
Dividends
The Board is proposing a final dividend to shareholders of
17.0 euro cents per share, which brings the full year dividend to
31.5 euro cents per share. Subject to shareholder approval at the
Annual General Meeting, the final dividend will be paid on July 6,
2020 to shareholders on the register on July 3, 2020.
Dividend policy statement
In determining the level of dividend in any year, the Board
considers several factors, including:
• Earnings of the Group;
• Ongoing cash requirements and prospects of the Group and its
operating companies;
• Levels of distributable reserves by operating company and
efficiency of upstreaming options;
• Dividend coverage; and
• Its intention to distribute regular returns to its shareholders in
the medium and long-term.
The Company received distributions from each of the four main
airlines in 2019. Distributions from British Airways may trigger
additional pension contributions if higher than pre-agreed
thresholds and in 2019 an increased threshold of 50 per cent of
after-tax profit was agreed until September 2022; see note 30 of
the Financial statements.
The Company’s distributable reserves position was strong, with
€5.2 billion available at December 31, 2019 (2018: €5.7 billion).
82
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Liquidity and capital risk management
IAG’s objectives when managing capital are to safeguard the
Group’s ability to continue as a going concern, to maintain an
optimal capital structure to reduce the cost of capital and to
provide sustainable returns to shareholders. In November 2018,
S+P and Moody’s assigned IAG with a long-term investment
grade credit rating with stable outlook.
The Group monitors capital using net debt to EBITDA and
liquidity. In 2019, the Group’s net debt to EBITDA ratio increased
to 1.4 from 1.2 times, well within the Group’s target ceiling of 1.8
times. EBITDA was slightly lower, with the reduction in operating
profit partially offset by lower non-operating expenditure. Net
debt increased by €1.1 billion, mainly due to higher capital
expenditure as the Group continues to invest in the customer
experience and in new, fuel-efficient aircraft.
In 2019 the Group financed 41 of the new aircraft delivered during
the year, using a range of aircraft-specific financing instruments,
including an EETC bond issue by British Airways of $806 million,
which were combined with Japanese Operating Leases with Call
Options (“JOLCO”) as in previous years, bringing the total
financing raised to $1,120 million. The Group redeemed
outstanding convertible bonds of €500 million and in July issued
its first unsecured bonds for an aggregate principal amount of
€1 billion, split into two tranches of €500 million due in 2023
and 2027.
Pensions and restructuring reflect payments made to the British
Airways APS and NAPS pension plan schemes and restructuring
payments for British Airways’ and Iberia’s transformation plans.
Deficit payments to the APS plan ceased effective from
January 1, 2019, following an out-of-court settlement which put an
end to litigation regarding pension increases that had started in
2013. The full triennial valuation for the NAPS plan, based on the
position at March 31, 2018, was agreed during the year, with deficit
payments set at €532 million per annum (equivalent to the €354
million plus a cash sweep of up to €177 million under the previous
plan), an overfunding protection mechanism and an increased
dividend mitigation threshold, whereby, up to September 2022, if
British Airways pays dividends in excess of 50 per cent of
after-tax profits (previously 35 per cent) additional pension
contributions will be made, or a guarantee provided.
Tax cash flows were €224 million lower than in 2018 principally
reflecting the early receipt in Spain of a refund for a previous tax
deposit, and the receipt in the UK of a one-off repayment
following the reassessment of Avios’ deferred revenue upon
adoption of IFRS 15 'Revenue recognition'.
Shareholder returns reflect cash payments for dividends, buyback
programmes and special dividends. In 2018 a buyback programme
of €500 million was completed. In 2019 the Group paid a special
dividend of €695 million, in addition to normal dividends
equivalent to 25 per cent of pre-exceptional profit after tax.
Cash flow
€ million
Operating profit
before exceptional items
Depreciation, amortisation
and impairment
Pensions
Payments related to
restructuring
Movement in working capital
Other operating movements
Interest received
Interest paid
Tax paid
Cash flow from
operating activities
Acquisition of PPE and
intangible assets
Sale of PPE
and intangible assets
Other investing movements
Cash flow from
investing activities
Proceeds from long-term
borrowings
Repayments of
borrowings and lease liabilities
Net cash flows from
financing activities before
shareholder returns
2018
2019
(statutory) Movement
3,285
3,230
55
2,111
(865)
(180)
(70)
279
42
(481)
(119)
1,254
(843)
(220)
(64)
334
37
(149)
(343)
857
(22)
40
(6)
(55)
5
(332)
224
4,002
3,236
766
(3,465)
(2,802)
(663)
911
(1)
574
(251)
337
250
(2,555)
(2,479)
(76)
2,286
1,078
1,208
(2,237)
(1,099)
(1,138)
49
(21)
70
Levered free cash flow for the
year
Shareholder returns
Cash inflow/(outflow) for the
year
1,496
736
(1,308)
(1,077)
760
(231)
188
(341)
529
Opening cash and interest-
bearing deposits
Net foreign exchange differences
Closing cash and interest-
bearing deposits
6,274
221
6,676
(61)
(402)
282
6,683
6,274
409
83
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
FINANCIAL REVIEW CONTINUED
Taking these factors into consideration, the Group’s cash inflow
for the year was €188 million and after net foreign exchange
differences, the increase in cash net of exchange was €409
million. Each operating company holds adequate levels of cash
with balances approximately 20 per cent of revenues or higher,
sufficient to meet obligations as they fall due.
€ million
British Airways
Iberia
Aer Lingus
Vueling
IAG and other Group
companies
Cash and deposits
2019
3,055
1,121
580
820
1,107
6,683
2018
2,780
1,191
891
564
848
6,274
Higher/
(lower)
275
(70)
(311)
256
259
409
The implementation of IFRS 16, whilst not changing cash, altered
where certain items appear on the cash flow statement, notably
resulting in higher depreciation, higher interest paid and higher
repayment of borrowings. On a like-for-like basis, depreciation
was up approximately €115 million, interest paid unchanged and
repayment of borrowings up €471 million, mainly linked to the
repayment of the IAG 2020 convertible bond.
84
Net debt (and Adjusted net debt for 2018)
€ million
Debt
Cash and cash equivalents and
interest-bearing deposits
Net debt at January 1
Adoption of IFRS 16
January 1, 2019
Net debt at January 1 after
adoption of IFRS 16
(Increase)/decrease in cash net
of exchange
Net cash outflow from
repayments of borrowings
and lease liabilities
Net cash inflow from new
borrowings
New leases
(Increase)/decrease in net
debt from regular financing
Exchange and other
non-cash movements
Net debt at December 31
Capitalised aircraft lease costs
Adjusted net debt
at December 31
2019
7,509
2018
(statutory)
Higher /
(lower)
7,331
178
(6,274)
(6,676)
1,235
655
402
580
5,195
–
5,195
6,430
655
5,775
(409)
402
(811)
(2,237)
(1,099)
(1,138)
2,286
1,199
1,078
–
1,208
1,199
1,248
(21)
1,269
302
7,571
–
199
1,235
7,120
103
6,336
(7,120)
7,571
8,355
(784)
The Group’s net debt position after the adoption of IFRS 16
increased by €1.1 billion over the year from €6,430 million at
January 1, 2019 to €7,571 million at the end of the year, mainly due
to increased capital expenditure as the Group invested in new
fuel-efficient fleet.
Capital commitments
Capital expenditure authorised and contracted for amounted to
€12,830 million (2018: €10,831 million) for the Group. Most of this is
in US dollars and includes commitments until 2025 for 79 aircraft
from the Airbus A320 family, 12 Boeing 787s, 22 Boeing 777s, 33
Airbus A350s, and one Airbus A330.
Overall, the Group maintains flexibility in its fleet plans with the
ability to defer, to exercise options and to negotiate different
renewal terms. IAG does not have any other off-balance sheet
financing arrangements.
See key performance indicators section for more information.
See alternative performance measures section for more information.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Corporate
Governance
86 Chairman’s introduction to corporate governance
88 Board of Directors
90 Corporate governance
102 Report of the Audit and Compliance Committee
105 Report of the Nominations Committee
109 Report of the Safety Committee
110 Report of the Remuneration Committee
85
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information CHAIRMAN’S INTRODUCTION TO CORPORATE GOVERNANCE
Ensuring we have the right
leadership and culture to achieve
sustainable growth
Leadership changes
Effective succession planning is a key
element of corporate governance, and it
has been a growing activity for the Board
and our Nominations Committee in
recent years.
That work increased during the year, both
in terms of the management team and
Board membership.
After completing a thorough evaluation,
the Nominations Committee
recommended in January 2020 that
Luis Gallego, Chairman and Chief
Executive of Iberia, should be appointed
to succeed Willie Walsh as Group Chief
Executive following the announcement
of his retirement.
Earlier, in April 2019, we announced that
our Group Chief Financial Officer, Enrique
Dupuy, would step down in June and be
replaced by Steve Gunning, British
Airways' Chief Financial Officer.
We also appointed Alistair Hartley as the
IAG Director of Strategy following the
retirement of Robert Boyle, and John
Gibbs to a new and important role within
the management team, as Group Chief
Information Officer.
More recently we have announced
important leadership appointments in our
airlines, with Javier Sánchez-Prieto,
currently Chairman and Chief Executive of
Vueling, replacing Luis at Iberia and with
Marco Sansavini moving from the post of
Chief Commercial Officer at Iberia to take
the helm at Vueling.
With the exception of John, who
joined us from Rolls-Royce, all of these
appointments are internal promotions.
They are evidence of the depth and quality
of talent we are so lucky to have within the
company, and our determination to
develop our own leaders and give them
new opportunities to shine. Having said
that, when planning succession at all levels
of the Group, we always map our options,
both internally and externally, to ensure
we attract the people we need to sustain
our success.
Antonio Vázquez
Chairman
“Our approach to
corporate governance
is all about ensuring
our business can
continue to grow
sustainably long into
the future for the
benefit of all our
stakeholders.”
86
I am delighted to welcome you to our
latest corporate governance report, which
covers a busy year for the Board and a
highly significant one for IAG.
2019 – our ninth year as a combined Group
- was a year of solid progress for the
company despite challenging operating
and geo-political conditions. But it was
also one of great change for the leadership
of the Group and you will not be surprised
that succession planning was a major
pre-occupation for the Board during
the year.
There were many other important items on
our agenda as well, of course. They
included the proposed acquisition of Air
Europa by Iberia, Brexit contingency
planning, the make up of our shareholder
register, the data breach at British Airways,
as well as further work to embed the
principles of the 2018 UK Corporate
Governance Code and to roll out our new
Code of Conduct, Group-wide.
But the overall role of the Board remains
the same - to help create long-term
sustainable value for the benefit of our
shareholders and all the other stakeholders
of the company, working in close co-
operation with the management team. My
fellow Board directors and I remain firmly
focused on that task.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Board changes
Since our earliest days, I’ve always had the
support of a diverse, experienced and
highly capable group of non-executive
directors. When changes occur, we work
hard to recruit the right people to the
Board, with a blend of relevant sector and
market skills.
At our Shareholders’ Meeting in June,
Patrick Cescau – a Board member since
IAG was first formed in 2011 – stepped
down and I thank him for his great service
as a director, our Senior Independent
Director and a long-standing member of
the Audit and Compliance Committee. I
have always valued his wise advice and
unstinting support.
Dame Marjorie Scardino also left our Board
in June 2019 at our Shareholders' Meeting.
She has made a wonderful contribution,
always bringing a fresh perspective and
brilliant insights to our deliberations. I will
miss that greatly.
We are delighted to have brought
two new, first-class directors on to the
team, welcoming Margaret Ewing and
Javier Ferrán to the Board in June 2019,
after an extensive search by the
Nominations Committee.
Margaret brings strong financial and
accounting experience, including time
working within our sector as chief financial
officer at BAA, and is making a valuable
addition to our Audit and Compliance
Committee. Javier, after a long career with
the Bacardi Group, is now chairman of
Diageo, a top 10 FTSE 100 company, and
brings much experience as a non-
executive director, offers us both expertise
in general management and a deep
understanding of consumer markets.
Following these appointments, we have
made some changes to the membership of
our committees and Alberto Terol has
become our Senior Independent Director.
I’m also glad to say we continue to meet
our diversity target of having 33 per cent
female representation on the Board. You
can read full details of these leadership
changes and our rigorous approach to
succession planning in the Nominations
Committee’s report.
Maintaining our effectiveness
We are committed to increasing the
effectiveness of the Board, always looking
for ways to improve the way we work and
our ability both to scrutinise and support
the management team.
We completed internal reviews of the
Board in 2017 and 2018 during which I
talked individually to fellow directors to
understand their concerns and to get their
ideas on how we can improve our
performance. In accordance with
recommendations in both the Spanish and
the UK corporate governance codes, we
open ourselves to external review in the
third year to make sure our own
conclusions are valid. I am pleased to say
the latest review was positive and added
good value to our own reflections, as you
can read further on in this report.
Compliance, culture and engagement
The Board spent a good deal of time
during the year considering how best to
embed the principles of the UK Corporate
Governance Code, with directors being
briefed regularly on its implementation.
We also involved the IAG Management
Committee in the process to ensure that
the day-to-day running of Group conforms
to best corporate governance practice.
We believe we are very largely compliant
with the code. There are areas relating to
culture and engagement with employees
and stakeholders that require further work.
We are still a young Group made up of
distinct airline brands, each with their own
values and culture. We see this as a real
strength of IAG and one we want to
safeguard. But it does make implementing
common procedures and principles more
challenging for us than might be the
case for a company with a more
centralised structure.
Good progress was made on implementing
our new Code of Conduct across the
Group, with activities carried out in all our
operating companies and with the Board
completing a session on integrity during
the year. This project is not about
imposing a set of rules and procedures.
Rather it is about getting the message
clearly out to people across the Group
that we must all act with integrity at all
times and to demonstrate clearly our
aspiration to create a healthy culture
across the business.
We are serious about finding ways for the
Board to understand the views of
employees, without, of course, detracting
from the management team’s key role in
this area. We are doing this in a number of
ways. Initially, three Board members –
Maria Fernanda Mejia, Nicola Shaw and
Alberto Terol – have taken on the role of
liaising with employees more closely and
were involved in a number of activities
during the year.
The Board reviewed its relationship with
other key stakeholders, taking into account
the issues that are most important to
them, not least environmental and
sustainability issues where we have made
further great progress in 2019.
Non-EU shareholders
Under EU regulations, our airlines must be
majority EU owned and controlled to
maintain their operating licences. By
February 2019, we reached the point
where 47.5% of our shares were owned by
investors outside the EU so we took swift
action to limit non-EU share buying. This
move saw the proportion of shares owned
by non-EU investors fall to 39.5% during
the year and, as a result, we removed the
cap with immediate effect on January 17,
2020. The Board will watch this issue
carefully. Although it is not an action we
like to take, our by-laws permit us to
re-impose the permitted maximum, if
necessary, to protect our airlines’
operating licences.
Sustaining our success
I want to thank my fellow directors for
their tremendous work and support during
the year. I believe we have a robust
corporate governance structure in place
and we are all determined to keep it
that way.
We want IAG to be a profitable business.
But our overriding concern is to make sure
we can sustain our success long into the
future, for the benefit of those who commit
capital to the Group and for our employees
and the communities we serve. I think we
are well positioned to do just that.
Antonio Vázquez
Chairman
87
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information BOARD OF DIRECTORS
Antonio Vázquez
Willie Walsh
Alberto Terol
Marc Bolland
Margaret Ewing
Javier Ferrán
Steve Gunning
Deborah Kerr
Maria Fernanda Mejia
Kieran Poynter
Emilio Saracho
Nicola Shaw
88
Antonio Vázquez
N S
Key areas of experience:
Consumer, sales/marketing, finance, governance
Current external appointments:
Chairman,Cooperation Board of Loyola
University. Trustee, Loyola University
Foundation. Member, Advisory Board of the
Franklin Institute. Trustee, Nantik Lum
Foundation.
Previous relevant experience:
Chairman, Iberia 2012–2013. Chairman and CEO,
Iberia 2009–2011. Chairman and CEO, Altadis
Group 2005–2008. Chairman, Logista 2005–
2008. Director, Iberia 2005–2007. Chief
Operating Officer and other various positions,
Cigar Division of Altadis Group 1993–2005.
Various positions at Osborne 1978–1983 and
Domecq 1983–1993. Began his professional
career in consultancy at Arthur Andersen & Co.
S
Willie Walsh
Key areas of experience:
Airline industry
Other Group appointments:
Chairman, Aer Lingus Board of Directors.
Previous relevant experience:
Chairman, Airlines for Europe (A4E) 2016-2019.
Chairman, National Treasury Management
Agency of Ireland, 2013–2018. Chairman, IATA
Board of Governors 2016–2017. Chief Executive
Officer, British Airways 2005–2011. Chief
Executive Officer, Aer Lingus 2001–2005. Chief
Operating Officer, Aer Lingus 2000–2001. Chief
Executive Officer, Futura (Aer Lingus’ Spanish
Charter airline) 1998–2000. Joined Aer Lingus as
cadet pilot in 1979.
NA
Alberto Terol
Key areas of experience:
Finance, professional services, information
technology, hospitality industry
Current external appointments:
Vice Chairman, Leading Independent Director
and Chairman of the Nominations, Remuneration
and Corporate Governance Committee, Indra
Sistemas. Director, Broseta Abogados.
International Senior Advisor, Centerbridge.
Independent Director, Schindler España. Patron
of Fundación Telefonica. Executive Chairman of
various family owned companies.
Previous relevant experience:
Chairman of the Supervisory Board, Senvion
GmbH 2017–2019. Chairman of the Audit
Committee, Senvion S.A 2017–2019. Director,
OHL 2010–2016. Director, Aktua 2013–2016.
Director, N+1 2014–2015. International Senior
Advisor, BNP Paribas 2011–2014. Member, Global
Executive Committee Deloitte 2007–2009.
Managing Partner: EMEA Deloitte 2007–2009,
Managing Partner Global Tax & Legal Deloitte
2007–2009. Member, Global Management
Committee Deloitte 2003–2007. Managing
Partner, Latin America Deloitte 2003–2007,
Integration Andersen Deloitte 2002–2003,
Managing Partner EMEA Arthur Andersen
2001–2002, Managing Partner Global Tax &
Legal Arthur Andersen 1997–2001, Managing
Partner Garrigues-Andersen 1997–2000.
R N
Marc Bolland
Key areas of experience:
General management, commercial management/
marketing, retail, hospitality industry
Current external appointments:
Head of European Portfolio Operations, The
Blackstone Group. Chairman of Blackstone
Europe. Director, Coca-Cola Company.
Non-Executive Director, Exor S.p.A. Vice
President, UNICEF UK. Non-Executive
Chairman Polymateria.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Previous relevant experience:
Chief Executive, Marks & Spencer 2010–2016.
Chief Executive, WM Morrison Supermarkets
PLC 2006–2010. Director, Manpower USA
2005–2015. Chief Operating Officer 2005–2006,
Director 2001–2005 and other executive and
non-executive positions, Heineken 1986–2001.
A
Margaret Ewing
Key areas of experience:
Professional services, financial accounting,
corporate finance, strategic and capital planning,
corporate governance, risk management
Current external appointments:
Senior independent non-executive director and
Chairman of the Audit and Risk Committee,
ConvaTec Group Plc. Independent non-
executive director and Chair of the Audit and
Risk Committee, ITV Plc. Trustee and Chairman
of the Finance and Audit Committee, Great
Ormond Street Hospital Children’s Charity.
Previous relevant experience:
Non-executive director, Standard Chartered Plc
2012–2014. Member of the Audit Committee,
John Lewis Partnership Plc 2012–2014. Non-
executive director, Whitbread Plc 2005–2007.
Vice Chairman, Managing Partner, Public Policy,
Quality and Risk and London Practice Senior
Partner, Deloitte LLP 2007–2012. Director,
Finance, BAA Ltd 2006 and Chief Financial
Officer, BAA PLC 2002–2006. Group Finance
Director, Trinity Mirror PLC 2000–2002. Partner,
Corporate Finance, Deloitte & Touche LLP
1987–1999.
R S
Javier Ferrán
Key areas of experience:
Consumer, finance, sales/marketing, governance
Current external appointments:
Chairman, Diageo Plc. Non-executive director,
Coca Cola European Partners Plc. Member,
Supervisory Board Picard Surgeles.
Previous relevant experience:
Member, International Advisory Board ESADE
2005–2019. Non-executive director, Associated
British Foods plc 2005–2018. Non-executive
director, SABMiller plc 2015–2016. Member,
Advisory Board Agrolimen SA 2005–2016. Vice
Chairman, William Grants & Sons Limited
2005–2014. Non-executive director, Louis
Dreyfus Holdings BV 2013–2014. Non-executive
director, Abbott Group 2005–2008. Non-
executive director, Desigual SA. Non-executive
director, Chupa Chups SA. Partner, Lion Capital
LLC 2005–2018. Management positions with
Bacardi Group including tenures as Regional
President EMEA and President and Chief
Executive Officer.
Steve Gunning
Key areas of experience:
Finance, airline industry
Current external appointments:
Non-Executive Director, FirstGroup Plc.
Previous relevant experience:
Chief Financial Officer, British Airways 2016–
2019. Director, IAG Global Business Services
2017–2019. Chief Executive Officer, IAG Cargo
2012–2015. Pension Trustee, British Airways
2006–2011. Managing Director of World Cargo,
British Airways 2007–2012. Head of Internal
Control, British Airways 2006–2007. World
Cargo Finance Director, British Airways
2004–2006.
A N
Deborah Kerr
Key areas of experience:
Technology, digital, marketing, operations,
software and services, general management
Current external appointments:
Director, NetApp Inc. Director, Chico’s FAS. Inc.
Director, ExlService Holdings, Inc. Managing
Director, Warburg Pincus.
Previous relevant experience:
Executive Vice President, Chief Product and
Technology Officer, SABRE Corporation
2013–2017. Director, DH Corporation 2013–2017.
Director, Mitchell International, Inc. 2009–2013.
Executive Vice President, Chief Product and
Technology Officer, FICO, 2009–2012. Vice
President and Chief Technology Officer, HP
Enterprise Services 2007–2009. Vice President
Business Technology Optimization, Hewlett-
Packard Software 2005–2007. Senior Vice
President Product Delivery, Peregrine Systems
1998–2005. Prior senior leadership roles with
NASA’s Jet Propulsion Laboratory, including
Mission Operations Manager, US Space VLBI,
Nasa Jet Propulsion Laboratory 1988–1998.
A R
Maria Fernanda Mejia
Key areas of experience:
General management, marketing and sales,
supply chain, strategic planning, corporate
transactions
Current external appointments:
Board Member of the Council of the Americas.
Previous relevant experience:
Senior Vice President, The Kellogg Company
(2011–2019). President, Kellogg Latin America
(2011–2019). Corporate Officer and member of
The Kellogg Company Executive Leadership
Team (2011–2019). Vice-President and General
Manager Global Personal Care and Corporate
Fragrance Development, Colgate-Palmolive
2010–2011. Vice-President Marketing and
Innovation Europe/South Pacific Division,
Colgate-Palmolive 2005–2010. President and
CEO Spain and Spain Holding Company
2003–2005, General Manager Hong Kong and
Director, Greater China Management team
2002–2003, Marketing Director Venezuela
2000–2002, Marketing Director Ecuador
1998–2000.
A S
Kieran Poynter
Key areas of experience:
Professional services, finance services, corporate
governance, corporate transactions
Current external appointments:
Chairman, BMO Asset Management (Holdings)
PLC. Senior Independent Director, British
American Tobacco.
Previous relevant experience:
Chairman, Nomura International 2009–2015.
Member, Advisory Committee for the Chancellor
of the Exchequer on the competitiveness of the
UK financial services sector 2009–2010. Member,
President’s committee of the Confederation of
British Industry 2000–2008. UK Chairman and
Senior Partner, PricewaterhouseCoopers
2000–2008. UK Managing Partner and other
executive positions, PricewaterhouseCoopers
1982–2000.
N R
Emilio Saracho
Key areas of experience:
Corporate finance, investment banking,
corporate transactions
Current external appointments:
Director, Altamar Capital Partners. Director,
Inditex.
Previous relevant experience:
Chairman, Banco Popular Español 2017. Vice
Chairman and Member Investment Banking
Management Committee, JP Morgan 2015–2016.
Deputy CEO 2012–2015, CEO Investment
Banking for EMEA 2012–2014 and member
Executive Committee 2009–2013, JP Morgan.
CEO, JP Morgan Private Banking for EMEA
2006–2012. Director, Cintra 2008. Director, ONO
2008. Chairman, JP Morgan Spain & Portugal
1998–2006. Global Investment Banking Head,
Santander Investment (UK) 1995–1998. Spanish
Market Manager, Goldman Sachs International
1990–1995.
R S
Nicola Shaw
Key areas of experience:
Transport sector, public policy and regulatory
affairs, consumer, general management
Current external appointments:
Executive Director, National Grid plc. Director,
Major Projects Association. Director, Energy
Networks Association and Energy UK.
Previous relevant experience:
Member of the Audit and Risk Committee,
English Heritage 2015–2018. Non-Executive
Director, Ellevio AB 2015–2017. CEO, HS1 Ltd
2011–2016. Member of the Department for
Transport’s Rail Franchising Advisory Panel
2013–2016. Non-Executive Director, Aer Lingus
Plc 2010–2015. Charity Trustee, Transaid
2011–2013. Director and previously Managing
Director, Bus Division at FirstGroup plc
2005–2010. Director of Operations and other
management positions at the Strategic Rail
Authority 2002–2005. Deputy Director and
Deputy Chief Economist, Office of the Rail
Regulator (ORR) 1999–2002. Associate, Halcrow
Fox 1997–1999. Transport specialist, The World
Bank 1995–1997. Corporate planner, London
Transport 1990–1993.
Committee Chair
Audit and Compliance Committee
Nominations Committee
Safety Committee
Remuneration Committee
A
N
S
R
89
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information CORPORATE GOVERNANCE
Governance framework: structure and responsibilities
IAG, as the Group’s parent company, is
responsible for the Group’s strategy and
business plan. It centralises the Group’s
corporate functions, including the
development of its global platform.
IAG sets the long-term vision for the
Group, defines portfolio attractiveness and
makes capital allocation decisions, exerting
vertical and horizontal influence across
the Group.
Each operating company is responsible for
the management of their respective
businesses and accountable for the
implementation of the joint business and
synergy plans. In particular, each operating
company focus is:
• deep and real-time understanding of
customer and competitive environment
• define product strategy for target
customer segments
• stand alone profit centres and
independent credit identities
• individual brand, cultural identity and
management teams
Each company has its own board of
directors and its own executive committee,
led by the top executive of each company.
There is a clear separation of the roles of
the Chairman and the Chief Executive.
The Chairman is responsible for the
operation of the Board and is responsible
for its overall effectiveness in directing
the company.
IAG (Parent Company)
Chairman
The Chief Executive is responsible for the
day-to-day management and performance
of the Group and for the implementation
of the strategy approved by the Board.
All the powers of the Board have been
permanently delegated to the IAG Chief
Executive save for those which cannot
be delegated pursuant to the Bylaws,
the Board Regulations or the
applicable legislation.
Senior Independent Director
Board*
Audit and Compliance
Committee
Nominations Committee
Remuneration Committee
Safety Committee
Group CEO
Management Committee
Group common platform
Group operating companies
* List of Board’s reserved matters can be found in Article 3 of the Board Regulations, available on the Company’s website.
90
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Board
Comprises ten non-executive directors and
two executive directors (IAG CEO and
CFO) and is responsible for:
• the supervision of the management of
the Company
• the approval of the strategy and general
policies of the Company and the Group
• the determination of the policy on
shareholders’ remuneration
• ensuring the effectiveness of the
Company’s corporate
governance system
• approval of any significant contractual
commitment, asset acquisition or
disposal or equity investment or
divestment
• the definition of the Group structure
• the approval of major alliances
• the definition of the shareholders
disclosure policy
• approval of the risk management and
control policy, including the Group’s risk
appetite
Chairman
Antonio Vázquez
• chairs the shareholders’ meetings
• leads the Board’s work
• sets the Board’s agenda and directs its
discussions and deliberations
• ensures that directors receive accurate,
timely and clear information, including
the Company’s performance, its
strategy, challenges and opportunities
• ensures that there is an effective
communication with shareholders and
that directors and executives understand
and address the concerns of investors
• offers support and advice to the
Chief Executive
• promotes the highest standards of
corporate governance
Group CEO
Willie Walsh
• is responsible and accountable to the
Board for the management and
profitable operation of the Company
• leads the Company’s management team
• oversees the preparation of operational
and commercial plans
• develops an effective
management strategy
• puts in place effective controls
• coordinates the activities of the Group
Senior Independent Director
Alberto Terol
• provides a sounding board for the
Chairman
• serves as intermediary for the other
directors when necessary
• is available to shareholders, should they
have any concerns they cannot resolve
through the normal channels
• leads the evaluation of the Chairman’s
performance annually
Audit and Compliance Committee
• reviews the effectiveness of the external
auditor process, preserving their
independence
• supervises the effectiveness of the
internal control of the Company, the
internal audit and the risk
management systems
• supervises the process for
the preparation of the Group’s financial
results, reviewing the Company’s
accounts and the correct application of
the accounting principles
• assesses and oversees the Company’s
compliance system
• reviews the Company’s CSR and
sustainability policy
Nominations Committee
• evaluates and makes
recommendations regarding the
Board and committee composition
• submits to the Board the proposed
appointment of independent directors
• puts in place plans for the succession
of directors, the Chairman and the
Chief Executive
• oversees and establishes guidelines
relating to the recruitment,
appointment, career, promotion and
dismissal of senior executives
• reports on the proposed appointment
of senior executives
• monitors compliance with the
company’s director selection and
diversity policy
Remuneration Committee
• reviews and recommends to the
Board the directors and senior
executive remuneration policy
• reports to the Board on incentive
plans and pension arrangements
• monitors compliance with the
Company’s remuneration policy
• ensures compliance with disclosure
requirements regarding directors’
remuneration matters
• review workforce remuneration and
related policies
Safety Committee
• receives material safety information
about any subsidiary or franchise,
codeshare or wet lease provider
• exercises a high level overview of the
safety activities and resources
• follows up on any safety related
measures as determined by the Board
91
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information CORPORATE GOVERNANCE CONTINUED
Application of governance codes
As a company incorporated and listed
in Spain, IAG is subject to applicable
Spanish legislation and to the Spanish
corporate governance framework. In
accordance with Spanish legal
requirements, this Corporate Governance
report includes information regarding
compliance with the Spanish Good
Governance Code of Listed Companies as
well as other information related to IAG’s
corporate governance. This report is part
of the IAG Management Report.
At the same time, as IAG has a listing
on the London Stock Exchange, it
is also subject to the UK Listing Rules,
including the requirement to explain
whether it complies with the UK Corporate
Governance Code published by the UK
Financial Reporting Council (“FRC”) as
amended from time to time. A copy of the
current version of the UK Corporate
Governance Code applicable to this
reporting period (updated and published
in July 2018) is available at the website of
the FRC (www.frc.org.uk). This Corporate
Governance Report includes an
explanation regarding the Company’s
application of the main principles of the
UK Corporate Governance Code.
IAG has prepared a consolidated
Corporate Governance Report responding
to both Spanish and UK reporting
requirements. This Corporate Governance
Report is available on the Company’s
website (www.iairgroup.com), and it is also
available on the Spanish Comisión Nacional
del Mercado de Valores (CNMV) website
(www.cnmv.es). Pursuant to the CNMV
regulations, this report has been filed with
the CNMV accompanied by a statistical
annex covering some legally required data.
During 2019, IAG complied with all the
applicable recommendations of the
Spanish Corporate Governance Code, with
the sole exception of the rules on the
composition and operation of non-
mandatory Board committees, which is
partially non-compliant in relation to IAG’s
Safety Committee which is chaired by an
executive director, the Group Chief
Executive, and not by an independent
director as recommended by the Code.
The Board believes this is appropriate,
taking into consideration that IAG is not an
airline but the Group parent company, and
its Safety Committee exercises a high-level
supervisory role within the Group.
Consistent with legal requirements,
responsibility for safety matters remains
with each Group airline, and the technical
nature of the safety issues and the fact
that each Group airline has its own
particular characteristics makes it
advisable that the Group’s top executive
leads this committee and coordinates the
reporting of the different airlines.
As far as the 2018 UK Corporate
Governance Code is concerned, the
Company considers that it has complied
with all of the provisions, although
recognising that compliance with some
of the more recent changes requires
further development both in relation to the
provisions and the application of
the Code principles.
Board composition
As set out in the Company’s Bylaws the Board shall comprise a minimum of nine and a maximum of 14 members. As of December 31,
2019, the Board composition was:
Name of Board Member
Antonio Vázquez
Willie Walsh
Alberto Terol
Marc Bolland
Margaret Ewing
Javier Ferrán
Steve Gunning
Deborah Kerr
Maria Fernanda Mejia
Kieran Poynter
Emilio Saracho
Nicola Shaw
Position/Category
Chairman
Chief Executive
Senior Independent Director
Director (independent)
Director (independent)
Director (independent)
Chief Financial Officer
Director (independent)
Director (independent)
Director (independent)
Director (independent)
Director (independent)
First appointed
May 25, 20101
May 25, 20101
June 20, 2013
June 16, 2016
June 20, 2019
June 20, 2019
June 20, 2019
June 14, 2018
February 27, 2014
September 27, 20102
June 16, 2016
January 1, 20183
1 Antonio Vázquez and Willie Walsh were formally appointed as directors for the first time on May 25, 2010, although IAG initiated its activities as the
holding company resulting from the merger between British Airways and Iberia in January 2011.
2 Kieran Poynter was formally appointed as a director for the first time on September 27, 2010, although IAG initiated its activities as the holding company
resulting from the merger between British Airways and Iberia in January 2011.
3 The appointment of Nicola Shaw as a non-executive director was approved by the Shareholders’ Meeting on June 15, 2017 but did not become effective
until January 1, 2018.
92
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 The IAG Board currently comprises
ten non-executive directors and two
executive directors, IAG’s Chief Executive
and Chief Financial Officer. The
biographies of each member of the
Board are set out in the Board of
Directors section.
At the Shareholders’ Meeting on June 20,
2019, Steve Gunning was appointed as an
executive director following the retirement
of Enrique Dupuy. Margaret Ewing and
Javier Ferrán were also appointed as
non-executive directors following the
retirement of Patrick Cescau and Dame
Marjorie Scardino. Further details of their
appointment are set out in the
Nominations Committee report. In
addition, Alberto Terol was appointed as
Senior Independent Director to replace
Patrick Cescau.
On January 9, 2020, it was announced that
Willie Walsh had decided to retire as
Group Chief Executive and would step
down at the Board meeting to be held on
March 26, 2020 and retire on June 30,
2020. Luis Gallego, Chairman and CEO of
Iberia will succeed him as Group Chief
Executive.
The Board Secretary is Álvaro López-
Jorrín, partner of the Spanish law firm J&A
Garrigues, S.L.P, and the Deputy Secretary
is Lucila Rodríguez.
Appointment, re-election, resignation
and removal of directors
The selection and appointment process is
described in detail in the Nominations
Committee report.
IAG directors are appointed for a period of
one year, as set out in the Company’s
Bylaws. At the end of their mandate,
directors may be re-elected one or more
times for periods of equal duration to that
established in the Bylaws. In this way, the
Company complies with the UK Code
recommendation that directors should be
subject to annual re-election.
Re-election proposals are subject to a
formal process, based on the Nominations
Committee proposal in the case
of non-executive directors, or its
recommendation report for executive
directors. This proposal or report is
prepared having due regard to the
performance, commitment, capacity,
ability and availability of the director to
continue to contribute to the Board
with the knowledge, skills and
experience required.
Directors cease to hold office when the
term of office for which they were
appointed expires.
Notwithstanding the above, a director
must resign in the cases established in
article 16.2 of the Board Regulations,
among other things when the director
ceases to have the good standing,
suitability, reliability, competence,
availability or commitment to office
necessary to be a director of the Company
Board diversity
Nationality
Spain
Ireland
UK
Gender
Netherlands
US
Colombia
4 females
8 males
33%
Tenure1
67%
0-3 years
4-6 years
7-9 years
40%
30% 30%
Core areas of expertise1
Industry
General management
Consumer Brands B2C
Corporate transactions
CEO/Chair experience in a listed company
International
Accounting/Audit
Technology
40%
100%
50%
60%
50%
50%
40%
25%
1 Non-executive directors only
93
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information CORPORATE GOVERNANCE CONTINUED
or when his or her remaining on the Board
might affect the Company’s credit or
reputation or otherwise jeopardises its
interests.
According to article 23.2 of the Board
Regulations, directors have a number of
disclosure obligations, including the duty
to inform the Company of circumstances
that might harm the Group’s name or
reputation. In particular, if they become
subject to any judicial, administrative or
other proceedings. In such circumstances,
the Board would consider the case as soon
as practicable and adopt the decisions it
deems fit, taking into account the
corporate interest. As stated previously, if
remaining on the Board would affect the
Company’s reputation, or otherwise
jeopardise its interest, a director must
place their position at the disposal of the
Board and, at its request, formally resign.
The Board may only propose the removal
of a non-executive director before the end
of the mandate when it considers there is
just cause, following a report by the
Nominations Committee. For these
purposes, just cause is deemed to exist
when the director takes up new positions
or enters into new obligations that prevent
them from dedicating the necessary time
to the performance of his or her duties as a
director, otherwise breaches his or her
duties as a director or unexpectedly
becomes subject to any of the
circumstances provided for in article 16.2
of the Board Regulations. The removal
may also be proposed as a result of
takeover bids, mergers or other similar
corporate transactions that determine a
material change of control.
A director who stands down before the
end of their term of office must state his or
her reasons in a letter to be sent to all the
directors. In addition, these explanations
need to be included in the Company’s
Annual Corporate Governance Report.
A copy of the Board Regulations is
available on the Company’s website
(www.iairgroup.com), as well as on the
website of the Spanish Comisión Nacional
del Mercado de Valores (wwww.cnmv.es).
Board and committee meetings
The Board met 10 times during the
reporting period. The Board also held its
annual two-day strategy meeting in
September 2019. During the reporting
period, the Chairman and the non–
executive directors met on two occasions
without the executives present.
As stated in the Board Regulations,
directors shall make their best efforts to
attend Board meetings. If this is not
possible, they may grant a proxy to
another director, although non-executive
directors may only grant their proxy to
another non-executive director. These
proxies need to be in writing and
specifically granted for each meeting. No
director may hold more than three proxies,
with the exception of the Chairman, who
cannot represent more than half of the
Board members. As far as possible,
proxies should be granted including
voting instructions.
Meetings attended by each director of
the Board and the different committees
during the reporting period are shown in
the table below:
Director
Total in the period
Antonio Vázquez
Willie Walsh
Marc Bolland1
Patrick Cescau2
Enrique Dupuy de Lôme2, 3
Margaret Ewing4
Javier Ferrán4, 5
Steve Gunning4
Deborah Kerr4
Maria Fernanda Mejia
Kieran Poynter
Emilio Saracho3, 4, 6
Dame Marjorie Scardino2
Nicola Shaw
Alberto Terol
Audit
and
Compliance
Committee
Nominations
Committee
Remuneration
Committee
Safety
Committee
7
–
–
–
100%
–
100%
–
–
86%
100%
100%
–
–
–
100%
7
100%
–
50%
100%
–
–
–
–
100%
–
–
86%
100%
–
100%
7
–
–
100%
–
–
–
2
100%
100%
–
–
–
–
50%
100%
–
–
100%
–
100%
100%
86%
100%
–
–
–
100%
–
–
50%
–
Board
10
100%
100%
75%
100%
83%
100%
100%
100%
100%
100%
100%
90%
100%
90%
100%
1 Marc Bolland was only able to attend the second day of the annual two-day strategy meeting in September. He was appointed as a member of the
Nominations Committee on June 20, 2019 and could not attend one of the two Committee meetings due to a prior commitment. He was replaced as
a member of the Safety Committee on June 20, 2019, prior to the two 2019 meetings of this Committee.
2 Enrique Dupuy, Patrick Cescau and Dame Marjorie Scardino retired from the Board on June 20, 2019.
3 Enrique Dupuy and Emilio Saracho could not attend the extraordinary Board meeting held on April 14, 2019 called at a short notice by the Board
Secretary at the request of the Chairman.
4 On June 20, 2019 Steve Gunning was appointed as an executive director, Margaret Ewing was appointed as a non-executive director and member
of the Audit and Compliance Committee, Javier Ferrán was appointed as a non-executive director and member of the Remuneration and
Safety Committees, Deborah Kerr was appointed as a member of the Nominations Committee and Emilio Saracho as a member of the
Remuneration Committee.
5 Javier Ferrán was appointed as a member of the Remuneration Committee on June 20, 2019, he could not attend one of the two Remuneration
Committee meetings due to a prior commitment.
6 Emilio Saracho could not attend the extraordinary Nominations Committee meeting held on April 14, 2019 called at a short notice by the Board
Secretary at the request of the Chairman.
94
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 The Board maintains a 12-month agenda
planner that ensures that strategic,
operational, financial, corporate
governance and any other relevant
matters are discussed at the appropriate
time at Board meetings. This planner is
updated and distributed to directors
before each Board meeting, giving them
the opportunity to suggest or recommend
any specific topics of interest.
Each Board meeting starts with a report
from each of the committee’s chairs on the
key discussions and decisions considered
by the respective committees, providing
an opportunity for directors to comment
or ask questions on the matters dealt with
by each committee. This is followed by a
general update from the Group Chief
Executive and subsequently, from the
Chief Financial Officer.
The key areas of Board activity during
2019 are outlined below:
Risk management and Internal controls
• Risk appetite framework review
• Review risk map and risk appetite statements
• Group cyber security update
• British Airways data incident and possible ICO fine
• Approve going concern and viability statements
• Effectiveness review of the internal control and risk
management systems
• Updates and review of the uncertainties arising from
the Brexit process
• External auditor yearly report to the Board
Shareholders, stakeholders and governance
• Updates on the permitted maximum of non-
EU shares
• Communication strategy
• Review feedback from institutional shareholders,
roadshows as well as analyst reports
• IAG Code of Conduct – business standards and values
• Board and management succession planning
• Management Committee remuneration scheme and
individual performance (salary review 2019 short and
long-term plans, 2018 outcome of variable
remuneration plans)
• Changes to Group company boards
• AGM call notice and proposed resolutions
• Review of the Board committee’s composition
• Board and committees effectiveness evaluation,
and agreed improvement priorities
• UK Corporate Governance Code
implementation updates
Board activities
Strategy and planning
• Joint Board/ Management Committee two-day
strategy session, including:
• review of the Group operating model
• share price performance review and diagnosis
• competitive landscape
• market strategic positioning review
(customer focus)
• strategic investments beyond the core
• distressed scenario planning
• sustainability review
• IT review
• Introductory session to the Group Business Plan
• 2020-2022 Group Business Plan and 2020
Financial Plan
• Group IT model
• Updates on corporate strategy and transactions
Performance and monitoring
• Reports from each of the operating companies,
including customer and commercial review as well as
HR updates
• Quarterly and full year financial reporting
• Monthly financial report (reviewed at the relevant
meeting or distributed to all Board members)
• Customer metrics
• Review of different joint business agreements and
franchise agreements.
• Level growth and development plans.
• British Airways pensions update
Significant transactions, investments and expenditures
• Norwegian potential deal
• Air Europa acquisition proposal
• Launch of new products and fleet reconfigurations
• Significant aircraft acquisitions, lease-backs and
aircraft-related financing arrangements
• Significant maintenance, supply and inventory and
engine agreements
• Financing arrangement for the acquisition or lease
of aircrafts
• British Airways long-haul fleet
• British Airways litigation review
95
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information CORPORATE GOVERNANCE CONTINUED
Board information and training
All Board and committee meeting
documents are available to all directors,
including the minutes of each meeting. All
directors have access to the advice of the
Board Secretary and the Group General
Counsel. Directors may take independent
legal, accounting, technical, financial,
commercial or other expert advice at the
Company’s expense when it is judged
necessary in order to discharge their
responsibilities effectively. No such
independent advice was sought in the
2019 financial year.
In 2019 the Board received specific
briefings on key developments, such as the
ongoing negotiations regarding the UK’s
exit from the EU and the new UK
Corporate Governance Code. In October,
a specific training session was also held on
cyber security.
In addition, an on-site session was
organised at British Airways which gave
directors the opportunity to hear first-hand
about the events and activities organised
by the airline to celebrate its
centenary anniversary.
Directors are offered the possibility to
update and refresh their knowledge of the
business and any technical related matter
on an ongoing basis to enable them to
continue fulfilling their responsibilities
effectively. Directors are consulted about
their training and development needs and
given the opportunity to discuss training
and development matters as part of their
annual individual performance evaluation.
Board induction
According to the induction guidelines,
approved by the Nominations Committee,
on joining the Board every newly
appointed director has a thorough and
appropriate induction. Each programme is
based on the individual director’s needs
and include meetings with other directors,
senior management and key external
advisors. The induction is designed to
provide a wide overview of the industry
and the sector, including particulars of
each of the markets in which the Group
operates, as well as an understanding of
the Group business model and its different
businesses. The programme is also a useful
tool to introduce the new director to the
IAG Management Committee as well as to
the different operating companies’ teams.
Once they have met all the relevant
positions at the Company, directors then
have the opportunity to visit the Group’s
key sites and to meet with each operating
company's leadership team, as a deep dive
in each of the Group businesses. In
addition to individual relevant topics as
applicable, the basic content of the
programme is:
• origin of the Group. Business basics
and strategy
96
IAG and the airline industry has many
complexities that are unique to it. The
induction programme highlighted these
complexities, as well as providing an
excellent introduction to all aspects of
the Group’s strategy, operations,
functions, and the Board and
Committee agendas, including visits to
observe aspects of the day to day
operations of certain of the operating
companies. Commencing the
programme with a session with the
Chairman, who provided extremely
valuable insight to the history of the
Group, its evolution, the key strategic
challenges it faces and, very
importantly, the priorities for the Board
during the next 12 to 18 months, was
extremely helpful and enabled me to
put the subsequent induction meetings
with senior management and other
Board members in context. My
induction programme was enhanced
and tailored to my specific knowledge
requirements as a member of the Audit
and Compliance Committee.
Throughout all aspects of the ongoing
induction programme I have found
every person I have met very open,
willing to share insights and keen to
ensure that I understand their ‘chosen
topic’ but also wanting to understand
my initial perceptions and own
experience. This has meant that a
working relationship with the
management team and others has
quickly and effectively developed.
Being new to the airline industry I found
the induction programme well thought
out and comprehensive. One could feel
that it was a well established procedure
which was taken very seriously by all
involved. This was the case both at IAG’s
Head Office, where I had the
opportunity to meet all members of the
Management Committee starting with
its CEO, as well as other persons
responsible for key central functions, as
well as at the different operating
companies that I had the opportunity to
visit. With hindsight, even if the learning
process should never end, it has allowed
me to get up to speed in just a few
months and exceeding all my
expectations. I am very grateful to
all involved.
Javier Ferrán
In relation to each committee newly
appointed members are also provided with
introductory sessions specific for each
committee and designed in accordance
with the directors’ interests and needs.
Board and committee evaluation
Following the internal evaluations carried
out in 2017 and 2018, an external
evaluation was conducted this year by
Independent Board Evaluation (IBE), who
were selected following a competitive
tender process under the supervision of
the Nominations Committee. IBE has no
other connection with the Company.
Margaret Ewing
IBE undertook a formal and rigorous
evaluation which included:
• Spanish corporate legal framework.
UK and Spanish corporate
governance requirements
• Group governance structure
• IAG compliance programme and
litigation status
• aviation regulation and Brexit
• M&A briefing and strategy
• IAG capital structure. Main shareholders
and analyst coverage
• Sustainability programme
• IAG finance particulars and financial
targets (including fleet acquisition,
hedging policy and risk map)
• IAG brands portfolio
• IAG platform
• business model, competitive landscape,
strategy and current position of each
one of the operating companies
• a comprehensive brief given by the
Chairman to the evaluation team,
defining the main focus of the evaluation
• interviews held with all directors, as well
as with the former SID who left the
Board in June 2019
• interviews with key Board contributors
including the Group General Counsel, the
Board Secretary and Deputy Secretary,
the IAG Head of Group Audit, as well
as the external auditors and the
Remuneration Committee
independent advisor
• the evaluation team observed main
board and committee meetings held on
July 31 and August 1
• support materials for briefing purposes
were provided by the Company
• discussion of the main conclusions with
the Chairman and those of the
committees with the different chairs
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 The report was presented to all Board
members, together with the Group General
Counsel and the Board Secretary and
Deputy Secretary. The overall conclusions
of the review were positive, confirming
that the Board and the committees
continue to adequately fulfil their
responsibilities.
In response to the evaluation report an
action plan was developed to address the
improvement areas identified, and this plan
was discussed and approved by the Board
in its meeting held on January 30, 2020.
The plan includes the following measures:
• agree key priorities which will inform the
rolling Board planner, already used to
organise the Board’s work and which will
be updated twice a year
• improve the follow-up of actions agreed
by the Board or at the Committees’
Meetings
• review the focus on sustainability
matters and agree where this
responsibility sits best in the
governance structure
• reinforce the Board’s focus and
oversight with regards to culture and
stakeholders’ engagement in line with
the UK Corporate Governance Code
• a number of improvements were
agreed in relation to the organisation
of the meetings’ agendas, Board papers
and presentations
• maintain the focus on board succession
planning at Board and Management
Committee level
In addition to the work performed by IBE,
an assessment of the performance of the
Chairman was conducted by the Senior
Independent Director, taking into
consideration the external evaluation and
consultation with each non-executive
director. The results were discussed at a
meeting of the non-executive directors
without the Chairman present.
Additionally, the Chairman met each
director individually to discuss their
contribution and performance, as well as
their development needs, and also shared
the peer feedback provided to IBE as part
of the evaluation process.
• presentation of Iberia's employee values
(with those employees who participated
in the project workshops)
• Vueling annual leadership retreat –
culture session
• Vueling Q4 townhall session
The Board was informed of the main
outcomes and main issues considered
during these engagement activities and a
number of improvements were agreed to
support and enhance this engagement.
In addition to these specific activities, the
Board enjoyed other opportunities to
engage with the Group employees
including site visits, specific training
activities and the annual two-day strategy
meeting, which includes a formal dinner
with all Board members and the different
operating companies’ leadership teams.
The Board is regularly updated in relation
to each operating company’s employee
matters as part of the report that each of
the operating companies presents to the
Board, in addition to specific items that
may be brought to its attention as
required.
The Audit and Compliance Committee has
also reviewed and reported to the Board
on the effectiveness and functioning of the
confidential Speak Up channels available
throughout the Group, where concerns can
be raised on a confidential basis.
Shareholders and investors
Shareholders’ interests have always been
present in the Board’s considerations. The
Board engages directly in active dialogue
with shareholders and investors mainly
through the Group Chief Executive, the
Group Chief Financial Officer and the
Chairman, who regularly meet with
shareholders and investors. In addition, the
Senior Independent Director has attended
meetings at the request of certain
shareholders. Non-executive directors had
the opportunity to meet shareholders at
the Shareholders’ Meeting as well as during
IAG’s Capital Markets Day.
The Board is regularly appraised of
shareholders’ feedback and main issues
discussed with shareholders and investors.
During 2019, the Company’s brokers and
other financial advisors made
presentations to the Board to report on
specific topics as well as to discuss the
macro economic environment. A specific
session regarding IAG’s share performance
and investors’ feedback was part of the
2019 Group strategy meeting.
Culture
In 2019, the Board approved a new Code
of Conduct that applies to all directors and
employees of the Group. All directors and
employees are expected to act with
integrity and in accordance with the laws
of the countries in which they operate.
Various training and communications
activities were carried out in all operating
companies to support awareness of the
principles detailed in this Code. The Board
itself completed the same training activity
at its meeting held on May 9, 2019. A new
e-learning training to support the new
Code of Conduct, applicable to all
employees, was also rolled out. In addition,
resources are available across the Group
for employees to get advice or report
grievances into any alleged or
actual wrongdoing.
Within this framework, each operating
company develops its own people strategy
in accordance with the company’s culture
and identity. Some companies have taken
this opportunity to renew their corporate
value such as British Airways, Iberia and
Vueling, Aer Lingus have reviewed their
engagement approach including clear
initiatives to reinforce their desired culture
and values.
Workforce engagement
The Board considered the 2018 UK
Corporate Governance Code provision
on workforce engagement and, as an
initial proposal, agreed that three of its
non-executive directors would take on
the role of liaising on employee
engagement in order to adequately
cover the different operating companies’
and business locations.
During this first reporting year, the
employee engagement activities were
limited to the four main Group airlines.
These directors have participated in a wide
range of activities covering a broad
spectrum of employees from different
areas of the business and discussed a wide
range of topics, including some in which
senior management were not present. The
main activities completed during 2019 and
during the first two months of 2020 were:
• IAG European Works Council meeting
held in December 2019
• meeting in the Aer Lingus inflight
training academy
• meetings with employees based in
Dublin and London Heathrow airports
• British Airways “Passionate about
service” training session
• British Airways uniform design workshop
• meeting with the British Airways
Engineering team
• Iberia anniversary of “Plan Persona and
employee of the month”
• Iberia session “Inspiring Woman”
97
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information CORPORATE GOVERNANCE CONTINUED
IAG Key Stakeholders
Airline partners
and industry associations
Customers
Governments
and regulators
Sustainability
Employees
Suppliers
Shareholders
and investors
Considering stakeholders’ interests
As explained in the stakeholder section of
the report, the Board undertook a key
stakeholder review. The Board considered
this information, the existing engagement
mechanisms and how the Board is kept
informed to ensure proper understanding
of the Group’s main stakeholders’ views
and concerns. The Board has satisfied itself
that appropriate engagement with key
stakeholders is taking place and has
agreed to formalise this as a regular
reporting matter to the Board to keep
engagement mechanisms under review
to ensure that they remain effective.
The Board engages directly with two of
the main stakeholder groups, shareholders
and investors and employees, in this latter
case through the arrangements put in
place in accordance with the 2018 UK
Corporate Governance Code. Engagement
with all the remaining stakeholders falls
under management’s responsibility.
IAG’s stakeholder engagement framework
is articulated in accordance with the
Group’s business model. In line with this,
the relationship with certain stakeholders is
managed at an operating company level,
as in the case of customers, employees,
governments and regulators and, to a
certain extent in the case of airline partners
and industry associations. This ensures
that the relationship is established as
closely as possible and within the relevant
cultural and business context. This does
not preclude that the Group coordinates
certain activities, and sets minimum
standards or guidance as far as this is
deemed appropriate.
Understandably, the relationship with
shareholders and investors is conducted
at IAG level, mainly through IAG’s investor
relations department and the IAG
Chairman and executive directors.
IAG GBS provides a centralised
procurement function for the Group and
generally manages supplier engagement.
As far as IAG’s sustainability programmes
are concerned, these are coordinated at
IAG level, covering the Group policies and
objectives, governance structure, risk
management, strategy and targets on
climate change and noise, sustainability
performance indicators, communications
and stakeholder engagement plans. Each
individual operating company within the
Group has a distinct sustainability
programme that is aligned with the Group
strategy. The Board and the Audit and
Compliance Committee provide
appropriate oversight and direction.
Further details on IAG’s sustainability
governance and engagement with
stakeholders on sustainability can be found
on the ‘Sustainability’ section.
98
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 The following table details how the Board is kept informed in relation to IAG’s key stakeholders, excluding employees and shareholders
and investors.
Customers
Suppliers
The Board has always paid special attention to issues related to customers and
brands, and the focus on customer issues has always been present in Board
discussions. During 2019, the Board has been regularly provided with customer
metrics as part of its performance and monitoring activities. A session devoted to
market strategic positioning, including customer focus was included in the
Company’s 2019 annual strategy meeting. Finally, several proposals related to
customer experience and product offerings have been discussed by the Board,
including the launch of new products and fleet renewals and reconfigurations.
The Board receives regular updates regarding key supplier relationships, relevant
developments and engagement activities, including updates received through
internal audit and risk management reporting. During 2019, agreements with major
aircraft providers, leasing companies, caterers, as well other key service providers
have been reviewed by the Board in the context of the relevant transactions and
investment decisions
Governments and regulators
Airline partners and industry
associations
The Board is kept duly informed of any relevant issues within the regulatory and
political context. In 2019, the Board was regularly informed about Brexit
developments and the engagement with the relevant authorities at EU and Member
State level. In addition to this, the Board received reports about engagement with the
European Commission, EU Member States and authorities in relation to key policy
matters, particularly regarding the European air traffic management system. The
Board was also updated during the year on the engagement with the UK Civil
Aviation Authority and the Department of Transport on the ongoing debate on
Heathrow expansion.
During 2019, the Board reviewed several of the Group existing partnerships and
joint business agreements. Similarly, the Board has been regularly informed of the
most relevant matters affecting the industry, particularly in the context of
environmental matters.
Other statutory information
Directors’ disclosure duties,
conflicts of interests, and related
party transactions
Directors must inform the Company of any
participation or interest they may hold or
acquire in any company that is
a competitor of the Group, or any activities
that could place them in conflict with the
corporate interest.
Directors have an obligation under the
Board Regulations to adopt the measures
necessary to avoid conflict of interest
situations. These include any situation
where the interest of the director, either
directly or through third parties, may
conflict with the corporate interest or with
his duties to the Company. In the event of
conflict, the affected director must inform
the Company and abstain from
participating in the discussion of the
transaction referred to by the conflict. For
the purposes of calculating the quorum
and voting majorities, the affected director
would be excluded from the number of
members in attendance.
In accordance with article 3.4 of the Board
Regulations, the Board of Directors has the
exclusive authority to approve transactions
with the directors, with shareholders that
have a significant holding or with any
persons related to them.
The execution of these type of
transactions or any transaction which
may entail a conflict of interest need
to be reported to the Audit and
Compliance Committee to ensure that
they are carried out at arm’s length and
with due observance of the principle of
equal treatment of shareholders. In the
case of transactions that fall within the
ordinary course of business and are
customary or recurring in nature and
following a report by the Audit and
Compliance Committee, the Board may
grant a general authorisation as long as
they are executed under certain terms and
conditions. This authorisation needs to be
endorsed by the Shareholders’ Meeting in
those cases established in the Spanish
companies’ legislation and, in particular, in
any transaction with a director valued at
more than 10 per cent of corporate assets.
In addition to this, and prior to the
Audit and Compliance Committee
consideration, shareholder related party
transactions are also reviewed by the IAG
Management Committee and are reported
to the IAG Head of Group Audit.
99
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
CORPORATE GOVERNANCE CONTINUED
IAG maintains commercial relationships
with Qatar Airways, including cargo
capacity agreements, passenger
codeshares, wet leases and interline
agreements. As a significant shareholder,
these transactions have been reviewed by
the Audit and Compliance Committee and
approved by the Board.
Directors’ and Officers’ liability insurance
The Company has purchased
insurance against Directors’ and Officers’
liability for the benefit of the directors
and officers of the Company and
its subsidiaries.
Share issues, buy-backs and
treasury shares
The Annual General Meeting held on June
20, 2019 authorised the Board, with the
express power of substitution, for a term
ending at the 2020 Annual General
Meeting (or, if earlier, 15 months from
June 20, 2019), to:
i increase the share capital pursuant to
the provisions of Article 297.1.b) of the
Spanish Companies Law, by up to
one-third of the aggregate nominal
amount of the Company’s issued share
capital as at the date of passing such
resolution (such amount to be reduced
by the amount that the share capital has
been increased by and the maximum
amount that the share capital may need
to be increased by on the conversion or
exchange of any securities issued by the
Board under the relevant authorisation),
through the issuance and placement into
circulation of new shares (with or
without a premium) the consideration
for which shall be cash contributions;
ii issue securities (including warrants)
convertible into and/or exchangeable
for shares of the Company, up to a
maximum limit of 1,500,000,000 euros
or the equivalent thereof in another
currency, provided that the aggregate
share capital that may need to be
increased on the conversion or
exchange of all such securities may not
be higher than one-third of the
aggregate nominal amount of the
Company’s issued share capital as at the
date of passing such resolution (such
amount to be reduced by the amount
that the share capital has been increased
by the Board under the relevant
authorisation);
iii exclude pre-emptive rights in connection
with the capital increases and the
issuance of convertible or exchangeable
securities that the Board may approve
under the previous authorities for the
purposes of allotting shares or
convertible or exchangeable securities in
connection with a rights issue or in any
other circumstances subject to an
aggregate maximum nominal amount of
the shares so allotted or that may be
allotted on conversion or exchange of
such securities of five per cent of the
aggregate nominal amount of the
Company’s issued share capital as at
June 20, 2019.
iv carry out the acquisition of its own
shares directly by the Company or
indirectly through its subsidiaries,
subject to the following conditions:
a the maximum aggregate number of
shares which is authorised to be
purchased shall be the lower of the
maximum amount permitted by the
law and such number as represents 10
per cent of the aggregate nominal
amount of the Company’s issued share
capital on June 20, 2019, the date of
passing the resolution;
b the minimum price which may be paid
for an ordinary share is zero;
c the maximum price which may be paid
for an ordinary share is the highest of:
i an amount equal to five per cent
above the average of the middle
market quotations for the shares as
taken from the relevant stock
exchange for the five business days
immediately preceding the day on
which that ordinary share is
contracted to be purchased; and
ii the higher of the price of the last
independent trade and the highest
current independent bid on the
trading venues where the
transaction is carried out at the
relevant time; in each case, exclusive
of expenses.
The shares acquired pursuant to this
authorisation may be delivered directly
to the employees or directors of the
Company or its subsidiaries or as a result
of the exercise of option rights held
thereby. For further details see note 27
to the Group financial statements.
The IAG Securities Code of Conduct
regulates the Company’s dealings in
its treasury shares. This can be accessed
on the Company’s website
(www.iairgroup.com).
Capital structure and shareholder rights
As of December 31, 2019, the share capital
of the Company amounted to 996,016,317
euros (2018: 996,016,317 euros), divided
into 1,992,032,634 shares (2018:
1,992,032,634 shares) of the same class
and series and with a nominal value of 0.50
euros each, fully subscribed and paid.
As of December 31, 2019, the
Company owned 7,702,495 shares
as treasury shares.
Company’s share capital
Share capital
(euros)
Number of
shares/voting
rights
December
31, 2019
996,016,317
1,992,032,634
Each share in the Company confers on its
legitimate holder the status of shareholder
and the rights recognised by applicable
law and the Company’s Bylaws which can
be accessed on the Company’s website
(www.iairgroup.com).
The Company has a Sponsored Level 1
American Depositary Receipt (ADR)
facility that trades on the over-the-counter
market in the US. Each ADR is equivalent
to two ordinary shares and each ADR
holder is entitled to the financial rights
attaching to such shares, although the
ADR depositary, Deutsche Bank, is the
registered holder. As at December 31, 2019
The significant shareholders of the Company at December 31, 2019, calculated according to the Company’s share capital as at the date
of this report and excluding positions in financial instruments, were:
Name of
shareholder
Qatar Airways (Q.C.S.C)1
Number of
direct shares
426,811,047
Number of
indirect shares
–
Name of
direct holder
Total shares
Percentage
of capital
426,811,047
21.426%
Capital Research and
Management Company
–
213,580,659
Collective investment institutions
managed by Capital Research and
Management Company
213,580,659
Europacific Growth Fund
107,329,400
–
107,329,400
10.722%
5.388%
Invesco Limited
Lansdowne Partners
International Limited
–
–
40,845,381
Various mutual pension funds
managed by Invesco Ltd
40,845,381
2.050%
34,047,907
Funds and accounts managed by
Lansdowne Partners (UK) LLP
34,047,907
1.709%
1 As reported to the Spanish CNMV on February 18, 2020, Qatar Airways’ shareholding increased to 500,000,000 shares, representing 25.10% of the
Company’s share capital.
100
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
the equivalent of 6,616,691 shares was held
in ADR form (2018: 21 million IAG shares).
Shareholder’s Meeting
The quorum required for the constitution
of the shareholder’s meeting, the system of
adopting corporate resolutions, the
procedure for amending the Bylaws and
the applicable rules for protecting
shareholders’ rights when changing the
Bylaws are governed by the provisions
established in the Spanish Companies Law.
The Company corporate governance
information is available on the Company’s
website (www.iairgroup.com) in the
“Corporate Governance” section
under “Shareholders’ Meeting”.
Disclosure obligations
The Company’s Bylaws establish a series
of special obligations concerning
disclosure of share ownership as well as
certain limits on shareholdings, taking into
account the ownership and control
restrictions provided for in applicable
legislation and bilateral air transport
treaties signed by Spain and the UK.
In accordance with article 7.2 b) of the
Bylaws, shareholders must notify the
Company of any acquisition or disposal of
shares or of any interest in the shares of
the Company that directly or indirectly
entails the acquisition or disposal of a
stake of over 0.25 per cent of the
Company’s share capital, or of the voting
rights corresponding thereto, expressly
indicating the nationality of the transferor
and/or the transferee obliged to notify, as
well as the creation of any charges on
shares (or interests in shares) or other
encumbrances whatsoever, for the
purposes of the exercise of the rights
conferred by them.
In addition, pursuant to article 10 of the
Bylaws, the Company may require any
shareholder or any other person with a
confirmed or apparent interest in shares of
the Company to disclose to the Company
in writing such information as the
Company shall require relating to the
beneficial ownership of or any interest in
the shares in question, as lies within the
knowledge of such shareholder or other
person, including any information that the
Company deems necessary or desirable in
order to determine the nationality of the
holders of said shares or other person with
an interest in the Company’s shares or
whether it is necessary to take steps in
order to protect the operating rights of the
Company or its subsidiaries.
In the event of a breach of these
obligations by a shareholder or any other
person with a confirmed or apparent
interest in the Company’s shares, the
Board may suspend the voting or other
political rights of the relevant person. If the
shares with respect to which the
aforementioned obligations have been
breached represent at least 0.25 per cent
of the Company’s share capital in nominal
value, the Board may also direct that
no transfer of any such shares shall
be registered.
Limitations on ownership of shares
In the event that the Board deems
it necessary or appropriate to adopt
measures to protect an operating right of
the Company or of its subsidiaries, in light
of the nationality of its shareholders or any
persons with an interest in the Company’s
shares, it may adopt any of the measures
provided for such purpose in article 11 of
the Bylaws, including the determination of
a maximum number of shares that may be
held by non-EU shareholders provided that
such maximum may not be lower than 40
per cent of the Company’s share capital. If
such a determination is made and notified
to the stock market, no further acquisitions
of shares by non-EU persons can be made.
In such circumstances, if non-EU persons
acquire shares in breach of such
restriction, the Board may also (i) agree on
the suspension of voting and other political
rights of the holder of the relevant shares,
and (ii) request that the holders dispose of
the corresponding shares so that no
non-EU person may directly or indirectly
own such shares or have an interest in the
same. If such transfer is not performed on
the terms provided for in the Bylaws, the
Company may acquire the corresponding
shares (for their subsequent redemption)
pursuant to applicable legislation. This
acquisition must be performed at the
lower of the following prices: (a) the book
value of the corresponding shares
according to the latest published audited
balance sheet of the Company; and (b) the
middle market quotation for an ordinary
share of the Company as derived from the
London Stock Exchange’s Daily Official
List for the business day on which they
were acquired by the relevant non-
EU person.
On February 11, 2019, IAG notified the
relevant stock markets that, due to the
level of share ownership by non-EU
shareholders, the Board established the
maximum number of shares that may be
held by non-EU shareholders at 47.5% of
the Company’s issued share capital. As a
consequence, and in accordance with
IAG’s Bylaws, IAG prohibited further
acquisitions of IAG shares by non-EU
persons until further notice. On January 17,
2020, IAG notified the relevant stock
markets that the level of ownership of
IAG’s issued shares by relevant non-EU
shareholders had fallen to 39.5%. As a
result, IAG removed the ownership
restriction which had been introduced in
February 2019 with immediate effect. The
IAG Board continues to monitor the
ownership level of non-EU shareholders,
and in accordance with IAG’s Bylaws, the
Board is authorised at any time to
re-impose a maximum number of shares
that may be held by non-EU shareholders
if necessary.
Impact of change of control
The following significant agreements
contain provisions entitling the
counterparties to exercise termination
in the event of a change of control of
the Company:
• the brand alliance agreement in respect
of British Airways and Iberia’s
membership of oneworld, the globally-
branded airline alliance, could be
terminated by a majority vote of the
parties in the event of a change of
control of the Company;
• the joint business agreement between
British Airways, Iberia, American Airlines
and Finnair and the joint business
agreement between British Airways,
Japan Airlines and Finnair can be
terminated by the other parties to those
agreements in the event of a change of
control of the Company by either a
third-party airline, or the parent of a
third-party airline; and
• certain IAG, Aer Lingus, British Airways,
Iberia and Vueling exchange and interest
rate hedging contracts allow for early
termination if, after a change of control
of the Company, their credit worthiness
was materially weaker.
In addition, the Company’s share plans
contain provisions as a result of which
options and awards may vest and become
exercisable on a change of control of the
Company in accordance with the rules of
the plans.
101
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Report of the Audit
and Compliance Committee
Kieran Poynter
Audit and Compliance Committee Chairman
Committee members
Date appointed
Kieran Poynter (Chair)
September 27, 2010
Meetings
attended
100%
Margaret Ewing
June 20, 2019
Deborah Kerr
June 14, 2018
Maria Fernanda Mejia
June 16, 2016
Alberto Terol
August 2, 2013
100%
86%
100%
100%
Dear Shareholder
The Audit and Compliance Committee
continues to provide independent and
robust challenge to management and our
auditors to ensure there are effective and
high-quality controls in place and
appropriate judgements taken. During 2019,
we have considered the requirements of the
2018 UK Corporate Governance Code as
well as the impact of various regulatory
reviews into the audit sector as we
completed our Group tender for the 2021
external audit.
Patrick Cescau stepped down from the
Board and the Committee in June 2019 as
part of the Board succession planning.
During his time on the Committee Patrick
made a significant contribution to the
Committee in playing a key role in
advocating strong internal control, risk
management and compliance practices
across the Group.
In order to maintain a strong and diverse
Committee membership we welcomed
Margaret Ewing as a member from June
20, 2019. Margaret brings recent and
relevant financial acumen and governance
experience to the Committee as well as
experience from a range of industries,
including airports.
I believe we have the right mix of skills and
experience on the Committee to provide
constructive and robust challenge and
support to management. During 2020
we will continue to consider the changing
corporate governance landscape and
the impact of various regulatory reviews
(Business, Energy and Industrial Strategy
Committee, Kingman, Competition and
Markets Authority and Brydon) into the
audit sector on the Group.
Kieran Poynter
Audit and Compliance Committee Chairman
102
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 The Committee’s responsibilities
The Committee’s principal responsibility
was to oversee and give reassurance to
the Board with regards to the integrity and
quality of financial reporting, audit
arrangements and internal controls. The
Committee’s activities include:
• reviewing the financial statements and
announcements of the Group to
ensure integrity;
• reviewing and challenging significant
accounting estimates and judgements
made in the representation of financial
statements of the Group;
• reviewing and challenging
management’s assessment of the
viability of the Group, including whether
there is a reasonable expectation that
the Group will be able to continue in
operation and meet its liabilities when
they fall due;
• reviewing the effectiveness
of the internal control system,
provision of assurance on the risk
management process, overseeing
the tax and treasury risk management
and reviewing the principal risks facing
the Group;
• reviewing and agreeing the internal audit
programme, resourcing, effectiveness
and resolution of issues raised;
• monitoring the internal controls manuals
and procedures adopted by the
Company, to verify compliance with
them and review the designation and
replacement of the persons responsible
for them;
• discussing with the external auditors any
significant weaknesses in the internal
control environment detected in the
course of the audit; and
• recommending the appointment of
external auditors where appropriate and
reviewing their effectiveness, fees, terms
of reference and independence.
An evaluation of the Committee’s
performance was completed as part of the
external evaluation process carried out in
2019. The Committee was found to be
operating effectively during the year and
will be implementing recommendations to
enhance how the Committee supports the
Board in its assessment of the risks facing
the Group.
The Audit and Compliance Committee
The composition, competencies and
operating rules of the Audit and
Compliance Committee are regulated by
article 29 of the Board Regulations. A copy
of these Regulations can be found on IAG’s
website.
The Committee’s activities during
the year
The Committee met seven times
during 2019 and continues to plan
management attendance at Committee
meetings in advance including a review
of the agenda of each meeting to
ensure the attendees of each item are
appropriate, the inclusion of private
sessions of the Committee members and
with both the external and internal auditors
as appropriate.
In addition to the Secretary and
Deputy Secretary, regular attendees
at Committee meetings included the
Chairman, the Head of Group Audit
and representatives from the external
auditors. The Head of Group Audit
reports functionally to the Chairman of
the Committee.
Members of the management team
including the Chief Executive Officer, the
Chief Financial Officer and the Group
Financial Controller were invited to attend
specific agenda items as required and
when relevant.
During 2019, the Committee reviewed the
effectiveness of the Group’s risk
management through internal audit,
external audit and a series of deep dives
into the areas below. After robust
challenge and debate, there were no topics
where there was significant disagreement
between management, the external auditor
and the Committee, or unresolved issues
that needed to be referred to the Board.
Other items reviewed
Business, operational and financial risks
Treasury and financial risk management
The Committee continued to review the
Group’s fuel, foreign exchange hedging
positions and financial counterparty
exposure on a quarterly basis, including
that the approved hedging profile was
being adhered to and continued to be
appropriate to manage these risks in
line with the Group risk appetite. The
Committee also continued to review the
Group’s financial debt funding strategy,
correspondent instruments and go-to-
market strategy of the financing
transactions performed by the Group
in 2019.
Union withdrawal agreement and
transition period
The Committee considered management’s
evaluation and risk assessment of the
arrangements around the UK’s exit from
the European Union as part of the review
of the principal risks and uncertainties of
the Group. While there will continue to be
uncertainty until negotiations for the future
EU-UK relationship are reached, the
Committee agrees with management’s
current assessment that, even in the event
of no-deal after the transition period,
Brexit will have no significant long-term
impact on the Group.
The Committee will continue to
engage with management and take steps
to protect the interests of IAG in a
no-deal scenario.
Cyber security
The Committee continues to receive
regular updates on the Group’s cyber
security programme following the data
breach reported by British Airways in
September/October 2018.
Compliance and regulatory
Anti-bribery, sanctions, competition law,
privacy and General Data Protection
Regulation (GDPR) compliance
The Committee reviewed the Group’s
anti-bribery, sanctions, competition and
privacy compliance programmes including
the latest risk maps, regulatory
developments, the key programme
activities for 2019 and priorities for 2020.
The Committee also received an update on
the implementation of the IAG Code of
Conduct and the planned awareness and
communication activities to support the
Group in 2020.
Sustainability
The Committee reviewed the
progress made in the implementation
of the sustainability strategy and the
performance against targets in key areas
such as carbon footprint and noise
performance including the 2050 net zero
carbon emissions goal. This also included a
review of the new carbon targets to 2025,
2030, and 2050, progress relating
to sustainable alternative fuels, fuel
efficiency and improvements in carbon
disclosure including work with the Carbon
Disclosure Project and the Task Force on
Climate related financial disclosure.
Whistleblowing
The Committee reviewed procedures
whereby staff across the Group can raise
confidential concern regarding any matter
including but not limited to accounting,
internal control and auditing. There are
whistleblowing channels provided by
third-party providers, Safecall and
Ethicspoint, where all staff across the
Group can report concerns to senior
management in their company. The
Committee also reviewed the volume of
reports by category and nature; timeliness
of follow-up; responsibility for follow-up
and noted that there were no significant
financial or compliance issues raised. The
annual review is coordinated by the Head
of Group Audit.
Financial reporting
Internal Control over
Financial Reporting (ICFR)
As part of the Group’s internal control
framework it complies with the Spanish
corporate governance requirement (ICFR),
which is an analysis of risks in financial
reporting, the documentation of
accounting processes, and audit of internal
controls. In 2019 the Committee reviewed
the results of the audits and no material
weaknesses were identified. The
Committee also tracked the progress of
internal audit recommendations.
Enterprise risk management
The Committee was updated on
the principal risks of the Group. The
Committee reviewed the process by
which risk strategy and appetite had been
assessed to confirm that the statements
were still relevant and appropriate. They
also reviewed the performance of the
Group against each of its risk appetite
103
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information REPORT OF THE AUDIT AND COMPLIANCE COMMITTEE CONTINUED
statements and the Committee agreed
with management’s assessment that the
Group has operated within its risk
appetite framework.
Viability statement
In February 2020, the Committee
reviewed the Group’s viability assessment
which covered a three-year time horizon
in line with the Group’s Business Plan
period. The analysis evaluated the impact
of combinations of risks under severe but
plausible downturn scenarios (refer to Risk
management and principal risk factors
section). The Committee considered the
impact on liquidity, solvency and the ability
to raise financing over the period to 2022.
The Committee considered how solvency
and headroom were determined and
confirmed the period over which viability
is considered. The Committee has a
reasonable expectation that the Group will
be able to continue in operation and meet
its liabilities as they fall due over the period
to 2022.
Litigation
The Committee received regular litigation
status reports from the General Counsel
including one about the status of the
remaining civil claims against British
Airways following the 2017 European
Commission decision on alleged cartel
activity with respect to air cargo charges.
A number of the civil claims have been
concluded during 2019. The Committee
agreed with management’s view that,
given the status of proceedings, it is not
possible at this stage to predict the final
outcome and no financial provision should
be made for the remaining open civil
claims. More detailed information relating
to the cargo litigation is available in note 31
to the Group financial statements.
Distributable reserves/dividend capacity
The Committee reviewed in detail the
technical considerations, including cash
and distributable reserves, supporting
dividend decisions taken by the Board.
Key performance indicators
In October 2019 the Committee reviewed
the amendments to the Group’s key
performance indicators (see Alternative
performance measures section for
further information).
Accounting matters
Company accounting policies are
maintained by the Group Finance
Department, which updates and issues
the Group Accounting Policy manual.
Throughout the year, the Committee
considers the implications of new
accounting standards, reviews complex
accounting transactions, and considers the
key estimates and judgements used in the
preparation of the Group financial
statements. In 2019, this included the
review of exceptional items associated
with pension costs at British Airways. In
addition the Committee considered the
implementation of the new accounting
standard IFRS 16 ‘Leases’ in 2019, and
104
judgements and estimates surrounding the
pension transactions, the carrying value of
goodwill and indefinite-lived intangibles,
revenue recognition in relation to loyalty
programmes, income tax provisions, and
changes to the estimated useful lives and
residual values of certain aircraft.
The exceptional item arose from the
settlement between British Airways and
the Trustee of the Airways Pension
Scheme that permits the Trustee to make
discretionary funding increases up to the
level of RPI. The settlement has been
treated as a plan amendment. The
Committee has reviewed and agreed with
management’s rationale for recognising
these costs and disclosing them as
exceptional items by virtue of their size or
non-cash incidence.
The Committee considers whether the
Annual Report and Accounts are fair,
balanced and understandable. The
Committee also reviews disclosure during
the year through a half-yearly report from
the IAG Disclosure Committee outlining all
the matters they discuss. The Committee
is satisfied that the Annual Report and
Accounts are fair, balanced and
understandable and has recommended
their adoption by the Board.
External audit
The Committee continues to work closely
with EY, with the engagement partners
attending seven meetings during the year.
The Committee reviewed the engagement
letter, fees and considered the audit plan
which included EY’s assessment of risk
areas within the financial statements and
key audit matters. The Committee asked
for additional information on the scope of
the external audit including additional
information and analysis on out of scope
areas of the business and the impact of
reporting and audit developments on
the Group.
Reports from the external auditor were
reviewed during the meetings, covering
the conclusions of the review of the
Group’s results for the half year, interim
audit findings, early warning report for
year end matters, and for the final report
for year-end matters. No significant control
weaknesses were identified or reported to
the Committee by the external auditors in
2019, however the Committee requested
additional information to understand EY’s
choice of a controls or substantive-based
audit approach as well as the impact of the
implementation of a new common finance
system in British Airways and Iberia.
In assessing the effectiveness and
independence of the external auditors,
the Committee considered relevant
professional and regulatory requirements
and the relationship with the auditors.
The Committee monitored the auditors’
compliance with relevant regulatory,
ethical and professional guidance on the
rotation of partners, and assessed the
audit team’s qualifications, expertise,
resources and the effectiveness of the
audit process, including a report from the
external auditor on its own internal quality
procedures. The Committee’s assessment
included a detailed questionnaire
completed by key directors, managers and
a sample of accounting staff throughout
the Group. The questionnaire results
demonstrated that management regarded
EY’s overall performance as good. This
aligned with the Committee’s independent
assessment of performance. Having
reviewed EY’s performance during 2019,
the Committee concluded that EY were
independent and that it was in the Group’s
and shareholders’ interests not to tender
the audit in relation to their re-
appointment for 2020. The Board of
Directors refrain from engaging any audit
firm entitled to be paid by the Company
for all services rendered fees in excess of
10 per cent of such firm’s total revenue for
the previous year. The current EY partner
is Hildur Eir Jónsdóttir who has held her
role since 2016.
To comply with the Spanish Act 22/2015
on the requirement to tender the external
audit at least every ten years, the
Company has completed a process
designed to satisfy the requirements for
the selection and appointment of a new
external auditor for the years 2021, 2022
and 2023. The Committee recommended
two external audit firms to the Board and
the Board will be recommending the
appointment of KPMG at the Company’s
AGM to be held in June 2020.
Non-audit services provided by the
external auditors are subject to a Board-
approved policy that prohibits certain
categories of work and controls the overall
level of expenditure. It is the Company’s
intention to comply voluntarily with the
revised UK standards in relation to
non-audit services.
The Committee reviews the nature and
volume of projects undertaken by the
external auditors on a quarterly basis and
all projects are either pre-approved or
approved by the Committee Chairman for
projects over €100,000 or of an unusual
nature. The overall volume of work is
addressed by a target annual maximum of
€1.6 million with an additional allowance of
up to €1.2 million for large projects where
EY are uniquely placed to carry out
the work.
Average spend across the last three
years was within the total target maximum.
Spend in 2019 was €1,504,000 with an
additional €1,383,000 relating to work
performed on a working capital review
for the proposed fleet acquisition. 39 per
cent of the €1,504,000 spend related
to recurring work on the audit of
accounts required by our Joint Business
arrangements. Details of the fees paid
to the external auditors during the year
can be found in note 6 to the Group
financial statements.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Report of the Nominations
Committee
As a consequence of these changes, the
Committee reviewed the composition of
the Board committees and also
recommended to the Board the
appointment of Alberto Terol as Senior
Independent Director.
As customary, we also reviewed and
discussed management succession
planning and talent development
arrangements, including board
appointments in our main operating
companies, which has proven to be a very
useful development tool. At a senior
management level, this year we saw the
retirement of Robert Boyle, Director of
Strategy, after 26 years with the Group,
succeeded by Alistair Hartley, who joined
the Group in 2015 as Head of Strategy. As
a new addition to the Management
Committee, we oversaw the appointment
of John Gibbs in the new role of Group
Chief Information Officer. Lastly, on
January 30, 2020 the Committee
considered and recommended to the
Board the appointment of Javier Sánchez-
Prieto, as Chairman and Chief Executive of
Iberia, and of Marco Sansavini as Chairman
and Chief Executive of Vueling, both
appointments will be effective on March
26, 2020. The number of internal
appointments prove once again the
privilege of having a strong and committed
internal pipeline.
Our main objectives and areas of focus for
2020, are the completion of Luis Gallego’s
transition into the role of Group Chief
Executive, as well as a closer oversight of
our management talent pipeline ensuring
that appropriate opportunities are in place
to develop high-performing individuals,
while ensuring we build on diversity and
inclusivity across senior roles in the
business. Having completed nine years as a
non-executive director my succession
arrangement is another priority for 2020.
This process is being led by the Senior
Independent Director, involving all
non-executive directors.
Antonio Vázquez
Nominations Committee Chairman
105
Antonio Vázquez
Nominations Committee Chairman
Committee members
Date appointed
Antonio Vázquez
(Chair)
December 19, 2013
Marc Bolland
June 20, 2019
Deborah Kerr
June 20, 2019
Emilio Saracho
June 16, 2016
Alberto Terol
June 20, 2019
Meetings
attended
100%
50%
100%
86%
100%
Dear Shareholder
On behalf of the Board, I am pleased to
present the Nominations Committee’s
Report, which summarises our work over
the past year.
As already anticipated in my last letter as
Committee Chairman, succession was the
main focus for the Committee in 2019 both
for executive and non-executive directors.
Recently, we announced the retirement of
our Group Chief Executive, Willie Walsh
and the appointment of his successor,
Luis Gallego, current Chairman and Chief
Executive of Iberia. On April 15, 2019 we
announced the appointment of Steve
Gunning as the Group Chief Financial
Officer, succeeding Enrique Dupuy,
who stepped down in June 2019 at the
Shareholders’ Meeting. I am pleased that
both appointments have been made from
within the Group, which is evidence of the
strength and depth of IAG’s leadership and
senior management teams.
At the same time, the Committee
continued its regular consideration of the
composition of, and succession plans for,
the IAG Board in order to ensure the right
balance of diversity, experience and skills
to provide the oversight needed to sustain
our business over the long term. In this
respect, this year saw the retirement of
Patrick Cescau, our Senior Independent
Director, and Dame Marjorie Scardino. To
fill these vacancies, and following a
suitable search process, the Committee
recommended the appointment of
Margaret Ewing and Javier Ferrán.
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information REPORT OF THE NOMINATIONS COMMITTEE CONTINUED
The Nominations Committee
The composition, competencies and
operating rules of the Nominations
Committee are regulated by article 30 of
the Board Regulations. A copy of these
Regulations can be found on the
Company’s website.
The Nominations Committee has overall
responsibility for leading the process for
appointments to the Board and to ensure
that these appointments bring the
necessary skills, experience and
competencies to the Board, aligning
its composition to the business strategy
and needs.
These Regulations state that the
Nominations Committee shall be made up
of no less than three and no more than five
non-executive directors appointed by the
Board, with the dedication, capacity and
experience necessary to carry out its
function. A majority of the members of the
Nominations Committee must be
independent directors.
The Committee’s responsibilities
The Nominations Committee’s
responsibilities are contained in the Board
Regulations. These can be summarised as:
• evaluating the competencies, knowledge
and experience necessary on the
Board and reviewing the criteria for
the Board composition and the selection
of candidates
• submitting the appointment of directors
to the Board for approval, and reporting
on the proposed designations of the
members of the Board committees and
their chairmen
• succession planning for Board members
making proposals to the Board so that
such succession occurs in a planned and
orderly manner
• establishing guidelines for the
appointment, recruitment,
career, promotion and dismissal
of senior executives
• reporting to the Board on the
appointment and removal of
senior executives
• ensuring that non-executive
directors receive appropriate
induction programmes
• establishing a target for female
representation on the Board which
should adhere to the Company’s
Directors Selection and Diversity Policy
• submitting to the Board a report on
the annual evaluation of the
Board’s performance
The Committee's activities in 2019
The Committee met seven times during
2019. Directors’ attendance at these
meetings is shown over and further
detailed in the Corporate Governance
report. The Group Chief Executive was
invited to attend the Committee’s
meetings as and when necessary.
In accordance with its responsibilities, the
Committee focused on the following
activities during the year:
• the composition of the Board and the
combined capabilities and experience of
the non-executive directors
• formulating a refreshment and
succession plan for the Board, covering
key positions
• non-executive director search and
appointment of Margaret Ewing and
Javier Ferrán
• reviewing the Board committees’
membership
• executive directors and management
succession plans
• Chairman and Group Chief Executive
annual appraisals
• talent management, pipeline
and diversity
• review of the Board annual evaluation
process and conclusions, as well as that
of the Nominations Committee
• changes to Group company boards
IAG has an agreed process in place for the recruitment and appointment of new non-
executive directors to the Board, which principles are included in the Director Selection
and Diversity Policy. This process was followed in relation to the appointments of both
Margaret Ewing and Javier Ferrán. Details regarding compliance with diversity principles
are included below.
The appointment of Margaret Ewing and Javier Ferrán
Executive directors and management
appointments and succession planning
Each year the Committee scrutinises the
strength of succession planning
arrangements for the executive directors
and senior management, with particular
emphasis during the last two or three
years. The annual review of succession
planning for the top 50 leadership
positions has been a key and regular item
of Committee discussion and oversight.
In the normal performance of its
obligations, the Nominations Committee
had compiled a Group Chief Executive role
profile in accordance with the future
strategic direction and needs of the
Company. This profile was again circulated
and discussed by all non-executive
directors this year. This profile contained a
brief of the requirements and the desired
skill-set that a potential successor to Willie
Walsh would need.
To support this process, the Nominations
Committee appointed Spencer Stuart as
the search consultant to review the
external market and to conduct the
executive assessment of the already
identified internal candidate. The
Nominations Committee discussed the
conclusions of Spencer Stuart's reports on
the mapping exercise and the executive
assessment. Following this, each of the
Committee members interviewed the
internal candidate. The Nominations
Committee shared the conclusions of its
assessment with the Board, but
considering the relevance of the decision,
asked the remaining non-executive
directors to consider all the information
made available to the Committee and to
complete their own individual assessments.
Additionally, a special meeting of non-
executive directors was held with the
internal candidate. Following this, it was
agreed by all directors that Luis Gallego
was the right candidate to succeed Willie
Walsh following his decision to retire.
In January 2020, the Committee met to
agree the timeframe of the succession of
the Group Chief Executive and the
proposal to nominate Luis Gallego to this
October 2018
Search initiated in
accordance with
Board succession plans
and specifications
discussed and agreed
November 2018
Executive Search
Firm engaged to
assist with the
search
November 2018
Longlist of potential
candidates
considered
December 2018
Shortlist agreed
and shared with
the Board
106
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 role with effect from March 26, 2020,
which appointment was unanimously
approved by the Board.
In 2019, the Committee also considered
succession arrangements for IAG’s
executive director and Chief Financial
Officer, Enrique Dupuy, who stepped down
from the Board at the Shareholders’
Meeting in June 2019. In accordance with
the internal succession planning
arrangements, Steve Gunning, at the time
Chief Financial Officer at British Airways,
was appointed as Group Chief Financial
Officer and as a executive director at the
Shareholders’ Meeting.
In terms of senior executive appointments,
in June 2019, Alistair Hartley was
appointed as a member of the
Management Committee following Robert
Boyle’s retirement in May 2019, and John
Gibbs was appointed as IAG’s first Chief
Information Officer in September 2019.
John’s previous role was chief information
officer for Rolls-Royce.
In January 2020, Javier Sánchez-Prieto,
currently Chairman and CEO of Vueling,
was appointed Chairman and CEO of
Iberia, with Marco Sansavini, currently
Commercial Director of Iberia being
appointed Chairman and CEO of Vueling.
Both appointments, together with that of
Luis Gallego as Group Chief Executive, will
be effective on March 26, 2020.
Non executive directors appointments
and Board succession planning
The Committee regularly reviews the
formal succession plan for the Board,
including analysis of non-executive
directors’ length of tenure, skills and
experience. The Committee discussed the
Board skills matrix and experience needed
in the context of the Group strategy and
challenges, including any areas requiring
strengthening from a skills and
succession perspective. The conclusions
of this exercise helped to inform the
search for new directors and the profile
and skills required.
The ongoing refreshment of the Board has
led to the appointment of Margaret Ewing
and Javier Ferrán as non-executive
directors on June 20, 2019, filling the
vacancies left by Patrick Cescau and
Dame Marjorie Scardino, who did not
stand for re-election at the 2019
Shareholders’ Meeting.
Spencer Stuart was engaged to support
this recruitment process. Spencer Stuart
has no other connection with the
Company other than providing recruitment
services. Spencer Stuart is an accredited
firm under the Enhanced UK Code of
Conduct for Executive Search Firms.
Board positions and committee
memberships
Following the 2019 Shareholders’ Meeting,
Alberto Terol became the Senior
Independent Director. At the Nominations
Committee meeting held on the same day,
the Committee reviewed the composition
of the committees and proposed to the
Board the appointment of Javier Ferrán
and Emilio Saracho as members of the
Remuneration Committee, Javier Ferrán as
a member of the Safety Committee, Marc
Bolland, Deborah Kerr and Alberto Terol as
members of the Nominations Committee,
and Margaret Ewing as a member of the
Audit and Compliance Committee.
Directors independence, performance
and re-election
The Nominations Committee, having
considered the matter carefully, is
of the opinion that all of the current
non-executive directors remain
independent, both in line with the
definition set out by the Spanish
Companies Act and with that of the
UK Corporate Governance Code, and are
free from any relationship
or circumstances that could
affect, or appear to affect, their
independent judgement.
In accordance with UK Corporate
Governance recommendations, the
Committee believes that non-executive
directors should generally stay in the role
no longer than nine years. However, the
Committee and the Board may determine
that it is in the Company’s best interest for
a director with a particular profile and
in particular circumstances to stay
beyond the nine-year term, and
appropriate explanations in dialogue
with shareholders and investors will
be provided in such a case.
Regarding the length of tenure
recommendations included in the 2018 UK
Corporate Governance Code, the
Committee is mindful that, as of January
2020, both the Chairman of the Board and
the Chairman of the Audit and Compliance
Committee have completed nine years as
non-executive directors. The Committee
and the Board have carefully planned the
overall Board succession process and will
continue with its renewal plan to facilitate
effective succession and the development
of a diverse board. As far as the chair
succession arrangements are concerned
the Senior Independent Director is leading
this process including all non-executive
directors and in consultation with the
executive directors.
All proposals for the appointment or
re-election of directors presented to
the 2019 Shareholders’ Meeting were
accompanied by an explanatory report
issued by the Board of Directors with the
support of the Nominations Committee
assessing the competence, experience and
merits of each candidate. Following this
review, the Committee was of the opinion
that each non-executive director
submitting him or herself for re-election
continued to demonstrate commitment to
the role as a member of the Board and its
committees, discharged his or her duties
effectively and that each was making
a valuable contribution to the
leadership of the Company for
the benefit of all shareholders.
January and February 2019
Interviews completed and
feedback discussed (other
directors invited to meet
short-listed candidates)
May 2019
Nominations
Committee
considered final
candidates and made
recommendation to
the Board
May 2019
Appointment
announced by the
Board, and published
report for submission
to the Shareholders’
Meeting
June 2019
Appointment
approved by the
Shareholders’
Meeting
107
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information This policy also sets out IAG’s commitment
to strengthen the gender balance on IAG’s
leadership and senior management teams.
IAG’s Management Committee is
responsible for improving diversity within
management and generally across the
Group. The Nominations Committee is
committed to improving diversity, and
gender diversity in particular, within the
Group, and encourages and supports
Group initiatives in this respect. Relevant
details on diversity can be found on
the Sustainability section.
Induction of directors
A comprehensive induction programme
was initiated for Margaret Ewing and
Javier Ferrán in July 2019 and has been
arranged following IAG’s induction
guidelines as approved by the Nominations
Committee. This is described in more detail
previously in this report.
The Committee annual evaluation
The annual performance evaluation
was externally conducted by Board
Independent Evaluation as part of the
overall Board evaluation process. The
Committee supervised the process for the
selection of the external provider, and
considered the results of this exercise
regarding both the Board and the
Committee itself at the Nominations
Committee meeting held in September
2019. The evaluation concluded that
the Committee operated effectively
during 2019.
In 2020, the Committee has agreed to
prioritise its focus on the review of the
Group’s framework for management
succession and talent development, as well
as on the initiatives to improve gender
diversity and inclusivity within the Group,
in addition to its work regarding Board
succession planning.
REPORT OF THE NOMINATIONS COMMITTEE CONTINUED
The basic principles and steps followed in
every appointment process are:
• each search is based on a prior analysis
of the needs of the Board. This
evaluation is made alongside succession
plans for directors and taking into
consideration the conclusions from the
annual review of Board performance.
• searches are conducted by selected
executive search firms, only engaging
with those who are signatories to the UK
Voluntary Code of Conduct for
Executive Search Firms.
• the long-list of potential candidates
needs to include adequate
representation of female candidates, and
candidates, as far as possible, from the
widest possible pool.
• this long-list of candidates is reviewed
and discussed by the Nominations
Committee to produce a short list
which is then circulated to the whole
Board for relevant comments or
possible objections.
• the short listed candidatures are
analysed to ensure compliance with
the applicable independence tests
• following this, interviews are
conducted with those preselected
with the participation of different
Committee members.
• availability and commitment
expectations are discussed with each of
the candidates, and a rigorous
assessment of each potential candidate
is completed before the Committee
reaches a final decision.
The process led by the Committee to
identify, select and make the Board
recommendation in relation to the
appointments of both Margaret Ewing
and Javier Ferrán is set out above.
IAG’s Board aspiration to have 33 per cent
female representation on the Board by the
end of 2020 is formally reflected in the
Directors Selection and Diversity Policy.
This target was met in 2018 following the
appointment of Deborah Kerr as a
non-executive director and this remained
the case following the appointment of
Margaret Ewing after the retirement of
Dame Marjorie Scardino.
According to article 17.5 of the Board
Regulations, unless otherwise authorised
by the Nominations Committee, a
non-executive director cannot hold more
than six other directorships, including only
four in a listed company. Executive
directors can only hold one directorship
in another public listed company. Each
director is required to advise the
Committee and seek its authorisation
before accepting any external directorship
or other significant appointment that
might affect the time they are able
to devote to the role as a director of
the Company.
The Committee also reviews the time
commitment of each non-executive
director on at least an annual basis.
Diversity
The Nominations Committee and the
Board are committed to achieving
diversity in its broadest sense in the
composition of the Board and senior
management, and fully support all
initiatives in this regard. A combination of
opinions, skills, experiences, backgrounds
and orientations on the Board and the
Management Committee is important
in providing the range of perspectives,
insights and challenge needed to facilitate
their respective roles.
IAG’s approach to inclusion and diversity
on the Board is set out in the Company’s
Director Selection and Diversity Policy.
The procedure for the appointment of
directors follows the principles established
in this Policy, and, as recommended by
the Spanish Good Governance Code,
the Nominations Committee reviews
compliance with this policy on a
yearly basis.
When considering director appointments,
the Committee follows a formal, rigorous
and transparent procedure, designed to
preserve this diversity value while ensuring
that any appointment is made on merit,
and taking into account the specific skills
and experience needed at any point in
time to ensure continuing Board balance
and relevant knowledge. Gender diversity
principles are followed throughout the
process, while preserving the general
diversity and merit based appointment
principles established in the policy. The
Board’s policy is to consider candidates
from a wide variety of backgrounds,
without discrimination based on gender,
race, colour, age, social class, beliefs,
religion, sexual orientation, disability or
other factors.
108
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Report of the
Safety Committee
Regulations. The Committee is made up of
no fewer than three and no more than
five directors appointed by the Board, with
the dedication, capacity and experience
necessary to carry out their function.
In addition to Committee members, senior
managers with responsibility for safety
matters are invited to attend and report
at Committee meetings as and when
required. During 2019, representatives of
the British Airways, Iberia, Aer Lingus and
Vueling safety teams attended meetings.
The Committee’s responsibilities
Responsibility for safety matters belongs
to the Group’s airlines. IAG, through its
Safety Committee, has an overall view of
each airline’s safety performance and of
any important issues that may affect the
industry. The Committee also has visibility
of the Group airlines’ resources and
procedures. Responsibility for performing
detailed and technical assessments
remains with each airline, overseen by
their respective safety committees.
The Committee’s duties include:
• to receive significant safety information
about IAG’s subsidiaries, franchise,
codeshare or wet-lease providers used
by any member of the Group
• to exercise a high-level overview of
safety activities and resources
• to inform the Board and to follow
up on any safety-related matters as
determined by the Board
• to carry out any other safety-related
functions assigned by the Board
The Committee's activities
during the year
During 2019 the Committee held two
meetings. Directors’ attendance at
these meetings is shown opposite and
further detailed in the Corporate
Governance report.
Key topics discussed for each airline under
their regular safety risk management,
safety culture, operational risks, as well as
reported data on aircraft damage. In
addition to this, the Committee considered
the Group annual report on dangerous
goods, as well as specific reports. British
Airways' Head of Quality and Technical
Engineering reported to the July meeting
as requested by the Committee on the 787
Trent 1000 engines' durability issues and
their operational implications.
109
Willie Walsh
Safety Committee Chairman
Committee members
Date appointed
Willie Walsh (Chair)
October 19, 2010
Meetings
attended
100%
Antonio Vázquez
October, 19 2010
Javier Ferrán
June 20, 2019
Kieran Poynter
October 19, 2010
Nicola Shaw
June 14, 2018
100%
100%
100%
50%
Dear Shareholder
In 2019, the Safety Committee continued
its routine work monitoring the safety
performance of IAG’s airline companies,
as well as the systems and resources
dedicated to safety activities across the
Group. In June 2020 we were pleased to
welcome Javier Ferrán as a new member
to the Committee following the Board
Committees composition review.
As I do every year, I like to highlight the
role that this Committee plays within our
Group, partly to be clear about our remit
as a committee and partly to emphasize
its uniqueness and its value in the Group
context. Safety and security responsibility
lie with each Group airline in accordance
with its applicable standards, its own
culture and the circumstances and
particularities of each business. IAG’s
Safety Committee exercises a high-level
overview of safety activities to ensure a
minimum Group standard, but more
importantly it fosters the Group
homogenisation effort in safety reporting,
the discussion of common issues and
the sharing of best practices between
Group airlines.
Willie Walsh
Safety Committee Chairman
The Safety Committee
The Committee composition,
competencies and operating rules are
regulated by article 32 of the Board
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Report of the
Remuneration Committee
airport employees, and booking trends in
our low-cost segments.
Overall strategy and link to remuneration
IAG’s aim is to become the world’s leading
international airline group. Its strategy is to
actively participate in the consolidation of
the airline industry to create a multi-brand
portfolio of leading airline businesses each
focused on addressing specific customer
markets and geographies while driving
revenue and cost synergies through
commercial co-operation, scale effects and
leverage of the broader Group platform.
Execution of this strategy coupled with
disciplined capital allocation allows IAG to
deliver superior value and sustainable
financial returns to its shareholders. To
measure the effectiveness of this strategy,
a set of consistent financial metrics linked
to creating shareholder value are applied
to each part of the Group.
The Committee’s main objective is to
ensure that remuneration at IAG continues
to be aligned with, and drives delivery of
our business and strategic priorities,
because we see that as the best way to
drive performance. We will continue to
focus on alignment between performance
and pay outcomes, ensuring that the
management team receive fair outcomes
under our incentive plans only where this
can be supported by company and
individual performance. We are very
pleased to see our shareholders’ support
for our remuneration policies and practices
in recent years.
IAG’s executive remuneration framework
aims to support the business objectives
and the financial targets attached to them
through the following two schemes:
The Company’s long-term incentive plan,
known as the performance share plan
(PSP), measures our performance by:
• earnings per share (EPS), adjusted for
exceptional items, which reflects the
profitability of our business and the core
elements of value creation for our
shareholders. Growing earnings indicates
that the Group is on the right path to
create value for our shareholders;
• total shareholder return (TSR) to ensure
alignment with our shareholders; and
• Return on Invested Capital (RoIC) to
assess efficient return on the Group’s
asset base.
Marc Bolland
Remuneration Committee Chairman
Committee members
Date appointed
Marc Bolland (Chair)
June 16, 2016
Meetings
attended
100%
Maria Fernanda Mejia
October 30, 2014
Nicola Shaw
January 1, 2018
Emilio Saracho
June 20, 2019
Javier Ferrán
June 20, 2019
100%
86%
100%
50%
110
Dear Shareholder
As Chairman of the Remuneration
Committee, and on behalf of the Board, I
am pleased to present the Remuneration
Report for 2019. It has been a year of high
activity for the Committee on several
fronts, including detailed discussions on
the regulatory and governance
developments in both Spain and the UK.
Changes at Board level and Management
Committee level have also meant the
Committee carefully considering
remuneration packages and exit packages
taking into account all the appropriate
external and internal factors. I have set out
below our overall approach, a summary of
2019 performance and key decisions made
by the Committee in 2019. The
remuneration policy is up for review and
approval in 2021, and the Committee will
consider the features of the new policy in
the context of the views and perspectives
of key stakeholders as well as ensuring
that the policy continues to support the
business objectives. We will consult with
key shareholders ahead of finalising the
proposed policy. Once determined, our
new policy will be published in next year’s
report, and any changes to the current
approach will be clearly set out.
As well as global economic conditions, the
Company faced a number of other
challenges during 2019, and in September
the Company issued a guidance update to
the London and Spanish stock exchanges,
as a result of the British Airways pilots’
strike, a threatened strike by Heathrow
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 There have been two other new
appointments to the IAG Management
Committee during 2019, and the
Committee took careful consideration
when determining their remuneration
packages, taking into account all necessary
external and internal factors to ensure the
packages are fair and appropriate.
The Committee had oversight of
remuneration practices across IAG as well
as the overall bonus frameworks in place
at the airlines. This analysis helped shape
our thinking when determining
remuneration for IAG executives.
In October of last year, the Company
announced industry-leading short, medium
and long-term climate targets. The
Committee was very keen to add a climate
measure to the Company’s incentive plans,
as part of our plans towards the long-term
sustainable success of our company. As
mentioned, for the 2020 annual incentive
plan, a CO2 emissions efficiency measure
has been added for the first time. All
operating companies in the Group have
added climate measures to their own
incentive plans for 2020.
Working with shareholders
IAG has always recognised the need to
build strong relationships with our
investors through a process of open and
transparent dialogue, and the Committee
has continued that approach during 2019.
We appreciate their constructive
comments about remuneration. Our overall
intention has been to ensure that we have
a strong alignment to our strategy because
we think that is the way to create long-
term, sustainable shareholder value.
On behalf of the Committee, I appreciate
your time in reading our 2019 DRR and I
hope you find it accessible and informative.
Approved by the Board and signed on its
behalf by
Marc Bolland
Remuneration Committee Chairman
The annual incentive plan has its major
focus on strong financial performance, and
therefore the primary measure in the plan
is the Group’s operating profit before
exceptional items (this element has a 60
per cent weighting). A customer measure,
Net Promoter Score (NPS), drives a focus
on improving customer advocacy as a
source of competitive advantage (10 per
cent weighting from 2020). Performance
against role-specific objectives (20 per
cent weighting from 2020) allows us to
focus on key strategic and business
targets that are important aspects of the
role, which may not be suitably captured
under the financial or customer elements.
For 2020, we have introduced a new
measure which focusses on reducing our
flight emissions. The specific measure is
the grammes of CO2 per passenger
kilometre. This measure will have, for 2020,
a 10 per cent weighting.
The policy in general is designed to deliver
total remuneration that is competitive and
with a strong emphasis on “pay for
performance”. The Committee will
continue to ensure that executive
remuneration is aligned with our business
strategy and that the overall reward
framework for 2020 and beyond is in the
best interests of our shareholders.
Summary of performance and
incentive outcomes
The PSP that was awarded in 2017 had a
three-year performance period (2017 to
2019) and had the same performance
measures as current awards. Performance
targets for all three measures were set at
the beginning of 2017 at a level that the
Committee considered to be appropriately
stretching based on internal and external
expectations for performance.
The Company has had solid financial
performance over the last three years,
leading to 2019 adjusted EPS reaching
116.8 euro cents. As a result, the 2017 PSP
has an outcome of 60 per cent of its
maximum for the EPS element. RoIC in
2019 reached 14.7 per cent, resulting in an
outcome of 91 per cent of its maximum
level for the RoIC element. TSR has
outperformed the index that the Company
measures itself against by over 4 per cent,
resulting in an outcome of 65% of its
maximum for the TSR element. Overall,
this has resulted in the 2017 PSP award
having an outcome of 72 per cent of the
maximum. The PSP award has an
additional two-year holding period. This
applies until the end of 2021.
The financial target for the 2019 annual
incentive plan set at the beginning of the
year was for an IAG operating profit of
€3.43bn. The challenges that I mentioned
earlier have led to IAG operating profit
being below this target and paying out at
24 per cent of the maximum level for the
60 per cent weighting linked to financial
performance. It is very pleasing to see
strong customer performance at all airlines
in the Group and as a result the outcome
for the NPS measure was well above the
target level of 21.0 set at the beginning of
2019, resulting in a pay-out at the
maximum level for the 15 per cent
weighting linked to customer performance.
For the outcomes of both the 2017 PSP
award and the 2019 annual incentive plan,
the Committee was mindful of not just
relying on formulaic outcome: we were
committed to determining appropriate and
robust outcomes taking into account all
necessary factors, including the wider
Company performance context. It was the
view of the Committee that the incentive
outcomes appropriately reflect
performance in the period and the
remuneration policy operated as intended
and therefore no discretion was applied.
Decisions during 2019
2019 has been another busy year for the
Committee. We have continued working
through the implications for IAG of the
new UK Corporate Governance Code (the
Code) and we are committed to complying
with all the provisions of the Code.
For the first time in recent years, there
have been changes at the executive
director level. The Committee carefully
considered appropriate leaving
arrangements for the outgoing Chief
Executive Officer (CEO) as well as the
Chief Financial Officer (CFO) of IAG,
(covered in detail later in this report), and
at the same time discussed fully the
remuneration packages for their respective
replacements. Both the new CEO and CFO
were internal promotions and in their prior
roles were entitled to a 25 per cent of
salary employer pension contribution rate.
However the Committee was mindful of
the relevant provisions in the Code as well
as investor expectations and
recommended a rate that was comparable
to the rate for the majority of IAG's
workforce. As a result both the new CEO
and CFO have a pension contribution rate
of 12.5 per cent of salary. As a Committee,
we intend to follow this same thinking if
there are any more newly appointed
executive directors in future, whether they
are internal promotions or external hires.
111
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information REPORT OF THE REMUNERATION COMMITTEE CONTINUED
At a Glance
Implementation of remuneration policy in 2019
The following two charts show Company performance for the two corporate measures in the 2019 annual incentive plan.
Financial performance and customer performance has resulted in 24 per cent and 100 per cent vesting respectively:
IAG Operating Profit (before exceptional items)
Net Promoter Score
Target Range for
the 2019 Annual
Incentive Plan
Actual 2019
Performance
THRESHOLD
TARGET
MAXIMUM
3.15
3.43
3.7
3.285bn
Target Range for
the 2019 Annual
Incentive Plan
Actual 2019
Performance
THRESHOLD
TARGET
MAXIMUM
19
21
23
25.8
2.8
3.0
3.2
3.4
3.6
3.8
4.0
16
18
20
22
24
26
Vesting (%)
€bn
0
24%
20
40
60
80
100
0
20
40
60
80
100
Vesting (%)
100%
The following four charts show Company performance for the three performance measures in the 2017 PSP award, and share
price performance:
Total Shareholder Return
Share Price
Target Range
for the 2017
PSP Award
Actual 2017-2019
Performance
THRESHOLD
MAXIMUM
0
8
4.3% outperformance
-10
-5
0
5
10
15
20
Outperformance of the Index (% p.a.)
Vesting (%)
0
20
40
65%
60
January 2017
PSP Award Date
(March 2017)
December 2019
441
546
544
80
100
0
100
200
300
400
500
600
700
Pence
Strong EPS and RoIC performance in 2019 has resulted in good vesting levels for the following two measures in the 2017 PSP award:
Adjusted Earnings per Share
Return on Invested Capital
Target Range for
the 2017
PSP Award
Actual 2019
Performance
THRESHOLD
100
MAXIMUM
130
116.8 euro cents
Target Range for
the 2017
PSP Award
Actual 2019
Performance
THRESHOLD
MAXIMUM
12
15
14.7%
90
100
110
120
130
140
10
11
12
13
14
15
16
Vesting (%)
60%
Vesting (%)
91%
0
20
40
60
80
100
0
20
40
60
80
100
112
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Introduction
The Remuneration Committee takes responsibility for the
preparation of the report, which is approved by the Board.
The Company’s current policy on directors’ remuneration
was approved by shareholders at the annual Shareholders’
Meeting on June 14, 2018. It is intended that this policy will
apply for three years, and therefore there are no changes to
the policy this year. However, mindful of shareholders’
views, certain aspects of how the policy operates in practice
have been discussed by the Remuneration Committee and
approved by the Board with effect from January 1, 2020.
However, these adjustments to the application of policy,
listed in the following section, don't imply an amendment of
the policy that would be subject to the shareholders'
meeting approval.
As a Spanish incorporated company, IAG is subject to
Spanish corporate law. The Spanish legal regime regarding
directors’ remuneration is substantially parallel to that of the
UK as far as directors´ remuneration disclosure and
approval requirements are concerned.
The Company welcomes the opportunity provided by the
Spanish CNMV allowing companies to prepare free format
reports. Therefore, for the second year in a row, IAG is
presenting a consolidated report responding to Spanish and
UK disclosure requirements. This report will be
accompanied by a duly completed form which is required
by the CNMV covering some relevant data. This is prepared
in accordance with Spanish legislation and is available on
the Company’s website, and the CNMV website.
It is the Company’s intention once again to comply
voluntarily with all reporting aspects of the UK legislation of
2013 and to follow best practice UK standards, for the
benefit of our UK shareholder base.
In addition to the Remuneration Committee Chairman’s
statement, this Directors’ Remuneration Report contains
the Annual Report on Remuneration, which covers the
information on directors’ remuneration paid in the
reported year.
Directors’ Remuneration Policy
The policy as approved by shareholders at the annual
Shareholders’ Meeting on June 14, 2018 was shown in full in the
2017 Directors’ Remuneration Report and is not repeated here. It
can be found on the Company’s website in the 2017 Annual
Report and Accounts. However, as covered in the Committee
Chairman’s letter at the beginning of this report, the Committee
has considered the remuneration provisions in the UK Corporate
Governance Code and shareholder sentiment and have as a result
determined how the policy will be operated in practice in respect
of pension provisions. The policy of capping pension employer
contributions at a maximum level of 15 per cent of basic salary for
new externally recruited external directors will also be applied for
internal promotions. On a case-by-case basis, pension
contributions may be set lower than 15 per cent.
The policy itself will be reviewed and submitted for a shareholder
vote next year, at the annual Shareholders’ Meeting in 2021.
113
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Annual Remuneration Report
The Annual Remuneration Report sets out how the Directors Remuneration Policy (as approved by shareholders at the annual
Shareholders’ Meeting on June 14, 2018) was put into practice in 2019 and how it will be implemented in 2020.
The Committee’s activities during the year
In 2019, the Committee met 7 times and discussed, amongst others, the following matters:
Meeting
January
Agenda items discussed
Review of IAG Management Committee members’ basic salaries
Approval of the 2019 annual incentive plan
Approval of the 2019 Performance Share Plan
February
2018 annual incentive plan payments to IAG Management Committee members
2019 Management Committee role-specific objectives
Vesting outcome of the Performance Share Plan 2016 award
Final review of 2018 Directors’ Remuneration Report
New UK Corporate Governance Code requirements
Review of incentive plans in all operating companies across the Group
Review of information on the pay ratio between the CEO and IAG UK workforce
Annual disclosure regarding gender pay gap data
CFO succession remuneration arrangements
CFO succession remuneration arrangements
Approval of remuneration for a new Management Committee member
Approval of remuneration for a new Management Committee member
Executive remuneration market update and review of corporate governance requirements
Remuneration strategy for 2020
March
April
June
August
October
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Subject to audit
Single total figure of remuneration for each executive director
The table below sets out the single total figure and breakdown for each executive director. An explanation of how the figures are
calculated follows the table. The remuneration for each executive director reflects the performance of the Company and the
contribution each individual has made to the ongoing success of the Company.
Salary
Benefits
Pension
Total Fixed Annual incentive
Long-term
incentive
Total Variable
Total
Director (’000)
Willie Walsh (GBP)1
Willie Walsh (euro)
Steve Gunning (GBP)1, 2
2019 2018 2019 2018 2019
850 850
967 962
–
315
27
213
31 242
–
39
30
34
8
Steve Gunning (euro)
358
–
9
–
44
2018
2018
2019
213 1,093 1,090
241
883
1,243 1,234 1,004
286
362
–
–
–
2019
2018
2019
2018
2019
2018
2019
2018
1,222
1,051
889 2,105 1,940 3,198 3,030
1,189 1,390 1,006 2,394 2,195 3,637 3,429
–
666
380
–
–
– 1,028
–
1,168
–
411
–
325
–
432
–
757
Enrique Dupuy de
Lôme (GBP)1, 3, 4
Enrique Dupuy
de Lôme (euro)
Total (€’000)
269 557
46
27
67
139
382
723
217 498
–
412
217
910
599
1,633
306 630
1,631 1,592
52
95
31
76
62 362
157
818
434
398 2,088 2,052
247
564
–
1,576 1,753 1,822
247
466
1,030
1,848
1,472 3,398 3,225 5,486 5,277
681
1 Remuneration for all executive directors above is paid in sterling and expressed in euro for information purposes only.
2 Steve Gunning joined the Board on June 20, 2019
3 Enrique Dupuy de Lôme stepped down from the Board on June 20, 2019
4 Enrique Dupuy de Lôme taxable benefits include a payment of €37,394 in lieu of fifteen days of accrued but untaken holiday entitlement
Additional explanations in respect of the single total figure table for 2019
Each director has confirmed in writing that they have not received any other items in the nature of remuneration other than those
already disclosed in the table above.
Base salary
Salary paid in year for executive directors.
Taxable benefits
Taxable benefits including personal travel and, where applicable, a company car, fuel and private health insurance.
Pension related benefits
Employer contribution to pension scheme, and/or cash in lieu of pension contribution.
Annual incentive plan
Annual incentive award for the year to December 31, 2019 (accrued at December 31, 2019, but cash payments (50 per cent of the
award) not paid until March 2020). The outcomes of the performance conditions which determined the award are described in the next
section. Half of the annual incentive award is deferred into shares for three years (Incentive Award Deferral Plan (IADP)). For the 2019
annual incentive plan, these will vest in March 2023.
Long-term incentive vesting
This relates to the IAG PSP 2017 award based on performance measured to December 31, 2019, although the shares vested will not be
delivered until January 1, 2022, following the two-year holding period. For the purposes of this table, the award has been valued using
the average share price in the three months to December 31, 2019 of 544.4 pence. The outcomes of the performance conditions which
determined vesting are described below.
For the year to December 31, 2019, €:£ exchange rate applied is 1.1371 (2018: 1.1317).
Share price appreciation and depreciation
The amount of remuneration attributable to share price depreciation is £3,592 (Willie Walsh), zero (Enrique Dupuy de Lôme), and £1,116
(Steve Gunning). This is as a result of share price depreciation from the date of the PSP award on March 6, 2017 until the end of 2019.
The Committee have not exercised any discretion as a result of share price appreciation or depreciation for any of the remuneration in
the above table.
Life Insurance
The Company provides life insurance for all executive directors. For the year to December 31, 2019 the Company paid contributions of
€26,790 (2018: €22,987).
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Subject to audit
Variable pay outcomes
2019 Annual Incentive Plan
At the beginning of 2019, the Board, following a recommendation by the Committee, set IAG operating profit before exceptionals as
the financial target in the Annual Incentive Plan for that year, with a 60 per cent weighting. Operating profit before exceptionals was
considered to be the most appropriate financial measure in aligning shareholder interests with the Company. For the customer
measure, there was a weighting of 15 per cent. Outcomes were calculated based on NPS. NPS is used to gauge the loyalty of the
Group’s customer relationships. It is calculated based on survey responses, by subtracting the percentage of customers who are
‘Detractors’ from the percentage of customers who are ‘Promoters’. The final 25 per cent weighting is based on personal performance
against objectives. The Remuneration Committee, on the proposal of the Chairman of the Board, considered the Chief Executive
Officer’s performance against his objectives; and on the proposal of the Chief Executive Officer, considered the Chief Financial Officer’s
performance against his objectives. Both performance evaluations were submitted to the Board for final approval on January 30, 2020.
The maximum award for the Chief Executive Officer of IAG was 200 per cent of salary (100 per cent of salary for on-target
performance). For the retiring Chief Financial Officer of IAG (Enrique Dupuy de Lôme) the maximum award was 150 per cent of salary
(75 per cent of salary for on-target performance), pro-rated to end on June 20, 2019, and for the new Chief Financial Officer of IAG
(Steve Gunning) the maximum award was 165 per cent of salary (82.5 per cent of salary for on-target performance), pro-rated to start
on June 20, 2019.
The outcomes of the performance conditions were as follows:
Measure
IAG operating profit
(before exceptional items)
(60 per cent)
Chief Executive Officer of IAG
Chief Financial Officer of IAG
(Steve Gunning)
Chief Financial Officer of IAG
(Enrique Dupuy de Lôme)
Payout
£245,922
€279,638
£75,874
€86,276
£57,606
€65,504
per cent of
maximum awarded
24 per cent
See below for details of the
performance target ranges
24 per cent
See below for details of the
performance target ranges
24 per cent
See below for details of the
performance target ranges
Group Net Promoter Score
(15 per cent)
Outcomes
versus targets
£255,000
€289,961
£78,674
€89,460
£59,733
€67,922
Personal performance
against objectives
(25 per cent)
Details of any
discretion exercised
Overall outcome
per cent of
maximum awarded
100 per cent
See below for details of the
performance target ranges
100 per cent
See below for details of the
performance target ranges
100 per cent
See below for details of the
performance target ranges
Outcomes
versus targets
£382,500
€434,941
£131,124
€149,101
£99,555
€113,204
per cent of
maximum awarded
90 per cent
See below for details of the
extent of the achievement
of objectives
100 per cent
See below for details of the
extent of the achievement
of objectives
100 per cent
See below for details of the
extent of the achievement
of objectives
£883,422
€1,004,540
£285,672
€324,837
£216,894
€246,630
Half of the overall outcome of the annual incentive detailed above is payable in deferred shares in the Company vesting after three
years (under the Incentive Award Deferral Plan).
The target ranges and outcomes for each corporate measure in the annual incentive plan for 2019 were as follows:
Threshold level at
which payments begin
On-target
(50 per cent of the
maximum pay-out)
Stretch target
(Maximum pay-out) Outcome for 2019
Pay-out as a percentage
of the maximum
IAG operating profit
(before exceptional items)
€3,150m
€3,430m
€3,700m
€3,285m
Group NPS
19.0
21.0
23.0
25.8
24 per cent
(2018: 66 per cent)
100 per cent
(2018: 0 per cent)
For both measures, there was a straight-line sliding scale between the threshold level and the on-target level, and between the
on-target level and the stretch target level.
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Personal Performance
In assessing personal performance, the Committee considers a range of factors to ensure there is a holistic and detailed assessment of
the executive directors’ contribution. For 2020, the assessment of personal performance focused on progress towards our strategic
priorities and key performance indicators during the year:
1 Strengthening a portfolio of world-class brands and operations with an unrivalled customer proposition
2 Growing global leadership position with value accretive and sustainable growth
3 Enhancing IAG’s common integrated platform with efficiency and innovation
The assessment of the executive director’s achievements is summarised below:
Chief Executive Officer of IAG (Willie Walsh)
Outcome
Objective
Effective facilitation of CEO succession planning and consideration of skills and expertise within the senior team
and effective succession management within this team.
Succession planning
Key stakeholder relationships
Successful management of key stakeholder relationships including with governments and regulators.
Brexit
Planned and led the Group’s response in relation to Brexit outcomes (in the context of the external
uncertainties) including interactions with the relevant authorities.
Unrivalled customer proposition
Customer focus
Customer investment
Led the Group’s commitment to strengthen its customer focus and instilled this focus across the Group as a whole.
Ensured that each of the airlines invested significantly in improving their customer experience - key investment
decisions included in lounges, catering, seats and digital solutions.
Airbus A350 introduction
Led the introduction of the Airbus A350 fleet.
Value accretive and sustainable growth
Route and network expansion
Reinforced the Group’s revenue leadership positions in its home markets with addition of new routes and
optimisation of longhaul network with joint business partners.
New airlines
Sustainability and CO2 emission
Managed new opportunities for airline integration and joint ventures including successful progression of Air
Europa deal.
Ensured ongoing focus on being a leading airline group with regard to sustainability. This included the
successful launch of Flightpath net zero and building a platform as IAG makes progress towards its 2050 CO2
emissions target by investing in carbon reduction projects, sustainable aviation fuel, modernised fleet and
innovative technologies.
Efficiency and innovation
Cost reductions
IT platform
Digital innovation
Kept the Group focused on efficiency and cost reduction programmes to ensure customer and shareholder
value creation.
Development of clear IT strategy informed by deep technical knowledge and a business and customer focus.
Ensured that digital innovation remained a core part of the Group’s focus, in particular continuing the Hangar 51
accelerator programmes to attract global talent, and making strategic investments to automate the business
above and below the wing.
Customisation and data analytics Continued development in the Group of capabilities to support data customisation and data analytics.
Outcome (as a % of maximum)
90%
Chief Financial Officer of IAG (Steve Gunning)
Objective
Chief Financial Officer of IAG (Enrique Dupuy de Lôme)
Objective
CFO transition
CFO transition
Outcome
Has made a smooth transition into the role
including an effective handover process from
the outgoing CFO
Outcome
Enrique successfully achieved his main objective
in 2019, which was to ensure there was a smooth
handover and transition to the new CFO.
Unrivalled customer proposition
Unrivalled customer proposition
Investment
decisions
Cost reductions
Supported the significant and focussed
investment at each airline to strengthen customer
focus and improve the customer experience.
Investment
decisions
Supported the significant focussed investment at
each airline to strengthen customer focus and
improve the customer experience.
Continued to ensure focus on reducing costs
and improving efficiency by leveraging Group
scale and synergy opportunities.
Cost reductions
Continued to ensure focus on reducing costs
and improving efficiency by leveraging Group
scale and synergy opportunities.
Value accretive and sustainable growth
Value accretive and sustainable growth
Management of
financial risk
Expansion
opportunities
Carefully managed financial risk, maintaining
adequate cash balances and substantial
committed financing facilities.
Facilitated expansion opportunities for airline
integration and joint ventures including
successful progression of Air Europa deal.
Management of
financial risk
Carefully managed financial risk, maintaining
adequate cash balances and substantial
committed financing facilities.
Efficiency and innovation
Efficiency and innovation
Cost reductions
Capital allocation
Drove the CASK ex-fuel cost reduction.
Proactively led on the continued focus on
disciplined capital allocation, active portfolio
management, and flexible and rapid decision-
making.
Cost reductions
Capital allocation
Drove the CASK ex-fuel cost reduction.
Proactively led on the continued focus on
disciplined capital allocation, active portfolio
management, and flexible and rapid decision-
making.
Outcome (as a % of maximum)
100%
Outcome (as a % of maximum)
100%
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IAG PSP award 2017
The IAG PSP award granted on March 6, 2017 was tested at the end of the performance period which began on January 1, 2017 and
ended on December 31, 2019. The awards were equivalent to 200 per cent of salary for the Chief Executive Officer of IAG, and 150 per
cent of salary for the previous Chief Financial Officer of IAG (Enrique Dupuy de Lôme).
One-third of the award was subject to a TSR performance condition measured against the TSR performance of the MSCI European
Transportation (large and mid-cap) index, one-third subject to achievement of the Company’s adjusted EPS targets (diluted EPS,
adjusted for exceptional items), and one-third subject to RoIC. The definition of RoIC used was the methodology as described in the
Company’s 2017 Annual Report and Accounts. The vesting of any award was subject to the Board being satisfied that the Group’s
underlying financial performance was satisfactory in the circumstances prevailing over the three-year period.
The outcome of the performance condition was as follows:
Measure
Threshold
Maximum
Outcome
TSR performance compared
to the TSR performance
of the MSCI European
Transportation (large and
mid-cap) index (one-third)
IAG’s TSR performance equal
to the index
(25 per cent of award vests)
IAG’s TSR performance
exceeds index by
8 per cent p.a.
(100 per cent of award vests)
IAG
outperformed
the index by
4.3 per cent p.a.
Vesting (as per cent
award granted in
2017)
65 per cent
Adjusted earnings
per share (EPS)
(one-third)
Return on Invested
Capital (RoIC)
(one-third)
Details of any
discretion exercised
Overall outcome
2019 EPS of 100 €cents
(10 per cent of award vests)
2019 EPS of 130 €cents
(100 per cent of award vests)
116.8 €cents
60 per cent
2019 RoIC of 12 per cent
(10 per cent of award vests)
2019 RoIC of 15 per cent
(100 per cent of award vests)
14.7 per cent
91 per cent
72.11 per cent
IAG PSP award 2016
The IAG PSP award granted on March 7, 2016 was tested at the end of the performance period which began on January 1, 2016 and
ended on December 31, 2018. The awards were equivalent to 200 per cent of salary for the Chief Executive Officer of IAG, and 150 per
cent of salary for the previous Chief Financial Officer of IAG (Enrique Dupuy de Lôme).
The performance measures, and their weightings and definitions, were the same as described above for the 2017 award. The vesting of
any award was subject to the Board being satisfied that the Group’s underlying financial performance was satisfactory in the
circumstances prevailing over the three-year period.
The outcome of the performance condition was as follows:
Measure
Threshold
Maximum
Outcome
TSR performance compared
to the TSR performance
of the MSCI European
Transportation (large and
mid-cap) index (one-third)
IAG’s TSR performance equal
to the index
(25 per cent of award vests)
IAG’s TSR performance
exceeds index by
8 per cent p.a.
(100 per cent of award vests)
IAG
underperformed
the index by
6 per cent p.a.
Vesting
(as per cent award
granted in 2016)
0 per cent
2018 EPS of 105 €cents
(10 per cent of award vests)
2018 EPS of 145 €cents
(100 per cent of award vests)
117.7 €cents
39 per cent
2018 RoIC of 12 per cent
(10 per cent of award vests)
2018 RoIC of 15 per cent
(100 per cent of award vests)
16.6 per cent
100 per cent
46.19 per cent
Adjusted earnings
per share (EPS)
(one-third)
Return on Invested
Capital (RoIC)
(one-third)
Details of any
discretion exercised
Overall outcome
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Subject to audit
Scheme interests awarded during the financial year
The IAG PSP is a discretionary plan targeted at key senior Group executives and managers who directly influence shareholder value.
The Company granted an award under the PSP on March 8, 2019. The table in this section sets out the key details of the award.
The Committee believes that comparing the Company’s TSR to that of European transportation companies, including airlines, is
appropriate, given that these companies are subject to external influences impacting share price performance similar to those of the
Group. This comparison therefore provides a good reference point for management outperformance and value creation.
Earnings per share reflect the profitability of our business and the core elements of value creation for our shareholders. Growing
earnings indicates that the Group is on the right path to create value for our shareholders.
The Company uses rolling RoIC as a profitability indicator to assess efficient return on the Group’s asset base. It quantifies how well the
airlines generate cash flow in relation to the capital invested in their businesses together with their ability to fund growth and to pay
dividends.
PSP 2019 – eligibility, metrics and targets
Type of award
Shares
Basis of determination
of the size of award
Face value awarded
(per cent of salary)
Awards only made to those executives who are consistently high-performing, and/or are in
key roles, and/or whom the Company wishes to retain in the long term.
CEO of IAG – 200 per cent
Enrique Dupuy de Lôme – 150 per cent (to be pro-rated:
see note later in the report on leaving arrangements)
Steve Gunning (who at the time of the award was not an
executive director) – 120 per cent
Grant price
Performance period
£5.67
January 1, 2019 to December 31, 2021
Performance conditions and weightings Threshold
Target
TSR performance compared to the TSR
performance of the MSCI European
Transportation (large and mid-cap)
index (one-third weighting)
IAG’s TSR performance equal
to the index
25 per cent vests
Adjusted EPS. Measure is adjusted EPS
in final year of the performance period,
i.e. 2021 EPS (one-third weighting)
EPS of 150 €cents
10 per cent vests
RoIC. Measure is RoIC in final year of the
performance period, i.e. 2021 RoIC
(one-third weighting)
RoIC of 14 per cent
10 per cent vests
IAG’s TSR performance between
index return and 8 per cent p.a.
outperformance (straight line
vesting between threshold
and maximum)
EPS between 150 €cents and
190 €cents (straight line
vesting between threshold
and maximum)
RoIC between 14 per cent and
16 per cent (straight line
vesting between threshold
and maximum)
Holding period
Additional period of two years
after the performance period
Maximum
IAG’s TSR performance
exceeds index by
8 per cent p.a.
100 per cent vests
EPS of 190 €cents
100 per cent vests
RoIC of 16 per cent
100 per cent vests
The three measures are as defined for the 2017 PSP award earlier in the report. The Board, after considering the recommendation of the
Remuneration Committee, retains the discretion to review and, if appropriate, revise the EPS targets and/or definition in the context of
any corporate transactions, provided that, in its view, any revised targets are no more or less challenging than the original targets. To
the extent that any such adjustments are made, the Committee will disclose the basis for any adjustments and the rationale in
subsequent reports.
Subject to audit
Total pension entitlements
Willie Walsh is not a member of the Company’s pension scheme, and the Company therefore did not pay any contributions during the
reporting period (2018: zero). He received cash in lieu of contributions of £212,500 (2018: £212,500).
Enrique Dupuy de Lôme is not a member of the Company’s pension scheme, and the Company therefore did not pay any contributions
in his time as an executive director during the reporting period (January 1, 2019 to June 20, 2019) (2018: zero). He received cash in lieu
of contributions of £67,292 (2018: £139,250).
Steve Gunning is not a member of the Company’s pension scheme, and the Company therefore did not pay any contributions in his
time as an executive director during the reporting period (June 20, 2019 to December 31, 2019). He received cash in lieu of
contributions of £39,357.
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REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Enrique Dupuy de Lôme: payments for loss of office and payments to past directors
On April 15, 2019, it was announced that Enrique Dupuy de Lôme would step down from the Board and the role of Chief Financial
Officer on June 20, 2019. The Company’s remuneration policy states that the period of notice required from the executive is six months
and the period of notice required from the Company is 12 months. By April 2020, Enrique Dupuy de Lôme will have served 12 months’
notice.
Enrique Dupuy de Lôme received (or will receive) the payments set out below, less any required tax withholdings. All payments are
in accordance with his service agreement and the Company’s remuneration policy as set out in the Company’s 2017 Annual Report
and Accounts.
The single total figure of remuneration table for executive directors earlier in this report showed all remuneration paid to Enrique
Dupuy de Lôme up until the date he stepped down from the Board, i.e. June 20, 2019. This included base salary, taxable benefits,
pension related benefits, and the 2019 annual incentive award pro-rated to June 20, 2019.
From June 21, 2019 onwards, he received or is expected to receive, the following:
Payments from June 21, 2019 to December 31, 2019
Basic salary of £300,833, taxable benefits of £13,603, and pension
benefits of £75,208 (cash allowance). There was no further 2019 annual
incentive award entitlement after June 20, 2019.
Payments already made in 2020, or expected to be made
up until the date he ceases employment (April 14, 2020)
Basic salary of £164,667, taxable benefits of £7,442, and pension benefits
of £41,167 (cash allowance).
IADP Awards
Enrique Dupuy de Lôme holds outstanding IADP awards granted in 2017, 2018, and 2019, and is about to receive a 2020 award in
respect of the deferred shares portion of the outcome of the 2019 annual incentive plan. All of these awards will remain capable of
vesting in full on their normal vesting dates, in accordance with the rules of the IADP.
PSP Awards
Enrique Dupuy de Lôme holds outstanding PSP awards as follows:
Award
Notes
2016 PSP Award
Shares will be released at the end of the normal two-year holding period (end of 2020)
2017 PSP Award
2018 PSP Award
2019 PSP Award
Shares will reflect the vesting outcome at the end of 2019, and released at the end of the normal two-year
holding period (end of 2021)
Shares will reflect the vesting outcome at the end of 2020, pro-rated to 20 June 2019 (pro-ration is 17/36).
On a recommendation from the Remuneration Committee, the Board determined that no additional holding
period will apply
Shares will reflect the vesting outcome at the end of 2021, pro-rated to 20 June 2019 (pro-ration is 5/36).
On a recommendation from the Remuneration Committee, the Board determined that no additional holding
period will apply
No additional holding period will apply to the 2018 and 2019 PSP awards. At the time of his stepping down, he held shares equal to 691
per cent of salary and unvested IADP and PSP awards will ensure that he will continue to have a significant shareholding in the
Company post-termination.
Travel Benefits
Enrique Dupuy de Lôme will participate in the Iberia travel benefits programme for former employees, in line with the standard
approach in place.
Payments to past directors
Baroness Kingsmill received travel benefits worth €22,131 during 2019 after she had left the Company.
James Lawrence received travel benefits worth €9,905 during 2019 after he had left the Company.
Dame Marjorie Scardino received travel benefits worth €22,422 during 2019 after she had left the Company.
Patrick Cescau received travel benefits worth €12,514 during 2019 after he had left the Company.
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Subject to audit
Statement of directors’ shareholding and share interests
In order that their interests are aligned with those of shareholders, each executive director is required to build up and maintain a
minimum personal shareholding in the Company.
Under the Group’s shareholding guidelines, the CEO of IAG is required to build up and maintain a shareholding of 350 per cent of
salary. Other executive directors are required to build up and maintain shareholdings of 200 per cent of salary. In addition, they are
required to retain the entire 100 per cent of shares (net of tax) which vest from share plans until their respective shareholding
requirement is attained. The Committee has reviewed executive directors’ progress against the requirements and notes that both
executive directors are above the shareholding requirement.
Shares which count towards the guideline include shares already held by the executive, vested and exercised shares, vested and
unexercised shares including those in the performance share plan holding period, and unvested deferred annual incentive shares.
Interests in share awards following departure enable departing directors to remain aligned with the interests of shareholders for an
extended period after leaving the Company. Deferred annual incentives and PSP awards subject to a holding period will normally vest
at the normal time. This means that directors may retain a significant interest in shares following departure from the Company. The
Remuneration Committee intends to further review the Company's arrangements for alignment with shareholders post-cessation of
employment as part of the review of the Remuneration Policy that will take place prior to the 2021 AGM. The table below summarises
current executive directors’ interests as of December 31, 2019:
Executive director Shareholding requirement Shares owned
Shares already
vested, or in
the holding period,
from performance
share plans
Shares already
vested from
deferred annual
incentive plans
Unvested
shares from
deferred annual
incentive plans Total qualifying shareholding
1,628,691
Willie Walsh
350 per cent of salary
50,000
1,117,753
323,716
137,222
(1,078 per cent of salary)
Steve Gunning
200 per cent of salary
16,651
132,934
73,614
45,863
(253 per cent of salary)
269,062
External non-executive directorship
The Company’s consent is required before an executive director can accept an external non-executive appointment and permission is
only given in appropriate circumstances. During the reporting period in question, Steve Gunning was a non-executive director at
FirstGroup Plc, for which he received a fee of €65,952.
Non-executive directors
Non-executive directors are paid a flat fee each year, as per the following table. There was no increase to fees from the previous year.
Role
Non-executive Chairman
Non-executive directors
Additional fee for holding a Committee chairmanship
Additional fee for Senior Independent Director
Fee
€645,000
€120,000
€20,000
€30,000
In relation to the Chairman, as set out in the British Airways and Iberia merger documentation, the conditions of the service contract
with Iberia were taken into account at the time of the merger. This means that he will therefore continue to be entitled to a lump-sum
retirement benefit in an amount of €2,800,000. The fund balance under the policy (including accrued interest) will be paid upon exit
from the Company for any reason.
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Subject to audit
Single total figure of remuneration for each non-executive director
Director (€’000)
Antonio Vázquez
Alberto Terol
Patrick Cescau1
Marc Bolland
Margaret Ewing2
Javier Ferrán3
Deborah Kerr4
James Lawrence5
Maria Fernanda Mejia
Kieran Poynter
Emilio Saracho
Dame Marjorie Scardino6
Nicola Shaw7
Total (€’000)
2019 fees
Taxable
benefits
Total for year
to December 31,
2019
2018 fees
Taxable
benefits
Total for year to
December 31,
2018
645
136
71
138
64
64
120
–
120
140
120
58
120
5
26
27
19
1
2
11
–
14
24
18
40
16
650
162
98
157
65
66
131
–
134
164
138
98
136
645
120
150
120
–
–
65
55
120
140
120
140
120
4
22
37
6
–
–
4
4
10
27
18
68
7
649
142
187
126
–
–
69
59
130
167
138
208
127
1,796
203
1,999
1,795
207
2,002
1 Patrick Cescau retired from the Board on June 20, 2019
2 Margaret Ewing joined the Board on June 20, 2019
3 Javier Ferrán joined the Board on June 20, 2019
4 Deborah Kerr joined the Board on June 14, 2018
5 James Lawrence retired from the Board on June 14, 2018
6 Dame Marjorie Scardino retired from the Board on June 20, 2019
7 Nicola Shaw joined the Board effective January 1, 2018, appointment approved by the annual Shareholders’ Meeting on June 15, 2017
Additional explanations in respect of the single total figure table
Each director has confirmed in writing that they have not received any other items in the nature of remuneration other than those
already disclosed in the table above.
Fees
Fees paid in the year for non-executive directors.
Taxable benefits
Taxable benefits including personal travel.
For the year to December 31, 2019, €:£ exchange rate applied is 1.1371 (2018: 1.1317).
Subject to audit
Directors’ interests in shares
Antonio Vázquez
Willie Walsh
Marc Bolland
Margaret Ewing
Javier Ferrán
Steve Gunning
Deborah Kerr
Maria Fernanda Mejia
Kieran Poynter
Emilio Saracho
Nicola Shaw
Alberto Terol
Total
Total shares
and voting
rights
512,291
1,305,331
0
0
80,000
175,508
0
100
15,000
0
1,714
26,537
2,116,481
Percentage of
capital
0.026
0.066
0.000
0.000
0.004
0.009
0.000
0.000
0.001
0.000
0.000
0.001
0.106
There have been no changes to the shareholdings set out above between December 31, 2019 and the date of this report.
122
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Share scheme dilution limits
The Investment Association sets guidelines that restrict the issue of new shares under all the Company’s share schemes in any ten-year
period to 10 per cent of the issued ordinary share capital and restrict the issues under the Company’s discretionary schemes to 5 per
cent in any ten-year period. At the annual Shareholders’ Meeting on June 14, 2018 the Company was given authority to allocate up to
45,000,000 shares in 2019, 2020, and 2021. Of this a maximum of 5,100,000 shares could be allocated to executive directors under all
IAG share plans for awards made during 2019, 2020, and 2021.
The highest and lowest closing prices of the Company’s shares during the period and the share price at December 31, 2019 were:
At December 31, 2019
Highest in the period
Lowest in the period
625p
668p
414p
Company performance graph and Chief Executive Officer of IAG ‘single figure’ table
The chart shows the value by December 31, 2019 of a hypothetical £100 invested in IAG shares on listing compared with the value of
£100 invested in the FTSE 100 index over the same period. A spot share price has been taken on the date of listing, and a three-month
average has been taken prior to the year ends.
The FTSE 100 was selected because it is a broad equity index of which the Company is a constituent, and the index is
widely recognised.
IAG’s total shareholder return (TSR) performance compared to the FTSE 100
300
250
200
150
100
50
0
Jan 2011
Dec 2011
Dec 2012
Dec 2013
Dec 2014
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Dec 2019
IAG
FTSE 100
The table below shows the CEO ‘single total figure’ of remuneration for each year since the creation of IAG in January 2011:
CEO of IAG – ‘total single
figure’ of remuneration
Annual incentive payment as
a percentage of the maximum
Long-term incentive vesting as a percentage of the maximum
2011
2012
2013
2014
2015
2016
2017
2018
2019
£1,550,000
£1,083,000
£4,971,000
£6,390,000
£6,455,000
£2,462,000
£3,954,000
£3,030,000
£3,198,000
18 per cent of maximum
35 per cent of maximum
No annual incentive payment
Zero vesting of long-term incentives
78.75 per cent of maximum
100 per cent of maximum
97.78 per cent of maximum
85 per cent of maximum
80 per cent of maximum
100 per cent of maximum
33.33 per cent of maximum
50 per cent of maximum
92.92 per cent of maximum
66.67 per cent of maximum
61.85 per cent of maximum
46.19 per cent of maximum
51.97 per cent of maximum
72.11 per cent of maximum
Single total figure of remuneration includes basic salary, taxable benefits, pension related benefits, annual incentive award and long-
term incentive vesting.
2011 figure includes 20 days of remuneration in January 2011 paid by British Airways.
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REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Percentage change in remuneration of the Chief Executive Officer of IAG compared to employees
The table below shows how the remuneration of the Chief Executive Officer of IAG has changed for 2019 compared to 2018.
This is then compared to a group of appropriate employees. It has been determined that the most appropriate group of employees are
all UK employees in the Group, comprising around 40,000 employees in total. To make the comparison between the CEO of IAG and
employees as meaningful as possible, it was determined that as large a group as possible of employees should be chosen.
The selection of all UK employees in the Group (roughly two-thirds of the entire Group’s employees) meets these criteria. The majority
of the 40,000 UK employees in the Group are employed by British Airways, but there are also a number of employees from all other
companies in the Group based in the UK. It was determined that employees outside the UK would not be considered for the
comparison, as very different employment market conditions exist in other countries.
Chief Executive Officer of IAG
UK employees
Basic salary
No basic salary increase for 2019.
Annual incentive Decrease from £1,051,000 in March 2019 (covering the
2018 performance period) to £883,000 in March 2020
(covering the 2019 performance period). This represents
a 16 per cent decrease.
Basic salary awards in 2019 at UK companies in the
Group varied from around 2.5 per cent to 3.0 per cent.
Changes in overall annual incentive payments
for 2019 versus 2018 varied considerably around the
Group, depending on the incentive design, financial
performance, and non-financial performance at each
individual company.
Taxable benefits
No change in benefits policy.
No change in benefits policy.
Actual payments increased to £30,000 in 2019 from
£27,000 in 2018.
Overall costs 2019 versus 2018 increased slightly in line
with inflation.
Relative importance of spend on pay
The table below shows, for 2019 and 2018, total remuneration costs, operating profit and dividends for the Company.
Total employee costs, IAG
Total remuneration, directors (including non-executive directors)
IAG operating profit (before exceptional items)
Dividend declared
Dividend proposed
Total employee costs are before exceptional items.
2019
2018
€4,962,000,000
€4,812,000,000
€7,485,000
€7,279,000
€3,285,000,000
€3,230,000,000
€288,000,000
€337,000,000
€1,310,000,000
–
124
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
CEO Pay Ratio
Following UK Government changes to reporting regulations, IAG voluntarily chose to disclose the median pay ratio in last year’s report
in advance of the regulations being implemented. For this report, IAG will comply fully with the regulations. The table below shows the
ratio of pay between the CEO of IAG and IAG’s UK employees. The CEO of IAG remuneration is the 2019 ‘single figure’ total
remuneration, and this is compared to the 25th, median, and 75th percentile 2019 total remuneration of full-time equivalent UK
employees in IAG. The Government’s methodology “Option A” has been used to calculate the remuneration, as we believe that this is
the option that most investors favour, and gives the most accurate and robust ratio. The data for the UK employees is from the payroll
records of 38,781 UK employees who were in the Group during 2019.
Percentile
CEO of IAG Pay Ratio
Basic Salary, UK employees Total Remuneration, UK employees
25th (Lower quartile)
50th (Median)
75th (Upper quartile)
109:1
72:1
49:1
£20,092
£32,290
£46,544
£29,360
£44,208
£64,673
Around 98 per cent of the Group’s UK employees work for British Airways. British Airways have undertaken many initiatives in recent
years to ensure its lower paid workers are paid fairly.
Implementation of remuneration policy for 2020
Basic salary
Basic salaries for executive directors are reviewed from January 1 each year. After careful consideration of Company affordability, the
worth of each executive, retention risks and the size of pay increases generally across the Group for 2020 (which varied across the
Group from 2.0 per cent to 3.0 per cent), the Board, following the recommendation of the Remuneration Committee, approved
the following:
Executive director
Basic salary review
Chief Executive Officer of IAG (Willie Walsh)
£850,000 (€962,000) (no increase from 2019, owing to retirement shortly).
Chief Executive Officer of IAG (Luis Gallego)
£820,000 (€932,000) (new appointment from March 26, 2020).
Chief Financial Officer of IAG
£610,000 (€694,000) (in UK sterling terms, an increase of 2.5% from 2019).
2020 annual incentive plan
For 2020, the maximum award for the Chief Executive Officer of IAG will be 200 per cent of salary and for the Chief Financial Officer of
IAG 165 per cent of salary. The weighting for the IAG operating profit before exceptionals measure will be 60 per cent, for role-specific
objectives will be 20 per cent, and for the NPS measure will be 10 per cent. For the first time, a carbon measure will be introduced. The
measure will be a flight emissions intensity measure: grammes of carbon dioxide per passenger kilometre, and the weighting will be 10
per cent. The Board, after considering the recommendation of the Committee, has approved a stretching target range for IAG
operating profit before exceptionals, NPS and the carbon measure for 2020 at the threshold, on-target and maximum levels. At
threshold, there will be a zero pay-out, 50 per cent of the maximum will pay out at the on-target level, and 100 per cent of the
maximum will pay out at the stretch target level. There will be a straight-line sliding scale between threshold and on-target, and
on-target and the stretch target. For commercial reasons, the target range for these measures will not be disclosed until after the end
of the performance year. They will be disclosed in next year’s Remuneration Report.
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2020 Performance Share Plan award
The Board, on the Committee’s recommendation, has approved a PSP award for 2020, with a performance period of January 1, 2020 to
December 31, 2022. For 2020, the face value of awards for the Chief Executive Officer will be 200 per cent of salary and for the Chief
Financial Officer 175 per cent of salary.
The Board has approved the use of three performance conditions, each with a one-third weighting. These are the same three
performance conditions and weightings that have been used since 2015.
The first is based on IAG TSR performance relative to an index. For the first time, the index will be the STOXX Europe 600 Travel and
Leisure Index, as the Board believes this is a more appropriate benchmark. The target range is identical to 2019 and is outlined earlier in
this report.
The second performance condition is based on adjusted EPS. The Board and the Committee have agreed that the adjusted EPS target
range for the 2020 PSP award will be decreased compared to the 2019 PSP award. The adjusted EPS measure will be as follows:
Weighting
Threshold
One-third
2022 adjusted EPS of 140 €cents
10 per cent vests
Target (straight line vesting between threshold and maximum)
2022 adjusted EPS between 140 €cents and 180 €cents
Maximum
The third performance condition is RoIC. The measure will be as follows:
Weighting
Threshold
2022 adjusted EPS of 180 €cents
100 per cent vests
One-third
2022 RoIC of 14 per cent
10 per cent vests
Target (straight line vesting between threshold and maximum)
2022 RoIC between 14 per cent and 16 per cent
Maximum
2022 RoIC of 16 per cent
100 per cent vests
There will be an additional holding period of two years. This means that executives will be required to retain the shares for a minimum
of two years following the end of the performance period. This is to strengthen the alignment between executives and shareholders.
Taxable benefits and pension related benefits
Taxable benefits remain unchanged for 2020. Pension related benefits as a percentage of basic salary will decrease for new
externally recruited executive directors as stated in the remuneration policy, and also will decrease for internal promotions on a
case-by-case basis.
Non-executive director fees
Non-executive director fees were last reviewed in 2017 and remain unchanged for 2020. The fees have remained unchanged since 2011.
Payments for loss of office and payments to past directors: Willie Walsh
On January 9, 2020 it was announced that Willie Walsh has decided to retire as Chief Executive. He will step down from the Board on
March 26, 2020 and remain employed by the Company until June 30, 2020 in order to support the transition and provide insight and
background. In accordance with the scheme rules, Willie was granted ‘good leaver’ status by the Committee.
Willie Walsh received (or will receive) the payments set out below, less any required tax withholdings. All payments are in accordance
with his service agreement and the Company’s remuneration policy as set out in the Company’s 2017 Annual Report and Accounts.
Willie will receive basic salary of £224,000, taxable benefits of £8,000, and pension benefits of £56,000 (cash allowance), after he has
stepped down from the Board.
Willie Walsh holds outstanding IADP awards granted in 2017, 2018 and 2019, and is about to receive a 2020 award in respect of the
deferred shares portion of the outcome of the 2019 annual incentive plan. All of these awards will remain capable of vesting in full on
their normal vesting dates, in accordance with the rules of the IADP.
126
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 PSP Awards
The 2015 PSP Award shares were released at the end of the normal two-year holding period (end of 2019). Willie Walsh holds
outstanding PSP awards as follows:
Award
Notes
2016 PSP Award
Shares will be released at the end of the normal two-year holding period (end of 2020)
2017 PSP Award
2018 PSP Award
2019 PSP Award
Shares will reflect the vesting outcome at the end of 2019, and released at the end of the normal two-year
holding period (end of 2021)
Shares will reflect the vesting outcome at the end of 2020, pro-rated to 30 June 2020 and released at the end
of the normal two-year holding period (end of 2022)
Shares will reflect the vesting outcome at the end of 2021, pro-rated to 30 June 2020 and released at the end of
the normal two-year holding period (end of 2023)
The Remuneration Committee retains the authority to lapse the unvested 2018 and/or 2019 PSP awards if, at the date upon which the
applicable performance conditions have been assessed, the Committee is not satisfied that Willie Walsh remains in retirement.
Travel benefits
Willie Walsh will participate in the British Airways travel benefits programme for former employees, in line with the standard approach
in place.
2020 annual incentive plan
As set out earlier in this report, Willie Walsh will remain as Chief Executive Officer until March 26, 2020. He will be eligible for a 2020
annual incentive award, pro-rated to reflect the period he serves as Chief Executive Officer. Any award will be paid to him in the normal
manner, with 50 per cent being deferred for three years and malus and clawback rules will apply. The relevant measures and
weightings are as set out earlier in this report.
127
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Newly appointed Chief Executive Officer and Chief Financial Officer
Chief Executive Officer (Luis Gallego)
Luis Gallego will succeed Willie Walsh as Chief Executive Officer on March 26, 2020. The Committee carefully considered the package
to be offered to Luis, in the context of the new UK Corporate Governance Code as well as the views of our shareholders and best
market practice.
Upon appointment, Luis Gallego will receive a base salary of £820,000. This compares to the current salary for the CEO, who has not
received or taken a salary increase since 2014, of £850,000. In addition, the pension contribution rate for Luis will be revised downward
to 12.5 per cent, which is comparable to the rate for the majority of the UK workforce.
Luis will be eligible for an annual incentive award of up to 200 per cent of salary and PSP award of up to 200 per cent of salary.
Chief Financial Officer (Steve Gunning)
Steve Gunning was appointed to the Board as Chief Financial Officer on June 20, 2019. In order to reflect the size and scope of the role,
as well as the appropriate market positioning, the Committee felt it was appropriate for Steve to receive a base salary of £595,000.
Whilst the salary is higher than the previous CFO (whose salary was £570,000), the Committee considers that this appropriately
reflects the significance of the role in unlocking current growth opportunities and delivering the Company’s key strategic priorities in
challenging global economic conditions. The increase also brings the CFO salary more in line with the appropriate market positioning.
In addition, the pension contribution rate for Steve will be revised downward to 12.5 per cent, which is comparable to the rate for the
majority of the UK workforce.
Steve will be eligible for an annual incentive award of up to 165 per cent of salary and PSP award of up to 175 per cent of salary.
The Remuneration Committee
The Committee’s composition, competencies and operating rules are regulated by article 31 of the IAG Board Regulations. A copy of
these Regulations is available on the Company’s website.
Beyond executive directors, the Committee oversees the general application of the remuneration policy to the IAG Management
Committee (and also occasionally considering remuneration matters of managers generally across the Group).
According to article 31 of the Board Regulations the Remuneration Committee shall be made up of no less than three and no more than
five non-executive directors appointed by the Board, with the dedication, capacity and experience necessary to carry out their
function. A majority of the members of the Remuneration Committee shall be Independent directors. Marc Bolland is Chairman of the
Committee. For the reporting period all members were considered Independent non-executive directors of the Company and none of
the members has any personal financial interest, other than as a shareholder, in the matters to be decided.
In accordance with the 2018 UK Code, the Remuneration Committee also has responsibility to review workforce remuneration and
related policies and the alignment of incentives and rewards with culture.
Advisers to the Committee
The Committee appointed Deloitte as its external adviser in September 2016. Deloitte report directly to the Committee. The fees paid
to Deloitte for advice provided to the Remuneration Committee during 2019 were €123,118, charged on a time and materials basis.
Deloitte is a member of the Remuneration Consultants Group and a signatory to the voluntary UK Code of Conduct. As well as advising
the Remuneration Committee, other Deloitte teams provided advice in relation to remuneration, pensions, global employment
programmes, data governance, business process improvement, financial advisory work and tax to the Group in 2019. The Committee
has reviewed the remuneration advice provided by Deloitte during the year and is comfortable that it has been objective and
independent.
The Company obtained high level headline remuneration survey data from a variety of sources. During the year, the CEO of IAG
provided regular briefings to the Committee apart from when his own remuneration was being discussed.
Statement of voting
The table below shows the consultative vote on the 2018 annual Directors’ Remuneration Report at the 2019 annual Shareholders’
Meeting, and the binding vote on the Directors’ Remuneration Policy at the 2018 annual Shareholders’ Meeting:
2018 Annual Directors’ Remuneration Report
1,243,527,439
1,175,238,898
7,612,630
60,675,911
(94.51 per cent)
(0.61 per cent)
(4.88 per cent)
Directors’ Remuneration Policy
1,463,865,426
1,396,029,011
13,091,180
54,745,235
(95.37 per cent)
(0.89 per cent)
(3.74 per cent)
Number of votes cast
For
Against
Abstentions/Blank
128
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Supplementary information
Directors’ share options
The following directors held nil-cost options over ordinary shares of the Company granted under the IAG PSP.
Number of
options at
January 1,
2019
Options
exercised
during
the year
Options
lapsed
during
the year
Exercise
price
Options
granted
during
the year Exercisable from
Expiry date
Number of
options at
December
31, 2019
Director
Date of grant
Executive
directors
Willie Walsh May 28, 2015
March 7, 2016
March 6, 2017
206,060
314,233
311,355
May 10, 2018
246,020
March 8, 2019
–
Total
1,077,668
–
–
–
–
–
-
–
–
–
–
–
–
– January 1, 2020 December 31, 2024
206,060
169,089
– January 1, 2021 December 31, 2025
– January 1, 2022 December 31, 2026
145,144
311,355
– January 1, 2023 December 31, 2027
246,020
299,824 January 1, 2024 December 31, 2028
299,824
–
–
–
-
169,089 299,824
1,208,403
Date of grant
May 28, 2015
March 7, 2016
March 6, 2017
May 10, 2018
March 8, 2019
Steve
Gunning
Total
Number of
options at date
of
appointment
Options
exercised
during
the year
Options
lapsed
during
the year
Exercise
price
Options
granted
during
the year Exercisable from
Expiry date
52,363
37,621
96,703
77,800
101,587
366,074
–
–
–
–
–
-
–
–
–
–
–
-
–
–
–
–
–
-
– January 1, 2020 December 31, 2024
– January 1, 2021 December 31, 2025
– January 1, 2022 December 31, 2026
– January 1, 2023 December 31, 2027
– January 1, 2024 December 31, 2028
-
Number of
options at
December
31, 2019
52,363
37,621
96,703
77,800
101,587
366,074
The award granted on March 7, 2016 was tested at the end of the performance period, and as a result 46.19 per cent of the award
vested, as detailed earlier in this report in the section on Variable pay outcomes.
The performance conditions for each of the other PSP awards listed above will be tested to determine the level of vesting. For each of
these awards, one-third of the award is subject to TSR performance measured against an index, one-third is subject to adjusted EPS
performance, and one-third is subject to RoIC performance. The performance conditions will be measured over a single three-year
performance period. For each of these awards, following the performance period there is an additional holding period of two years.
The value attributed to the Company’s ordinary shares in accordance with the plan rules on the dates of the PSP awards were as
follows: 2019: 567 pence; 2018: 691 pence; 2017: 546 pence; 2016: 541 pence; and 2015: 550 pence.
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REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Incentive Award Deferral Plan (IADP)
The following directors held conditional awards over ordinary shares of the Company granted under the IAG IADP (awarded as a result
of IAG performance for the periods that ended December 31, 2015, December 31, 2016, December 31, 2017, and December 31, 2018).
Relates
to incentive
award earned
in respect of
performance
Number of
awards at
January 1,
2019
Awards
released during
the year
Date of vesting
Awards
lapsing during
the year
Awards
made during
the year
Number of
awards at
December 31,
2019
Date of award
Director
Executive
directors
Willie Walsh
2015 March 7, 2016
2016 March 6, 2017
2017
May 10, 2018
2018 March 8, 2019
125,693
51,893
114,297
–
125,693 March 7, 2019
– March 6, 2020
– March 8, 2021
– March 8, 2022
Total
291,883
125,693
–
–
–
–
-
–
–
–
92,720
92,720
–
51,893
114,297
92,720
258,910
Relates
to incentive
award earned
in respect of
performance
Date of award
Number of
awards at date
of appointment
Awards
released during
the year
Date of vesting
Awards
lapsing during
the year
Awards
made during
the year
Number of
awards at
December 31,
2019
Steve
Gunning
Total
2016 March 6, 2017
2017
May 10, 2018
2018 March 8, 2019
16,117
37,603
32,813
86,533
– March 6, 2020
– March 8, 2021
– March 8, 2022
-
–
–
–
-
–
–
–
-
16,117
37,603
32,813
86,533
There are no performance conditions to be tested before vesting for the IADP, except that the director must still be employed by the
Company at the time of vesting, or have left as a Good Leaver.
The value attributed to the Company’s ordinary shares in accordance with the plan rules on the date of the 2019 IADP award was
567 pence (2018: 691 pence; 2017: 546 pence; and 2016: 541 pence).
The value attributed to the Company’s ordinary shares in accordance with the plan rules on the date of the 2016 IADP award was
541 pence. The share price on the date of the vesting of this award (March 7, 2019) was 554 pence. The money value of the shares
received was the share price on the date of the vesting multiplied by the number of shares in respect of the award vested, as shown in
the table above.
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
Financial
Statements
132 Consolidated income statement
133 Consolidated statement of other
comprehensive income
134 Consolidated balance sheet
135 Consolidated cash flow statement
136 Consolidated statement of changes in equity
138 Notes to the consolidated financial statements
187 Alternative performance measures
193 Group investments
The Group’s consolidated statements
which follow have been prepared in
accordance with the International
Financial Reporting Standards as
endorsed by the European Union.
131131
www.iairgroup.comwww.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information CONSOLIDATED INCOME STATEMENT
€ million
Passenger revenue
Cargo revenue
Other revenue
Total revenue
Before
exceptional
items
2019
Note
Exceptional
items
Total
2019
Before
exceptional
items
2018
(Restated)
Exceptional
items
Total
2018
(Restated)
Year to December 31
22,468
1,117
1,921
22,468
1,117
1,921
21,401
1,173
1,684
3
25,506
25,506
24,258
(460)
12
(448)
448
448
(32)
416
21,401
1,173
1,684
24,258
4,352
5,283
2,740
2,184
1,828
930
1,046
1,254
890
73
20,580
3,678
(231)
41
27
(19)
(9)
(191)
3,487
(590)
2,897
2,885
12
2,897
142.7
137.4
Employee costs
4, 7
Fuel, oil costs and emissions charges
Handling, catering and other operating
costs
Landing fees and en-route charges
Engineering and other aircraft costs
Property, IT and other costs
Selling costs
Depreciation, amortisation and
impairment
Aircraft operating lease costs
Currency differences
Total expenditure on operations
Operating profit
Finance costs
Finance income
Net financing credit relating to pensions
Net currency retranslation
credits/(charges)
Other non-operating charges
Total net non-operating costs
Profit before tax
Tax
Profit after tax for the year
Attributable to:
Equity holders of the parent
Non-controlling interest
5
8
8
8
8
9
4,962
6,021
2,972
2,221
2,092
811
1,038
2,111
–
(7)
22,221
3,285
(611)
50
26
201
(4)
(338)
2,947
(560)
2,387
2,387
–
2,387
Basic earnings per share (€ cents)
Diluted earnings per share (€ cents)
10
10
120.3
116.8
672
5,634
6,021
2,972
2,221
2,092
811
1,038
2,111
–
(7)
672
(672)
22,893
2,613
(672)
–
(672)
(611)
50
26
201
(4)
(338)
2,275
(560)
1,715
1,715
–
1,715
86.4
84.3
4,812
5,283
2,740
2,184
1,828
918
1,046
1,254
890
73
21,028
3,230
(231)
41
27
(19)
(9)
(191)
3,039
(558)
2,481
2,469
12
2,481
122.1
117.7
132
132
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
€ million
Items that may be reclassified subsequently to net profit
Cash flow hedges:
Fair value movements in equity
Reclassified and reported in net profit
Fair value movements on cost of hedging
Cost of hedging reclassified and reported in net profit
Currency translation differences
Items that will not be reclassified to net profit
Fair value movements on other equity investments
Fair value movements on cash flow hedges
Fair value movements on cost of hedging
Remeasurements of post-employment benefit obligations
Total other comprehensive income/(loss) for the year, net of tax
Profit after tax for the year
Year to December 31
Note
2019
2018
29
29
29
29
610
141
36
(10)
296
(8)
(70)
32
(788)
239
1,715
(517)
(480)
13
–
(80)
(5)
26
–
(696)
(1,739)
2,897
Total comprehensive income for the year
1,954
1,158
Total comprehensive income is attributable to:
Equity holders of the parent
Non-controlling interest
29
1,954
–
1,954
1,146
12
1,158
Items in the consolidated Statement of other comprehensive income above are disclosed net of tax.
Note
items
2019
Exceptional
items
Total
2019
(Restated)
items
(Restated)
Exceptional
Employee costs
4, 7
672
(460)
3
25,506
25,506
24,258
€ million
Passenger revenue
Cargo revenue
Other revenue
Total revenue
Fuel, oil costs and emissions charges
Handling, catering and other operating
costs
Landing fees and en-route charges
Engineering and other aircraft costs
Property, IT and other costs
Selling costs
impairment
Depreciation, amortisation and
Aircraft operating lease costs
Currency differences
Total expenditure on operations
Net financing credit relating to pensions
Operating profit
Finance costs
Finance income
Net currency retranslation
credits/(charges)
Other non-operating charges
Total net non-operating costs
Profit before tax
Tax
Profit after tax for the year
Attributable to:
Equity holders of the parent
Non-controlling interest
Before
exceptional
22,468
1,117
1,921
4,962
6,021
2,972
2,221
2,092
811
1,038
2,111
–
(7)
22,221
3,285
(611)
50
26
201
(4)
(338)
2,947
(560)
2,387
2,387
–
2,387
5
8
8
8
8
9
Basic earnings per share (€ cents)
Diluted earnings per share (€ cents)
10
10
120.3
116.8
Year to December 31
Before
exceptional
items
2018
22,468
1,117
1,921
21,401
1,173
1,684
5,634
6,021
2,972
2,221
2,092
811
1,038
2,111
–
(7)
(611)
50
26
201
(4)
(338)
2,275
(560)
1,715
1,715
–
1,715
86.4
84.3
672
(672)
22,893
2,613
(672)
–
(672)
4,812
5,283
2,740
2,184
1,828
918
1,046
1,254
890
73
21,028
3,230
(231)
41
27
(19)
(9)
(191)
3,039
(558)
2,481
2,469
12
2,481
122.1
117.7
Total
2018
21,401
1,173
1,684
24,258
4,352
5,283
2,740
2,184
1,828
930
1,046
1,254
890
73
20,580
3,678
(231)
41
27
(19)
(9)
(191)
3,487
(590)
2,897
2,885
12
2,897
142.7
137.4
12
(448)
448
448
(32)
416
132
133
133
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Note
December 31,
2019
December 31,
2018
12
15
16
17
30
26
9
18
18
18
9
26
19
19
27
27
29
29
23
30
9
24
26
22
23
20
21
26
9
24
19,168
3,442
12,437
3,198
31
82
524
268
546
273
31
80
1,129
221
536
309
24,334
17,941
565
2,255
1,314
186
324
2,621
4,062
11,327
35,661
996
5,327
(60)
560
6,823
6
6,829
12,411
328
572
2,416
286
71
509
1,597
1,175
383
155
2,437
3,837
10,093
28,034
996
6,022
(68)
(236)
6,714
6
6,720
6,633
289
453
2,268
423
198
16,084
10,264
1,843
4,344
5,486
252
192
631
12,748
28,832
35,661
876
3,959
4,835
656
165
559
11,050
21,314
28,034
CONSOLIDATED BALANCE SHEET
€ million
Non-current assets
Property, plant and equipment
Intangible assets
Investments accounted for using the equity method
Other equity investments
Employee benefit assets
Derivative financial instruments
Deferred tax assets
Other non-current assets
Current assets
Inventories
Trade receivables
Other current assets
Current tax receivable
Derivative financial instruments
Other current interest-bearing deposits
Cash and cash equivalents
Total assets
Shareholders’ equity
Issued share capital
Share premium
Treasury shares
Other reserves
Total shareholders’ equity
Non-controlling interest
Total equity
Non-current liabilities
Interest-bearing long-term borrowings
Employee benefit obligations
Deferred tax liability
Provisions
Derivative financial instruments
Other long-term liabilities
Current liabilities
Current portion of long-term borrowings
Trade and other payables
Deferred revenue on ticket sales
Derivative financial instruments
Current tax payable
Provisions
Total liabilities
Total equity and liabilities
134
134
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
CONSOLIDATED BALANCE SHEET
CONSOLIDATED CASH FLOW STATEMENT
Investments accounted for using the equity method
€ million
Non-current assets
Property, plant and equipment
Intangible assets
Other equity investments
Employee benefit assets
Derivative financial instruments
Deferred tax assets
Other non-current assets
Current assets
Inventories
Trade receivables
Other current assets
Current tax receivable
Derivative financial instruments
Other current interest-bearing deposits
Cash and cash equivalents
Total assets
Shareholders’ equity
Issued share capital
Share premium
Treasury shares
Other reserves
Total shareholders’ equity
Non-controlling interest
Total equity
Non-current liabilities
Interest-bearing long-term borrowings
Employee benefit obligations
Deferred tax liability
Provisions
Derivative financial instruments
Other long-term liabilities
Current liabilities
Current portion of long-term borrowings
Trade and other payables
Deferred revenue on ticket sales
Derivative financial instruments
Current tax payable
Provisions
Total liabilities
Total equity and liabilities
12
15
16
17
30
26
9
18
18
18
9
26
19
19
27
27
29
29
23
30
9
24
26
22
23
20
21
26
9
24
Note
December 31,
December 31,
2019
2018
19,168
3,442
12,437
3,198
24,334
17,941
31
82
524
268
546
273
565
2,255
1,314
186
324
2,621
4,062
11,327
35,661
996
5,327
(60)
560
6,823
6
6,829
12,411
328
572
2,416
286
71
1,843
4,344
5,486
252
192
631
12,748
28,832
35,661
31
80
1,129
221
536
309
509
1,597
1,175
383
155
2,437
3,837
10,093
28,034
996
6,022
(68)
(236)
6,714
6
6,720
6,633
289
453
2,268
423
198
876
3,959
4,835
656
165
559
11,050
21,314
28,034
16,084
10,264
€ million
Cash flows from operating activities
Operating profit after exceptional items
Depreciation, amortisation and impairment
Movement in working capital
Increase in trade receivables, prepayments, inventories and other current assets
Increase in trade and other payables, deferred revenue on ticket sales and current
liabilities
Payments related to restructuring
Employer contributions to pension schemes
Pension scheme service costs
Provision and other non-cash movements
Interest paid
Interest received
Tax paid
Net cash flows from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets
Sale of property, plant and equipment and intangible assets
(Increase)/decrease in other current interest-bearing deposits
Other investing movements
Net cash flows from investing activities
Cash flows from financing activities
Proceeds from long-term borrowings
Repayment of borrowings
Repayment of lease liabilities (2018: repayment of finance leases)
Acquisition of treasury shares
Distributions made to holders of perpetual securities
Dividend paid
Net cash flows from financing activities
Net increase in cash and cash equivalents
Net foreign exchange differences
Cash and cash equivalents at 1 January
Cash and cash equivalents at year end
Interest-bearing deposits maturing after more than three months
Cash, cash equivalents and other interest-bearing deposits
Year to December 31
Note
2019
2018
5
24
30
19
19
19
2,613
2,111
(70)
(935)
865
(180)
(870)
5
951
(481)
42
(119)
4,002
3,678
1,254
(64)
(650)
586
(220)
(898)
55
(114)
(149)
37
(343)
3,236
(3,465)
(2,802)
911
(103)
(1)
574
924
61
(2,658)
(1,243)
2,286
(730)
(1,507)
–
–
(1,308)
(1,259)
85
140
3,837
4,062
1,078
(275)
(824)
(500)
(312)
(577)
(1,410)
583
(38)
3,292
3,837
2,621
2,437
6,683
6,274
For details on restricted cash balances refer to note 19 ‘Cash, cash equivalents and other current interest-bearing deposits’.
134
135
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www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Total
equity
6,720
(550)
6,170
1,715
55
106
(26)
6
540
(8)
68
(10)
296
(788)
1,954
(11)
33
(6)
(1,310)
(1)
6,829
–
6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year to December 31, 2019
€ million
January 1, 2019 as reported
Adoption of IFRS 16
January 1, 2019
Issued
share
capital
(note 27)
996
Share
premium
(note 27)
6,022
Treasury
shares
(note 27)
(68)
Other
reserves
(note 29)
(3,560)
Retained
earnings
(note 29)
3,324
Total
shareholders’
equity
6,714
Non-
controlling
interest
(note 29)
6
–
–
–
4
996
6,022
(68)
(3,556)
(554)
2,770
(550)
6,164
Profit for the year
–
–
–
–
1,715
1,715
Other comprehensive income for
the year
Cash flow hedges reclassified and
reported in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Finance costs
Net change in fair value of cash flow
hedges
Net change in fair value of equity
investments
Net change in fair value of cost of
hedging
Cost of hedging reclassified and
reported in net profit
Currency translation differences
Remeasurements of post-
employment benefit obligations
Total comprehensive income for the
year
Hedges reclassified and reported in
property, plant and equipment
Cost of share-based payments
Vesting of share-based payment
schemes
Dividend
Redemption of convertible bond
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(695)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8
–
–
55
106
(26)
6
540
(8)
68
(10)
296
–
–
–
–
–
–
–
–
–
55
106
(26)
6
540
(8)
68
(10)
296
–
(788)
(788)
1,027
927
1,954
(11)
–
–
–
(39)
–
33
(14)
(615)
38
(11)
33
(6)
(1,310)
(1)
6,823
December 31, 2019
996
5,327
(60)
(2,579)
3,139
136
136
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year to December 31, 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year to December 31, 2018
Issued
share
capital
(note 27)
Share
premium
(note 27)
Treasury
shares
(note 27)
Other
reserves
(note 29)
Retained
earnings
(note 29)
shareholders’
Non-
Total
controlling
interest
(note 29)
January 1, 2019 as reported
996
6,022
(68)
(3,560)
996
6,022
(68)
(3,556)
€ million
Adoption of IFRS 16
January 1, 2019
Profit for the year
Other comprehensive income for
the year
Cash flow hedges reclassified and
reported in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Finance costs
Net change in fair value of cash flow
hedges
investments
hedging
Net change in fair value of equity
Net change in fair value of cost of
Cost of hedging reclassified and
reported in net profit
Currency translation differences
Remeasurements of post-
employment benefit obligations
Total comprehensive income for the
year
Hedges reclassified and reported in
property, plant and equipment
Cost of share-based payments
Vesting of share-based payment
schemes
Dividend
Redemption of convertible bond
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(695)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8
–
–
4
3,324
(554)
2,770
equity
6,714
(550)
6,164
–
1,715
1,715
55
106
(26)
6
540
(8)
68
(10)
296
(11)
–
–
–
(39)
–
–
–
–
–
–
–
–
–
–
33
(14)
(615)
38
55
106
(26)
6
540
(8)
68
(10)
296
(11)
33
(6)
(1,310)
(1)
6,823
–
(788)
(788)
1,027
927
1,954
Total
equity
6,720
(550)
6,170
1,715
55
106
(26)
6
540
(8)
68
(10)
296
(788)
1,954
(11)
33
(6)
(1,310)
(1)
6,829
6
–
6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6
December 31, 2019
996
5,327
(60)
(2,579)
3,139
€ million
January 1, 2018
Issued
share
capital
(note 27)
1,029
Share
premium
(note 27)
6,022
Treasury
shares
(note 27)
(77)
Other
reserves
(note 29)
(2,626)
Retained
earnings
(note 29)
2,278
Total
shareholders’
equity
6,626
Non-
controlling
interest
(note 29)
307
Total
equity
6,933
Profit for the year
–
–
–
–
2,885
2,885
12
2,897
Other comprehensive income for
the year
Cash flow hedges reclassified and
reported in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Finance costs
Net change in fair value of cash flow
hedges
Net change in fair value of equity
investments
Net change in fair value of cost of
hedging
Currency translation differences
Remeasurements of post-
employment benefit obligations
Total comprehensive income for
the year
Hedges reclassified and reported in
property, plant and equipment
Cost of share-based payments
Vesting of share-based payment
schemes
Acquisition of treasury shares
Dividend
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Cancellation of share capital
(33)
Dividend of a subsidiary
Transfer between reserves
Distributions made to holders of
perpetual securities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9
(500)
–
500
–
–
–
77
(565)
4
4
(491)
(5)
13
(80)
–
–
–
–
–
–
–
–
77
(565)
4
4
(491)
(5)
13
(80)
–
(696)
(696)
–
–
–
–
–
–
–
–
–
77
(565)
4
4
(491)
(5)
13
(80)
(696)
(1,043)
2,189
1,146
12
1,158
(1)
–
–
–
–
33
–
77
–
–
31
(15)
–
(582)
(500)
–
(77)
–
(1)
31
(6)
(500)
(582)
–
–
–
–
–
–
–
–
–
–
(1)
–
(1)
31
(6)
(500)
(582)
–
(1)
–
(312)
(312)
December 31, 2018
996
6,022
(68)
(3,560)
3,324
6,714
6
6,720
136
137
137
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year to December 31, 2019
1 Background and general information
International Consolidated Airlines Group S.A. (hereinafter ‘International Airlines Group’, ‘IAG’ or the ‘Group’) is a leading European
airline group, formed to hold the interests of airline and ancillary operations. IAG is a Spanish company registered in Madrid and was
incorporated on December 17, 2009. On January 21, 2011 British Airways Plc and Iberia Líneas Aéreas de España S.A. Operadora
(hereinafter ‘British Airways’ and ‘Iberia’ respectively) completed a merger transaction becoming the first two airlines of the Group.
Vueling Airlines S.A. (‘Vueling’) was acquired on April 26, 2013, and Aer Lingus Group Plc (‘Aer Lingus’) on August 18, 2015. A list of
the subsidiaries of the Group is included in the Group investments section.
IAG shares are traded on the London Stock Exchange’s main market for listed securities and also on the stock exchanges of Madrid,
Barcelona, Bilbao and Valencia (the ‘Spanish Stock Exchanges’), through the Spanish Stock Exchanges Interconnection System
(Mercado Continuo Español).
2 Significant accounting policies
Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting
Standards as endorsed by the European Union (IFRSs as endorsed by the EU). The consolidated financial statements are rounded
to the nearest million unless otherwise stated. These financial statements have been prepared on a historical cost convention except
for certain financial assets and liabilities, including derivative financial instruments and other equity investments that are measured at
fair value. The carrying value of recognised assets and liabilities that are subject to fair value hedges are adjusted to record changes
in the fair values attributable to the risks that are being hedged. The financial statements for the prior year include reclassifications
that were made to conform to the current year presentation. The amendments have no material impact on the financial statements.
The Group’s financial statements for the year to December 31, 2019 were authorised for issue, and approved by the Board of
Directors on February 27, 2020.
The Directors have considered the business activities, the Group’s principal risks and uncertainties, and the Group’s financial
position, including cash flows, liquidity position and available committed facilities. The Directors consider that the Group has
adequate resources to remain in operation for the foreseeable future and have therefore continued to adopt the going concern
basis in preparing the financial statements.
Changes in accounting policies
The Group has applied IFRS 16 ‘Leases’ and IFRIC 23 ‘Uncertainty over tax treatments’ for the first time for the year to December 31,
2019. There has been no impact arising from the application of IFRIC 23. Further details on the impact of IFRS 16 on the Group
accounting policies, financial position and performance are provided in note 33.
There are no other standards, amendments or interpretations in issue but not yet adopted that the Directors anticipate will have a
material effect on the reported income or net assets of the Group.
In September 2019, the IFRS Interpretations Committee (‘IFRIC’) clarified that under IFRS 15 compensation payments for flight
delays and cancellations form compensation for passenger losses and accordingly should be recognised as variable compensation
and deducted from revenue. This clarification had led the Group to change its accounting policy, which previously classified this
compensation as an operating expense. Accordingly, the Group has restated the comparative period for 2018 to reflect €148 million
of compensation costs as a deduction from Passenger revenue and a corresponding reduction within Handling, catering and other
operating costs. The revenue component of segmental reporting has accordingly been restated. Further details are given in note 33.
Consolidation
The Group financial statements include the financial statements of the Company and its subsidiaries, each made up to December 31,
together with the attributable share of results and reserves of associates and joint ventures, adjusted where appropriate to conform
to the Group’s accounting policies.
Subsidiaries are consolidated from the date of their acquisition, which is the date on which the Group obtains control and continue
to be consolidated until the date that such control ceases. Control exists when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
The Group applies the acquisition method to account for business combinations. The consideration paid is the fair value of the
assets transferred, the liabilities incurred and the equity interests issued by the Group. Identifiable assets acquired and liabilities
assumed in a business combination are measured initially at their fair values at the acquisition date. Non-controlling interests
represent the portion of profit or loss and net assets in subsidiaries that are not held by the Group and are presented separately
within equity in the consolidated Balance sheet. Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in
the acquiree is remeasured to fair value at the acquisition date through the Income statement.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling
interest over the net identifiable assets acquired and liabilities assumed.
All intra-group account balances, including intra-group profits, are eliminated in preparing the consolidated financial statements.
138
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year to December 31, 2019
1 Background and general information
International Consolidated Airlines Group S.A. (hereinafter ‘International Airlines Group’, ‘IAG’ or the ‘Group’) is a leading European
airline group, formed to hold the interests of airline and ancillary operations. IAG is a Spanish company registered in Madrid and was
incorporated on December 17, 2009. On January 21, 2011 British Airways Plc and Iberia Líneas Aéreas de España S.A. Operadora
(hereinafter ‘British Airways’ and ‘Iberia’ respectively) completed a merger transaction becoming the first two airlines of the Group.
Vueling Airlines S.A. (‘Vueling’) was acquired on April 26, 2013, and Aer Lingus Group Plc (‘Aer Lingus’) on August 18, 2015. A list of
the subsidiaries of the Group is included in the Group investments section.
IAG shares are traded on the London Stock Exchange’s main market for listed securities and also on the stock exchanges of Madrid,
Barcelona, Bilbao and Valencia (the ‘Spanish Stock Exchanges’), through the Spanish Stock Exchanges Interconnection System
(Mercado Continuo Español).
2 Significant accounting policies
Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting
Standards as endorsed by the European Union (IFRSs as endorsed by the EU). The consolidated financial statements are rounded
to the nearest million unless otherwise stated. These financial statements have been prepared on a historical cost convention except
for certain financial assets and liabilities, including derivative financial instruments and other equity investments that are measured at
fair value. The carrying value of recognised assets and liabilities that are subject to fair value hedges are adjusted to record changes
in the fair values attributable to the risks that are being hedged. The financial statements for the prior year include reclassifications
that were made to conform to the current year presentation. The amendments have no material impact on the financial statements.
The Group’s financial statements for the year to December 31, 2019 were authorised for issue, and approved by the Board of
Directors on February 27, 2020.
The Directors have considered the business activities, the Group’s principal risks and uncertainties, and the Group’s financial
position, including cash flows, liquidity position and available committed facilities. The Directors consider that the Group has
adequate resources to remain in operation for the foreseeable future and have therefore continued to adopt the going concern
basis in preparing the financial statements.
Changes in accounting policies
The Group has applied IFRS 16 ‘Leases’ and IFRIC 23 ‘Uncertainty over tax treatments’ for the first time for the year to December 31,
2019. There has been no impact arising from the application of IFRIC 23. Further details on the impact of IFRS 16 on the Group
accounting policies, financial position and performance are provided in note 33.
There are no other standards, amendments or interpretations in issue but not yet adopted that the Directors anticipate will have a
material effect on the reported income or net assets of the Group.
In September 2019, the IFRS Interpretations Committee (‘IFRIC’) clarified that under IFRS 15 compensation payments for flight
delays and cancellations form compensation for passenger losses and accordingly should be recognised as variable compensation
and deducted from revenue. This clarification had led the Group to change its accounting policy, which previously classified this
compensation as an operating expense. Accordingly, the Group has restated the comparative period for 2018 to reflect €148 million
of compensation costs as a deduction from Passenger revenue and a corresponding reduction within Handling, catering and other
operating costs. The revenue component of segmental reporting has accordingly been restated. Further details are given in note 33.
Consolidation
to the Group’s accounting policies.
The Group financial statements include the financial statements of the Company and its subsidiaries, each made up to December 31,
together with the attributable share of results and reserves of associates and joint ventures, adjusted where appropriate to conform
Subsidiaries are consolidated from the date of their acquisition, which is the date on which the Group obtains control and continue
to be consolidated until the date that such control ceases. Control exists when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
The Group applies the acquisition method to account for business combinations. The consideration paid is the fair value of the
assets transferred, the liabilities incurred and the equity interests issued by the Group. Identifiable assets acquired and liabilities
assumed in a business combination are measured initially at their fair values at the acquisition date. Non-controlling interests
represent the portion of profit or loss and net assets in subsidiaries that are not held by the Group and are presented separately
within equity in the consolidated Balance sheet. Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in
the acquiree is remeasured to fair value at the acquisition date through the Income statement.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling
interest over the net identifiable assets acquired and liabilities assumed.
All intra-group account balances, including intra-group profits, are eliminated in preparing the consolidated financial statements.
Segmental reporting
Operating segments are reported in a manner consistent with how resource allocation decisions are made by the chief operating
decision-maker. The chief operating decision-maker, who is responsible for resource allocation and assessing performance of the
operating segments, has been identified as the IAG Management Committee.
Foreign currency translation
a Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the functional currency, being the
currency of the primary economic environment in which the entity operates. In particular, British Airways and Avios have a
functional currency of pound sterling. The Group’s consolidated financial statements are presented in euros, which is the Group’s
presentation currency.
b Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency using the rate of exchange prevailing on the date
of the transaction. Monetary foreign currency balances are translated into the functional currency at the rates ruling at the balance
sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at
balance sheet exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income
statement, except where hedge accounting is applied. Foreign exchange gains and losses arising on the retranslation of monetary
assets and liabilities classified as non-current on the Balance sheet are recognised within Net currency retranslation
(charges)/credits in the Income statement. All other gains and losses arising on the retranslation of monetary assets and liabilities
are recognised in operating profit.
c Group companies
The net assets of foreign operations are translated into euros at the rate of exchange ruling at the balance sheet date. Profits and
losses of such operations are translated into euros at average rates of exchange during the year. The resulting exchange differences
are taken directly to a separate component of equity (Currency translation reserve) until all or part of the interest is sold, when the
relevant portion of the cumulative exchange difference is recognised in the Income statement.
Property, plant and equipment
Property, plant and equipment is held at cost. The Group has a policy of not revaluing property, plant and equipment. Depreciation
is calculated to write off the cost less the estimated residual value on a straight-line basis, over the economic life of the asset.
Residual values, where applicable, are reviewed annually against prevailing market values for equivalently aged assets and
depreciation rates adjusted accordingly on a prospective basis.
a Capitalisation of interest on progress payments
Interest attributed to progress payments made on account of aircraft and other qualifying assets under construction are capitalised
and added to the cost of the asset concerned. All other borrowing costs are recognised in the Income statement in the year in
which they are incurred.
b Fleet
All aircraft are stated at the fair value of the consideration given after taking account of manufacturers’ credits. Fleet assets owned
or right of use (‘ROU’) assets are disaggregated into separate components and depreciated at rates calculated to write down the
cost of each component to the estimated residual value at the end of their planned operational lives (which is the shorter of their
useful life or lease term) on a straight-line basis. Depreciation rates are specific to aircraft type, based on the Group’s fleet plans,
within overall parameters of 23 years and 5 per cent residual value for shorthaul aircraft and between 25 and 29 years (depending
on aircraft) and 5 per cent residual value for longhaul aircraft. Right of use assets are depreciated over the shorter of the lease term
and the aforementioned depreciation rates.
Cabin interior modifications, including those required for brand changes and relaunches, are depreciated over the lower of five years
and the remaining economic life of the aircraft.
Aircraft and engine spares acquired on the introduction or expansion of a fleet, as well as rotable spares purchased separately, are
carried as property, plant and equipment and generally depreciated in line with the fleet to which they relate.
Major overhaul expenditure, including replacement spares and labour costs, is capitalised and amortised over the average expected
life between major overhauls. All other replacement spares and other costs relating to maintenance of fleet assets (including
maintenance provided under ‘pay-as-you-go’ contracts) are charged to the Income statement on consumption or as incurred
respectively.
c Other property, plant and equipment
Provision is made for the depreciation of all property, plant and equipment. Property, with the exception of freehold land,
is depreciated over its expected useful life over periods not exceeding 50 years, or in the case of leasehold properties, over the
duration of the lease if shorter, on a straight-line basis. Equipment is depreciated over periods ranging from 4 to 20 years.
d Leases
The Group leases various aircraft, properties and equipment. The lease terms of these assets are consistent with the determined
useful economic life of similar assets within property, plant and equipment.
The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been
restated and continues to be reported under IAS 17 and IFRIC 4. The details of accounting policies under IAS 17 and IFRIC 4 are
disclosed separately if they are different from those under IFRS 16 and the impact of changes is discussed in note 33.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
2 Significant accounting policies continued
Policy applicable from January 1, 2019
At inception of a contract, the Group assesses whether a contract is, or contains a lease. A contract is or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Leases are recognised as a ROU asset and a corresponding lease liability at the date at which the leased asset is available for use by
the Group.
Right of use assets
At the lease commencement date a ROU asset is measured at cost comprising the following: the amount of the initial measurement
of the lease liability; any lease payments made at or before the commencement date less any lease incentives received; any initial
direct costs; and restoration costs to return the asset to its original condition.
The ROU asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If ownership of the
ROU asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is
calculated using the estimated useful life of the asset.
Lease liabilities
Lease liabilities are initially measured at their present value, which includes the following lease payments: fixed payments (including
in-substance fixed payments), less any lease incentives receivable; variable lease payments that are based on an index or a rate;
amounts expected to be payable by the Group under residual value guarantees; the exercise price of a purchase option if the Group
is reasonably certain to exercise that option; payments of penalties for terminating the lease, if the lease term reflects the Group
exercising that option; and payments to be made under reasonably certain extension options.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Group entity’s
incremental borrowing rate is used.
Each lease payment is allocated between the principal and finance cost. The finance cost is charged to the Income statement over
the lease period so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period.
After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the
lease payments made.
The Group has elected not to recognise ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or
less and those leases of low-value assets. Payments associated with short-term leases and leases of low-value assets are recognised
on a straight line basis as an expense in the Income statement. Short-term leases are leases with a lease term of 12 months or less,
that do not contain a purchase option. Low-value assets comprise IT equipment and small items of office furniture.
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability
is reassessed and adjusted against the ROU asset. Extension options are included in a number of aircraft, property and equipment
leases across the Group and are reflected in the lease payments where the Group is reasonably certain that it will exercise the
option.
The Group regularly uses sale and lease transactions to finance the acquisition of aircraft. Each transaction is assessed as to whether
it meets the criteria within IFRS 15 ‘Revenue from contracts with customers’ for a sale to have occurred. If a sale has occurred, then
the associated asset is de-recognised and a ROU asset and lease liability is recognised. The ROU asset recognised is based on the
proportion of the previous carrying amount of the asset that is retained. Any gain or loss is restricted to the amount that relates to
the rights that have been transferred to the counter-party to the transaction. Where a sale has not occurred, the asset is retained on
the balance sheet within Property, plant and equipment and an asset financed liability recognised equal to the financing proceeds.
Under the transitional requirements of IFRS 16 applying the modified retrospective method, the assets and liabilities on all finance
leases prior to January 1, 2019 were transferred into ROU assets and associated lease liabilities. From January 1, 2019 onwards, those
new financing arrangements with the following features that do not meet the recognition criteria as a sale under IFRS 15 are
therefore not eligible for recognition under IFRS 16: the lessor has legal ownership retention as security against repayment and
interest obligations; the Group initially acquired the aircraft or took a major share in the acquisition process from the manufacturer;
in view of the contractual conditions, it is virtually certain that the aircraft will be purchased at the end of the lease term. Where new
financing arrangements do not meet these recognition criteria due to the fact they are ‘in substance purchases’ and not leases, the
related liability is recognised as an asset financed liability and the assets as an owned asset within Property, plant and equipment.
Policy applicable before January 1, 2019
Where assets are financed through finance leases, under which substantially all the risks and rewards of ownership are transferred
to the Group, the assets are treated as if they had been purchased outright. The amount included in the cost of property, plant and
equipment represents the aggregate of the capital elements payable during the lease term. The corresponding obligation, reduced
by the appropriate proportion of lease payments made, is included in borrowings.
The amount included in the cost of Property, plant and equipment is depreciated on the basis described in the preceding
paragraphs on fleet and the interest element of lease payments made is included as an interest expense in the Income statement.
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
2 Significant accounting policies continued
Policy applicable from January 1, 2019
At inception of a contract, the Group assesses whether a contract is, or contains a lease. A contract is or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Leases are recognised as a ROU asset and a corresponding lease liability at the date at which the leased asset is available for use by
the Group.
Right of use assets
At the lease commencement date a ROU asset is measured at cost comprising the following: the amount of the initial measurement
of the lease liability; any lease payments made at or before the commencement date less any lease incentives received; any initial
direct costs; and restoration costs to return the asset to its original condition.
The ROU asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If ownership of the
ROU asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is
calculated using the estimated useful life of the asset.
Lease liabilities
Lease liabilities are initially measured at their present value, which includes the following lease payments: fixed payments (including
in-substance fixed payments), less any lease incentives receivable; variable lease payments that are based on an index or a rate;
amounts expected to be payable by the Group under residual value guarantees; the exercise price of a purchase option if the Group
is reasonably certain to exercise that option; payments of penalties for terminating the lease, if the lease term reflects the Group
exercising that option; and payments to be made under reasonably certain extension options.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Group entity’s
incremental borrowing rate is used.
Each lease payment is allocated between the principal and finance cost. The finance cost is charged to the Income statement over
the lease period so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period.
After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the
lease payments made.
The Group has elected not to recognise ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or
less and those leases of low-value assets. Payments associated with short-term leases and leases of low-value assets are recognised
on a straight line basis as an expense in the Income statement. Short-term leases are leases with a lease term of 12 months or less,
that do not contain a purchase option. Low-value assets comprise IT equipment and small items of office furniture.
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability
is reassessed and adjusted against the ROU asset. Extension options are included in a number of aircraft, property and equipment
leases across the Group and are reflected in the lease payments where the Group is reasonably certain that it will exercise the
option.
The Group regularly uses sale and lease transactions to finance the acquisition of aircraft. Each transaction is assessed as to whether
it meets the criteria within IFRS 15 ‘Revenue from contracts with customers’ for a sale to have occurred. If a sale has occurred, then
the associated asset is de-recognised and a ROU asset and lease liability is recognised. The ROU asset recognised is based on the
proportion of the previous carrying amount of the asset that is retained. Any gain or loss is restricted to the amount that relates to
the rights that have been transferred to the counter-party to the transaction. Where a sale has not occurred, the asset is retained on
the balance sheet within Property, plant and equipment and an asset financed liability recognised equal to the financing proceeds.
Under the transitional requirements of IFRS 16 applying the modified retrospective method, the assets and liabilities on all finance
leases prior to January 1, 2019 were transferred into ROU assets and associated lease liabilities. From January 1, 2019 onwards, those
new financing arrangements with the following features that do not meet the recognition criteria as a sale under IFRS 15 are
therefore not eligible for recognition under IFRS 16: the lessor has legal ownership retention as security against repayment and
interest obligations; the Group initially acquired the aircraft or took a major share in the acquisition process from the manufacturer;
in view of the contractual conditions, it is virtually certain that the aircraft will be purchased at the end of the lease term. Where new
financing arrangements do not meet these recognition criteria due to the fact they are ‘in substance purchases’ and not leases, the
related liability is recognised as an asset financed liability and the assets as an owned asset within Property, plant and equipment.
Policy applicable before January 1, 2019
Where assets are financed through finance leases, under which substantially all the risks and rewards of ownership are transferred
to the Group, the assets are treated as if they had been purchased outright. The amount included in the cost of property, plant and
equipment represents the aggregate of the capital elements payable during the lease term. The corresponding obligation, reduced
by the appropriate proportion of lease payments made, is included in borrowings.
The amount included in the cost of Property, plant and equipment is depreciated on the basis described in the preceding
paragraphs on fleet and the interest element of lease payments made is included as an interest expense in the Income statement.
Total minimum payments, measured at inception, under all other lease arrangements, known as operating leases, are charged to
the Income statement in equal annual amounts over the period of the lease. In respect of aircraft, certain operating lease
arrangements allow the Group to terminate the leases after a limited initial period, without further material financial obligations. In
certain cases, the Group is entitled to extend the initial lease period on predetermined terms; such leases are described as
extendable operating leases.
In determining the appropriate lease classification, the substance of the transaction rather than the form is considered. Factors
considered include but are not limited to the following: whether the lease transfers ownership of the asset to the Group by the end
of the lease term; the Group has the option to purchase the asset at the price that is sufficiently lower than the fair value on exercise
date; the lease term is for the major part of the economic life of the asset; and the present value of the minimum lease payments
amounts to at least substantially all of the fair value of the leased asset.
Intangible assets
a Goodwill
Goodwill arises on the acquisition of subsidiaries, associates and joint ventures and represents the excess of the consideration paid
over the net fair value of the identifiable assets and liabilities of the acquiree. Where the net fair value of the identifiable assets and
liabilities of the acquiree is in excess of the consideration paid, a gain on bargain purchase is recognised immediately in the Income
statement.
For the purpose of assessing impairment, goodwill is grouped at the lowest levels for which there are separately identifiable cash
flows (cash generating units). Goodwill is tested for impairment annually and whenever indicators exist that the carrying value may
not be recoverable.
b Brands
Brands arising on the acquisition of subsidiaries are initially recognised at fair value at the acquisition date. Long established brands
that are expected to be used indefinitely are not amortised but assessed annually for impairment.
c Customer loyalty programmes
Customer loyalty programmes arising on the acquisition of subsidiaries are initially recognised at fair value at the acquisition date. A
customer loyalty programme with an expected useful life is amortised over the expected remaining useful life. Established customer
loyalty programmes that are expected to be used indefinitely are not amortised but assessed annually for impairment.
d Landing rights
Landing rights acquired in a business combination are recognised at fair value at the acquisition date. Landing rights acquired from
other airlines are capitalised at cost.
Capitalised landing rights based outside the EU are amortised on a straight-line basis over a period not exceeding 20 years.
Capitalised landing rights based within the EU are not amortised, as regulations provide that these landing rights are perpetual.
e Contract based intangibles
Contract based intangibles acquired in a business combination are recognised initially at fair value at the acquisition date and
amortised over the remaining life of the contract.
f
Software
The cost to purchase or develop computer software that is separable from an item of related hardware is capitalised separately and
amortised on a straight-line basis generally over a period not exceeding five years, with certain specific software developments
amortised over a period of up to 10 years.
g Emissions allowances
Purchased emissions allowances are recognised at cost. Emissions allowances are not revalued or amortised but are tested for
impairment whenever indicators exist that the carrying value may not be recoverable.
Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are
subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for the value by which the asset’s carrying value exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value-in-use. Non-financial
assets other than goodwill that were subject to an impairment are reviewed for possible reversal of the impairment at each
reporting date.
a Property, plant and equipment
The carrying value is reviewed for impairment when events or changes in circumstances indicate the carrying value may not be
recoverable and the cumulative impairment losses are shown as a reduction in the carrying value of property, plant and equipment.
b
Intangible assets
Intangible assets are held at cost and are either amortised on a straight-line basis over their economic life, or they are deemed to
have an indefinite economic life and are not amortised. Indefinite life intangible assets are tested annually for impairment or more
frequently if events or changes in circumstances indicate the carrying value may not be recoverable.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
2 Significant accounting policies continued
Investments in associates and joint ventures
An associate is an undertaking in which the Group has a long-term equity interest and over which it has the power to exercise
significant influence. Where the Group cannot exercise control over an entity in which it has a shareholding greater than 51 per cent,
the equity interest is treated as an associated undertaking.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net
assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require unanimous consent of the parties sharing control. The considerations made in
determining significant influence or joint control are similar to those necessary to determine control over subsidiaries.
Investments in associates and joint ventures are accounted for using the equity method, and initially recognised at cost. The Group’s
interest in the net assets of associates and joint ventures is included in Investments accounted for using the equity method in the
Balance sheet and its interest in their results is included in the Income statement, below operating result. The attributable results of
those companies acquired or disposed of during the year are included for the periods of ownership.
Financial instruments
a Other equity investments
Other equity investments are non-derivative financial assets including listed and unlisted investments, excluding interests in
associates and joint ventures. On initial recognition, these equity investments are irrevocably designated as measured at fair value
through Other comprehensive income. They are subsequently measured at fair value, with changes in fair value recognised in Other
comprehensive income with no recycling of these gains and losses to the Income statement when the investment is sold. Dividends
received on other equity investments are recognised in the Income statement.
The fair value of quoted investments is determined by reference to bid prices at the close of business on the balance sheet date.
Where there is no active market, fair value is determined using valuation techniques.
b Other interest-bearing deposits
Other interest-bearing deposits, principally comprising funds held with banks and other financial institutions with contractual cash
flows that are solely payments of principal and interest, and held in order to collect contractual cash flows, are carried at amortised
cost using the effective interest method.
c Derivative financial instruments and hedging activities
Derivative financial instruments, comprising interest rate swap agreements, foreign exchange derivatives and fuel hedging
derivatives (including options, swaps and futures) are initially recognised at fair value on the date a derivative contract is entered
into and are subsequently remeasured at their fair value. They are classified as financial instruments through the Income statement.
The method of recognising the resulting gain or loss arising from remeasurement depends on whether the derivative is designated
as a hedging instrument, and if so, the nature of the item being hedged (as detailed below under cash flow hedges). The time value
of options is excluded from the designated hedging instrument and accounted for as a cost of hedging. Movements in the time
value of options are recognised in Other comprehensive income until the underlying transaction affects the income statement.
Exchange gains and losses on monetary investments are taken to the Income statement unless the item has been designated and is
assessed as an effective hedging instrument. Exchange gains and losses on non-monetary investments are reflected in equity.
d Long-term borrowings
Long-term borrowings are recorded at amortised cost, including lease liabilities which contain interest rate swaps that are closely
related to the underlying financing and as such are not accounted for as an embedded derivative.
e Cash flow hedges
Changes in the fair value of derivative financial instruments designated as a hedge of a highly probable expected future cash flow
and assessed as effective are recorded in equity. Gains and losses on derivative instruments not designated as a cash flow hedge
are reported in the Income statement. Gains and losses recorded in equity are reflected in the Income statement when either the
hedged cash flow impacts the Income statement or the hedged item is no longer expected to occur.
Certain loan repayment instalments denominated in US dollars, euros, Japanese yen and Chinese yuan are designated as cash flow
hedges of highly probable future foreign currency revenues. Exchange differences arising from the translation of these loan
repayment instalments are recorded in equity and subsequently reflected in the Income statement when either the future revenue
impacts income or its occurrence is no longer expected to occur.
f Convertible debt
Convertible bonds are classified as compound instruments, consisting of a liability and an equity component. At the date of issue,
the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt, and is
subsequently recorded at an amortised cost basis using the effective interest method until extinguished on conversion or maturity
of the bonds, and is recognised within Interest-bearing borrowings. The difference between the proceeds of issue of the convertible
bond and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of
the Group, is included in Equity portion of convertible bond in Other reserves and is not subsequently remeasured.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
2 Significant accounting policies continued
Investments in associates and joint ventures
An associate is an undertaking in which the Group has a long-term equity interest and over which it has the power to exercise
significant influence. Where the Group cannot exercise control over an entity in which it has a shareholding greater than 51 per cent,
the equity interest is treated as an associated undertaking.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net
assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require unanimous consent of the parties sharing control. The considerations made in
determining significant influence or joint control are similar to those necessary to determine control over subsidiaries.
Investments in associates and joint ventures are accounted for using the equity method, and initially recognised at cost. The Group’s
interest in the net assets of associates and joint ventures is included in Investments accounted for using the equity method in the
Balance sheet and its interest in their results is included in the Income statement, below operating result. The attributable results of
those companies acquired or disposed of during the year are included for the periods of ownership.
Financial instruments
a Other equity investments
Other equity investments are non-derivative financial assets including listed and unlisted investments, excluding interests in
associates and joint ventures. On initial recognition, these equity investments are irrevocably designated as measured at fair value
through Other comprehensive income. They are subsequently measured at fair value, with changes in fair value recognised in Other
comprehensive income with no recycling of these gains and losses to the Income statement when the investment is sold. Dividends
received on other equity investments are recognised in the Income statement.
The fair value of quoted investments is determined by reference to bid prices at the close of business on the balance sheet date.
Where there is no active market, fair value is determined using valuation techniques.
b Other interest-bearing deposits
Other interest-bearing deposits, principally comprising funds held with banks and other financial institutions with contractual cash
flows that are solely payments of principal and interest, and held in order to collect contractual cash flows, are carried at amortised
cost using the effective interest method.
c Derivative financial instruments and hedging activities
Derivative financial instruments, comprising interest rate swap agreements, foreign exchange derivatives and fuel hedging
derivatives (including options, swaps and futures) are initially recognised at fair value on the date a derivative contract is entered
into and are subsequently remeasured at their fair value. They are classified as financial instruments through the Income statement.
The method of recognising the resulting gain or loss arising from remeasurement depends on whether the derivative is designated
as a hedging instrument, and if so, the nature of the item being hedged (as detailed below under cash flow hedges). The time value
of options is excluded from the designated hedging instrument and accounted for as a cost of hedging. Movements in the time
value of options are recognised in Other comprehensive income until the underlying transaction affects the income statement.
Exchange gains and losses on monetary investments are taken to the Income statement unless the item has been designated and is
assessed as an effective hedging instrument. Exchange gains and losses on non-monetary investments are reflected in equity.
Long-term borrowings are recorded at amortised cost, including lease liabilities which contain interest rate swaps that are closely
related to the underlying financing and as such are not accounted for as an embedded derivative.
d Long-term borrowings
e Cash flow hedges
Changes in the fair value of derivative financial instruments designated as a hedge of a highly probable expected future cash flow
and assessed as effective are recorded in equity. Gains and losses on derivative instruments not designated as a cash flow hedge
are reported in the Income statement. Gains and losses recorded in equity are reflected in the Income statement when either the
hedged cash flow impacts the Income statement or the hedged item is no longer expected to occur.
Certain loan repayment instalments denominated in US dollars, euros, Japanese yen and Chinese yuan are designated as cash flow
hedges of highly probable future foreign currency revenues. Exchange differences arising from the translation of these loan
repayment instalments are recorded in equity and subsequently reflected in the Income statement when either the future revenue
impacts income or its occurrence is no longer expected to occur.
f Convertible debt
Convertible bonds are classified as compound instruments, consisting of a liability and an equity component. At the date of issue,
the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt, and is
subsequently recorded at an amortised cost basis using the effective interest method until extinguished on conversion or maturity
of the bonds, and is recognised within Interest-bearing borrowings. The difference between the proceeds of issue of the convertible
bond and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of
the Group, is included in Equity portion of convertible bond in Other reserves and is not subsequently remeasured.
Issue costs are apportioned between the liability and equity components of the convertible bonds where appropriate based on their
relative carrying values at the date of issue. The portion relating to the equity component is charged directly against equity.
The interest expense on the liability component is calculated by applying the effective interest rate for similar non-convertible debt
to the liability component of the instrument. The difference between this value and the interest paid is added to the carrying
amount of the liability.
g
Impairment of financial assets
At each balance sheet date, the Group recognises provisions for expected credit losses on financial assets measured at amortised
cost, based on 12-month or lifetime losses depending on whether there has been a significant increase in credit risk since initial
recognition. The simplified approach, based on the calculation and recognition of lifetime expected credit losses, is applied to
contracts that have a maturity of one year or less, including trade receivables.
Employee benefit plans
a Pension obligations
The Group has both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the
Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current
and prior years.
Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent
on one or more factors such as age, years of service and compensation.
The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the
amount of future benefit that employees have earned in return for their service in the current and prior years. The benefit is
discounted to determine its present value, and the fair value of any plan assets are deducted. The discount rate is the yield at the
balance sheet date on AA-rated corporate bonds of the appropriate currency that have durations approximating those of the
Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. When the net
obligation calculation results in an asset for the Group, the recognition of an asset is limited to the present value of any future
refunds from the plan or reductions in future contributions to the plan (‘the asset ceiling’). The fair value of the plan assets is based
on market price information and, in the case of quoted securities, is the published bid price. The fair value of insurance policies which
exactly match the amount and timing of some or all benefits payable under the scheme are deemed to be the present value of the
related obligations. Longevity swaps are measured at their fair value.
Current service costs are recognised within employee costs in the year in which they arise. Past service costs are recognised in the
event of a plan amendment or curtailment, or when the Group recognises related restructuring costs or severance obligations. The
net interest is calculated by applying the discount rate used to measure the defined benefit obligation at the beginning of the period
to the net defined benefit liability or asset, taking into account any changes in the net defined benefit liability or asset during the
period as a result of contributions and benefit payments. Net interest and other expenses related to the defined benefit plans are
recognised in the Income statement. Remeasurements, comprising actuarial gains and losses, the effect of the asset ceiling
(excluding interest) and the return on plan assets (excluding interest), are recognised immediately in Other comprehensive income.
Remeasurements are not reclassified to the Income statement in subsequent periods.
b Severance obligations
Severance obligations are recognised when employment is terminated by the Group before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises a provision for
severance payments when it is demonstrably committed to either terminating the employment of current employees according to a
detailed formal plan without realistic possibility of withdrawal, or providing severance payments as a result of an offer made to
encourage voluntary redundancy.
Other employee benefits are recognised when there is deemed to be a present obligation.
Taxation
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation
authorities, based on tax rates and laws that are enacted or substantively enacted at the balance sheet date.
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements, with the following exceptions:
• Where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a
business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;
• In respect of taxable temporary differences associated with investments in subsidiaries or associates, where the timing of the
reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the
foreseeable future; and
• Deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which
the deductible temporary differences, carried forward tax credits or tax losses can be utilised.
Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when
the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet
date.
Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise income
tax is recognised in the Income statement.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
2 Significant accounting policies continued
Inventories
Inventories are valued at the lower of cost and net realisable value. Such cost is determined by the weighted average cost method.
Inventories include mainly aircraft spare parts, repairable aircraft engine parts and fuel.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits with any qualifying financial institution repayable on demand or
maturing within three months of the date of acquisition and which are subject to an insignificant risk of change in value.
Share-based payments
The Group operates a number of equity-settled, share-based payment plans, under which the Group awards equity instruments of
the Group for services rendered by employees. The fair value of the share-based payment plans is measured at the date of grant
using a valuation model provided by external specialists. The resulting cost, as adjusted for the expected and actual level of vesting
of the plan, is charged to the Income statement over the period in which the options vest. At each balance sheet date before
vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s
best estimate of the achievement or otherwise of non-market conditions, and accordingly the number of equity instruments that will
ultimately vest. The movement in the cumulative expense since the previous balance sheet date is recognised in the Income
statement with a corresponding entry in equity.
Provisions
Provisions are made when an obligation exists for a present liability in respect of a past event and where the amount of the
obligation can be reliably estimated.
Employee leaving indemnities and other employee provisions are recorded for flight crew who, meeting certain conditions, have the
option of being placed on reserve or of taking early retirement. The Group is obligated to remunerate these employees until they
reach the statutory retirement age. The calculation is performed by independent actuaries using the projected unit credit method.
Other employee related provisions are recognised for direct expenditures of business reorganisation such as severance payments
(restructuring provisions) where plans are sufficiently detailed and well advanced, and where appropriate communication to those
affected has been undertaken at the balance sheet date.
If the effect is material, expected future cash flows are discounted using a rate that reflects, where appropriate, the risks specific to
the provision. Where discounting is used, the increase in the provision due to unwinding the discount is recognised as a finance cost.
Revenue recognition
The Group’s revenue primarily derives from transportation services for both passengers and cargo. Revenue is recognised when the
transportation service has been provided. Passenger tickets are generally paid for in advance of transportation and are recognised,
net of discounts, as deferred revenue on ticket sales in current liabilities until the customer has flown. Unused tickets are recognised
as revenue after the contracted date of departure using estimates regarding the timing of recognition based on the terms and
conditions of the ticket and statistical analysis of historical trends. Revenue is stated net of compensation for flight delays and
cancellations, taking into consideration the level of expected claims.
The Group considers whether it is an agent or a principal in relation to transportation services by considering whether it has a
performance obligation to provide services to the customer or whether the obligation is to arrange for the services to be provided
by a third party. The Group acts as an agent where (i) it collects various taxes and fees assessed on the sale of tickets to passengers
and remits these to the relevant taxing authorities; and (ii) where it provides interline services to airline partners outside of the
Group.
Other revenue including maintenance; handling; hotel and holiday and commissions is recognised as the related performance
obligations are satisfied (over time), being where the control of the goods or services are transferred to the customer.
Customer loyalty programmes
The Group operates five loyalty programmes: Executive Club, Iberia Plus, Avios, Vueling Club and Aer Club. The customer loyalty
programmes award travellers Avios points to redeem for various rewards, primarily redemption travel, including flights, hotels and
car hire. Avios points are also sold to commercial partners to use in loyalty activity.
The Group has identified several performance obligations associated with the sale of Avios points. Revenue associated with brand
and marketing services and revenue associated with Avios points has been determined based on the relative stand-alone selling
price of each of the performance obligations. Revenue associated with brand and marketing services is recognised as the points are
issued. Revenue allocated to the Avios points is deferred on the balance sheet as a current liability, and recognised when the points
are redeemed. When the points are redeemed for products provided by suppliers outside the Group, revenue is recognised in the
Income statement net of related costs, as the Group is considered to be an agent in these redemption transactions.
The Group estimates the stand-alone selling price of the brand and marketing performance obligations by reference to the amount
that a third party would be prepared to pay in an arm’s length transaction for access to comparable brands for the period over
which they have access. The stand-alone selling price of Avios points is based on the value of the awards for which the points could
be redeemed. The Group also recognises revenue associated with the proportion of award credits which are not expected to be
redeemed, based on the results of statistical modelling.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
2 Significant accounting policies continued
Inventories
Inventories are valued at the lower of cost and net realisable value. Such cost is determined by the weighted average cost method.
Inventories include mainly aircraft spare parts, repairable aircraft engine parts and fuel.
Cash and cash equivalents include cash in hand and deposits with any qualifying financial institution repayable on demand or
maturing within three months of the date of acquisition and which are subject to an insignificant risk of change in value.
Cash and cash equivalents
Share-based payments
The Group operates a number of equity-settled, share-based payment plans, under which the Group awards equity instruments of
the Group for services rendered by employees. The fair value of the share-based payment plans is measured at the date of grant
using a valuation model provided by external specialists. The resulting cost, as adjusted for the expected and actual level of vesting
of the plan, is charged to the Income statement over the period in which the options vest. At each balance sheet date before
vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s
best estimate of the achievement or otherwise of non-market conditions, and accordingly the number of equity instruments that will
ultimately vest. The movement in the cumulative expense since the previous balance sheet date is recognised in the Income
statement with a corresponding entry in equity.
Provisions
obligation can be reliably estimated.
Provisions are made when an obligation exists for a present liability in respect of a past event and where the amount of the
Employee leaving indemnities and other employee provisions are recorded for flight crew who, meeting certain conditions, have the
option of being placed on reserve or of taking early retirement. The Group is obligated to remunerate these employees until they
reach the statutory retirement age. The calculation is performed by independent actuaries using the projected unit credit method.
Other employee related provisions are recognised for direct expenditures of business reorganisation such as severance payments
(restructuring provisions) where plans are sufficiently detailed and well advanced, and where appropriate communication to those
affected has been undertaken at the balance sheet date.
If the effect is material, expected future cash flows are discounted using a rate that reflects, where appropriate, the risks specific to
the provision. Where discounting is used, the increase in the provision due to unwinding the discount is recognised as a finance cost.
Revenue recognition
The Group’s revenue primarily derives from transportation services for both passengers and cargo. Revenue is recognised when the
transportation service has been provided. Passenger tickets are generally paid for in advance of transportation and are recognised,
net of discounts, as deferred revenue on ticket sales in current liabilities until the customer has flown. Unused tickets are recognised
as revenue after the contracted date of departure using estimates regarding the timing of recognition based on the terms and
conditions of the ticket and statistical analysis of historical trends. Revenue is stated net of compensation for flight delays and
cancellations, taking into consideration the level of expected claims.
The Group considers whether it is an agent or a principal in relation to transportation services by considering whether it has a
performance obligation to provide services to the customer or whether the obligation is to arrange for the services to be provided
by a third party. The Group acts as an agent where (i) it collects various taxes and fees assessed on the sale of tickets to passengers
and remits these to the relevant taxing authorities; and (ii) where it provides interline services to airline partners outside of the
Group.
Other revenue including maintenance; handling; hotel and holiday and commissions is recognised as the related performance
obligations are satisfied (over time), being where the control of the goods or services are transferred to the customer.
Customer loyalty programmes
The Group operates five loyalty programmes: Executive Club, Iberia Plus, Avios, Vueling Club and Aer Club. The customer loyalty
programmes award travellers Avios points to redeem for various rewards, primarily redemption travel, including flights, hotels and
car hire. Avios points are also sold to commercial partners to use in loyalty activity.
The Group has identified several performance obligations associated with the sale of Avios points. Revenue associated with brand
and marketing services and revenue associated with Avios points has been determined based on the relative stand-alone selling
price of each of the performance obligations. Revenue associated with brand and marketing services is recognised as the points are
issued. Revenue allocated to the Avios points is deferred on the balance sheet as a current liability, and recognised when the points
are redeemed. When the points are redeemed for products provided by suppliers outside the Group, revenue is recognised in the
Income statement net of related costs, as the Group is considered to be an agent in these redemption transactions.
The Group estimates the stand-alone selling price of the brand and marketing performance obligations by reference to the amount
that a third party would be prepared to pay in an arm’s length transaction for access to comparable brands for the period over
which they have access. The stand-alone selling price of Avios points is based on the value of the awards for which the points could
be redeemed. The Group also recognises revenue associated with the proportion of award credits which are not expected to be
redeemed, based on the results of statistical modelling.
Exceptional items
Exceptional items are those that in management’s view need to be separately disclosed by virtue of their size or incidence. The
exceptional items recorded in the Income statement include items such as significant settlement agreements with the Group’s
pension schemes; significant restructuring; the impact of business combination transactions that do not contribute to the ongoing
results of the Group; and the impact of the sale, disposal or impairment of an investment in a business.
Business combination transactions include cash items such as the costs incurred to effect the transaction and non-cash items such
as accounting gains or losses recognised through the Income statement, such as bargain purchase gains and step acquisition losses.
Critical accounting estimates, assumptions and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect
the application of policies and reported amounts of assets and liabilities, income and expenses. These judgements, estimates
and associated assumptions are based on historical experience and various other factors believed to be reasonable under the
circumstances. Actual results in the future may differ from judgements and estimates upon which financial information has
been prepared. These underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised prospectively.
Estimates
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are as follows:
a Employee benefit obligations, employee leaving indemnities, other employee related restructuring
At December 31, 2019 the Group recognised €524 million in respect of employee benefit assets (2018: €1,129 million) and €328
million in respect of employee benefit obligations (2018: €289 million). Further information on employee benefit obligations is
disclosed in note 30.
The cost of employee benefit obligations, employee leaving indemnities and other employee related provisions is determined using
actuarial valuations. Actuarial valuations involve making assumptions about discount rates, expected rates of return on assets, future
salary increases, mortality rates and future pension increases. Due to the long-term nature of these schemes, such estimates are
subject to significant uncertainty. The assumptions relating to these schemes are disclosed in note 30. The Group determines the
assumptions to be adopted in discussion with qualified actuaries. Any difference between these assumptions and the actual
outcome will impact future net assets and total comprehensive income. The sensitivity to changes in pension increase assumptions
is disclosed in note 30.
Under the Group’s Airways Pension Scheme (‘APS’) and New Airways Pension Scheme (‘NAPS’) increases to pensions are based on
the annual Government Pension Increase (Review) Orders, which since 2011 have been based on the Consumer Prices Index (CPI).
Additionally, in APS there is provision for the Trustee to pay increases up to the level of the Retail Prices Index (RPI), subject to
certain affordability tests. Historically market expectations for RPI could be derived by comparing the prices of UK government
fixed-interest and index-linked gilts, with CPI assessed by considering the Bank of England’s inflation target and comparison of the
construction of the two inflation indices.
In February 2019, following the UK House of Lords Economic Affairs Committee report on measuring inflation, the National
Statistician concluded that the existing methodology was unsatisfactory and proposed a number of options to the UK Statistics
Authority (UKSA). In March 2019, the UKSA recommended to the UK Chancellor of the Exchequer that the publication of the RPI
cease at a point to be determined in the future and in the intervening period, the RPI be addressed by bringing in the methods of
the CPIH (a proposed variant to CPI). In September 2019, the UK Chancellor of the Exchequer announced his intention to consult
with the Bank of England and the UKSA on whether to implement these proposed changes to RPI in the period of 2025 to 2030. On
January 13, 2020, it was confirmed that the period of consultation will commence on March 11, 2020 for a period of six weeks.
Following the aforementioned announcement in September 2019, market-implied break-even RPI inflation forward rates for periods
after 2030 have reduced in the investment market. Therefore, in assessing RPI and CPI from investment market data, allowance has
been made for partial alignment between RPI and CPI from 2030 onwards.
On October 26, 2018 the High Court of Justice of England and Wales issued a judgment in a claim between Lloyds Banking Group
Pension Trustees Limited as claimant and Lloyds Banking Group plc and others as defendants (collectively referred to as the ‘Lloyds
Bank case’) regarding the rights of female members of certain pension schemes to equality of treatment in relation to pension
benefits. The judgment in the Lloyd’s Bank case confirmed that all pension schemes were required to equalise, with immediate
application, for the effects of unequal Guaranteed Minimum Pension (‘GMP’) benefits accrued over the period since May 17, 1990
(‘GMP equalisation’).
As at December 31, 2018, given the limited timescale from the High Court judgment, the Group undertook a
simplified approach to estimating the impact of the GMP. The APS and NAPS estimated DBO as at December 31, 2019 includes
allowance for the estimated effect of GMP equalisation based on the assessments made by the respective APS and NAPS
Scheme Actuaries.
Restructuring provisions are estimates of future obligations. The Group exercises judgement in determining the expected direct
expenditures of reorganisation based on plans which are sufficiently detailed and advanced.
b Revenue recognition
At December 31, 2019 the Group recognised €5,486 million (2018: €4,835 million) in respect of deferred revenue on ticket sales of
which €1,917 million (2018: €1,769 million) related to customer loyalty programmes.
Passenger revenue is recognised when the transportation is provided. At the time of transportation, revenue is also recognised in
respect of tickets that are not expected to be used (‘unused tickets’). Revenue associated with unused tickets is estimated based on
the terms and conditions of the tickets and historical trends.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
2 Significant accounting policies continued
Revenue associated with the issuance of points under customer loyalty programmes is based on the relative stand-alone selling
prices of the related performance obligations (brand, marketing and points), determined using estimation techniques. The
transaction price of brand and marketing services is determined using specific brand valuation methodologies. The transaction price
of the points is based on the value of the awards for which the points can be redeemed and is reduced to take account of the
proportion of the award credits that are not expected to be redeemed by customers. The Group estimates the number of points not
expected to be redeemed (using statistical modelling and historical trends) and the mix and fair value of the award credits. A five
percentage point change in the assumption of points outstanding and not expected to be redeemed will result in an adjustment to
deferred revenue of €100 million, with an offsetting adjustment to revenue and operating profit recognised in the year.
The following three accounting estimates involve a higher degree of judgement or complexity, or are areas where assumptions are
significant to the financial statements however these accounting estimates are not major sources of estimation uncertainty that
have a significant risk of resulting in material adjustment to the carrying amounts of assets and liabilities within the next year.
c
Income taxes
At December 31, 2019 the Group recognised €546 million in respect of deferred tax assets (2018: €536 million). Further information
on current and deferred tax liabilities is disclosed in note 9.
The Group is subject to income taxes in numerous jurisdictions. Estimates are required in determining the worldwide provision for
income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain because it may be
unclear how tax law applies to a particular transaction or circumstance. Where the Group determines that it is more likely than not
that the tax authorities would accept the position taken in the tax return, amounts are recognised in the financial statements on that
basis. Where the amount of tax payable or recoverable is uncertain, the Group recognises a liability based on either: the Group’s
judgment of the most likely outcome; or, when there is a wide range of possible outcomes, uses a probability weighted average
approach.
The Group recognises deferred income tax assets only to the extent that it is probable that the taxable profit will be available
against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised. Management consider
the operating performance in the current year and the future projections of performance laid out in the approved business plan in
order to assess the probability of recoverability. The Business plan relies on the use of assumptions, estimates and judgements in
respect of future performance and economics.
d
Impairment of non-financial assets
At December 31, 2019 the Group recognised €2,460 million (2018: €2,403 million) in respect of intangible assets with an indefinite
life, including goodwill. Further information on these assets is included in note 15.
The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Goodwill and
intangible assets with indefinite economic lives are tested for impairment annually and at other times when such indicators exist.
The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations
require the use of estimates and assumptions as disclosed in note 15.
Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable.
e Residual values and useful lives of assets
At December 31, 2019 the Group recognised €19,168 million (2018: €12,437 million) in respect of property, plant and equipment,
including the ROU assets recognised in the year. Further information on these assets is included in note 12.
The Group estimates useful lives and residual values of property, plant and equipment, including fleet assets based on network plans
and recoverable values. Useful lives and residual values are reassessed annually, taking into consideration the latest fleet plans and
other business plan information.
Judgement
a Engineering and other aircraft costs
At December 31, 2019, the Group recognised €1,675 million in respect of maintenance, restoration and handback provisions (2018:
€1,359 million). Information on movements on the provision is disclosed in note 24.
The Group has a number of contracts with service providers to replace or repair engine parts and for other maintenance checks.
These agreements are complex and generally cover a number of years. The Group exercises judgement in determining the
assumptions used to match the consumption of replacement spares and other costs associated with fleet maintenance with the
appropriate income statement charge. Aircraft maintenance obligations are based on aircraft utilisation, expected maintenance
intervals, future maintenance costs and the aircraft’s condition.
b Determining the lease term of contracts with renewal and termination options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised. The Group applies judgement in evaluating whether it is reasonably certain whether or not
to exercise the option to renew or terminate the lease. Such judgement includes consideration of fleet plans which underpin
approved business plans and historic experience regarding the extension of leases. After the commencement date, the Group
reassesses the lease term if there is a significant event or change in circumstances and affects the Groups ability to exercise or not
to exercise the option to renew or to terminate. Further information is given in note 13.
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
2 Significant accounting policies continued
Revenue associated with the issuance of points under customer loyalty programmes is based on the relative stand-alone selling
prices of the related performance obligations (brand, marketing and points), determined using estimation techniques. The
transaction price of brand and marketing services is determined using specific brand valuation methodologies. The transaction price
of the points is based on the value of the awards for which the points can be redeemed and is reduced to take account of the
proportion of the award credits that are not expected to be redeemed by customers. The Group estimates the number of points not
expected to be redeemed (using statistical modelling and historical trends) and the mix and fair value of the award credits. A five
percentage point change in the assumption of points outstanding and not expected to be redeemed will result in an adjustment to
deferred revenue of €100 million, with an offsetting adjustment to revenue and operating profit recognised in the year.
The following three accounting estimates involve a higher degree of judgement or complexity, or are areas where assumptions are
significant to the financial statements however these accounting estimates are not major sources of estimation uncertainty that
have a significant risk of resulting in material adjustment to the carrying amounts of assets and liabilities within the next year.
c
Income taxes
At December 31, 2019 the Group recognised €546 million in respect of deferred tax assets (2018: €536 million). Further information
on current and deferred tax liabilities is disclosed in note 9.
The Group is subject to income taxes in numerous jurisdictions. Estimates are required in determining the worldwide provision for
income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain because it may be
unclear how tax law applies to a particular transaction or circumstance. Where the Group determines that it is more likely than not
that the tax authorities would accept the position taken in the tax return, amounts are recognised in the financial statements on that
basis. Where the amount of tax payable or recoverable is uncertain, the Group recognises a liability based on either: the Group’s
judgment of the most likely outcome; or, when there is a wide range of possible outcomes, uses a probability weighted average
approach.
The Group recognises deferred income tax assets only to the extent that it is probable that the taxable profit will be available
against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised. Management consider
the operating performance in the current year and the future projections of performance laid out in the approved business plan in
order to assess the probability of recoverability. The Business plan relies on the use of assumptions, estimates and judgements in
respect of future performance and economics.
d
Impairment of non-financial assets
At December 31, 2019 the Group recognised €2,460 million (2018: €2,403 million) in respect of intangible assets with an indefinite
life, including goodwill. Further information on these assets is included in note 15.
The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Goodwill and
intangible assets with indefinite economic lives are tested for impairment annually and at other times when such indicators exist.
The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations
require the use of estimates and assumptions as disclosed in note 15.
Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable.
e Residual values and useful lives of assets
At December 31, 2019 the Group recognised €19,168 million (2018: €12,437 million) in respect of property, plant and equipment,
including the ROU assets recognised in the year. Further information on these assets is included in note 12.
The Group estimates useful lives and residual values of property, plant and equipment, including fleet assets based on network plans
and recoverable values. Useful lives and residual values are reassessed annually, taking into consideration the latest fleet plans and
other business plan information.
Judgement
a Engineering and other aircraft costs
At December 31, 2019, the Group recognised €1,675 million in respect of maintenance, restoration and handback provisions (2018:
€1,359 million). Information on movements on the provision is disclosed in note 24.
The Group has a number of contracts with service providers to replace or repair engine parts and for other maintenance checks.
These agreements are complex and generally cover a number of years. The Group exercises judgement in determining the
assumptions used to match the consumption of replacement spares and other costs associated with fleet maintenance with the
appropriate income statement charge. Aircraft maintenance obligations are based on aircraft utilisation, expected maintenance
intervals, future maintenance costs and the aircraft’s condition.
b Determining the lease term of contracts with renewal and termination options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised. The Group applies judgement in evaluating whether it is reasonably certain whether or not
to exercise the option to renew or terminate the lease. Such judgement includes consideration of fleet plans which underpin
approved business plans and historic experience regarding the extension of leases. After the commencement date, the Group
reassesses the lease term if there is a significant event or change in circumstances and affects the Groups ability to exercise or not
to exercise the option to renew or to terminate. Further information is given in note 13.
New standards, amendments and interpretations not yet effective
The IASB and IFRIC have issued the following standards, amendments and interpretations with an effective date after the year end
of these financial statements which management believe could impact the Group in future periods. Unless otherwise stated, the
Group plans to adopt the following standards, interpretations and amendments on the date they become mandatory:
• Amendments to references to conceptual framework in IFRS standards, effective for periods beginning on or after
January 1, 2020;
• Definition of a business (amendments to IFRS 3), effective for periods beginning on or after January 1, 2020;
• Definition of material (amendments to IAS 1 and IAS 8), effective for periods beginning on or after January 1, 2020; and
• IFRS 17 Insurance contracts, effective for periods beginning on or after January 1, 2021.
In September 2019, the IASB issued amendments to IFRS 9, IAS 39 and IFRS 7, effective January 1, 2020, which concludes phase
one of its work to respond to the effects of Interbank Offered Rates (IBOR) reform on financial reporting.
The EU adopted these
amendments in January 2020.
The Group is currently assessing the impact of these amendments.
3 Segment information
a Business segments
The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments,
and has been identified as the IAG Management Committee (IAG MC).
The Group has a number of entities which are managed as individual operating companies including airline and platform functions.
Each airline operates its network operations as a single business unit and the IAG MC assesses performance based on measures
including operating profit, and makes resource allocation decisions for the airlines based on network profitability, primarily by
reference to the passenger markets in which the companies operate. The objective in making resource allocation decisions is to
optimise consolidated financial results.
The Group has determined its operating segments based on the way that it treats its businesses and the manner in which resource
allocation decisions are made. British Airways, Iberia, Vueling and Aer Lingus have been identified for financial reporting purposes as
reportable operating segments. Avios and LEVEL are also operating segments but do not exceed the quantitative thresholds to be
reportable and management has concluded that there are currently no other reasons why they should be separately disclosed.
The platform functions of the business primarily support the airline operations. These activities are not considered to be reportable
operating segments as they either earn revenues incidental to the activities of the Group and resource allocation decisions are made
based on the passenger business or are not reviewed regularly by the IAG MC and are included within Other Group companies.
For the year to December 31, 2019
€ million
Revenue
Passenger revenue
Cargo revenue
Other revenue
External revenue
Inter-segment revenue
Segment revenue
British
Airways
Iberia
Vueling
Aer Lingus
Other Group
companies1
2019
13,307
4,020
2,437
2,060
805
752
14,864
242
15,106
255
912
5,187
458
5,645
–
18
2,455
–
2,455
54
2
2,116
9
2,125
644
3
237
884
575
1,459
Total
22,468
1,117
1,921
25,506
1,284
26,790
Depreciation, amortisation and impairment
(1,258)
(390)
(250)
(130)
(83)
(2,111)
Operating profit before exceptional items
Exceptional items (note 4)
Operating profit after exceptional items
Net non-operating costs
2,182
(672)
1,510
497
–
497
240
–
240
276
–
276
90
–
90
3,285
(672)
2,613
(338)
2,275
22,312
(15,445)
8,733
(6,940)
3,756
(3,354)
2,131
(1,320)
(1,271)
(1,773)
35,661
(28,832)
Profit before tax
Total assets
Total liabilities
1
Includes eliminations on total assets of €14,982 million and total liabilities of €4,603 million.
146
147
147
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Net non-operating costs
Profit before tax
Total assets
Total liabilities
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
3 Segment information continued
For the year to December 31, 2018
€ million
Revenue
Passenger revenue
Cargo revenue
Other revenue
External revenue
Inter-segment revenue
Segment revenue
British
Airways
12,909
867
682
14,458
215
14,673
3,754
251
749
4,754
417
5,171
2018 (restated)
Iberia
Vueling
Aer Lingus
Other Group
companies1
2,317
–
20
1,941
54
9
2,337
2,004
1
5
480
1
224
705
538
2,338
2,009
1,243
25,434
Depreciation, amortisation and impairment
(890)
(207)
(25)
(83)
(49)
(1,254)
Operating profit before exceptional items
Exceptional items (note 4)
Operating profit after exceptional items
2,207
448
2,655
437
–
437
200
–
200
305
–
305
81
–
81
Total
21,401
1,173
1,684
24,258
1,176
3,230
448
3,678
(191)
3,487
18,531
(12,235)
6,829
(5,051)
1,882
(1,495)
1,915
(1,072)
(1,123)
(1,461)
28,034
(21,314)
1
Includes eliminations on total assets of €13,681 million and total liabilities of €3,667 million.
b Geographical analysis
Revenue by area of original sale
€ million
UK
Spain
USA
Rest of world
Assets by area
December 31, 2019
€ million
UK
Spain
USA
Rest of world
December 31, 2018
€ million
UK
Spain
USA
Rest of world
148
148
Year to December 31
2019
8,362
4,399
4,379
8,366
2018
(restated)
7,945
4,027
4,074
8,212
25,506
24,258
Property,
plant and
equipment
12,214
5,324
188
1,442
19,168
Property,
plant and
equipment
9,017
2,512
29
879
12,437
Intangible
assets
1,401
1,402
19
620
3,442
Intangible
assets
1,285
1,291
4
618
3,198
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
3 Segment information continued
For the year to December 31, 2018
British
Airways
12,909
867
682
14,458
215
14,673
3,754
251
749
4,754
417
5,171
2018 (restated)
Iberia
Vueling
Aer Lingus
Other Group
companies1
2,317
–
20
1,941
54
9
2,337
2,004
1
5
480
1
224
705
538
2,338
2,009
1,243
25,434
Depreciation, amortisation and impairment
(890)
(207)
(25)
(83)
(49)
(1,254)
Operating profit before exceptional items
Exceptional items (note 4)
Operating profit after exceptional items
2,207
448
2,655
437
–
437
200
–
200
305
–
305
81
–
81
1
Includes eliminations on total assets of €13,681 million and total liabilities of €3,667 million.
18,531
(12,235)
6,829
(5,051)
1,882
(1,495)
1,915
(1,072)
(1,123)
(1,461)
28,034
(21,314)
€ million
Revenue
Passenger revenue
Cargo revenue
Other revenue
External revenue
Inter-segment revenue
Segment revenue
Net non-operating costs
Profit before tax
Total assets
Total liabilities
b Geographical analysis
Revenue by area of original sale
€ million
UK
Spain
USA
Rest of world
Assets by area
December 31, 2019
€ million
UK
Spain
USA
Rest of world
December 31, 2018
€ million
UK
Spain
USA
Rest of world
Total
21,401
1,173
1,684
24,258
1,176
3,230
448
3,678
(191)
3,487
Year to December 31
2019
8,362
4,399
4,379
8,366
2018
(restated)
7,945
4,027
4,074
8,212
25,506
24,258
Property,
plant and
equipment
12,214
5,324
188
1,442
19,168
Intangible
assets
1,401
1,402
19
620
3,442
Property,
plant and
equipment
Intangible
assets
9,017
2,512
29
879
12,437
1,285
1,291
4
618
3,198
4 Exceptional items
€ million
Employee benefit obligations1
Restructuring costs2
Recognised in expenditure on operations
Total exceptional charge/(credit) before tax
Tax on exceptional items
Total exceptional charge/(credit) after tax
1 Employee benefit obligations
Year to December 31
2019
672
–
672
672
–
672
2018
(584)
136
(448)
(448)
32
(416)
The exceptional expense of €672 million relates to the past service cost of the Airways Pension Scheme (‘APS’) settlement
agreement described in note 30. This amount arises from the increase in the IAS 19 defined benefit liability of APS following the
settlement agreement between the Trustee Directors of APS and British Airways which was approved by the High Court in
November 2019. The settlement agreement established higher pensions in payment growth assumptions in future years, resulting in
a non-cash increase to the IAS 19 defined benefit liability.
In the year to December 31, 2018:
British Airways closed its New Airways Pension Scheme (‘NAPS’) to future accrual and British Airways Retirement Plan (‘BARP') to
future contributions from March 31, 2018. The schemes have been replaced by a flexible defined contribution scheme, the British
Airways Pension Plan (‘BAPP’). The changes resulted in a one-off reduction of the NAPS IAS 19 defined benefit liability of €872
million and associated transitional arrangement cash costs of €192 million through employee costs. These items are presented net,
together with BARP closure costs, as an exceptional credit within the year to December 31, 2018 Income statement of €678 million,
with a related tax charge of €58 million.
On October 26, 2018, the High Court of Justice of England and Wales issued a judgment in a claim by Lloyds Banking Group
Pension Trustees Limited as claimant to Lloyds Bank plc and others as defendants regarding the rights of female members of
certain pension schemes to equality of treatment in relation to pension benefits. The judgment concluded that the claimant is
under a duty to amend the schemes in order to equalise benefits for men and women in relation to GMP benefits. The judgment
affects some of the occupational pension schemes of British Airways as set out in note 30. The estimated increase in IAS 19 liabilities
as a result of the High Court judgment was recorded as an exceptional charge of €94 million in the year to December 31, 2018
Income statement.
2 Restructuring costs
During 2018 British Airways continued to implement the restructuring programme that started in July 2016, to develop a more
efficient and cost-effective structure. The overall costs of the programme principally comprised employee severance costs and
include other directly associated costs such as onerous lease provisions and asset write down costs. Costs incurred in the year to
December 31, 2018 in respect of this programme amounted to €136 million, with a related tax credit of €26 million.
5 Expenses by nature
Operating profit is arrived at after charging
Depreciation, amortisation and impairment of non-current assets:
€ million
Owned assets
Right of use assets (2018: Finance leased aircraft)
Other leasehold interests
Amortisation of intangible assets
Operating leases costs:
€ million
Minimum lease rentals
– aircraft
– property and equipment
Sub-lease rentals received
Cost of inventories:
€ million
Cost of inventories recognised as an expense, mainly fuel
2019
776
1,153
40
142
2,111
2019
-
-
-
-
2018
711
371
40
132
1,254
2018
890
236
(12)
1,114
2019
3,242
2018
3,165
148
149
149
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
6 Auditors’ remuneration
The fees for audit and non-audit services provided by the auditor of the Group’s consolidated financial statements and of certain
individual financial statements of the consolidated companies, Ernst & Young S.L., and by companies belonging to Ernst & Young’s
network, were as follows:
€’000
Fees payable for the audit of the Group and individual accounts
Fees payable for other services:
Audit of the Group’s subsidiaries pursuant to legislation
Other services pursuant to legislation
Other services relating to taxation
Other assurance services
Services relating to working capital review
Services relating to corporate finance transactions
All other services
7 Employee costs and numbers
€ million
Wages and salaries
Social security costs
Costs/(credits) related to pension scheme benefits
Other post-retirement benefit costs
Cost of share-based payments
Other employee costs1
Total employee costs
1 Other employee costs include allowances and accommodation for crew.
The number of employees during the year and at December 31 was as follows:
2019
3,916
2018
4,328
632
496
3
727
1,218
175
3
634
436
–
506
–
191
305
7,170
6,400
2019
3,334
561
932
–
34
773
5,634
2018
3,240
516
(317)
5
31
877
4,352
Senior executives
Ground employees:
Managerial
Non-managerial
Technical crew:
Managerial
Non-managerial
2019
December 31, 2019
2018
December 31, 2018
Average
number of
employees
201
Number of
employees
198
Percentage
of women
30%
Average
number of
employees
196
Number of
employees
208
Percentage
of women
27%
2,319
32,968
1,777
32,614
8,136
22,410
66,034
7,885
22,168
64,642
41%
34%
38%
59%
1,857
33,231
8,569
20,881
64,734
1,872
32,159
8,501
20,791
63,531
40%
35%
38%
61%
The number of employees is based on manpower equivalent. The average headcount for 2019 was 73,299 (2018: 71,472).
8 Finance costs, income and other non-operating (charges)/credits
a Finance costs
€ million
Interest expense on:
Bank borrowings
Asset financed liabilities
Lease liabilities (2018: Finance lease obligations)
Provisions unwinding of discount
Other borrowings
Capitalised interest on progress payments
Other finance costs
2019
2018
(12)
(9)
(489)
(37)
(77)
17
(4)
(611)
(17)
–
(144)
(27)
(56)
13
–
(231)
150
150
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
6 Auditors’ remuneration
The fees for audit and non-audit services provided by the auditor of the Group’s consolidated financial statements and of certain
individual financial statements of the consolidated companies, Ernst & Young S.L., and by companies belonging to Ernst & Young’s
network, were as follows:
€’000
Fees payable for the audit of the Group and individual accounts
Fees payable for other services:
Audit of the Group’s subsidiaries pursuant to legislation
Other services pursuant to legislation
Other services relating to taxation
Other assurance services
Services relating to working capital review
Services relating to corporate finance transactions
All other services
7 Employee costs and numbers
€ million
Wages and salaries
Social security costs
Costs/(credits) related to pension scheme benefits
Other post-retirement benefit costs
Cost of share-based payments
Other employee costs1
Total employee costs
1 Other employee costs include allowances and accommodation for crew.
The number of employees during the year and at December 31 was as follows:
Senior executives
Ground employees:
Managerial
Non-managerial
Technical crew:
Managerial
Non-managerial
a Finance costs
€ million
Interest expense on:
Bank borrowings
Asset financed liabilities
Lease liabilities (2018: Finance lease obligations)
Provisions unwinding of discount
Other borrowings
Capitalised interest on progress payments
Other finance costs
2019
December 31, 2019
2018
December 31, 2018
Average
number of
employees
Number of
employees
Percentage
of women
Average
number of
employees
Number of
employees
Percentage
of women
201
198
30%
196
208
27%
2,319
32,968
1,777
32,614
8,136
22,410
66,034
7,885
22,168
64,642
41%
34%
38%
59%
1,857
33,231
8,569
20,881
64,734
1,872
32,159
8,501
20,791
63,531
2019
3,916
2018
4,328
7,170
6,400
632
496
3
727
1,218
175
3
2019
3,334
561
932
–
34
773
5,634
(12)
(9)
(489)
(37)
(77)
17
(4)
(611)
634
436
–
506
–
191
305
2018
3,240
516
(317)
5
31
877
4,352
40%
35%
38%
61%
(17)
–
(144)
(27)
(56)
13
–
(231)
b Finance income
€ million
Interest on other interest-bearing deposits
Other finance income
c Net financing credit relating to pensions
€ million
Net financing credit relating to pensions
d Other non-operating charges
€ million
Loss on sale of property, plant and equipment and investments
Credit related to equity investments (note 17)
Share of profits in investments accounted for using the equity method (note 16)
Realised gain on derivatives not qualifying for hedge accounting
Unrealised gains/(losses) on derivatives not qualifying for hedge accounting
2019
47
3
50
2019
26
2019
(22)
3
6
8
1
(4)
9 Tax
a Tax charges
Tax (charge)/credit in the Income statement, Other comprehensive income and Statement of changes in equity:
2019
Income
statement
Other
comprehensive
income
Statement
of
changes
in equity
Total
Income
statement
2018
Other
comprehensive
income
Statement
of
changes
in equity
€ million
Current tax
Movement in respect of prior
years
Movement in respect of
current year
Total current tax
Deferred tax
Movement in respect of prior
years
Movement in respect of
current year
Rate change / rate differences
Total deferred tax
26
(494)
(468)
(14)
(79)
1
(92)
(8)
146
138
–
(160)
3
(157)
–
–
–
–
(1)
–
(1)
18
4
(348)
(330)
(475)
(471)
(14)
22
(240)
4
(250)
(144)
3
(119)
–
162
162
–
206
(13)
193
2018
33
8
41
2018
27
2018
(29)
5
5
20
(10)
(9)
Total
4
(313)
(309)
22
62
(10)
74
(235)
–
–
–
–
–
–
–
–
The number of employees is based on manpower equivalent. The average headcount for 2019 was 73,299 (2018: 71,472).
8 Finance costs, income and other non-operating (charges)/credits
Total tax
(560)
(19)
(1)
(580)
(590)
355
The current tax credit in Other comprehensive income relates to employee retirement benefit plans of €154 million
(2018: €136 million) and cash flow hedges of €16 million tax charge (2018: €26 million tax credit).
Tax in the Statement of changes in equity relates to share-based payment schemes of €1 million (2018: nil).
2019
2018
Within tax in Other comprehensive income is a tax charge of €184 million (2018: tax credit of €222 million) that may be reclassified
to the Income statement and a tax credit of €165 million (2018: tax credit of €133 million) that will not.
150
151
151
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
9 Tax continued
b Current tax (liability)/asset
€ million
Balance at January 1
Income statement
Other comprehensive income
Cash
Exchange movements and other
Balance at December 31
Current tax asset
Current tax liability
Balance at December 31
c Deferred tax asset/(liability)
€ million
Balance at January 1, 2019
Adjustments arising on adoption
of IFRS 16
Income statement
Other comprehensive income
Statement of changes in equity
Exchange movements and
other
Fixed
assets Leases
–
(999)
287
(148)
4
–
–
(26)
–
–
(24)
(21)
2019
218
(468)
138
119
(13)
(6)
186
(192)
(6)
Deferred
tax
deductions
on IFRS 16
transition
–
Employee
leaving
indemnities
and others
348
Employee
benefit
plans
42
Fair
value
gain/
losses
234
Share-
based
payment
schemes
16
Tax loss
carried
forwards
and tax
credits
411
Other
temporary
differences
31
2018
180
(471)
162
343
4
218
383
(165)
218
Total
83
170
(92)
(157)
(1)
Balance at December 31, 2019
(732)
(195)
24
Balance at January 1, 2018
(1,029)
Income statement
Other comprehensive income
Exchange movements and
other
19
–
11
Balance at December 31, 2018
(999)
–
–
–
–
–
–
–
–
–
–
€ million
Deferred tax asset
Deferred tax liability
Balance at December 31
31
(7)
–
–
–
–
(52)
13
–
3
312
374
(25)
–
(1)
348
–
(7)
3
–
3
41
140
(96)
–
–
(173)
–
9
70
39
–
(2)
195
–
–
42
234
–
5
–
(1)
(1)
19
15
2
–
(1)
16
–
(10)
–
–
–
401
430
(18)
–
(1)
411
2019
546
(572)
(26)
–
1
–
–
2
34
(29)
(26)
28
(1)
–
4
31
(3)
(119)
193
12
83
2018
536
(453)
83
The deferred tax asset mainly arises in Spain. A reversal of €60 million on the deferred tax asset is expected within one year and the
remainder beyond one year.
152
152
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
9 Tax continued
b Current tax (liability)/asset
€ million
Balance at January 1
Income statement
Other comprehensive income
Cash
Exchange movements and other
Balance at December 31
Current tax asset
Current tax liability
Balance at December 31
c Deferred tax asset/(liability)
2019
218
(468)
138
119
(13)
(6)
186
(192)
(6)
2018
180
(471)
162
343
4
218
383
(165)
218
Total
83
31
–
1
–
–
170
(92)
(157)
(1)
2
34
(29)
(26)
28
(1)
–
4
31
(3)
(119)
193
12
83
2018
536
(453)
83
2019
546
(572)
(26)
Fixed
deductions
leaving
Employee
on IFRS 16
indemnities
benefit
assets Leases
transition
and others
plans
losses
schemes
Fair
value
gain/
Share-
Tax loss
carried
based
forwards
Other
payment
and tax
credits
temporary
differences
Deferred
tax
Employee
Balance at January 1, 2019
(999)
–
348
42
234
16
411
€ million
Adjustments arising on adoption
of IFRS 16
Income statement
Other comprehensive income
Statement of changes in equity
Exchange movements and
other
287
(148)
4
–
–
(26)
–
–
(24)
(21)
Balance at December 31, 2019
(732)
(195)
24
Balance at January 1, 2018
(1,029)
Income statement
Other comprehensive income
Exchange movements and
other
19
–
11
Balance at December 31, 2018
(999)
–
–
–
–
–
–
31
(7)
–
–
–
–
–
–
–
–
–
(52)
13
–
3
312
374
(25)
–
(1)
348
–
(7)
3
–
3
41
140
(96)
–
–
–
(173)
9
70
39
–
(2)
195
–
–
42
234
–
5
–
(1)
(1)
19
15
2
–
(1)
16
(10)
–
–
–
–
401
430
(18)
–
(1)
411
€ million
Deferred tax asset
Deferred tax liability
Balance at December 31
remainder beyond one year.
The deferred tax asset mainly arises in Spain. A reversal of €60 million on the deferred tax asset is expected within one year and the
d Reconciliation of the total tax charge in the income statement
The tax charge is calculated at the domestic rates applicable to profits/(losses) in the country in which the profit/(loss) arise. The
tax charge on the profit for the year to December 31, 2019 is higher (2018: lower) than the notional tax charge. The differences are
explained below:
€ million
Accounting profit before tax
Weighted average tax charge of the Group1
Current year tax assets not recognised
Disposal and write down of investments
Effect of tax rate changes
Employee benefit plans accounted for net of withholding tax – recurring
Employee benefit plans accounted for net of withholding tax – non-recurring
Euro preferred securities accounted for as non-controlling interests
Investment incentives
Movement in respect of prior years
Non-deductible expenses – recurring items
Other items
Tax charge in the income statement
2019
2,275
(440)
(11)
–
1
7
(128)
–
11
12
(14)
2
2018
3,487
(671)
(9)
1
3
1
53
2
10
26
(7)
1
(560)
(590)
1 The expected tax charge is calculated by aggregating the expected tax charges arising in each company in the Group and changes each year as tax
rates and profit mix change. The corporate tax rates for the Group's main countries of operation are Spain 25% (2018: 25%), the UK 19% (2018: 19%)
and Ireland 12.5% (2018: 12.5%).
e Payroll related taxes and UK Air Passenger Duty
The Group was also subject to other taxes paid during the year which are as follows:
€ million
Payroll related taxes
UK Air Passenger Duty
f Factors that may affect future tax charges
Unrecognised temporary differences – losses
€ million
Spanish corporate income tax losses and other temporary differences
UK capital losses
Irish capital losses
Corporate income tax losses outside of the Group's main countries of operation
None of the unrecognised temporary differences have an expiry date.
Unrecognised temporary differences – investment in subsidiaries and associates
2019
555
967
1,522
2019
47
335
25
249
2018
509
885
1,394
2018
47
316
25
210
No deferred tax liability has been recognised in respect of €2,959 million (2018: €2,826 million) of temporary differences relating to
subsidiaries and associates. The Group either controls the reversal of these temporary differences and it is probable that they will
not reverse in the foreseeable future or no tax consequences would arise from their reversal.
Tax rate changes
Reductions in the UK corporation tax rate to 19% (effective from April 1, 2017) and to 18% (effective April 1, 2020) were substantively
enacted on October 26, 2015 and an additional reduction to 17% (effective April 1, 2020) was substantively enacted on September 6,
2016. This will reduce the Group's future current tax charge accordingly. The deferred tax on UK temporary differences as at
December 31, 2019 is calculated at the rate applicable to the year in which the temporary differences are expected to reverse.
g Tax related contingent liabilities
The Group has certain contingent liabilities, across all taxes, which at December 31, 2019 amounted to €165 million (December 31,
2018: €60 million). No material losses are likely to arise from such contingent liabilities. As such the Group does not consider it
appropriate to make a provision for these amounts. Included in the tax related contingent liabilities is the following:
Merger gain
Following tax audits covering the period 2011 to 2014, the Spanish Tax Authorities issued a corporate income tax assessment to the
Company regarding the merger in 2011 between British Airways and Iberia.
contingent liability of €90 million, including accrued interest. The Company subsequently appealed the assessment to the Tribunal
Económico-Administrativo Central or ‘TEAC’ (Central Administrative Tax Tribunal). On October 23, 2019 the TEAC ruled in favour of
the Spanish Tax Authorities. The Company subsequently appealed this ruling to the Audiencia Nacional (National High Court) on
December 20, 2019. The Company does not expect a hearing at the National High Court until 2021 at the earliest.
The assessment is for €69 million, resulting in a
152
153
153
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
9 Tax continued
The Company disputes the technical merits of the assessment and ruling of the TEAC, both in terms of whether a gain arose and in
terms of the quantum of any gain.
not consider it appropriate to make a provision for these amounts and accordingly has recognised this matter as a contingent
liability.
The Company believes that it has strong arguments to support its appeals. The Company does
10 Earnings per share
€ million
Earnings attributable to equity holders of the parent for basic earnings
Interest expense on convertible bonds
Diluted earnings attributable to equity holders of the parent and diluted earnings per share
Weighted average number of ordinary shares in issue1
Assumed conversion on convertible bonds
Dilutive employee share schemes outstanding
Weighted average number for diluted earnings per share
€ cents
Basic earnings per share
Diluted earnings per share
2019
1,715
26
1,741
2018
2,885
18
2,903
2019
Number
‘000
1,984,073
59,398
22,305
2018
Number
‘000
2,021,622
72,944
18,515
2,065,776
2,113,081
2019
86.4
84.3
2018
142.7
137.4
1
In 2018 included 27 million as the weighted average impact for 66 million treasury shares purchased in the share buyback programme (note 27).
The calculation of basic and diluted earnings per share before exceptional items is included in the Alternative performance
measures section.
11 Dividends
€ million
Cash dividend declared
Interim dividend for 2019 of 14.5 € cents per share (2018: 14.5 € cents per share)
Final dividend for 2018 of 16.5 € cents per share (2017: 14.5 € cents per share)
Special dividend for 2018 of 35.0 € cents per share
Proposed cash dividend
Final dividend for 2019 of 17.0 € cents per share
2018
288
295
–
2019
288
327
695
337
The proposed dividend will be distributed from net profit for the year to December 31, 2019.
Proposed dividends on ordinary shares are subject to approval at the annual general meeting and, subject to approval, are
recognised as a liability on that date.
154
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
9 Tax continued
liability.
€ million
10 Earnings per share
Earnings attributable to equity holders of the parent for basic earnings
Interest expense on convertible bonds
Diluted earnings attributable to equity holders of the parent and diluted earnings per share
Weighted average number of ordinary shares in issue1
Assumed conversion on convertible bonds
Dilutive employee share schemes outstanding
Weighted average number for diluted earnings per share
€ cents
Basic earnings per share
Diluted earnings per share
measures section.
11 Dividends
€ million
Cash dividend declared
1
In 2018 included 27 million as the weighted average impact for 66 million treasury shares purchased in the share buyback programme (note 27).
The calculation of basic and diluted earnings per share before exceptional items is included in the Alternative performance
Interim dividend for 2019 of 14.5 € cents per share (2018: 14.5 € cents per share)
Final dividend for 2018 of 16.5 € cents per share (2017: 14.5 € cents per share)
Special dividend for 2018 of 35.0 € cents per share
Proposed cash dividend
Final dividend for 2019 of 17.0 € cents per share
The proposed dividend will be distributed from net profit for the year to December 31, 2019.
Proposed dividends on ordinary shares are subject to approval at the annual general meeting and, subject to approval, are
recognised as a liability on that date.
2019
1,715
26
1,741
2019
Number
‘000
59,398
22,305
2018
2,885
18
2,903
2018
Number
‘000
72,944
18,515
1,984,073
2,021,622
2,065,776
2,113,081
2019
86.4
84.3
2018
142.7
137.4
2018
288
295
–
2019
288
327
695
337
The Company disputes the technical merits of the assessment and ruling of the TEAC, both in terms of whether a gain arose and in
terms of the quantum of any gain.
The Company believes that it has strong arguments to support its appeals. The Company does
not consider it appropriate to make a provision for these amounts and accordingly has recognised this matter as a contingent
12 Property, plant and equipment
€ million
Cost
Balance at January 1, 2018
Additions
Disposals
Exchange movements
Balance at December 31, 2018
Adoption of IFRS 16
Balance at January 1, 2019
Additions
Modification of leases
Disposals
Reclassifications
Exchange movements
December 31, 2019
Depreciation and impairment
Balance at January 1, 2018
Charge for the year
Disposals
Exchange movements
Balance at December 31, 2018
Adoption of IFRS 16
Balance at January 1, 2019
Charge for the year
Disposals
Reclassifications
Exchange movements
December 31, 2019
Net book values
December 31, 2019
January 1, 2019
December 31, 2018
Analysis at December 31, 2019
Owned
Right of use assets (note 13)
Progress payments
Assets not in current use
Property, plant and equipment
Analysis at December 31, 2018
Owned
Finance leased
Progress payments
Assets not in current use
Property, plant and equipment
The net book value of property comprises:
€ million
Freehold
Right of use assets (note 13)
Long leasehold improvements > 50 years
Short leasehold improvements < 50 years
Property
Fleet
Property
Equipment
Total
19,698
2,255
(1,130)
(310)
20,513
4,783
25,296
3,946
128
(1,319)
44
1,287
2,143
1,484
79
–
(34)
2,188
735
2,923
67
94
(85)
–
163
140
(125)
(17)
1,482
23
1,505
147
–
(71)
(44)
68
29,382
3,162
1,605
9,465
984
(562)
(164)
9,723
1,053
10,776
1,710
(447)
8
660
1,040
55
–
(18)
1,077
1
1,078
169
(63)
–
65
974
83
(95)
(16)
946
2
948
90
(57)
(8)
52
23,325
2,474
(1,255)
(361)
24,183
5,541
29,724
4,160
222
(1,475)
–
1,518
34,149
11,479
1,122
(657)
(198)
11,746
1,056
12,802
1,969
(567)
–
777
12,707
1,249
1,025
14,981
16,675
14,520
10,790
5,321
9,746
1,525
83
16,675
3,935
5,695
1,069
91
10,790
1,913
1,845
1,111
1,028
774
110
1
1,913
987
4
118
2
1,111
580
557
536
460
68
52
–
19,168
16,922
12,437
6,809
10,588
1,687
84
580
19,168
401
68
65
2
536
2019
560
774
321
258
1,913
5,323
5,767
1,252
95
12,437
2018
448
–
330
333
1,111
154
155
155
At December 31, 2019, bank and other loans of the Group are secured on fleet assets with a net book value of €325 million (2018:
€467 million).
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
13 Leases
a Amounts recognised in the Consolidated balance sheet
Property, plant and equipment includes the following amounts relating to right of use assets:
€ million
Cost
Balance at January 1, 20191
Additions
Modifications of leases
Disposals
Reclassifications2
Exchange movements
December 31, 2019
Depreciation
Balance at January 1, 20191
Charge for the year
Disposals
Reclassifications2
Exchange movements
December 31, 2019
Net book value
December 31, 2019
January 1, 2019
Fleet
Property
Equipment
Total
12,491
1,039
128
(23)
(290)
509
734
13
94
–
(4)
45
13,854
882
3,056
1,032
(21)
(123)
164
–
104
–
–
4
4,108
108
119
16
–
–
(16)
4
123
36
17
–
–
2
55
13,344
1,068
222
(23)
(310)
558
14,859
3,092
1,153
(21)
(123)
170
4,271
9,746
9,435
774
734
68
83
10,588
10,252
1 The net book value of ROU assets recognised at January 1, 2019 includes €5,767 million in respect of assets previously leased through finance leases
before the adoption of IFRS 16 (split between €7,793 million at cost and €2,026 million of accumulated depreciation). In 2018 the Group recognised
lease assets and lease liabilities in relation to leases that were classified as ‘finance leases’ under IAS 17 ‘leases’. The assets were presented in property,
plant and equipment and the lease liabilities in the Group’s long-term borrowings.
2 Amounts with a net book value of €187 million were reclassified from ROU assets to Owned Property, plant and equipment at the cessation of the
respective leases.
Interest-bearing long-term borrowings includes the following amounts relating to lease liabilities:
€ million
Finance lease liabilities December 31, 2018
Adoption of IFRS 16 January 1, 2019
Additions
Modifications of leases
Repayments
Interest expense
Exchange movements
Lease liability December 31, 2019
Current
Non-current
b Amounts recognised in the Consolidated income statement
€ million
Amounts not included in the measurement of lease liabilities
Variable lease payments
Expenses relating to short-term leases
Expenses relating to leases of low-value assets, excluding short-term leases of low value assets
Amounts expensed as a result of the recognition of ROU assets and lease liabilities
Interest expense on lease liabilities
Gain arising from sale and leaseback transactions
Depreciation charge
c Amounts recognised in the Consolidated cash flow statement
The Group had total cash outflows for leases of €2,057 million in 2019.
2019
5,928
5,195
1,017
182
(1,941)
489
176
11,046
1,694
9,352
2019
28
74
1
489
(1)
1,153
The Group is exposed to future cash outflows (on an undiscounted basis) as at December 31, 2019, for which no amount has been
recognised in relation to leases not yet commenced to which the Group is committed of €787 million.
d Maturity profile of the lease liabilities
The maturity profile of the lease liabilities is disclosed in note 25e.
156
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
e Operating lease commitments
From January 1, 2019, the Group has recognised ROU assets and lease liabilities for the leases it has entered into (except for short-
term and low-value leases) and accordingly no longer presents operating lease commitments. Having applied the modified
retrospective approach to the implementation of IFRS 16, the Group has continued to present the comparative financial information
for the aggregate payments, for which there were commitments under operating leases as follows as at December 31:
€ million
Within one year
Between one and five years
Over five years
Total
2018
Property,
plant and
equipment
148
362
1,895
2,405
Fleet
975
3,049
2,235
6,259
Total
1,123
3,411
4,130
8,664
13,854
882
f Obligations under financing leases
On implementation of IFRS 16, those leases previously recognised as finance leases were reclassified to ROU assets and lease
liabilities and are included in section (a) above. Accordingly, the Group no longer presents obligations under finance leases. Having
applied the modified retrospective approach to the implementation of IFRS 16, the Group has continued to present the comparative
financial information for the aggregate payments, for which there are future minimum lease payments as follows:
€ million
Future minimum payments due
Within one year
Between one and five years
Over five years
Less: finance charges
Present value of minimum lease payments
The present value of minimum lease payments is as follows:
Within one year
Between one and five years
Over five years
g Extension options
2018
876
3,186
2,642
6,704
(776)
5,928
723
2,734
2,471
5,928
The Group has certain leases which contain extension options exercisable by the Group prior to the non-cancellable contract period.
Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility. The Group assesses
at lease commencement whether it is reasonably certain to exercise the extension options.
The Group is exposed to future cash outflows (on an undiscounted basis) as at December 31, 2019, for which no amount has been
recognised, for potential extension options of €871 million due to it not being reasonably certain that these leases will be extended.
14 Capital expenditure commitments
Capital expenditure authorised and contracted for but not provided for in the accounts amounts to €12,830 million (December 31,
2018: €10,831 million). The majority of capital expenditure commitments are denominated in US dollars, and as such are subject to
changes in exchange rates.
The outstanding commitments include €12,673 million for the acquisition of 34 Airbus A320s (from 2020 to 2022), 45 Airbus A321s
(from 2020 to 2024), one Airbus A330 (in 2020), 33 Airbus A350s (from 2020 to 2024), four Boeing 777-300s (in 2020), 18 Boeing
777-9s (from 2022 to 2025) and 12 Boeing 787-10s (from 2020 to 2023).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
a Amounts recognised in the Consolidated balance sheet
Property, plant and equipment includes the following amounts relating to right of use assets:
13 Leases
€ million
Cost
Balance at January 1, 20191
Additions
Modifications of leases
Disposals
Reclassifications2
Exchange movements
December 31, 2019
Depreciation
Balance at January 1, 20191
Charge for the year
Disposals
Reclassifications2
Exchange movements
December 31, 2019
Net book value
December 31, 2019
January 1, 2019
€ million
Finance lease liabilities December 31, 2018
Adoption of IFRS 16 January 1, 2019
Additions
Modifications of leases
Repayments
Interest expense
Exchange movements
Lease liability December 31, 2019
Fleet
Property
Equipment
Total
12,491
1,039
128
(23)
(290)
509
3,056
1,032
(21)
(123)
164
4,108
9,746
9,435
734
13
94
–
(4)
45
104
–
–
–
4
108
774
734
119
16
–
–
(16)
4
123
36
17
–
–
2
55
13,344
1,068
222
(23)
(310)
558
14,859
3,092
1,153
(21)
(123)
170
4,271
68
83
10,588
10,252
2019
5,928
5,195
1,017
182
(1,941)
489
176
11,046
1,694
9,352
2019
28
74
1
489
(1)
1,153
1 The net book value of ROU assets recognised at January 1, 2019 includes €5,767 million in respect of assets previously leased through finance leases
before the adoption of IFRS 16 (split between €7,793 million at cost and €2,026 million of accumulated depreciation). In 2018 the Group recognised
lease assets and lease liabilities in relation to leases that were classified as ‘finance leases’ under IAS 17 ‘leases’. The assets were presented in property,
plant and equipment and the lease liabilities in the Group’s long-term borrowings.
2 Amounts with a net book value of €187 million were reclassified from ROU assets to Owned Property, plant and equipment at the cessation of the
respective leases.
Interest-bearing long-term borrowings includes the following amounts relating to lease liabilities:
Current
Non-current
€ million
b Amounts recognised in the Consolidated income statement
Amounts not included in the measurement of lease liabilities
Variable lease payments
Expenses relating to short-term leases
Expenses relating to leases of low-value assets, excluding short-term leases of low value assets
Amounts expensed as a result of the recognition of ROU assets and lease liabilities
Interest expense on lease liabilities
Gain arising from sale and leaseback transactions
Depreciation charge
c Amounts recognised in the Consolidated cash flow statement
The Group had total cash outflows for leases of €2,057 million in 2019.
The Group is exposed to future cash outflows (on an undiscounted basis) as at December 31, 2019, for which no amount has been
recognised in relation to leases not yet commenced to which the Group is committed of €787 million.
d Maturity profile of the lease liabilities
The maturity profile of the lease liabilities is disclosed in note 25e.
156
157
157
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
15 Intangible assets and impairment review
Balance at December 31, 2018
595
451
253
1,559
a
Intangible assets
€ million
Cost
Balance at January 1, 2018
Additions
Disposals
Exchange movements
Additions
Disposals
Exchange movements
December 31, 2019
Amortisation and impairment
Balance at January 1, 2018
Charge for the year
Disposals
Exchange movements
Balance at December 31, 2018
249
Charge for the year
Disposals
Exchange movements
December 31, 2019
Net book values
December 31, 2019
December 31, 2018
–
–
–
249
349
346
Goodwill
Brand
Customer
loyalty
programmes
Landing
rights1
Software
Other
Total
596
451
253
–
–
(1)
–
–
–
–
–
–
1,519
55
–
(15)
–
–
3
–
–
–
–
–
–
5
–
52
598
451
253
1,616
1,376
948
195
(14)
(13)
1,116
232
(28)
56
249
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
101
6
–
(1)
106
6
–
3
115
451
451
253
253
1,501
1,453
475
123
(13)
(8)
577
131
(28)
30
710
666
539
128
105
(20)
(2)
211
120
(55)
6
282
52
3
–
–
55
5
–
–
60
222
156
3,895
355
(34)
(31)
4,185
357
(83)
117
4,576
877
132
(13)
(9)
987
142
(28)
33
1,134
3,442
3,198
1 The net book value includes non-EU based landing rights of €94 million (2018: €100 million) that have a definite life. The remaining life of these
landing rights is 15 years.
b
Impairment review
The carrying amounts of intangible assets with indefinite life and goodwill allocated to cash generating units (CGUs) of the Group
are:
€ million
2019
Iberia
January 1 and December 31, 2019
British Airways
January 1, 2019
Exchange movements
December 31, 2019
Vueling
January 1, 2019
Additions
January 1 and December 31, 2019
Aer Lingus
January 1 and December 31, 2019
Avios
January 1 and December 31, 2019
Other CGUs
January 1 and December 31, 2019
Goodwill
Landing
rights
Customer
loyalty
programmes
Brand
–
423
306
46
3
49
28
–
28
767
49
816
89
5
94
–
–
–
35
–
35
272
62
110
–
–
–
–
–
–
–
–
Total
729
813
52
865
152
5
157
444
–
–
–
12
–
–
253
253
–
12
December 31, 2019
349
1,407
451
253
2,460
158
158
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
15 Intangible assets and impairment review
a
Intangible assets
Goodwill
Brand
programmes
Software
Other
Total
Customer
loyalty
Landing
rights1
€ million
Cost
Additions
Disposals
Additions
Disposals
Charge for the year
Disposals
Exchange movements
Charge for the year
Disposals
Exchange movements
December 31, 2019
Net book values
December 31, 2019
December 31, 2018
landing rights is 15 years.
b
Impairment review
are:
€ million
2019
Iberia
Balance at January 1, 2018
596
451
253
Exchange movements
Balance at December 31, 2018
595
451
253
1,559
Exchange movements
December 31, 2019
Amortisation and impairment
Balance at January 1, 2018
249
598
451
253
1,616
1,376
Balance at December 31, 2018
249
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
–
–
3
–
–
–
–
–
–
249
349
346
1 The net book value includes non-EU based landing rights of €94 million (2018: €100 million) that have a definite life. The remaining life of these
451
451
253
253
1,501
1,453
The carrying amounts of intangible assets with indefinite life and goodwill allocated to cash generating units (CGUs) of the Group
Goodwill
Landing
rights
Customer
loyalty
Brand
programmes
Total
January 1 and December 31, 2019
–
423
306
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
46
3
49
28
–
28
–
–
1,519
55
–
(15)
5
–
52
101
6
–
(1)
106
6
–
3
115
767
49
816
89
5
94
–
12
948
195
(14)
(13)
1,116
232
(28)
56
475
123
(13)
(8)
577
131
(28)
30
710
666
539
–
–
–
35
–
35
–
–
128
105
(20)
(2)
211
120
(55)
6
282
52
3
55
5
–
–
–
–
3,895
355
(34)
(31)
4,185
357
(83)
117
4,576
877
132
(13)
(9)
987
142
(28)
33
60
1,134
222
156
3,442
3,198
–
–
–
–
–
–
–
–
729
813
52
865
152
5
157
444
253
253
–
12
British Airways
January 1, 2019
Exchange movements
December 31, 2019
Vueling
January 1, 2019
Additions
January 1 and December 31, 2019
Aer Lingus
January 1 and December 31, 2019
Avios
January 1 and December 31, 2019
Other CGUs
January 1 and December 31, 2019
272
62
110
December 31, 2019
349
1,407
451
253
2,460
€ million
2018
Iberia
Goodwill
Landing
rights
Customer
loyalty
programmes
Brand
January 1 and December 31, 2018
–
423
306
British Airways
January 1, 2018
Additions
Transfer to other Group companies
Exchange movements
December 31, 2018
Vueling
47
–
–
(1)
46
738
55
(12)
(14)
767
–
–
–
–
–
January 1 and December 31, 2018
28
89
35
Aer Lingus
January 1 and December 31, 2018
272
62
110
–
–
–
–
–
–
–
–
Total
729
785
55
(12)
(15)
813
152
444
Avios
January 1 and December 31, 2018
Other CGUs
January 1, 2018
Transfer from British Airways
December 31, 2018
–
–
–
–
–
–
12
12
–
–
–
–
253
253
–
–
–
–
12
12
December 31, 2018
346
1,353
451
253
2,403
Basis for calculating recoverable amount
The recoverable amounts of CGUs have been measured based on their value-in-use.
Value-in-use is calculated using a discounted cash flow model. Cash flow projections are based on the Business plans approved by
the relevant operating companies covering a five year period. Cash flows extrapolated beyond the five year period are projected to
increase based on long-term growth rates. Cash flow projections are discounted using the CGU’s pre-tax discount rate.
Annually the relevant operating companies prepare and approve five year Business plans, and the Board approved the Group three
year Business plan in the fourth quarter of the year. The Business plan cash flows used in the value-in-use calculations reflect all
restructuring of the business where relevant that has been approved by the Board and which can be executed by Management
under existing agreements.
Key assumptions
For each of the internal CGUs the key assumptions used in the value-in-use calculations are as follows:
Per cent
Operating margin1
Average ASK growth per annum
Long-term growth rate
Pre-tax discount rate
Per cent
Lease adjusted operating margin3
Average ASK growth per annum
Long-term growth rate
Pre-tax discount rate
British
Airways
15
2-4
2.2
8.0
British
Airways
15
3-4
2.3
8.3
2019
Vueling
10-14
Aer Lingus
13-15
1-5
1.5
9.4
2-11
1.8
8.0
2018
Vueling
11-15
Aer Lingus
15
9-10
1.9
8.4
7-8
1.8
8.3
Iberia
10-15
3
1.8
9.1
Iberia
9-15
5-6
2.0
9.0
Avios
20-23
n/a2
1.8
8.5
Avios
212
n/a2
1.9
9.3
1 The Group adopted IFRS 16 from January 1, 2019 at which time a ROU asset was recognised and depreciated over the expected lease term through
operating expenses. Accordingly, for 2019 onwards the Group has determined its key assumption to be operating margin.
2 Operating margin (2018: lease adjusted operating margin) for the Avios loyalty reward business is not adjusted for aircraft leases. ASK growth rate
assumption is not applicable for Avios, which conducts business with partners both within and outside IAG.
3 Lease adjusted operating margin is the average annual operating result, adjusted for aircraft operating lease costs, as a percentage of revenue over
the five year Business plan. It is presented as a percentage point range and is based on past performance, Management’s expectation of the market
development and incorporating risks into the cash flow estimates.
158
159
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
15 Intangible assets and impairment review continued
ASK growth is the average annual increase over the Business plan, based on planned network growth and taking into account
Management’s expectation of the market.
The long-term growth rate is calculated for each CGU based on the forecasted weighted average exposure in each primary market
using gross domestic product (GDP) (source: Oxford Economics). The airline’s network plans are reviewed annually as part of the
Business plan and reflect Management’s plans in response to specific market risk or opportunity.
Pre-tax discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time
value of money and underlying risks of its primary market. The discount rate calculation is based on the circumstances of the airline
industry, the Group and the CGU. It is derived from the weighted average cost of capital (WACC). The WACC takes into
consideration both debt and equity available to airlines. The cost of equity is derived from the expected return on investment by
airline investors and the cost of debt is broadly based on the Group’s interest-bearing borrowings. CGU specific risk is incorporated
by applying individual beta factors which are evaluated annually based on available market data. The pre-tax discount rate reflects
the timing of future tax flows.
Summary of results
In 2019, Management reviewed the recoverable amount of each of its CGUs and concluded the recoverable amounts exceeded the
carrying values. Sensitivities have been considered for each CGU. Reducing long-term growth rates to zero, increasing pre-tax
discount rates by 4 percentage points, and increasing the fuel price by 40 per cent, does not result in any impairment.
16 Investments
a
Investments in subsidiaries
The Group’s subsidiaries at December 31, 2019 are listed in the Group investments section.
All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary undertakings held
directly do not differ from the proportion of ordinary shares held. There have been no significant changes in ownership interests of
subsidiaries during the year.
On August 28, 2018, British Airways exercised its option to redeem its €300 million, 6.75 per cent fixed coupon preferred securities
which were previously classified as a non-controlling interest. The total non-controlling interest at December 31, 2019 is €6 million
(2018: €6 million).
British Airways Employee Benefit Trustee (Jersey) Limited, a wholly-owned subsidiary of British Airways, governs the British
Airways Plc Employee Share Ownership Trust (the Trust). The Trust is not a legal subsidiary of IAG; however, it is consolidated
within the Group results.
b
Investments in associates and joint ventures
The share of assets, liabilities, revenue and profit of the Group’s associates and joint ventures, which are included in the Group’s
financial statements, are as follows:
€ million
Total assets
Total liabilities
Revenue
Profit for the year
The detail of the movement in Investment in associates and joint ventures is shown as follows:
€ million
At beginning of year
Share of retained profits
Dividends received
Exchange movements
2019
122
(92)
112
6
2019
31
6
(5)
(1)
31
2018
113
(77)
75
5
2018
30
5
(2)
(2)
31
At December 31, 2019 there are no restrictions on the ability of associates or joint ventures to transfer funds to the parent and there
are no related contingent liabilities.
At both December 31, 2019 and December 31, 2018 the investment in Sociedad Conjunta para la Emisión y Gestión de Medios de
Pago EFC, S.A. exceeded 50 per cent ownership by the Group (50.5 per cent). The entity is treated as a joint venture as decisions
regarding its strategy and operations require the unanimous consent of the parties who share control, including IAG.
160
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
15 Intangible assets and impairment review continued
ASK growth is the average annual increase over the Business plan, based on planned network growth and taking into account
Management’s expectation of the market.
The long-term growth rate is calculated for each CGU based on the forecasted weighted average exposure in each primary market
using gross domestic product (GDP) (source: Oxford Economics). The airline’s network plans are reviewed annually as part of the
Business plan and reflect Management’s plans in response to specific market risk or opportunity.
Pre-tax discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time
value of money and underlying risks of its primary market. The discount rate calculation is based on the circumstances of the airline
industry, the Group and the CGU. It is derived from the weighted average cost of capital (WACC). The WACC takes into
consideration both debt and equity available to airlines. The cost of equity is derived from the expected return on investment by
airline investors and the cost of debt is broadly based on the Group’s interest-bearing borrowings. CGU specific risk is incorporated
by applying individual beta factors which are evaluated annually based on available market data. The pre-tax discount rate reflects
In 2019, Management reviewed the recoverable amount of each of its CGUs and concluded the recoverable amounts exceeded the
carrying values. Sensitivities have been considered for each CGU. Reducing long-term growth rates to zero, increasing pre-tax
discount rates by 4 percentage points, and increasing the fuel price by 40 per cent, does not result in any impairment.
The Group’s subsidiaries at December 31, 2019 are listed in the Group investments section.
All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary undertakings held
directly do not differ from the proportion of ordinary shares held. There have been no significant changes in ownership interests of
On August 28, 2018, British Airways exercised its option to redeem its €300 million, 6.75 per cent fixed coupon preferred securities
which were previously classified as a non-controlling interest. The total non-controlling interest at December 31, 2019 is €6 million
British Airways Employee Benefit Trustee (Jersey) Limited, a wholly-owned subsidiary of British Airways, governs the British
Airways Plc Employee Share Ownership Trust (the Trust). The Trust is not a legal subsidiary of IAG; however, it is consolidated
within the Group results.
b
Investments in associates and joint ventures
financial statements, are as follows:
The share of assets, liabilities, revenue and profit of the Group’s associates and joint ventures, which are included in the Group’s
the timing of future tax flows.
Summary of results
16 Investments
a
Investments in subsidiaries
subsidiaries during the year.
(2018: €6 million).
€ million
Total assets
Total liabilities
Revenue
Profit for the year
€ million
At beginning of year
Share of retained profits
Dividends received
Exchange movements
2019
122
(92)
112
6
2019
31
6
(5)
(1)
31
2018
113
(77)
75
5
2018
30
5
(2)
(2)
31
The detail of the movement in Investment in associates and joint ventures is shown as follows:
At December 31, 2019 there are no restrictions on the ability of associates or joint ventures to transfer funds to the parent and there
are no related contingent liabilities.
At both December 31, 2019 and December 31, 2018 the investment in Sociedad Conjunta para la Emisión y Gestión de Medios de
Pago EFC, S.A. exceeded 50 per cent ownership by the Group (50.5 per cent). The entity is treated as a joint venture as decisions
regarding its strategy and operations require the unanimous consent of the parties who share control, including IAG.
17 Other equity investments
Other equity investments include the following:
€ million
Listed securities
Comair Limited
Unlisted securities
The credit relating to other equity investments was €3 million (2018: €5 million).
18 Trade and other receivables
€ million
Amounts falling due within one year
Trade receivables
Provision for expected credit loss
Net trade receivables
Prepayments and accrued income
Other non-trade debtors
Amounts falling due after one year
Prepayments and accrued income
Other non-trade debtors
Movements in the provision for expected credit loss were as follows:
€ million
At beginning of year
Provided during the year
Released
Receivables written off during the year
Exchange movements
Trade receivables are generally non-interest-bearing and on 30 days terms (2018: 30 days).
The credit risk exposure on the Group's trade receivables is set out below:
2019
2018
10
72
82
17
63
80
2019
2018
2,368
(113)
2,255
1,040
274
3,569
258
15
273
2019
98
22
(1)
(8)
2
113
1,695
(98)
1,597
823
352
2,772
298
11
309
2018
63
36
(2)
1
–
98
December 31, 2019
€ million
Trade receivables
Expected credit loss rate
Provision for expected credit loss
December 31, 2018
€ million
Trade receivables
Expected credit loss rate
Provision for expected credit loss
Current
1,411
0.03%
1
Current
988
0.04%
1
<30 days
198
0.16%
–
30-60 days
208
0.01%
–
<30 days
163
0.29%
–
30-60 days
135
1.60%
2
>60 days
551
20.10%
112
>60 days
409
23.26%
95
160
161
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www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
19 Cash, cash equivalents and other current interest-bearing deposits
€ million
Cash at bank and in hand
Short-term deposits maturing within three months
Cash and cash equivalents
Other current interest-bearing deposits maturing after three months
Cash, cash equivalents and other interest-bearing deposits
2019
2,320
1,742
4,062
2,621
6,683
2018
2,453
1,384
3,837
2,437
6,274
Cash at bank is primarily held in AAA money market funds and bank deposits. Short-term deposits are for periods up to three
months and earn interest based on the floating deposit rates.
At December 31, 2019 the Group had no outstanding bank overdrafts (2018: nil).
Current interest-bearing deposits are made for periods in excess of three months with maturity typically within 12 months and earn
interest based on the market rates available at the time the deposit was made.
At December 31, 2019 Aer Lingus held €41 million of restricted cash (2018: €42 million) within interest-bearing deposits maturing
after more than three months to be used for employee related obligations.
Balance at
January 1,
2019
IFRS 16
opening
adjustment
Cash flows
Exchange
movements
New leases
and
modifications
Balance at
December 31,
2019
Non-cash
1,581
5,928
7,509
(3,837)
(2,437)
1,235
–
5,195
5,195
–
–
5,195
1,556
(1,507)
49
(85)
(103)
(139)
Balance at
January 1,
2018
1,824
5,507
7,331
(3,292)
(3,384)
655
(12)
176
164
(140)
(81)
(57)
–
1,199
1,199
–
–
83
55
138
–
–
1,199
138
3,208
11,046
14,254
(4,062)
(2,621)
7,571
Cash flows
(275)
Exchange
movements
4
Balance at
December 31,
2018
1,581
Non-cash
28
254
(21)
(583)
924
320
134
138
38
23
199
33
61
–
–
61
5,928
7,509
(3,837)
(2,437)
1,235
a Net debt
Movements in net debt were as follows:
€ million
Bank, other loans and asset
financed liabilities
Lease liabilities
Liabilities from financing activities
Cash and cash equivalents
Other current interest-bearing
deposits
€ million
Bank and other loans
Finance leases
Liabilities from financing activities
Cash and cash equivalents
Other current interest-bearing deposits
20 Trade and other payables
€ million
Trade creditors
Other creditors
Other taxation and social security
Accruals and deferred income
2019
2,311
1,099
271
663
4,344
2019
33
32
43
2019
7,165
114
2018
2,079
1,007
332
541
3,959
2018
37
33
119
2018
6,306
317
Average payment days to suppliers – Spanish Group companies
Days
Average payment days for payment to suppliers
Ratio of transactions paid
Ratio of transactions outstanding for payment
€ million
Total payments made
Total payments outstanding
162
162
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
€ million
Cash at bank and in hand
Short-term deposits maturing within three months
Cash and cash equivalents
Other current interest-bearing deposits maturing after three months
Cash, cash equivalents and other interest-bearing deposits
2019
2,320
1,742
4,062
2,621
6,683
2018
2,453
1,384
3,837
2,437
6,274
Cash at bank is primarily held in AAA money market funds and bank deposits. Short-term deposits are for periods up to three
months and earn interest based on the floating deposit rates.
At December 31, 2019 the Group had no outstanding bank overdrafts (2018: nil).
Current interest-bearing deposits are made for periods in excess of three months with maturity typically within 12 months and earn
interest based on the market rates available at the time the deposit was made.
At December 31, 2019 Aer Lingus held €41 million of restricted cash (2018: €42 million) within interest-bearing deposits maturing
after more than three months to be used for employee related obligations.
Balance at
January 1,
2019
IFRS 16
opening
adjustment
Cash flows
movements
modifications
Non-cash
Exchange
New leases
and
Balance at
December 31,
2019
a Net debt
Movements in net debt were as follows:
€ million
Bank, other loans and asset
financed liabilities
Lease liabilities
Liabilities from financing activities
Cash and cash equivalents
Other current interest-bearing
deposits
1,581
5,928
7,509
(3,837)
(2,437)
1,235
5,195
5,195
–
–
–
5,195
€ million
Bank and other loans
Finance leases
Liabilities from financing activities
Cash and cash equivalents
Other current interest-bearing deposits
20 Trade and other payables
€ million
Trade creditors
Other creditors
Other taxation and social security
Accruals and deferred income
Average payment days to suppliers – Spanish Group companies
Days
Average payment days for payment to suppliers
Ratio of transactions paid
Ratio of transactions outstanding for payment
€ million
Total payments made
Total payments outstanding
1,556
(1,507)
49
(85)
(103)
(139)
Balance at
January 1,
2018
1,824
5,507
7,331
(3,292)
(3,384)
655
(12)
176
164
(140)
(81)
(57)
(275)
254
(21)
(583)
924
320
–
1,199
1,199
–
–
4
134
138
38
23
199
1,199
138
Cash flows
Exchange
movements
Non-cash
Balance at
December 31,
83
55
138
–
–
28
33
61
–
–
61
2019
2,311
1,099
271
663
4,344
2019
33
32
43
2019
7,165
114
3,208
11,046
14,254
(4,062)
(2,621)
7,571
2018
1,581
5,928
7,509
(3,837)
(2,437)
1,235
2018
2,079
1,007
332
541
3,959
2018
37
33
119
2018
6,306
317
19 Cash, cash equivalents and other current interest-bearing deposits
21 Deferred revenue on ticket sales
€ million
Balance at January 1, 2019
Changes in estimates
Cash received from customers
Loyalty points issued to customers
Revenue recognised in the income statement1,2
Exchange movements
Balance at December 31, 2019
€ million
Balance at January 1, 2018
Changes in estimates
Cash received from customers
Loyalty points issued to customers
Revenue recognised in the income statement1
Exchange movements
Balance at December 31, 2018
Customer
loyalty
programmes
1,769
6
–
844
(805)
103
1,917
Sales in
advance of
carriage
3,066
(20)
Total
4,835
(14)
23,029
23,029
47
891
(22,691)
(23,496)
138
3,569
241
5,486
Customer
loyalty
programmes
1,752
Sales in
advance of
carriage
2,990
–
–
781
(8)
22,149
–
Total
4,742
(8)
22,149
781
(733)
(22,027)
(22,760)
(31)
1,769
(38)
3,066
(69)
4,835
1 Where the Group acts as an agent in the provision of redemption products and services to customers through loyalty programmes, or in the
provision of interline flights to passengers, revenue is recognised in the income statement net of the related costs.
2 Included within revenue recognised in the Income statement is an amount of €3,361 million previously held as deferred revenue at December 31, 2018.
Deferred revenue relating to customer loyalty programmes consists primarily of revenue allocated to performance obligations
associated with Avios points. Avios points are issued by the Group's airlines through their loyalty programmes, or are sold to third
parties such as credit card providers, who issue them as part of their loyalty programme. Avios points do not have an expiry date
and can be redeemed at any time in the future. Revenue may therefore be recognised at any time in the future. Deferred revenue in
respect of sales in advance of carriage consists of revenue allocated to airline tickets to be used for future travel. Typically these
tickets expire within 12 months after the planned travel date, if they are not used within that time period.
22 Other long-term liabilities
€ million
Non-current trade creditors
Accruals and deferred income
23 Long-term borrowings
a Current
€ million
Bank and other loans
Asset financed liabilities
Lease liabilities (2018: Finance lease obligations)
Interest-bearing long-term borrowings
b Non-current
€ million
Bank and other loans
Asset financed liabilities
Lease liabilities (2018: Finance lease obligations)
Interest-bearing long-term borrowings
2019
6
65
71
2019
75
74
1,694
1,843
2019
1,879
1,180
9,352
12,411
2018
6
192
198
2018
153
–
723
876
2018
1,428
–
5,205
6,633
Banks and other loans are repayable up to the year 2028. Bank and other loans of the Group amounting to €266 million (2018: €354
million) are secured on fleet assets with a net book value of €325 million (2018: €467 million) (note 12). Asset financing liabilities are
all secured on the associated aircraft or property, plant and equipment.
In July 2019, two senior unsecured bonds were issued by the Group for an aggregate principal amount of €1 billion; €500 million
fixed rate 0.50 per cent due in 2023, and €500 million fixed rate 1.50 per cent due in 2027.
During the year the Group early redeemed all of the €500 million 0.25 per cent convertible bonds due in 2020.
162
163
163
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
23 Long-term borrowings continued
c Total long-term borrowings
€ million
Current portion of long-term borrowings
Interest-bearing long-term borrowings
Interest-bearing long-term borrowings
d Bank and other loans
€ million
€500 million fixed rate 0.50 per cent bond 20231
€500 million fixed rate 1.50 per cent bond 20271
€500 million fixed rate 0.625 per cent convertible bond 20222
Floating rate euro mortgage loans secured on aircraft3
€200 million fixed rate unsecured bonds4
Fixed rate unsecured US dollar mortgage loan5
Fixed rate Chinese yuan mortgage loans secured on aircraft6
Fixed rate unsecured euro loans with the Spanish State (Department of Industry)7
€500 million fixed rate 0.25 per cent convertible bond 20208
Floating rate euro syndicate loan secured on investments9
Floating rate pound sterling mortgage loans secured on aircraft10
Less current instalments due on bank and other loans
2019
1,843
12,411
14,254
2019
497
496
470
226
136
71
40
18
–
–
–
1,954
(75)
1,879
2018
876
6,633
7,509
2018
–
–
460
252
175
43
53
13
482
99
4
1,581
(153)
1,428
1
In July 2019, the Group issued two tranches of senior unsecured bonds for an aggregate principal amount of €1 billion, €500 million due July 4, 2023
and €500 million due July 4, 2027. The bonds bear a fixed rate of interest of 0.5 per cent and 1.5 per cent per annum annually payable in arrears,
respectively. The bonds were issued at 99.417 per cent and 98.803 per cent of their principal amount, respectively, and, unless previously redeemed
or purchased and cancelled, will be redeemed at 100 per cent of their principal amount on their respective maturity dates.
2 Senior unsecured bond convertible into ordinary shares of IAG was issued by the Group in November 2015; €500 million fixed rate 0.625 per cent
raising net proceeds of €494 million and due in 2022. The Group holds an option to redeem the convertible bond at its principal amount, together
with accrued interest, no earlier than two years prior to the final maturity date. The bond contains dividend protection and a total of 40,306,653
options related to the bond were outstanding at December 31, 2019.
3 Floating rate euro mortgage loans are secured on specific aircraft assets of the Group and bear interest of between 0.13 and 1.10 per cent. The loans
are repayable between 2024 and 2027.
4 Total of €200 million fixed rate unsecured bonds between 3.5 to 3.75 per cent coupon repayable between 2022 and 2027.
5 Fixed rate unsecured US dollar mortgage loan bearing interest between 1.98 to 2.86 per cent. The loan is repayable in 2023.
6 Fixed rate Chinese yuan mortgage loans are secured on specific aircraft assets of the Group and bear interest of 5.20 per cent. The loans are
repayable in 2022.
7 Fixed rate unsecured euro loans with the Spanish State (Department of Industry) bear interest of between nil and 5.68 per cent and are repayable
between 2020 and 2028.
8 Senior unsecured bond convertible into ordinary shares of IAG issued in November 2015; €500 million fixed rate 0.25% raising net proceeds of €494
million and due in 2020. The Group held an option to redeem the bond at its principal amount, together with accrued interest, no earlier than two
years prior to the final maturity date. The Group exercised its option to early redeem the bond in July 2019 with no conversion to ordinary shares.
9 Floating rate euro syndicate loan secured on specific investment assets of the Group and bears interest of 1.375 per cent above 3 month EURIBOR.
The loan was repaid in 2019.
10 Floating rate pound sterling mortgage loans are secured on specific aircraft assets of the Group and bear interest of 0.81 per cent. The loans were
repaid in 2019.
164
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
23 Long-term borrowings continued
c Total long-term borrowings
€ million
Current portion of long-term borrowings
Interest-bearing long-term borrowings
Interest-bearing long-term borrowings
d Bank and other loans
€ million
€500 million fixed rate 0.50 per cent bond 20231
€500 million fixed rate 1.50 per cent bond 20271
€500 million fixed rate 0.625 per cent convertible bond 20222
Floating rate euro mortgage loans secured on aircraft3
€200 million fixed rate unsecured bonds4
Fixed rate unsecured US dollar mortgage loan5
Fixed rate Chinese yuan mortgage loans secured on aircraft6
Fixed rate unsecured euro loans with the Spanish State (Department of Industry)7
€500 million fixed rate 0.25 per cent convertible bond 20208
Floating rate euro syndicate loan secured on investments9
Floating rate pound sterling mortgage loans secured on aircraft10
Less current instalments due on bank and other loans
2019
1,843
12,411
14,254
2019
497
496
470
226
136
71
40
18
–
–
–
1,954
(75)
1,879
2018
876
6,633
7,509
2018
–
–
460
252
175
43
53
13
482
99
4
1,581
(153)
1,428
1
In July 2019, the Group issued two tranches of senior unsecured bonds for an aggregate principal amount of €1 billion, €500 million due July 4, 2023
and €500 million due July 4, 2027. The bonds bear a fixed rate of interest of 0.5 per cent and 1.5 per cent per annum annually payable in arrears,
respectively. The bonds were issued at 99.417 per cent and 98.803 per cent of their principal amount, respectively, and, unless previously redeemed
or purchased and cancelled, will be redeemed at 100 per cent of their principal amount on their respective maturity dates.
2 Senior unsecured bond convertible into ordinary shares of IAG was issued by the Group in November 2015; €500 million fixed rate 0.625 per cent
raising net proceeds of €494 million and due in 2022. The Group holds an option to redeem the convertible bond at its principal amount, together
with accrued interest, no earlier than two years prior to the final maturity date. The bond contains dividend protection and a total of 40,306,653
options related to the bond were outstanding at December 31, 2019.
3 Floating rate euro mortgage loans are secured on specific aircraft assets of the Group and bear interest of between 0.13 and 1.10 per cent. The loans
are repayable between 2024 and 2027.
4 Total of €200 million fixed rate unsecured bonds between 3.5 to 3.75 per cent coupon repayable between 2022 and 2027.
5 Fixed rate unsecured US dollar mortgage loan bearing interest between 1.98 to 2.86 per cent. The loan is repayable in 2023.
6 Fixed rate Chinese yuan mortgage loans are secured on specific aircraft assets of the Group and bear interest of 5.20 per cent. The loans are
7 Fixed rate unsecured euro loans with the Spanish State (Department of Industry) bear interest of between nil and 5.68 per cent and are repayable
8 Senior unsecured bond convertible into ordinary shares of IAG issued in November 2015; €500 million fixed rate 0.25% raising net proceeds of €494
million and due in 2020. The Group held an option to redeem the bond at its principal amount, together with accrued interest, no earlier than two
years prior to the final maturity date. The Group exercised its option to early redeem the bond in July 2019 with no conversion to ordinary shares.
9 Floating rate euro syndicate loan secured on specific investment assets of the Group and bears interest of 1.375 per cent above 3 month EURIBOR.
10 Floating rate pound sterling mortgage loans are secured on specific aircraft assets of the Group and bear interest of 0.81 per cent. The loans were
repayable in 2022.
between 2020 and 2028.
The loan was repaid in 2019.
repaid in 2019.
e Total loans, asset financed liabilities and lease liabilities
Million
Loans
Bank:
US dollar
Euro
Pound sterling
Chinese yuan
Fixed rate bonds:
Euro
Asset financed liabilities
US dollar
Euro
Japanese yen
Lease liabilities (2018: finance leases)
US dollar
Euro
Japanese yen
Pound sterling
24 Provisions
€ million
Net book value January 1, 2019
Transition to IFRS 16
Net book value January 1, 2019
Reclassifications
Provisions recorded during the year
Utilised during the year
Release of unused amounts
Unwinding of discount
Exchange differences
Net book value December 31, 2019
Analysis:
Current
Non-current
2019
2018
$79
€380
–
$49
€364
£4
CNY 314
CNY 422
€491
€465
€1,463
€1,463
€1,116
€1,116
$996
€319
¥4,867
€1,254
–
–
–
–
$8,408
€2,142
$3,259
€2,308
¥77,984
¥77,379
£597
€11,046
£134
€5,928
€14,254
€7,509
Restoration
and
handback
provisions
1,359
Restructuring
provisions
693
Employee
leaving
indemnities
and other
employee
related
provisions
591
Legal claims
provisions
112
Other
provisions
72
120
1,479
–
395
(224)
(28)
14
39
1,675
259
1,416
1,675
–
693
–
26
(180)
(21)
4
6
528
202
326
528
–
591
–
133
(76)
(2)
18
–
664
58
606
664
–
112
–
34
(58)
(9)
1
2
82
46
36
82
–
72
(31)
110
(50)
(7)
–
4
98
66
32
98
Total
2,827
120
2,947
(31)
698
(588)
(67)
37
51
3,047
631
2,416
3,047
Restoration and handback provisions
The provision for restoration and handback costs is maintained to meet the contractual maintenance and return conditions on
aircraft held under lease. The provision also includes an amount relating to leased land and buildings where restoration costs are
contractually required at the end of the lease. Such costs are capitalised within ROU assets. The provision is long-term in nature,
typically covering the leased asset term, which for aircraft is up to 12 years.
164
165
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www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
24 Provisions continued
Restructuring provisions
The restructuring provision includes provisions for voluntary redundancies including the collective redundancy programme for
Iberia's Transformation Plan, which provides for payments to affected employees until they reach the statutory retirement age. The
amount provided for has been determined by an actuarial valuation made by independent actuaries, and was based on the same
assumptions as those made to determine the provisions for obligations to flight crew below, with the exception of the discount rate,
which in this case was 0.00 per cent. The payments related to this provision will continue over next nine years. The restructuring
provision also includes a provision recognised in 2018 in relation to restructuring plans at British Airways. The payments related to
this provision will be made over a maximum of five years.
At December 31, 2019, €513 million of this provision related to collective redundancy programmes (2018: €682 million).
Employee leaving indemnities and other employee related provisions
This provision includes employees leaving indemnities relating to staff under various contractual arrangements.
The Group recognises a provision relating to flight crew who having met certain conditions, have the option of being placed on
reserve and retaining their employment relationship until reaching the statutory retirement age, or taking early retirement. The
Group is required to remunerate these employees until they reach the statutory retirement age, and an initial provision was
recognised based on an actuarial valuation. The provision was reviewed at December 31, 2019 with the use of independent actuaries
using the projected unit credit method, based on a discount rate consistent with the iBoxx index of 0.59 per cent and 0.00 per cent
(2018: iBoxx index of 1.59 per cent and 0.39 per cent) depending on whether the employees are currently active or not, the
PERM/F-2000P mortality tables, and assuming a 1.50 per cent annual increase in the Consumer Price Index (CPI). This is mainly a
long-term provision. The amount relating to this provision was €600 million at December 31, 2019 (2018: €523 million).
Legal claims provisions
Legal claims provisions include:
• Amounts for multi-party claims from groups or employees on a number of matters related to its operations, including claims for
additional holiday pay and for age discrimination; and
• Amounts related to investigations by a number of competition authorities in connection with alleged anti-competitive activity
concerning the Group’s passenger and cargo businesses.
The final amount required to pay the remaining claims and fines is subject to uncertainty (note 31).
Other provisions
Other provisions include a provision for the Emissions Trading Scheme for CO2 emitted on flights within the EU in excess of the EU
Emission Allowances granted.
Reclassifications from other provisions relate to the movement of the provision arising from costs the Group incurs in relation to
compensation for flight delays and cancellations into accruals and deferred income within trade payables.
25 Financial risk management objectives and policies
The Group is exposed to a variety of financial risks: market risk (including fuel price risk, foreign currency risk and interest rate risk),
counterparty risk and liquidity risk. Further information on the Group’s financial instruments exposure to these risks is disclosed on
note 26. The Board approves the key strategic principles and the risk appetite, defining the amount of risk that the Group is
prepared to retain. The Group's Financial Risk Management programme focuses on the unpredictability of financial markets and
seeks to minimise the risk of incremental costs arising from adverse financial markets movements.
The Group Treasury department is responsible for the oversight of the Financial Risk Management programme. Fuel price
fluctuations, euro-US dollar and sterling-US dollar exchange rate volatility represents the largest financial risks facing the Group.
Other foreign exchange currencies and interest rate risks are also the subject of the Financial Risk Management. The IAG Audit and
Compliance Committee approves the Group hedging profile and delegates to the operating company Risk Committee to agree on
the degree of flexibility in applying the approved hedging levels. Each operating company Risk Committee meets at least once a
month to review and approve a mandate to place hedging cover in the market including the instruments to be used.
The Group Treasury Committee provides a quarterly report on the hedging position to the IAG Management Committee and the
Audit and Compliance Committee. The Board reviews the strategy and risk appetite once a year.
a Fuel price risk
The Group is exposed to fuel price risk. The Group’s fuel price risk management strategy aims to provide protection against sudden
and significant increases in fuel prices while ensuring that the Group is not competitively disadvantaged in the event of a substantial
fall in the price. The Group Treasury Policies determine the list of approved over the counter (OTC) derivative instruments that can
contracted with approved counterparties.
The Group strategy is to hedge a proportion of fuel consumption up to three years within the approved hedging profile.
166
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
24 Provisions continued
Restructuring provisions
The restructuring provision includes provisions for voluntary redundancies including the collective redundancy programme for
Iberia's Transformation Plan, which provides for payments to affected employees until they reach the statutory retirement age. The
amount provided for has been determined by an actuarial valuation made by independent actuaries, and was based on the same
assumptions as those made to determine the provisions for obligations to flight crew below, with the exception of the discount rate,
which in this case was 0.00 per cent. The payments related to this provision will continue over next nine years. The restructuring
provision also includes a provision recognised in 2018 in relation to restructuring plans at British Airways. The payments related to
this provision will be made over a maximum of five years.
At December 31, 2019, €513 million of this provision related to collective redundancy programmes (2018: €682 million).
Employee leaving indemnities and other employee related provisions
This provision includes employees leaving indemnities relating to staff under various contractual arrangements.
The Group recognises a provision relating to flight crew who having met certain conditions, have the option of being placed on
reserve and retaining their employment relationship until reaching the statutory retirement age, or taking early retirement. The
Group is required to remunerate these employees until they reach the statutory retirement age, and an initial provision was
recognised based on an actuarial valuation. The provision was reviewed at December 31, 2019 with the use of independent actuaries
using the projected unit credit method, based on a discount rate consistent with the iBoxx index of 0.59 per cent and 0.00 per cent
(2018: iBoxx index of 1.59 per cent and 0.39 per cent) depending on whether the employees are currently active or not, the
PERM/F-2000P mortality tables, and assuming a 1.50 per cent annual increase in the Consumer Price Index (CPI). This is mainly a
long-term provision. The amount relating to this provision was €600 million at December 31, 2019 (2018: €523 million).
Legal claims provisions
Legal claims provisions include:
• Amounts for multi-party claims from groups or employees on a number of matters related to its operations, including claims for
additional holiday pay and for age discrimination; and
• Amounts related to investigations by a number of competition authorities in connection with alleged anti-competitive activity
concerning the Group’s passenger and cargo businesses.
The final amount required to pay the remaining claims and fines is subject to uncertainty (note 31).
Other provisions
Emission Allowances granted.
Other provisions include a provision for the Emissions Trading Scheme for CO2 emitted on flights within the EU in excess of the EU
Reclassifications from other provisions relate to the movement of the provision arising from costs the Group incurs in relation to
compensation for flight delays and cancellations into accruals and deferred income within trade payables.
25 Financial risk management objectives and policies
The Group is exposed to a variety of financial risks: market risk (including fuel price risk, foreign currency risk and interest rate risk),
counterparty risk and liquidity risk. Further information on the Group’s financial instruments exposure to these risks is disclosed on
note 26. The Board approves the key strategic principles and the risk appetite, defining the amount of risk that the Group is
prepared to retain. The Group's Financial Risk Management programme focuses on the unpredictability of financial markets and
seeks to minimise the risk of incremental costs arising from adverse financial markets movements.
The Group Treasury department is responsible for the oversight of the Financial Risk Management programme. Fuel price
fluctuations, euro-US dollar and sterling-US dollar exchange rate volatility represents the largest financial risks facing the Group.
Other foreign exchange currencies and interest rate risks are also the subject of the Financial Risk Management. The IAG Audit and
Compliance Committee approves the Group hedging profile and delegates to the operating company Risk Committee to agree on
the degree of flexibility in applying the approved hedging levels. Each operating company Risk Committee meets at least once a
month to review and approve a mandate to place hedging cover in the market including the instruments to be used.
The Group Treasury Committee provides a quarterly report on the hedging position to the IAG Management Committee and the
Audit and Compliance Committee. The Board reviews the strategy and risk appetite once a year.
a Fuel price risk
The Group is exposed to fuel price risk. The Group’s fuel price risk management strategy aims to provide protection against sudden
and significant increases in fuel prices while ensuring that the Group is not competitively disadvantaged in the event of a substantial
fall in the price. The Group Treasury Policies determine the list of approved over the counter (OTC) derivative instruments that can
contracted with approved counterparties.
The Group strategy is to hedge a proportion of fuel consumption up to three years within the approved hedging profile.
The following table demonstrates the sensitivity of financial instruments to a reasonable possible change in fuel prices, with all other
variables held constant, on result before tax and equity:
Increase/(decrease)
in fuel price
per cent
30
(30)
2019
Effect on result
before tax
€ million
–
–
b Foreign currency risk
Effect on
equity
€ million
1,774
(1,824)
Increase/(decrease)
in fuel price
per cent
30
(30)
2018
Effect on result
before tax
€ million
–
(3)
Effect on
equity
€ million
1,613
(1,695)
The Group presents its consolidated financial statements in euros, has subsidiaries with functional currencies in euro and pound
sterling, and conducts business in a number of different countries. Consequently the Group is exposed to currency risk on revenue,
purchases and borrowings that are denominated in a currency other than the functional currency of the entity. The currencies in
which these transactions are denominated are primarily euro, US dollar and pound sterling. The Group generates a surplus in most
currencies in which it does business. The US dollar is an exception as fuel purchases, maintenance expenses and debt repayments
denominated in US dollars typically create a deficit.
The Group has a number of strategies to hedge foreign currency risk. The operational US dollar short position is subject to the same
governance structure as the fuel hedging strategy set out above. The Group strategy is to hedge a proportion of up to three years
within the approved hedging profile.
Each operating company hedges its net balance sheet assets and liabilities in US dollars through a rolling hedging programme using
a number of derivative instruments to minimise the profit and loss volatility arising from revaluation of these items into its functional
currency. British Airways utilises its euro, Japanese yen and Chinese yuan debt repayments as a hedge of future euro, Japanese yen
and Chinese yuan revenues.
The following table demonstrates the sensitivity of the Group’s principal foreign exchange exposure to a reasonable possible
change in the US dollar, pound sterling and Japanese yen exchange rates, with all other variables held constant, on result before tax
and equity:
Strengthening/
(weakening) in
US dollar rate
per cent
10
Effect on
result before
tax
€ million
22
Effect on
equity
€ million
388
Strengthening/
(weakening)
in pound
sterling rate
per cent
10
Effect on
result before
tax
€ million
(23)
(10)
–
(365)
(10)
20
10
(10)
(16)
18
(9)
91
10
(10)
(40)
41
Strengthening/
(weakening) in
Japanese yen
rate
per cent
10
Effect on
result
before tax
€ million
(1)
(10)
10
(10)
2
(6)
1
Effect on
equity
€ million
(178)
171
262
(273)
Effect on
equity
€ million
(58)
58
(54)
54
2019
2018
c Interest rate risk
The Group is exposed to changes in interest rates on debt and on cash deposits.
Interest rate risk on floating rate debt is managed through interest rate swaps, cross currency swaps and interest rate collars. After
taking into account the impact of these derivatives, 88 per cent of the Group's borrowings were at fixed rates and 12 per cent were
at floating rates.
All cash deposits are generally on tenors less than one year. The interest rate is predominantly fixed for the tenor of the deposit.
The following table demonstrates the sensitivity of the Group’s interest rate exposure to a reasonable possible change in the US
dollar, euro and sterling interest rates, on result before tax and equity:
Strengthening/
(weakening) in
US interest
rate
Basis points
50
Effect on
result
before tax
€ million
–
(50)
50
(50)
–
(1)
1
Strengthening/
(weakening) in
euro interest
rate
Basis points
50
Effect on
result
before tax
€ million
(2)
(50)
50
(50)
2
2
(2)
Effect on
equity
€ million
19
(19)
20
(20)
Effect on
equity
€ million
16
(13)
16
(25)
Strengthening/
(weakening) in
sterling
interest
rate
Basis points
50
Effect on
result
before tax
€ million
2
Effect on
equity
€ million
–
(50)
50
(50)
(2)
2
(2)
–
–
–
2019
2018
d Counterparty risk
The Group is exposed to the non-performance by its counterparties in respect of financial assets receivable. The Group has policies
and procedures to monitor the risk by assigning limits to each counterparty by underlying exposure and by operating company.
The underlying exposures are monitored on a daily basis and the overall exposure limit by counterparty is periodically reviewed by
using available market information.
The financial assets recognised in the financial statements, net of impairment losses (if any), represent the Group's maximum
exposure to credit risk, without taking account any guarantees in place or other credit enhancements.
166
167
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www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
25 Financial risk management objectives and policies continued
At December 31, 2019 the Group’s credit risk position, allocated by region, in respect of treasury managed cash and derivatives was
as follows:
Region
United Kingdom
Spain
Ireland
Rest of Eurozone
Rest of world
e Liquidity risk
Mark-to-market of treasury
controlled financial
instruments allocated by
geography
2019
41%
2018
42%
3%
3%
30%
23%
-
3%
33%
22%
The Group invests cash in interest-bearing accounts, time deposits and money market funds, choosing instruments with appropriate
maturities or liquidity to retain sufficient headroom to readily generate cash inflows required to manage liquidity risk. The Group has
also committed revolving credit facilities.
At December 31, 2019 the Group had undrawn overdraft facilities of €13 million (2018: €11 million). The Group held undrawn
uncommitted money market lines of €nil (2018: €28 million).
The Group held undrawn general and committed aircraft financing facilities:
Million
Euro facilities expiring between February and October 2020
US dollar facility expiring December 2021
US dollar facility expiring June 2020
Million
Euro facilities expiring between January and June 2020
US dollar facility expiring December 2021
US dollar facility expiring June 2022
2019
Currency € equivalent
129
€129
$652
$1,330
587
1,196
2018
Currency € equivalent
131
€131
$1,164
$1,044
1,024
918
The following table analyses the Group’s (outflows) and inflows in respect of financial liabilities and derivative financial instruments
into relevant maturity groupings based on the remaining period at December 31 to the contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows and include interest.
€ million
Interest-bearing loans and borrowings:
Asset financing liabilities
Lease liabilities
Fixed rate borrowings
Floating rate borrowings
Trade and other payables
Derivative financial instruments (assets):
Interest rate swaps
Forward contracts
Fuel derivatives
Derivative financial instruments (liabilities):
Interest rate swaps
Forward contracts
Fuel derivatives
December 31, 2019
Within 6
months
6-12
months
1-2
years
2-5
years
More than 5
years
Total
2019
(56)
(1,073)
(20)
(13)
(3,881)
1
115
66
(9)
(47)
(61)
(49)
(957)
(31)
(17)
–
1
116
25
(19)
(43)
(73)
(95)
(1,753)
(46)
(30)
1
1
157
12
(18)
(62)
(90)
(289)
(4,505)
(1,158)
(110)
(988)
(6,289)
(599)
(67)
–
2
96
2
(22)
(86)
(11)
–
–
–
–
(1)
–
–
(1,477)
(14,577)
(1,854)
(237)
(3,880)
5
484
105
(69)
(238)
(235)
(4,978)
(1,047)
(1,923)
(6,081)
(7,944)
(21,973)
168
168
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
25 Financial risk management objectives and policies continued
At December 31, 2019 the Group’s credit risk position, allocated by region, in respect of treasury managed cash and derivatives was
as follows:
United Kingdom
Region
Spain
Ireland
Rest of Eurozone
Rest of world
e Liquidity risk
Mark-to-market of treasury
controlled financial
instruments allocated by
geography
2019
41%
3%
3%
30%
23%
2018
42%
-
3%
33%
22%
2019
Currency € equivalent
€129
$652
$1,330
€131
$1,164
$1,044
129
587
1,196
131
1,024
918
2018
Currency € equivalent
The Group invests cash in interest-bearing accounts, time deposits and money market funds, choosing instruments with appropriate
maturities or liquidity to retain sufficient headroom to readily generate cash inflows required to manage liquidity risk. The Group has
also committed revolving credit facilities.
At December 31, 2019 the Group had undrawn overdraft facilities of €13 million (2018: €11 million). The Group held undrawn
uncommitted money market lines of €nil (2018: €28 million).
The Group held undrawn general and committed aircraft financing facilities:
Euro facilities expiring between February and October 2020
US dollar facility expiring December 2021
US dollar facility expiring June 2020
Million
Million
Euro facilities expiring between January and June 2020
US dollar facility expiring December 2021
US dollar facility expiring June 2022
The following table analyses the Group’s (outflows) and inflows in respect of financial liabilities and derivative financial instruments
into relevant maturity groupings based on the remaining period at December 31 to the contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows and include interest.
Within 6
months
6-12
months
1-2
years
2-5
years
More than 5
years
Total
2019
€ million
Interest-bearing loans and borrowings:
Asset financing liabilities
Lease liabilities
Fixed rate borrowings
Floating rate borrowings
Trade and other payables
Derivative financial instruments (assets):
Derivative financial instruments (liabilities):
Interest rate swaps
Forward contracts
Fuel derivatives
Interest rate swaps
Forward contracts
Fuel derivatives
December 31, 2019
(289)
(4,505)
(1,158)
(110)
(988)
(6,289)
(599)
(67)
(56)
(1,073)
(20)
(13)
(3,881)
1
115
66
(9)
(47)
(61)
(49)
(957)
(31)
(17)
–
1
116
25
(19)
(43)
(73)
(95)
(1,753)
(46)
(30)
1
1
157
12
(18)
(62)
(90)
–
2
96
2
(22)
(86)
(11)
(1,477)
(14,577)
(1,854)
(237)
(3,880)
5
484
105
(69)
(238)
(235)
–
–
–
–
(1)
–
–
(4,978)
(1,047)
(1,923)
(6,081)
(7,944)
(21,973)
€ million
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Trade and other payables
Derivative financial instruments (assets):
Interest rate derivatives
Foreign exchange contracts
Fuel derivatives
Derivative financial instruments (liabilities):
Interest rate derivatives
Foreign exchange contracts
Fuel derivatives
December 31, 2018
f Offsetting financial assets and liabilities
Within 6
months
6-12
months
(509)
(53)
(18)
(3,591)
11
69
23
(18)
(16)
(367)
(18)
(67)
–
2
58
18
(7)
(8)
1-2
years
(882)
(533)
(80)
(13)
2
122
15
(13)
(18)
(342)
(4,444)
(290)
(679)
(270)
(1,670)
2-5
years
More than 5
years
Total
2018
(2,304)
(2,642)
(645)
(93)
–
6
72
1
(16)
(16)
(110)
(58)
(118)
–
4
–
–
(1)
–
–
(3,105)
(2,815)
(6,704)
(1,307)
(376)
(3,604)
25
321
57
(55)
(58)
(1,012)
(12,713)
The Group enters into derivative transactions under ISDA (International Swaps and Derivatives Association) documentation. In
general, under such agreements the amounts owed by each counterparty on a single day in respect of all transactions outstanding
are aggregated into a single net amount that is payable by one party to the other.
The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements and similar
agreements.
December 31, 2019
€ million
Financial assets
Derivative financial assets
Financial liabilities
Derivative financial liabilities
December 31, 2018
€ million
Financial assets
Derivative financial assets
Financial liabilities
Derivative financial liabilities
g Capital risk management
Financial
instruments
that are
offset under
netting
agreements
Net amounts
of financial
instruments
in the
balance
sheet
Related
amounts not
offset in the
balance
sheet
Gross value
of financial
instruments
Net amount
550
42
592
(9)
583
580
(42)
538
(9)
529
Financial
instruments
that are
offset under
netting
agreements
Net amounts
of financial
instruments
in the
balance
sheet
Related
amounts not
offset in the
balance
sheet
Gross value
of financial
instruments
Net amount
363
13
376
(7)
369
1,092
(13)
1,079
(7)
1,072
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern to maintain an
optimal capital structure, to reduce the cost of capital and to provide returns to shareholders.
The Group monitors capital on the basis of the net debt to EBITDA ratio. For the year to December 31, 2019, the net debt to EBITDA
was 1.4 times (2018 pro forma: 1.2 times). The definition and calculation for this performance measure is included in the Alternative
performance measures section.
Further detail on liquidity and capital resources and capital risk management is disclosed in the financial review.
168
169
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www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
26 Financial instruments
a Financial assets and liabilities by category
The detail of the Group’s financial instruments at December 31, 2019 and December 31, 2018 by nature and classification for
measurement purposes is as follows:
December 31, 2019
€ million
Non-current assets
Other equity investments
Derivative financial instruments
Other non-current assets
Current assets
Trade receivables
Other current assets
Derivative financial instruments
Other current interest-bearing deposits
Cash and cash equivalents
€ million
Non-current liabilities
Lease liabilities
Interest-bearing long-term borrowings
Derivative financial instruments
Other long-term liabilities
Current liabilities
Lease liabilities
Current portion of long-term borrowings
Trade and other payables
Derivative financial instruments
December 31, 2018
€ million
Non-current assets
Other equity investments
Derivative financial instruments
Other non-current assets
Current assets
Trade receivables
Other current assets
Derivative financial instruments
Other current interest-bearing deposits
Cash and cash equivalents
Financial assets
Amortised
cost
Fair value
through Other
comprehensive
income
Fair value
through
Income
statement
Non-financial
assets
–
–
133
2,255
414
–
2,621
4,062
82
–
–
–
–
–
–
–
–
268
–
–
–
324
–
–
–
–
140
–
900
–
–
–
Financial liabilities
Amortised
cost
Fair value
through Other
comprehensive
income
Fair value
through
Income
statement
Non-
financial
liabilities
9,352
3,059
–
12
1,694
149
3,881
–
–
–
–
–
–
–
–
–
–
–
286
–
–
–
–
252
–
–
–
59
–
–
463
–
Total
carrying
amount by
balance
sheet
item
82
268
273
2,255
1,314
324
2,621
4,062
Total
carrying
amount by
balance
sheet
item
9,352
3,059
286
71
1,694
149
4,344
252
Financial assets
Amortised
cost
Fair value
through Other
comprehensive
income
Fair value
through
income
statement
Non-financial
assets
Total
carrying
amount by
balance
sheet item
–
–
154
1,597
444
–
2,437
3,837
80
–
–
–
–
–
–
–
–
221
–
–
–
155
–
–
–
–
155
–
731
–
–
–
80
221
309
1,597
1,175
155
2,437
3,837
170
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
26 Financial instruments
a Financial assets and liabilities by category
measurement purposes is as follows:
The detail of the Group’s financial instruments at December 31, 2019 and December 31, 2018 by nature and classification for
Financial assets
Amortised
cost
Fair value
through Other
comprehensive
income
Fair value
through
Income
statement
Non-financial
assets
December 31, 2019
€ million
Non-current assets
Other equity investments
Derivative financial instruments
Other non-current assets
Current assets
Trade receivables
Other current assets
Derivative financial instruments
Other current interest-bearing deposits
Cash and cash equivalents
€ million
Non-current liabilities
Lease liabilities
Interest-bearing long-term borrowings
Derivative financial instruments
Other long-term liabilities
Current liabilities
Lease liabilities
Current portion of long-term borrowings
Trade and other payables
Derivative financial instruments
December 31, 2018
€ million
Non-current assets
Other equity investments
Derivative financial instruments
Other non-current assets
Current assets
Trade receivables
Other current assets
Derivative financial instruments
Other current interest-bearing deposits
Cash and cash equivalents
Financial liabilities
Amortised
cost
Fair value
through Other
comprehensive
income
Fair value
through
Income
statement
Non-
financial
liabilities
Total
carrying
amount by
balance
sheet
item
82
268
273
2,255
1,314
324
2,621
4,062
Total
carrying
amount by
balance
sheet
item
9,352
3,059
286
71
1,694
149
4,344
252
80
221
309
1,597
1,175
155
2,437
3,837
140
900
–
–
–
–
–
–
–
–
–
59
–
–
–
463
–
–
155
731
–
–
–
–
82
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
80
–
–
–
–
–
–
–
268
324
–
–
–
–
–
–
–
–
–
–
–
–
286
252
221
–
–
155
–
–
–
–
–
–
133
2,255
414
–
2,621
4,062
9,352
3,059
–
12
1,694
149
3,881
–
–
–
154
1,597
444
–
2,437
3,837
Financial assets
Amortised
cost
Fair value
through Other
comprehensive
income
Fair value
through
income
statement
Non-financial
assets
Total
carrying
amount by
balance
sheet item
€ million
Non-current liabilities
Interest-bearing long-term borrowings
Derivative financial instruments
Other long-term liabilities
Current liabilities
Current portion of long-term borrowings
Trade and other payables
Derivative financial instruments
Financial liabilities
Amortised
cost
Fair value
through Other
comprehensive
income
Fair value
through
Income
statement
Non-
financial
liabilities
6,633
–
13
876
3,591
–
–
–
–
–
–
–
–
423
–
–
–
656
–
–
185
–
368
–
Total
carrying
amount by
balance
sheet
item
6,633
423
198
876
3,959
656
b Fair value of financial assets and financial liabilities
The fair values of the Group’s financial instruments are disclosed in hierarchy levels depending on the nature of the inputs used in
determining the fair values and using the following methods and assumptions:
Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. A market is regarded as active if quoted
prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and
those prices represent actual and regularly occurring market transactions on an arm’s length basis. Level 1 methodologies (market
values at the balance sheet date) were used to determine the fair value of listed asset investments classified as equity investments
and listed interest-bearing borrowings.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly. The fair value of financial instruments that are not traded in an active market is determined by valuation techniques. These
valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific
estimates. Derivative instruments are measured based on the market value of instruments with similar terms and conditions at the
balance sheet date using forward pricing models. Counterparty and own credit risk is deemed to be not significant. The fair value of
the Group’s interest-bearing borrowings including leases is determined by discounting the remaining contractual cash flows at the
relevant market interest rates at the balance sheet date.
Level 3: Inputs for the asset or liability that are not based on observable market data.
The fair value of cash and cash equivalents, other current interest-bearing deposits, trade receivables, other current assets and trade
and other payables approximate their carrying value largely due to the short-term maturities of these instruments.
The carrying amounts and fair values of the Group’s financial assets and liabilities at December 31, 2019 are as follows:
€ million
Financial assets
Other equity investments
Derivative financial assets:
Interest rate swaps1
Foreign exchange contracts1
Fuel derivatives1
Financial liabilities
Interest-bearing loans and borrowings:
Asset financed liabilities
Fixed rate borrowings
Floating rate borrowings
Derivative financial liabilities:
Interest rate derivatives2
Foreign exchange contracts2
Fuel derivatives2
1 Current portion of derivative financial assets is €324 million
2 Current portion of derivative financial liabilities is €252 million
Level 1
Level 2
Level 3
Total
Fair value
Carrying
value
Total
10
–
–
–
–
1,640
–
–
–
–
–
1
488
103
1,623
136
226
67
240
231
72
82
–
–
–
–
–
–
–
–
–
1
488
103
1,623
1,776
226
67
240
231
82
1
488
103
1,254
1,728
226
67
240
231
170
171
171
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
26 Financial instruments continued
The carrying amounts and fair values of the Group’s financial assets and liabilities at December 31, 2018 are set out below:
€ million
Financial assets
Equity investments
Derivative financial assets:
Interest rate derivatives1
Foreign exchange contracts1
Fuel derivatives1
Financial liabilities
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Derivative financial liabilities:
Forward currency contracts2
Foreign exchange contracts2
Fuel derivatives2
Level 1
Level 2
Level 3
Total
Fair value
17
–
–
–
–
1,096
–
–
–
–
–
12
321
43
6,086
113
355
43
54
982
63
–
–
–
–
–
–
–
–
–
80
12
321
43
6,086
1,209
355
43
54
982
Carrying
value
Total
80
12
321
43
5,928
1,226
355
43
54
982
1 Current portion of derivative financial assets is €155 million.
2 Current portion of derivative financial liabilities is €656 million.
There have been no transfers between levels of fair value hierarchy during the year.
The financial instruments listed in the previous table are measured at fair value in the consolidated financial statements, with the
exception of interest-bearing borrowings, which are measured at amortised cost.
c Level 3 financial assets reconciliation
The following table summarises key movements in Level 3 financial assets:
€ million
Opening balance for the year
Additions
Exchange movements
Closing balance for the year
d Hedges
Cash flow hedges
2019
63
6
3
72
2018
56
8
(1)
63
At December 31, 2019 the Group’s principal risk management activities that were hedging future forecast transactions were:
• Future loan repayments in foreign currency (predominantly US dollar loan repayments), hedging foreign exchange fluctuations
on revenue cash inflows. Remeasurement gains and losses on the loans are recognised in equity and transferred to the income
statement within revenue when the loan is repaid (generally in instalments over the life of the loan).
• Foreign exchange contracts, hedging foreign currency exchange risk on revenue cash inflows and certain operational payments.
Remeasurement gains and losses on the derivatives are recognised in equity and transferred to the income statement or balance
sheet to match against the related cash inflow or outflow.
• Forward crude, gas oil and jet kerosene derivative contracts, hedging price risk on fuel expenditure. Remeasurement gains and
losses on the derivatives are recognised in equity and transferred to the income statement within fuel, oil costs and emissions
charges to match against the related fuel cash outflow.
• Interest rate contracts, hedging interest rate risk on floating rate debt and certain operational payments.
172
172
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
26 Financial instruments continued
The carrying amounts and fair values of the Group’s financial assets and liabilities at December 31, 2018 are set out below:
Level 1
Level 2
Level 3
Total
Fair value
17
–
–
–
–
–
–
–
–
1,096
–
12
321
43
6,086
113
355
43
54
982
Carrying
value
Total
80
12
321
43
5,928
1,226
355
43
54
982
63
–
–
–
–
–
–
–
–
–
80
12
321
43
6,086
1,209
355
43
54
982
€ million
Financial assets
Equity investments
Derivative financial assets:
Interest rate derivatives1
Foreign exchange contracts1
Fuel derivatives1
Financial liabilities
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Derivative financial liabilities:
Forward currency contracts2
Foreign exchange contracts2
Fuel derivatives2
Opening balance for the year
€ million
Additions
Exchange movements
Closing balance for the year
d Hedges
Cash flow hedges
1 Current portion of derivative financial assets is €155 million.
2 Current portion of derivative financial liabilities is €656 million.
There have been no transfers between levels of fair value hierarchy during the year.
The financial instruments listed in the previous table are measured at fair value in the consolidated financial statements, with the
exception of interest-bearing borrowings, which are measured at amortised cost.
c Level 3 financial assets reconciliation
The following table summarises key movements in Level 3 financial assets:
2019
63
6
3
72
2018
56
8
(1)
63
At December 31, 2019 the Group’s principal risk management activities that were hedging future forecast transactions were:
• Future loan repayments in foreign currency (predominantly US dollar loan repayments), hedging foreign exchange fluctuations
on revenue cash inflows. Remeasurement gains and losses on the loans are recognised in equity and transferred to the income
statement within revenue when the loan is repaid (generally in instalments over the life of the loan).
• Foreign exchange contracts, hedging foreign currency exchange risk on revenue cash inflows and certain operational payments.
Remeasurement gains and losses on the derivatives are recognised in equity and transferred to the income statement or balance
sheet to match against the related cash inflow or outflow.
• Forward crude, gas oil and jet kerosene derivative contracts, hedging price risk on fuel expenditure. Remeasurement gains and
losses on the derivatives are recognised in equity and transferred to the income statement within fuel, oil costs and emissions
charges to match against the related fuel cash outflow.
• Interest rate contracts, hedging interest rate risk on floating rate debt and certain operational payments.
The amounts included in equity including the periods over which the related cash flows are expected to occur are
summarised below:
(Gains)/losses in respect of cash flow hedges included within equity
€ million
Loan repayments to hedge future revenue
Foreign exchange contracts to hedge future revenue and expenditure1
Crude, gas oil and jet kerosene derivative contracts1
Derivatives used to hedge interest rates1
Instruments for which hedge accounting no longer applies1
Related tax credit
Total amount included within equity
2019
141
(80)
113
72
355
601
(94)
507
2018
682
(216)
933
34
22
1,455
(267)
1,188
1 The carrying value of derivative instruments recognised in assets and liabilities is analysed in parts a and b above.
The notional amounts of significant financial instruments used as cash flow hedging instruments are set out below:
Notional principal amounts
€ million
Foreign exchange contracts to hedge future revenue
and expenditure from US dollars to pound sterling1
Foreign exchange contracts to hedge future revenue
and expenditure from US dollars to euros1
1 Represents the value of the hedged item.
Notional principal amounts
€ million
Foreign exchange contracts to hedge future revenue
and expenditure from US dollars to pound sterling1
Foreign exchange contracts to hedge future revenue
and expenditure from US dollars to euros1
1 Represents the value of the hedged item.
Hedge range
Within 1 year
1-2 years
2-5 years
Total
December 31,
2019
1.17–1.51
3,493
0.74–1.39
1,397
1,810
1,091
1,359
6,662
483
2,971
Hedge range
Within 1 year
1-2 years
2-5 years
Total
December 31,
2018
1.22–1.50
1,982
1,858
1,685
5,525
1.06–1.34
2,299
1,993
2,197
6,489
The movements in other comprehensive income in relation to cash flow hedges are set out below:
For the year to December 31, 2019
€ million
Loan repayments to hedge future revenue
Foreign exchange contracts to hedge future revenue
and expenditure
Crude, gas oil and jet kerosene derivative contracts
Derivatives used to hedge interest rates
Instruments for which hedge accounting no longer
applies
(Gains)/losses
recognised in
Other
comprehensive
income1
(106)
(Gains)/losses
associated
with
ineffectiveness
recognised in
the Income
statement2
–
Total
recognised
(gains)/
losses
(106)
Gains/(losses)
reclassified to
the Income
statement
(20)
Gains/(losses)
reclassified to
the Balance
sheet
–
20
(622)
56
(38)
(690)
–
8
–
–
8
20
(614)
56
(38)
(682)
99
(178)
(11)
(54)
(164)
7
–
–
–
7
1 Gains and losses recognised in Other comprehensive income represent gains and losses on the hedged items
2 Ineffectiveness recognised in the Income statement is presented as Realised and Unrealised gains and losses on derivatives not qualifying for hedge
accounting within non-operating items.
172
173
173
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
26 Financial instruments continued
For the year to December 31, 2018
€ million
Loan repayments to hedge future revenue
Foreign exchange contracts to hedge future revenue
and expenditure
Crude, gas oil and jet kerosene derivative contracts
Derivatives used to hedge interest rates
Instruments for which hedge accounting no longer
applies
(Gains)/losses
recognised in
Other
comprehensive
income1
208
(Gains)/losses
associated
with
ineffectiveness
recognised in
the Income
statement2
–
Total
recognised
(gains)/
losses
208
Gains/(losses)
reclassified to
the Income
statement
(82)
Gains/(losses)
reclassified to
the Balance
sheet
–
(387)
732
37
6
596
–
16
–
–
16
(387)
748
37
6
612
10
672
(2)
(2)
596
1
–
–
–
1
1 Gains and losses recognised in Other comprehensive income represent gains and losses on the hedged items.
2 Ineffectiveness recognised in the Income statement is presented as Realised and Unrealised gains and losses on derivatives not qualifying for hedge
accounting within non-operating items.
The Group has no significant fair value hedges at December 31, 2019 and 2018.
27 Share capital, share premium and treasury shares
Allotted, called up and fully paid
January 1, 2018: Ordinary shares of €0.50 each
Cancellation of ordinary shares of €0.50 each
January 1, 2019: Ordinary shares of €0.50 each
Special 2018 dividend of €0.35 per share
December 31, 2019
Number of
shares
'000s
2,057,990
Ordinary
share capital
€ million
1,029
(65,957)
1,992,033
(33)
996
1,992,033
996
Share
premium
€ million
6,022
–
6,022
(695)
5,327
A total of 1.0 million shares were issued to employees during the year as a result of vesting of employee share schemes. At
December 31, 2019 the Group held 7.7 million shares (2018: 8.7 million) which represented 0.39 per cent of the issued share capital of
the Company.
During 2018, IAG carried out a €500 million share buyback programme as part of its corporate finance strategy to return cash to
shareholders. The programme was executed between May and October 2018 during which time IAG acquired and subsequently
cancelled 65,956,660 ordinary shares.
28 Share-based payments
The Group operates share-based payment schemes as part of the total remuneration package provided to employees. These
schemes comprise both share option schemes where employees acquire shares at an option price and share award plans whereby
shares are issued to employees at no cost, subject to the achievement by the Group of specified performance targets.
a IAG Performance Share Plan
The IAG Performance Share Plan (PSP) is granted to senior executives and managers of the Group who are most directly involved
in shaping and delivering business success over the medium to long term. From 2015, the awards have been made as nil-cost
options, and also have a two-year additional holding period after the end of the performance period, before vesting takes place. The
awards made since 2015 will vest based one-third on achievement of IAG’s TSR performance targets relative to the MSCI European
Transportation Index, one-third based on achievement of earnings per share targets, and one-third based on achievement of Return
on Invested Capital targets.
b IAG Incentive Award Deferral Plan
The IAG Incentive Award Deferral Plan (IADP) is granted to qualifying employees based on performance and service tests. It will be
awarded when an incentive award is triggered subject to the employee remaining in employment with the Group for three years
after the grant date. The relevant population will receive 50 per cent of their incentive award up front in cash, and the remaining 50
per cent in shares after three years through the IADP.
c Share-based payment schemes summary
Performance Share Plans
Incentive Award Deferral Plans
Outstanding
at January 1,
2019
‘000s
16,549
4,238
20,787
Granted
number
‘000s
6,456
2,113
8,569
Lapsed
number
‘000s
(3,783)
(213)
(3,996)
Vested
number
‘000s
(44)
(1,665)
(1,709)
Outstanding
at December
31, 2019
‘000s
19,178
4,473
23,651
Vested and
exercisable
December 31,
2019
‘000s
52
17
69
174
174
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
26 Financial instruments continued
For the year to December 31, 2018
€ million
Loan repayments to hedge future revenue
Foreign exchange contracts to hedge future revenue
and expenditure
Crude, gas oil and jet kerosene derivative contracts
Derivatives used to hedge interest rates
Instruments for which hedge accounting no longer
applies
recognised in
ineffectiveness
Total
Other
recognised in
recognised
(Gains)/losses
associated
with
the Income
statement2
(Gains)/losses
comprehensive
income1
208
Gains/(losses)
reclassified to
the Income
statement
Gains/(losses)
reclassified to
the Balance
sheet
(gains)/
losses
208
(387)
748
37
6
612
–
–
16
–
–
16
(82)
10
672
(2)
(2)
596
–
1
–
–
–
1
(387)
732
37
6
596
1 Gains and losses recognised in Other comprehensive income represent gains and losses on the hedged items.
2 Ineffectiveness recognised in the Income statement is presented as Realised and Unrealised gains and losses on derivatives not qualifying for hedge
accounting within non-operating items.
The Group has no significant fair value hedges at December 31, 2019 and 2018.
27 Share capital, share premium and treasury shares
Allotted, called up and fully paid
January 1, 2018: Ordinary shares of €0.50 each
Cancellation of ordinary shares of €0.50 each
January 1, 2019: Ordinary shares of €0.50 each
Special 2018 dividend of €0.35 per share
December 31, 2019
Number of
shares
'000s
Ordinary
share capital
€ million
2,057,990
1,029
(65,957)
1,992,033
(33)
996
1,992,033
996
Share
premium
€ million
6,022
–
6,022
(695)
5,327
A total of 1.0 million shares were issued to employees during the year as a result of vesting of employee share schemes. At
December 31, 2019 the Group held 7.7 million shares (2018: 8.7 million) which represented 0.39 per cent of the issued share capital of
the Company.
During 2018, IAG carried out a €500 million share buyback programme as part of its corporate finance strategy to return cash to
shareholders. The programme was executed between May and October 2018 during which time IAG acquired and subsequently
cancelled 65,956,660 ordinary shares.
28 Share-based payments
The Group operates share-based payment schemes as part of the total remuneration package provided to employees. These
schemes comprise both share option schemes where employees acquire shares at an option price and share award plans whereby
shares are issued to employees at no cost, subject to the achievement by the Group of specified performance targets.
a IAG Performance Share Plan
The IAG Performance Share Plan (PSP) is granted to senior executives and managers of the Group who are most directly involved
in shaping and delivering business success over the medium to long term. From 2015, the awards have been made as nil-cost
options, and also have a two-year additional holding period after the end of the performance period, before vesting takes place. The
awards made since 2015 will vest based one-third on achievement of IAG’s TSR performance targets relative to the MSCI European
Transportation Index, one-third based on achievement of earnings per share targets, and one-third based on achievement of Return
on Invested Capital targets.
b IAG Incentive Award Deferral Plan
The IAG Incentive Award Deferral Plan (IADP) is granted to qualifying employees based on performance and service tests. It will be
awarded when an incentive award is triggered subject to the employee remaining in employment with the Group for three years
after the grant date. The relevant population will receive 50 per cent of their incentive award up front in cash, and the remaining 50
per cent in shares after three years through the IADP.
c Share-based payment schemes summary
Performance Share Plans
Incentive Award Deferral Plans
Outstanding
at January 1,
2019
‘000s
16,549
4,238
20,787
Outstanding
at December
Vested and
exercisable
December 31,
Granted
number
‘000s
6,456
2,113
8,569
Lapsed
number
‘000s
(3,783)
(213)
(3,996)
Vested
number
‘000s
(44)
(1,665)
(1,709)
31, 2019
‘000s
19,178
4,473
23,651
2019
‘000s
52
17
69
The fair value of equity-settled share-based payment plans determined using the Monte-Carlo valuation model, taking into account
the terms and conditions upon which the plans were granted, used the following assumptions:
Expected share price volatility (per cent)
Expected comparator group volatility (per cent)
Expected comparator correlation (per cent)
Expected life of options (years)
Weighted average share price at date of grant (£)
Weighted average fair value (£)
December 31,
2019
35
December 31,
2018
35
20
55
4.8
5.67
1.93
20
60
4.6
6.91
4.01
Volatility was calculated with reference to the Group’s weekly pound sterling share price volatility. The expected volatility reflects
the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The fair
value of the PSP also takes into account a market condition of TSR as compared to strategic competitors. No other features of
share-based payment plans granted were incorporated into the measurement of fair value.
The Group recognised a share-based payment charge of €34 million for the year to December 31, 2019 (2018: €31 million).
29 Other reserves and non-controlling interests
For the year to December 31, 2019
Other reserves
Unrealised
gains and
losses1
(1,138)
Time value
of options2
10
Currency
translation3
(136)
Equity
portion of
convertible
bond4
101
Merger
reserve5
(2,467)
Redeemed
capital
reserve6
70
€ million
January 1, 2019
Adoption of IFRS 16
Retained
earnings
3,324
(554)
Profit for the year
1,715
Other comprehensive
income for the year
Cash flow hedges
reclassified and reported
in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Finance costs
Net change in fair value of
cash flow hedges
Net change in fair value of
other equity investments
Net change in fair value of
cost of hedging
Cost of hedging
reclassified and reported
in the net profit
Currency translation
differences
Remeasurements of post-
employment benefit
obligations
Hedges reclassified and
reported in property, plant
and equipment
Cost of share-based
payments
Vesting of share-based
payment schemes
Dividend
Redemption of convertible
bond
–
–
–
–
–
–
–
–
–
(788)
–
33
(14)
(615)
38
8
–
(4)
–
55
106
(26)
6
540
(8)
–
–
–
–
–
–
–
–
–
–
68
(10)
–
–
(7)
(4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
296
–
–
–
–
–
–
December 31, 2019
3,139
(464)
60
160
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(39)
62
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,467)
70
Total
other
reserves
(236)
(550)
1,715
55
106
(26)
6
540
(8)
68
(10)
296
(788)
(11)
33
(14)
(615)
(1)
560
Non-
controlling
interest7
6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6
174
175
175
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
29 Other reserves and non-controlling interests continued
€ million
January 1, 2018
Other reserves
Retained
earnings
2,278
Unrealised
gains and
losses1
(161)
Time value
of options2
(3)
Currency
translation3
(133)
Equity
portion of
convertible
bond4
101
Merger
reserve5
(2,467)
Redeemed
capital
reserve6
37
Total
other
reserves
(348)
Non-
controlling
interest7
307
Profit for the year
2,885
–
–
–
–
–
–
2,885
12
Other comprehensive
income for the year
Cash flow hedges
reclassified and reported
in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Finance costs
Net change in fair value of
cash flow hedges
Net change in fair value of
cost of hedging
Net change in fair value of
other equity investments
Currency translation
differences
Remeasurements of post-
employment benefit
obligations
Hedges reclassified and
reported in property, plant
and equipment
Cost of share-based
payments
Vesting of share-based
payment schemes
Dividend
Cancellation of treasury
shares
Dividend of a subsidiary
Transfer between reserves
Distributions made to
holders of perpetual
securities
–
–
–
–
–
–
–
–
(696)
–
31
(15)
(582)
(500)
–
(77)
–
77
(565)
4
4
(491)
–
(5)
–
–
(1)
–
–
–
–
–
–
–
December 31, 2018
3,324
(1,138)
–
–
–
–
–
13
–
–
–
–
–
–
–
–
–
–
–
10
–
–
–
–
–
–
–
(80)
–
–
–
–
–
–
–
77
–
(136)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
101
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,467)
–
–
–
–
–
–
–
–
–
–
–
–
–
33
–
–
–
70
77
(565)
4
4
(491)
13
(5)
(80)
(696)
(1)
31
(15)
(582)
(467)
–
–
–
(236)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
–
(312)
6
1 The unrealised gains and losses reserve records fair value changes on equity investments and the portion of the gain or loss on a hedging instrument
in a cash flow hedge that is determined to be an effective hedge.
2 The time value of options reserve records fair value changes on the cost of hedging.
3 The currency translation reserve records exchange differences arising from the translation of the financial statements of non-euro functional currency
subsidiaries and investments accounted for under the equity method into the Group’s reporting currency of euros. The movement through this
reserve is affected by the fluctuations in the pound sterling to euro foreign exchange translation rate.
4 The equity portion of convertible bond reserve represents the equity portion of convertible bonds issued. At December 31, 2019, this related to the
€500 million fixed rate 0.625 per cent convertible bond (note 23). During 2019 the Group exercised its option to early redeem the €500 million fixed
rate 0.25 per cent convertible bond with no conversion to ordinary shares.
5 The merger reserve originated from the merger transaction between British Airways and Iberia. The balance represents the difference between the
fair value of the Group on the transaction date, and the fair value of Iberia and the book value of British Airways (including its reserves).
6 The redeemed capital reserve represents the nominal value of the decrease in share capital, relating to cancelled shares.
7 On August 28, 2018, British Airways exercised its option to redeem its €300 million, 6.75 per cent fixed coupon preferred security which was
previously classified as a non-controlling interest. The total non-controlling interest at December 31, 2019 is €6 million (2018: €6 million).
176
176
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
€ million
January 1, 2018
Unrealised
Retained
earnings
2,278
gains and
Time value
Currency
convertible
losses1
of options2
translation3
(161)
(3)
(133)
bond4
101
Merger
reserve5
(2,467)
Redeemed
capital
reserve6
Total
other
reserves
Non-
controlling
interest7
37
(348)
307
Other reserves
Equity
portion of
Profit for the year
2,885
–
–
–
–
–
–
2,885
12
Other comprehensive
income for the year
Cash flow hedges
reclassified and reported
in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Finance costs
Net change in fair value of
cash flow hedges
Net change in fair value of
cost of hedging
Net change in fair value of
other equity investments
Currency translation
differences
Remeasurements of post-
employment benefit
obligations
Hedges reclassified and
reported in property, plant
and equipment
Cost of share-based
payments
Vesting of share-based
payment schemes
Dividend
shares
Cancellation of treasury
Dividend of a subsidiary
Transfer between reserves
Distributions made to
holders of perpetual
securities
(80)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(696)
–
31
(15)
(582)
(500)
–
(77)
–
77
(565)
(491)
(5)
4
4
–
–
–
–
–
–
–
–
–
–
(1)
13
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10
77
–
(136)
–
101
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
77
(565)
4
4
(491)
13
(5)
(80)
(696)
(1)
31
(15)
(582)
(467)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
33
–
–
–
70
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
–
(312)
6
December 31, 2018
3,324
(1,138)
(2,467)
(236)
1 The unrealised gains and losses reserve records fair value changes on equity investments and the portion of the gain or loss on a hedging instrument
in a cash flow hedge that is determined to be an effective hedge.
2 The time value of options reserve records fair value changes on the cost of hedging.
3 The currency translation reserve records exchange differences arising from the translation of the financial statements of non-euro functional currency
subsidiaries and investments accounted for under the equity method into the Group’s reporting currency of euros. The movement through this
reserve is affected by the fluctuations in the pound sterling to euro foreign exchange translation rate.
4 The equity portion of convertible bond reserve represents the equity portion of convertible bonds issued. At December 31, 2019, this related to the
€500 million fixed rate 0.625 per cent convertible bond (note 23). During 2019 the Group exercised its option to early redeem the €500 million fixed
rate 0.25 per cent convertible bond with no conversion to ordinary shares.
5 The merger reserve originated from the merger transaction between British Airways and Iberia. The balance represents the difference between the
fair value of the Group on the transaction date, and the fair value of Iberia and the book value of British Airways (including its reserves).
6 The redeemed capital reserve represents the nominal value of the decrease in share capital, relating to cancelled shares.
7 On August 28, 2018, British Airways exercised its option to redeem its €300 million, 6.75 per cent fixed coupon preferred security which was
previously classified as a non-controlling interest. The total non-controlling interest at December 31, 2019 is €6 million (2018: €6 million).
29 Other reserves and non-controlling interests continued
30 Employee benefit obligations
The Group operates a variety of post-employment benefit arrangements, covering both defined contribution and defined benefit
schemes. The Group also has a scheme for flight crew who meet certain conditions and therefore have the option of being placed
on reserve and retaining their employment relationship until reaching the statutory retirement age, or taking early retirement
(note 24).
Defined contribution schemes
The Group operates a number of defined contribution schemes for its employees.
Costs recognised in respect of defined contribution pension plans in Spain, UK and Ireland for the year to December 31, 2019 were
€262 million (2018: €214 million).
Defined benefit schemes
APS and NAPS
The principal funded defined benefit pension schemes within the Group are the Airways Pension Scheme (APS) and the New
Airways Pension Scheme (NAPS), both of which are in the UK and are closed to new members. NAPS was closed to future accrual
from March 31, 2018, resulting in a reduction of the defined benefit obligation. Following closure members’ deferred pensions will
now be increased annually by inflation up to five per cent per annum (measured using the Government’s annual Pension Increase
(Review) Orders, which since 2011 have been based on CPI). As part of the closure of NAPS to future accrual in 2018, British Airways
agreed to make certain additional transition payments to NAPS members if the deficit had reduced more than expected at either
the 2018 or 2021 valuations. No payment was triggered by the 2018 valuation and no allowance for such payments following the
2021 valuation has been made in the valuation of the defined benefit obligation.
APS has been closed to new members since 1984. The benefits provided under APS are based on final average pensionable pay
and, for the majority of members, are subject to inflationary increases in payment.
As reported in previous years, the Trustee of APS has proposed an additional discretionary increase above CPI inflation for pensions
in payment for the year to March 31, 2014. British Airways challenged the decision and initiated legal proceedings to determine the
legitimacy of the discretionary increase. The High Court issued a judgment in May 2017, which determined that the Trustee had the
power to grant discretionary increases, whilst reiterating the Trustee must take into consideration all relevant factors, and ignore
irrelevant factors. British Airways appealed the judgment to the Court of Appeal. In July 2018 the Court of Appeal released its
judgment, upholding British Airways’ appeal, concluding the Trustee did not have the power to introduce a discretionary
increase rule.
Subsequently, in April 2019 the Trustee Directors of the Airways Pension Scheme unanimously agreed with British Airways terms for
an out-of-court settlement and on November 11, 2019 the APS discretionary pension increase settlement agreement (‘the
Agreement’) was ratified by the High Court. This brought to an end the dispute that commenced in 2013, that would otherwise have
proceeded to final appeal at the Supreme Court. Under the Agreement, the Trustee of APS are permitted, subject to certain
affordability tests, to award discretionary increases so that APS pensions are increased up to the annual change in the Retail Prices
Index (RPI) from 2021 with interim catch-up increases tending to RPI prior to 2021. British Airways ceased to pay further deficit
recovery contributions from January 1, 2019, including cash sweep payments. British Airways has provided a €47 million indemnity,
which is payable in full or part as appropriate following the triennial valuation of the scheme as at March 31, 2027 if that valuation
shows that the scheme is not able to pay pension increases at RPI for the remaining life of the scheme. The APS actuarial valuation
as at March 31, 2015 and March 31, 2018 was completed in November 2019. The APS actuarial valuation at March 31, 2018 resulted in
a surplus of €683 million.
APS and NAPS are governed by separate Trustee Boards. Although APS and NAPS have separate Trustee Boards, much of the
business of the two schemes is common. Some main Board and committee meetings are held in tandem although each Trustee
Board reaches its decisions independently. There are three sub committees which are separately responsible for the governance,
operation and investments of each scheme. British Airways Pension Trustees Limited holds the assets of both schemes on behalf of
their respective Trustees.
Deficit payment plans are agreed with the Trustee of each scheme every three years based on the actuarial valuation rather than
the IAS 19 accounting valuation. In October 2019, the latest deficit recovery plan was agreed as at March 31, 2018 with respect to
NAPS (see note 30i below). The actuarial valuations performed as at March 31, 2018 for APS and NAPS are different to the valuation
performed as at December 31, 2019 under IAS 19 ‘Employee Benefits’ mainly due to timing differences of the measurement dates
and to the specific scheme assumptions in the actuarial valuation compared with IAS 19 guidance used in the accounting valuation
assumptions. For example, IAS 19 requires the discount rate to be based on corporate bond yields regardless of how the assets are
actually invested, which may not result in the calculations in this report being a best estimate of the cost to the Group of providing
benefits under either Scheme. The investment strategy of each Scheme is likely to change over its life, so the relationship between
the discount rate and the expected rate of return on each Scheme’s assets may also change.
Other plans
British Airways provides certain additional post-retirement healthcare benefits to eligible employees in the US through the US Post-
Retirement Medical Benefit plan (US PRMB) which is considered to be a defined benefit scheme. In addition, Aer Lingus operates
certain defined benefit plans, both funded and unfunded.
The defined benefit plans expose the Company to actuarial risks, such as longevity risk, interest rate risk, inflation risk and market
(investment) risk, including currency risk.
176
177
177
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
30 Employee benefit obligations continued
Cash payments
Cash payments in respect to pension obligations comprise normal employer contributions by the Group; deficit contributions based
on the agreed deficit payment plan with APS and NAPS; and cash sweep payments relating to additional payments made
conditional on the level of cash in British Airways. Total payments for the year to December 31, 2019 net of service costs were €865
million (2018: €843 million) being the employer contributions of €870 million (2018: €716 million) less the current service cost of €5
million (2018: €55 million) (note 30b) and including payments made under transitional arrangements on the closure of NAPS to
future accrual in 2018 of €182 million.
a Employee benefit schemes recognised on the Balance sheet
€ million
Scheme assets at fair value
Present value of scheme liabilities
Net pension asset/(liability)
Effect of the asset ceiling2
Other employee benefit obligations
December 31, 2019
Represented by:
Employee benefit assets
Employee benefit obligations
€ million
Scheme assets at fair value
Present value of scheme liabilities
Net pension asset/(liability)
Effect of the asset ceiling2
Other employee benefit obligations
December 31, 2018
Represented by:
Employee benefit assets
Employee benefit obligations
APS
8,830
2019
NAPS
22,423
Other1
428
Total
31,681
(8,401)
(21,650)
(731)
(30,782)
429
(127)
–
302
773
(565)
–
208
(303)
–
(11)
(314)
APS
8,372
(7,110)
1,262
(469)
–
793
2018
NAPS
18,846
(17,628)
1,218
(896)
–
322
Other1
382
(645)
(263)
–
(12)
(275)
899
(692)
(11)
196
524
(328)
196
Total
27,600
(25,383)
2,217
(1,365)
(12)
840
1,129
(289)
840
1 The present value of scheme liabilities for the US PRMB was €15 million at December 31, 2019 (2018: €13 million).
2 APS and NAPS have an accounting surplus under IAS 19, which would be available to the Group as a refund upon wind up of the scheme. This refund
is restricted due to withholding taxes that would be payable by the Trustee.
b Amounts recognised in the Income statement
Pension costs charged to operating result are:
€ million
Defined benefit plans:
Current service cost
Past service cost/(credit)1, 2
Defined contribution plans
Pension costs/(credits) recorded as employee costs
1 Refer to note 4 for amounts recorded within exceptional items in 2019 and 2018.
2 Includes a past service credit of €7 million (2018: €nil) relating to schemes other than APS and NAPS.
Pension costs charged as finance costs are:
€ million
Interest income on scheme assets
Interest expense on scheme liabilities
Interest expense on asset ceiling
Net financing income relating to pensions
2019
2018
5
665
670
262
932
2019
(775)
710
39
(26)
55
(586)
(531)
214
(317)
2018
(731)
690
14
(27)
178
178
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
30 Employee benefit obligations continued
Cash payments
Cash payments in respect to pension obligations comprise normal employer contributions by the Group; deficit contributions based
on the agreed deficit payment plan with APS and NAPS; and cash sweep payments relating to additional payments made
conditional on the level of cash in British Airways. Total payments for the year to December 31, 2019 net of service costs were €865
million (2018: €843 million) being the employer contributions of €870 million (2018: €716 million) less the current service cost of €5
million (2018: €55 million) (note 30b) and including payments made under transitional arrangements on the closure of NAPS to
future accrual in 2018 of €182 million.
a Employee benefit schemes recognised on the Balance sheet
€ million
Scheme assets at fair value
Present value of scheme liabilities
Net pension asset/(liability)
Effect of the asset ceiling2
Other employee benefit obligations
December 31, 2019
Represented by:
Employee benefit assets
Employee benefit obligations
€ million
Scheme assets at fair value
Present value of scheme liabilities
Net pension asset/(liability)
Effect of the asset ceiling2
Other employee benefit obligations
December 31, 2018
Represented by:
Employee benefit assets
Employee benefit obligations
APS
8,830
(8,401)
429
(127)
–
302
2019
NAPS
22,423
Other1
428
Total
31,681
(21,650)
(731)
(30,782)
773
(565)
–
208
(303)
–
(11)
(314)
APS
8,372
(7,110)
1,262
(469)
–
793
2018
NAPS
18,846
(17,628)
1,218
(896)
–
322
Other1
382
(645)
(263)
–
(12)
(275)
899
(692)
(11)
196
524
(328)
196
Total
27,600
(25,383)
2,217
(1,365)
(12)
840
1,129
(289)
840
2019
2018
5
665
670
262
932
2019
(775)
710
39
(26)
55
(586)
(531)
214
(317)
2018
(731)
690
14
(27)
1 The present value of scheme liabilities for the US PRMB was €15 million at December 31, 2019 (2018: €13 million).
2 APS and NAPS have an accounting surplus under IAS 19, which would be available to the Group as a refund upon wind up of the scheme. This refund
is restricted due to withholding taxes that would be payable by the Trustee.
b Amounts recognised in the Income statement
Pension costs charged to operating result are:
€ million
Defined benefit plans:
Current service cost
Past service cost/(credit)1, 2
Defined contribution plans
Pension costs charged as finance costs are:
€ million
Interest income on scheme assets
Interest expense on scheme liabilities
Interest expense on asset ceiling
Net financing income relating to pensions
Pension costs/(credits) recorded as employee costs
1 Refer to note 4 for amounts recorded within exceptional items in 2019 and 2018.
2 Includes a past service credit of €7 million (2018: €nil) relating to schemes other than APS and NAPS.
c Remeasurements recognised in the Statement of other comprehensive income
€ million
Return on plan assets excluding interest income
Remeasurement of plan liabilities from changes in financial assumptions
Remeasurement of experience losses/(gains)
Remeasurement of the APS and NAPS asset ceilings
Exchange movements
Pension remeasurements charged to Other comprehensive income
d Fair value of scheme assets
A reconciliation of the opening and closing balances of the fair value of scheme assets is set out below:
€ million
January 1
Interest income
Return on plan assets excluding interest income
Employer contributions1
Employee contributions
Benefits paid
Exchange movements
December 31
2019
(1,916)
3,423
193
(781)
(13)
906
2019
27,600
775
1,916
870
6
(1,269)
1,783
31,681
2018
1,313
(997)
(297)
806
5
830
2018
29,172
731
(1,313)
716
128
(1,340)
(494)
27,600
1
Includes employer contributions to APS of €5 million (2018: €111 million) and to NAPS of €816 million (2018: €582 million) of which deficit funding
payments represented nil for APS (2018: €108 million) and €797 million for NAPS (2018: €509 million).
For both APS and NAPS, the Trustee has ultimate responsibility for decision making on investments matters, including the asset-
liability matching strategy. The latter is a form of investing designed to match the movement in pension plan assets with the
movement in the projected benefit obligation over time. The Trustees’ investment committee adopts an annual business plan which
sets out investment objectives and work required to support achievement of these objectives. The committee also deals with the
monitoring of performance and activities, including work on developing the strategic benchmark to improve the risk return profile of
the scheme where possible, as well as having a trigger based dynamic governance process to be able to take advantage of
opportunities as they arise. The investment committee reviews the existing investment restrictions, performance benchmarks and
targets, as well as continuing to develop the de-risking and liability hedging portfolio.
Both schemes use derivative instruments for investment purposes and to manage exposures to financial risks, such as interest rate,
foreign exchange and liquidity risks arising in the normal course of business. Exposure to interest rate risk is managed through the
use of Inflation-Linked Swap contracts. Foreign exchange forward contracts are entered into to mitigate the risk of currency
fluctuations.
Scheme assets held by all defined benefit schemes operated by the Group at December 31 comprise:
€ million
Return seeking investments – equities
UK
Rest of world
Return seeking investments – other
Private equity
Property
Alternative investments
Liability matching investments
UK fixed bonds
Rest of world fixed bonds
UK index-linked bonds
Rest of world index-linked bonds
Other
Cash and cash equivalents
Derivatives
Insurance contract
Longevity swap
Other
All equities and bonds have quoted prices in active markets.
2019
2018
2,310
4,774
7,084
1,035
2,135
1,081
4,251
6,356
93
6,266
120
12,835
689
(344)
1,740
4,547
879
31,681
1,737
4,602
6,339
931
1,917
1,183
4,031
4,885
70
5,019
103
10,077
418
57
1,663
4,321
694
27,600
178
179
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
30 Employee benefit obligations continued
For APS and NAPS, the composition of the scheme assets is:
€ million
Return seeking investments
Liability matching investments
Insurance contract and related longevity swap
Other
Fair value of scheme assets
December 31, 2019
APS
347
1,897
2,244
6,260
326
8,830
NAPS
10,844
10,828
21,672
–
751
22,423
December 31, 2018
APS
702
1,538
2,240
5,956
176
8,372
NAPS
9,477
8,457
17,934
–
912
18,846
The strategic benchmark for asset allocations differentiate between ‘return seeking assets’ and ‘liability matching assets’ depending
on the maturity of each scheme. At December 31, 2019, the benchmark for NAPS was 46 per cent (2018: 49 per cent) in return
seeking assets and 54 per cent (2018: 51 per cent) in liability matching investments. Bandwidths are set around these strategic
benchmarks that allow for tactical asset allocation decisions, providing parameters for the Investment Committee and their
investment managers to work within. APS no longer has a ‘strategic benchmark’ as instead, APS now runs off its liquidation portfolio
to a liability matching portfolio of bonds and cash. The actual asset allocation for APS at December 31, 2019 was 4 per cent (2018: 8
per cent) in return seeking assets and 96 per cent (2018: 92 per cent) in liability matching investments.
APS has an insurance contract with Rothesay Life which covers 24 per cent (2018: 24 per cent) of the pensioner liabilities for an
agreed list of members. The insurance contract is based on future increases to pensions in line with inflation and will match future
obligations on that basis for that part of the scheme. The insurance contract can only be used to pay or fund employee benefits
under the scheme. APS also has secured a longevity swap contract with Rothesay Life, which covers an additional 20 per cent
(2018: 20 per cent) of the pensioner liabilities for the same members covered by the insurance contract above. The value of the
contract is based on the difference between the value of the payments expected to be received under this contract and the
pensions payable by the scheme under the contract. The fees are linked to LIBOR, and an assumed future LIBOR rate has been
derived based on swap prices at December 31, 2019.
During 2018 the Trustee of APS secured a buy-in contract with Legal & General. The buy-in contract covers all members in receipt
of pension from APS at March 31, 2018, excluding dependent children receiving a pension at that date and members in receipt of
equivalent pension (EPB) only benefits, who are alive on October 1, 2018. Benefits coming into payment for retirements after March
31, 2018 are not covered. The contract covers benefits payable from October 1, 2018 onwards. The policy covers approximately 60
per cent of all benefits APS expects to pay out in future. Along with existing insurance products (the asset swap and longevity
swaps with Rothesay Life), APS is now 90 per cent protected against all longevity risk and fully protected in relation to all pensions
that were already being paid as at March 31, 2018. It is also more than 90 per cent protected against interest rates and inflation (on a
Retail Price Index (RPI) basis).
e Present value of scheme liabilities
A reconciliation of the opening and closing balances of the present value of the defined benefit obligations is set out below:
€ million
January 1
Current service cost
Past service cost/(credit)
Interest expense
Remeasurements – financial assumptions
Remeasurements of experience losses/(gains)
Benefits paid
Employee contributions
Exchange movements
December 31
2019
25,383
5
665
710
3,423
193
2018
28,363
55
(778)
690
(997)
(297)
(1,269)
(1,340)
6
1,666
30,782
128
(441)
25,383
The defined benefit obligation comprises €30 million (2018: €36 million) arising from unfunded plans and €30,752 million (2018:
€25,347 million) from plans that are wholly or partly funded.
f Effect of the asset ceiling
A reconciliation of the effect of the asset ceiling used in calculating the IAS 19 irrecoverable surplus in APS is set out below:
€ million
January 1
Interest expense
Remeasurements1
Exchange movements
December 31
2019
1,365
39
(781)
69
692
2018
570
14
806
(25)
1,365
1 The decrease in remeasurements follows the reduction in APS surplus as a result of the discretionary pension increase settlement agreement, and a
decrease in the NAPS surplus principally due to the reduction in the discount rate. In 2018 the increase in remeasurements is mainly due to the closure
of NAPS to future accrual in 2018 which resulted in an IAS 19 accounting surplus in the scheme, which would be available to the Group as a refund
upon wind up of the scheme. This refund is restricted due to withholding taxes that would be payable by the Trustee.
180
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
30 Employee benefit obligations continued
For APS and NAPS, the composition of the scheme assets is:
€ million
Return seeking investments
Liability matching investments
Insurance contract and related longevity swap
Other
Fair value of scheme assets
December 31, 2019
December 31, 2018
APS
347
1,897
2,244
6,260
326
8,830
NAPS
10,844
10,828
21,672
–
751
22,423
APS
702
1,538
2,240
5,956
176
8,372
NAPS
9,477
8,457
17,934
–
912
18,846
The strategic benchmark for asset allocations differentiate between ‘return seeking assets’ and ‘liability matching assets’ depending
on the maturity of each scheme. At December 31, 2019, the benchmark for NAPS was 46 per cent (2018: 49 per cent) in return
seeking assets and 54 per cent (2018: 51 per cent) in liability matching investments. Bandwidths are set around these strategic
benchmarks that allow for tactical asset allocation decisions, providing parameters for the Investment Committee and their
investment managers to work within. APS no longer has a ‘strategic benchmark’ as instead, APS now runs off its liquidation portfolio
to a liability matching portfolio of bonds and cash. The actual asset allocation for APS at December 31, 2019 was 4 per cent (2018: 8
per cent) in return seeking assets and 96 per cent (2018: 92 per cent) in liability matching investments.
APS has an insurance contract with Rothesay Life which covers 24 per cent (2018: 24 per cent) of the pensioner liabilities for an
agreed list of members. The insurance contract is based on future increases to pensions in line with inflation and will match future
obligations on that basis for that part of the scheme. The insurance contract can only be used to pay or fund employee benefits
under the scheme. APS also has secured a longevity swap contract with Rothesay Life, which covers an additional 20 per cent
(2018: 20 per cent) of the pensioner liabilities for the same members covered by the insurance contract above. The value of the
contract is based on the difference between the value of the payments expected to be received under this contract and the
pensions payable by the scheme under the contract. The fees are linked to LIBOR, and an assumed future LIBOR rate has been
derived based on swap prices at December 31, 2019.
During 2018 the Trustee of APS secured a buy-in contract with Legal & General. The buy-in contract covers all members in receipt
of pension from APS at March 31, 2018, excluding dependent children receiving a pension at that date and members in receipt of
equivalent pension (EPB) only benefits, who are alive on October 1, 2018. Benefits coming into payment for retirements after March
31, 2018 are not covered. The contract covers benefits payable from October 1, 2018 onwards. The policy covers approximately 60
per cent of all benefits APS expects to pay out in future. Along with existing insurance products (the asset swap and longevity
swaps with Rothesay Life), APS is now 90 per cent protected against all longevity risk and fully protected in relation to all pensions
that were already being paid as at March 31, 2018. It is also more than 90 per cent protected against interest rates and inflation (on a
A reconciliation of the opening and closing balances of the present value of the defined benefit obligations is set out below:
Retail Price Index (RPI) basis).
e Present value of scheme liabilities
€ million
January 1
Current service cost
Past service cost/(credit)
Interest expense
Benefits paid
Employee contributions
Exchange movements
December 31
Remeasurements – financial assumptions
Remeasurements of experience losses/(gains)
€ million
January 1
Interest expense
Remeasurements1
Exchange movements
December 31
The defined benefit obligation comprises €30 million (2018: €36 million) arising from unfunded plans and €30,752 million (2018:
€25,347 million) from plans that are wholly or partly funded.
f Effect of the asset ceiling
A reconciliation of the effect of the asset ceiling used in calculating the IAS 19 irrecoverable surplus in APS is set out below:
1 The decrease in remeasurements follows the reduction in APS surplus as a result of the discretionary pension increase settlement agreement, and a
decrease in the NAPS surplus principally due to the reduction in the discount rate. In 2018 the increase in remeasurements is mainly due to the closure
of NAPS to future accrual in 2018 which resulted in an IAS 19 accounting surplus in the scheme, which would be available to the Group as a refund
upon wind up of the scheme. This refund is restricted due to withholding taxes that would be payable by the Trustee.
2019
25,383
5
665
710
3,423
193
6
1,666
30,782
2018
28,363
55
(778)
690
(997)
(297)
128
(441)
25,383
2019
1,365
39
(781)
69
692
2018
570
14
806
(25)
1,365
g Actuarial assumptions
The principal assumptions used for the purposes of the actuarial valuations were as follows:
Per cent per annum
Discount rate1
Rate of increase in pensionable pay2
Rate of increase of pensions in payment3
RPI rate of inflation
CPI rate of inflation
2019
2018
APS
1.85
2.90
2.90
2.90
n/a
NAPS
2.05
–
2.15
n/a
2.15
Other
schemes
0.8 – 3.2
2.5
1.2 – 3.5
2.5 – 2.8
1.2 – 3.0
APS
2.65
3.20
2.10
3.20
2.10
NAPS
2.85
–
2.05
3.15
2.05
Other
schemes
1.6 – 4.4
2.5 – 3.7
1.5 – 3.8
2.5 – 3.2
1.5 – 3.0
1 Discount rate is determined by reference to the yield on high quality corporate bonds of currency and term consistent with the scheme liabilities.
2 Rate of increase in pensionable pay is assumed to be in line with long term market inflation expectations. The RPI rate assumptions for APS, from
April 2021 are based on the difference between the yields on index-linked and fixed-interest long-term government bonds. Historically market
expectations for RPI could be derived by comparing the prices of UK government fixed-interest and index-linked gilts, with CPI assessed by
considering the Bank of England’s inflation target and comparison of the construction of the two inflation indices. As described in note 2(b), in
September 2019 correspondence was published relating to potential future changes to RPI outlining a clear preference by the UK Statistics Authority
(UKSA) for alignment of RPI with CPIH (a variant of CPI). To make changes prior to 2030, however, the UKSA requires the consent of the Chancellor.
Following this announcement, market-implied break-even RPI inflation forward rates after 2030 have reduced in investment market. In assessing RPI
and CPI from investment market data, allowance has therefore been made for a reduction in the gap between RPI and CPI from 2030.
3 It has been assumed that the rate of increase of pensions in payment will be in line with CPI for NAPS and from April 2021 with RPI for APS. At
December 31, 2018 pension increases for both schemes were based in CPI.
Rate of increase in healthcare costs is based on medical trend rates of 6.50 per cent grading down to 5.00 per cent over five years
(2018: 6.25 per cent to 5.00 per cent over five years).
In the UK, mortality rates for APS and NAPS are calculated using the standard SAPS mortality tables produced by the CMI. The
standard mortality tables were selected based on the actual recent mortality experience of members and were adjusted to allow for
future mortality changes. The current longevities underlying the values of the scheme liabilities were as follows:
Mortality assumptions
Life expectancy at age 60 for a:
- male currently aged 60
- male currently aged 40
- female currently aged 60
- female currently aged 40
2019
2018
28.2
29.9
29.0
31.6
28.5
29.7
30.3
32.9
At December 31, 2019, the weighted-average duration of the defined benefit obligation was 12 years for APS (2018: 11 years) and 19
years for NAPS (2018: 19 years).
In the US, mortality rates were based on the RP-14 mortality tables.
h Sensitivity analysis
Reasonable possible changes at the reporting date to significant actuarial assumptions, holding other assumptions constant, would
have affected the present value of scheme liabilities by the amounts shown:
(1,269)
(1,340)
Future mortality rate (one year increase in life expectancy)
€ million
Discount rate (decrease of 10 basis points)
Future salary growth (increase of 10 basis points)
Future pension growth (increase of 10 basis points)
(Decrease)/increase in scheme liabilities
APS
(24)
–
(24)
(24)
NAPS
(402)
n/a
(354)
(732)
Other
schemes
45
6
24
8
Although the analysis does not take into account the full distribution of cash flows expected under the plan, it does provide an
approximation of the sensitivity of the assumptions shown.
i Funding
Pension contributions for APS and NAPS were determined by actuarial valuations made at March 31, 2018, using assumptions and
methodologies agreed between the Group and Trustee of each scheme. At the date of the actuarial valuation, the actuarial deficit of
NAPS amounted to €2,736 million. In order to address the deficit in the scheme, the Group has also committed to the following
undiscounted deficit payments:
€ million
Within 12 months
2-5 years
Total expected deficit payments for NAPS
NAPS
488
1,195
1,683
The Group has determined that the minimum funding requirements set out above for NAPS will not be restricted. The present
value of the contributions payable is expected to be available as a refund or a reduction in future contributions after they are paid
into the plan. This determination has been made independently for each plan, subject to withholding taxes that would be payable by
the Trustee.
180
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www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
30 Employee benefit obligations continued
Deficit payments in respect of local arrangements outside of the UK have been determined in accordance with local practice.
In total, the Group expects to pay €491 million in employer contributions and deficit payments to the two significant post-retirement
benefit plans in 2020. This is made up of €488 million of deficit payments for NAPS as agreed at the latest triennial valuation in
October 2019 and ongoing employer contributions of €4 million for APS.
Until September 2022, if British Airways pays a dividend to IAG higher than 50 per cent of pre-exceptional profit after tax it will
either accelerate contributions to the scheme or provide a guarantee, in respect of the amount by which the dividend exceeds 50
per cent of the pre-exceptional profit after tax.
31 Contingent liabilities and guarantees
Details of contingent liabilities are set out below. The Group does not consider it probable that there will be an outflow of economic
resources with regard to these proceedings and accordingly no provision for these proceedings has been recognised.
Contingent liabilities associated with income and deferred taxes are now presented Note 9. For information pertaining to previously
reported contingent liabilities associated with the Airways Pension Scheme, refer to Note 30.
Cargo
The European Commission issued a decision in which it found that British Airways, and 10 other airline groups, had engaged in cartel
activity in the air cargo sector (Original Decision). British Airways recorded the financial effect of the resultant fine in the 2007
financial statements. Following an appeal to the General Court (GC), the decision was subsequently partially annulled against British
Airways (and annulled in full against the other appealing airlines) (General Court Judgment). British Airways appealed the partial
annulment to the Court of Justice of the European Union, but that appeal was rejected. In parallel, the European Commission chose
not to appeal the General Court Judgment, and instead adopted a new decision in March 2017 (New Decision). British Airways
repaid the fine previously refunded and appealed the New Decision (as have other carriers). British Airways is expecting a decision
on its appeal during 2020.
A large number of claimants brought proceedings in the English courts to recover damages from British Airways which, relying on
the findings in the Commission decisions, they claimed arose from the alleged cartel activity. British Airways joined the other airlines
alleged to have participated in cartel activity to those proceedings. These claims were fully concluded in 2019.
British Airways is party to litigation in other jurisdictions together with a number of other airlines. The Directors’ estimate of the
outcome of these claims is included in the legal claims provisions in note 24.
Theft of customer data at British Airways
On September 6, 2018 British Airways announced the theft of certain of its customers’ personal data. Following an investigation into
the theft, British Airways announced on October 25, 2018 that further personal data had potentially been compromised. On July 4,
2019, British Airways received a Notice of Intent from the Information Commissioner’s Office (ICO) in which it informed the airline of
its intention to fine it approximately £183 million (€205 million) under the UK Data Protection Act.
British Airways made extensive representations to the ICO regarding the proposed fine and has complied with various further
information requests. As part of its procedures, the ICO will seek the views of other EU data protection authorities. The ICO initially
had six months from issuing the Notice of Intent to British Airways within which it could issue a penalty notice, which has been
extended through to May 18, 2020, to allow the ICO to fully consider the representations and information provided by British
Airways. If a penalty notice is issued, British Airways has 28 days within which to lodge an appeal with the First-tier Tribunal in the
General Regulatory Chamber. A decision by the First-tier Tribunal may, with permission, be appealed to the Upper Tribunal. Any
appeal of the Upper Tribunal decision would be to the Court of Appeal. It is British Airways’ intention to vigorously defend itself in
this matter, including using all available appeal routes should they be required.
At December 31, 2019, and through to the date of these financial statements, no final penalty notice has been received from the ICO,
although it reserves the right to issue such a notice on completion of its investigation. It has not been proven that British Airways
failed to comply with its obligations under GDPR and the UK Data Protection Act. Should any final penalty notice be issued, and
having regard to the representations made by British Airways, the Directors consider that it should be for a considerably lower
amount than the initial Notice of Intent.
Other
There are a number of other legal and regulatory proceedings against the Group in a number of jurisdictions which at December 31,
2019 amounted to €53 million (December 31, 2018: €28 million).
The Group also has guarantees and indemnities entered into as part of the normal course of business, which at December 31, 2019
are not expected to result in material losses for the Group.
182
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
In total, the Group expects to pay €491 million in employer contributions and deficit payments to the two significant post-retirement
benefit plans in 2020. This is made up of €488 million of deficit payments for NAPS as agreed at the latest triennial valuation in
October 2019 and ongoing employer contributions of €4 million for APS.
Until September 2022, if British Airways pays a dividend to IAG higher than 50 per cent of pre-exceptional profit after tax it will
either accelerate contributions to the scheme or provide a guarantee, in respect of the amount by which the dividend exceeds 50
per cent of the pre-exceptional profit after tax.
31 Contingent liabilities and guarantees
Details of contingent liabilities are set out below. The Group does not consider it probable that there will be an outflow of economic
resources with regard to these proceedings and accordingly no provision for these proceedings has been recognised.
Contingent liabilities associated with income and deferred taxes are now presented Note 9. For information pertaining to previously
reported contingent liabilities associated with the Airways Pension Scheme, refer to Note 30.
Cargo
The European Commission issued a decision in which it found that British Airways, and 10 other airline groups, had engaged in cartel
activity in the air cargo sector (Original Decision). British Airways recorded the financial effect of the resultant fine in the 2007
financial statements. Following an appeal to the General Court (GC), the decision was subsequently partially annulled against British
Airways (and annulled in full against the other appealing airlines) (General Court Judgment). British Airways appealed the partial
annulment to the Court of Justice of the European Union, but that appeal was rejected. In parallel, the European Commission chose
not to appeal the General Court Judgment, and instead adopted a new decision in March 2017 (New Decision). British Airways
repaid the fine previously refunded and appealed the New Decision (as have other carriers). British Airways is expecting a decision
on its appeal during 2020.
A large number of claimants brought proceedings in the English courts to recover damages from British Airways which, relying on
the findings in the Commission decisions, they claimed arose from the alleged cartel activity. British Airways joined the other airlines
alleged to have participated in cartel activity to those proceedings. These claims were fully concluded in 2019.
British Airways is party to litigation in other jurisdictions together with a number of other airlines. The Directors’ estimate of the
outcome of these claims is included in the legal claims provisions in note 24.
Theft of customer data at British Airways
On September 6, 2018 British Airways announced the theft of certain of its customers’ personal data. Following an investigation into
the theft, British Airways announced on October 25, 2018 that further personal data had potentially been compromised. On July 4,
2019, British Airways received a Notice of Intent from the Information Commissioner’s Office (ICO) in which it informed the airline of
its intention to fine it approximately £183 million (€205 million) under the UK Data Protection Act.
British Airways made extensive representations to the ICO regarding the proposed fine and has complied with various further
information requests. As part of its procedures, the ICO will seek the views of other EU data protection authorities. The ICO initially
had six months from issuing the Notice of Intent to British Airways within which it could issue a penalty notice, which has been
extended through to May 18, 2020, to allow the ICO to fully consider the representations and information provided by British
Airways. If a penalty notice is issued, British Airways has 28 days within which to lodge an appeal with the First-tier Tribunal in the
General Regulatory Chamber. A decision by the First-tier Tribunal may, with permission, be appealed to the Upper Tribunal. Any
appeal of the Upper Tribunal decision would be to the Court of Appeal. It is British Airways’ intention to vigorously defend itself in
this matter, including using all available appeal routes should they be required.
At December 31, 2019, and through to the date of these financial statements, no final penalty notice has been received from the ICO,
although it reserves the right to issue such a notice on completion of its investigation. It has not been proven that British Airways
failed to comply with its obligations under GDPR and the UK Data Protection Act. Should any final penalty notice be issued, and
having regard to the representations made by British Airways, the Directors consider that it should be for a considerably lower
amount than the initial Notice of Intent.
Other
There are a number of other legal and regulatory proceedings against the Group in a number of jurisdictions which at December 31,
2019 amounted to €53 million (December 31, 2018: €28 million).
The Group also has guarantees and indemnities entered into as part of the normal course of business, which at December 31, 2019
are not expected to result in material losses for the Group.
30 Employee benefit obligations continued
32 Related party transactions
Deficit payments in respect of local arrangements outside of the UK have been determined in accordance with local practice.
The following transactions took place with related parties for the financial years to December 31:
€ million
Sales of goods and services
Sales to associates and joint ventures1
Sales to significant shareholders2
Purchases of goods and services
Purchases from associates3
Purchases from significant shareholders2
Receivables from related parties
Amounts owed by associates4
Amounts owed by significant shareholders5
Payables to related parties
Amounts owed to associates6
Amounts owed to significant shareholders5
2019
2018
6
32
76
149
2
8
3
18
7
44
55
121
7
3
3
7
1 Sales to associates and joint ventures: Consisted primarily of sales for airline related services to Dunwoody Airline Services (Holding) Limited
(Dunwoody) of €4 million (2018: €5 million) and €1 million (2018: €1 million) to Sociedad Conjunta para la Emisión y gestión de Medios de Pago EFC,
S.A. (Iberia Cards) and Serpista, S.A.
2 Sales to and purchases from significant shareholders: Related to interline services with Qatar Airways.
3 Purchases from associates: Consisted primarily of €50 million of airport auxiliary services purchased from Multiservicios Aeroportuarios, S.A. (2018:
€35 million), €16 million of maintenance services received from Serpista, S.A. (2018: €13 million) and €10 million of handling services provided by
Dunwoody (2018: €6 million).
4 Amounts owed by associates: Consisted primarily of €1 million of services provided to Multiservicios Aeroportuarios, S.A. (2018: €1 million) and €1
million of services provided to Dunwoody, Iberia Cards and Empresa Hispano Cubana de Mantenimiento de Aeronaves, Ibeca, S.A. (2018: €5 million
for Dunwoody and €1 million for Iberia Cards, Viajes AME, S.A. and Empresa Hispano Cubana de Mantenimiento de Aeronaves, Ibeca, S.A.).
5 Amounts owed by and to significant shareholders: Related to Qatar Airways.
6 Amounts owed to associates: Consisted primarily of €1 million due to Dunwoody (2018: less than €1 million) and €2 million due to Multiservicios
Aeroportuarios, S.A., Serpista, S.A. and Empresa Hispano Cubana de Mantenimiento de Aeronaves, Ibeca, S.A. (2018: €3 million due to Multiservicios
Aeroportuarios, S.A., Serpista, S.A. and Empresa Hispano Cubana de Mantenimiento de Aeronaves, Ibeca, S.A.).
During the year to December 31, 2019 British Airways met certain costs of administering its retirement benefit plans, including the
provision of support services to the Trustees. Costs borne on behalf of the retirement benefit plans amounted to €9 million (2018:
€10 million) in relation to the costs of the Pension Protection Fund levy.
The Group has transactions with related parties that are conducted in the normal course of the airline business, which include the
provision of airline and related services. All such transactions are carried out on an arm’s length basis.
For the year to December 31, 2019, the Group has not made any provision for expected credit loss arising relating to amounts owed
by related parties (2018: nil).
Significant shareholders
In this instance, significant shareholders are those parties who have the power to participate in the financial and operating policy
decisions of the Group, as a result of their shareholdings in the Group, but who do not have control over these policies.
At December 31, 2019 the Group had cash deposit balances with shareholders holding a participation of between 3 to 5 per cent, of
nil (2018: €98 million).
Board of Directors and Management Committee remuneration
Compensation received by the Group’s Board of Directors and Management Committee, in 2019 and 2018 is as follows:
€ million
Base salary, fees and benefits
Board of Directors
Short-term benefits
Share based payments
Management Committee
Short-term benefits
Share based payments
Year to December 31
2019
2018
5
3
8
5
5
2
10
5
For the year to December 31, 2019 the Board of Directors includes remuneration for three Executive Directors (December 31, 2018:
two Executive Directors). The Management Committee includes remuneration for 12 members (December 31, 2018: ten members).
The Company provides life insurance for all executive directors and the Management Committee. For the year to December 31, 2019
the Company's obligation was €63,000 (2018: €58,000).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
32 Related party transactions continued
At December 31, 2019 the transfer value of accrued pensions covered under defined benefit pension obligation schemes, relating to
the current members of the Management Committee totalled €1 million (2018: €4 million).
No loan or credit transactions were outstanding with Directors or officers of the Group at December 31, 2019 (2018: nil).
33 Changes to accounting policies
New accounting policy
IFRS 16 ‘Leases’ was adopted by the Group on January 1, 2019. The new standard eliminates the classification of leases as either
operating leases or finance leases and introduces a single lessee accounting model.
The Group used the modified retrospective transition approach on application of IFRS 16. Lease liabilities were determined based on
the value of the remaining lease payments, discounted by the appropriate incremental borrowing rates and translated at the rates
of exchange at the date of transition (January 1, 2019). ROU assets in respect of aircraft were measured as if IFRS 16 had been
applied at the commencement date of each lease using the appropriate incremental borrowing rates at the date of transition and
rates of exchange at the commencement of each lease and depreciated to January 1, 2019. Other ROU assets were measured based
on the related lease liability as at the date of transition, adjusted for prepaid or accrued lease payments. Deferred gains on sale and
operating leasebacks, previously recognised in current and non-current liabilities, were reclassified to the related ROU asset. IFRS 16
does not permit comparative information to be restated if the modified retrospective transition approach is used.
The details of the changes in accounting policy are disclosed below:
1.
Interest-bearing borrowings and non-current assets increased on implementation of the standard as obligations to make future
payments under leases previously classified as operating leases were recognised on the Balance sheet, along with the related
ROU asset. The Group has used the practical expedients in respect of leases of less than 12 months duration and leases for low
value items and excluded them from the scope of IFRS 16. Rental payments associated with these leases are recognised in the
Income statement on a straight-line basis over the life of the lease. No adjustment has been made to the recognition and
measurement of assets previously recognised as 'finance leases' under IAS 17 which were transferred to ROU assets on
adoption of IFRS 16, with the related borrowings transferred to lease liabilities.
2. Expenditure on operations has decreased and finance costs have increased, as operating lease costs have been replaced by
depreciation and lease interest expense.
3. The adoption of IFRS 16 required the Group to make a number of judgements, estimates and assumptions. These included:
• The estimated lease term – The term of each lease was based on the original lease term unless management was ‘reasonably
certain’ to exercise options to extend the lease. Further information used to determine the appropriate lease term included
fleet plans which underpin approved business plans, and historic experience regarding extension options.
• The discount rate used to determine the lease liability – The rates used on transition to discount future lease payments were
the Group’s incremental borrowing rates. These rates have been calculated for each airline, reflecting the underlying lease
terms and based on observable inputs. The risk-free rate component was based on LIBOR rates available in the same
currency and over the same term as the lease and was adjusted for credit risk. For future aircraft lease obligations, the
Group will use the interest rate implicit in the lease.
• Terminal arrangements – The Group has reviewed its arrangements at airport terminals to determine whether any
agreements previously considered to be service agreements should be classified as leases. No additional leases have been
identified.
• Restoration obligations – The Group has certain obligations associated with the maintenance condition of its aircraft on
redelivery to the lessor, such as the requirement to complete a final airframe check, repaint the aircraft and reconfigure the
cabin. Under IAS 17 these costs were recognised as a maintenance expense over the lease term. On adoption of IFRS 16, they
were recognised as part of the ROU asset on transition, resulting in an increase in restoration and handback provisions.
Judgement has been used to identify the appropriate obligations and estimation has been used (based on observable data)
to measure them. Other maintenance obligations associated with these assets, comprising obligations that arise as the
aircraft is utilised, such as engine overhauls and periodic airframe checks, are recognised as a maintenance expense over the
lease term.
The above adjustments resulted in a post-tax charge to equity of €550 million.
Foreign currency balances on lease obligations, which are predominantly denominated in US dollars, are remeasured at each
balance sheet date, with the ROU asset recognised at the historic exchange rate. The Group manages foreign exchange risk arising
on these US dollar obligations as part of its risk management strategy as described further in note 25.
184
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
32 Related party transactions continued
At December 31, 2019 the transfer value of accrued pensions covered under defined benefit pension obligation schemes, relating to
the current members of the Management Committee totalled €1 million (2018: €4 million).
No loan or credit transactions were outstanding with Directors or officers of the Group at December 31, 2019 (2018: nil).
33 Changes to accounting policies
New accounting policy
IFRS 16 ‘Leases’ was adopted by the Group on January 1, 2019. The new standard eliminates the classification of leases as either
operating leases or finance leases and introduces a single lessee accounting model.
The Group used the modified retrospective transition approach on application of IFRS 16. Lease liabilities were determined based on
the value of the remaining lease payments, discounted by the appropriate incremental borrowing rates and translated at the rates
of exchange at the date of transition (January 1, 2019). ROU assets in respect of aircraft were measured as if IFRS 16 had been
applied at the commencement date of each lease using the appropriate incremental borrowing rates at the date of transition and
rates of exchange at the commencement of each lease and depreciated to January 1, 2019. Other ROU assets were measured based
on the related lease liability as at the date of transition, adjusted for prepaid or accrued lease payments. Deferred gains on sale and
operating leasebacks, previously recognised in current and non-current liabilities, were reclassified to the related ROU asset. IFRS 16
does not permit comparative information to be restated if the modified retrospective transition approach is used.
The details of the changes in accounting policy are disclosed below:
1.
Interest-bearing borrowings and non-current assets increased on implementation of the standard as obligations to make future
payments under leases previously classified as operating leases were recognised on the Balance sheet, along with the related
ROU asset. The Group has used the practical expedients in respect of leases of less than 12 months duration and leases for low
value items and excluded them from the scope of IFRS 16. Rental payments associated with these leases are recognised in the
Income statement on a straight-line basis over the life of the lease. No adjustment has been made to the recognition and
measurement of assets previously recognised as 'finance leases' under IAS 17 which were transferred to ROU assets on
adoption of IFRS 16, with the related borrowings transferred to lease liabilities.
2. Expenditure on operations has decreased and finance costs have increased, as operating lease costs have been replaced by
depreciation and lease interest expense.
3. The adoption of IFRS 16 required the Group to make a number of judgements, estimates and assumptions. These included:
• The estimated lease term – The term of each lease was based on the original lease term unless management was ‘reasonably
certain’ to exercise options to extend the lease. Further information used to determine the appropriate lease term included
fleet plans which underpin approved business plans, and historic experience regarding extension options.
• The discount rate used to determine the lease liability – The rates used on transition to discount future lease payments were
the Group’s incremental borrowing rates. These rates have been calculated for each airline, reflecting the underlying lease
terms and based on observable inputs. The risk-free rate component was based on LIBOR rates available in the same
currency and over the same term as the lease and was adjusted for credit risk. For future aircraft lease obligations, the
Group will use the interest rate implicit in the lease.
• Terminal arrangements – The Group has reviewed its arrangements at airport terminals to determine whether any
agreements previously considered to be service agreements should be classified as leases. No additional leases have been
• Restoration obligations – The Group has certain obligations associated with the maintenance condition of its aircraft on
redelivery to the lessor, such as the requirement to complete a final airframe check, repaint the aircraft and reconfigure the
cabin. Under IAS 17 these costs were recognised as a maintenance expense over the lease term. On adoption of IFRS 16, they
were recognised as part of the ROU asset on transition, resulting in an increase in restoration and handback provisions.
Judgement has been used to identify the appropriate obligations and estimation has been used (based on observable data)
to measure them. Other maintenance obligations associated with these assets, comprising obligations that arise as the
aircraft is utilised, such as engine overhauls and periodic airframe checks, are recognised as a maintenance expense over the
identified.
lease term.
The above adjustments resulted in a post-tax charge to equity of €550 million.
Foreign currency balances on lease obligations, which are predominantly denominated in US dollars, are remeasured at each
balance sheet date, with the ROU asset recognised at the historic exchange rate. The Group manages foreign exchange risk arising
on these US dollar obligations as part of its risk management strategy as described further in note 25.
The Group recognised the following assets and liabilities on the Consolidated balance sheet at January 1, 2019 on adoption of
IFRS 16:
Consolidated balance sheet (extract as at January 1, 2019)
€ million
Non-current assets
Property, plant and equipment
Fleet
Property and equipment
Deferred tax assets
Other non-current assets
Current assets
Other current assets
Total assets
Total equity
Non-current liabilities
Interest-bearing long-term borrowings
Deferred tax liability
Provisions
Other non-current liabilities
Current liabilities
Current portion of long-term borrowings
Other current liabilities
Total liabilities
Total equity and liabilities
As
reported
IFRS 16
adjustments
Restated
10,790
1,647
536
4,968
17,941
10,093
10,093
28,034
3,730
755
130
–
4,615
(35)
(35)
4,580
14,520
2,402
666
4,968
22,556
10,058
10,058
32,614
6,720
(550)
6,170
6,633
453
2,268
910
4,315
(40)
120
(125)
10,948
413
2,388
785
10,264
4,270
14,534
876
10,174
11,050
21,314
28,034
880
(20)
860
5,130
4,580
1,756
10,154
11,910
26,444
32,614
The following table reconciles the amount disclosed as operating lease commitments at December 31, 2018 disclosed in the Group's
2018 consolidated financial statements to the amount recognised on the Balance sheet in respect of lease liabilities on adoption of
IFRS 16.
€ million
Operating lease commitments at December 31, 2018
Weighted average incremental borrowing rate at January 1, 2019
Operating lease commitments discounted using the weighted average incremental borrowing rate
Less:
Leases considered to be short-term (less than 12 months duration)
Leases for assets considered to be substitutable
Future variable payments based on an index or rate
Prepayments
Commitments for leases that had not commenced on December 31, 2018
Add:
Service contracts
Residual value guarantees
Rentals associated with extension options reasonably certain to be exercised
Lease liability recognised at January 1, 2019
Reclassification from finance lease obligations
Lease liability at January 1, 2019
8,664
6.2%
5,612
(61)
(66)
(140)
(11)
(459)
232
61
27
5,195
5,928
11,123
184
185
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year to December 31, 2019
33 Changes to accounting policies continued
Change in accounting policy
In September 2019, the IFRS Interpretations Committee clarified that under IFRS 15 compensation payments for flight delays and
cancellations form compensation for passenger losses and accordingly should be recognised as variable compensation and
deducted from revenue. This clarification had led the Group to change its accounting policy, which previously classified this
compensation as an operating expense. Accordingly, the Group has restated the comparative period for 2018 to reflect €148 million
of compensation costs as a deduction from Passenger revenue and a corresponding reduction within Handling, catering and other
operating costs. The following table summarises the impact of the change in accounting policy on the Income statement for the
year to December 31, 2018:
Consolidated income statement (extract for the year to December 31, 2018)
€ million
Passenger revenue
Cargo revenue
Other revenue
Total revenue
Handling, catering and other operating costs
Other expenditure on operations
Total expenditure on operations
Operating profit
Non-operating expenses
Profit before tax
Tax
Profit after tax
Previously
reported
Adjustment
Restated
21,549
1,173
1,684
24,406
2,888
17,840
20,728
3,678
(191)
3,487
(590)
2,897
(148)
–
–
(148)
(148)
–
21,401
1,173
1,684
24,258
2,740
17,840
(148)
20,580
3,678
(191)
3,487
(590)
2,897
–
–
–
–
There is no impact on profit after tax in the Consolidated Income Statement for 2018, the Consolidated Balance Sheet as at January
1, 2018 or December 31, 2018 or the Consolidated Statement of Changes in Equity as at January 1, 2018 or December 31, 2018.
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ALTERNATIVE PERFORMANCE MEASURES
The performance of the Group is assessed using a number of alternative performance measures (APMs), some of which have been
identified as key performance indicators of the Group. These measures are not defined under International Financial Reporting
Standards (IFRS), should be considered in addition to IFRS measurements and may differ to definitions given by regulatory bodies
applicable to the Group. They are used to measure the outcome of the Group’s strategy based on ‘Unrivalled customer proposition’,
‘Value accretive and sustainable growth’ and ‘Efficiency and innovation’. Further information on why these APMs are used is
provided in the Strategic priorities and key performance indicators section.
The definition of each APM, together with a reconciliation to the nearest measure prepared in accordance with IFRS is
presented below.
a Changes to APMs in 2019
The Group has adopted IFRS 16 ‘Leases’ on January 1, 2019, and has used the modified retrospective transition approach. In doing
so, for 2019, all operating leases have been recognised on the balance sheet as a right of use (ROU) asset with associated lease
liability, and all finance leases previously recognised have been transferred into the ROU asset within Property, plant and equipment.
As a result of this adoption the way in which the Group monitors the performance of the Group and how the associated measures
are calculated have changed as follows:
New APMs
– Pro forma financial information - In adopting the modified retrospective transition approach for IFRS 16, the comparative figures
for 2018 have not been restated. Accordingly, to provide a consistent basis for comparison with 2019, the Group has introduced
Pro forma financial information for 2018, which is the Group’s restated statutory results for 2018 with an adjustment to reflect the
estimated impact of IFRS 16 from January 1, 2018;
– Levered free cash flow – A measure which represents the cash generating ability of the underlying businesses before shareholder
returns and is used in conjunction with a targeted level of leverage, measured using Net debt to EBITDA. This measure is
monitored by the Group in making both investment and capital decisions;
– Airline non-fuel costs per ASK – A measure for monitoring airline unit cost performance per ASK excluding, amongst other items,
fuel. The measure is monitored by the Group to demonstrate the performance of the airline based activities that are largely within
the control of the Group.
Changes to APMs
– Adjusted net debt to EBITDAR - Both Adjusted net debt and EBITDAR incorporated adjustments to reflect the impact of aircraft
operating leases, which under IFRS 16 the Group now presents within total borrowings and EBITDA. Accordingly, this measure
has been revised and presented as net debt to EBITDA;
– Return on Invested Capital - The Group has amended the methodology to reflect IFRS 16. Prior to IFRS 16, in calculating the
numerator (return) a cost of 0.67 times the annual lease rental was deducted and in calculating the denominator (invested
capital) a capital value was calculated for the operating leased aircraft by multiplying the annual operating lease rentals by a
factor of 8. These adjustments are no longer required, as the aircraft now have ROU values and associated depreciation.
No longer applicable
– Lease adjusted operating margin - The associated impact of lease expenses is now reflected within the operating margin, such
that this adjusted measure is no longer applicable;
– Equity free cash flows – The Group no longer considers the equity free cash flow measure in assessing the performance of the
Group, as certain arrangements are treated differently on transition to IFRS 16 compared to pre-transition and accordingly there is
inconsistency over time. This has been replaced with ‘levered free cash flow’ as defined above.
b Pro forma financial information
The Group elected to apply the modified retrospective approach on transition to IFRS 16 to reduce complexity on transition arising
from the volume and nature of the leases held by the Group. The modified transition approach does not allow restatement of
comparatives. To aid users of the financial statements, the Group has provided Pro forma information for 2018 to provide a
consistent basis for comparison with 2019 results. Pro forma results for 2018 are the Group’s restated statutory results with an
adjustment to reflect the estimated impact of IFRS 16 as if it had applied from January 1, 2018, and have been prepared using the
same assumptions used for the IFRS 16 transition adjustment at January 1, 2019 (set out in note 33) adjusted for any new aircraft
leases entered into during 2018 and using the incremental borrowing rates at January 1, 2019. The IFRS 16 adjustments for aircraft
lease liabilities are based on US dollar exchange rates at the transition date. There is no adjustment to the 2019 financial information.
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ALTERNATIVE PERFORMANCE MEASURES CONTINUED
The following table provides a reconciliation from the reported Consolidated income statement to the Pro forma financial
information for 2018.
Consolidated income statement 2018
€ million
Passenger revenue
Cargo revenue
Other revenue
Total revenue
Employee costs
Fuel, oil costs and emissions charges
Handling, catering and other operating
costs
Landing fees and en-route charges
Engineering and other aircraft costs
Property, IT and other costs
Selling costs
Depreciation, amortisation and
impairment
Aircraft operating lease costs
Currency differences
Total expenditure on operations
Operating profit
Net finance costs
Other non-operating charges
Profit before tax
Tax
Profit after tax
Attributable to:
Equity holders of the parent
Non-controlling interest
2018
Before
exceptional
items
21,549
1,173
1,684
24,406
4,812
5,283
2,888
2,184
1,828
918
1,046
1,254
890
73
21,176
3,230
(182)
(9)
3,039
(558)
2,481
2,469
12
2,481
Exceptional
items
(460)
12
(448)
448
448
(32)
416
416
416
2018
Reported
21,549
1,173
1,684
24,406
4,352
5,283
2,888
2,184
1,828
930
1,046
1,254
890
73
20,728
3,678
(182)
(9)
3,487
(590)
2,897
2,885
12
2,897
IFRS 16
Adjustment
Adjustment
(148)
Restated
2018
21,401
1,173
1,684
(148)
24,258
4,352
5,283
(148)
2,740
(7)
2,184
1,828
930
1,046
1,254
890
73
29
(129)
742
(890)
2018
Pro forma
21,401
1,173
1,684
24,258
4,352
5,283
2,733
2,184
1,857
801
1,046
1,996
-
73
(148)
20,580
(255)
20,325
-
-
-
-
3,678
(182)
(9)
3,487
(590)
2,897
2,885
12
255
(330)
(75)
16
(59)
3,933
(512)
(9)
3,412
(574)
2,838
(59)
2,826
12
-
2,897
(59)
2,838
c Profit after tax before exceptional items
Exceptional items are those that in management’s view need to be separately disclosed by virtue of their size or incidence. In
identifying and quantifying adjusting items, the Group consistently applies a policy that defines criteria that are required to be met
for an item to be classified as exceptional.
Management believes that these additional measures are useful as they exclude the impact of exceptional items in profit from
operations, which have less bearing on the routine operating activities of the Group, thereby enhancing users’ understanding of
underlying business performance.
The details of these exceptional items are given in Note 4 to the financial statements and on the face of the Consolidated income
statement.
d Basic earnings per share before exceptional items and adjusted earnings per share (KPI)
Earnings are based on results before exceptional items after tax and adjusted for earnings attributable to equity holders and interest
on convertible bonds, divided by the weighted average number of ordinary shares, adjusted for the dilutive impact of the assumed
conversion of the bonds and employee share schemes outstanding.
€ million
Earnings attributable to equity holders of the parent
Exceptional items
Earnings attributable to equity holders of the parent before exceptional
items
Interest expense on convertible bonds
Adjusted earnings
Weighted average number of shares used for basic earnings per share
Weighted average number of shares used for diluted earnings per share
note
b
4
2019
1,715
672
2,387
26
2,413
2018
Reported
2,885
2018
Pro forma
2,826
(416)
(416)
2,469
18
2,487
2,410
18
2,428
10
10
1,984,073
2,021,622
2,021,622
2,065,776
2,113,081
2,113,081
Adjusted earnings per share (€ cents)
Basic earnings per share before exceptional items (€ cents)
116.8
120.3
117.7
122.1
114.9
119.2
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
The following table provides a reconciliation from the reported Consolidated income statement to the Pro forma financial
e Airline non-fuel unit costs
The Group monitors airline unit costs (per ASK, a standard airline measure of capacity) as a means of tracking operating efficiency
of the core airline business. As fuel costs can vary with commodity prices, the Group monitors fuel and non-fuel costs individually.
Within non-fuel costs are the costs associated with generating Other revenue, which typically do not represent the costs of
transporting passengers or cargo and instead represent the costs of handling and maintenance for other airlines, non-flight
products in BA Holidays and costs associated with other miscellaneous non-flight revenue streams. Airline non-fuel costs per ASK is
defined as total operating expenditure before exceptional items, less fuel, oil costs and emission charges and less non-flight specific
costs divided by total available seat kilometres (ASKs), and is shown on a constant currency basis.
The comparative information for 2018 has been presented on a Pro forma basis due to the Group adopting IFRS 16 from January 1,
2019. See note b for further information.
€ million
Total operating expenditure before exceptionals
Less: Fuel, oil costs and emission charges
note
b
2019
Reported
22,221
6,021
ccy
adjustment1
(325)
(212)
2019
ccy
21,896
5,809
2018
Pro forma
20,773
5,283
Non-fuel costs
16,200
(113)
16,087
15,490
Less: Non-flight specific costs
Airline non-fuel costs
1,654
14,546
(40)
1,614
14,473
1,450
14,040
Available seat kilometres (ASK million)
337,754
337,754
324,808
Airline non-fuel unit costs (€ cents)
4.31
4.29
4.32
1 Refer to note i for the definition of the ccy adjustment
f Levered free cash flow (KPI)
Levered free cash flow represents the cash generating ability of the underlying businesses before shareholder returns and is defined
as the net increase in cash and cash equivalents taken from the Cash flow statement, adjusting for movements in Other current
interest-bearing deposits and adding back the cash outflows associated with dividends paid and the acquisition of treasury shares.
The Group believes that this measure is useful to the users of the financial statements in understanding the underlying cash
generating ability of the Group that is available to return to shareholders, to improve leverage and/or to undertake inorganic
growth opportunities.
€ million
Net Increase in cash and cash equivalents
Add / less: Increase/(decrease) in other current interest-bearing deposits
Add: Acquisition of treasury shares
Add: Dividends paid
Levered free cash flow
2019
85
103
-
1,308
1,496
2018
583
(924)
500
577
736
Consolidated income statement 2018
exceptional
Exceptional
2018
Restated
IFRS 16
2018
items
Reported
Adjustment
2018
Adjustment
Pro forma
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
information for 2018.
€ million
Passenger revenue
Cargo revenue
Other revenue
Total revenue
Employee costs
Fuel, oil costs and emissions charges
Handling, catering and other operating
costs
Landing fees and en-route charges
Engineering and other aircraft costs
Property, IT and other costs
Selling costs
impairment
Depreciation, amortisation and
Aircraft operating lease costs
Currency differences
Total expenditure on operations
Other non-operating charges
Operating profit
Net finance costs
Profit before tax
Tax
Profit after tax
Attributable to:
Equity holders of the parent
Non-controlling interest
2018
Before
items
21,549
1,173
1,684
24,406
4,812
5,283
2,888
2,184
1,828
918
1,046
1,254
890
73
21,176
3,230
(182)
(9)
3,039
(558)
2,481
2,469
12
2,481
21,549
1,173
1,684
24,406
4,352
5,283
2,888
2,184
1,828
930
1,046
1,254
890
73
20,728
3,678
(182)
(9)
3,487
(590)
2,897
2,885
12
2,897
(460)
12
(448)
448
448
(32)
416
416
416
21,401
1,173
1,684
24,258
4,352
5,283
2,733
2,184
1,857
801
1,046
1,996
-
73
3,933
(512)
(9)
3,412
(574)
2,838
29
(129)
742
(890)
255
(330)
(75)
16
(59)
(148)
21,401
(148)
24,258
(148)
2,740
(7)
1,173
1,684
4,352
5,283
2,184
1,828
930
1,046
1,254
890
73
3,678
(182)
(9)
3,487
(590)
2,897
2,885
12
-
-
-
-
(59)
2,826
12
-
2,897
(59)
2,838
(148)
20,580
(255)
20,325
c Profit after tax before exceptional items
Exceptional items are those that in management’s view need to be separately disclosed by virtue of their size or incidence. In
identifying and quantifying adjusting items, the Group consistently applies a policy that defines criteria that are required to be met
for an item to be classified as exceptional.
Management believes that these additional measures are useful as they exclude the impact of exceptional items in profit from
operations, which have less bearing on the routine operating activities of the Group, thereby enhancing users’ understanding of
underlying business performance.
statement.
The details of these exceptional items are given in Note 4 to the financial statements and on the face of the Consolidated income
d Basic earnings per share before exceptional items and adjusted earnings per share (KPI)
Earnings are based on results before exceptional items after tax and adjusted for earnings attributable to equity holders and interest
on convertible bonds, divided by the weighted average number of ordinary shares, adjusted for the dilutive impact of the assumed
conversion of the bonds and employee share schemes outstanding.
Earnings attributable to equity holders of the parent before exceptional
Earnings attributable to equity holders of the parent
Exceptional items
€ million
items
Interest expense on convertible bonds
Adjusted earnings
note
b
4
2019
1,715
672
2,387
26
2,413
2018
2018
Reported
Pro forma
2,885
(416)
2,469
18
2,487
2,826
(416)
2,410
18
2,428
Weighted average number of shares used for basic earnings per share
Weighted average number of shares used for diluted earnings per share
10
10
1,984,073
2,021,622
2,021,622
2,065,776
2,113,081
2,113,081
Adjusted earnings per share (€ cents)
Basic earnings per share before exceptional items (€ cents)
116.8
120.3
117.7
122.1
114.9
119.2
188
189
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ALTERNATIVE PERFORMANCE MEASURES CONTINUED
g Return on invested capital (KPI)
The Group monitors return on invested capital (RoIC) as it gives an indication of the Group’s capital efficiency relative to the capital
invested as well as the ability to fund growth and to pay dividends. In 2019 RoIC is defined as EBITDA, less fleet depreciation
adjusted for inflation, depreciation of other property, plant and equipment, and amortisation of software intangibles, divided by
average invested capital and is expressed as a percentage.
Invested capital is defined as the average of property, plant and equipment and software intangible assets between the opening
and closing net book values. The fleet aspect of property, plant and equipment is inflated over the average age of the fleet to
approximate the replacement cost of the associated assets.
€ million
EBITDA
Less: Fleet depreciation multiplied by inflation adjustment
Less: Other property, plant and equipment depreciation
Less: Software intangible amortisation
Invested capital
Average fleet book value2
Less: Average progress payments3
Fleet book value less progress payments
Inflation adjustment1
Average net book value of other property, plant and equipment4
Average net book value of software intangible assets5
Total invested capital
Return on invested capital
note
h
12
12
12
14
2019
5,396
(2,040)
(259)
(131)
2,966
15,598
(1,297)
14,301
1.19
17,065
2,448
603
20,116
14.7%
1 Presented to two decimal places and calculated using a 1.5 per cent inflation rate over the weighted average age of the fleet (2019: 12 years).
2 The average net book value of owned aircraft excluding progress payments is calculated from an amount of €13,451 million at January 1, 2019 and
€15,150 million at December 31, 2019.
3 The average net book value of progress payments is calculated from an amount of €1,069 million at January 1, 2019 and €1,525 million at
December 31, 2019.
4 The average net book value of other property, plant and equipment is calculated from an amount of €2,402 million at January 1, 2019 and €2,493
million at December 31, 2019.
5 The average net book value of software intangible assets is calculated from an amount of €539 million at December 31, 2018 and €666 million at
December 31, 2019.
2018 RoIC:
For 2018 RoIC is defined as EBITDAR (being operating profit before depreciation, amortisation and rental charges), less adjusted
aircraft operating lease costs, fleet depreciation charge adjusted for inflation, and the depreciation charge for other property, plant
and equipment, divided by invested capital. It is expressed as a percentage.
The lease adjustment reduces aircraft operating lease costs to 0.67 of the annual reported charge. The inflation adjustment is
applied to the fleet depreciation charge and is calculated using a 1.5 per cent inflation rate over the average age of the fleet to allow
for inflation and efficiencies of new fleet.
Invested capital is the fleet net book value at the balance sheet date, excluding progress payments for aircraft not yet delivered and
adjusted for inflation, plus the net book value of the remaining property, plant and equipment plus annual aircraft operating lease
costs multiplied by 8. Intangible assets are excluded from the calculation.
The table below shows the reconciliation to derive the RoIC measure for 2018, including the change in methodology as described
for 2019 and adjusting for IFRS 16. As the Group adopted IFRS 16 from January 1, 2019, the comparative RoIC inputs for 2018 have
been adjusted on a pro forma basis to reflect the impact of this change in the 2018 Income statement for the year to December 31,
2018 and for the balance sheets at January 1, 2018 and December 31, 2018:
€ million
EBITDAR / EBITDA
Less: Aircraft operating lease costs multiplied by 0.67
Less: Depreciation charge for fleet assets multiplied by inflation adjustment
Depreciation charge for fleet assets
Inflation adjustment1
Less: Depreciation charge for other property, plant and equipment
Less: Depreciation charge for other ROU assets
Less: Amortisation charge for software intangibles
Fleet closing/average book value excluding progress payments2
Invested capital
Inflation adjustment1
Closing/average book value of other property, plant and equipment 3
Aircraft operating lease costs multiplied by 8
Average book value of software intangible assets4
Total invested capital
Return on invested capital
2018
Change in
Pro forma
2018
Reported
methodology
adjustments
Pro forma
5,374
(596)
(984)
1.22
(1,205)
(138)
3,435
9,721
1.22
11,902
1,647
7,120
20,669
16.6%
596
-
-
-
-
-
-
(123)
473
(223)
1.22
(273)
(17)
(7,120)
506
107
-
(634)
1.15
(726)
(108)
-
-
(727)
3,757
1.12
4,194
813
-
-
(6,904)
5,007
5,481
-
(1,618)
1.19
(1,931)
(138)
(108)
(123)
3,181
13,255
1.19
15,823
2,443
-
506
18,772
16.9%
1 Presented to two decimal places and calculated using a 1.5 per cent inflation rate over the weighted average age of the fleet (11.9 years).
2 The change in methodology to calculate the average net book value of owned aircraft excluding progress payments is calculated from an amount of
€9,275 million at December 31, 2017 and €9,721 million at December 31, 2018. The average pro forma net book value of owned and ROU aircraft
excluding progress payments is calculated from an amount of €13,058 million at December 31, 2017 and €13,451 million at December 31, 2018.
3 The change in methodology to calculate the average net book value of other property, plant and equipment is calculated from an amount of
€1,613 million at December 31, 2017 and €1,647 million at December 31, 2018. The average pro forma net book value of owned and ROU other property
plant and equipment is calculated from an amount of €2,483 million at December 31, 2017 and €2,402 million at December 31, 2018.
4 The change in methodology to calculate the average net book value of software intangible assets is calculated from an amount of €473 million at
December 31, 2017 and €539 million at December 31, 2018.
190
190
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
g Return on invested capital (KPI)
The Group monitors return on invested capital (RoIC) as it gives an indication of the Group’s capital efficiency relative to the capital
invested as well as the ability to fund growth and to pay dividends. In 2019 RoIC is defined as EBITDA, less fleet depreciation
adjusted for inflation, depreciation of other property, plant and equipment, and amortisation of software intangibles, divided by
average invested capital and is expressed as a percentage.
Invested capital is defined as the average of property, plant and equipment and software intangible assets between the opening
and closing net book values. The fleet aspect of property, plant and equipment is inflated over the average age of the fleet to
approximate the replacement cost of the associated assets.
€ million
EBITDA
Less: Fleet depreciation multiplied by inflation adjustment
Less: Other property, plant and equipment depreciation
Less: Software intangible amortisation
Invested capital
Average fleet book value2
Less: Average progress payments3
Fleet book value less progress payments
Inflation adjustment1
Average net book value of other property, plant and equipment4
Average net book value of software intangible assets5
note
h
12
12
12
14
2019
5,396
(2,040)
(259)
(131)
2,966
15,598
(1,297)
14,301
1.19
17,065
2,448
603
20,116
14.7%
Total invested capital
Return on invested capital
€15,150 million at December 31, 2019.
December 31, 2019.
million at December 31, 2019.
December 31, 2019.
2018 RoIC:
1 Presented to two decimal places and calculated using a 1.5 per cent inflation rate over the weighted average age of the fleet (2019: 12 years).
2 The average net book value of owned aircraft excluding progress payments is calculated from an amount of €13,451 million at January 1, 2019 and
3 The average net book value of progress payments is calculated from an amount of €1,069 million at January 1, 2019 and €1,525 million at
4 The average net book value of other property, plant and equipment is calculated from an amount of €2,402 million at January 1, 2019 and €2,493
5 The average net book value of software intangible assets is calculated from an amount of €539 million at December 31, 2018 and €666 million at
For 2018 RoIC is defined as EBITDAR (being operating profit before depreciation, amortisation and rental charges), less adjusted
aircraft operating lease costs, fleet depreciation charge adjusted for inflation, and the depreciation charge for other property, plant
and equipment, divided by invested capital. It is expressed as a percentage.
The lease adjustment reduces aircraft operating lease costs to 0.67 of the annual reported charge. The inflation adjustment is
applied to the fleet depreciation charge and is calculated using a 1.5 per cent inflation rate over the average age of the fleet to allow
for inflation and efficiencies of new fleet.
Invested capital is the fleet net book value at the balance sheet date, excluding progress payments for aircraft not yet delivered and
adjusted for inflation, plus the net book value of the remaining property, plant and equipment plus annual aircraft operating lease
costs multiplied by 8. Intangible assets are excluded from the calculation.
The table below shows the reconciliation to derive the RoIC measure for 2018, including the change in methodology as described
for 2019 and adjusting for IFRS 16. As the Group adopted IFRS 16 from January 1, 2019, the comparative RoIC inputs for 2018 have
been adjusted on a pro forma basis to reflect the impact of this change in the 2018 Income statement for the year to December 31,
2018 and for the balance sheets at January 1, 2018 and December 31, 2018:
€ million
EBITDAR / EBITDA
Less: Aircraft operating lease costs multiplied by 0.67
Less: Depreciation charge for fleet assets multiplied by inflation adjustment
Depreciation charge for fleet assets
Inflation adjustment1
Less: Depreciation charge for other property, plant and equipment
Less: Depreciation charge for other ROU assets
Less: Amortisation charge for software intangibles
Invested capital
Fleet closing/average book value excluding progress payments2
Inflation adjustment1
Closing/average book value of other property, plant and equipment 3
Aircraft operating lease costs multiplied by 8
Average book value of software intangible assets4
Total invested capital
Return on invested capital
2018
Reported
5,374
(596)
Change in
methodology
-
Pro forma
adjustments
107
2018
Pro forma
5,481
596
-
-
(984)
1.22
(1,205)
(138)
3,435
9,721
1.22
11,902
1,647
7,120
20,669
16.6%
-
-
-
-
-
(123)
473
(223)
1.22
(273)
(17)
(7,120)
506
(634)
1.15
(726)
-
(108)
-
(727)
3,757
1.12
4,194
813
-
-
(6,904)
5,007
(1,618)
1.19
(1,931)
(138)
(108)
(123)
3,181
13,255
1.19
15,823
2,443
-
506
18,772
16.9%
1 Presented to two decimal places and calculated using a 1.5 per cent inflation rate over the weighted average age of the fleet (11.9 years).
2 The change in methodology to calculate the average net book value of owned aircraft excluding progress payments is calculated from an amount of
€9,275 million at December 31, 2017 and €9,721 million at December 31, 2018. The average pro forma net book value of owned and ROU aircraft
excluding progress payments is calculated from an amount of €13,058 million at December 31, 2017 and €13,451 million at December 31, 2018.
3 The change in methodology to calculate the average net book value of other property, plant and equipment is calculated from an amount of
€1,613 million at December 31, 2017 and €1,647 million at December 31, 2018. The average pro forma net book value of owned and ROU other property
plant and equipment is calculated from an amount of €2,483 million at December 31, 2017 and €2,402 million at December 31, 2018.
4 The change in methodology to calculate the average net book value of software intangible assets is calculated from an amount of €473 million at
December 31, 2017 and €539 million at December 31, 2018.
190
191
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ALTERNATIVE PERFORMANCE MEASURES CONTINUED
h Net debt to EBITDA (KPI)
To supplement total borrowings as presented in accordance with IFRS, the Group reviews net debt to EBITDA to assess its level of
net debt in comparison to the underlying earnings generated by the Group in order to evaluate the underlying business
performance of the Group. This measure is used to monitor the Group’s leverage and to assess financial headroom.
Net debt is defined as long-term borrowings (both current and non-current), less cash, cash equivalents and other current interest-
bearing deposits. The definition of Net debt remains unchanged from 2018, however with the adoption of IFRS 16 from January 1,
2019, total borrowings have significantly increased due to the recognition of the lease liabilities. Accordingly, the comparative
figures for 2018 have been adjusted to reflect the impact of such a change at December 31, 2018.
EBITDA is defined as operating profit before exceptional items, interest, taxation, depreciation, amortisation and impairment. The
Group believes that this additional measure, which is used internally to assess the Group’s financial capacity, is useful to the users of
the financial statements in helping them to see how the Group’s financial capacity has changed over the year. It is a measure of the
profitability of the Group and of the core operating cash flows generated by the business model.
€ million
Interest-bearing long-term borrowings
Less: Cash and cash equivalents
Less: Other current interest-bearing deposits
Net debt
Operating profit before exceptionals
Add: Depreciation, amortisation and impairment
EBITDA
Net debt to EBITDA
i Results on a constant currency (ccy) basis
note
23, 33
19
19
b
b
2019
14,254
(4,062)
(2,621)
7,571
3,285
2,111
5,396
1.4
2018
Pro forma
12,704
(3,837)
(2,437)
6,430
3,485
1,996
5,481
1.2
Movements in foreign exchange rates impact the Group’s financial results. The Group reviews the results, including revenue and
operating costs at constant rates of exchange (abbreviated to ‘ccy’). The Group calculates these financial measures at constant
rates of exchange based on a re-translation, at prior year exchange rates, of the current year’s results of the Group. Although the
Group does not believe that these measures are a substitute for IFRS measures, the Group does believe that such results excluding
the impact of currency fluctuations year-on-year provide additional useful information to investors regarding the Group’s operating
performance on a constant currency basis. Accordingly, the financial measures at constant currency within the discussion of the
Group Financial review should be read in conjunction with the information provided in the Group financial statements.
The following table represents the main average and closing exchange rates for the reporting periods. Where 2019 figures are
stated at a constant currency basis, they have applied the 2018 rates stated below:
Foreign exchange rates
Euro to pound sterling
US dollar to euro
US dollar to pound sterling
Average
Closing
2019
1.13
1.12
1.27
2018
1.13
1.18
1.33
2019
1.18
1.11
1.31
2018
1.11
1.14
1.26
192
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
GROUP INVESTMENTS
Subsidiaries
British Airways
Name and address
Avios Group (AGL) Limited*
Astral Towers, Betts Way, London Road, Crawley, West Sussex, RH10 9XY
BA and AA Holdings Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
BA Call Centre India Private Limited (callBA)
F-42, East of Kailash, New Delhi, 110065
BA Cityflyer Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
BA European Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
BA Excepted Group Life Scheme Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
BA Healthcare Trust Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
BA Holdco Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
BA Number One Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
BA Number Two Limited
IFC 5, St Helier, JE1 1ST
Bealine Plc
Waterside, PO Box 365, Harmondsworth, UB7 0GB
BritAir Holdings Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways (BA) Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways 777 Leasing Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Associated Companies Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Avionic Engineering Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Capital Limited
Queensway House, Hilgrove Street, St Helier, JE1 1ES
British Airways E-Jets Leasing Limited*
Canon’s Court, 22 Victoria Street, Hamilton, HM 12
British Airways Holdings B.V.
Strawinskylaan 3105, Atrium, Amsterdam, 1077ZX
British Airways Holidays Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Interior Engineering Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Leasing Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Maintenance Cardiff Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Pension Trustees (No 2) Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Mediterranean Airways Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Midland Airways Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Principal activity
Country of
Incorporation
Percentage
of equity
owned
Airline marketing
England
100%
Holding company
England
100%
Call centre
India
100%
Airline operations
England
100%
Holding company
England
100%
Life insurance
England
100%
Healthcare
England
100%
Holding company
England
100%
Dormant
England
100%
Dormant
Jersey
100%
Dormant
England
100%
Holding company
England
100%
Dormant
England
100%
Aircraft leasing
England
100%
Holding company
England
100%
Aircraft
maintenance
England
100%
Aircraft financing
Jersey
100%
Aircraft leasing
Bermuda
100%
Holding company Netherlands
100%
Tour operator
England
100%
Aircraft
maintenance
England
100%
Aircraft leasing
England
100%
Aircraft
maintenance
England
100%
Trustee company
England
100%
Former airline
England
99%
Former airline
England
100%
193
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information GROUP INVESTMENTS CONTINUED
Name and address
British Midland Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Diamond Insurance Company Limited
1st Floor, Rose House, 51-59 Circular Road, Douglas, IM1 1RE
Flyline Tele Sales & Services GmbH
Hermann Koehl-Strasse 3, 28199, Bremen
Gatwick Ground Services Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Overseas Air Travel Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Speedbird Insurance Company Limited*
Canon’s Court, 22 Victoria Street, Hamilton, HM 12
Teleflight Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Iberia
Name and address
Compañía Explotación Aviones Cargueros Cargosur, S.A.
Calle Martínez Villergas 49, Madrid, 28027
Compañía Operadora de Corto y Medio Radio Iberia Express, S.A.*
Calle Alcañiz 23, Madrid, 28006
Iberia Líneas Aéreas de España, S.A. Operadora*
Calle Martínez Villergas 49, Madrid, 28027
Iberia México, S.A.*
Ejército Nacional 439, Mexico City, 11510
Iberia Tecnología, S.A.*
Calle Martínez Villergas 49, Madrid, 28027
Auxiliar Logística Aeroportuaria, S.A.*
Centro de Carga Aérea, Parcela 2 P5, Nave 6, Madrid, 28042
Compañía Auxiliar al Cargo Exprés, S.A.*
Centro de Carga Aérea, Parcela 2 P5, Nave 6, Madrid, 28042
Iberia Desarrollo Barcelona, S.L.*
Avenida de les Garrigues 38-44, Edificio B,
El Prat de Llobregat, Barcelona, 08220
Aer Lingus
Name and address
Aer Lingus (Ireland) Limited
Dublin Airport, Dublin
Aer Lingus 2009 DCS Trustee Limited
Dublin Airport, Dublin
Aer Lingus Beachey Limited
Penthouse Suite, Analyst House, Peel Road, Isle of Man, IM1 4LZ
Aer Lingus Group DAC*
Dublin Airport, Dublin
Aer Lingus Limited*
Dublin Airport, Dublin
Aer Lingus Northern Ireland Limited
Aer Lingus Base, Belfast City Airport, Sydenham Bypass,
Belfast, Co. Antrim, BT3 9JH
ALG Trustee Limited
33-37 Athol Street, Douglas, IM1 1LB
Dirnan Insurance Company Limited
Canon’s Court, 22 Victoria Street, Hamilton, Bermuda, HM 12
Santain Developments Limited
Dublin Airport, Dublin
Shinagh Limited
Dublin Airport, Dublin
194
Principal activity
Country of
Incorporation
Percentage
of equity
owned
Dormant
England
100%
Dormant
Isle of Man
100%
Call centre
Germany
100%
Ground services
England
100%
Transport
England
100%
Insurance
Bermuda
100%
Dormant
England
100%
Principal activity
Country of
Incorporation
Percentage
of equity
owned
Cargo transport
Spain
100%
Airline operations
Spain
100%
Airline operations
and maintenance
Storage and
custody services
Aircraft
maintenance
Airport logistics
and cargo terminal
management
Spain
100%1
Mexico
100%
Spain
100%
Cargo transport
Spain
Spain
75%
75%
Airport
infrastructure
development
Spain
75%
Principal activity
Country of
Incorporation
Percentage
of equity
owned
Provision of human resources
support to fellow group companies
Republic of
Ireland
Dormant
Republic of
Ireland
100%
100%
Dormant
Isle of Man
100%
Holding company
Airline operations
Republic of
Ireland
Republic of
Ireland
Dormant
Northern
Ireland
100%
100%
100%
Trustee
Isle of Man
100%
Insurance
Bermuda
100%
Dormant
Dormant
Republic of
Ireland
Republic of
Ireland
100%
100%
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Avios
Name and address
Avios South Africa Proprietary Limited
Block C, 1 Marignane Drive, Bonaero Park, Gauteng, 1619
Remotereport Trading Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
IAG Cargo Limited
Name and address
Routestack Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Zenda Group Limited
Carrus Cargo Centre, PO Box 99, Sealand Road, London Heathrow Airport,
Hounslow, Middlesex, TW6 2JS
Vueling
Name and address
Anilec Holding GmbH
Office Park I Top B04, Vienna, 1300
Level Europe GmbH
Office Park I Top B04, Vienna, 1300
Yellow Handling, S.L.U
Plaça Pla de l’Estany 5, Parque de Negocios Mas Blau II, El Prat de Llobregat,
Barcelona, 08820
Vueling Airlines, S.A.*
Plaça Pla de l’Estany 5, Parque de Negocios Mas Blau II,
El Prat de Llobregat, Barcelona, 08820
Waleria Beteiligungs GmbH
Office Park I Top B04, Vienna, 1300
LEVEL
Name and address
FLYLEVEL UK Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Openskies SASU
3 Rue le Corbusier, Rungis, 94150
International Consolidated Airlines Group S.A.
Name and address
AERL Holding Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Plc*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
FLY LEVEL, S.L.
Camino de la Muñoza s/n, El Caserío,
Iberia Zona Industrial 2, Madrid, 28042
IAG Cargo Limited*
Carrus Cargo Centre, PO Box 99, Sealand Road, London Heathrow
Airport, Hounslow, TW6 2JS
IAG Connect Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
IAG GBS Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
IAG GBS Poland sp z.o.o.*
Ul. Opolska 114, Krakow, 31 -323
IB Opco Holding, S.L.
Calle Martínez Villergas 49, Madrid, 28027
Veloz Holdco, S.L.
Plaça Pla de l’Estany 5, Parque de Negocios Mas Blau II,
El Prat de Llobregat, Barcelona, 08820
Principal activity
Country of
Incorporation
Percentage
of equity owned
Dormant South Africa
Trademark ownership
England
100%
100%
Principal activity
Country of
Incorporation
Percentage
of equity owned
Shipping solutions
England
100%
Shipping solutions
England
100%
Principal activity
Country of
Incorporation
Percentage
of equity owned
Holding company
Austria
Airline operations
Austria
100%
100%
Ground handling
services
Spain
100%
Airline operations
Spain
Holding company
Austria
99.5%
49.8%
Principal activity
Country of
Incorporation
Percentage
of equity owned
Airline operations
England
Airline operations
France
100%
100%
Principal activity
Country of
Incorporation
Percentage
of equity owned
Holding company
England
Airline operations
England
100%
100%2
Airline operations
Spain
100%
Air freight operations
England
Inflight eCommerce platform
Republic of
Ireland
IT, finance, procurement services
England
IT, finance, procurement services
Poland
Holding company
Spain
100%
100%
100%
100%
100%1
Holding company
Spain
100%
* Principal subsidiaries
1 The Group holds 49.9% of both the total nominal share capital and the total number of voting rights in IB Opco Holding, S.L. (and thus, indirectly, in Iberia
Líneas Aéreas de España, S.A. Operadora), such stake having almost 100% of the economic rights in these companies. The remaining shares, representing
50.1% of the total nominal share capital and the total number of voting rights belong to a Spanish company incorporated for the purposes of implementing
the Iberia nationality structure.
2 The Group holds 49.9% of the total number of voting rights and 99.65% of the total nominal share capital in British Airways Plc, such stake having almost
100% of the economic rights. The remaining nominal share capital and voting rights, representing 0.35% and 50.1% respectively, correspond to a trust
established for the purposes of implementing the British Airways nationality structure.
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Associates
Name and address
Empresa Hispano Cubana de Mantenimiento de Aeronaves, Ibeca, S.A.
Avenida de Vantroi y Final, Aeropuerto de Jose Martí, Ciudad de la Habana
Empresa Logística de Carga Aérea, S.A.
Carretera de Wajay km 15,
Aeropuerto de Jose Martí, Ciudad de la Habana
Multiservicios Aeroportuarios, S.A.
Avenida de Manoteras 46, 2ª planta, Madrid, 28050
Dunwoody Airline Services Limited
Building 70, Argosy Road, East Midlands Airport,
Castle Donnington, Derby, DE74 2SA
Serpista, S.A.
Calle Cardenal Marcelo Spínola 10, Madrid, 28016
Air Miles España, S.A.
Avenida de Bruselas 20, Alcobendas, Madrid, 28108
Inloyalty by Travel Club, S.L.U.
Avenida de Bruselas 20, Alcobendas, Madrid, 28108
Viajes Ame, S.A.
Avenida de Bruselas 20, Alcobendas, Madrid, 28108
DeepAir Solutions Limited
Ground Floor North, 86 Brook Street, London, W1K 5AY
Joint ventures
Name and address
Sociedad Conjunta para la Emisión y Gestión de Medios de Pago EFC, S.A.
Calle de O’Donnell 12, Madrid, 28009
Other equity investments
The Group’s principal other equity investments are as follows:
Country of
Incorporation
Percentage
of equity owned
Cuba
Cuba
Spain
England
Spain
Spain
Spain
Spain
England
50%
50%
49%
40%
39%
26.7%
26.7%
26.7%
25%
Country of
Incorporation
Percentage
of equity owned
Spain
50.5%
Name and address
Servicios de Instrucción de Vuelo, S.L.
Camino de la Muñoza s/n, El Caserío,
Iberia Zona Industrial 2, Madrid, 28042
The Airline Group Limited
5th Floor, Brettenham House South, Lancaster Place, London,
WC2N 7EN
Importwise Limited
International House, 12 Constance Street, London, E16 2DQ
Comair Limited
1 Marignane Drive, Bonaero Park, Johannesburg, 1619
Travel Quinto Centenario, S.A.
Calle Alemanes 3, Sevilla, 41004
Monese Limited
5th floor, Finsbury Square, London EC2A 1HD
Country of
Incorporation
Percentage
of equity
owned
Shareholder’s
funds
(million)
Profit/(loss)
before tax
(million)
Currency
Spain
19.9%
EUR
62
14
England
16.68%
England
14.8%
South
Africa
11.49%
Spain
10%
England
7.42%
GBP
CHF
ZAR
EUR
GBP
287
n/a
24
n/a
2,571
1,103
n/a
18
n/a
(13)
196
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 STATEMENT OF DIRECTORS’ RESPONSIBILITIES
LIABILITY STATEMENT OF DIRECTORS FOR THE PURPOSES ENVISAGED UNDER ARTICLE 8.1.b OF SPANISH ROYAL DECREE
1362/2007 OF 19 OCTOBER (REAL DECRETO 1362/2007).
At a meeting held on February 27, 2020, the directors of International Consolidated Airlines Group, S.A. state that, to the best of their
knowledge, the individual and consolidated financial statements for the year to December 31, 2019, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken as a whole, and that the individual and consolidated management
reports include a fair review of the development and performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with the description of the principal risks and uncertainties that
they face.
February 27, 2020
Antonio Vázquez Romero
Chairman
William Matthew Walsh
Chief Executive Officer
Marc Jan Bolland
Margaret Ewing
Francisco Javier Ferrán Larraz
Stephen William Lawrence Gunning
Deborah Linda Kerr
María Fernanda Mejía Campuzano
Kieran Charles Poynter
Emilio Saracho Rodríguez de Torres
Lucy Nicola Shaw
Alberto Terol Esteban
197
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
198
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 199
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information 200
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 201
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information 202
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 203
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information 204
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Additional
Information
206 Glossary
208 Operating and financial statistics
IBC Shareholder information
205
www.iairgroup.com GLOSSARY
Adjusted aircraft operating leases1 Aircraft operating lease costs multiplied by 0.67
Adjusted earnings per share
Airline non-fuel costs
Earnings are based on results before exceptional items, after tax adjusted for earnings
attributable to equity holders and interest on convertible bonds, divided by the weighted
average number of ordinary shares, adjusted for the dilutive impact of the assumed conversion
of the bonds and employee share schemes outstanding
Total operating expenditure before exceptional items, less fuel, oil costs and emission charges and
less non-flight specific costs. Within non-fuel costs are the costs associated with generating Other
revenue, which typically do not represent the costs of transporting passengers or cargo and
instead represent the costs of handling and maintenance for other airlines, non-flight products in
BA Holidays and costs associated with other miscellaneous non-flight revenue streams. Shown on
a constant currency basis
Airline non-fuel costs per ASK
Airline non-fuel costs divided by ASK
Available seat kilometres (ASK)
The number of seats available for sale multiplied by the distance flown
Available tonne kilometres (ATK)
Block hours
The number of tonnes of capacity available for the carriage of load (passenger and cargo)
multiplied by the distance flown
Hours of service for aircraft, measured from the time that the aircraft leaves the gate at the
departure airport to the time that it arrives at the gate at the destination airport
Cargo revenue per CTK
Cargo revenue divided by CTK
Cargo tonne kilometres (CTK)
The number of tonnes of cargo carried that generate revenue (freight and mail) multiplied by the
distance flown
Dividend cover
EBITDA
EBITDAR1
Gross capex
Interest cover
Invested capital
Levered free cash flow
Manpower equivalent
Merger effective date
Net debt
The number of times profit for the year covers the dividends paid and proposed
Operating profit before exceptional items, interest, taxation, depreciation, amortisation and
impairment
Operating profit before exceptional items, depreciation, amortisation and rental charges
Gross capital expenditure is the total investment in fleet, customer product, IT and infrastructure
before any proceeds from the sale of property, plant and equipment as shown in the cash flow
statement (‘Acquisition of property, plant and equipment and intangible assets’)
The number of times profit before taxation and exceptional items adding back net interest
expense and interest income cover the net interest expense and interest income
The average of property, plant and equipment and software intangible assets between the
opening and closing net book values. The fleet aspect of property, plant and equipment is inflated
over the average age of the fleet to approximate the replacement cost of the associated assets.
The net increase in cash and cash equivalents taken from the Cash flow statement, adjusting for
movements in Other current interest-bearing deposits and adding back the cash outflows
associated with dividends paid and the acquisition of treasury shares
Number of employees adjusted for part-time workers, overtime and contractors
January 21, 2011, the date British Airways and Iberia signed a merger agreement to create
International Airlines Group
Current and long-term interest-bearing borrowings less cash and cash equivalents and other
current interest-bearing deposits
206
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019 Net Promoter Score (NPS)
Operating margin
Overall load factor
The Net Promoter Score (NPS) is a metric based on survey responses to the ‘likelihood to
recommend’ question and is calculated by subtracting the percentage of customers who are
‘Detractors’ (score 0-6, unlikely to recommend) from the percentage of customers who are
‘Promoters’ (score 9-10, likely to recommend)
Operating profit/(loss) before exceptional items as a percentage of total revenue
RTK expressed as a percentage of ATK
Passenger load factor
RPK expressed as a percentage of ASK
Passenger unit revenue per ASK
(PASK)
Passenger revenue divided by ASK
Passenger revenue per RPK (yield) Passenger revenue divided by RPK
Productivity
Punctuality
Regularity
ASK divided by average manpower equivalent
The industry’s standard, measured as the percentage of flights departing within 15 minutes of
schedule
The percentage of flights completed to flights scheduled, excluding flights cancelled for
commercial reasons
Return on Invested Capital (RoIC) EBITDA, less fleet depreciation adjusted for inflation, depreciation of other property, plant and
Revenue passenger kilometres
(RPK)
equipment, and amortisation of software intangibles, divided by average invested capital and is
expressed as a percentage
The number of passengers that generate revenue carried multiplied by the distance flown
Revenue tonne kilometres (RTK)
The revenue load in tonnes multiplied by the distance flown
Sector
Sold cargo tonnes
Total capital
Total Group revenue per ASK
(RASK)
Total operating expenditure
excluding fuel per ASK
Total operating expenditure
per ASK (CASK)
A one-way revenue flight
The number of cargo tonnes sold, including freight, courier, mail and interline
Total equity plus net debt
Total group revenue divided by ASK
Total operating expenditure before exceptional items excluding fuel divided by ASK
Total operating expenditure before exceptional items divided by ASK
Total traffic revenue per ATK
Revenue from total traffic (passenger and cargo) divided by ATK
1 Relevant to 2018 Alternative performance measures only.
207
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information OPERATING AND FINANCIAL STATISTICS
Total Group operations
Traffic and capacity
Available seat km (ASK)
Revenue passenger km (RPK)
Cargo tonne km (CTK)
Passengers carried
Sold cargo tonnes
Sectors
Block hours
Operations
Average manpower equivalent
Aircraft in service at year end
Aircraft utilisation – Longhaul
(average hours per aircraft per day)
Aircraft utilisation – Shorthaul
(average hours per aircraft per day)
Punctuality – within 15 minutes
Regularity
Financial
Passenger unit revenue per ASK (PASK)4
Passenger revenue per RPK4
Cargo revenue per CTK4
Total revenue per ASK (RASK)4
Average fuel price
Fuel cost per ASK4
Operating profit before depreciation
and amortisation (EBITDA)4
Total operating expenditure excluding fuel
per ASK (CASK ex. fuel)4
Operating margin4
Lease adjusted operating margin4
Total operating expenditure per ASK (CASK)4
Dividend cover
Interest cover
Net debt
Equity
Adjusted net debt to EBITDAR
Net debt to EBITDA
Exchange rates
Translation – weighted average
Transaction
Transaction
Transaction
2019
20181
20172
2016
20153
million
million
million
‘000
‘000
337,754
285,745
5,577
118,253
682
324,808
306,185
298,431
272,702
270,657
252,819
243,474
221,996
5,713
5,762
5,454
112,920
104,829
100,675
702
701
680
5,293
88,333
661
775,486
660,438
hours 2,272,904 2,207,374 2,100,089 2,067,980 1,867,905
754,700
708,615
717,325
66,034
64,734
63,422
63,387
60,862
598
13.5
8.6
77.8
98.7
6.65
7.86
20.03
7.55
628
1.78
573
13.5
9.0
75.5
98.7
6.59
7.91
20.53
7.47
687
1.63
546
13.5
8.9
81.8
99.1
6.63
8.02
19.65
7.47
519
1.51
548
13.5
8.8
77.2
99.3
6.68
8.18
18.74
7.56
425
1.63
529
13.5
9.1
80.2
99.4
7.46
9.16
20.67
8.38
908
2.23
hours
hours
%
%
€cents
€cents
€cents
€cents
($/metric tonne)
€cents
€million
5,396
5,481
4,134
3,822
3,642
€cents
%
%
€cents
times
times
€million
€million
times
times
£:€
£:€
€:$
£:$
4.80
12.9
n/a
6.58
3.8
6.3
7,571
6,829
n/a
1.4
1.13
1.13
1.12
1.27
4.77
14.4
14.4
6.40
3.9
6.7
6,430
6,720
1.6
1.21
1.13
1.13
1.18
1.33
5.00
12.9
14.2
6.51
4.0
16.4
655
6,933
1.5
n/a
1.14
1.14
1.14
1.29
5.08
10.9
12.0
6.71
4.0
10.8
2,087
7,741
1.8
n/a
1.21
1.21
1.11
1.34
5.30
10.2
11.2
7.53
3.8
8.2
2,774
7,328
1.9
n/a
1.39
1.40
1.11
1.55
1 2018 figures have been adjusted to reflect the estimated impact of IFRS 16 ‘Leases’ and to reclassify the costs the Group incurs in relation to
compensation for flight delays and cancellations as a deduction from revenue as opposed to an operating expense.
2 2017 figures restated for accounting standards IFRS 15 ‘Revenue from contracts with customers’ and IFRS 9 ‘Financial instruments’.
3 Aer Lingus Group plc results have been consolidated from August 18, 2015.
4 Figures on a pre-exceptional items basis.
208
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2019
SHAREHOLDER INFORMATION
Registered office
International Consolidated Airlines Group, S.A
El Caserío, Iberia Zona Industrial nº 2 (La Muñoza)
Camino de La Muñoza, s/n, 28042 Madrid, Spain.
Madrid Commercial Registrar
tomo 27312, folio 11, hoja M-492129
C.I.F. A85845535
UK Branch registered address
International Airlines Group
Waterside (HAA2),
PO Box 365, Speedbird way
Harmondsworth, UB7 0GB
Registered in England & Wales: BR014868
Registrar
Computershare Investor Services PLC
For enquiries relating to shares held through the Corporate
Sponsored Nominee (UK share register):
Tel: +44 370 702 0110
Email: web.queries@computershare.co.uk
Online: www.investorcentre.co.uk/iag
IAG Investor relations team
UK: +44 20 8564 2900; or
Spain: +34 91 312 6440
Institutional investors: investor.relations@iairgroup.com
Private shareholders: shareholder.services@iairgroup.com
American Depositary Receipt program
IAG has a Sponsored Level 1 American Depositary Receipt (ADR)
facility that trades on the OTC market in the US (see www.
otcmarkets.com). Deutsche Bank is the ADR depositary bank.
For shareholder enquiries, contact:
Deutsche Bank Trust Company Americas c/o American Stock
Transfer, Operations Centre, 6201 15th Avenue, Brooklyn,
New York 11219, USA
Email: db@astfinancial.com
Toll free: +1 800 301 3517
International: +1 718 921 8137
Online: www.adr.db.com
Financial calendar
Financial year end: December 31, 2019
Q1 results: May 7, 2020
Half year results: July 31, 2020
Q3 results: October 30, 2020
Other key dates can be found on our website: www.iairgroup.com
ShareGift
UK shareholders with a small number of shares may like to
consider donating their shares to charity under ShareGift,
administered by Orr Mackintosh Foundation. Details are available
from the UK Registrar.
Certain statements included in this report are forward-looking. These statements can be identified by the fact that they do not relate
only to historical or current facts. By their nature, they involve risk and uncertainties because they relate to events and depend on
circumstances that will occur in the future. Actual results could differ materially from those expressed or implied by such forward-
looking statements.
Forward-looking statements often use words such as “expects”, “may”, “will”, “could”, “should”, “intends”, “plans”, “predicts”, “envisages”
or “anticipates” or other words of similar meaning. They include, without limitation, any and all projections relating to the results of
operations and financial conditions of International Consolidated Airlines Group, S.A. and its subsidiary undertakings from time to time
(the ‘Group’), as well as plans and objectives for future operations, expected future revenues, financing plans, expected expenditure
and divestments relating to the Group and discussions of the Group’s business plan. All forward-looking statements in this report are
based upon information known to the Group on the date of this report and speak as of the date of this report. Other than in
accordance with its legal or regulatory obligations, the Group does not undertake to update or revise any forward-looking statement to
reflect any changes in events, conditions or circumstances on which any such statement is based.
There are several factors that could cause actual results to differ from those expressed or implied in forward-looking statements, and it
is not reasonably possible to itemise each of them. Further information on the primary risks of the business and the Group’s risk
management process is set out in the ‘Risk management and principal risk factors’ section of this report. All forward-looking
statements made on or after the date of this document and attributable to IAG are expressly qualified in their entirety by the primary
risks set out in that section.
INTERNATIONAL
AIRLINES
GROUP
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