International Airlines Group

236 Pages·2015·4.66 MB·English

INTERNATIONAL 2014 ANNUAL
AIRLINES
REPORT AND
GROUP
ACCOUNTS
International Airlines Group
2014 HIGHLIGHTS
Our aim is to be the world’s best airline group
REVENUE OPERATING PROFIT
(before exceptional items)
+7.1% €1,390m
at constant currency up €620m
0
25000 1500 39
0 1,
7
20000 339 18,117 18,675 20,1 1200
16, 900 70
7
15000
600 85
4
10000
300
3)
5000 0 (2
0
-300
‘11 ‘12 ‘13 ‘14 ‘11 ‘12 ‘13 ‘14
NON-FUEL PRODUCTIVITY PASSENGERS PASSENGER
UNIT COSTS CARRIED UNIT REVENUE
-3.9% +10.4% +15% -0.4%
at constant currency at constant currency
This is a measure of how This measures the amount In 2014, IAG’s airlines carried Passenger revenue divided
we manage costs, which of capacity (ASKs) that 77 million passengers, by capacity (ASKs).
to a large extent are under our employees deliver 10 million more than 2013. This reflects both the
our control. It is total on average each year changes in prices we
non-fuel costs divided (ASKs divided by average charge and the change
by capacity (Available number of employees). in volume of our sales.
Seat Kilometres ‘ASKs’).
Visit us online at
iairgroup.com
Group overview Governance Financial overview Financial statements Additional information
TABLE OF CONTENTS
Group overview Governance Financial statements
32 Chairman’s introduction 95 Consolidated income statement
Introduction
to corporate governance 96 Consolidated statement of
4 Chairman’s letter
34 Board of Directors other comprehensive income
6 Chief Executive Officer’s Q&A
36 Corporate governance 97 Consolidated balance sheet
8 Our brands and networks
44 Report of the Audit and 98 Consolidated cash flow
Compliance Committee statement
Business review
47 Report of the Nominations 99 Consolidated statement
10 Chief Executive Officer’s review
Committee of changes in equity
13 Business model and strategy
50 Report of the Safety Committee 101 Notes to the consolidated
16 Our synergies
51 R eport of the Remuneration financial statements
17 Fleet harmonisation
Committee 159 Spanish Corporate
18 Consolidating British Airways’ Governance report
position Financial overview
224 Group investments
74 Operating and market
19 The Iberia of the future
environment Statement of Directors’
20 Vueling
76 Financial review Responsibilities
21 Avios & IAG Cargo
87 Risk management and
22 Key performance indicators risk factors Independent Auditors’ Report
24 Corporate responsibility
Additional information
231 Operating and financial statistics
232 Glossary
IBC Shareholder information
Strategic report Management report
The Companies Act 2006 (Strategic Report and Directors’ Report) The Additionally, IAG is required to prepare a Management Report in accordance
Regulations require all companies that are not small to prepare a strategic with Article 262 of the Spanish Companies Act and Article 49 of the Spanish
report which contains a fair and balanced analysis, consistent with the size Commercial Code. Pursuant to this legislation, this management report must
and complexity of the business, of: a) the development and performance of contain a fair review of the progress of the business and the performance of the
the company’s business during the financial year; b) the position of the company company, together with a description of the principal risks and uncertainties that
at the end of the year; and, c) a description of the principal risks and uncertainties it faces. In the preparation of this report, IAG has taken into consideration the
facing the company. The strategic report replaces the business review and will guide published in 2013 by the Spanish National Securities Market Commission
be presented as a separate section of the annual report, outside of the directors’ (CNMV) which establishes a number of recommendations for the preparation
report. As far as possible the Company has complied with these requirements of management reports of listed companies. The Management Report is
voluntarily. The Strategic report is contained in the following sections: contained in the following sections:
13 Business model and strategy 13 Business model and strategy
16 Our synergies 16 Our synergies
22 Key performance indicators 22 Key performance indicators
24 Corporate responsibility 24 Corporate responsibility
32 Chairman’s introduction 36 Corporate governance
to corporate governance 74 Operating and market environment
74 Operating and market environment 76 Financial review
76 Financial review 87 Risk management and risk factors
87 Risk management and risk factors 159 Spanish Corporate Governance report
www.iairgroup.com 1
IAG is ADVANCING its business
to meet its 2015 financial targets
through capacity discipline,
flexibility, cost control and
thus ability to grow profitably.
The significant progress made
so far gives IAG the confidence
to anticipate making a dividend
declaration in 2015 as the first
step towards introducing a
sustainable dividend payment.
2 I nternational Airlines Group
Annual Report and Accounts 2014
GGGGrrroooouuuupppp oooovvvveeerrrvvviiiieeeewwww GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGoooooooooovvvvvvvvvveeeeeeeeerrrrrrrrrnnnnnnnnnnnaaaaaaaaaaaaaaaaannnnnnnnnnnnnnnccccccccccceeeeeeeeeeeeeee FFFFFFFFFFFFFFFFiiiiiiiiiiiiiiiinnnnnnnnnnnnnnnnaaaaaaaaaaaaaaaannnnnnnnnnnnnnnnnnnnnnnnccccccccccccccccccccccccccccciiiiiiiiiiiiiiiiiiiiiiiiiaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaallllllllllllllllllllllll ooooooooooooooooooooooooooovvvvvvvvvvvvvvvvvvvvvvvvvvvvvvveeeeeeeeeeeeeeeeeeeeeeeeeeeeeerrrrrrrrrrrrrrrrrrrrrrrrrrvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvviiiiiiiiiiiiiiiiiiiiiiiiiieeeeeeeeeeeeeeeeeeeeeeeeeeeewwwwwwwwwwwwwwwwwwwwwwwwww FFFFFFFFFFiiiiiiiiiiinnnnnnnnnnnnnnaaaaaaaaaaannnnnnnnnnnnnncccccccccccccccciiiiiiiiiiiiiiaaaaaaaaaaaaaaaaalllllllllll sssssssssssssssttttttttttttttaaaaaaaaaaaatttttttttttteeeeeeeeeeeeemmmmmmmmmmmmeeeeeeeeeennnnnnnnnntttttttttttsssssssssss AAAAAAAAAAAAAAAddddddddddddddddddddddddddiiiiiiiiiiiiitttttttttttttttttttttiiiiiiiiiiiiiiiooooooooooooooonnnnnnnnnnnnnnnnaaaaaaaaaaaaaaaallllllllllllll iiiiiiiiiinnnnnnnnnnnnnnnnnnfffffffffffffffoooooooooooooooorrrrrrrrrrrrrrrrmmmmmmmmmmmmmmmmmaaaaaaaaaaaaaaaaaaattttttttttttttiiiiiiiiiiiiiioooooooooooonnnnnnnnnnnnnn
GROUP
OVERVIEW
In this section
Introduction Business review
4 Chairman’s letter 10 Chief Executive Officer’s review 19 The Iberia of the Future
6 Chief Executive Officer’s Q&A 13 Business model and strategy 20 Vueling
8 Our brands and networks 16 Our synergies 21 Avios and IAG Cargo
17 Fleet harmonisation 22 Key performance indicators
18 Consolidating British Airways’ 24 Corporate responsibility
position
www.iairgroup.com 3
CHAIRMAN’S LETTER
Building a platform for further growth
continue to work to very demanding
targets for the future; which will allow
them to expand further provided that
we maintain our strict discipline on costs
and capacity, as we fully intend to do.
Other parts of the business have also
made important steps in their evolution,
notably our Cargo business and the
Avios customer loyalty programme.
“ A very warm welcome
The global context
to the latest edition of
The aviation industry is clearly in a
International Airlines
much better place today than it has
Group’s Annual Report, been for a very long time. Recent
covering our fourth year as figures from the International Air
a global airline Group and Transport Association suggest the
industry will post combined net profits
a period of very significant
of $19.9 billion in 2014, rising to $25
progress for the Company.”
billion in 2015. Crucially, the return on
invested capital achieved by airlines
Antonio Vázquez
is expected to climb from an estimate
Chairman
of 6.1 per cent in 2014 to 7 per cent
this year placing it close to the cost
of capital, where it needs to be. In
the past, failure to achieve that target
has been one of the biggest failings
of our industry.
2014 has been, quite simply, a very A year of achievement Regional differences abound, of course.
good year for the business, reflected 2014 was a year of achievements right The US, following a period of deep
in a strong set of financial results with across IAG. A major highlight was the consolidation, is looking extremely
operating profits of €1,390 million (an continued deep transformation of Iberia strong, while in Europe, with its much
increase of €620 million over 2013) on and its return to profitability – a position more complex regulatory and tax
Group revenues of €20.2 billion. It’s a that, only two years ago, looked a very environment and increasingly fierce
result that we are proud of, but one distant prospect. Although we need to competition, it is much harder to attain
which we see as a stepping-stone to boost Iberia’s profitability further, the those levels of profitability. In that
further growth in 2015 and beyond. turnaround represents the new normal context our own results look strong.
There is still a great deal more to do. for the airline, providing it with a solid Thanks to the groundwork we did in
financial base from which to modernise British Airways some years ago and
In the pages that follow we describe
its fleet and launch new long and more recently in Iberia, we are, frankly,
in detail where IAG has come from
shorthaul routes. ahead of the average network carrier
in the four years since we created the
in this region.
business with the merger of British Vueling, our premium low-cost brand
Airways and Iberia and where we serving European markets, has And the promising news is that this
want to be in years to come. I hope continued to expand, opening new healthier economic environment looks
you can agree that the vision we set bases in both Rome and Brussels likely to be sustained as more and
for the Company, backed by our and also benefitting from the addition more airlines realise the importance of
unique business model, has already of new aircraft to its fleet. At British imposing greater financial discipline.
borne real fruit. I assure you many Airways, the introduction of Airbus Opportunities for further cross-border
exciting developments still lie ahead A380s and Boeing 787s, much loved consolidation remain limited for the
for all the stakeholders in the business. by customers, has also underpinned time being, but our unique business
continued progress. All three airlines model – allowing Group airlines to
4 I nternational Airlines Group
Annual Report and Accounts 2014
Group overview Governance Financial overview Financial statements Additional information
operate independently while Environment and Community Outlook
benefitting from significant synergy As you know, we have always It’s a particular pleasure to be able to
savings – means we are well placed maintained a strong commitment write such a positive letter at the start
to lead any further consolidation to community programmes and to of this year’s report.
that might occur. In the meantime, managing our environmental impact,
I think we can be very pleased with
international alliances remain key in irrespective of the prevailing economic
where the Company stands today.
terms of improving connectivity and conditions. We continue to do so.
We started with a clear vision and have
enlarging global networks, and we
The highlight this year was our achieved, and often exceeded, the
are pleased with the performance
achievements in terms of fuel targets we set for ourselves. People
and growth of the oneworld alliance.
optimisation and efficiency. Helped across the business are working very
Corporate Governance by bringing new aircraft into service hard to deliver that vision and to build
We continue to fine-tune the Corporate and changes to flight operations, we on it for the future. Our shareholders,
Governance structure of the Group, reduced our overall emissions by 2.2 I sense, also have growing confidence
to refresh the Board and to adjust to per cent during the year – a very in the Group, the Management Team
changing standards, as we must this good result, which we look to improve and in our powerful business model.
year in response to new Governance on constantly. But the commitment
I am especially pleased to see how
Codes in both the UK and Spain. goes much wider. We continue to
cohesive the Group is. We have dealt
play a lead role in bringing commercially
Succession has been a major focus with the majority of the legacy issues
viable bio-fuels to the market, not least
this year. We carried out a deep that came with our airlines and there
through our joint business relationship
analysis of our future needs both in is a growing sense of united purpose
with Solena. We also continue to agitate
terms of Non-Executive Directors and across IAG. In a phrase, it boils down to
for a global agreement on emissions
the Management Team. We will revisit this: when we work together, we deliver.
trading, fully supporting the UN’s efforts
these plans periodically and, as far
to reach one through its agency, the
as management is concerned, we will
International Civil Aviation Organisation.
continue fostering our internal talent.
Such an agreement is vital to the
Another priority in 2014 for the Board
sustainability of our industry.
was diversity. We are now close to our
25 per cent target for the representation All our airlines operate their own
of women on the Board, following the Corporate Responsibility programmes
Antonio Vázquez
appointment of María Fernanda Mejía allowing us to support key programmes
Chairman
as a third female Non-Executive. in their domestic markets and in
locations to which they fly.
We are lucky to have a Board that is
packed with international experience Dividend
and expertise drawn from across It’s been our stated intention from
sectors. It’s a group that works the start to make dividend payments
well together and is hungry to find to our shareholders in the medium
better ways to support our great and long-term. Thanks to the good
Management Team. I’m satisfied that progress we made in 2014, we are
a Board evaluation carried out in 2014 confident of meeting our 2015 financial
produced excellent feedback from targets, which we see as a trigger for
all of our Non-Executives. dividend payments. We anticipate
making a declaration in 2015.
We will be much clearer about our
dividend intentions in the months
ahead, but I want to stress very clearly
that we are committed to making any
such payments both consistent and
sustainable, backed by a new series of
demanding targets for the business.
www.iairgroup.com 5
CHIEF EXECUTIVE OFFICER’S
QUESTIONS & ANSWERS
Firmly establishing our role as a leading airline group
Chief Executive Officer
Willie Walsh homes in on
some of the key questions on
the minds of IAG stakeholders
at the end of 2014.
For more detailed information
on these issues, please follow
the links to other sections of
the report.
Watch the full interview
on our website
www.iairgroup.com
6 I nternational Airlines Group
Annual Report and Accounts 2014
Group overview Governance Financial overview Financial statements Additional information
consolidation and we’ll continue to
Q Can you give us a brief overview Q Can you sustain 2014’s
look for opportunities to expand the
of the year for IAG in 2014? good financial performance?
Group – but we will only do that where
2014 was a very good year for IAG. All we believe new additions to the Group I believe not only that we can sustain
of our business areas made significant can improve our performance and it but that we can build and improve
strides forward and have contributed profitability and bring real benefits on it. And we’ve set very challenging
really well to the overall progress we to our shareholders. long-term goals for the business. We’ve
have made as a Group. So I’m delighted talked about an operating margin in the
See page 13 for more about our
with the way the year has gone. I think order of 10 to 14 per cent; and returns
business model
our shareholders should be really on invested capital of 12 per cent or
pleased about everything we have more, for example. These targets are
achieved and I’m looking forward to Q What were the main drivers of beyond what we achieved in 2014, and
an even more exciting 2015. they are designed to make sure we can
Iberia’s financial turnaround?
start to pay a dividend to shareholders
See page 13 for more about our strategy
The turnaround in Iberia has been truly and sustain that payment. These are
fantastic. It’s a great credit to all of targets we will achieve, but they are the
them, not just the new management sort of targets the industry as a whole
Q What impact will lower oil
team under the leadership of Luis can aim for if it demonstrates good
prices have on your capital
Gallego, but to everybody in the airline. discipline, determination, clear focus
and capacity discipline?
Because what they’ve done is help and strong management. So, absolutely
The reduction in the oil price is not themselves. They’ve recognised the – 2015 should be better for IAG than
going to have any impact on either scale of the challenges they face 2014, and 2016 should be better again.
our capital or our capacity discipline. I and they’ve pulled together. And
think it’s very important for the industry what you’ve seen as a result is the See page 76 for our Financial Review
– and for IAG within the industry – to emergence of a new business, with
demonstrate that we will continue to be new energy and new determination.
Q What have been the
very disciplined even in an environment The brand has been rejuvenated and
environmental highlights
where the oil price has fallen below the people are rejuvenated. They’ve
of the year?
$100 per barrel. And it’s important to done extremely well and to be back in
recognise that although the oil price profit is a fantastic achievement. They We’re always looking to improve our
is around $60 per barrel today, it has need to build on that, of course, and I’m environmental performance. At IAG it’s
been extremely volatile and some absolutely sure they will do so in 2015. something that we very much want to
of the benefit of the lower oil price do. We’ve been leaders in the industry
See page 19 for more about Iberia
has been wiped out by changes in in terms of the need to improve and
currency. The euro and sterling have address our environmental impact and
both weakened against the dollar, we’ve made good progress in 2014.
Q How is IAG changing its
which is the currency we use to buy Initiatives we’ve started – like the joint
structure internally?
fuel. So in this volatile environment business with Solena to develop a truly
we need to remain very focused and We constantly challenge ourselves sustainable bio-fuel from household
IAG will continue to do just that. to see if the structure we have is waste – will make even greater
appropriate for the business and is progress in 2015. I think it’s critical,
See page 74 for more about our market
as efficient as it can possibly be. We in an environment where the oil
and operating environment
make subtle changes from time to time. price has fallen, that we show that
But a significant change in 2014 was we are still looking to improve our
the development of our back offices environmental performance. Some
Q How does IAG fit into
centralised area – what we call GBS. people are sceptical about the
consolidation within the
We’ve taken the routine transactional industry’s commitment and expect
aviation industry?
activity that went on in our operating us to row back. We will not do that.
IAG has demonstrated that companies, and put it together so that We will build on the progress to date,
consolidation is a positive trend the we can be much more efficient. It’s all honour the commitments we’ve
airline industry can benefit from. We’ve part of this constant effort to look for made and make new efforts to
been able to bring together different ways to operate in the best, most improve performance still further.
airlines performing in different markets efficient way.
See page 24 for more about our
with different challenges and
See page 16 for more information approach to corporate responsibility
opportunities, and we’ve done that
about our synergies
extremely well. We’ll continue to
demonstrate the benefits of
www.iairgroup.com 7
OUR BRANDS AND NETWORKS
Connecting people to the world
IAG combines the leading airlines in the UK and Spain.
The airlines’ customers benefit from a larger combined
network for both passenger and cargo.
British Airways is the UK’s largest international airline
and one of the world’s leading global premium carriers.
Its principal place of business is London, the world’s largest
premium travel market, with significant presence at London
Heathrow, London Gatwick and London City airports.
See page 18 for more about British Airways
Iberia is the leading airline between Europe and Latin
America as well as Spain’s largest air transport company.
From its world class hub in Madrid it also serves a wide
range of destinations in North America, Europe, Africa
and the Middle East.
See page 19 for more about Iberia
Vueling joined the Group in April 2013 and is leading at
Barcelona – El Prat and Rome – Fiumicino airports. It offers a
wide network to Spain, Italy, Europe, the Middle East and Africa
and is focused on providing a premium service at a low cost.
See page 20 for more about Vueling
Avios is our shared global reward IAG Cargo came into existence with the
currency used by IAG reward merger of British Airways World Cargo and
programmes: the Avios Travel Iberia Cargo. This consolidation has contributed
Rewards Programme in UK and to its position as one of the world’s leading
South Africa, British Airways international air freight carriers.
Executive Club, and Iberia Plus.
See page 21 for more about IAG Cargo
See page 21 for more about Avios
8 I nternational Airlines Group
Annual Report and Accounts 2014