International Airlines Group

224 Pages·2013·2.52 MB·English

INTERNATIONAL
AIRLINES
GROUP
TR NSFORMING
THE WORLD’S LEADING INTERNATIONAL AIRLINES GROUP
International Airlines Group
Annual Report and Accounts 2012
Formed in January 2011, International Airlines Group
(IAG) is the parent company of British Airways and
Iberia. IAG is one of the world’s largest airline groups
with 377 aircraft flying to 200 destinations and
carrying more than 54 million passengers every year.
Based on revenue, it is the third largest airline group
in Europe and the sixth largest in the world.
IAG is a Spanish registered company with shares
traded on the London and Spanish stock exchanges.
The corporate office for IAG is in London, UK.

Our 2012 highlights
Revenue Operating loss Net synergies
+10.9% (before exceptional items) +€288 million
-€23 million
Includes €365 million of revenues Actual net synergies exceeded
from the bmi acquisition Financial performance of our target with greater benefits primarily
airlines diverges – British Airways in revenue
made a €347m profit while Iberia
made a €351m loss
600
20,000 7,188 8 339 18,117 1,000 500 525 Target
1 9 6,
6 7 1 5
15,000 45 14, 500 6 48 400
13, 30 25 8
2 300 8
0 2
10,000 0 91 23
- -
200
5
5
1
100
5,000 -500
0
0 -1,000 Target Actual Target
08 09 10 11 12 08 09 10 11 12 2012 T2a0rg15et
1
Group overview
Business review
Governance
Management report
Financial statements
Additional information
G
Group overview ro
u
p
4 Chairman’s letter: o
v
e
Committed to consolidation rv
6 Chief Executive’ Officer’s Q&A: iew
Positioned for future growth
8 At a glance
9 Our networks and hubs
10 Broader benefits
11 The year of the 2012 Games
Business review
14 Chief Executive Officer’s review
16 Business model and strategy
20 Our synergies
21 bmi case study
22 British Airways transformation
23 Iberia transformation plan
24 Key performance indicators
26 Corporate responsibility
Go online for
more information Governance
www.iairgroup.com
32 C hairman’s introduction to
corporate governance
34 Board of Directors
36 Management Team
37 Corporate governance report
44 Report of the Audit and
Compliance Committee
46 Report of the Nominations Committee
48 Report of the Safety Committee
Management report
Passenger unit revenue Productivity 49 Report of the Remuneration Committee
+9.4 % -2.0% 66 Operating and market context
68 Financial review
+3.9%
at constant currency This measures the amount 78 Risk management and risk factors
of capacity (ASKs) that
Passenger revenue
our employees deliver Financial statements
divided by capacity
on average each year
(Available Seat Kilometres 85 Consolidated income statement
(ASKs divided by average
‘ASKs’), this reflects both number of employees). 86 C onsolidated statement of other
the changes in prices
comprehensive income
we charge and the
87 Consolidated balance sheet
change in volume of
our sales. 88 Consolidated cash flow statement
89 Consolidated statement of changes in equity
90 Notes to the consolidated
Seat factor Non-fuel unit costs
financial statements
+1.2 points +8.5%
146 Spanish Corporate Governance report
+3.8% 213 Group investments
The number of revenue at constant currency
passenger kilometres flown This is a measure of how Statement of Directors’ Responsibilities
expressed as a percentage
we manage costs, which
of the number of available
to a large extent are under Independent Auditors’ Report
seat kilometres flown.
our control. It is total
non-fuel costs divided Additional information
by capacity (ASKs).
219 Operating and financial statistics
220 Glossary
Shareholder information
International Airlines Group
www.iairgroup.com
A YEAR OF
TRANSFORMATION
Implementing dynamic plans at British Airways and Iberia to fundamentally
transform the businesses over the next three years
Group overview
4 C hairman’s letter:
Committed to consolidation
6 Chief Executive’ Officer’s Q&A:
Positioned for future growth
8 At a glance
9 Our networks and hubs
10 Broader benefits
11 The year of the 2012 Games
4
Chairman’s letter
A very warm welcome to International Airlines Group’s
Committed to second Annual Report and Accounts.
As you’d expect, this document charts a tumultuous
consolidation
year for the global economy and for the airline industry.
But I hope it also clearly explains how we are addressing
the pressing challenges that face IAG, how we are
continuing, with great success, to grasp opportunities
to strengthen the Group and why we remain confident
we have the right strategy to play a leading role in the
future development of international civil aviation.
Significant achievements
We witnessed a combination of very difficult economic
conditions during the year. Slowing growth in key emerging
economies, uncertainties over the US deficit, the continuing
Eurozone crisis and consistently high oil prices all conspired
to create powerful headwinds for our industry.
In common with many of our competitors, these conditions
inevitably hit our own performance. So to be able to
announce a small operating loss of €23 million, before
exceptional items, on revenues of €18 billion represents
a solid performance.
We have recognised a number of exceptional items this year.
The three most significant relate to the integration costs
of bmi into British Airways, restructuring charges at Iberia
and an impairment of some of Iberia’s intangible assets
and goodwill.
In fact, 2012, our second full year of operation, was a year
of significant progress for IAG.
“ The Board is
united in its focus
on addressing
issues in Spain.”
5
Group overview
Business review
Governance
Management report
Financial statements
Additional information
G
ro
u
p
The expected benefits of the merger of British Airways and But ultimately the biggest impact will come from the o
v
Iberia that we mapped out two years ago continue to be creation of a global emissions trading scheme (ETS) e
reaped, not least the growing revenue and cost synergies for our entire industry. rvie
that are flowing from our combined operations, as Willie w
Walsh explains more fully in his business review on page 14. We have been vocal supporters of the EU’s own ETS but,
with recent threats of retaliation from other regions of the
A major highlight of the year has been the swifter than world to the EU scheme, it now looks impossible for this to
expected integration of bmi into British Airways, opening up proceed as a stand-alone initiative without disrupting
exciting opportunities to expand our services with both new competition in our market.
longhaul routes to vibrant growth markets in Asia and new
shorthaul destinations. We now have a clear plan to put this The airline industry needs a global agreement as a matter
previously heavily loss-making operation into profit. British of urgency and, along with the International Air Transport
Airways’ own overall performance was strong in a very Association (IATA), we think this is best negotiated through
tough market. the International Civil Aviation Organisation (ICAO), part
of the UN.
But, despite the successful launch of Iberia Express
during the year, Iberia as a whole remains weighed down Corporate responsibility
by a high cost structure, stiff competition and the effects of Many have predicted that five years of grinding recession
continuing deep recession in Spain, and saw losses deepen. would inevitably see businesses rein in their commitment
to corporate social responsibility (CSR). I’m glad to say that
We have instigated a restructuring plan at Iberia and, while has not been the case at IAG. CSR remains an important
change is always extremely difficult for those affected, we priority for us.
have no choice. Iberia must adapt. The restructuring plan will
reduce the airline’s cost base, make it more competitive and British Airways and Iberia continue to do extraordinary work
set the foundation for the future profitable growth. to support the communities we work in and fly to. Although
both pursue individual flagship programmes – such as
The airline is, candidly, in a fight for viability. The Iberia’s ground breaking work with disabled children in
restructuring plans offer a credible way to return Iberia Spain or British Airways’ Flying Start programme with
to profitability and growth. Comic Relief – we are increasingly co-ordinating our CSR
policies and procedures for greater effect.
Consolidation
Consolidation remains a continuing theme for our industry. Outlook
Outright merger activity is likely to remain focused within Overall we can be very pleased with the progress we have
key regions of the world – Latin America, North America, made in IAG’s second year and I’m grateful to colleagues
Europe and parts of Asia, for instance – as long as strict across the business for their tremendous hard work during
controls on foreign direct investment persist. a challenging period.
Elsewhere global alliances and international joint businesses Despite some glimmers of hope, economic conditions are
are providing useful ways to boost competitiveness and likely to remain unsettled for some time and it is essential
deliver really important benefits to customers. We are we continue our efforts to put our airlines on a sound
delighted with the continued development of oneworld, footing for the future. With oil prices likely to remain at
which welcomed Malaysia Airlines and is soon to be joined by consistently high levels, all airlines must find ways to
Qatar Airways and SriLankan Airlines. Our Joint Business with optimise their capacity and lower their unit costs. It is the
American Airlines continues to thrive, and we launched a new only way to be consistently profitable.
joint business with JAL last autumn. We look forward to the
proposed merger of American Airlines and US Airways. I’m hopeful we can do that in the year ahead, for the benefit
of our customers, employees and shareholders.
We are committed to leading this process of consolidation
and continue to assess opportunities carefully when they Board change
arise, as our plans to acquire the 54 per cent of Barcelona- This year Manuel Lagares Gómez-Abascal joined the IAG
based budget operator Vueling that we do not already Board, replacing Rodrigo de Rato y Figaredo who we would
own show. like to thank for his contribution.
We believe our business model, our management structure
and the strong corporate governance framework we have
established for IAG put us at a distinct competitive
advantage in this respect, allowing us to balance operational
management and the need to think strategically.
Environment
Environmental issues – not least global warming remain
Antonio Vázquez
among the most important long-term challenges for aviation.
Chairman
British Airways and Iberia are both doing important work
to test bio and other alternative fuels that will help to cut
our emissions, as will the introduction of new, more efficient
aircraft in the next few years.
International Airlines Group
www.iairgroup.com
6
Chief Executive Officer’s Q&A
Positioned for future growth
Willie Walsh answers some of
the issues most on shareholders’
minds at the moment. To find out
more detailed information, follow
the links through to the relevant
pages of the report.
Q How has IAG played a Q What is your global strategy? Q How have you delivered cost
leading role in the industry’s savings and generated revenue?
A Our simple vision is to be a
consolidation process in 2012?
multi-national, multi-brand A The synergy performance in 2012
A We believe consolidation will help organisation. The combination has again exceeded the targets
our industry solve some of its of British Airways and Iberia is just that we set at the time of the
traditional problems. We created the start, not the full ambition of merger and, indeed, during the
IAG to both facilitate and participate the organisation and we believe year. Building on our success in
in the global consolidation of the we can add additional brands. 2011 and 2012 we’ve increased our
industry. Following the initial merger That’s the thinking behind our five-year targets to demonstrate
between British Airways and Iberia, proposed acquisition of Vueling, our increased ambition. So I think
we’re now pleased we’ve completed a low cost brand that, as a third we’re showing our investors and
our first acquisition, with bmi joining independently-run operation the industry that you can achieve
the Group and being integrated into within the Group, can successfully real value if you create the right
British Airways. add to our performance and add structure and have the right focus.
value for our shareholders. So it’s We’re very clear where cost
I think the unique structure of IAG a very simple vision and we’re synergies will come from, but
gives us an important competitive determined to deliver on it. We’ve we’ve had remarkable success
advantage, leaving us free to made a good start and I’m very in extracting higher-than-expected
provide oversight for our operating optimistic we can continue to build revenue synergies. That’s very
airlines and really explore how to on our progress to date in 2013. skilful work, and one of the
extract as much value as possible most pleasing aspects of our
in cost and revenue synergies. That’s 2012 performance.
been one of the great successes
again in 2012.
See page 16 for more information See page 16 for more information See pages 20 and 24 for more information
International Airlines Group
Annual Report and Accounts 2012
7
Group overview
Business review
Governance
Management report
Financial statements
Additional information
G
ro
u
p
o
v
e
rv
ie
w
Q Has the bmi acquisition been a Q How are you addressing the Q How has the current economic
catalyst for change at British challenges at Iberia? environment affected IAG?
Airways?
A Iberia performed badly in 2012. A The global economy has been
A I’m delighted with how the bmi Its financial performance was weak in 2012. There‘s been a lot
acquisition has progressed. It’s a unacceptable. We’ve made it of uncertainty – particularly in the
great credit to the British Airways clear the airline needs to be Eurozone – and that uncertainty
management team that they’ve transformed and it’s not a case has dented general confidence,
been able to deliver all their own of making simple changes. Iberia globally. Actually if you look at
targets and have also quickly is suffering because of problems the figures for 2012, a number
integrated bmi into their business. associated with the Spanish and of economies performed better
They are also turning bmi’s financial Eurozone economies that are no than expected and I see 2013
performance around swiftly. So it’s fault of its own. But it’s also being slightly more positive. But
been a truly strong performance suffering because of its own lack the uncertainty has constrained
and we’re going to build on that of competitiveness and it needs business investment and when
again in 2013. to be changed in a permanent businesses aren’t investing, they
and structural way. There’s a lot aren’t travelling. So I hope we
The next task is to extract real of work to be done, but I believe soon see truly co-ordinated and
value from the Heathrow slots we we can do it. We’ve got a track coherent action by governments
acquired with bmi, using them to record in terms of change within to address the uncertainty,
rethink and expand British Airways’ the industry and we clearly have particularly in the Eurozone area.
longhaul network and bolster the determination to do what’s
shorthaul services. For instance needed to transform Iberia.
we’ve started flying to Seoul and
announced plans to fly to Chengdu
in China’s Sichuan province. It’s great
to be delivering on the promises we
made at the time of the acquisition.
See page 21 for more information See page 23 for more information See page 66 for more information
Q What makes your business model a sustainable biojet fuel. We’ll see
sustainable? a plant being built in London in 2013,
A We’ve got to be sustainable with the first fuel coming through
from both a financial and an in 2014. I think this is one of the
environmental point of view. I think most significant environmental
we’re tackling the financial issues developments ever for the airline
by restructuring Iberia, through industry. I’m really excited to be
the integration of bmi into British a part of it.
Airways and the proposed addition
of Vueling into the group, which will
add to our financial sustainability.
All the operating companies need to
focus on environmental sustainability
and I believe we’ve done great work
in 2012, which we’ll build on this year.
I’m really excited about our joint
venture with Solena set up to create See page 26 for more information
International Airlines Group
www.iairgroup.com
8
At a glance
We are one of the world’s largest airline groups with
377 aircraft fl ying to 200 destinations and carrying
more than 54 million passengers every year.
Our mission Our people
IAG’s mission is to win the customer through service and At IAG we recognise that our future depends on nurturing
value, deliver higher returns to our shareholders, attract great individual talent and providing an exciting and
and develop the best people, provide a platform for future dynamic environment where people can fl ourish personally
consolidation and retain the brands and cultures of the and professionally. We embrace the unique talents,
individual airlines which make up IAG. perspectives and backgrounds of our people and off er
a challenging and rewarding environment in which all of
our people can realise their full potential and contribute
to the success of our company.
Our synergies
We have made signifi cant progress in delivering the fi rst
We are determined to attract and retain the most talented
two years’ synergies and the planning and commencement
people who are highly motivated and proud to work for IAG.
of the longer-term changes required across the Group to
Our commitments to our people fundamentally drive our
achieve our fi ve-year target. During the year we raised our
ability to achieve our aims and to generate higher long-term
expected revenue and cost benefi ts value from €500 million
fi nancial performance for our shareholders.
to €560 million. By December 31, 2012 our synergy benefi ts
were €313 million and implementation costs in the year
were €25 million, resulting in Income statement benefi ts
59,574
of €288 million compared to the target we set in late 2011
of €155 million.
See page 20 for more information average manpower equivalent employees
Our business model and strategy
Our mission is supported by our six strategic aims: leadership in our
main hubs; leadership across the Atlantic; stronger Europe-to-Asia Attract airlines
position in critical markets; greater share of Europe-to-Africa routes; Retain brand and culture
stronger intra-Europe profi tability; and competitive cost positions
across our businesses.
IT Procurem
ent
GLOBAL
PLATFORM
Hsihgahtreoerh oroeultdru errnss Other support systems Secrvuitscoteo o m&u erv raslue
Providing the best service
and value to customers Attract & develop best people in the industry
See page 16 for more information
To watch a video interview online go to
www.iairgroup.com
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International Airlines Group
Annual Report and Accounts 2012