INTERNATIONAL AIRLINES GROUP Annual report and accounts 2016

232 Pages·2017·9.51 MB·English

INTERNATIONAL
AIRLINES
GROUP
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The is
best
yet to come
Annual report and accounts
2016
Contents
Strategic Report Financial statements Management report
2 Financial highlights 100 Consolidated income statement IAG is required to prepare a Management
3 Chairman’s letter 101 C onsolidated statement of other Report in accordance with Article 262 of
4 Chief Executive Officer’s Q&A comprehensive income the Spanish Companies Act and Article 49
of the Spanish Commercial Code. Pursuant
6 Our network 102 Consolidated balance sheet to this legislation, this management report
8 Chief Executive Officer’s review 103 Consolidated cash flow statement must contain a fair review of the progress
11 Business model and strategy 104 Consolidated statement of the business and the performance of
of changes in equity the company, together with a description
12 Our strategy
of the principal risks and uncertainties
106 N otes to the consolidated
14 Key performance indicators that it faces. In the preparation of this
financial statements
16 IAG Platform for growth report, IAG has taken into consideration
154 Spanish Corporate
the guide published in 2013 by the Spanish
18 British Airways governance report
National Securities Market Commission
20 Iberia 216 Group investments (CNMV) which establishes a number of
22 Vueling recommendations for the preparation of
Statement of Directors’ management reports of listed companies.
23 Aer Lingus
Responsibilities The Management Report is contained in
24 Avios
the following sections:
25 IAG Cargo Independent
Auditors’ Report
26 Digital 11 Business model and strategy
27 Risk management Additional Information 12 Our strategy
and principal risk factors 222 Glossary 14 Key performance indicators
33 Financial overview 224 Alternative performance measures 16 IAG Platform for growth
34 Economic landscape 227 Sustainability indicators 27 R isk management
36 Financial review 228 Operating and financial statistics and principal risk factors
45 Sustainability IBC Shareholder information 35 Financial overview
36 Economic landscape
Corporate Governance
38 Financial review
54 Chairman’s introduction
to Corporate governance 45 Sustainability
56 B oard of Directors 58 Corporate governance
58 Corporate governance 154 Spanish Corporate
governance report
69 R eport of the Audit and
Compliance Committee
72 Report of the Nominations
Committee
75 Report of the Safety Committee
76 R eport of the Remuneration
Committee
Strategic report
“ 2016 was a challenging year but
S
t
r
a
t
we’ve delivered a good result. e
g
ic
r
e
There’s still more that we can po
r
t
do, and quite honestly, the best
C
o
r
is yet to come. There are still po
ra
te
g
improvements that we can make o
v
e
r
n
a
and efficiencies that can be n
c
e
delivered.”
F
in
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WChiilelife E Wxeaclusthive Officer ial st
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A
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it
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The strategic report that follows contains
a fair and balanced analysis, consistent
with the size and complexity of the
business in accordance with the
expectations of the regulations of
the Companies Act 2006.
2
Financial highlights
Delivering good results towards
our long-term goals
Despite the challenging environment, we have made good progress toward achieving our
long-term goal. Our unique Group structure has supported our group performance while
promoting the value of our brands. We have been able to leverage our brands effectively
in different market segments. We will build on our progress and continue to invest while
reaping further benefits from the IAG platform.
Equity Free Cash Flow (€m) Total dividend per share1 (€)
+€574 million vly +17.5% vly
0
0 Targeting sustainable
2,500 Goal 2,5 0.30 dividends
5
05 35
2,000 2, 0.25 0 0.2
0
2
81 0.20 0.
1,500 1,4
0.15
1,000
0.10
500
0.05
8
2
1
0 0.00
2014 2015 2016 Long-term 2014 2015 2016 Long-term
goals goals
RoIC2
13.5% 23.1% 9.0% 7.3%
+1.8pts +11.1pts -0.7pts -6.4pts
ASK: 2.6% ASK: 9.6% ASK: 4.0% ASK: 11.2%
IAG Platform
INTERNATIONAL
AIRLINES
GROUP
13.6%
+0.9pts
1 2016 includes recommended final dividend of €1 2.5 cent per share.
2 Definition included in Alternative performance measures section. The comparison to 2015 includes the annualised results of Aer Lingus.
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2016
3
Chairman’s letter
A firm focus on long-term growth
S
t
r
a
t
e
and sustainable returns g
ic
r
e
p
o
r
t
“A very warm welcome
to our sixth Annual
C
o
Report which charts r
p
o
the start of a new ra
te
phase in our journey g
o
v
e
to secure a sustainable r
n
a
and profitable future nc
e
for our airlines and for
International Airlines
F
Group as a whole.” ina
n
c
ia
Antonio Vázquez l s
t
Chairman ate
m
e
n
t
s
2016 was a challenging year for our where volatility – fuel price, terrorism, 2016 also saw our industry sign up to the
business but one where once again weather, politics – is a fact of life. I am world’s first truly global carbon offsetting
A
we proved that the IAG business so proud that IAG is managing these scheme at the 39th International Civil d
d
model continues to be resilient and challenges so well that it can commit to a Aviation Organisation assembly – it
highly effective. sustainable dividend policy as companies something we have long campaigned for. io
n
in more stable sectors do. a
Our airlines carried over 100 million Our industry – which contributes about l in
people last year, double the number Brexit has so far provided few certainties. 2 per cent of global CO emissions –has fo
2 r
of passengers we carried when British We expect the button will be pushed on agreed to halve emissions by 2050 and m
a
Airways and Iberia merged six years ago. Article 50 in March, commencing two- to grow in a carbon neutral way from t
io
Although our results were hit by the years of divorce negotiations. Beyond 2020, despite expected strong growth in n
Brexit vote and the subsequent sharp that very little is visible. passenger traffic. It’s a huge challenge,
fall in the pound, we were still able to but one IAG intends to lead on.
For our industry the big question is the
report an impressive operating profit of
future of the single market for aviation At the end of an eventful year I would
€2.5 billion on revenues of €22.6 billion.
in Europe. I trust that geography, safety, like to thank people across the Group
On the morning after the UK Referendum security, consumers’ interests, and those who work every day to make IAG such
we updated the market on the likely of our whole society to cut emissions, a successful business. I also thank
short-term impact on our results. will prevail over politics or short- shareholders for their continued support.
term interests.
Despite the significant impact our share I hope after reading this report you will
price suffered, we were able to re- Consolidation is in our DNA. Controls all share my strong conviction that the
assure the financial community at our on foreign investment and competition Group is very well placed to achieve
Capital Markets Day in November that regulations means that acquisition sustainable profitable growth in the years
our long-term financial targets remain opportunities are relatively rare. But to come. These are complex but very
largely unchanged – an investment grade we have the resources and a uniquely exciting times.
message that was well received. flexible ‘plug-in and play’ system to fit
new independent airline brands into our
I believe investors understand that this
existing hub of equities, with the promise
business is being carefully and skilfully
of huge and proven cost synergies when
managed to achieve its promises on
they do.
long-term growth and sustainable
shareholder returns. Alliances and joint business
arrangements are also very important
We were delighted once again this
and we’re delighted that British Airways Antonio Vázquez
year to honour our commitment to
and Qatar have launched a joint business Chairman
pay dividends. In addition, we intend
while a similar tie up between Latam,
to carry out a share buyback of
Iberia and British Airways is awaiting
€500 million during the course of 2017,
clearance. They will provide great
further increasing cash returns to our
opportunities in the Middle East and
shareholders. We are a cyclical industry
South America.
www.iairgroup.com
4
Questions and answers
With Chief Executive Officer
Willie Walsh
IAG had a very strong
year in 2016 despite
some significant external
challenges. Here Chief
Executive Officer Willie
Walsh explains how
the business is tackling
those short-term issues
while keeping a firm and
confident focus on the
long-term sustainability
of IAG.
Willie Walsh
Chief Executive Officer
Q What impact has the UK’s EU So the combination of those three We’re also continuing to innovate
referendum had on IAG’s financial factors – the translation impact of a and looking to take advantage of
performance in 2016? weak pound, the transaction impact new markets. We’re launching new
A The result of the Referendum vote of the pound and euro losing value longhaul flights out of Barcelona,
on June 23 had three very specific against the dollar, and softer bookings for instance. “Longhaul, low-cost” is
impacts on our business. from UK companies – have hit our the label everybody is putting on
euro-reported profitability. this new initiative, but what we are
The first comes because we report talking about is a new transatlantic
our results in euros but we’ve got a longhaul service out of Barcelona,
See pages 35 for more about the
very big sterling revenue and profit impact of UK Referendum vote to using a new way of operating which
base thanks to British Airways. When leave the EU. responds directly to changing
we translate that sterling profitability consumer demands.
into euros it’s now being done at a
much lower rate, following the sharp Barcelona is a superb base for
fall in the pound. Q How is IAG generating returns in this because it is fed by Vueling’s
the current economic shorthaul network. That, we think,
The second impact is that we environment? is an essential pre-requisite for
have a lot of dollar expenses – it’s A Global growth has certainly slowed any successful low-cost, longhaul
the currency we use to buy fuel down in 2016 and is, I think, likely to operation and other carriers in the
and aircraft, for example. With the stay at a similar level in 2017. market agree. We will also consider
devaluation of both the pound other locations in Europe for these
and the euro against the dollar it In spite of that, we remain pretty flights in due course.
makes those dollar-related costs optimistic about the global economic
more expensive. environment and I think some areas So I think IAG needs to continue to be
of weakness in 2016 – like Brazil, an both flexible and disciplined, and we
The third impact became obvious to important market for IAG – will show are very well placed to do that.
us in the lead up to the Referendum.
signs of recovery in 2017.
There was a slowdown and softening We need to recognise that we’re not
in UK corporate activity as business But we do have to acknowledge that going to be able to rely on strong
people were, temporarily, travelling a we’re going to be growing capacity at economic growth. We need to take
bit less. a lower rate in the immediate future all of our investment decisions very
and that means we need to focus on carefully to make sure we make a
the profitable areas of our business sensible return.
and, crucially, continue to improve our
See pages 34 – 35 for more
cost performance.
about the economic landscape
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2016
5
S
t
r
a
t
e
g
ic
r
e
p
o
r
t
And, importantly, we have to remain Q How will the Hangar 51 start-up
focused on the financial viability and accelerator benefit IAG?
sustainability of IAG, balancing that A The Hangar 51 start-up accelerator is C
short-term profitability against the a really exciting development for IAG. orp
long-term needs of the business. o
We recognise there are fantastic ra
Q What will be the impact of a developments in the digital sphere. te g
Heathrow third runway on We want to be up to speed with o
v
your business? those developments not only e
r
A The UK Government decided because some of these innovations na
n
in October 2016 to support the could challenge and disrupt our c
e
expansion of Heathrow with a third business, but also because we want
runway. But I’m pleased to say that to identify technologies that will
support comes with conditions. transform and enhance the way we
F
The most important condition, from work. ina
n
our point of view, is that the project So we’ve tapped into the best and c
will only proceed if the cost for brightest developers out there and ial s
consumers remains flat. That’s we’ve got them working inside IAG t
a
very important for us. to see if we can take advantage of te
m
some of their great ideas. If we can,
We’ve got to look at an expanded we will use those ideas to change the ent
Heathrow as an opportunity for IAG. s
way we operate, for the benefit of our
But that will only be true if the costs
business and, more importantly, for
of that expansion can be carried out
the benefit of our customers.
in a sensible way so that we’re not A
d
required to foot a disproportionate I think this is going to be really d
amount of the bill and consumers, in exciting to watch. itio
general, aren’t forced to pay more for n
a
the operation of Heathrow. See page 26 for more about l in
our digital transformation initiative fo
There are also significant r
m
environmental challenges that will a
t
need to be tackled before expansion io
n
can go ahead.
So there are a lot of challenges that
need to be overcome. But, overall, I’m
quietly optimistic we will see the right
result in the end.
See page 10 for more about
the third runway at Heathrow
Watch the full interview on our
website www.iairgroup.com
www.iairgroup.com
6
Our network
Our business
around the world
100
+ million
passengers flown to
279
destinations on
548
aircraft
Our brands
See pages 18 – 19 for more See pages 20 – 21 See page 22 for
about British Airways for more about Iberia more about Vueling
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2016
7
IAG combines the leading airlines in the See pages 12 – 13 for more about
our strategic objectives S
UK, Spain and Ireland. t
r
a
t
e
g
The airlines’ customers benefit from a larger ic
combined network for both passenger re
p
and cargo. o
r
t
C
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F
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A
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it
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io
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See page 23 for more See page 24 for See page 25 for more
about Aer Lingus more about Avios about IAG Cargo
www.iairgroup.com
8
Chief Executive Officer’s review
Ensuring the long-term viability
of the business
“2016 was a good year
for IAG even though
the external impact of
the Brexit vote and the
subsequent sharp fall
in the pound took the
shine off our results.
Nevertheless, we are
very confident about the
future and convinced the
best is yet to come.”
Willie Walsh
Chief Executive Officer
In 2016 we continued to build on all the The plain fact is no company can control There are regulatory issues to be
tremendous progress we have made in exchange rates. Although we do hedge addressed and, as the Chairman has
the six years since IAG was first formed against fluctuations in our transactional indicated, many of these will not become
and I think we can feel both proud of costs, we do not and would not hedge clear until the precise terms of Brexit
our achievements to date and very against translation to our reporting are agreed and new arrangements are
confident about the long-term future of currency – that is something that the in place.
this business. investment community has to factor into
But I do think there is a common
its assessments of our performance.
The year was not without its difficulties, interest on both sides of the Atlantic in
of course, and a number of external As a result of these factors we reported maintaining an “Open Skies” environment
factors took the gloss off what was a full year operating profit of €2.5 billion between the UK and the US and I fully
otherwise another powerful performance compared with €2.3 billion in 2015. expect a new agreement to be put in
by the Group, none more so than the Although that outcome is below our place once the current EU agreement
unexpected UK vote to leave the EU and expectations, I believe it is still a very with the US comes to an end after Brexit.
the subsequent sharp fall in the value of strong result given the considerable
There is some more doubt over the future
the pound. turbulence we faced during the year
of the deregulated aviation market within
and it’s one which we can still be very
The impact of Brexit led us to conclude Europe. This is a real issue for carriers
proud of.
that we wouldn’t be able to deliver on our operating intra-EU services, but not one
euro profit targets for the year and on the The long-term impact of Brexit for British Airways as all its flights are to
morning after the vote we updated the The Brexit vote has created uncertainty and from the UK.
market, which had a big impact on our and uncertainty is never welcome. But it’s important to say we are not
share price. But longer term we do not think it will
seeking competitive advantage from this
During the year we looked for ways to undermine the fundamental strength of situation. We would never encourage the
counteract that impact, but the scale of it our business. UK Government to take a protectionist
was significant and we did not have the Indeed, we’ve already seen bookings by stance. Deregulation has delivered huge
capacity to offset it completely. UK companies stabilise. I think there is benefits for consumers and I believe
a genuine political will to make the UK politicians should and will act rationally
a strong independent trading country, to protect those benefits. Preserving the
a goal I’ve no doubt will be achieved. current liberalised market is the right
People will continue to fly for business, way forward.
for leisure and to visit friends and family,
so the core of our business will not only
remain strong but will continue to grow.
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2016