IAG Keynote

Transcript

Willie Walsh:Can I start by thanking Peter for the invitation to attend the conference, and it's great to see so many people here today, and also to echo what Peter said and to thank our host and my good friend Akbar Al Baker and Qatar Airways for looking after us and for an excellent evening last night. I was saying to Akbar, you know, nobody knows how to host people like he does. It's a fantastic event. It's always a great pleasure to be with him in Doha, or with him actually anywhere in the world, but particularly with him here in Doha. So I'm sure like me, you enjoyed yourself last night. Now, I, you know, I don't normally give speeches because nobody really wants to hear what I have to say. If I'm in Ireland or the UK, I just talk about Michael O'Leary and everybody seems to enjoy that. But I thought I would take this opportunity opportunity, given that it's probably one of the, the last times I'll get an opportunity to deliver a speech, to cover off a few of the issues that we've talked about yesterday and anticipate some of the things that we're going to talk about today. But maybe I would start by just commenting briefly on IAG. I think most of you know the background to International Airlines Group. We were formed in 2000 and 2011 with the merger of British Airways and Iberia. I mentioned yesterday when we were talking that I firmly believe, and we as an organization believe, that consolidation is part of the solution to the industry's long history of poor financial performance, and I believe that the industry has benefited from the consolidation that we've seen to date and will continue to benefit as a result of that. It's not the answer, it's part of the answer because clearly a critical part of the answer is what we as airline managers, as airline leaders do to ensure that we run our organizations as best and as efficiently as we possibly can. And personally, I've seen, you know, I've been in the industry now for 41 years, I've seen a lot of change and I don't think I've seen as good a time in terms of performance as we are seeing in the last couple of years. I know the industry is likely to be challenged by external events, as we always have been, but particularly challenged by what we're seeing in relation to some of the issues we talked about yesterday. The trade wars between large economies, the impact of the coronavirus, fluctuating and volatile fuel prices. All of these things that have hit us in recent years will continue to challenge us, but I believe we're in better shape to address anything that comes our way, and we know better today how to respond to these issues. And I firmly believe that the industry going forward is in a very strong and healthy place. Now, when we created IAG, we decided that the structure that we would pursue, which was largely based on what we saw others do well and indeed what we thought others could have done better, was to have a single economic entity with multiple operating companies and multiple brands, and that, that was the best way to serve all of the customer segments that we had identified and recognized that there was significant value in the brands that we had. So we avoided the temptation to call the company BA Iberia, similar to what Air France-KLM did, because our ambition was to consolidate beyond that, and we realized that at some stage the length of the name of the company would run off the end of the page. So we picked a very neutral name, International Airlines Group, to demonstrate 2 things. One, that we weren't trying to create a new brand. In fact, it was just a We tried to find the most boring name we could come up with, but to reinforce the view that there was significant value in the brands that we had, and we wanted to pursue a multi-brand, single economic entity, and I think we've done well to do that. In 2019, we carried just over 118 million passengers. Our results for 2019 will be released in a few weeks, so I can't say too much for that, but if I look at how we performed financially and 2018, we made an operating profit under IFRS 16 of nearly €3.5 billion. The market expectation is that our profit this— for 2019 will be slightly below that. We have 8 airlines, 8 AOCs in the group today. 3 of those are in Spain, 2 in the UK, 1 in Ireland, 1 in France, and 1 in Austria. And you've probably seen that late last year we made a bid which was accepted to acquire Air Europa in Spain. And we believe that that acquisition joining International Airlines Group will be significant for the people in Air Europa but will also enable us to transform our Madrid hub operation. Today we operate just over 600 aircraft. We fly to 270 destinations. Our capacity is split right across the world. 7% operates in the domestic market, so that's the domestic UK market, which is very small, and the domestic Spanish market, actually, which is quite a significant market. We've 26% of our capacity intra-EU or intra-Europe, and then we're very strong on the Atlantic with almost 30% of our capacity on the North Atlantic and 18% on the South Atlantic. We are quite light in Asia with just over 8% of our capacity. Now we see that as a challenge and as an opportunity, but I suppose in the current climate you would see that maybe that's not a bad place to be given the impact of the coronavirus on Asian traffic. We have unfortunately, like a lot of airlines, suspended our flights between London Heathrow and Shanghai and Beijing as a result of the coronavirus. And clearly, as we sit here, I'm sure all of our thoughts are with the airlines in China and the associated airlines near China who have been heavily impacted by this issue, and of course by all of the people that have been impacted by the coronavirus. Those of you who have sort of challenge, what does this mean for the industry, I would point you to an excellent document that IATA produced recently. It's on their website, iata.org, and it's titled, you know, What Can We Learn from Previous Epidemic Episodes? And I think it demonstrates to you how the industry has been impacted historically by these events and how quickly the industry can, and I'm sure in this case too, will recover. Now, turning to some of the more topical issues, Brexit is a question that I get asked about quite a lot. As you know, as an Irish person living in the UK, I had the opportunity to vote. It's a unique feature of an EU citizen. I think Irish people are the only EU citizens in the UK that can actually vote in referendum and general elections. I personally voted to remain. I'm disappointed that the UK has decided to leave the EU, but that is a decision that has been taken. It was clear to me once the referendum result was out that it was not going to be reversed, and clearly we've got to get on and just manage our business and deal with any of the uncertainty that that creates. It had a significant impact on the financial performance of IAG in that The UK, the pound weakened significantly after the referendum results. And as a business with a significant operation, significant revenue from the UK and significant profit from British Airways, but who reports in euro, that meant there was a big translation impact as we translated our sterling profitability into our reported currency. So our 2016 results were heavily impacted as a result of the weakening pound sterling. That's probably been the only impact that we've seen from Brexit. We have not seen any impact on booking profiles or on customer behavior, be that in the corporate segment or in the consumer segment. And quite honestly, we've looked very closely to see if we can identify any patterns. As a result of Brexit and we've not been able to see them. I think the issue for us is clearly what will the longer-term economic impact be and that's something that we can all take a view on but our belief is that this will not have a material impact on our business. In relation to ownership and control, as you know, going back to what I said earlier, we have a lot of airlines based outside of the UK. And we have had to satisfy the national regulators in the countries in which we operate, so principally in Spain, Ireland, France, and Austria, that our ownership and control satisfies and complies with the EU regulations. All of the national regulators that we've dealt with have informed us that they are satisfied that our structures fully comply with the regulation. Now clearly, the EU Commission has the opportunity to challenge that, but given the process that we've gone through, which has been quite detailed and quite extensive, you know, we are satisfied that our structures are robust and will continue to stand up to any scrutiny as we move forward. Personally, I have a very strong belief that the EU and the UK will negotiate a comprehensive air transport agreement I'm heartened by what I hear from people like Henrik Holleleij, who I have to say I think is excellent in his role and a great ambassador for the EU. There's no question that there is a desire on the part of both parties to ensure that air transport continues to deliver the benefits that consumers in the UK and throughout Europe have had as a result of the liberalization of air transport in Europe, which I believe is probably one of the most significant benefits and developments that has happened in the EU since its creation. So going forwards, I fully expect the UK and the EU to engage in constructive and open negotiations to ensure that we do reach a situation where a comprehensive air transport agreement is reached. Now I'm looking forward to the discussion in a short while on the issue of slots and infrastructure. As Peter said, I am an open and vocal critic of Heathrow Airport, principally because I believe the regulatory environment that exists in the UK has incentivized the airport to spend way more than is necessary to operate and in this particular case to expand Heathrow. I believe the expansion of Heathrow could be a positive development, but I'm deeply concerned about the cost of expansion and the impact that that would have on passenger charges at Heathrow. Heathrow is the most expensive hub airport in the world. I don't believe that increasing Heathrow charges will encourage more people to fly through the airport. I think it will principally discourage airlines to operate there and will create an economic challenge for the UK in this post-Brexit environment. So while I can support the expansion of Heathrow, I will only do so if the airport can demonstrate and commit to ensuring that the airport charges that we pay today do not increase. And that is the objective that the British government has set the management of Heathrow. Personally, I don't believe they can do it. The original bill for the expansion of Heathrow was just over £17 billion sterling, with only 1% of that, £200 million, being the cost of the actual runway, and the rest of it, 99%, being for the associated infrastructure, including over £800 million sterling for a car park. which would obviously be the most expensive car park in the world. So we as airlines have got to challenge airports where we see money being spent that is unnecessary, where we see projects being gold-plated because it's in the interest of the airport to spend money, because the more money they spend, the more money they make, given that they have a guaranteed return on the investments that they make. So we'll watch with great interest, and I will continue to be a vocal critic of Heathrow management in my retirement. I'll have nothing else to do other than to complain about them. On the issue of slots, I would just reinforce what Akbar said yesterday and our commitment to the existing slot guidance rules, which I think have been very effective. Now clearly, like any regulation or any process, it can always be improved, and I'm pleased to see that there's been constructive engagement on the issue to ensure that the way we allocate slots continues to be effective for the industry. I've heard a lot of people talk about slot auctioning as being a way forward. Personally, I strongly disagree with that. I don't think auctioning slots will facilitate new entry. I think the process today where excess capacity is principally, or in the first place, made available to new entrants works very well. And the reason I say that is if I look historically at Heathrow where we've had slot trading for some considerable time now. If you go back to 2001, British Airways held 36% of the slots at Heathrow. Today they hold just over 52% of the slots. That increase in slots was as a result of BA buying slots from other airlines who, through various reasons, saw value in the slots that they had and better value in selling the slot than in operating the slot. So when people complain, and one of our principal competitors at Heathrow, Virgin, complains about the slot portfolio we have, it's important to point out that all of those slots were available to Virgin to buy. Had they wanted to establish a 2-airline hub at Heathrow, they could have done so. They could have bought the slots because we don't buy every slot that becomes available at Heathrow, as you know. I understand. Many airlines compete for slots when they do become available. So there has been an open market in Heathrow for slots for many years, and we have succeeded in increasing our slot portfolio because we have been prepared to invest our money in slot acquisition. And I think we need to be careful when we talk about auctioning because, in my opinion, that will only facilitate the rich and incumbent airlines to increase their portfolio of slots. rather than facilitating new entry. And finally, I want to turn to the issue of the environment. In November last year, IAG became the first airline group worldwide to commit to achieving net-zero CO2 emissions by 2050. And we did so in the face of increasing scientific evidence of the need to ensure that we accelerated our goals in relation to climate change. And increasing consumer awareness and indeed consumer activity in relation to this issue. Now, I'm not a scientist, but I personally am convinced by the scientific evidence that I've seen that man-made CO2 is an issue that we need to address. And as an industry that contributes to man-made CO2, it doesn't matter how small or how big it is, and we all know that for the international airline industry, it's just over 2% of man-made CO2, We have to demonstrate to people that we're playing our part. We have to demonstrate to our customers that we're doing everything we can do to ensure that our contribution to man-made CO2 is limited as best we can. And therefore, we felt it necessary to demonstrate some leadership as an airline group and to go beyond what the industry has committed to through IATA. Where we had a 50% reduction in our net emissions by 2050 and to move to what is generally accepted as being the requirement to achieve net zero by 2050. In addition to doing that, we committed to offsetting all of our CO2 on our UK domestic operations. We operate about 70 flights, 75 flights a day, and we are doing this by investing in quality assured carbon reduction methods. Now, the important word there is quality assured, because we have to be able to demonstrate that offsetting is a credible process. There are many who believe it does not address the issue, and quite honestly, I think there's reason, good reason for them to be skeptical about this, because we have seen some projects in the past which I think were questionable. So as an industry, if we're committing to offsetting, and I believe we have to given that we will have no alternative to the fuel sources we use for some considerable time, we have to ensure that those offsets that we're investing in are credible and lead to a genuine reduction in CO2. We as a group, we're investing billions. We'll spend €4 or €5 billion every year for the foreseeable future on fleet renewal and fleet expansion. We're investing in new aircraft technology, which is significant. I mentioned some figures yesterday when I talked about the difference between an A350-1000 and a 747 on the same route. So I got our team to run a flight plan for a Boeing 747 under the exact same conditions as the A350. Our A350s and BA are configured with 331 seats, our 747s with 337, so it's a like-for-like aircraft. The fuel burn on the Heathrow to Toronto flight was 38% lower. We burned 26.5 tonnes less on the A350 than we would have on the 747. Now this is a big step change in fuel and CO2 and environmental performance. And it's one of the reasons why we delayed replacing our 747 fleet because we could see a very significant opportunity in replacing 747s with new generation aircraft like the A350 or the 777X over aircraft like the 777-300ER, which is a fantastic aircraft but doesn't give the same benefit. On that route, Heathrow to Toronto, the 777-300ER which is slightly smaller, maximum 297 seats in our configuration, would have reduced our fuel burn by about 24%. So a 38% reduction in fuel burn is very significant for us. And finally, we believe that in the short to medium term, sustainable aviation fuels, sustainable biofuel, is part of the solution. We have committed to invest both in terms of equity in a project with partner Shell and a biofuel company called Velocis to build a plant on the Humber Estuary in the UK which will convert waste into a sustainable biofuel. The lifecycle CO2 of that fuel will be about 70% less than the kerosene we're burning today. And what we're doing is we're putting our money into support the development of the project, which will give confidence to other shareholders and other investors to put their money in, because we have committed to take everything that that plant can produce for 10 years. So the technology exists, the science is proven. We believe that this is a truly sustainable fuel in that it doesn't compete with land use. This is using waste that otherwise would have gone into landfill to convert into a sustainable biofuel. And therefore we're demonstrating that we're putting our money where our mouth is. So the environmental challenges we face are significant, but as I said yesterday, I firmly believe that as an industry, based on everything we've done in the past and everything we're doing today, we can be confident that we can demonstrate to regulators, to politicians, and most importantly to our customers that we will play our part in ensuring that the performance of our industry recognizes and acknowledges the need to limit and where possible to reduce the amount of CO2 that we produce. So as I leave the industry, I leave so in the knowledge that it's in great shape. I leave so in the knowledge that we have great leaders who will ensure that this industry goes from strength to strength and we'll be able to endure any challenge that comes our way, no matter where the source of that challenge is or the significance of the challenge. And I wish all of you the very best for the future, and I hope you enjoy the rest of the conference today. Thank you very much.

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