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IAG Full Year 2023 Financial Results Show Strong Growth

The International Airlines Group (IAG) has published its full-year 2023 financial results, showing a significant increase in operating profit, driven by strong and sustainable demand for travel. The company also continued to invest in its transformation, focusing on strategies to enhance long-term earnings growth.

LONDON, UK: British Airways A350 at London Heathrow on 29 July 2019 (Picture by Nick Morrish/British Airways)

Readers will find essential information on the airline group’s performance in the summary and highlights that follow. Find IAG’s full report below.

IAG FY 2023 Summary

  • The travel industry is experiencing a consistent and robust demand, particularly for leisure-based activities.
  • The company’s operating profit for the full year of 2023 hit €3,507 million, marking a notable rise from the past years with a jump from €1,247 million in 2022 and surpassing the €3,253 million in the pre-COVID year of 2019.
  • Operating margins have climbed to 11.9%, a substantial gain compared to the prior year’s 5.4%, thanks to the company’s ongoing transformation efforts.
  • A hefty free cash flow of €1.3 billion has strengthened the company’s financial position, resulting in a net debt of just 1.7 times the EBITDA before exceptional items. This figure is not only an achievement over the target ratio of 1.8 but also shows significant progress from the 3.1 times recorded in 2022.
  • Projections for 2024 are positive with the anticipation of generating a significant free cash flow. The company focuses on prudent capital management, maintaining a solid balance sheet, and committing to continuously creating shareholder value and cash returns.

Strategic Highlights

  • IAG expanded capacity by 22.6% in 2023 compared to the previous year, focusing on the North Atlantic and South Atlantic markets.
  • Revenue and cost transformation initiatives were undertaken to improve customer service.
  • The Spanish businesses reported an operating profit of €1.4 billion for 2023, more than doubling from €0.6 billion in 2022, showing a more balanced portfolio.
  • The IAG Loyalty program saw a 17% rise in profits, reaching £280 million, and added 4.9 million new members, reflecting a similar growth rate in membership.
  • IAG’s fourth-quarter operating profit before exceptional items in 2023 was €502 million, an increase from €477 million during the same period in 2022.
  • Throughout 2023, IAG Group companies welcomed 13,000 new colleagues, indicating continuous investment in their workforce.
  • One-third of their target for sustainable aviation fuel use by 2030 has been committed to, marking progress toward sustainability goals.

Statement from IAG CEO

Luis Gallego, IAG Chief Executive Officer, said:

“In 2023, IAG more than doubled its operating margin and profits compared to 2022, generated excellent free cash flow and strengthened its balance sheet position, recovering capacity to close to pre-COVID-19 levels in most of its core markets.

“In 2024, we will execute on our strategy, building long-term value into the business. We will focus on strengthening our core airline businesses and on developing IAG Loyalty and our other asset-light growth opportunities, and we will do this while operating under a strong financial and sustainability framework. Our airlines operate in the largest and most attractive markets globally and we will continue to invest in our brands to transform the business, improve the customer experience and support the delivery of sustainable growth and world-class margins. 

“I would like to thank all of the teams across the Group for their continued hard work and dedication to delivering our transformation plan.”

IAG Financial Summary Table

Year to 31 DecemberThree months to 31 December
Statutory results (€ million)202320221202320221
Total revenue 29,453 23,066 7,224 6,386
Operating profit 3,507 1,278 502 477
Profit after tax 2,655 431 504 232
Basic earnings per share (€ cents) 53.8 8.7
Cash, cash equivalents and interest-bearing deposits 6,837 9,599
Borrowings 16,082 19,984
Alternative performance measures (€ million)202320221202320221
Total revenue before exceptional items 29,453 23,066 7,224 6,386
Operating profit before exceptional items 3,507 1,247 502 477
Operating margin before exceptional items 11.9% 5.4% 6.9% 7.5%
Profit after tax before exceptional items 2,655 402 504 232
Adjusted earnings per share (€ cents) 50.6 5.6
Net debt 9,245 10,385
Net debt to EBITDA before exceptional items (times) 1.7 3.1
Total liquidity2 11,624 13,999
1 The 2022 results include a reclassification to conform with the current year presentation for the Net gain on the sale of property, plant, and equipment. There is no impact on the Profit after tax.
2  Total liquidity includes Cash, cash equivalents, interest-bearing deposits, and committed and undrawn general and aircraft-specific financing facilities.

Financial highlights for 2023

  • IAG has successfully restored 95.7% of its 2019 capacity, as measured in available seat kilometers (ASKs), with the fourth quarter reaching 98.6% of the 2019 level.
  • Throughout the year, passenger unit revenue was 8.2% higher than in 2022, supported by a strong recovery in leisure traffic, although business traffic lagged in recovery. The premium leisure segment, in particular, continued to show excellent performance.
  • Thanks to increased passenger capacity and various transformation initiatives, non-fuel unit costs were reduced by 4.4% compared to 2022. These reductions helped counterbalance inflation and investment to enhance customer services and systems.
  • The cost of fuel per unit rose by a modest 0.7% compared to 2022, even though effective fuel prices remained largely the same after hedging. The group’s investment in more fuel-efficient aircraft helped to mitigate the rising costs associated with Emissions Trading Schemes.
  • The airline reported a profit after tax for the year at €2,655 million, a significant increase from €431 million in 2022.

IAG Outlook

  • Demand for leisure travel remains strong, with bookings at 92% for the first quarter of 2024 and 62% for the first half of the year, surpassing last year’s figures.
  • The company focuses on expanding its presence in core markets and enhancing its global leadership positions. A planned capacity growth of about 7% is on the horizon for 2024. British Airways is working towards regaining its pre-pandemic long-haul capacity, and Iberia is looking to expand efficiently in the lucrative Latin American market.
  • A slight increase in non-fuel unit costs is anticipated for 2024 due to continued investments in the business. Nevertheless, an ongoing transformation program is expected to counteract inflationary pressures, enhance customer offerings, and promote the delivery of top-tier margins and returns in the medium term.
  • The company foresees generating a significant amount of free cash flow in 2024, even before considering any potential income from leasing deals and without making any additional pension contributions or substantial debt repayments within the year. This projection includes earmarked capital expenditures amounting to approximately €3.7 billion for its 2024 investment agenda.

Delivering IAG strategy

IAG’s Economic Blueprint: Aiming for a Sustainable Growth Trajectory and Rewarding Shareholders

Focused Strategy for Enhanced Earnings and Margins

International Airlines Group (IAG) meticulously engineered its strategic plan to boost long-term earnings and maintain top-tier margins, aiming to deliver consistent returns to shareholders. Their strategic vision revolves around three core imperatives:

Core Reinforcement and Portfolio Expansion

IAG’s vital stronghold is its presence in the high-growth aviation markets, such as the North Atlantic, South Atlantic, and within Spain. The post-pandemic surge in 2023 saw a dramatic rise in the demand for leisure travel, which became the apex driver for passenger traffic across various cabin types. Although corporate travel is gradually returning, it remains subdued for short trips.

Commitments in Key Markets

  • British Airways eyes restoring its non-premium and long-haul capacities by 2024 and 2025, while premium capacity will follow in 2026.
  • Iberia aims for profitable expansion by increasing capacity in long-term attractive markets.
  • Aer Lingus leverages its cultural ties and strategic positioning, reopening routes to Hartford, launching new ones to Cleveland in 2023, and expanding to 21 destinations in North America in 2024.
  • LEVEL exhibits remarkable growth with new routes and the strategic deployment of the Airbus A321 XLRs in 2024 to foster a low-cost network.

Enhancing South Atlantic and European Operations

IAG and its partners command a 32% market share in the South Atlantic zone. This area, representing 19% of IAG’s total capacity, showcased 45 daily flights to Latin America in 2023.

In the competitive European short-haul market, carriers provide essential feeder traffic, while IAG’s low-cost airlines offer efficient point-to-point services. Vueling’s growth strategies include network de-seasonalization and capitalizing on the domestic Spanish market.

Integrating Product and Service Improvements

The company’s commitment to elevating customer experiences involves significant investment in better product offerings.

  • British Airways plans to refurbish its Boeing 787 fleet with Club Suite products in 2024.
  • Iberia enhances customer experience with its new A350 aircraft and modernized A330 and A320 family fleet designs.

Driving Efficiency in Operations

Operational efficiency remains crucial for customer satisfaction and direct financial outcomes. Iberia achieved exceptional punctuality in 2023, while investment in better operational performance is a focal point for British Airways.

Asset-Light Business Models to Spur Earnings Growth

IAG Loyalty’s robust performance is reflected in the record profits and membership rise, strongly focusing on leveraging attractive products and strategic partnerships to nurture future growth.

Fortifying Finance and Committing to Sustainability

IAG actively participates in discussions around Sustainable Aviation Fuel (SAF) and continues to invest in fuel-efficient aircraft to progress towards Net Zero. The Group’s disciplined capital allocation is evident in its target for 12% to 15% operating margins and a healthy Return on Invested Capital between 13% and 16%.

IAG Capacity

In 2023, passenger capacity operated, measured in available seat kilometers (ASKs), rose by 22.6% versus 2022. For the year, capacity operated was 95.7% of 2019 levels, and capacity was almost fully restored to 2019 levels by the end of the year, reaching 98.6% of 2019 levels in the final quarter.

Table Of IAG Capacity Operated By Region

Year to 31 December 2023ASKshigher/(lower)v2022ASKshigher/(lower)v2019Passenger load factor (%)Higher/(lower)v2022Higher/(lower)v2019
Domestic 7.8 % 8.4 % 89.54.0pts2.3pts
Europe 15.4 % (3.1) % 85.94.4pts2.3pts
North America 23.0 % 3.2 % 82.93.6pts(1.2)pts
Latin America and Caribbean 18.8 % (1.7) % 87.62.5pts1.2pts
Africa, Middle East and South Asia 32.2 % 1.1 % 83.32.2pts0.3pts
Asia Pacific 258.0 % (59.7) % 88.44.4pts2.6pts
Total network 22.6 % (4.3) % 85.33.5pts0.7pts

While capacity was fully restored to most of IAG’s markets, the recovery in the Asia Pacific region was slower, linked to later easing of COVID-19 restrictions in the region.

Table of Capacity Operated by Airline

Year to 31 December 2023ASKshigher/(lower)v2022ASKshigher/(lower)v2019Passenger load factor (%)Higher/(lower)v2022Higher/(lower)v2019
Aer Lingus 20.3 % 4.4 % 80.63.7pts(1.2)pts
British Airways 28.1 % (9.9) % 83.63.8pts0.0pts
Iberia 18.5 % 3.2 % 87.23.0pts0.0pts
LEVEL 33.1 % (32.8) % 93.43.7pts9.5pts
Vueling 10.5 % 8.5 % 91.44.2pts4.5pts
Group 22.6 % (4.3) % 85.33.5pts0.7pts

British Airways Nears Full Recovery of Pre-Pandemic Capacity by 2023

British Airways has made significant strides in regaining its flight capacity levels, achieving 90.1% of its 2019 total capacity as of 2023. The slower recovery in the Asia Pacific sector, predominantly serviced by British Airways in the past, plays a role in this statistic. While the retirement of the Boeing 747-400 fleet during the COVID-19 pandemic affected capacity, there are plans for further expansion in 2024 and 2025.

LEVEL has experienced a capacity reduction since 2019 due to ceasing operations out of Paris Orly. However, its Barcelona operations have seen a 32.4% increase compared to 2019 figures.

Travel Demand Boosts Capacity in Domestic and European Markets

Strong leisure demand has supported growth in the Domestic markets, including mainland Spain and the islands. Capacity within this sector has surpassed 2022 levels by 7.8%, reaching an 89.5% passenger load factor—a 4.0-point increase from last year. Overall, these numbers also exceed 2019’s figures.

In Europe, capacity has risen by 15.4% compared to 2022, thanks to leisure travel’s popularity. Notable developments include Aer Lingus’s new destinations, British Airways’s expansion of its Euroflyer services, and Vueling’s additional routes and aircraft. The passenger load factor for Europe climbed 4.4 points from 2022, reaching an impressive 85.9%.

North American Routes Expand to Meet Demand

The Group’s presence in North America has widened, with a 23.0% capacity increase over 2022 and surpassing 2019 by 3.2%. Airlines like Aer Lingus, British Airways, and Iberia have introduced new routes and boosted service frequencies, while LEVEL is set to further bolster its capacity in 2024. Despite these advances, the passenger load factor has slightly decreased compared to 2019.

Latin America and Caribbean Destinations on the Rise

Despite a slight dip compared to 2019, capacity for flights to Latin America and the Caribbean has grown by 18.8% since 2022. British Airways and Iberia’s new flight services and LEVEL’s year-round service to Santiago de Chile have bolstered the region’s offerings. The passenger load factor has enjoyed an uptick since both 2022 and 2019.

Increased Flight Services to Africa, the Middle East, and South Asia

The AMESA region has witnessed a 32.2% capacity increase from 2022, slightly edging 2019’s numbers. Along with expanded British Airways flights, new routes from BA Euroflyer and Iberia contribute to this growth. Passenger load factors also reflect an upward trajectory.

Asia Pacific Shows Steady Recovery After Pandemic

The Asia Pacific region’s capacity has soared by 258.0% from 2022. However, it remains 59.7% lower than 2019 levels as pandemic-related restrictions lifted more gradually here. British Airways has resumed its services and increased frequencies to key destinations like Shanghai, Beijing, Hong Kong, and Tokyo, with Iberia set to rejoin the Tokyo route in 2024.

Solid Financial Ground for British Airways and Partners

The Group’s financial prospects look promising as it operates with sufficient liquidity and continues to leverage a diverse revenue stream to offset challenges like increased fuel costs and supplier cost inflation. This has led to a notable Operating profit rise to €3,507 million in the reporting year from €1,278 million in 2022, with an after-tax profit jump to €2,655 million from €431 million the previous year.

Table: IAG Profit for the Year

Statutory results
€ million
202320221Higher/(lower) vly
Operating profit 3,507 1,278 2,229
Profit before tax 3,056 415 2,641
Profit after tax 2,655 431 2,224

Revenue

€ million2023Higher/
(lower) vly
Higher/
(lower)vly (%)
Passenger revenue 25,810 6,352 32.6 %
Cargo revenue 1,156 (459) (28.4) %
Other revenue 2,487 494 24.8 %
Total revenue 29,453 6,387 27.7 %

Total revenue increased €6,387 million versus 2022, after adverse foreign exchange rate movements of €490 million, mainly due to the translation of British Airways and IAG Loyalty’s results from pound sterling into euro, which resulted in an adverse variance of €379 million versus 2022.

Passenger revenue

The airline experienced a 32.6% increase in passenger revenue, outstripping a 22.6% increase in capacity, thanks to higher yields and load factors. The revenue boost was primarily due to market reopenings, a surge in leisure demand, and raised ticket prices caused by higher fuel costs and supplier inflation. While leisure travel rebounded significantly, corporate travel’s recovery was more gradual. The passenger load factor reached 85.3%, surpassing 2022 and 2019 figures. Passenger yields and unit revenue also increased compared to both previous periods, signaling a solid performance overall.

Cargo revenue

In the given data, cargo revenue for a group of airlines in 2023 decreased by 28.4% to €1,156 million compared to the previous year despite cargo volumes being 17.2% higher. As airlines resumed operations, the increase in cargo capacity led to a 38.9% drop in cargo yields due to an increase in industry-wide capacity and a decrease in market demand affected by economic conditions. In contrast to 2022, which saw higher yields due to supply chain disruptions and shipping issues, especially in the first half of the year, 2023 cargo yields also benefited from a new premium cargo facility at London Heathrow and a perishable goods facility in Madrid.

Compared with 2019, however, there was a 3.5% increase in cargo revenue, equaling €39 million, mainly due to cargo yield improvements of 23.8% resulting from transformation initiatives, which offset the 16.4% drop in cargo volumes caused by weaker demand and reduced capacity, particularly from the Asia Pacific region.

Other revenue

In 2023, the IAG Group focused on driving earnings through asset-light businesses, particularly emphasizing the expansion of IAG Loyalty. The loyalty program experienced significant growth, with increased membership and revenue, notably through its American Express partnership. IAG Loyalty’s revenue rose by 61% to €524 million.

The Group’s primary alternative revenue sources included BA Holidays and Iberia’s MRO unit. BA Holidays’ revenue surged due to higher flying activity and services, reaching €938 million. Similarly, Iberia’s MRO business benefitted from more third-party engine maintenance, with a revenue boost of €155 million to €683 million. However, Iberia’s ground handling revenue stayed the same as the previous year, at €195 million; the company will anticipate reduced revenues in 2024 due to losing contracts at eight airports.

The Group’s other revenue streams grew by 24.8% compared to 2022, totaling €2,487 million, and presented a substantial increase of 29.5% from 2019 figures.

Operating costs

The total operating expenditure increased to €25,946 million in 2023 from €21,788 million in 2022. This rise is attributed to an increased volume of flights and passenger numbers and favorable foreign currency movements totaling €408 million, with €351 million resulting from translating British Airways and IAG Loyalty’s operating costs from pound sterling to euros.

Employee costs

€ million2023Higher/(lower) vlyHigher/(lower)vly (%)
Employee costs 5,423 776 16.7 %

In 2023, the Group experienced a significant increase in employee costs amounting to €776 million, a 16.7% rise compared to the previous year. This increase was due to expanding the company’s capacity and growing the headcount by 9,962 employees, bringing the average to 69,762. Investments were also made in the British Airways’ London hub to enhance operations. Despite these increases, the Group successfully negotiated pay deals with most of its employees and saw a decrease in employee costs of 4.8% per available seat kilometer (ASK) compared to 2022.

Fuel, oil costs, and emissions charges

€ million2023Higher/(lower) vlyHigher/(lower)vly (%)
Fuel, oil costs and emissions charges7,557 1,437 23.5 %

In 2023, the total increase in fuel, oil costs, and emissions charges for the Group was €1,437 million compared to 2022, mainly due to more operated flights. Despite a 17% drop in average spot fuel prices, the Group’s effective fuel price remained similar to the previous year since the fuel hedging program’s benefits were neutralized. Foreign exchange impacts were minimal. The cost for emissions trading compliance rose to €238 million, driven by increased flight capacity, market prices for emissions trading, and fewer free allowances. Per available seat kilometers (ASK), these costs were up by 0.7% from 2022.

Fuel hedging

The Group’s strategy to manage the risk of fluctuating commodity prices involves a fuel hedging policy set by the Board in May 2021, which the Audit and Compliance Committee reviews. The policy provides flexibility to account for unexpected changes in travel demand or fuel prices. It allows for different approaches within the Group’s operating companies and includes call options. Hedging is planned on a two-year rolling basis, with up to 60% of predicted fuel needs hedged in the first year, 30% in the second, and special provisions for low-cost airlines to hedge up to 75% in the first year. Hedging beyond 25 months in advance is rare and only in exceptional circumstances.

Fuel consumption

The Group saw improved fuel efficiency and reduced carbon emissions in the past year thanks to the addition of 35 new aircraft and higher passenger load factors. Carbon intensity per passenger kilometer dropped by 3.6% compared to 2022.

Aircraft fleet

In 2023, the in-service aircraft fleet grew by 24, with 37 aircraft joining and 13 retiring. Five aircraft re-entered service, two of which were delivered late last year. The total deliveries for the year amounted to 34, with four entering service at the start of 2024.

Number of fleet in-service20232022Higher/(lower) vly
Short-haul 389 381 2.1 %
Long-haul 193 177 9.0 %
 582 558 4.3 %

In addition to the in-service fleet, there were a further nine aircraft not in service, comprised of five aircraft held by the Group pending disposal or lease return and four aircraft delivered late in 2023 and not in service by 31 December 2023.

Operating profit performance of airline operating companies

Aer Lingus
€ million
 British Airways£ millionIberia
€ million
Vueling
€ million
Statutory2023Higher/
(lower) vly
 2023Higher/
(lower) vly
2023Higher/
(lower) vly
2023Higher/
(lower) vly
Passenger revenue 2,209 530  12,668 3,453 5,262 1,220 3,181 597
Cargo revenue 55 (25)  757 (303) 275 (72) – –
Other revenue 10 –  898 143 1,421 299 17 3
Total revenue 2,274 505  14,323 3,293 6,958 1,447 3,198 600
Fuel, oil costs and emissions charges 639 100  3,825 896 1,496 183 907 168
Employee costs 471 78  2,577 477 1,284 123 399 29
Supplier costs 789 143  5,475 880 2,827 543 1,240 152
Ownership costs1 150 16  1,015 (66) 411 47 256 50
Operating profit 225 168  1,431 1,106 940 551 396 201
Operating margin 9.9%6.7 pts  10.0%7.0 pts 13.5%6.4 pts 12.4%4.9 pts
 

1 Ownership costs reflect Depreciation, amortization, and impairment, and the Net (gain)/loss on the sale of property, plant, and equipment. (Alternative measures are provided in IAG’s full financial report.)

Review by operating company

In 2023, all of the airline companies under consideration experienced a rise in profitability, with Iberia and Vueling hitting record operating profits despite rising fuel costs and inflation. British Airways operated at the lowest capacity since 2019, primarily due to continuing COVID-19 restrictions in the Asia Pacific region, at 90.1%. Aer Lingus exceeded its 2019 capacity by 4.4%, attributing some of this growth to the new base established at Manchester Airport in 2021. Both Iberia and Vueling expanded their capacities beyond their 2019 levels, operating at 103.2% and 108.5%, respectively.

Operating profit before exceptional items

20232022120191, 2
Aer Lingus (€ million)22557 276
British Airways (£ million)1,431306 1,893
Iberia (€ million)940389 498
Vueling (€ million)396187 241
IAG Loyalty (£ million)280240 176

1  The 2019 and 2022 results include a reclassification to conform with the current year presentation for the Net gain on sale of property, plant and equipment within Operating profit.

2  The 2019 results have been restated for the treatment of administration costs associated with the Group’s defined benefit pension schemes.

IAG Loyalty, which benefits from the company’s airline group, reported a record operating profit of £280 million for the year, an increase from £240 million the previous year. Despite the growth, the operating margin dropped from 28.4% to 21.7%, influenced by higher Avios redemption activity and differences in how Avios were issued between its airlines and other partners.

Capital Expenditure

In 2023, the Group reduced its capital expenditure to €3,544 million from €3,875 million in 2022, a decrease of €331 million attributed to the timing of fleet deliveries and pre-delivery payments. Despite this, there was increased investment in IT infrastructure. The Group took delivery of 34 new aircraft, with most purchases from Airbus and Boeing, supplemented by leases. A notable transaction included the novation of an Airbus aircraft to a lessor before delivery, resulting in the lessor making the final payment and the Group receiving a refund for pre-delivery payments.

Aircraft deliveries20232022
Airbus A320ceo 2 –
Airbus A320neo family 19 12
Airbus A330 2 –
Airbus A350 9 12
Boeing 787-10 2 3
Total 34 27

Aircraft orders

In 2023, the Group strengthened its fleet by converting options for ten A320neo aircraft to firm deliveries for 2028 and placing orders for new aircraft: six Boeing 787-10s for British Airways and one Airbus A350-900 for Iberia, set to be delivered between 2025 and 2026. Additionally, the Group acquired various aircraft through leases, including two Airbus A350-900 for Iberia, two A330-200 for LEVEL, and four A320ceo for Vueling, with all but three A320ceos having been delivered within the year. Leases for the remaining three A320ceos were signed, and their delivery is expected in 2024. The Group also plans to introduce eight more A320ceo aircraft for Vueling in 2024 to accommodate maintenance requirements for other aircraft equipped with Pratt & Whitney ‘GTF’ engines.

Aircraft future deliveries at 31 December20232022
Airbus A320ceo 3 –
Airbus A320neo family 82 91
Airbus A321XLR 14 14
Airbus A350 3 12
Boeing 737 50 50
Boeing 777-9 18 18
Boeing 787-10 11 7
Total 181 192

In addition to those committed future deliveries shown above, on 31 December 2023, the Group held options to acquire a further 235 aircraft from Airbus and Boeing.

Strategic Framework

International Airlines Group (IAG) is dedicated to connecting people, businesses, and countries with innovation and commitment among their core values. They aim to create long-term value for customers, employees, shareholders, and society, with success in one area benefiting the others. As the parent company, IAG is pivotal in driving cooperative strategies, best practice sharing, and managing central functions to achieve synergies across the Group.

Their strategic approach focuses on three main goals: reinforcing their core capabilities, promoting earnings through low-asset intensity businesses, and operating within a robust financial and sustainability structure. IAG’s priorities include expanding its world-leading brand portfolio, enhancing its loyalty program, forging strong airline partnerships, and making disciplined capital allocations, all while leading sustainability efforts.

Summary of the Risk Management Update

Throughout 2023, the Group has vigilantly overseen the changing risk environment prompted by both internal and external factors. The Group closely monitors risks regarding operational resilience, financial market status, customer demographics, geopolitical and economic uncertainties, AI adoption, and specialized talent recruitment and retention.

Despite the unchanged list of principal risks from the 2022 report, the Group acknowledged the evolving nature of certain risks. The aviation supply chain’s fragility, especially concerning aircraft delivery and component availability, is a significant challenge. Other persistent concerns include inflation and interest rate effects, supply chain costs, geopolitical conflicts, air traffic control stability, and potential regulatory changes affecting airline operations.

The Group renamed a critical risk previously termed ‘Transformation and change’ to ‘Transformation, innovation, and AI.’ This reflects the Group’s strategic commitment to leveraging innovation and AI. Similarly, ‘Critical third parties in the supply chain’ have been reclassified under Business and Operational risk.

The Board remains engaged in assessing risks, demanding robust management responses, and endorsing mitigation strategies to align with the Group’s accepted risk profile.

Priority Risks In Focus

  • Brand and customer trust: The Group continues to enhance disruption management and customer experiences through service reliability, cabin investment, and adaptive scheduling.
  • Critical third parties in the supply chain: The Group proactively tackles operational disruptions by closely collaborating with key suppliers.
  • Cyber attack and data security: The Group is strengthening its cyber defense posture against ransomware and other threats.
  • Economic, political, and regulatory environment: The Group remains vigilant over geopolitical events, inflationary pressures, and regulatory proposals to navigate economic uncertainty and potential operational constraints.
  • IT systems and infrastructure: Major modernization efforts aim to ensure system resilience and customer-centric enhancements.
  • Operational resilience: The Group faces labor shortages and industrial action challenges. An IT infrastructure transformation is underway to bolster operational efficiency.
  • People, culture, and employee relations: Engaging with employees and fostering a culture ready for change is paramount. The Group focuses on apprenticeships and retention to address staff shortages while navigating union negotiations effectively.
  • Sustainable aviation: The Group confronts the lag in Sustainable Aviation Fuel (SAF) infrastructure development and varied governmental green policies, aiming to meet carbon reduction commitments.

The Group informs the Board and subcommittees about regulatory developments, competition, and governmental actions.

IAG Customer Loyalty Schemes

The financial report discusses how the Group recognizes revenue from its customer loyalty program involving Avios, the loyalty currency. The Group estimates standalone selling prices of Avios, brand, and marketing using specific techniques and methodologies. The value of an Avios point is based on the price of rewards it can be exchanged for, adjusted by the expected rate of unredeemed Avios.

In 2020, 2021, and 2022, the Group couldn’t rely on recent redemption trends due to the COVID-19 pandemic, which distorts long-term patterns. As a result, the Group based its revenue recognition on pre-pandemic customer behavior instead of the anomalous pandemic period.

For 2023, the Group has started to consider more recent redemption behaviors, post-pandemic, as indicative of long-term patterns and believes that there’s a sufficiently low risk of revenue reversal. With updated estimates based on current customer actions, the Group has adjusted its revenue recognition model accordingly.

The Group uses statistical modeling to predict the rate of Avios that will not be redeemed. If the rate of unredeemed Avios were to increase by 5%, there would be a €94 million adjustment to Deferred revenue, simultaneously increasing recognized revenue and operating profit for the year.

IAG Unredeemed Vouchers Liability

The Group historically recognized revenue from unused vouchers based on past expiration trends. Owing to the high volume of cancellations and vouchers issued during the COVID-19 pandemic in 2020 and 2021 and the uncertainty in redemption timing, the Group could not confidently apply previous trends. Thus, for financial years ending in 2020, 2021, and 2022, it did not account for revenue from pandemic-related vouchers until redemption or expiration. In 2023, considering recent customer behavior post-pandemic as indicative of future trends, the Group adjusted its estimates for voucher redemptions, mitigating the risk of significant revenue reversal and recognizing revenue accordingly.

Engineering and other aircraft costs

As of December 31, 2023, the Group reported €2,529 million in provisions for maintenance, restoration, and end-of-lease obligations for their leased aircraft fleet, an increase from €2,400 million in the previous year. Despite the lack of specific guidance from IFRS 16 on accounting for these provisions, the Group follows a policy aligned with other major airlines under IFRS, charging estimated costs to the Income statement as incurred or over time. They opted against a components approach, which involves capitalizing and depreciating the estimated costs of major maintenance.

Contracts for engine and maintenance work with service providers are typically long-term and complex. Estimates for provisions are based on anticipated cash outflows, considering cost forecasts, aircraft usage, maintenance schedules, and aircraft conditions, and then discounting these forecasts to present value. An increase of 100 basis points could raise provisions by €53 million, while a similar decrease could reduce them by €59 million.

Significant changes and transactions in the current reporting period

In 2023, the Group underwent several significant financial events:

  • Acquired the remaining 80% of Air Europa Holdings, with stock and cash payments to Globalia totaling €300 million, plus a potential €50 million break fee.
  • Aer Lingus repaid its €50 million financial arrangement with ISIF, with €350 million remaining undrawn facilities.
  • The Group launched a share purchase program, buying back €49 million in treasury shares for the Air Europa acquisition.
  • The Group converted Airbus and Boeing options into firm orders for future aircraft deliveries between 2025 and 2028.
  • The Group redeemed a €500 million bond and extended a $1.655 billion Revolving Credit Facility for its major airlines.
  • British Airways repaid a £2.0 billion syndicated loan and secured a new five-year facility, while Iberia and Vueling repaid significant loans and borrowings.

Impact of climate change on financial reporting

The Group pledges to cut emissions to zero by 2050, focusing on a clear climate initiative called Flightpath Net Zero. This ambitious plan will transform the Group’s work on many fronts. To reach their goal, they will increase the use of Sustainable Aviation Fuel, boost carbon offsetting and capture, and roll out more fuel-efficient aircraft.

The success of the strategy also depends on variables such as changes in consumer habits, government rules, expansion of Sustainable Aviation Fuel facilities, improvements in air traffic systems, and evolving carbon pricing models. Recognizing the unpredictability of these elements, the Group uses expert judgment in their financial reports. They meticulously figure out the value of assets and debts, remaining alert to any shifts in these critical external factors.

Long-term fleet plans and useful economic lives

The Group has integrated its Flightpath Net Zero climate strategy with its long-term fleet plans, assessing the aircraft’s annual lifespan and residual value. Due to the COVID-19 pandemic, the Group released 72 older, less efficient, and more carbon-intensive aircraft. Following this, with the future addition of 178 more fuel-efficient aircraft, the Group’s fleet aligns with its climate strategy. These and future aircraft delivered can use Sustainable Aviation Fuel (SAF) without issues. Consequently, there have been no impairments or changes to the aircraft’s useful lives and residual values due to the decarbonization plans.

Accounting for IAG Group Flightpath To Net Zero

Based on its business plans, the Group evaluates its cash-generating units using cash flow models that look ahead for three years. IAG has a climate strategy, “Flightpath Net Zero,” that influences their short-term financial projects. This strategy includes planned commitments related to climate change.

The Group updates its forecasts in the last year of its three-year financial plan. This is to include the effects of the Group’s climate strategy, outlined until 2030. However, the Group only adjusts for:

  1. Costs that they can estimate reliably up to the reporting date, not including costs after 2030 that are too uncertain.
  2. Changes directly concerned with the current state of the Group’s assets.
  3. Laws and regulations which will likely come into effect because of the net zero strategy.

As part of their impairment modeling, the Group predicts increases in the use of Sustainable Aviation Fuel (SAF), carbon costs, and possible tax changes related to kerosene. They also make assumptions about how they can offset these costs through ticket prices. They base these predictions on their existing fleet of aircraft. The assumptions do not include the Group’s future plans to restructure, use unused assets, or switch to cleaner aircraft technology. Neither do they include carbon capture technology advances or changes in legislation.

The Group then uses a long-term growth rate for these adjusted cash flows. They lower this rate to consider the potential for reduced demand caused by climate change. They rely on both external data and their own evaluations for this analysis.

Finally, the Group performs extra sensitivity analyses to account for uncertainties about the impact of climate change. These analyses adjust factors such as long-term growth rates, the number of available seats per kilometer flown (ASKs), profit margins, and how sensitive their operations are to changes in fuel prices.

Price of Carbon through EU, Swiss, and UK Emissions Trading Schemes

The European Union, Switzerland, and the United Kingdom use Emission Trading Schemes (ETS) to lower greenhouse gas emissions cost-effectively. Companies in the Group must either buy emission allowances or get them based on set quotas. These allowances match CO2 emissions for a year and companies must give them up yearly. Over time, the number of these allowances will drop, which will push prices up. The Group expects it will no longer get free allowances.

Regarding accounting, any allowances the Group buys count as adding to intangible assets. IAG records these at their amortized cost. The Group also sets aside money to cover CO2 emissions from its flights. IAG reports these costs as ‘Fuel, oil costs and emission charges.’ The Group calculates provisions based on what they paid on average for emissions they have already bought allowances for. If they emit more than they have allowances for, they put a value on these extra emissions using the market prices on the date they report their finances.

For the year ending 31 December 2023, the Group reported:

  • An expense of €238 million for additions to the ETS allowance provision, listed in ‘Fuel, oil costs and emission charges’.
  • Purchases of ETS allowances at €264 million are classified as additions to intangible assets.
  • The total value of ETS allowances at €577 million as part of intangible assets.
  • Commitments to forward purchases of ETS allowances valued at €216 million.

By 31 December 2023, the Group has both acquired and contracted fixed-price commitments for a certain percentage of the total forecasted emission allowances for the period up to 2026.

Percentage of forecast emission allowances required 
Within 12 months 100 %
1-2 years 62 %
2-3 years 24 %

IAG Business Segment Performance

The International Airlines Group (IAG) manages and evaluates its various entities, which include airline, loyalty, and platform functions. The IAG Management Committee (IAG MC) is the chief decision-maker responsible for resource allocation and performance assessment of the operating segments.

IAG’s operating segments are based on the management’s resource allocation strategy. They include British Airways, Iberia, Vueling, Aer Lingus, and IAG Loyalty as reportable segments. LEVEL is also an operating segment but does not qualify for separate disclosure based on the prescribed quantitative thresholds.

Inter-segment transactions mainly consist of maintenance and flight services amongst the airlines and loyalty functions. Platform functions appear under ‘Other Group companies’ for financial reporting.

Table of Performance By IAG Company

For the year to 31 December 2023

 2023
€ millionBritish AirwaysIberiaVuelingAerLingusIAG LoyaltyOther Group companies1Total
Revenue       
Passenger revenue 14,204 5,215 3,180 2,194 679 338 25,810
Cargo revenue 862 233 – 55 – 6 1,156
Other revenue 962 986 17 10 512 – 2,487
External revenue 16,028 6,434 3,197 2,259 1,191 344 29,453
Inter-segment revenue 431 524 1 15 294 392 1,657
Segment revenue 16,459 6,958 3,198 2,274 1,485 736 31,110
        
Depreciation and amortisation charge (1,168) (409) (259) (150) (11) (66) (2,063)
        
Operating profit/(loss) 1,650 940 396 225 321 (25) 3,507
        
Net non-operating costs       (451)
Profit before tax       3,056
Total assets 22,255 9,454 3,049 1,999 3,786 (2,863) 37,680
Total liabilities (19,295) (8,390) (3,461) (1,856) (3,115) 1,715 (34,402)

1  Includes eliminations on total assets of €16,268 million and total liabilities of €5,417 million.

IAG Employee costs and numbers

Employee Costs Table

€ million20232022
Wages and salaries 3,711 3,207
Social security costs 604 519
Costs related to pension scheme benefits 297 272
Share-based payment charge 52 39
Other employee costs1 759 610
Total employee costs 5,423 4,647

1  Other employee costs include allowances and accommodation for crew.

IAG Employee Table, Including Percentage Of Women By Role

The number of employees during the year and on 31 December was as follows:

20232022
31 December 202331 December 2022
Average number of employeesNumber of employees2Percentage of womenAverage number of employees1Number of employees2Percentage of women
In the air:      
Cabin crew 23,473 24,004 70 % 19,801 22,278 70 %
Pilots 8,085 8,223 7 % 7,340 7,864 7 %
On the ground:      
Airports 16,395 16,784 37 % 13,798 15,087 38 %
Corporate 14,774 15,586 48 % 11,741 13,819 49 %
Maintenance 6,813 6,972 8 % 6,908 6,775 8 %
Senior leaders 222 225 36 % 212 221 34 %
 69,762 71,794 44 % 59,800 66,044 44 %

1  In 2022, the average number of employees, excluding those on furlough, wage support, and equivalent schemes, including the Temporary Redundancy Plan arrangements in Spain, the total number of employees including these schemes was 61,192.

2 The number of employees is based on the actual headcount on 31 December.

IAG Capital Expenditure Commitments Table

As of December 31, 2023, capital expenditure authorized and contracted but not recorded in the accounts was €12,706 million. That is a decrease from €13,749 million the previous year. This includes aircraft commitments with an outstanding balance of €11,966 million. That is lower than the 2022 figure of €13,484 million. The summary also highlights expected delivery timeframes for these commitments.

Aircraft future deliveries as of 31 December2023120221
Airbus A320 (from 2024 to 2028) 49 45
Airbus A321 (from 2024 to 2028) 33 46
Airbus A321 XLR (from 2024 to 2026) 14 14
Airbus A350-900 (from 2024 to 2025) 2 7
Airbus A350-1000 (in 2024) 1 5
Boeing 777-9 (from 2026 to 2028) 18 18
Boeing 787-10 (from 2024 to 2026) 11 7
Boeing 737-8200 (from 2025 to 2027) 25 25
Boeing 737-10 (from 2027 to 2028) 25 25
Total2 178 192

1  Capital commitments exclude options to purchase additional aircraft.

2  Total deliveries excludes three Airbus A320 aircraft committed for delivery under lease agreements in 2024.

The Group has placed several orders for new aircraft to update and expand their fleet. They secured 10 Airbus A320neo aircraft scheduled for delivery in 2028 to replace older models. British Airways has firmed orders for six Boeing 787-10s, six additional options, and one Airbus A350-900 for Iberia. Deliveries are scheduled for 2025 and 2026. These commitments, priced in US dollars and subject to escalation clauses, require periodic progress payments. The amounts stated net of payments made thus far. The Group can defer or cancel orders under specific circumstances, but did not do so as of the end of December 2023.

IAG Investment in Air Europa Holdings

The Group provided Globalia with a €100 million unsecured, convertible loan for Air Europa Holdings on June 15, 2022. They exercised the conversion option on August 16, 2022, for a 20% stake in the subsidiary. On February 23, 2023, the companies agreed for IAG to acquire the remaining 80%. The deal is pending approvals from Globalia’s lenders and competition authorities.

As of December 31, 2023, the investment’s fair value increased by €105 million to €129 million, recognized in Other comprehensive income. The valuation was based on market and income approaches, excluding synergies. Significant unobservable inputs included a revenue growth rate of 4.0%, an EBITDA range of 3.6-6.5%, and a pre-tax discount rate of 13.9%.

Air Europa Holdings Acquisition Break Fee

If IAG and Globalia do not obtain approvals within 24 months or agree to an extension, and the deal falls through, the Group must pay Globalia a €50 million break fee. As of 31 December 2023, the Group is optimistic about the acquisition’s completion. It has not made a provision for the break fee.

Vueling commercial hand luggage policy

In 2023, Vueling cooperated with requests from Spain’s Ministerio de Consumo concerning its hand luggage policy. On January 12, 2024, the ministry proposed sanctions asserting Vueling’s policy violated consumer rights, based on Article 47.1 of Royal Legislative Decree 1/2007. The ongoing proceedings mean potential sanctions are currently unquantifiable. Vueling, with its advisors, believes in the legitimacy of its luggage policy and doesn’t anticipate an unfavorable ruling.

IAG Aircraft Fleet Table

Number of aircraft in service with IAG companies.

OwnedFinance leaseOperating leaseTotal
31 December 2023
Total
31 December 2022
Changes since 31 December 2022Future deliveriesOptions1
Airbus A319ceo 9 – 32 41 41 – – –
Airbus A320ceo 49 13 128 190 199 (9) 3 –
Airbus A320neo – 38 28 66 60 6 49 40
Airbus A321ceo 11 3 29 43 44 (1) – –
Airbus A321neo 4 6 19 29 16 13 33 –
Airbus A321 LR – – 8 8 8 – – –
Airbus A321 XLR – – – – – – 14 14
Airbus A330-200 2 1 16 19 16 3 – –
Airbus A330-300 4 4 12 20 20 – – –
Airbus A350-900 3 6 12 21 15 6 2 15
Airbus A350-1000 1 14 2 17 13 4 1 36
Airbus A380 3 9 – 12 12 – – –
Boeing 737-8200 – – – – – – 25 100
Boeing 737-10 – – – – – – 25 –
Boeing 777-200 38 2 3 43 43 – – –
Boeing 777-300 8 1 7 16 16 – – –
Boeing 777-9 – – – – – – 18 24
Boeing 787-8 2 8 2 12 12 – – –
Boeing 787-9 1 8 9 18 18 – – –
Boeing 787-10 – 5 2 7 4 3 11 6
Embraer E190 9 – 11 20 21 (1) – –
Group total 144 118 320 582 558 24 181 235

1  The options to purchase 100 Boeing 737 aircraft allow flexibility in the variant choice.

Aircraft are categorized by their contractual terms rather than by accounting classifications. In financial reporting, operating leases are always shown as lease liabilities. However, finance leases can appear as either lease or asset-financed liabilities, based on the specifics of the lease.

As well as those aircraft in service, the Group also holds nine aircraft (31 December 2022: 18) not in service.

Download Full IAG Financial Year 2023 Report

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