Specialist
Former EVP at British Airways plc
Agenda
- Impact of novel coronavirus pandemic on key IAG (LON: IAG) routes and fleet grounding
- IAG's ability to flex cost base and key saving opportunities
- IAG's route to normalcy post-coronavirus
- CAPEX plans and ability to defer key CAPEX projects
Questions
1.
The announcements from IAG [International Airlines Group] said it was down by about 7.5% YoY for Q1, and it expects capacity to be way down by about 75% for April and May. Do you think that is in line with other European airlines? I know, for example, Lufthansa is planning to ground more. EasyJet has grounded almost everything. How does IAG stand with the other airlines, and do you think we should expect further capacity reductions?
2.
What network percentage cuts are such that it makes sense to close it down? Lufthansa has gone right down to 90% cancellations. Is it 95%, or more than that which means that it makes sense to shut down?
3.
Which other airlines have exposure to South America and may be able to continue doing business there?
4.
Could you comment on the relative stability of intra-national flights within the IAG network?
5.
If you work on the assumption that IAG owns about one-third of its seats and leases about another two-thirds, what do you think will be the key dynamic within the conversation with the lesser in the coming weeks? Do you think lessors will have to accept the deferment of payments, given that, presumably, all these airlines are in a similar position to each other?
6.
Could you comment on the relative benefits of using the aircraft as security vs doing it as a sale-and-leaseback arrangement with a lessor?
7.
In the sale-and-leaseback model, the airline sells the aircraft to the lessor and then leases it back, if we there is systemic action within the market, with airlines deferring payments to the lessors, do you think that effectively halts the ability of lessors to participate in any sale-and-leaseback activity, and therefore makes the strategy redundant anyway?
8.
What operational expenses do you think can be cut out of IAG’s employee cost base? I think a fair proportion of its cash costs are for its employees. Do you think there will be headcount reductions, or do you think governments will help to pay wages?
9.
If you were to bucket employees into different functions, which functions do you think would be the most prudent for IAG to cut, across ground staff, pilots, cabin crew, and operations?
10.
How important are the pilot unions during this period?
11.
Which other cost buckets do you think can be cut out? There may be some flexibility in airport charges, given that lots of routes have been cancelled. What do you think of the potential increase in parking costs? How much does it costs, roughly, to park a plane for a day in some of IAG’s major airports? Has there been any flexibility from the airport side on that?
12.
Is there any historical comparison for what is happening currently, specifically to airports closing and parking rates perhaps potentially being reduced? What about the Iceland Volcanic eruption in 2010, or earlier than that?
13.
How much of the maintenance cost buckets do you think can be cut out of maintenance? Do you think this would be a moment for IAG to be able to keep up the maintenance of its aircraft, or has that been ruled out given the social distancing that the engineers will presumably need to be doing as well?
14.
Ryanair makes use of discounts for guaranteed delivery dates in terms of CAPEX. Is that something IAG has used in the past, and do you expect it to have to take any aircraft orders next year, or this year?
15.
Could you comment on the retirement of the Boeing 747, some would think earlier than planned, and whether you think there is any flexibility in that, given this rather unique circumstance?
16.
What have you observed in trends for residual values of the 747 planes in recent months?
17.
IAG said it will be cutting out all non-cyber IT costs. Do you have a view on how much CAPEX in total could be taken out?
18.
What cash plan do you think IAG will have in the next few weeks or months, given the scenario?
19.
How does the cost structure of IAG compare to other players such as Air France, Lufthansa, Ryanair and EasyJet? How do you think that will impact the cash plan on a monthly basis? What should we expect from these airlines?
20.
Could you comment on the hedging strategy IAG has relative to other players? This crisis comes in the context of an oil price slump, which for some more opportunistic players may provide some flexibility, but for others who are more fully hedged, it would be tricky.
21.
Do you think there would be any possibility to unwind any hedge position and release some cash for that, or get more exposure to the spot price?
22.
If, hypothetically speaking, the coronavirus is cured tomorrow and there are no more cases, how long could it take IAG to return to a relatively normal position in booking rates across leisure and business travellers? How long would it take to get a relatively full book?
23.
For some airlines, there is a yield curve such that the first people to pick up a seat get one price, and then people who buy later seats get a higher price to pay, whereas some airlines have a curve such that we get these distressed seats at the end of a booking cycle which come very cheaply. How does IAG sit within that context? What do you think will happen with that yield curve when the coronavirus situation appears to settle and airlines are able to take bookings, potentially being quite price-competitive in doing so?
24.
IAG seems to be in a relatively healthy position compared to some of the other players. We have these airlines who are not taking in any cash at the moment, putting as much pressure on the supply chain as possible. Do you think there will be a situation in which some key suppliers to the airlines will need to be bailed out by the government?
25.
I think Boeing has already asked for some support. Do you expect it to occur in other parts of the supply chain as well?
26.
How do you think the lessors sit within this environment? How healthy do you think the lessors are relative to the other players within the supply chain?
27.
If IAG needed bailing out, which government do you think it would come from? We have a European and UK airline here. Where do you think the funding would come from?
28.
What do you think are the pros and cons of equity-structured bailouts vs debt-structured bailouts?
