IAG NINE MONTHS RESULTS ANNOUNCEMENT

International Airlines Group today (November 4) presented Group results for the three and nine months ended September 30, 2011. In addition, IAG presented combined results for the nine months ended September 30, 2011 including Iberia’s first 21 days of January.

IAG period highlights on combined results:
· Third quarter operating profit of €363 million, before exceptional items (2010: €528 million)
· Operating profit for the nine months to September 30, 2011 of €451 million, before exceptional items (2010: €219 million)
· Profit before tax for the nine months of €355 million after exceptional items (2010: €63 million)
· Revenue for the nine months up 11.6 per cent to €12,263 million (2010: €10,986 million), including €146 million or 1.3 per cent of adverse currency translation
· Passenger unit revenue for the nine months up 4.1 per cent (6.7 per cent at constant currency), on top of capacity increases of 7.7 per cent
· Fuel costs for the nine months up 28.5 per cent to €3,751 million, before exceptional items (2010: €2,919 million)
· Other operating costs up 2.7 per cent at €8,061 million, before exceptional items, including €122 million or 1.0 per cent of favourable currency translation. Non fuel unit costs down 4.7 per cent, or 3.4 per cent at constant currency
· Cash down €200 million to €4,152 million (December 2010: €4,352 million)
· Group net debt down €293 million to €602 million (December 2010: €895 million)

Willie Walsh, International Airlines Group chief executive, said: "Our revenue is up 2.2 per cent in the quarter driven primarily by volume. However, high fuel costs continue to have a significant impact on our business. This quarter fuel costs are up 23.7 per cent, compared to last year, while non- fuel costs are flat.

“The competitiveness of the UK economy and the aviation industry has been damaged by Air Passenger Duty with UK airlines facing the highest tax levels in the world. Unless the British chancellor reverses this, even more passengers and businesses will avoid the UK and further undermine the economy.

“The main challenge for 2012 will be to offset increased fuel costs, as our hedges unwind, against a background of potentially weaker demand”.

(1) This financial data is based on the combined results of operations of British Airways, Iberia and IAG the company for the nine month period ended September 30, 2011 and 2010, and the balance sheet as at December 31, 2010. These combined financial statements eliminate cross holdings and related party transactions, however the comparatives do not reflect any adjustments required to account for the merger transaction. Financial ratios are before exceptional items.

(2) The IAG September 30, 2011 income statement is the consolidated results of BA and IAG the company for the nine month period ended September 30, 2011 and Iberia from January 22, 2011 to September 30, 2011. The IAG September 30, 2010 comparative is solely the results of BA.

(3) Adjusted gearing is net debt plus capitalised operating aircraft lease costs, divided by net debt plus capitalised operating aircraft lease costs and equity.

Financial review:
Revenue for the nine months to September 30, 2011 rose by 11.6 per cent to €12,263 million (2010: €10,986 million). Passenger revenue was up 12.3 per cent on capacity growth (ASKs) of 7.7 per cent and improved unit passenger revenues (€cents/ASK) of 4.1 per cent. At constant exchange rates total revenue was up 14.1 per cent or €1,552 million with passenger revenue up 14.9 per cent and unit passenger revenues up 6.7 per cent.

Cargo revenue for the nine months was up 10.6 per cent with yield up 4.9 per cent and volume up 5.3 per cent.

Operating costs for the nine months were up 9.7 per cent to €11,812 million, before exceptional items, and up 13.0 per cent at constant currency, reflecting increased capacity of 7.7 per cent and significant fuel price increases, net of hedging.

Fuel costs for the nine months were up 28.5 per cent to €3,751 million, before exceptional items, reflecting mainly price increases and additional volume, partly offset by hedging benefits.

Non fuel costs for the nine months were up 2.7 per cent, before exceptional items; non-fuel unit costs (€cents/ASK) were down 4.7 per cent. Capacity, which was adversely impacted by disruption last year, has increased without additional aircraft, and unit costs reductions show the benefits of resource management flowing through from the prior year.

IAG operating profit for the nine months was €451 million, before exceptional items (€383 million after exceptional items), compared to a profit of €219 million for the 9 months of 2010. The consolidated results including Iberia from the acquisition date of January 21, 2011, show an operating profit of €420 million after exceptional items.

Non-operating results for the nine months improved by €128 million, after exceptional items. This reflected the step acquisition profit as part of the merger transaction of Iberia in IAG of €83 million; this will be a fixed item for the remainder of the year.

The profit before tax for the nine months was €355 million, after exceptional items, an improvement of €292 million on the previous year (2010: €63 million).

The tax charge for the nine months reflects no tax charge on the step acquisition profit, standard rate tax charge on the profits across the Group and a deferred tax credit benefit from the reduction in the UK corporation tax rates announced in the UK March budget.

The Group’s cash position remains very strong with cash and cash equivalents at €4,152 million. The net debt of the Group has fallen by €293 million to €602 million compared to December 31, 2010. Adjusted gearing at September 30, 2011 improved by 5 points to 42 per cent.

Merger Transaction
The purchase price allocation will be completed within 12 months of the merger in accordance with the period allowed under IFRS3 Revised. The fair values of the acquired assets, liabilities and goodwill have been determined on a provisional basis, as disclosed at June 30, 2011, pending the finalisation of the valuations of the tangible and intangible assets and the related deferred taxes. Any movement in the provisional fair value of depreciable assets would result in an adjustment to the depreciation charge in the income statement from the date of acquisition.

Trading Outlook:
Given the disruption and non-recurring accounting items in Q4 2010, we are confident of a higher level of profitability in Q4 this year, even after the negative impact of the high fuel price. We expect to deliver a 2011 full-year operating profit of around double the year 2010 profits.
Although we saw some demand softness in October, forward bookings for premium cabins are currently broadly in line with levels seen last year. Non-premium cabins are weaker than last year, particularly in the Spanish market. We remain ready to adjust our capacity quickly to respond to any sustained downturn.