Actions to address COVID-19
IAG has responded quickly and decisively to the pandemic
The main impact of COVID-19 materialised as a significant drop in the demand for passenger flights, linked to both the pandemic itself and the travel restrictions introduced, which changed many times throughout 2020 and 2021, often with no or very short notice, thereby creating uncertainty for customers. Capacity started to recover from the third quarter of 2021, in line with easing of restrictions and there was a strong increase in bookings for future travel once the US government announced it was easing its travel restrictions, which had operated largely unchanged from March 2020 to November 2021.
As a result of the significantly reduced flying programme, in 2020 aircraft had to be temporarily grounded, with some retired early. Jet fuel consumption in 2020 and 2021 was significantly lower than that on which the Group’s hedging programme was based, leading to the discontinuation of hedge accounting for the related derivative financial instruments. In addition, the commodity price of jet fuel fell sharply, leading to significant losses related to the hedging programme, with an exceptional charge of €1.7 billion net of gains on related foreign exchange derivatives and a cash outflow in 2020 of €1.1 billion. In 2021 the remaining overhedged derivatives were settled, with a gain of €0.2 billion, reducing the total net loss to €1.5 billion.
From early 2020 and throughout 2021 the Group acted to mitigate the impact of COVID-19 on its liquidity and results, through reductions in operating and capital expenditure, together with working capital initiatives and additional funding.
In 2020, the Group successfully completed a capital increase of €2.7 billion and raised non-aircraft related debt of €1.4 billion, together with negotiating a new contract with Amex, which resulted in a one-off payment of €830 million, including a significant pre-payment.
The Group also protected liquidity through working capital initiatives to defer payments into 2021 and by offering customers the choice of vouchers for future travel, in place of cash refunds. The net impact of vouchers issued and redeemed in 2021 was broadly neutral.
Funding initiatives continued in 2021, with a further €4.4 billion of non-aircraft related debt raised, including a £2.0 billion (€2.3 billion) UK Export Finance (UKEF) backed loan for British Airways and at IAG unsecured bonds of €1.2 billion and a convertible bond of €825 million. The Group also repaid £300 million (€350 million) of one-year commercial paper issued under the UK’s CCFF mechanism.
The Group entered into new credit facilities, including a $1.755 billion (€1.6 billion) facility for British Airways, Iberia and Aer Lingus and a further £1.0 billion (€1.2 billion) via an additional UKEF facility for British Airways, agreed in the final quarter of 2021. Neither of these facilities was drawn in the year and, as at February 24, 2022 the Group had fully committed and undrawn general facilities of €2.9 billion and €1.1 billion of aircraft financing facilities, bringing total facilities to €4.0 billion.