IAG profits up. IAG employed 228 (0.4%) more staff last year with 2.1% passenger growth
IAG has reported an increase in annual pre-tax profits of €503m (£425.6m) in the year to December 2011, after a profit of €84m euros the year before. Revenue rose by 10% to €16.3bn, despite an increase in fuel costs of 29.7%. BA made use of the opportunity of announcing their results to complain – yet again – about Air Passenger Duty, saying it “was reducing by about half the number of new jobs it would create this year.” With an increase of +2.1% in passengers last year, they only employed + 0.4% more staff – just 228 more. Not many. The industry routinely makes complaints about APD, which is all of £13 per outbound flight for a return journey to any European airport. APD is a charge put in place to compensate for the fact that the aviation pays no VAT and pays no duty on fuel, so in effect remains under taxed. As airlines add substantial charges much higher than APD for a range of other services, or just to cash in on popular times for journeys, such as half terms, this APD whinge needs to be taken with a big pinch of salt. Yet again.
29 February 2012 (BBC)
BA owner IAG sees strong profit rise
IAG, the parent firm of British Airways and Spain’s Iberia, has reported an increase in annual profits.
The company made a pre-tax profit of 503m euros (£425.6m; $677.8m) in the year to December 2011, after a profit of 84m euros the year before.
Revenue rose by 10% to 16.3bn euros, despite an increase in fuel costs of 29.7%.
The company said the improvement was against the backdrop of a particularly difficult year in 2010.
In 2010, it was affected by disruption from the Icelandic ash cloud, strikes and a weaker economic environment.
IAG’s chief executive, Willie Walsh, said demand for its North Atlantic routes had remained strong.
The airline also said it had cut non-fuel costs by 5.6% last year and increased revenue per passenger by 3.6%.
Analyst Keith Bowman at Hargreaves Lansdown stockbrokers said IAG’s results were encouraging.
“On the downside, fuel costs continue to take their toll, denting expected performance in the first half of 2012.”
[And here is the bit on Air Passenger Duty: ]
Duty ‘destroying jobs’
IAG warned that this summer’s Olympics in London could depress business from the UK, noting that past experience in other host cities suggested that demand could be dampened during the games.
However, the carrier said the event would be “positive for the long-term position of London as a global destination”.
IAG continued its criticism of Air Passenger Duty (APD), which is applied to almost every ticket on a flight originating in the UK.
The company said British Airways had paid almost £500m in APD last year, [they don’t pay it – it is passed on to their passengers] and said that, as a result of the increase to APD due in April, it was reducing by about half the number of new jobs it would create this year. (See below on jobs).
Willie Walsh told the BBC that government should cut the duty for the good of the economy.
“The impact of these very high taxes – the highest in the world – is very negative on the UK economy and is destroying jobs,” he said.
“So a government that claims to have a growth agenda, that has individual policies then that are undermining the security of jobs and destroying jobs and destroying the opportunity to create jobs really does need to assess these issues.”
(See below on the actual facts about APD.)
IAG is planning to expand by buying the BMI airline from Germany’s Lufthansa, something that would allow it to boost its services from London’s Heathrow airport.
However, the deal – which has been strongly opposed by rival carrier Virgin – still needs the approval of regulators.
The company said it was hopeful this would be forthcoming.
Air Passenger Duty (APD)
In 2010/11 the exemption from fuel tax and VAT was worth more than £11 billion to the airlines. After deducting APD revenues, the net benefit is around £9 billion – equivalent to a subsidy to the airlines of about £360 per household. The 53% of the UK population who do not fly – mainly the less affluent – find themselves subsidising the aviation industry. (Details)
The rates of APD change on 1st April 2012, when the rates rise by around 8% – in line with inflation, taking into account the fact there was no rise in 2011.The tax take is likely to be around £2.5 billion, rather than £2 billion per year after the rise. That means the net benefit to the industry of its exemption from VAT and fuel duty will be around £8.5 billion, after April 2012.
The Treasury has reiterated that APD is not an environmental tax. It was instituted in order to – in a small way – compensate for the aviation industry’s non-payment of fuel duty and VAT.
APD distance bands APD £ per passenger from 1 April 2012
(old rates from 1.11.2010)
Miles from UK Reduced rate Standard rate *
(in lowest class of travel) (in other than lowest . class of travel)
Band A (0-2000) £13 (£12) £26 (£24)
Band B (2001-4000) £65 (£60) £130 (£120)
Band C (4001-6000) £81 (£75) £162 (£150)
Band D (over 6000) £92 (£85) £184 (£174)
* premium classes, business class, first class etc
Details on APD compared to the benefits gained by the aviation industry by not paying fuel duty and VAT:
• Motorists pay 58p a litre duty on their fuel. Airlines pay nil.
• Motorists pay a further 22p VAT on their fuel. Airlines pay nil.
• Motorists pay 20% VAT to have their car serviced. Airlines pay nil.
• Motorists pay 20% VAT to buy their car. Airlines pay no tax on new aircraft.
So as they pay no duty and no VAT, there is Air Passenger Duty instead. This tax is charged at only £12 per passenger for any short haul flight (under 2,000 miles) departing from a UK airport. Not on return trips. £12 on a holiday trip to anywhere in Europe does not seem a lot. The price of one or two main course in a restaurant? or 3 or 4 cups of coffee?
Higher rates of APD apply to longer flights. The APD rates (Nov 2011 – slightly higher from April 2012, see above) are:
Distance to capital city from London Economy/Premium
Band A (less than 2000 m) £12/£24
Band B (2001m – 4000m) £60/£120
Band C (4001m – 6000m) £75/£150
Band D (6001m+) £85/£170
The Treasury says: APD is an excise duty which is charged on the carriage, from a UK airport, of chargeable passengers on chargeable aircraft. Details
Information on APD on Wikipedia, including old rates, at http://en.wikipedia.org/wiki/Air_Passenger_Duty
The IAG results say:
Average manpower for the year increased by only 0.4%, when capacity in ASKs (Available Seat Kilometres) grew by 7.1% resulting in productivity (ASKs per average employee) improving by 6.7%. Employee unit costs were down 4.2%.
€3,870 m 2011
€3,790 m 2010
2.1 % increase
Average employee number
0.4 % increase (228 more staff)
? full or part time ?
Passenger numbers (thousands)
2.1 % increase
Available seat kilometres (ASK million)
7.1 % increase
BA AND IBERIA IN PROFITS TAKE-OFF
Date added: February 27, 2012
IAG was formed in January 2011 by a merger between BA and Iberia. IAG says it has made greater than expected cost savings from the merger. It hopes to buy smaller airlines as the rising cost of fuel and the squeeze in consumer spending drives consolidation in the industry. It will shortly announce an operating profit estimated at €470 million (£398 million) this week, more than double the previous year’s combined earnings. The profits are 109% higher than 2010’s €225 million, and comes as the merger of the two airlines starts to take off. BA owner IAG wants to acquire more airlines and has tabled a £172.5 million bid for bmi, which has many take-off and landing slots at Heathrow. IAG is due to hear within weeks whether Brussels has cleared its takeover bid, and whether the OFT will order a competition inquiry. The airline group and bmi’s owner Lufthansa want to seal a deal by the end of March.
From the IAG News Release of the Full Year Results:
IAG period highlights on combined results:
· Fourth quarter operating profit of €34 million, before exceptional items (2010: €6 million)
· Operating profit for the year to December 31, 2011 of €485 million, before exceptional items (2010: €225 million)
· Profit before tax for the year of €503 million after exceptional items (2010: €84 million)
· Revenue for the year up 10.4 per cent to €16,339 million (2010: €14,798 million), including €317 million or 2.1 per cent of adverse currency impact
· Passenger unit revenue for the year up 3.6 per cent (5.8 per cent at constant currency), on top of capacity increases of 7.1 per cent
· Fuel costs for the year up 29.7 per cent to €5,068 million, before exceptional items (2010: €3,907 million), fuel unit costs were up 21.4 per cent
· Other operating costs up 1.1 per cent at €10,786 million, before exceptional items, including €165 million or 1.5 per cent of favourable currency impact. Non-fuel unit costs down 5.6 per cent, or 4.1 per cent at constant currency
· Cash down €617 million for the year to €3,735 million
· Group net debt up €253 million in the year to €1,148 million