BA

What did we learn from IAG’s 2018 Capital Markets Day?

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Every November, the British Airways parent company, IAG, gives a presentation to the City about the state of the business and its plans for the future.

The 2018 version can be seen here.  You need to click on ‘IAG Presentations’ at the top and then download the very chunky PDF document.

This presentation is normally the source of some good inside information about the future direction of the group.  This year ….. not so much.  There is virtually nothing in the document which is not already in the public domain in terms of product development and the whole tone is less bullish than in previous years.  There was one interesting titbit in the discussion afterwards – that the A350 fleet to be delivered from next year will not have First Class.

IAG Capital Markets Day 2018

The opening slides give an interesting insight into the current state of the European aviation industry and are worth a read for anyone with a general interest in the sector.

Slide 25 shows that, despite the cost reduction claims, unit costs across IAG are higher today than they were in 2015.

Slides 31-33 are an interesting view on how IAG sees brand segmentation and about the different sorts of customer groups it has.  Only 52% of short haul tickets and 30% of long haul tickets are bought primarily on the basis of price – although you may question from that why so many service cuts were made (and reversed) in recent years.  With 31% of long-haul tickets bought primarily on the basis of the ‘brand’, the bad publicity BA has had in recent years must have had a serious impact on the bottom line.

(2018 is the 2nd year running that the ‘Net Promoter Score’ for British Airways has not been published in this presentation.  NPS is the key IAG internal metric used to judge customer satisfaction, and in simple terms is the gap between the % of customers who would recommend you and the % that would not.)

Slide 35 shows British Airways performing badly compared to the market leader in each customer segment. Emirates is preferred to BA for business class travel, both for leisure and work, for example, whilst Ryanair is preferred to BA by people wanting only cheap seats.  More worryingly, easyJet and Lufthansa are preferred to BA by non-Business Class customers who are willing to focus on more than price.

Slide 39 seems to be saying, basically, what we have been saying for years – BA should stop trying to be ‘everything for everyone’, abandon the race to the bottom and give up the segment of the market which competes solely on price.  Other ‘value’ IAG brands – LEVEL, Aer Lingus etc – will pick this business up.

I will skip over the Aer Lingus and Iberia sections, but it would be unfair not to say that IAG has done a fantastic job with both of these airlines since they were acquired.  Iberia, especially, was a total shambles when it joined IAG and is now transformed in virtually every respect – a new fleet, new seats, a new visual identity and new routes.  Both Iberia and Aer Lingus now have superior business class products to British Airways.

IAG Capital Markets Day 2018

Let’s move on to the British Airways section:

Profitability and return on capital invested remain excellent

Slide 107 – Asia-Pacific, Africa and Latin America are focuses for new routes

Slide 110 – despite taking on substantial extra capacity at Gatwick last year via the Monarch slots, BA did not need to cut prices to fill the extra seats

Slide 110 – remaining Gatwick Boeing 777 fleet to be ‘densified’ in World Traveller by the end of 2019 (although World Traveller Plus will be much improved)

Slide 113 is the key one if you are looking for information on the new Club World seat:

The seat will feature a fixed TV screen.  This could imply that BA is going to use the current Iberia seat – which I like, except for the fact that the TV does not fold away and is stuck in front of your face for the entire flight!  We know this because the slide promises ‘gate to gate’ IFE and this would not be possible if the screen popped out like the current one, as it would need to be folded away for take off and landing.

“A larger seat, direct aisle access, greater privacy and increased stowage” could all apply to the current Iberia seat

The first A350 arrives in July 2019 and the new seat will also be added to two Boeing 777 aircraft next year.  There will be 6-8 aircraft in total with the new seat by the end of 2019. The roll-out will accelerate from 2020.

According to reports elsewhere (I was not on the call myself), it was stated verbally that there will not be a First Class cabin on the new A350 fleet.  This means that you are unlikely to see the new Club World seat on the New York route because that historically has First Class – so no A350 – on the Heathrow services.

There is an implication that the size of the economy cabin will be smaller, with bigger cabins elsewhere.  This fits with the earlier slides which implied that British Airways will, in the future, be happy to abandon those customers who buy only on price.

There will be a ‘product upgrade’ to First Class on the existing fleet – not surprising if there will be a much improved Club World seat on the way.  The next slide says that May 2019 will see ‘new food, bedding and amenities’.  There is no sign that there will be a new First Class seat anytime soon.

Food and drink will improved in ‘key’ lounges

There will be (slide 115) ‘increased flexibility for top tier customers’ which implies an end to the ‘computer says No’ approach.  Let’s see if a BA Gold sitting in Club Europe will be allowed to get something from the Euro Traveller food selection though …..

Finally, slide 121 reminds us that British Airways will be 100 years old in 2019 and we can expect some special events to celebrate.

If you’re interested in travel technology, the final section on IAG Digital is worth a look.

Avios is notable by its absence.  There is usually a special chunk in this presentation devoted to it …. but nothing this year.

All in all, if you have a bit of spare time this Saturday then the whole presentation is worth a read.  You will learn some interesting stuff about European aviation and new developments in travel technology even if there isn’t much new to discover about British Airways (and nothing at all about Avios).

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Comments

  1. Colin MacKinnon says:

    BA is shooting itself in the foot with low pricing in economy.

    Looked to book daughter from Glasgow to Denver. BA now has low-cost no food and baggage fares (as does American and Delta). But they are so bad at breaking out what is allowed as hand-baggage, drinks (you can buy food at airport or take sandwiches with you – but funds are more of a hassle when using connecting flights), how much to buy a hold bag is you end up needing to etc etc.

    So BA won’t answer the phone, but Delta did. And so she – actually – ended up paying for “proper” economy with them because they were simply helpful and straightforward with advice and fees (and actually answered the phone!) and she thought: let’s just book now!

    And they waived phone booking fees!

    If they want to be LoCo, look at how Easyjet and Norwegian describe fares and “extras”. They are not having to invent from scratch!

    • Colin MacKinnon says:

      Fluids – not foods!

      • I just looked and it gave me a bullet point list of exactly what’s included when I clicked on each fare… The only confusing bit was it implied food and drinks would be free on the GLA-LON leg when we all know it isn’t any more.

        How exactly did you and your daughter find it so difficult? And how did BA find it so difficult on the phone – it’s pretty simple!

  2. BA related…have taxes/fees/charges been increased for Avios redemptions in recent days?

    I know HKG have been de-restricted on 1st Nov- looks like that has gone from £34 to £100 for one way from HKG-LON.

    But when I looked last Tokyo was £478 return, but now showing £548
    Hong Kong was £464 (I think), now showing £580
    BKK was £568, now £584
    (all in club world)

    BA redemption finder is also showing the ‘old’ figures in most cases- which I guess are cached to save having to grab the fees each time.

    • They have definitely gone up recently and seem to do so every few months. My redemption seats in CW to the Caribbean booked in August cost me just short of £600 pp (plus RFS fees from MAN), and that’s a shorter journey than Tokyo or Bangkok. It makes me wonder if BA is aiming to push the tax element so high that people are going to be put off using their avios.

      • I think this is exactly their thinking 🙁

        • Lewis Taylor says:

          Wasn’t a tax rise on premium cabins in the chancellor’s budget ?

        • Lady London says:

          Surprisingly, not much of a raise.

          The real budget will come after Brexit. Then we’ll know what we’ve got. Hopefully the mariets can correct and then stabilise. It shouldn;t take too long with a bit of luck. And it would be nice if the Pound could find a floor soon after that.

      • However, if you have an F 241 redemption to Asia, then that fee is still not too bad. But yes noticed fees, won’t call them taxes!, are on the way up…

        Back to RFS and Harry back there. Agree, the RFS etc is a great bonus. Like him, flying back and forth to dub at short notice, RFS is a great product. Usually try to get an exit seat on Y tho. Only go CE if no Y available when l need to be there.

    • APD In long haul premium cabins is only going up by £16, from £156 to £172

  3. OT as no bits but IAG related

    If you use “avios + money” for avios redemption flights on the iberia website, it’s cheaper than doing the same thing on the BA site (for economy redemptions at least)

    This lets you effectively buy points for 0.5-0.6p per avios compared to ~0.8p via BA

    Might be useful for those with a handful of those 90k avios remaining but not quite enough for a redemption flight, and for those who would prefer not to have a negative iberia balance after transferring them to BA

    • Shoestring says:

      interesting, I’ll check that out, could be in exactly that position re: some of the 90K IB points remaining

  4. How will the non-First Class A350s compete against rivals who have a decent business class bed/seat ?!

    Please don’t tell me some high paid management with even higher paid consultant analysts thought that selling food on short haul economy would generate a decent profit ?!
    I presumed it was implemented so they needn’t carry so much weight in the food & beverages as they could expect only a 20-30% uptake on a short flight vs 85+% if it’s handed out for free (or included in the price).

    Whoever thought it would be a huge money spinner needs their P45 and a suitably tarnished reputation. Not being able to get a free / included cup of tea (which is a very British thing to do of course) on the supposed UK Flagship carrier is rather pathetic in my view and negative interns of experience, brand & PR.

    With regard to M&S, the food division saved the company from very significant difficulties whilst it’s clothes offering was an utter shambles. Some of their food is rather nice.

    • Maybe this is exceptional, but I’m flying to Tokyo next month in First (redemption), and no other seats in F have been sold on our flight.

      If people aren’t paying to fly in F (and why would you when, on this route, JAL is so much better) then it makes sense to get rid of the cabin and have more, and better, J seats which people do buy.

      I expect they will oversell the cheaper cabins and upgrade people.

      • Shoestring says:

        I never saw the point of First for an airline, I don’t think they make as much money per square metre (over a year) as selling space in Business.

        • Shoestring says:

          And if there’s no First, you’ll just go Business.

        • They don’t, business class is where the money is. However F is aspirational and there are few who would not wish to experience SQ QF LH SR or CX long haul first so it help keep frequent fliers frequent and those who do pay tend to influencers and loyal.

        • What would excite me would be if an airline flying long haul from the UK replaced Economy with Premium Economy, as Singapore have done on the ultra long haul A350.

          They would be able to sell a PE seat with a 38″ seat pitch £78 cheaper than at present; £94 cheaper from April 2019.

          It could work as an option on one flight a day on high frequency routes.

        • Shoestring says:

          Could be the death of First in airlines apart from ME3 then! I certainly wouldn’t miss it.

          OK OK, I never yet flew in First. But I wouldn’t actually choose to use my own money or points to do so, First might be the old ne plus ultra but not for me, I don’t (honestly!) aspire to it. For the cost.

          Yep, I always like[d] Business, always somebody else’s money though on the TATLs back then. Points these days & with our age I could justify given the cost of the points.

        • For my Japan trip, I used an extra 27000 Avios for two of us to travel out in F instead of J.

          As I don’t have status, reserving two seats in J would cost £152. So if you just look at it as a seat reservations fee, I’m getting 0.56p per avios spent, which is far more than I pay for them. Then of course there’s the Concorde Room, the Johnny Walker Blue label and the LPGS champagne. I think we will get our money’s worth!

        • Shoestring says:

          I think I’d do it no qualms for 27000 points 🙂

        • Genghis says:

          @Nick_C judging by your calculations the other day, you pay more than 0.56p for those avios
          https://www.headforpoints.com/2018/10/30/argentina-v-barbarians-marriott-rewards-points/comment-page-1/#comment-297408

        • Lady London says:

          I’m in a similar position to Nick_C. I’ll be forced to take a British Airways flight in First in the next couple of months, and I’m not looking forward to it. I really don’;t have aspirations to fly on any British Airways flight in First.

          Here’s the thing. On this particular trip I’ll be weighed down with a ridiculous amount of stuff to transport. Luggage fees longhaul are about £200 per piece now. Since I let my status with BA lapse I might be unlucky enough to have to pay for two pieces. So £400. Upgrading to First is cheaper. But no I’m not looking forward to it.

      • Same with our F out to HKG and back from KUL, still F seats available in our cabins. Amazing. At least they put them out for extra redemptions now and again…

  5. @Genghis

    Yes, I sometimes pay about a penny per Avios, and I agree that my post the other day was wrong – I paid 1.08 pence each for about 72000 Avios on my Hotel.com booking.

    But my average cost per Avios is 0.22 of a penny, so my forthcoming upgrade to F is costing me less than £60.

    • Shoestring says:

      Boys, boys!

      Forget about it!

      • I had miscalculated my cost per point the other day. Genghis corrected me, and I didn’t see it straight away, but I appreciate the correction. When I get things wrong, I always admit to it. I’ve learned a lot from Rob’s blogs, but I’ve learned just as much from other people and post here. Thanks everyone.

        This is a friendly and informative site. Long may it remain so!

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