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Avios news, Club Suite roll out timetable and other IAG Capital Markets Day revelations

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Yesterday IAG (owner of British Airways, Iberia, Aer Lingus, Vueling and soon maybe Air Europa) had its Capital Markets Day.  This is an event for IAG bond investors where they are updated on current activity at the company.

It is focussed – as you would expect – on financial performance, but IAG has expanded it well beyond what is legally required into an annual ‘state of the nation’ address.  Here are a few of the points which I found interesting this year.

If you have very little else to do this Saturday, you can see the full 175 slides here (PDF).

British Airways A350 Club Suite Inaugural flight

Club Suite to be on 33% of Heathrow aircraft next year

The biggest news by far is BA’s plan for the Club Suite rollout. Until now, it has been unclear which aircraft will be getting it and on what timescale.

We now have a very clear insight into their plans at Heathrow. The Gatwick fleet – about 14 aircraft – has been omitted from the presentation, and presumably BA’s priority is getting Club Suite on its more profitable business-focused Heathrow routes.

Take a look at this (click to enlarge):

IAG capital market day Club Suite rollout

The roll out is going surprisingly fast. Whilst Club Suite will only make up 5% of the Heathrow long haul fleet by Christmas 2019 it is due to increase to 33% in 2020, 52% in 2021 and 79% in 2022.  The whole fleet will be complete by 2025.

Having one third of aircraft with Club Suite next year will be a game changer. It looks like this will be achieved in two ways.

Via new aircraft, we will see a small increase in the A350 fleet and the introduction of the Boeing 787-10 which will be a new addition to the BA fleet.

The biggest chunk, however, will come from refitted Boeing 777-200s and a handful of 777-300s. Hopefully this means that New York, a route that has so far seen very little of Club Suite due to the lack of a First cabin on the A350s, gets a little more love.

The existing British Airways fleet of Boeing 787-8 and 787-9s will only get Club Suite from 2021 at the very earliest, whilst the A380 fleet will start its refit program from 2023.  This means that BA will want to keep the super-jumbo around for a long while yet, as they cost millions to refit and will presumably be undergoing heavy maintenance checks.

The existing Boeing 747s will be phased out by 2024 and will not receive Club Suite.

BA First Class

New First Class?

What isn’t mentioned in the presentation is a new First Class seat.  On the Club Suite inaugural flight, BA CEO Alex Cruz said they were hoping to launch it on the Boeing 777-9 from 2022.  This gives Club Suite a three year head-start and means that it would be out of sync with the Club Suite refit on older planes.  It would also mean the current seat going onto deliveries of the Boeing 787-10 which is due to have a First cabin.

Boeing 737 MAX for Gatwick and Vueling

You may remember the slightly shocking announcement a few months ago that IAG had agreed terms for an order of 200 Boeing 737 MAX aircraft. This was not long after the Ethiopian Airlines 737 MAX crash, and nobody was touching the aircraft with a bargepole …. except IAG.

We now have a little clarity on this order although – it is worth stressing – this is still just a letter of intent.  The plan, for now, is to use these aircraft for BA’s Gatwick fleet and for Vueling.  This makes sense – the 737 is a narrower aircraft (narrower aisles and narrower seats) and has reduced cargo capacity.

Despite the 737 MAX problems, there IS some good business sense behind this order, besides the rock-bottom prices they no doubt negotiated.  The assumption in the industry is that this was the most heavily discounted aircraft deal since Ryanair ordered 150 Boeing 737-800 aircraft in the aftermath of 9/11.

British Airways currently operates an all-Airbus short haul fleet. If anything happens to that aircraft family which leads to a global fleet grounding, the BA route network would collapse entirely.  This order does reduce BA’s exposure to future short haul groundings although there is a sense of irony in ordering an aircraft that is currently grounded to reduce the impact of any future disruption.

Is Heathrow really a BA monopoly?

One opinion that is often trotted out – and is currently spearheading Virgin Atlantic’s Heathrow expansion campaign – is that Heathrow and the London market are fundamentally dominated by British Airways. The argument goes that BA holds the market hostage and has started to show monopolistic tendencies.

The figures do not seem to back this up. Or rather, whilst this may be true, Heathrow is NOT the worst offender. In fact, almost every other European hub has significantly less competition than Heathrow.

IAG has 55% of all Heathrow flights. This compares to 61% by Air France-KLM at Schipol and a staggering 69% – 72% Lufthansa Group domination at Frankfurt, Munich and Zurich.

What does BA have to say about Avios?

Not a huge amount, to be honest – at least in terms of major changes.  There was some discussion on the conference call about the pros and cons of merging all of the schemes, following the Miles & More model, but it appears that there are concerns over losing the national branding.

The scheme now has 9m active members, of whom 7m are in Europe.  ‘Active’ is defined as having earned or redeemed an Avios in the last 12 months, which seems a fair definition to me.

This slide shows Avios issued vs Avios redeemed:

Avios issuance

As you can see, there is a substantial step-change planned in the number of Avios issued from 2020 onwards.

9% CAGR is substantially above IAG’s capacity growth, and of course far from all Avios issued come from flying.  Avios will also have taken a hit from the changes in Amex credit card bonuses in the UK.

We are assured by Avios, however, that there is a very strong pipeline of new partnerships on the way and that the 9% number is very achievable.  Let’s see what turns up!

You can also see from the chart above that the gap between Avios issued and Avios redeemed is getting wider every year.  This is not necessarily good news because it is inherently inflationary.  We need to hope that more Avios can be sucked out of the system via poor value payment for seating fees etc to avoid any devaluation.

This slide is a little bizarre:

Avios value

It is an attempt to show how Avios is good value.  However, it shows the user spending 34,900 Avios + £2 to save £325.88.  This works out at 0.93p per Avios.  Whilst this certainly isn’t dreadful value, it certainly isn’t one to boast about.  If you’re only getting 0.93p per Avios you should be ditching your British Airways American Express credit card for an American Express Platinum Cashback card, which pay you 1p to 1.25p back per £1 in hard cash …..

As we said at the start, there are 175 slides-worth of this stuff if you have nothing else to do on a cold wet Saturday!

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Comments

  1. Erico1875 says:

    Getting 1p /£ cashback just isn’t as exciting or fin as 0.9p worth of Avios though

    • Can’t honestly say that I get 1p of value. Redeeming along with BA 241 to US west coast (out F, return J off peak), so spend c. 70k Avios + £650 per person.
      I probably wouldn’t pay more than £1200 for a cash return in J, instead flying economy. Therefore, my 70k points are worth £550, i.e. no more than 0.8p each.
      Since taking out the Nectar Amex, due to recent restriction on sign-up bonuses, I’m getting a genuine 1p per point valuation when spent in Sainsburys (where I do all my shopping anyway.)

      • Also need to take into account other benefits of Avios redemption, such as flexibility and 1W pricing. I just redeemed two 1W USA-LHR on BA, for a date that might move or get cancelled. Once the dates are definite I could buy a RT at a much better fare, but until then the cost of changing/cancelling would be much higher—and once I know the dates fares may be prohibitively high. So, I’m quite happy to get middling value on the Avios.

      • You’ll also ear a lot of Avios on the cash flight. This is always each to their own. I tend to fly cash long haul, and burn the Avios on short haul around Europe.

  2. If the small snapshot of stats presented here is indicative of the ‘talent’ at IAG then we have cause for concern.
    Regarding a devaluation: hasn’t that already been approved, are we not just waiting for it to be implemented?

  3. So there had been another one of IAG’s “Jam tomorrow” presentations and their lucky passengers can look forward to another 6 years of cramped world 8 abreast seat that requires crampons and ropes to get over your neighbour.

    I haven’t flown on another airline in business that has not offered direct aisle access for at least 5 years and so it will be more than a decade for BA to have offered the same

    As for the monopoly. It may be true that they have fewer slots absolutely, but you need to add In all the commercial agreement slots as well for the real picture. Moreover they have an absolute monopoly on domestic services to almost all UK cities served by LHR.

    The stitch up on commercial agreements also means the likes of AA don’t offer a U.K. credit card or ease of earning other frequent flyer miles. This is a major factor today and the lack of genuine competition in this area favours BA.

    Finally real world experience is what really counts. Fares ex LHR are higher by a significant factor than from Europe and again the commercial stitch up protects BA. QR for example never offer fares from the UK at levels seen from Europe. Admittedly CDG and FRA don’t generally appear as the cheapest starting points on ITA matrix though I am flying ex CDG on QR to the Far East. The fare was almost £2000 less per person than flinging from LHR on the same dates and same aircraft from DOH.

    In my opinion BA dominance at LHR is not in the public interest and besides fares, the lower service standards and 6 year timeframe to introduce a seat is solid evidence for this.

    • Shoestring says:

      [IAG said that Virgin has had the opportunity over the past two decades to increase its slot share at Heathrow by buying slots on the secondary market. “The airline has failed to create more competition at the airport — it closed Little Red on domestic routes, pulled off long haul routes and rents out the slots it owns to other airlines,” a spokeswoman said.]

    • United’s Polaris seat was unveiled in 2016 and they have outfitted about 60% of the fleet. The bottom line is that manufacturing and installing thousands of business class seats just doesn’t happen overnight. Even carriers like Qatar have wildly inconsistent products!

      The rate of the Club Suite installation is actually impressive. 33% next year, 50%+ the year after and then virtually complete by 2022, with the remaining handful of stragglers (mostly 747s waiting to be retired) to complete by 2025.

      • The Channel 5 documentary shows how BA do one of these refits. They do at least have their own facility and staff that do this, rather than relying on a third party.

        • As far as I am aware the bottle neck is the seat manufacturing

          • Chabuddy geezy says:

            AA did have a credit card in the UK but mbna pulled it as the interchange cap made it unprofitable. It had nothing to do with a commercial relationship with BA.

          • They can only make an average of 3 a day according to Alex Cruz when the seat was revealed (as per the report on here)

            So that’s a major bottle neck to deal with. Then there is the scheduling of the refits and it makes more sense to do them as part of the heavy checks which take a good couple of weeks each so it won’t always be a smooth process of them coming off the line on a regular basis.

          • Lady London says:

            I dont see why only 3 seats per day is all that can be made. Do they have to wait for quaternium ore to be mined out of the ground to make each one? Otherwise why cant production just be expanded and all seats for 1, 2 or 3 aircraft made in 1 week.

            Methinks this is more to do with phasing cash-flow of the buying airlines rather than production.

            India and China would love to make these at a hugely faster rate. Yes things like quality would have to be managed but there’s no reason they can only make three seats per day.

          • Not convinced. Didn’t American fire their supplier a couple of years ago because they couldn’t stick to the schedule?

            This is still a very niche product. Investing vast sums in new production lines is not necessarily a good long term bet. On the other hand, the BA contract will be at least £500m (100 planes x min £100k x min 50 seats)

  4. TGLoyalty says:

    Slightly OT looks like the new lounge in Jo’burg is now open and looks rather nice from the pics

  5. Jimmy Stot says:

    I know you don’t often look down the back of the plane into World Traveller but it seems when the new club suite goes in on the 777 the economy section goes to 10 abreast.

    • The Original Nick says:

      Goodluck with that flying longhual

    • Yes – the overall passengers increases but only by reducing the space & seats for F, increasing space (but not seats) for J, and going 10 across in economy.

    • 10 abreast on the 777 is now pretty much the norm internationally, unfortunately

      • It’s mainly western legacy carriers that have 10 abreast in economy although the ME3 have recently got into the game of dentisifaction!!!
        There are still a few airlines that offer 9 across who seem to at least care about people at the back such as Cathay and Singapore 777s but not sure how long they will stay this way!!!

  6. NigelthePensioner says:

    Alistair Hartley the IAG Strategy Director said that he categorised travel. I suspect this is why the LGW fleet is dated and dirty with low tech IFE. He is simply tarring all Customers with the same brush and assuming that most people flying from LGW are travelling BA (any class) for the first and only time so anything will do. This of course is not only incorrect but crass stupidity. If you did fly BA for the first time from LGW, there would be no incentive to ever fly BA again! The point he misses is that if we wish to fly to say the Caribbean with BA, we have no choice but to fly from LGW – from an airport he has disregarded, as holiday hovel. I long for equal comfort and facilities even if I am flying to what he considers a holiday destination – LGW routes plus LAS and Fl cities. Consequently, we now tend to fly to MIA and then onward on AA to a hub island and thence on an island hopper.
    I also agree that the Club Suite roll out programme is far far too slow.
    It is surprising that the margin between earning and spending Avios is as small as it is, given that it is so ruddy difficult to spend them on value for Avios travel. A global IAG loyalty scheme would be innovative and hence very unlikely. The only explanation of a rise in Avios spending as far as I can see is due to devaluation!
    Anyway it’s a lovely sunny day in London and im going to head to the Conde Nast travel show!!

    • Shoestring says:

      [The only explanation of a rise in Avios spending as far as I can see is due to devaluation!]

      Air Europa? It’s massive (66 aircraft, EUR100m operating profit) and would add on well over 10% to IAG/ Avios passenger numbers.

    • Surely prioritising Heathrow, where the majority of money is made, is a wise business decision? You/I may not like it, but it makes *business* sense. Gatwick has long been the poorer sister, getting the old 777s, so this isn’t a big surprise.

      • TGLoyalty says:

        Old 777’s but most have been refurbished so shouldn’t be that old inside.

        They do end up swapping None refurbed planes to LGW when they need to though.

      • As a fairly regular flyer to NYC If they improved the LGW product and its reliability I and others would likely switch to Gatwick simply because it’s easier to get to from where I am in Brighton.an earlier departure would help as well!

        And so when I do make the trek to LHR then I might as well look to flying on other airlines anyway

        Not started planning next years trips but the new VS/DL flights to JFK and BOS could very well get my custom.

    • Lady London says:

      True, the % margin between issuance and redemption of avios is low. But at the amounts involved that low % represents a lot of money.

  7. The Savage Squirrel says:

    Would be a bit of a sickener turning up in late 2024 or even early 2025 to be greeted by …….. an old 8-abreast ClubWorld seat (presumably falling apart as why maintain something about to be ripped out) especially given what other airlines may produce in the MANY years between now and then!

    • Definitely! Fortunately it will only be a fraction of the fleet – most likely 747s waiting for retirement/the last A380s to get done.

    • TGLoyalty says:

      BA have just refurbed a load of 777 with the current CW seat so they should be fine in 2025

      They are doing two planes a month and by 2022 you’ll have the vast majority with the new suite.

      That’s better than about 1/3 of eligible planes having Q suite right.

  8. Gregory Jones says:

    So Drew Crawley gives an example of reward flights for a family of 4 going to Amsterdam on a weekday during term time as good value. What a genius! Sounds legit until the parents get fined. We should probably add the fine to the Avios value.

    • RussellH says:

      Perhaps he is thinking of flights dep MAN or NCL in early October or first three weeks of July when English schools are in session, but most Scottish ones are on holiday?

  9. David S says:

    I too take a flight to MIA and a connecting flight on AA to avoid BA long haul from LGW. It usually works out way cheaper as well if you use Avios for the AA flight,
    With LGW getting the Max, it’s time to find another creative solution ex LHR as at least the A320’s are semi comfortable

    • “at least the A320’s are semi comfortable”

      Seriously? I went to Lisbon last week in CE and was shocked how bad it was. It was my first BA shorthaul flight in 7 years. Seating is bloody uncomfortable and I had back ache the next day. I thought I was lucky getting row 1 outbound, but the bulkhead makes it impossible to stretch your legs and the trays being in the armrest makes the seats even narrower. Row 8 on the return and I could at least stretch my legs a little, but it was basically worse than economy used to be 7 years ago but with an adjacent empty seat. No service at all prior to take off, so I was on the plane for an hour before I was offered a drink or a tiny bag of nuts. BA bosses should look at AA’s Domestic First cabin and see what short haul business class should be like.

  10. Certainly good to see BA investing in A380 long term future, where other airlines are getting rid if them.

    • Lady London says:

      ?? Hum. I had a différent interprétation about BA’s intention in leaving those planes to last.

      The planned demise of the A380 is the only thing that’s upset me more than the withdrawal of Concorde.

  11. Hi guys 🙂

    Recently started points collecting a year ago and want to make my first redemption.

    Would be great to go to NY or LA in early June in the club suites, is there any way to guarantee getting it, or at least maximise my chances?

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