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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. I don’t think their avios example is particularly bizarre. Avios really want to appeal to customer who put far lower value on points than us here here: those who think they are essentially picking them up for free or perhaps for 0.4p with their Tesco vouchers.

    For such a customer an avios issued and redeemed might net IAG a 0.5p profit. For a savvy customer it might be zero profit or even a loss.

    • How can it not be bizarre when many partners transfer at 1p (TCB, Heathrow Rewards, Capital On Tap, ex-Shell – all offer 1p or 1 Avios) but IAG thinks 0.9p is good?

      • Agree it’s bizarre, but then so is the whole Avios game. Nothing says that more than the ‘I have a 2-4-1/Lloyds voucher what’s the absolute best value per Avios I can get from it, don’t care where I go’ type questions.

        • Hopefully the recent Amex changes will see the demise of this mass churners, who want to “bag” something or “snag” something!

          • Simon Shchus says:

            I’m not entirely sure it is bizarre unless you assume a rational economic bein which has been heavily disproven since the early 1970s.

      • Peter K says:

        I’ve not looked at the slides but maybe it is because they are proving to investors that they are savvy. We sell avios for 1p (or more) to company X but only lose 0.9p per avios when redeeming. We are making money on every avios, aren’t we clever, invest with us.

      • Aston100 says:

        Because not every person reads this site or other similar sites.
        Sometimes the views expressed by you and some of the other readers here from time to time seems to imply detachment from the rest of the population.

        • You don’t need to read HFP to realise there is a disconnect if people are ‘buying’ points for 1p but BA thinks 0.9p is a good deal when redeeming.

          • Shoestring says:

            There’s an easy way to always win with Avios/ always get more than 1.2p value per point.

            —> don’t redeem for a reward flight unless you’re getting 1.2p+/ point vs cash fare – pay cash instead

          • Shoestring says:

            Let’s see how we’re doing on our Xmas flights 🙂

            15,000 Avios + £35 return vs cash fare £760, I make that 4.83p/ point of value

            they’ll go higher, as well – always do

          • There are doctors who believe a 90% survival rate for experimental treatments is great, but 10% mortality rate is unacceptable… These folks went to university, most people didn’t. Math is really hard for so many people,

  2. Probably invalid rather than bizarre for the Avios/cash comparison.
    Avios from LHR; cash from LGW!

    • TGLoyalty says:

      They consider them both to be London.

      They are probably being fairer than most companies who would have chosen an example which far outweighed reality.

    • Had to be as comparing BA Avios to Easyjet cash. Nice they hi lighted Easyjet’s seat fees 🙂

      • Lady London says:

        Interesting that they chose Easyjet as a comparator.

        Does anyone know if there is a user group or forum for Easyjet?

        • No idea about what it’s like, looks poor from a glance https://forum.airlines-inform.com/EasyJet/ The trouble with so many of these is they’re not active and the posts are too heavy on opinion and too light on fact. The FT BA one is superb, but the V-Flyer one for example has way too many isn’t Virgin wonderful posts amongst the useful info.

        • There are several threads on FT, but no area – it is lumped in with Other Airlines.
          How does one get a section created?

    • Rob are you sure that’s the slide you intended. Surely this is really showing Avios competitive with a LCC when all the bells and whistles are included. If it was an Avios – cash comparison then surely it would be with a BA fare.

      • It’s an economy flight to AMS. No difference between easy and BA, except more leg room on easy!

        • The Original David says:

          All Avios redemptions include a checked bag, and they’ve added on the Avios cost of seat selection, so apart from the LGW/LHR difference and an orange vs blue plane, it’s the same product they’re comparing.

  3. I’m 99% sure IAG aren’t getting the Max or whatever they are renaming it as. There is a picture of one of the LCCs stored MAXs with it badged as the 737-1000 or some such.

    Willie said not long after the LOI was announced that they were basically using it to chivvy up Airbus to speed up delivery of it’s BA orders or they wouldn’t get any more IAG business.

    If IAG were serious about getting some they they’d place an actual order or at least options not issue a ‘thinking about it’ letter.

    • The part about him admitting that makes no sense, it’s only a bluff if you don’t tell the other side you’re bluffing.
      I hate B737 when compared to the A320. Cramped little tubes. From an entirely personal perspective I don’t care if they go to Gatwick and Vueling, but on mainline BA routes from LHR they could make me rethink who I fly with.

  4. Lady London says:

    Dreamliners and A380 not scheduled to Get thé new Club Suite till 2023…. I wouldnt interprète that as BA shiwung longterl commitment to those two aircraft. I’d interprète that as BA leaving it still last so they can change their mind. And will be late anyway even if done. And m’y gut feeling is it won’t.

    • Peter K says:

      Interesting reasoning.

    • Dreamliners are getting the Club Suite from next year. It’s just some of the dreamliners that are already delivered (eg. 787-8s) that will take longer.

      There’s no way BA would retire their dreamliners that early! for one thing, there is very little to replace them with.

  5. the gap between Avios issued and Avios redeemed really is massive.

    was there any discussion / question about the amount that expire ?

  6. I’ll take the old club seat on the a380 rather than the club suite on a 777 or 787

    • I don’t have a problem with the CW seat. I always have a smirk at how the seat is described by some. I know in every logical way the A350 and B787 are better experiences, but I still love 62K on the 747.

      • I was a 64K type of person until I switched to First… First of the plane (most times, at least) and the space in front of me was all mine. 😉

  7. Collecting Avios via BA Amex card purchases and topping up via sale if you don’t have enough for a specific flight some are free and you purchase some, so after a year or two of collecting and topping up you would only have a rough idea on your purchase and redeeming comparison, unless you note every Avios you purchase.As they all end up in the same place ?

  8. there seems to be a number who struggle to grasp the concept…the majority of people who read HfP have an interest in the value of avios, thats partly why we read this site…the majority of non readers don’t care so much what an avios is worth, the just see them as tokens to put towards flights…its no different to the old green shield stamps…my nan use to collect them religiously and they just use to pile up in her kitchen drawer, she never cashed them in…;)

  9. Mile Higher says:

    Rhys, as a self-confessed AvGeek, it unusually poor editorial content from you to say there are “about 8” 777s based at Gatwick, when in fact there are “about double” that – 14, to be precise of which 12 are already refurbished : three in four-class configuration, six in 32J/52W/252Y (of which one is on loan to LHR) and the remaining five are ultra-longhaul (with crew rest areas) of which three have already been refurbished to 32J/48W/252Y.

  10. IAG May “only” have 55% of LHR but how much do they have including revenue shares with AA, AY, CX, QR and QF?

    • About the same, if you assume the revenue share is around equal. For every AA ticket BA benefits from, AA will benefit from the BA ticket. You can’t allot all of AA, AY, CX, QR and QF to BA without giving an equal part of BA to the other airlines.

  11. With the 737max BA also takes a huge step down in safety, tarnishing the best part of their reputation. The truth is that the MAX should never fly again given it’s appalling design flaws which no software can fix.

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