Annual report and accounts 2016

8
Chief Executive Officer’s review
Ensuring the long-term viability
of the business
“2016 was a good year
for IAG even though
the external impact of
the Brexit vote and the
subsequent sharp fall
in the pound took the
shine off our results.
Nevertheless, we are
very confident about the
future and convinced the
best is yet to come.”
Willie Walsh
Chief Executive Officer
In 2016 we continued to build on all the
tremendous progress we have made in
the six years since IAG was first formed
and I think we can feel both proud of
our achievements to date and very
confident about the long-term future of
this business.
The year was not without its difficulties,
of course, and a number of external
factors took the gloss off what was
otherwise another powerful performance
by the Group, none more so than the
unexpected UK vote to leave the EU and
the subsequent sharp fall in the value of
the pound.
The impact of Brexit led us to conclude
that we wouldn’t be able to deliver on our
euro profit targets for the year and on the
morning after the vote we updated the
market, which had a big impact on our
share price.
During the year we looked for ways to
counteract that impact, but the scale of it
was significant and we did not have the
capacity to offset it completely.
The plain fact is no company can control
exchange rates. Although we do hedge
against fluctuations in our transactional
costs, we do not and would not hedge
against translation to our reporting
currency – that is something that the
investment community has to factor into
its assessments of our performance.
As a result of these factors we reported
a full year operating profit of €2.5 billion
compared with €2.3 billion in 2015.
Although that outcome is below our
expectations, I believe it is still a very
strong result given the considerable
turbulence we faced during the year
and it’s one which we can still be very
proud of.
The long-term impact of Brexit
The Brexit vote has created uncertainty
and uncertainty is never welcome.
But longer term we do not think it will
undermine the fundamental strength of
our business.
Indeed, we’ve already seen bookings by
UK companies stabilise. I think there is
a genuine political will to make the UK
a strong independent trading country,
a goal I’ve no doubt will be achieved.
People will continue to fly for business,
for leisure and to visit friends and family,
so the core of our business will not only
remain strong but will continue to grow.
There are regulatory issues to be
addressed and, as the Chairman has
indicated, many of these will not become
clear until the precise terms of Brexit
are agreed and new arrangements are
in place.
But I do think there is a common
interest on both sides of the Atlantic in
maintaining an “Open Skies” environment
between the UK and the US and I fully
expect a new agreement to be put in
place once the current EU agreement
with the US comes to an end after Brexit.
There is some more doubt over the future
of the deregulated aviation market within
Europe. This is a real issue for carriers
operating intra-EU services, but not one
for British Airways as all its flights are to
and from the UK.
But it’s important to say we are not
seeking competitive advantage from this
situation. We would never encourage the
UK Government to take a protectionist
stance. Deregulation has delivered huge
benefits for consumers and I believe
politicians should and will act rationally
to protect those benefits. Preserving the
current liberalised market is the right
way forward.
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2016