Bogi Nils Bogason
President and CEO Icelandair Group
We were optimistic at the start of 2020, with performance improving in the first two months of the year. However, shortly after COVID-19 started spreading, borders were closed and travel restrictions became effective across our markets, causing almost a complete halt to air travel. We had to reduce our flight schedule to only a small fraction of the prior schedule to adjust to the drop in demand but ensured to keep vital air routes open for passengers and cargo, both in Europe and North America. Excess aircraft were prepared for long-term storage. We took immediate measures to scale down our business and started an extensive financial restructuring process with the aim to strengthen the liquidity of the Company as well as improving its long-term competitiveness, and at the same time preserve as many jobs as possible.
Although specific COVID measures introduced by the Icelandic Government somewhat mitigated the impact on our employees, we still had to make painful but necessary decisions, carrying out over two thousand redundancies. The remaining employees either moved to part-time employment temporarily or accepted a short-term salary reduction.
The financial restructuring included new long-term collective bargaining agreements with our pilots, cabin crew and aircraft maintenance technicians, concessions from lenders, lessors and vendors, an agreement with Boeing on future deliveries and compensation due to the 737-MAX grounding, as well as a government-guaranteed credit line. The final step of the process was a successful share offering where we raised USD 167 million in new share capital. We were honored by the strong participation in the offering and the trust that we are shown by investors and the Icelandic public.
During the course of the year, we made sure to safeguard the necessary infrastructure to be able to react quickly to changes in our markets. This proved successful during the summer when border restrictions were eased temporarily and we were able to ramp up quickly to meet increased demand. Furthermore, we managed to create important value through our cargo and leasing operations by seizing various new opportunities during the year. We, for example, retrofitted two passenger aircraft for cargo transport, operating 80 flights with important medical equipment from China to Europe and North America. We also operated various repatriation flights for stranded passengers, such as transporting thousands of Armenian residents from Los Angeles to their home country.
In 2020, we only carried a total of 763 thousand passengers, which was an 83% decrease between years. The number of passengers to and from Iceland decreased by 76% and the number of via passengers decreased by 92% due to our main focus on flights to and from Iceland because of the closure of the US and the external Schengen borders. However, our freight services decreased much less than our passenger operations and we compensated for the reduction of the passenger network by scheduling additional air cargo flights. Carried cargo amounted to around 115 million freight tonne kilometres, decreasing only by 14% year on year. The number of sold block hours in charter flights decreased by 70% year-on-year. Our total fleet comprised around 46 aircraft, including our leasing and cargo businesses in comparison to 51 in 2019.
Despite the significant impacts of COVID-19 on our operations and financial results, following our extensive short- and long-term actions, our financial position was strong at year end. Assets amounted to USD 1,034 million at year end 2020, net debt was USD 104 million, total liquidity USD 331 million and equity amounted to USD 233 million with a warrant-adjusted equity ratio of 25% at the end of 2020.
The operations of our domestic and regional operations through Air Iceland Connect, our aircraft leasing and consulting company Loftleidir Icelandic, as well as our tour operators, VITA and Iceland Travel, were also significantly impacted by the COVID-19 pandemic.
We transported around 128 thousand passengers on domestic and regional flights, which is a 55% decrease between years. We are currently working on integrating Air Iceland Connect into the Icelandair operations which will drive considerable synergies for the Group, simplify our business and at the same time strengthen our domestic and regional operations.
Considerable reduction was in Loftleidir’s services during the year but the company managed to seize opportunities in the cargo market by teaming up with Icelandair Cargo on converting passenger aircraft to so-called preighters, transporting medical equipment as detailed above.
Our tour operators VITA and Iceland Travel were also heavily impacted by the decrease in travel demand. In line with our strategy of shifting our focus to our core flight operations, we have announced the sales process of Iceland Travel.
The responsibility towards our customers and employees was at the top of our agenda during 2020, securing health and safety across our operations and ensuring clear communication during fast-changing conditions. We put all efforts in finding solutions for our customers and getting those that needed to travel to their destinations. In addition, we completed the processing of the vast majority of refunds, travel credits and other changes to bookings during the year.
In every challenge there is an opportunity. Following such a serious crisis for the aviation and tourism industries we should use the opportunity to draw from our experience over the past decade that was characterized by tremendous growth of the tourism industry in Iceland. It is important to follow a focused strategy of how we are going to rebuild the industry. The policy framework presented by the Ministry of Tourism in 2019 provides a great guideline. It focuses on profitability and value creation, and at the same time ensuring sustainability and respect for the environment. I believe Iceland is well equipped to become a leader in high-value and sustainable tourism. This is in line with Icelandair Group’s strategy and we will continue to contribute to this development through the implementation of our corporate responsibility strategy.
We are still facing considerable uncertainty as we continue to be dependent on the status of the pandemic, vaccine distribution and border closures in our markets for air travel to resume. However, we are optimistic that we will be able to start a modest ramp-up of our network in the second quarter of this year and we estimate to have reached our 2019 production levels in 2024.
It is great news that the 737 MAX has now been recertified as safe to fly, with a number of airlines already having taken the aircraft into operation. We return the aircraft to service in March 2021 following extensive updates and pilot training where safety is our priority. The aircraft is both cost-effective and more environmentally friendly, giving us additional operational flexibility during the ramp-up as well as supporting the future development of our route network.
I am confident that there will be plenty of opportunities for Iceland and thereby the Icelandair route network post COVID. Iceland has the ability to continue to be an attractive tourist destination and, due to changes in the competitive landscape, we also see additional opportunities for our transatlantic service, where we offer convenient connections between Europe and North America through Iceland.
I would like to use the opportunity and thank our outstanding team of employees for their dedication and resilience during this unprecedented year as well as our customers for their patience. I would also like to thank our shareholders for their continued support, as well as the members of our Board of Directors for their invaluable contribution during the year.
It is fair to say that 2020 was the most challenging year in aviation history. However, I believe that with a clear vision for the future, focus on the right priorities and a team effort, we will come out of this crisis stronger than before.