IFRS 18 Management Performance Measures in the Automotive & Airline Industries

Both the automotive and airline sectors live and breathe on thin margins and relentless cycles. Automotive CFOs wrestle with platform electrification, supply-chain volatility and R&D accounting; airline CFOs balance volatile fuel costs, yield management and fleet utilisation. Until now, IFRS subtotals such as Operating profit or Profit before tax failed to reflect these operational rhythms.

IFRS 18 – Presentation and Disclosure in Financial Statements bridges that gap. Paragraphs 117–125 require any publicly communicated subtotal of income and expenses — a Management Performance Measure (MPM) — to be reconciled to an IFRS subtotal, with clear explanations of usefulness, tax and non-controlling-interest effects (IFRS 18.123 (d), IFRS 18.B141)

For mobility industries, IFRS 18 means converting the KPIs already used internally into auditable, comparable disclosures. It also forces boards to confront a core question: what part of profit is structural, and what part is turbulence?

This cornerstone explains how:

Automotive groups move from Operating profit to Adjusted Industrial EBIT (AI-EBIT) and Mobility Services Margin (MSM).
Airlines translate their volatility into Core Operating Profit excluding Fuel (COP-xFuel) and Yield per Available Seat Kilometre adjusted for Ancillaries (YASK-A).

Each measure follows the IFRS 18 structure: definition, reconciliation, explanation of adjustments, governance and assurance.

Read more on IFRS 18 and Management Performance Measures (MPMs): The New Language of Performance, the cornerstone blog in this serie on IFRS 18.

2 Automotive Industry: Management Performance Measures

2.1 Adjusted Industrial EBIT (AI-EBIT)

Definition and IFRS 18 Context

AI-EBIT = Operating profit + Restructuring costs + Purchase-accounting effects on COGS + R&D capitalisation adjustment

Automotive groups distinguish between industrial operations (vehicle design, production, logistics) and financial-services activities (leasing, dealer finance).
AI-EBIT isolates the profitability of the industrial segment.
It qualifies as an MPM under IFRS 18.117–123 because it represents management’s view of recurring performance and is used in external communications.

Reconciliation Table

Reconciling item	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Operating profit (IFRS subtotal)	6 400	–	–
Add back: Restructuring costs (personnel, plant closures)	+420	–105	–10
Add back: Purchase-accounting effects on COGS (fair-value uplift from acquisitions)	+110	–28	–3
Add back: R&D capitalisation adjustment (expensed vs capitalised development)	+260	–65	0
Adjusted Industrial EBIT (AI-EBIT)	7 190

Explanation of Adjustments

Restructuring costs – cover staff-redundancy programmes, site closures or product-line exits (IAS 37). They distort year-to-year comparability and are added back to show steady-state profitability. Boards must evidence that such costs are strategic and non-recurring.

Purchase-accounting effects on COGS – arise from inventory fair-value uplifts under IFRS 3; they inflate COGS until the acquired stock is sold. Add-backs must reconcile to acquisition notes and disappear once the uplift reverses.

R&D capitalisation adjustment – bridges differences between expensing and capitalising under IAS 38. OEMs often capitalise electrification or software development while peers expense. The adjustment shows management’s underlying R&D burden on a comparable basis. Governance requires consistent policy disclosure and audit-committee oversight of capitalisation criteria.

Interpretation and Governance Perspective
AI-EBIT represents the engine-room earnings of the industrial business. It shows whether manufacturing and design generate sufficient return before the noise of restructuring or acquisition accounting.

Audit committees must ensure the measure is symmetrical—credits from reversal of old provisions or negative restructuring should also be included.

IFRS 18.123 (a) demands explanation of usefulness; here it lies in separating transformation cost from operating efficiency.

If documented well, AI-EBIT becomes the board’s internal gauge of industrial health and a credible external KPI linking financial reporting and strategy.

2.2 Mobility Services Margin (MSM)

Definition and IFRS 18 Context

MSM = Operating profit − Vehicle manufacturing margin + Mobility and After-sales margin

Automakers now earn from digital services—car-sharing, subscriptions, telematics—and from lifetime after-sales. MSM highlights the profitability of that ecosystem. Under IFRS 18.117–123, it qualifies as an MPM because it modifies the IFRS subtotal to express management’s view of new-economy performance.

Reconciliation Table

Reconciling item	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Operating profit (IFRS subtotal)	7 190	–	–
Subtract: Vehicle manufacturing margin	–5 500	+1 375	–10
Add: Mobility and After-sales margin (subscriptions, leasing, parts)	+2 000	–500	–5
Mobility Services Margin (MSM)	3 690

Explanation of Adjustments

Vehicle manufacturing margin – the cyclical profit from car production; removed to reveal stability of service and digital income.

Mobility and after-sales margin – includes subscription revenue (IFRS 15), leasing income (IFRS 16), and parts/services. Adding it back aligns MSM with the sector’s shift from ownership to usage.

Interpretation and Governance Perspective
MSM captures the transition from product to platform. It tells boards and investors whether future earnings depend on selling cars or on monetising data and mobility. Because new business models blur accounting lines, governance is critical: management must document allocation of shared costs, confirm that margin definitions are consistent with segment reporting, and disclose policy rationale per IFRS 18.123 (a–b).

Used properly, MSM becomes the measure of sustainability of value in a decarbonising, service-driven industry.

3 Airline Industry: Management Performance Measures

3.1 Core Operating Profit excluding Fuel (COP-xFuel)

Definition and IFRS 18 Context

COP-xFuel = Operating profit + Fuel cost volatility adjustment + Hedging ineffectiveness impact

Fuel accounts for up to a third of airline operating expenses and is the largest source of volatility.
COP-xFuel removes the noise of market-driven fuel swings to highlight underlying operating performance.

Under IFRS 18.117-123, this qualifies as a management-defined performance measure because it modifies an IFRS subtotal and is widely used in investor communications.

Reconciliation Table

Reconciling item	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Operating profit (IFRS subtotal)	2 050	–	–
Add back: Fuel cost volatility adjustment	+480	–120	–2
Add back: Hedging ineffectiveness impact (IFRS 9)	+65	–16	0
Core Operating Profit excluding Fuel (COP-xFuel)	2 595

Notes: Tax and NCI effects per IFRS 18.123 (d) and IFRS 18.B141. Figures illustrative.

Explanation of Adjustments
Fuel cost volatility adjustment – isolates price movements beyond management’s control. Airlines typically base budgets on a “planning fuel price.” Variances arising from market spikes are disclosed here. IFRS 18 ¶ 123 (a) requires explaining why this adjustment helps users understand performance.

Hedging ineffectiveness impact – derives from hedge accounting under IFRS 9.6.5.11. Unrealised mark-to-market effects may distort comparability between hedged and unhedged carriers. Adjustment must tie to note disclosures on derivative valuation and be accompanied by tax/NCI effects.

Interpretation and Governance Perspective
COP-xFuel presents how well the airline controls what it can—operations, network efficiency, unit costs—separate from commodity speculation.

Governance challenge: ensure that hedge gains and losses are treated consistently and not cherry-picked.

Audit committees should demand written policy defining the baseline fuel price and method for volatility capture.

Per BC 354-358, recurring variability should not be filtered out entirely; this measure is meaningful only when the methodology is stable and transparently disclosed.

3.2 Yield per Available Seat Kilometre adjusted for Ancillaries (YASK-A)

Definition and IFRS 18 Context

YASK-A = (Operating profit / Available Seat Kilometres) + Ancillary revenue margin adjustment − Cargo margin reclassification

Airlines increasingly rely on ancillary revenues—baggage, seat upgrades, loyalty schemes—and cargo operations.

YASK-A normalises yield to reflect the total passenger-related margin.

It qualifies as an MPM under IFRS 18.117-123 because it re-expresses operating profit per production unit and adjusts for mix effects.

Reconciliation Table

Reconciling item	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Operating profit (IFRS subtotal)	2 595	–	–
Add back: Ancillary revenue margin adjustment (loyalty, baggage, fees)	+210	–52	–1
Subtract: Cargo margin reclassification (from operating profit to separate disclosure)	–120	+30	0
Yield per ASK adjusted for Ancillaries (YASK-A)	2 685

Notes: Tax and NCI effects per IFRS 18.123 (d) and IFRS 18.B141. Figures illustrative.

Explanation of Adjustments

Ancillary revenue margin adjustment – recognises the profitability of add-on products tied to passenger volume. These often sit in “other income,” obscuring true yield. IFRS 15 and 18.123 (a–b) require clear disclosure of how they are measured and why inclusion enhances understanding.

Cargo margin reclassification – isolates cargo operations that are capital-intensive and volatile, improving passenger-business comparability. Must reconcile to segment reporting under IFRS 8.

Interpretation and Governance Perspective

YASK-A shows how effectively an airline monetises capacity beyond ticket price.
It also exposes whether ancillary revenues mask weak base fares or genuinely enhance margin.

Governance focus: transparency in allocation of shared costs between cargo and passenger divisions.
Audit committees should review consistency with management accounts and ensure the reconciliation note follows IFRS 18.123 (c–d).

Done well, YASK-A is both a profitability gauge and a sustainability indicator: high ancillary reliance signals innovation, but also dependency on discretionary spending—a governance risk worth disclosing.

4 Industry Examples – How Leaders Communicate Performance

Toyota Motor Corporation
Presents “Operating income excluding one-time items.” IFRS 18 forces clearer labelling of what counts as “one-time” and requires quantified bridges to Operating profit, closing the gap between statutory and investor reporting.

Stellantis N.V.
Uses “Adjusted Operating Income,” excluding restructuring and integration costs. IFRS 18 requires tax/NCI effects and policy consistency across brands — the essence of comparability (IFRS 18.124).

Delta Air Lines
Publishes “Adjusted Operating Income excluding fuel and special items.” Under IFRS 18, the fuel component and hedging ineffectiveness would be reconciled explicitly, with an explanation of why management believes it clarifies underlying performance (IFRS 18.123 a).

Lufthansa Group
Uses “Adjusted EBIT” removing restructuring and pension effects. IFRS 18 will require detailed bridges and a statement of usefulness and neutrality, reducing scope for selective add-backs.

Singapore Airlines (SIA)
Reports “Operating profit excluding fuel and COVID-related support.” IFRS 18 demands quantified transparency and audit trail for such adjustments, anchoring its communication in evidence rather than storytelling.

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Summary: Both sectors already use IFRS 18-style metrics; the standard simply makes them auditable, comparable and governed under a single framework.

5 IFRS 18-Compliant Disclosure Note (Template)

Management-defined performance measures

The Group uses sector-specific MPMs to supplement its IFRS results: (1) Adjusted Industrial EBIT (AI-EBIT), (2) Mobility Services Margin (MSM), (3) Core Operating Profit excluding Fuel (COP-xFuel) and (4) Yield per Available Seat Kilometre adjusted for Ancillaries (YASK-A). All are subtotals of income and expenses not defined by IFRS but used in public communications (IFRS 18.117–118). Reconciliations to Operating profit are shown above in accordance with IFRS 18.123 (a–d). Tax and NCI effects follow B141. Management believes these measures help users understand recurring operating performance amid fuel and cycle volatility. Definitions and consistency have been reviewed by the Audit Committee; no changes were made in 2025.

6 Governance and Quality Assurance

Strong governance turns MPMs from marketing narratives into auditable financial information. Boards should establish policies that:

Define each measure’s purpose and eligible adjustments.
Require Audit Committee review and minute approval for all reconciliations.
Integrate MPM controls into ICFR—identification, calculation and tax/NCI allocation tested annually.
Ensure consistency across periods and subsidiaries (IFRS 18.124–125).
Subject MPMs to the same independence and documentation standards as statutory figures.

For CFOs, this means building a cross-functional process linking FP&A, tax, and external reporting teams. For auditors, it adds a new layer of substantive testing—each adjustment must exist, be accurately measured and appropriately classified. When governed this way, IFRS 18 becomes a governance framework as much as an accounting standard.

7 Conclusion – Performance with Evidence

IFRS 18 marks a shift from narrative to proof. In both automotive and airlines, volatility is the norm: commodity prices spike, demand swings, fleets and factories pivot. The new standard does not erase that volatility—it illuminates it. AI-EBIT and MSM reveal the true profitability of industrial and mobility operations; COP-xFuel and YASK-A translate turbulent airline results into patterns of efficiency and resilience.

For boards, these bridges provide a new form of oversight—reconciliations as risk maps. For CFOs, they turn management dialogue into auditable figures. For investors, they restore comparability between sectors long considered unpredictable.

Ultimately, IFRS 18 is about trust: the confidence that when a company claims to be “underlyingly profitable,” that claim rests on a bridge of numbers, controls and disclosure. Performance is no longer asserted —it is demonstrated.

FAQ’s – IFRS 18 Communicate Performance

FAQ 1 – Why is Adjusted Industrial EBIT (AI-EBIT) important for automotive groups?

AI-EBIT isolates the profitability of a manufacturer’s industrial activities from transitory items that cloud operational performance. Under IFRS 18.117 – 125, it qualifies as a management-defined performance measure because it reconciles Operating profit to a subtotal management actually uses internally. Automotive groups face frequent restructurings, platform roll-outs and purchase-accounting effects from acquisitions. These events create temporary charges or fair-value distortions that obscure day-to-day productivity. By adding back restructuring, purchase-accounting effects and aligning R&D treatment, AI-EBIT reveals the “steady-state” margin of production and engineering. Governance discipline is vital: the policy defining which costs qualify must be public and consistent. Audit committees should confirm that recurring efficiency programmes are not called “exceptional” and that each adjustment has board approval and audit evidence. Investors benefit because AI-EBIT separates transformation noise from industrial health—showing whether the core business truly generates value before the next cycle of electrification or integration begins.

FAQ 2 – How should R&D capitalisation adjustments be handled under IFRS 18?

IAS 38 allows development costs that meet specific criteria to be capitalised; many automotive companies do so for electrification or software projects, while others expense similar spend immediately. This inconsistency hampers comparability. IFRS 18 permits management to present an MPM reconciling Operating profit to a version that neutralises policy differences. The adjustment should quantify how much development expense was capitalised (or would have been expensed) and include the related amortisation effect. IFRS 18.123 (c–d) requires a line-by-line bridge with tax and NCI impacts disclosed and the calculation method explained under IFRS 18.123 (b). Governance practice: maintain a schedule linking the adjustment to accounting records and board-approved R&D capitalisation policy. The note must explain why the measure helps users understand performance (IFRS 18.123 (a))—namely, by presenting the economic cost of innovation on a comparable basis. Over time, this transparency encourages consistency in capitalisation judgments and enhances investor trust in reported margins.

FAQ 3 – Why do airlines present Core Operating Profit excluding Fuel (COP-xFuel)?

Fuel volatility can move airline profits by billions, yet management control over prices is limited. COP-xFuel, permitted under IFRS 18 as an MPM, separates operating efficiency from commodity exposure. It adds back deviations between actual and “budget” fuel costs and, in some cases, hedge-ineffectiveness impacts under IFRS 9.6.5.11. The purpose is to highlight performance drivers management can influence—unit cost, load factor, schedule discipline—without pretending fuel cost is irrelevant. IFRS 18.123 (a) requires the note to explain usefulness and neutrality; recurring volatility cannot simply be removed each year without disclosure of methodology and baseline fuel price. Audit committees must confirm consistent formulas, test reconciliation accuracy, and ensure tax/NCI effects are shown per IFRS 18.123 (d). Investors then see both the statutory Operating profit and the “core” figure that represents operational stewardship. Used transparently, COP-xFuel does not smooth volatility—it quantifies it and makes the management response auditable.

FAQ 4 – How should ancillary revenues and cargo be treated in YASK-A?

Ancillary revenues—baggage, seat upgrades, loyalty programmes—are now essential to airline profitability. Yet under IFRS 15 they may appear in “other income,” while cargo revenue follows a different business model. YASK-A adjusts Operating profit per Available Seat Kilometre to incorporate the passenger-related ancillary margin and remove unrelated cargo earnings. IFRS 18.123 (b–c) requires disclosure of the computation and reconciliation back to Operating profit. The ancillary adjustment must be based on verifiable management accounts showing gross revenue, associated costs and resulting margin. The cargo reclassification should align with IFRS 8 segment disclosures. Governance focus: ensure shared costs (fuel, handling, IT) are allocated consistently between passenger and cargo operations; otherwise, the adjustment distorts comparability. Properly prepared, YASK-A gives analysts a realistic view of yield generation per capacity unit, showing how non-ticket revenues sustain profitability when base fares fall—a crucial insight in post-pandemic aviation economics.

FAQ 5 – What internal controls should support these industry MPMs?

Because MPMs appear inside the audited statements, they fall under Internal Control over Financial Reporting (ICFR). Controls must cover definition, identification, calculation, review and approval of each reconciling item. Typical architecture:
1️⃣ Documented policy defining eligible adjustments and ownership.
2️⃣ Quarterly management certification of accuracy and completeness.
3️⃣ Segregated preparation and review (FP&A vs. external-reporting teams).
4️⃣ Automated reconciliation from general ledger to MPM tables.
5️⃣ Retention of tax/NCI workpapers linked to each adjustment (IFRS 18.123 (d)).
Internal audit should test design and operating effectiveness annually; external auditors verify measurement and neutrality per ISA 330. The Audit Committee should minute its review of all MPM reconciliations before publication. Embedding MPMs in ICFR converts them from investor-relations metrics into governance artefacts—auditable, comparable, and defensible in the same way as revenue recognition or inventory valuation.

FAQ 6 – What benefits does IFRS 18 deliver to the mobility industries?

For automotive and airline groups, IFRS 18 is more than compliance—it is reputational infrastructure. It standardises the way performance stories are told, forcing reconciliations, tax transparency and board oversight. Investors finally see how “adjusted EBIT” or “yield ex-fuel” connects to statutory profit. CFOs gain a structured dialogue with analysts: every bridge is evidence, not assertion. Audit committees gain a powerful risk-management lens; discrepancies between internal and external KPIs become visible and explainable. Early adopters will likely enjoy smoother audits and reduced regulatory scrutiny. The cultural shift is significant: metrics once crafted in investor decks now live in the audited notes, subject to the same rigour as revenue or depreciation. For capital-intensive, cyclical sectors where trust swings with every headline, IFRS 18 provides one thing that volatility cannot destroy—credibility built on disclosure discipline.