International Consolidated Airlines Group S.A.

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020 International Airlines Group Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. Please note you will need to limit this to two questions. I must advise you that this call is being recorded today. on Friday, the 30th of October, 2020. And now I'd like to hand the call over to your host today, CEO, Luis Gallego. Please go ahead.

Good morning and welcome to IAG's third quarter results call. I'm joined today by Steve Ganning, Chief Financial Officer, and Sean Doyle, VA Chief Executive Officer. The third quarter has been one of significant change for IAG. First, we launched our capital increase of 2.7 billion euros at the end of July and successfully completed it in September. Existing shareholders took up almost 93% of their subscription rights. The offer of new shares was oversubscribed by over 200%. The rights issue was fully supported and subscribed by our largest shareholder, Qatar Airways. I would like to thank all those shareholders who participated in the issue. Second, we began the substantial restructuring of British Airways and Aer Lingus, which accelerated as the quarter went on. Over 9,000 people had left BA by the end of September, with more to follow in the fourth quarter. BA is on track to make an annual employee cost savings of at least 30% in 2021 compared to 2019. Aer Lingus will also make significant savings of up to 50% compared to 2019, including some government wage support. Iberian Welling are already benefiting from Spain's furlough program, ERTE, saving over 35% of employee costs currently. Earth Day is in place until at least January of 2021. Should demand for air travel remain weak, we can undertake further restructuring and create a more variable cost base. Third, we have made a number of senior management changes within IAG, leveraging our strong internal talent pool, which I will describe later. In terms of the third quarter, COVID-19 has caused another substantial operating loss of 1.3 billion euros, which we announced last week. The outlook remains uncertain due to government lockdowns, travel restrictions, and quarantine requirements, and the volatility of these restrictions is causing uncertainty among customers. We urge governments to adopt the initiatives already developed by the aviation industry, such as pre-departure airport testing and to introduce air corridors on major routes, in order to increase customer confidence to book and travel. We said in our statement last week that we now expect to operate no more than 30% of our normal capacity in the fourth quarter, compared to 40% previously expected. As a result, we no longer expect to reach break-even in terms of net cash flow from operating activities during the quarter. Finally, our liquidity position remains strong, with total liquidity of 9.3 billion euros at the beginning of October, including the rights issued proceeds. Steve now will take you through the financial results, liquidity position, and restructuring initiatives in more detail, and I will provide more details on the outlook after that. Please, Steve.

Thanks, Luis. Good morning. As Luis says, I'll quickly run you through the quarter three results. So we turn to slide five. In quarter three, we continue to see the negative impact of COVID-19 on our results. We registered a pre-exceptional operating loss of $1.3 billion. In the quarter, we flew minus 78.6% of capacity in comparison to 2019. This was in line with the guidance that we provided in early September, and up from the minus 95% that we flew in quarter two compared to 2019. If I look at load factor in quarter three, it was 48.9%. And in terms of unit revenues, they were down 47 points versus last year. And that was a combination of load factor being down nearly 39 points and yield being down about five points. So clearly load factor, the biggest hit to the unit revenue performance. If you look at the revenue numbers overall from a passenger revenue perspective, they were down 88.6% reflecting the impact of the resurgence of infection rates and the consequential government lockdown travel restrictions and quarantines. If you look at the cargo performance, a bright spot, it was up 12.3% compared to last year, due to much higher yield performance, even though the overall volume levels were down around about 40%. And we ran over 1,115 cargo-driven flights, where the cargo revenue justified the flight operation, not the passenger revenue. In terms of other revenue, BA Holidays, Iberia's MRO and handling businesses and the loyalty business were all impacted to varying degrees by the virus. If I turn to the cost performance, total costs in the quarter were down 56.5%. This was against a capacity reduction, as I said, of 78.6%. So our cost variability in quarter three was 72%. In terms of employee costs, they were down 42% benefiting from furlough schemes, pay cuts and other mitigating actions. It's worth noting in Q3 that the UK job retention scheme, the benefit of that to IAG dropped from about 38 million per month in July and August to only five million per month in September as that scheme unwound and came to a conclusion. And it's also worth noticing that in 2019, when we were putting out the profits warning with regards to the pilot strike, we announced then that we were putting a bonus provision release through the numbers, which benefited the September 19 numbers significantly, which also then has an impact on the year-on-year movement. In terms of fuel handling, landing fees and selling costs all move broadly in line with capacity. If I look at engineering costs, they were down 48.6%, clearly not fully directly related to ASKs, but also partially related to the Iberia MRO business as well. And in terms of property and IT costs, which are far more fixed in nature, they were down 19%, driven by management initiatives, including such things as lounge closures and exiting certain airport offices. And in terms of depreciation, it was largely fixed. So an operating loss before exceptionals of 1.3 billion. We turn to slide six and look at the exceptional items. In quarter three, we booked 618 million of exceptional items, two significant components to that. The net over hedging loss of 352 million was booked in the quarter. This primarily relates to fuel and was driven by the fact that because we've reduced our capacity plans Going forward, we are effectively more hedged or over hedged than we were before. We have less physical fuel requirements, so more of the hedging instruments that we have in place are no longer needed, and therefore we've de-designated them. Also, the price of jet has come down during the quarter, and so when we mark to market these derivatives, that has also had an adverse effect. So 352 million of over-hedging losses booked. And then the other second significant component was employee restructuring provisions of 275 million. The vast majority of this relates to British Airways, but there is a small component related to Aer Lingus and cargo. Worth noting that with regards to the fuel over-hedging, the total amount of that now is 1,599 million, of which 60% has now been paid. And with regards to the employee restructuring costs, 80% of that 275 million was paid out in the actual quarter. If I now move on to balance sheet and liquidity on slide seven, net debt in the quarter increased 633 million. Cash was lower by about 1 billion and gross debt was slightly down by 372 million. The reduction in cash was due primarily to operating cash flows. Despite this, the cash position remains strong at $5 billion. Moreover, on the 2nd of October, we received the proceeds from the capital raise, which on a pro forma basis would put our cash at $7.7 billion and the liquidity at $9.3 billion. This is very close to the liquidity position we found ourselves in in March earlier this year. And cash is a percentage of 2019 revenues back up to 30% and liquidity as a percentage of 2019 revenues at 37%. Moving on to slide eight and continuing on the theme of liquidity. On the right hand side of the slide you can see just some of the major actions that we've taken during the year to improve and bolster the liquidity position. During the course of Q3, as we've previously announced, we signed the multi-year deal with Amex and received in 830 million euros through that deal. And we also completed a five aircraft sale and lease back, which also brought in 380 million euros. Post Q3, as I've just mentioned, we completed the capital increase. Going forward, we do have additional sale and lease backs planned. And we are also considering other further debt funding actions which have been helped enabled through the capital raise. Final point I just wanted to make on this slide was you can see from 30th of June to 30th of September the facilities have declined from 2.1 to 1.6. We have not drawn down any of our general facilities. About 200 million euros of this relates to us using a committed aircraft facility to finance an aircraft delivery, which we will then refinance in Q4. And the rest of it primarily relates to some committed aircraft facilities that we chose not to use and to let expire in the quarter. So that reduction in facilities is not due to operating cash burn or used for operating cash burn. If I now turn to operating cash costs, I just want to update you on the guidance we gave you at the half year. I think first, before I do that, it's just worth remembering what we put in our operating cash cost definition, because I know it is different from a number of other competitors. What we put in there are the likes of employee costs, fuel handling, catering, landing fees, engineering, property and IT and selling. So all of those costs that normally feature above the operating line on the P&L. In addition, we add in the cash payments with regards to leases, net interest, and also the over hedging loss, over hedging loss payments that we have to make as well. What it excludes, which I think is important to note, is revenue. We do not net any revenue against this number. It also excludes working capital movements and it excludes pension deficit payments. So in terms of how we performed in quarter three, we guided that it would be 205 million per week for July and August. We've actually managed to achieve 205 million for the entire quarter. That's a good performance because normally the third month of a quarter normally has higher cash burn than the first two months because there's some quarter end payments. If you exclude the cargo driven flights, then actually the number was a slight beat at 198 million. And this represents a 50% reduction on the operating cash costs that we would have originally planned coming into the year. That all said, we continue to focus on our cost base from two angles, really. One, to reduce the cost base and to right-size it. And secondly, to increase the variability of the cost base, which is a good segue into slide 12 and 13, where we talk about restructuring. Our business will be significantly smaller for the next two years, and given this outlook, it's right to restructure the business and to make sure it's right-sized. In this chart on slide 12, we just show some of the changes we've been making in relation to Aer Lingus and VA in regards to people, and I'm pleased to say I think it's significant progress. In Aer Lingus, we've reduced headcounts but to the tune of about 800 due to removing heads that are on short-term contracts and outsourcing some non-core areas. In addition, we have 250 other planned redundancies going forward. In addition, significant pay cuts and hour cuts have been applied to all staff across the business. In regards to BA, we've reached agreement with the trade unions on most of the employee groups. We've now had over 9,600 people have left the business, as at the end of October, with a further 180 set to leave shortly. Annual employee cost savings expected through this restructuring is about 30% of the 2019 employer costs for British Airways. These new arrangements, particularly within British Airways, give us much greater flexibility and more cost variability. For example, 19,000 of the employees covered under the new arrangements now have layoff clauses and short-time working clauses in their contracts. If we turn to our Spanish operating companies, Iberia and Vueling continue to benefit from the government wage support schemes, the ERTEs, as Luis mentioned earlier, and these were extended to January 21. For Iberia, the ERTE gives flexibility to adapt to current demand. Once it ends, Iberia will then decide what further actions to take. It should be noted that there are restrictions when you can restructure, restrictions following an Airtay being in place. For Vueling, in addition to the Airtay, they have reached some temporary and permanent agreements with pilots and cabin crew to help the variability of the cost base going forward. And then with regards to level, as we've previously announced, we've been closing the bases in Vienna, Paris, and Amsterdam. And so the significant level base now is in Barcelona. Those are the principal points on the Q3 financials. And at this point, I'll hand back to Luis.

Thanks, Francis. OK, if we go to slide 15, we can see how infection rates are driving increased government restrictions In our presentation in July, we saw a significant recovery in customer bookings from the middle of May to almost 30% of last year's level by the end of July. Unfortunately, since then, demand has been flat and volatile. Overall bookings have not developed as well as previously expected due to the response of European governments to a second wave of COVID-19 infections. This slide shows the weighted average COVID infection rate in our most important markets, rising from around 50 cases per 100,000 people in early July to almost 350 last week. Governments have responded by imposing numerous lockdowns, travel restrictions, and quarantine requirements during September and October. Short-haul bookings in Europe have been particularly affected by these restrictions. If we go to the next slide, we can see that IAG's home markets are among the most restrictive in Europe. Spain, the UK, and Ireland have some of the most onerous restrictions in Europe, reflecting their relatively high COVID infection rates. This slide shows map of inbound and outbound travel restriction in our key home markets, Spain, UK, and Ireland. The top is inbound and bottom is outbound. For example, you can see that the Spain inbound is in the top left chart. Red indicates no entry to Spain from those countries except for residents, citizens of Spain. Green indicates no restrictions on arrival from those countries. Orange indicates some restrictions on travel, such as the need to quarantine on arrival for 14 days. You can see that Spain does not allow travelers from most countries around the world, with exceptions like the rest of Europe, Canada, China and Australia. The UK has placed 14-day quarantine requirements on all travelers apart from Germany, Scandinavia, and some Asian countries, Australia, and some other places. Ireland requires 14-day quarantines from every country and advises all residents in Ireland not to travel abroad. We are urging governments to adopt measures developed by the aviation industry to replace the needs for 14 days quarantine periods. Examples include adopting the EU traffic light system, implementing pre-departure testing, and introducing air corridor arrangements as priorities. This would increase customer confidence to book and to travel. They will also be critical to get business travelers back in the air and to get the global economy moving again. Even if a credible COVID vaccine is developed in the next few months, we will need pre-departure testing and air corridors to be in place until a vaccine can be mass produced and distributed worldwide, which could take many more months. If we go to slide 17, we have an example of how demand reacts positively when restrictions are removed. Where travel markets have reopened without border restrictions and quarantine requirements, we have encouraged by the level of pent-up demand that exists for travel. This slide shows an example of this pent-up demand. It shows only bookings received by VA from flights to the Canary Islands between 20th and 25th of October. Since the end of July, returning travelers from the Canary Islands have had to quarantine for 14 days on return to the UK. This resulted in an inactive booking activity, for example, of 20th and 21st of October. But as you can see, on Thursday, 22nd of October, the UK government announced the addition of Canary Islands to its green quarantine free list. This resulted in immediate booking activity on the 22nd, and this has remained strong for the last week, except, as you can see, during the nighttime period. This is a good example of the opening of air corridor and the impact of an air corridor is having in this demand that we are experimenting now. If we move to the next slide, we can see that as a result of flattering of demand due to the government restrictions and the lack of pre-departure airport testing and air corridors, we have had to lower our planned capacity for the fourth quarter on two occasions. In early September, from 54% to 40% of 2019's capacity, and again last week, from 40% to no more than 30%. This slide shows our capacity by month since the start of 2020 and outlook for the rest of the year. We are planning a slow return to service so that we can maximize load factor and bolster cash. The criterion for restoring capacity is to ensure that each flight is cash positive or is part of a network flow that is overall net cash positive. In the next slide, we talk about the management committee. And you know that there have been a number of management changes at IAG this year. We have a new chief executive at each of the OPCOS this year, with the exemption of Lynn Embleton, CEO of IAG Cargo. Sean Doyle has moved from the CEO of Erlingus to be CEO of VA. where he worked for 20 years prior to his appointment to Erlingus almost two years ago. Donald Moriarty is the interning CEO of Erlingus. Donald is also the company's chief corporate affairs officer. Javier Sanchez Prieto has moved from CEO of Welling to CEO of Iberia, where he formerly worked as CFO. Marco Sansabini has taken over from Javier as CEO of Welling. Marco was previously chief commercial officer of Iberia. Both Javier and Marco were appointed in January, but they delayed their moves in order to deal with this COVID crisis. Adam Daniels took over as CEO of ILG Loyalty last March. And finally, Fernando Candela joins the Management Committee in the new role of Chief Transformation Officer. Fernando remains as CEO of Level for the time being. Previously, you know that he was the CEO of Fabiria Express. In his role as CTO, Fernando will coordinate change across the group. Most of the management committee have worked as a team for many years, and they are fully committed to overcome this difficult situation. If we move to my last slide, on this slide are the main messages that I would like you to take away from this call. We were strategically and financially strong going into this crisis. Since March, we have acted quickly to mitigate the impact of COVID-19. We have boosted the liquidity with many initiatives, reducing our cost base, halving capital spending for the next three years, reducing our fleet and deferring new aircraft deliveries, proactive managing working capital, and bolstering liquidity by accessing government support and raising debt, leases, facilities, and equity in the public capital markets. The capital increase of 2.7 billion euros was successfully completed at the end of September, further boosting liquidity to withstand the crisis, reducing balance sheet leverage, and providing IAG with operational and strategic flexibility to take advantage of recovery in air travel demand. We have a competitive cost base coming into the crisis. We are in the middle of significant restructuring of the group's cost base. And we are doing more to lower the cost base and to make costs more variable with capacity in case of further demand weakness in the future. We will continue with the restructuring process in the different operators of the group. And as I have shown before, We have made some management changes that I think will help to continue with this change. Our immediate priorities are to continue dealing with the impacts of COVID-19 and to encourage customers to fly again and to persuade governments to adopt the initiatives developed by the aviation industry, such as reliable and affordable pre-departure airport testing with the option of post-flight testing and to introduce air corridors on the major routes. Thank you for your attention, and now we go to the Q&A session.

Thank you. So, ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. And if you wish to cancel that request, please press the hash key. Once again, that's star one to ask a question. And as a further reminder, please restrict that to two questions. And the first question comes from the line of Savvy Sith at Raymond James. Please go ahead. Your line is open.

Hey, good morning, everyone. I was just going to, you've made some good progress on addressing some of your fixed costs and with some of the other fixed costs to hear, just Wondering what has been achieved, what level of capacity would you need to get back to to get to the unit cost that you saw back in 2019? And then my second question, I apologize if I missed this, but what's your expectation for operating cash costs for 4Q given the different moving items?

Okay. Okay. I can start with the first part of the question about the fixed cost. As you said, we are reducing our costs, and we are putting a special focus in the fixed cost of the business. Personal costs are very important there, but we are also working in other areas like fleet. So we are working with the manufacturers. We are working with the different lessors. And what we want is to... to have more cost variability and to try to adapt the cost to the fluctuation of the demand that we are having right now. Steve, maybe you want to comment more on that?

No, I agree with that. In terms of the unit costs to get back to the sort of 2019 levels, what level of capacity, I think it will need to be near to the 2019 level. So I think that would be sort of late 22, 2023, depending on how we see things develop. If I take on your question about the operating cash costs for Q4, we haven't tried to guide that this time around. As you know, with the capacity guidance We've given more of a range than a specific number due to the volatility of the situation. With the increasing infection rates and the increasing restrictions and lockdowns that are put in place, it's very difficult to call the capacity at the moment. We're going to have to be very flexible and agile with regards to capacity, and as a consequence, it makes it very difficult to call what the operating cost cash burn will be. As some degree of guidance, you have seen two quarters worth of operating cost cash burn And you can see the sort of range of cash burn we've achieved in those two quarters. So for this quarter, we're not going to give back.

Understood. That's all helpful. Thank you.

Your next question comes from the line of Stephen Furlong at Davey. Please go ahead. Your line is open.

Good morning, gentlemen. Sorry to go back to the cash burn. Can I just ask, can you just reiterate there, you talked about in terms of the 60% paid out on the hedging and 80% paid out on the restructuring. I'm right in saying that then the pension is 300 million. Is that sterling? Is that at the back end of the year? And then maybe just talk a bit about working capital. I'm just trying to get the components without going into the bottom line on the cash. And my second question is, U.S. airlines, like Delta, Southwest, they talked about maybe corporate travel down 50% next year. I know it's U.S. domestic market in some cases. Maybe structurally down for a couple of years, down 10% to 20%. What's your view on corporate travel? Or would you be more bullish on the word premium travel? Because I know you have a lot of premium leisure in there as well. Thanks very much.

If I take the first question, and maybe Luis takes the corporate travel one. In terms of pensions, the deficit payments total $450 million per annum, and it's $37.5 million per month. So that's the straightforward answer to that. In terms of working capital, we were, amongst other things, we previously guided that net cash flow from operating activities would break even at some point during Q4. Clearly, we took that guidance out when we did the pre-release last week. There were two key components that would have driven us to have achieved that. One would have been Q4 sales, and two would have been forward bookings for 2021. Given the sort of negative environment at the moment with regards to the restrictions and the volatility, clearly both of those factors went in the wrong direction and hence why we removed the guidance. So unsurprisingly, you know, my expectation is working capital, you know, albeit I think will be a little bit positive in Q4, won't be what I was originally anticipating.

Okay, about the second question. question about the corporate travel. Corporate travel is 13% of total IAG revenues. So for that reason, what we are working with the different governments is to try to restore the confidence in an industry that supports hundreds of thousands of jobs. So we are calling government to adopt the, as I said before, pre-departure testing using reliable and affordable tests with the option of post-flight testing to release people from quarantines, and we are sure that this would open routes and stimulate economies, and we will have an earlier recovery of the corporate demand that is for sure is important for our business. Okay.

Thanks, guys.

Your next question comes from the line of Jared Castle at UBS. Please go ahead. Your line is now open.

Thanks very much. Sorry to kind of harp on this, but just on the cash burn itself, do you still think maybe during the first half of the year at some point you would hit cash flow break even based on where things currently stand and your current trajectory? And secondly, okay, I've got three, but I'll scramble. Where do things stand with Europa at the moment?

Thanks. In terms of the first half cash burn, I think the only thing I would add to my comments is you would typically expect to see quarter one build up net cash flow fast. in that quarter, because seasonally, it's a very high booking quarter. So typically, you would expect net cash flow to be positive in quarter one. Clearly, we are not in typical times, so it will be difficult to see whether that does or doesn't transpire. What's interesting, I think, to some degree is we expected probably more forward bookings in Q3, and then as time progressed, we thought more of that would be in Q4. As I've just highlighted, we didn't see that come through due to the dent on consumer confidence with all of the restrictions. and the volatility of the restrictions. So to some degrees, you'd like to think there is pent-up demand, and as soon as there is some clarity for the consumer, that I think there will be strong bookings. So it could well be the case that you get strong bookings in Q1, but it really is a very volatile situation and really does depend on government restrictions and testing regimes. And also, you know, the root cause, what happens with infection rates? That's probably about as much additional guidance as I can give you at this point, Jared.

Okay. About the second part, about Europa, we have said several times that we believe that the strategic rationale remains strong, and that's why we are in discussions with Europa. We know that they are working with the Spanish government to receive a package to support the company. We are waiting to see the package and the conditions attached. At that moment, we will continue the negotiations to see the conditions that we can close in this new situation. But for sure, if possible, we would like to do this deal because we consider it would be very positive for the customers, for the group, for the situation that we have in the market between Europe and Latin America.

Okay, thank you.

Welcome.

Your next question comes from the line of Carolina Doris at Morgan Stanley. Please go ahead. Your line is now open.

Hi, good morning. Thanks for taking my questions. I guess my first one is on the sale leaseback. Can you give us a bit more color on the conditions, meaning how much of net debt was increased because of the transaction and what has been the book value of the fleet so we can have an idea of cost and conditions? how are you thinking about hedging in 2021? Are you hedging and at what volumes or have you just stopped the program?

Okay. So in terms of the sale and leaseback, the sale and leaseback market is quite healthy at the moment, actually. And so we are managing to get transactions away. In fact, we are receiving reverse inquiries on sale and leaseback deals. And so we are getting Good loans of values, we're covering the cost of the aircraft and getting good lease rate factors. I don't know if you recall, but in Q2, we had to be patient in Q2 because at that point, the market was quite dysfunctional and you could have locked yourself into some very difficult rates. That's not the case right now. And the sale and lease backs that we entered into in Q3 and the ones that we're anticipating of doing in Q4 are very sensible deals and consistent with the sort of deals we were doing pre-COVID. In terms of hedging, no, we're not undertaking any more hedging at the moment. Clearly, given our capacity outlook versus our our hedge book. We're over-hedged, looking out a quarter or two, and it depends what our capacity develops in the further quarter. So I think it would be reckless for us to take out more hedging at this point, given given the lack of clarity on the capacity outlook. We're also undertaking a review of our hedging policy. Given what we've experienced and endured this year, we are actually doing a sort of fundamental review of that policy to see whether we need to learn from 2020 and take a different tack. But to answer your question directly, no, we're not taking out further hedges at this point.

Your next question comes from Daniel Rosker at Bernstein. Please go ahead. Your line is open.

Good morning. Two then, if I may. You commented that IAG would be a smaller company for the next two years. Could you comment how you're thinking about this in terms of the long-haul business and the short-haul businesses and how those two kind of interact and possibly kind of also are connected in a way? And coming back to business travel, what are the scenarios you're thinking about for your future mix? You let go of the 747, which were a very high premium. What are your assumptions in two, three years? Is there a different mix in the customer base you're expecting? What are the actions you're taking to move in that direction? Could I just clarify, Luis, that you said that corporate travel is 13% of total revenues and clarify whether that business class, corporate rates and booking channels, or the travel reason, just to know what that 13% represents. Thanks.

Okay. About the last question, what I said was 13% was corporate travel. That's what is the data that we have made public in previous conversations. About what you said... Yes, we are sure that the business is going to be smaller. What we are seeing is that the recovery in demand is faster in the short haul and for sure in the BFR traffic and leisure traffic. So we are analyzing how IAG is going to be in the future and the different operators. We are sure that the business traffic will come back also, but we think it's going to take a little longer. But this is a period of uncertainty. We don't know how is going to be the future. What we need to be is flexible enough to be part of that future. So we are analyzing what the right fleet that we need to have in this context We are analyzing, for example, and we have here shown that kind of span of that, about the percentage of premium economy that we can have in the different aircraft. So the important thing here, as we said at the beginning, is to be flexible enough to take part of the recovery that we are sure is going to arrive, and is going to arrive by phases, as I said, But we are going to be there. I don't know, Sean, do you want to add something?

Yeah, I think if you look back a couple of years ago when BA launched its reconfiguration program, I think it was about trying to adjust our sort of long-haul cabin footprint to meet the emerging demand spaces. Now, there's a couple of things to note there. One is I think we were already kind of right-sizing cabins like first class to meet the kind of new demand. We were investing in a very competitive business class product, which is now being rolled out and is performing very well. And we were increasing our exposure to the World Traveller Plus segment. And that's a very important segment because it's very important for premium leisure. It's also a good trade-up and trade-down segment. And we saw that after previous kind of disruptions like the global financial crisis. And I think we've been very successful in targeting premium leisure as a segment. And that's something that has grown as part of BA's revenue pool over the last 10 years or so. So I think we have the responsiveness to meet the various segments as we recover, and we recover at different paces. We see leisure when markets open up, rebound very quickly, as we've evidenced in the slides earlier. We see a lot of VFR traffic at the minute, you know, repatriation traffic that we're capturing. And we do think when policies enable it, like testing in place of quarantine, that the corporate sector will recover. But I do think we have got the strategy that we implemented two, three years ago in terms of cabin configuration actually is very fit for purpose as we look ahead.

Okay, thanks. Your next question comes from the line of Jamie Robotham at Deutsche Bank. Please go ahead. Your line is open.

Thanks. Good morning, everyone. Steve, just a couple of questions coming back to this subject of potential cash burn in Q4. If we took Q3 REVs as a proxy for Q4, that would be 1.2 billion euros positive. If we took the 3Q weekly operating cash cost of 200 million per week as a proxy for Q4, that would be 2.6 billion negative. So 1.4 billion potential cash burn implied before CapEx, which we know you've pre-financed and pre-working capital moves. Two questions. One, is that a vaguely sensible way to think about it or a major... over simplification. And two, presumably the two upside risks to this might be a lower weekly operating cash cost than the $200 million per week, thanks to all the progress you've made on restructuring. And I know Savi's question alluded to that. And secondly, the possibility still of a small working capital inflow, as you mentioned, thanks.

Yeah, it's difficult not to give guidance and still keep getting lots of questions on the guidance. I don't think what you're saying is crazy, Jamie, but I really don't want to give guidance for Q4 on the cash burn simply because of the volatility of the situation. So I don't think what you're saying is crazy, but that's not me giving you guidance.

Fair enough. Thanks, Steve.

Your next question comes from the Love James Hollins at Ex-Ambient B&P Paribas. Please go ahead, your line is open.

Hi, morning. Yeah, I think you previously talked about 13,000 BA staff leaving. Is that now, are we now done on BA because you've got that extra flexibility and have Unite unions have disappeared and not that in their box? And then secondly, for Luis. Do you expect the Spanish ERTE furlough to be extended beyond January given their lockdown situation at the moment? Thanks.

Okay. So about the number of people leaving VA, I think that you can talk more about this, but we have started a consultation process The objective that we have is to reduce the cost base and to do it in a structural way that allows us to survive and to fight in this difficult environment. So the objective is not the number of people, it's the reduction in cost. We are achieving the reduction that we set at the beginning of this process. For sure, we continue with our restructuring because, as we see, the demand is very weak. We still have to close agreements with some of the groups, and the most important one is cargo. But I hope we can close that agreement and we will continue looking to the future. I don't know, Sean, if you want to tell us something else.

Yeah, I think we've outlined that there's about 10,688 people have left and there is still some more to depart. All of those departures, the vast majority were covered by agreements that were reached through consultation and agreed by ballot. So I think that's been a meaningful and productive consultation. I think it delivers the flexibility to deals with the short-term outlook, but also delivers the structural change to compete more effectively in the future. As Luis said, we're still engaging in consultation on changes to the cargo business.

Okay, and about the ERTE scheme in Spain, what now is approved is that we will have the scheme until the end of January. For sure, we are talking to the government because it's important to extend that furlough scheme. is the way we have to adapt the employee cost to the demand that we are having. If we don't have that figure, we will need to take other options or to continue with another ERTE or to go to an ERE scheme because it's the only way we can find to reduce the cost and to adapt the cost to the demand that we are having.

Just to add... Sean and I were just checking. The actual number of departures at the end of October for BA is 9,680, not 10,680. A few nervous BA staff there.

All right, thanks a lot. Thank you.

Your next question comes from the line of Alex Patterson at Peel Hunts. Please go ahead. Your line is open.

Morning, everybody. Two questions from me, please. I don't think we've given indication as to what deferred revenue was at the end of September or whether it had changed significantly from the end of June and what kind of proportion was already accounted for in vouchers or similar. And secondly, just on looking ahead to next year, if customer demand comes back and people want a book from January on, tremendous. If that doesn't happen and say, you don't get a recovery in bookings until, say, April or June, so three or six months later. What kind of impact would that have on your summer yields? Do you think you could manage it so that there would be no impact? You would just sell the capacity you're planning to sell in a short window, or do you think by necessity it would be discounted and therefore yields would be lower?

I'll take the deferred revenue question. At the Q1 and Q3, we don't give the details on the deferred revenue. What I would say is what we saw in Q3 was some degree of unwind of the deferred revenue to the tune of several hundred million, and that includes the vouchers in the deferred revenue balance. What we saw was some degree of unwind. We'll give you more complete deferred revenue data when we get to the end of Q4.

Yes, about the second question. As we said, we are in a period of uncertainty, so it's difficult to predict what's going to happen. The only thing that is more certain is the cost. So the effort we are putting is, as we said before, to reduce the cost and to try to have a higher variable base. In terms of capacity, we have some hypotheses, but it can change, because you know what's happening now and the different measures the different governments are putting in place. So it's also difficult to predict... the capacity that we are going to fly because the behavior of the customer has changed. And now, for example, in the short haul, you can sell 70% of the aircraft in the month that you are going to fly. That's something that has changed. And in the case of the long haul flight, in the previous two months to the flight, you have the major part of the reservations. So it's difficult to predict that. What we need to be is flexible enough to this contest. And as I said, the most certain issue that we can address is to reduce costs and to be flexible in case that the demand come back because of the coordinated measures of the different governments and also because at some point we are sure we will have also a vaccine in place. Thank you.

Your next question comes from the line of Andrew Hoffenberg at HSBC. Please go ahead. Your line is open.

I like that name. I think I'll call myself the Hoff. Hi there. Okay, maybe it won't. Can I ask, please, about slots and how you're going to manage them? I appreciate everything that Louise just said, that the future is unknowable and you can't anticipate your capacity. But how are you going to manage to defend your slot portfolio for next summer? Or do you harbor hopes that the EU will extend the moratorium for summer 21? And then my second question, which is this. which is a regular, is what's your percentage of EU ownership and control, including the UK, and what's your current UK share of ownership at the moment as we approach the excitement at the end of this year?

Okay, about the first question about the slots, we are sure that the government, they need to understand the situation that we have right now, and we are working to try to extend the deal that we have for the slots because now it's very difficult to fly. So I understand that we will reach an agreement that takes into consideration the situation that we have right now. And about the second topic. Okay, yes, about the percentage of non-EU, we disclose that the percentage is 39.5%. In January. In January.

And what is your share of UK ownership?

We didn't disclose that. Very helpful. Thank you. You're welcome.

If your next question comes from the line of Mark Simpson at Goodbody, please go ahead. Your line is open.

Yes, thanks. Just wanted to follow that up on the kind of slot and rationalization of airports. Can you just give us a bit more detail about what's happening at Gatwick, how that's being managed, you know, looking into next year, and the cost, benefits, or benefits which are arising in terms of how you're retreating from that airport. In terms of, I think I'll just go back, boringly to catch the second question, essentially you say you won't give guidance because of the variability or volatility of the situation. You clearly have built an existing expectation of a 30% of last year's capacity. So rather than you know, giving us a range or saying you can't get it because it's too volatile. What was your cash flow and assumption based on that base case that you've given us?

Okay, about the first question about Gatwick. British Airways has said that until March 2021, most of its whole flights will continue to operate from Heathrow. I think this enables the airline to ensure a smooth and efficient operation across the business in a moment where we need to put a special focus to the operation, taking into consideration the restrictions that remain in place. I don't know. But in any case, the airline hasn't made any decision about the future. And we are still considering what the right approach that is going to depend also of the demand, as we said before.

And with regards to the cash burn, I'll go back to my previous points. I think the situation is too volatile. And even to give the 30% scenario, you have to make a certain number of assumptions, which once again could be affected by the volatility. I know it's frustrating and apologies for that, but I don't want to give cash burn guidance on this call.

We can, but try. All right. Thanks, Steve.

As a further reminder, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad.

Okay. Okay.

Currently no further questions coming through on the lines.

So thank you. Thank you very much, everybody. I hope next time we'll have a more certain environment and we'll have a better situation to share with you. Bye-bye.

That does conclude the conference for today. Thank you for participating. You may all disconnect.