International Consolidated Airlines Group S.A.

Good morning, and welcome to IHS 2020 Results Call. It's been a difficult year, so first of all, I hope that all of you and your families are well. I'm joined here today by Steve Gannick, Financial Officer, and we also have the office here with us. We have Sean Doyle and Ken Belton in the office in London. Javier Sánchez, Marcos and Sabini are on the line. Donald Moriarty in Dublin, Adam Daniels in London. Lynn is here today in her current role as CEO of IAG Cargo, but announced yesterday that taking over from Donald as CEO of Aer Lingus from six office roles. So first of all, I want to thank Donald for the excellent job he has done in the most difficult situation that we have. And I want to say congratulations to Lynn. They will be available if you have any specific questions later. COVID-19 has consumed all of us in the last 12 months. And almost everything we have done since February last year has been in response to the pandemic. Our top priority has been and continues to be the health and safety of our customers and our employees. I would like to thank all our people across the group for their commitment, resilience, and the flexibility to this crisis. The year started off well, with passenger demand rising by 5% up to the end of February, even while the pandemic was surging in China, causing VA and Iberia to cancel their China flights from the end of January.

Between March and December, passenger demand fell by an unprecedented 87% due to the travel restrictions and quarantine requirements imposed by governments around the world.

Non-passenger businesses performed much better than passenger business. It was a record year for cargo in terms of revenue, and we conducted over 4,000 cargo-only flights. All the revenue streams, such as maintenance and loyalty, declined last year, but they were more resilient than the passenger business. We responded quickly and decisively to the pandemic as shown on this slide. I won't go into all the actions that you can see, but many of them will be covered by Steve in his presentation, but I want to select a few highlights. Since April, we have more than halved cash operating expenses, and we have reduced capacity. We have undertaken labor restructuring, and we have seen more than 10,000 people leaving the business, and we now have more flexible contracts. Iberian Welling has benefited from government furlough schemes. Finally, we raised significant amounts of funding in the public capital market since the pandemic started, including a successful 2.7 billion euros rights issue. And as you know, we announced on Monday that we had finalized 2.2 billion euros of loans guaranteed by UK export finance. Our liquidity is currently around 10.3 billion euros, including the UK loan, which is more than before the pandemic started. But we have not just focused on COVID-19 over the last 12 months. We have taken significant actions to enhance our long-term strategic position, many of which are listed here in this slide. In terms of the customer proposition, our overall NPS improved by 10.9 points to 36.7. I know that it has not been a normal year with much reduced passenger volume, but we have been acknowledged for our COVID health and safety. BA and Iberia achieved a SkyTrack four-star rating for COVID safety. BA has rolled out its Cloud World Suite to 28 long-haul aircraft, demonstrating that we remain committed to investing in our customer proposition. Staying on the customer subject, I'm pleased to announce that IAG today has reached a long-term agreement with Amadeus to distribute all our fare content via the latest new distribution capability, NDC technology. This is unique because all of our airlines are covered by the agreement. and it is the first agreement of its kind with a GDS based on NDC standards. It demonstrates that the next phase of our digital distribution strategy that we launched in 2007 is working. The benefits to IAG will be significant distribution cost savings, increased revenue, increased market share, and an improved customer experience. IAG loyalty remained relevant in 2020 despite the lack of flying. Members continue to earn and redeem obvious points on non-travel partners. IAG loyalty renewed its multi-year agreement with American Express with a £750 million cash advance. New partnerships have been established with the Banco de Santander in Spain, Sainsbury and Nectar in the UK, and Barclays Premier Banking. And we expect more partnerships to be announced in 2021. IAG Tech has maintained its investment in cybersecurity and improving the stability and performance of core systems. We have continued to work on investments to achieve our net zero emissions goal by 2050. VeloCis received a planning approval to construct a waste to jet fuel plan in the UK that is expected to produce sustainable aviation fuel from 2025. We also made an investment in LanzaJet, another sustainable aviation fuel supplier. And finally, we started a partnership with VeroAvia who is developing hydrogen propulsion. Iberia has renegotiated its planned acquisition of Air Europa, reducing the purchase price from 1 billion euros to 500 million euros, and has also agreed to defer payment until six years after completion of the transaction, which is expected to be later this year. On Brexit, we implemented plans at the end of December to ensure that our EU airlines continue to comply with EU ownership and control rules, and we have secure flying rights. And then I hand over to Steve for your part.

Thanks, Luis. Good morning, everybody. Let me take you through the... the slides for the financial updates. In this first slide, we just try and give you some of the headlines and the key KPIs for the year. If you look in the top left quadrant, as you can see, the year we sort of split down into two pieces. The first two months of the year, January and February, which seemed such a long time ago, we were performing well and ahead of plan. We'd come into the year in good strength. And then it became clear at the end of February that the pandemic had moved to Italy and was then spreading through Europe. And so March to December, you saw significant capacity cuts, particularly in Q2, in that initial lockdown, we were only flying about 5% of our capacity compared to 2019. And then through the rest of the year, as the pandemic sort of went to and fro and the intensity went up and went down, the restrictions moved and our capacity moved accordingly. So in Q3, we... we were flying at minus 78.6%, and in Q4, minus 73.4%. So given that loss in demand, what you see on the right top quadrant is what our pre-exception operating results did, and it went from being a significant profit in 2019, 3.3 billion, to a loss of 4.4 billion. And associated with that was a significant cash burn. And if you look at the bottom left quadrant, you can see both our gross debt and net debt levels at the beginning and at the end of the year. So our actual gross debt has increased 1.4 billion in the year and our net debt has increased 2.2 billion. However, despite this cash burn, we remain in a strong position in terms of liquidity. This has been the result of a lot of initiatives, including the capital raise during Q3, and most recently the UK EF loan that we announced at the end of December and then fully finalised Monday of this week. And so much so that our liquidity, we finished the year at 10.3, ahead of the position that we started the year in, and it represents about 40% of 2019 revenues. If we go to the next slide and we just look at the Q4 and full year performance in a little bit more detail, you can see from this slide that probably the one bright spot in the year has been the cargo performance. Revenues were up 33% in Q4 and up 17% for the full year. Although cargo demand was down, the drop in cargo capacity was more severe and so made it quite a tight cargo market. We found during the year that actually we were flying a number of aircraft, passenger aircraft for only cargo purposes. And sometimes it was only the cargo that was justifying the aircraft. And then sometimes we were putting passengers on as well, almost as the secondary business rather than the primary one. And so it's been a strong year for cargo in 2020. If we look further at Q4, clearly a considerable loss of 1165 In Q4, that is better than Q3. That's despite passenger revenue being down, but the cargo and the cost performance compared to Q3 were better. In fact, passenger revenue, if you look at it for the full year, fell 75.2%. Load factor down 21% and unit revenues down 27.8%. Interestingly, as the year evolved in the last few months, what we've seen is actually long haul as a proportion of our business getting stronger than short haul. And Louise will take you through a couple of slides on that later on today. But we have seen that the visiting friends and relatives segment has been particularly resilient on long haul and so has some of the premium business during the last couple of months of the year. This coupled with cargo are the segments that clearly we participate in more so than the low-cost carriers. And then if you look at costs, costs fell 54.7% versus last year in Q4, and we're 71 million euros lower than Q3, despite operating 10% more capacity. And of that, 71 million reduction in costs, Q4 versus Q3, 59 million of it relates to lower employee costs. And that's the benefit coming through of the restructurings that were carried out at BA and Aer Lingus earlier on. If we turn to the next slide, if that gives you a sort of picture of what was going at the operating profit level pre-exceptional, let's look at the exceptional items that we... As you can see, items have amassed to 3.1 billion. I've been through most of these items in previous presentations, but as you can see, 306 million of this amount occurred in Q4. I just want to quickly touch on those. There was a further 140 million of impairments. primarily related to the closure of Level France in terms of impairing the aircraft there. And also there was some impairment of some Vueling aircraft also in the period. In terms of overhedging, as you know, we are flying considerably less capacity than originally anticipated, and hence we have significant levels of derivatives that are no longer necessary. They're not matching the physical requirements, so they're overhedged. We've been booking this through the year. You can see that that over hedging charge has gone up by 95 million. Two factors really. One, as we've looked out to 2021, our capacity expectations we have lowered and as a consequence we have more excess positions than we previously thought. And that has been slightly offset by the increase in the fuel price and the change in the exchange rates. And lastly, you can see a further 44 million of employee costs and these relate to the restructuring costs at Level France and also a small amount at Iberia. If we go to the next slide which shows you the... summary performance of the airlines for the year. I'm not going to spend too much time on this chart, I think actually the next slide gives you a better insight as to 2020, but I will make a few key messages on the operating companies. In terms of Welling, it was the business where the operating margin was the most negative of our four airlines. This is primarily exposure to focus on points-to-points and also that focus being in countries most impacted by the pandemic, particularly Spain and Italy. And also, welling doesn't benefit from the other revenue streams, such as cargo or maintenance or handling. In terms of Aer Lingus, it was the second most negative operating margin, reflecting what we've seen throughout 2020, which is the travel restrictions in Ireland have probably been the most restrictive restrictions probably almost anywhere in Europe this year. And as a consequence, for example, Aer Lingus did not benefit from any sort of summer opening, whereas some of the other businesses did. BA recorded an operating margin of minus 58.2. It did benefit to some degree from its transfer network and also the cargo performance, which, as I said earlier, was the record performance for the year. And lastly, in terms of Iberia, it was the least negative operating margin as it benefited from its strong domestic segment, its transfer network, and also its other businesses, the MRO and handling business, which also helped diversify it to some degree. But as I just mentioned, I think the next slide gives us probably a better insight as to what's happened to IAG in 2020 rather than the income statement. This slide shows you a cash bridge, which shows you the opening cash position for the year and the closing cash position for a year. And I'll just dwell on this slide for a little bit, because I think it explains our performance more accurately than anything. So going from left to right, in the year, clearly we had a negative EBITDA figure of $2.3 billion, and I've just given you a few highlights as to what was behind that. Then if you look at working capital, trade receivables reduced 1.7 billion, two aspects to that. When we did the full year results in February last year, I mentioned that our trade receivables were abnormally high. I'm glad to say we responded to that and got the money in during Q1. And also because business activity during the course of 2020 has been lower, that's also caused the trade receivables to come down. If I look at sales in advance of carriage or deferred revenue, that's dropped 1.2 billion to 2.4 billion at the year end. This is primarily due to cancelled flights leading to refunds. However, it's worth noting that in the 2.4 billion year end balance, about half of that relates to vouchers. So if we hadn't adopted the commercial policies to give vouchers on cancellations, we would have had a greater working capital unwind than we did. And then in terms of loyalty, the $808 million, that's primarily due to the American Express deal that we announced in July this year, where they made a significant prepayment to us. Moving on, realised over-hedging losses. So I just referred to earlier that we've had to book significant exceptional charges for over-hedging, actually 1.7 billion in the year. And what this figure is showing, of that 1.7 billion, we've paid out nearly 1.2 billion during the course of the year. So we're about 70% through that bill in terms of settlements. In terms of pensions, 313, that's actually lower than you might have expected, but that's because of the pension deferral agreement we reached with the trustees on the British Airways NAPS scheme, and we announced on Monday of this week. Then, moving to across gross capex for the year, we paid out $1.9 billion in terms of gross capex, and In terms of that, we'd originally guided you to 2.7, but due to a combination of some aircraft delays and also some further savings, we came in well below that of 1.9 billion. Moving on, we have a number of sale and leaseback transactions that we have executed during the course of the year to the tune of about 0.9 billion. and then we've made other disposals which take you up to the 1.1. And then in terms of aircraft financing, two components there. We took out a bridge facility of roughly $900 million during the course of the year. We've actually paid that back during the course of the year, so it was in and out, and you can see that two columns along where it talks about repayment borrowings. And the other element is the WTC transactions that we have undertaken during the course of the year. And then in terms of non-aircraft financing, two key components to that, the €1 billion loans that we took out under the Spanish ECO programme that Iberia and Vueling benefited from, and also we benefited from the UK COVID credit facility programme, the CCFF, the commercial paper programme, where we raised about €340 million there. So that's the main reason for the non-aircraft borrowing And then just finishing, a long repayment of lease liabilities. That's sort of business as usual. Clearly, we've sought to negotiate with lessors and keep that number as low as possible. And then the rights issue that you're familiar with, all leading to the cash position at the end of the year of $5.9 billion. So I think that slide's worthy of taking a few minutes because I think it really shows the activity and the key impact of the virus and the key impact of management actions during the course of the year. If I go to the next slide, I've just mentioned that we finished the year with 5.9 billion cash. How does that fit into the overall liquidity position? Well, our liquidity at the end of the year, as I mentioned earlier, is 10.3 billion ahead of the year opening position. In Q4 we announced that we'd had a sort of approval in principle for the UK export finance loan of 2.2 billion euros and then on Monday of this week we announced that we'd fully contracted it and we're in the process of drawing those funds. We also obtained a 75 million facility from the Irish Strategic Investment Fund also in Q4. Facilities increased by the year end, partly because we took out the bridge facility, as I referenced earlier, which freed up some collateral, which meant that the BA revolving credit facility, the amount available under it, had increased. Further actions that we've taken to help liquidity, we've agreed the pension deficit deferral, and we continue to look at other debt funding initiatives and see what other ways we can bolster our liquidity looking forward. Probably one last note on this slide is one of the things that's worth noting is when we were doing the rights issue sizing, we did not anticipate that we would be able to do the UK export finance agreement. So that was something that wasn't anticipated when we were doing the sizing of the rights issues. On the next slide, this sets out how the debt net and gross has evolved throughout the year. And as you can see, gross debt has increased 1.4 billion in the year to 15.7. That splits between financial debt of about 3.5 billion and asset-related debt of about 12.2 billion. Of this increase, it's the financial debt that's gone up. Actually, the asset-related debt is pretty much flat, if not slightly lower. So once again, this is the ECO loan and the CCF coming through. So overall net debt at the end of the year is $9.8 billion, which is $2.2 billion higher than we started the year at. On the next slide, which I won't dwell on in any detail, we thought it would be useful to show you... the maturity of our debt positions over the next few years. The focus here is primarily financial debt, so it doesn't include aircraft leases, but I think two key messages here. It's relatively low levels of financial debt maturing over the next five years, and before 2026, little variability in the amounts becoming due each year. We move to the next slide, which is on CAPEX. As I touched on earlier, in 2020, we'd guided you mid-year that we would incur CAPEX of 2.7 billion. That's come through at 1.9, partly due to the nine aircraft delays during the year. Seven of them are CAPEX-related. Two of them were related to direct leases. And so those seven aircraft delays have benefited the CAPEX number. But there's also been some underlying savings too. If you look forward into 2021, we previously guided you that gross capex would be 1.9 billion. Our latest expectations are 1.7. We're still holding that the fleet deliveries will only be 15 aircraft. So despite the fact that nine aircraft have moved from 20 into 21, we've managed to move other aircraft that were scheduled for 2021 out of the year into later periods. And so overall, it will still only be 15 aircraft deliveries in 2021. And just to be clear, although we're not guiding on 2022 CapEx today, or the number of deliveries, there is not a huge bow wave in 2022 of deliveries. We're not expecting the number of deliveries in 2022 to be greater than 2020. So good progress made on CapEx and as you'd expect, we continue to negotiate and talk with the OEMs in a constructive manner. Last slide from me and then I'll hand back to Luis. In terms of operating cash burn, we've used this slide several times before. Probably the best thing to do before I explain the numbers is just to explain the definition. It seems every airline uses a different definition of cash burn. So this is not a net figure. These do not net revenue against cost. These are just absolute cost figures. So if you were looking for a net cash burn, clearly it will be significantly lower than the balances on this slide. What is included in these numbers are normal operating expenses such as employee costs, fuel costs, handling, catering, landing fees, property IT costs, selling costs, lease payments, interest, and also the over-hedging cash outflows as well. What's not included in these numbers is, as I say, any revenue or pension deficit payments, any working capital movements, debt payments or tax. And if that's the definition, a few comments. In Q2, when we were running less than 5% capacity, our weekly cash burn was about $205 million. What we're guiding for Q1 is $185 million, and this is a $30 million per week reduction compared to Q4. It has to be said we are running less capacity in Q1 than Q4, but that gives you a sense of what we think the cash burn may be during the course of the quarter. Those are the key messages I wanted to take you through. I'll hand you back now to Luis.

Thanks. So you have seen our overall passenger capacity in the fourth quarter was only 27% of the 2019 level. For the first quarter of 2021, Capacity is likely to be less than the fourth quarter at around 20% of the 2019 level. We have very low expectations for Easter, which, as you know, is normally a peak period for travel. The outlook beyond the first quarter remains highly uncertain. The vaccination programs in some of our main markets should lead to improving recovery in international air travel as the year continues, as long as they are joined by relaxation of border restrictions and quarantine requirements. However, the pace of reopening international travel is still unclear. Should the situation worsen, You can be sure that we will take further actions to reduce expenses and boost liquidity. This low capacity and demand is driven the bookings that you can see in this slide. As you can see, bookings up to last week were depressed at around 20% of 2019 levels. In this chart, you can also see the three main UK lockdown periods over the last year, between March and May, November and from January onwards. But when travel restrictions start to be relaxed, bookings recover quite quickly. For example, as some lockdowns were relaxed in early December, bookings for domestic flights in Spain and long-haul flights briefly went up to around 40% of 2019 levels. And contrary to what some people think, long-haul bookings have outperformed international short-haul for IAG since September. This chart covers bookings up to February 21st, the day before the UK government announcement of its four-step plan to ease England's lockdown by end of June. In this slide, we can see that bookings at BA have surged since Prime Minister made known the UK government lockdown exit plans on February 22nd. On the day itself, flight-only bookings increased by over 60% and BA holidays by 200% compared to the same time period a week ago. There was an even stronger rate of bookings on February 23rd. For example, the holidays was up 560% compared to the previous week. Booking activity has also been strong during the rest of the week. It's important that... The conventional wisdom seems to be that long haul is the weakest segment currently, but that has not been our experience. Since July, the proportion of long haul of total passenger flown has increased steadily for both BA and Iberia. Clearly, North America, BA's largest long haul market, has been weak due to street border restrictions. Although North American routes have been a fairly constant 15, 20% of the VA's total passenger revenues in July, and approximately 10% for Iberia. But other long haul routes have been stronger, in particular, Latin America, West Africa, and the Indian subcontinent. Visiting friends and relatives traffic is a significant component of the traffic on these routes, And this traffic has supported connected traffic despite local travel restrictions, for example, between North America and India. VFR is currently the strong customer segment and is more relevant to long haul than to short haul. Long haul leisure demand has proved to be just as pent up as short haul leisure, especially this winter outside of lockdown. Caribbean, United Arab Emirates and Indian Ocean routes have been particularly strong for BA and the Caribbean for Iberia. Long haul is also being strongly supported by cargo. We fully support government's priorities to eradicate COVID-19 and protect our health and the health system. And therefore, the need for travel restrictions and quarantine requirements. We are pleased that vaccination programs are proving successful in many of our markets by improving public health outcomes and reducing risk levels. Overall, we are asking governments for a coordinated roadmap to a reopening of international air travel on which economic recovery depends. This roadmap should include The phase removal of travel restrictions based on common standards as risk levels fall. The use of pre-departure testing instead of quarantine requirements until completion of the vaccination programs globally. And the adoption of digital solutions to support verification and exchange of test and vaccination data. IAG and its airlines have been active in developing and testing digital health pass apps. We are working with IATA on the IATA Travel Pass and VIA and Iberia, they are trialing the VeriFly app on all inbound routes to the UK. These are multiple sources of complexity in the current largely manual processes for checking compliance before travel. So we have different testing and quarantine requirements by country, the different proofs that need to be shown by country like travel authorization forms, hotel bookings, et cetera. And different standards for tests and vaccination certificates issued by medical labs and health authorities. All these differences make it very difficult for customers to understand. They also make it very difficult for airline staff to check for compliance to the different requirements when these customers take in. Digital solutions will therefore be vital to reduce this complexity and make the customer journey smoother. Inevitably, there will be multiple digital solutions being developed and tested in the short term. However, we are confident that there will be consolidation among these solutions in the medium term. IED cargo, as Steve showed before, has had a good year in terms of revenue, which increased by 33%. Overall cargo volume declined by 35%, reflecting the reduction of the passenger network. which typically carried 95% of our cargo in belly holes up to 2019. We were already in a strong competitive position before the pandemic. We have a broad global network of more than 350 cargo destinations. We have an established product portfolio focused on higher yielding products such as cost and climate for pharmaceuticals, express and secure. And we have a strong customer relationship. But during the pandemic, supply chains have been disrupted, which have created new business opportunities and new customers for IAG Cargo. IAG Cargo has demonstrated in this period its agility and its response to these opportunities. Since the pandemic started, we have undertaken 4,000 cargo-only flights, equivalent to more than 100 flights per week, Just for information, 35% of IAS cargo in 2020 was carried on cargo only flights and 65% in the belly hole of passenger flights versus the 95% in a normal day that I told you before. Many long haul passenger flights have been enabled because cargo has made them cash positive. We have established a dedicated charter team also And we have adapted passenger cabins to carry freight, including temporarily taking seats out of several wide-body aircraft. One important thing, we have contributed to the transport of critical equipment and essential supplies, including vaccines during clinical trials and now supporting global vaccination programs. Our commitment to the environment is unchanged. I would say it's reinforced despite of COVID. Our medium and long-term targets are unchanged. We are on track to improve our carbon efficiency by 10% by 2025 compared to 2019. 20% decline in emissions by 2030 and the net Zero emissions by 2015. We have created a board subcommittee focused on sustainability. And yesterday we announced a new role at management committee level. Carolina Martinoli will be chief of culture, talent and sustainability. Management initiatives are aligned to climate targets. The right-hand side of this slide shows our roadmap towards net zero in 2050. Gross emissions is the yellow line and net emissions, the lower dashed line. Obviously, we look at 2020 was an unusual year due to the capacity reduction. But We have several levels to achieve this roadmap, including a more efficient fleet, sustainable aviation fuels, carbon offset and removal, and disruptive innovation. And now for my concluding slides before we go to the Q&A session. First, a reminder that IAE has a strong position financially going into the pandemic. In the three years prior to the crisis, we made operating margins of 13-40% and returns on invested capital of over 15%. The balances and cash liquidity were also very strong. We also had and continue to have a proven business model and strong strategic and competitive positions. And in addition to our financial and strategic strengths, the management team has taken control to mitigate the impacts of the crisis and secure our future. We have taken quick and decisive actions to minimize net cash outflows. We have been active raising capital, including a successful rights issue and UK export finance loan. Total liquidity of 10.3 billion euros currently is still higher than it was at the start of the pandemic. We have successfully lowered our cost base and made it more valuable. We have successfully renegotiated the purchase price of Europa and deferred payment by six years. And we will continue to lead the consolidation of the European airline sector. I am confident that AIG will emerge from the pandemic in a stronger competitive position. Our immediate priority is to navigate towards a meaningful return to service as soon as possible and to persuade governments to lay out roadmaps for reopening air travel, relax border restrictions and adopt common testing regime until the completion of vaccination programs around the world. And now we are ready for all your questions.

Thank you. So, ladies and gentlemen, as a reminder, if you would like to ask a question, please press star and 1 on your telephone keypad and wait for your name to be announced. And as a further reminder, please note that you are restricted to two questions per participant. I would also like to remind you that unless speaking, please ensure that your line is muted. And our first question comes from the line of Savvy Sith at Raymond James. Please go ahead. Your line is now open.

Hey, good morning, everybody. You know, cash burn is lower than 4Q, but also 2Q and 3Q. So it's where you had maybe similar capacity production. So clearly there's some better maybe cost execution here. I was curious, as you kind of ramp up for summer flying, do you expect some elevated costs in 2Q, or is that cost timing similar to when the capacity goes up? And somewhat tied to that, is the better kind of execution changing your thinking on when you get back to 2019 unit costs, which I think you said when you get to 2019 capacity? Yes. And then my second question is, you know, bookings have surged recently. Is it fair to say that your working capital and revenue development in 1Q is so far tracking better than 4Q? Thanks.

I heard all of that. In terms of, sorry the line's particularly bad so I'm not sure I've heard all of the questions, but in terms of if capacity ramps up during Q2 or Q3, yes, there will be some incremental costs. There will probably be some incremental training costs, particularly for pilots at BA, and also some incremental maintenance costs. But I don't think those will be a significant distortion in our numbers. So there will be some degree of ramp up. And in terms of when will unit costs start to look similar to what we saw around 2019, if not a bit lower, I think that's when we get to sort of 90% plus capacity compared to 2019. Difficult to know when that will be. We've talked about not getting back to that point until 2023. But as we know, this pandemic has been somewhat uncertain, so it could happen quicker, could take longer. I didn't hear the second question.

The second was on just the booking. With bookings having surged, is your revenue and working capital development kind of tracking ahead of what you saw in 4Q20, so all things equal, maybe a better all-in-cash burn level in 1Q?

Yeah. No, I would say because we went in, particularly the UK, because we went into the third lockdown, I think we would have normally expected to have had significant inflow of bookings in Q1, like we would normally do a very large January sale. Because of the third lockdown that was announced, that has probably dented consumer confidence in the very short term. I think what's interesting, as Luis alluded to, when the Prime Minister of the UK made his announcements on Monday and people started to get some confidence that the summer might well be open, we have seen bookings spike. As a consequence of that, I think if customer confidence continues to grow and there continues to be positive news flow, I think we will see an acceleration of bookings And clearly that will be working capital positive from that perspective. But as you know, there's many twists and turns. So that seems to be the direction of travel at the moment. But a lot is dependent on the use flow and customer confidence.

Makes sense.

All right. Thank you very much. Thank you. And your next question is from the line of Daniel Oreske at Bernstein Research. Please go ahead. Your line is open. And please be reminded, apologies, please be reminded to mute your line when not talking.

Thanks very much. I hope that's the case. Morning, everybody. Do that, if I may. Maybe one a little bit longer out. We're in the recovery. But going forward, what are you doing to limit the risk that your short haul profitability in the upcoming years, kind of given the shift in consumer and connecting and business travel kind of preferences, that that doesn't escalate and basically eats up what happens on long haul. As you mentioned, long haul is kind of the core of your business, but there's a high probability that short haul will be a lot worse for you. So kind of how are you thinking about that? And then secondly, could you give us some color that once and when the Europa deal gets approved by the EEC, kind of what are the next steps for your Spanish assets, kind of Iberia after ECE and then plus UX, kind of how does that look in a year's time in the Spanish market?

Thanks. Good morning. Thank you for the questions. When we did scenarios... we consider two key factors, the willingness to travel and also the ability to travel. We have seen in 2020 that there is a strong willingness to travel once restrictions are lifted. That's what we have seen when we don't have lockdowns and even after the announcement of the prime minister this week. So the willingness of the people is present across the three broad regions for travel, visiting friends and relatives, leisure and business. But it's true that the speed that the demand returns within those segments is tied to the level of travel restrictions that we have in place. We have seen that, for example, the people that they want to see, friends and relatives, they can tolerate in some way more easily restrictions over their travel or freedom of movement at their destination. But in the case, for example, of customers wanting a holiday or break, they can tolerate part of that But the inability to spend some time at the destination and to have some freedom limits the bookings that we have from that segment. And in the case of traveling for work, I think, first of all, the different companies and the individuals both need to be accepting the risk of traveling during the pandemic period. But we think that after these quarantines are removed, there are a lot of customers that are willing to travel. And we know that it's not the same. And we have learned during this year to do business with teams or teams. And there are a lot of activities that require face-to-face meetings. In summary, I would say that as the VFR traffic is strong and some long haul markets have a big part of this traffic, that's the reason long haul is working and it's working in some time better than in the short haul. About the Europa, you know that we closed the deal November 2019. This year we have reached a new agreement with a new price, with new conditions of payment. In this period of time, Europa had the support from the Spanish government and that support has attached conditions. So, first of all, we need to negotiate with the Spanish government these attached conditions. because we need to have the freedom to manage the company. And after that agreement that we hope we can reach, we will need competition approval. All this process is expected by the second half of this year. I think that it's going to be more close to the end of the year than to the beginning of the half.

Okay, thanks. And did I understand you correctly that you're expecting the level and structure of business travel kind of post-crisis to revert essentially to pre-crisis levels as long as people are able to travel?

Yes, I think that it's going to take time, as we have always said. We consider that in 2023, 2024, we can come back to the levels that we have in 2019.

Okay, very clear. Thanks very much for that.

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

Thank you very much. Two, of course. Firstly, just in terms of the manner that people are going to travel at the moment, obviously, you're trying to do travel passports and digital options, but there's also the hurdle of testing in a number of markets. And it's pretty expensive in terms of PCR tests, 100 plus euros or 100 pounds. So, you know, do you think these tests will disappear over time or is it going to be an additional cost for, you know, the customer to bear? And, you know, will that impact future volumes, you know, for a number of years? Then the second question is just on fuel. I can't seem to find a fuel hedging ratio. I know you put the, you know, the policy you've kept the policy, but you suspended your hedging. So where are you actually hedged, especially over summer, just given the recent increase in the fuel price, and when will you continue to hedge thinking beyond 2021?

Thanks. The first question, we see that vaccination is the future. It's true that Vaccination is not going to be here for all the countries soon. So we consider that in the meantime, a testing regime is necessary. And I agree that it has to be affordable. So I think we are advancing in that direction. Also, we consider that the health path apps that are available have been developed and we are developing, are going to help the customer, as I said before, to know what they are required to travel and to show that they comply with all their regulations. So I think the future is vaccination, health pass, and in the meantime, we need testing regime to do the bridge, and for sure, we need that testing regime to be affordable.

Just picking up on the fuel hedging position, just a couple of thoughts. One of the things we're not doing at the moment is taking out any more fuel hedging positions. We are reviewing our fuel hedging policy for the future. Clearly given the level of over hedging that we have at the moment, we can take a bit of time to do that. So we're not actually entering into more hedges. So probably the last guidance that you had It's probably to some degree indicative of the hedge position that we had. You're right with regards to the increase in prices since the year end. I think when we marked the market for the year end purposes, the spot price for JET was about $4.40 at that time. I think today it's probably at about $5.50. So you're absolutely right. As that price goes up, the settlements on those hedging positions will reduce to some degree. So there should be some benefit in cash flow numbers as a consequence of that.

Thanks. I guess, do you think you've got the correct hedging for summer then, depending how demand comes back?

Say that again, please.

Do you think you've got the correct hedging for summer then, depending if things open up, I guess? you know, are you too under hedged?

No, I think we've got an adequate level of hedging at the moment but it would seem premature to be trying to take out more positions on a sort of speculative basis. We don't know how the markets are going to open up. So we've basically been taking a sort of speculative position, and that's not the purpose of our fuel hedging policy. It's very much to try and match our expected demand, and clearly it's very difficult to know what demand is at the moment.

Okay. Thanks very much.

Thank you. And your next question comes from the line of James Hollins. at Exane B&P Paribas. And just as a further reminder, please ensure that your line is muted when not speaking. Thank you.

Oh, yeah, many thanks. First one is for Sean, if he's on. I was just wondering what BA's plans were at Gatwick this summer. Or are you going to leave Gatwick alone, given your... I think you've got a slots waiver, meaning you don't have to use those slots. And maybe if Sean wants to tell us what he's looking forward to getting his teeth stuck into now he's head of BA. And the second one is on restructuring. Just wondering if you could let us know whether BA and Aer Lingus have basically fully done on their particularly staff restructuring. And then on Vueling and Liberia restructuring, I was wondering if, first of all, confirm they benefit from the LT until the end of May and what the plans and restructuring are after that. Thank you.

Great, thank you. In relation to Gatwick, I suppose it's a bit like the rest of our network. We're waiting to see what the summer holds and we're going to work with the government over the next six weeks on making the most of the task force that's been set up. So I think our network decisions will kind of follow that process, but we are operating long haul operations out of Gatwick. We're operating long haul and short haul out of Heathrow and we're just looking to optimise both of those portfolios in the short term and we'll make a call when we know more about the demand environment over the summer. In relation to restructuring, I think over the medium term, it's fair to say that the EA has taken a lot of restructuring. We've got 9,500 less employees in the company today than we did a year ago. So I think we are very much kind of right sides for the kind of outlook we have over the next number of years. When we look ahead over the summer, I think we have been using furlough quite flexibly and adapting our costs to be as variable as they can And again, we will work hard to make sure that all of our costs are variable with capacity over the coming months. And we look to look at whatever levers we have in terms of voluntary measures if we need to kind of reduce our employee overheads as we navigate through the next three to six months. In terms of what I'm looking forward to having got over at the helm of DEA, I think we've got a very exciting platform now to build from. The company reacted very quickly to the crisis and took some very tough decisions. I think that leaves us in a position to recover and recover very effectively. I think we do see evidence of real pent-up demand as we saw this week when confidence comes back and when governments enable us to travel. And I do think that we want to be part of leading aviation and leading the UK economy out of the pandemic. Because if Britain wants to be global Britain and open for business, I think aviation is a critical sector. BA is well poised to do that. And we have some very exciting plans with the airline coming in the next year or two. But as I said, the platform is strong. And I think the opportunities to build on that are very exciting.

Can you just follow up on the Spanish ERTE in Vueling, Iberia benefiting to the end of May and what plans are on restructuring after that, if I'm allowed? Thanks.

As you said, the plan now is approved until the end of May. It's true that the Spanish government is considering to extend the ERTE. And that's the consideration that we have right now. It's a very useful tool to adjust the cost to the variability of the demand that we are having. We hope we can continue with the ERTE scheme. In the case we don't have an ERTE scheme, we will need to take other actions to reduce the employee cost to try to continue reducing our cost base that is so important in these circumstances. Okay, cool. Thanks.

Thank you. And your next question comes from the line of Jamie Roboson at Deutsche Bank. Please go ahead. Your line is open.

Morning, everyone. Questions for Steve, I think. First topic is cash. Steve, are there any timing effects that might offset the benefit from new bookings through working capital in the first half? And staying on cash, In terms of that 2.2 billion euro undrawn committed aircraft facilities on slide 11, is that finance that you could call upon tomorrow or is it intended to finance some of the 1.7 billion capex you mentioned on slide 14? I just wanted to try and get some clarity on any refinanced capex for 2021. Second topic is equity. Consensus seems to have About a 2 billion euro net loss for IAG in the first half of 21. Book value of equity at year end was down at 1.3 billion. Would it matter if that figure went negative at the interims and any thoughts around plans to deal with that if it would? Thanks.

Thanks, Jamie. I think I heard the first and the third. The second one was a bit unclear. In terms of cash timing effects, I think the only significant item that I think comes through in the first half is the repayment of the CCFF. I think that's in the first half of the year, so I would be factoring that into my cash flows. I think in terms of the negative equity from an accounting perspective... I don't think that is an issue as far as I can tell. Jamie, can you repeat the second question? The line's not been great this morning. I didn't quite get it all.

Sure, I'll do my best, Steve. On slide 11, you show €2.2 billion of undrawn committed aircraft facilities. I was trying to understand, is that finance that you could call upon now, or is it intended to finance some of the 2021 capex, the 1.7 billion you mentioned on slide 14. And linked to that, in 2020, you financed a lot of your capex. I was just trying to sort of understand what the plan is for how much capex could impact cash in 2021. Thanks.

Yeah. So in the 2.2, there's a mixture of items. So there's some undrawn WTC funds to go against aircraft There's also the Airbus backstop fertility as well, which is against aircraft. So some of that is to set against aircraft rather than it's generally available. So it's a mixture in that 2.2 figure. In terms of the 1.7 capex number that we've guided, you know, 1.3 billion of that relates to fleet. Some of that's sort of... embodiment type work, some of it for core assets and clearly the level of financing that we can do on that will partly depend on the strategy we take and partly depend on how open markets are. So we've done quite a few sell and lease back transactions. We've done a couple of WTC transactions in 2020. So the ultimate loan to value that we'll get on those will depend on which strategy we go down. Clearly, we'll be looking to finance as much as possible of the fleet figure. What that number or what that percentage is will probably depend on our financing strategy and also how the markets are developing.

Got it. Thanks, Steve.

Thank you. And your next question comes from the line of Muneeba Kiani at Bank of America. Please go ahead. Your line is now open.

Good morning. In your press release, you mentioned the base case scenario of capacity ramp-up from the first quarter of this year until the first quarter of next year. Can you talk about what that scenario has for the third quarter, and what's the flexibility to ramp up capacity faster if there is demand? And then secondly – Can you quantify the revenue and cost impact from the Amadeus NDS agreement that you've just announced?

Maybe if I take the first two and maybe Marco or Luis will take the Amadeus one. In terms of the base case, when we're When we're doing our going concern assessments, we have to come up with a base case and a downside case scenario. And as you rightly say, in the IMR that we've sent out, I think the base case is showing minus 43% all the way out to March 2022. Clearly, to get into the details of what we're assuming in that, probably gives it more substance than there is. We're not giving guidance this year on capacity because we don't know how it's going to play out. We don't know how the pandemic will develop and we don't know how the restrictions related to the pandemic will develop. So we have to come up with a base case for the purposes of accounting. But I wouldn't want to get into details on that because we're really not certain enough as to what's possible. To the second point of your question, which is what's our ability to ramp up, which I think is a good question. Our view on that is, you know, we can ramp up pretty quickly. It varies by OPCO. I think VA could ramp up to about 70% of 2019 by the summer. I think Welling can ramp up much quicker than that and can probably get up to almost 100% of capacity. So our ability to ramp up if there was demand and restrictions and regimes allowed, we could make the most of a strong summer period by putting a lot of capacity into the market.

Okay, and I think the second question, we are not disclosing now the numbers about the Amadeus deal. Maybe, Marco, you can talk a little about the benefits of the agreement.

Indeed. Indeed, Luis, hired by business market speaking. So, indeed, we don't disclose, of course, the deal is subject to full confidentiality. Nevertheless, there are both significant benefits, both from a revenue and a cost perspective. In terms of costs, The NDC will allow structural reduction in our distribution costs. This is not about a temporary discount. It's a new technology methodology that we use to distribute our content that brings with it a structural reduction in our distribution costs. But at the same time, there is a very, very significant revenue opportunity that goes with that because, as you know, the NDC technology, which is a communication standard to distribute and to retail our products and services, allows to have much richer contents. So elements like ancillaries will be able to be distributed in a much more effective manner. And also additional concepts such as, for instance, now additional pricing points. So the possibility to distribute more pricing points beyond the fair structure that currently is the limitation of the legacy technology allows to increase our competitiveness and generates revenue opportunities.

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

Hi. Good morning, everyone. I guess I wanted to get some more visibility on your success in shipping capex savings, which areas that went, and on the negotiations with the letters for reducing leasing payments. I mean, how much of that is actually a haircut to pay OPEX and CAPEX and how much is actually deferred payments. And if I may, a follow-up from Moniba, if your downside scenario pre-UK sport facility was 36% declining incapacity, if you could have an update of what the downside scenario is now with the facility included, it would be helpful. Thank you.

I'm going to disappoint you with these answers. In terms of the negotiations that we have with the OEMs and what relates to aircraft and what relates to payments, I think that's heavily commercially sensitive, so I wouldn't be disclosing those figures because they're commercially sensitive. The second question I didn't quite catch, which was...

So the downside scenario at the time of you announced the rights issue for 2021 was assumed a 36% declining capacity versus 2019. But as you mentioned, Steve, that didn't include the UK export facility. So what is your downside scenario? And I appreciate it's difficult, but what is the downside scenario that you're working now for 2021 so we can get a sense of when you're, to what level your liquidity is covering your cash flow needs?

I understand. It's a good question. I think maybe going back a step or two, when we were doing the capital raise and we were sizing it, we came up with a commercial downside case, as you know. That had a lot of different assumptions in it, including capacity outlook, but a lot of other assumptions, the ability to finance aircraft, what we thought unit revenues would do, etc., And we looked out and we found the sort of trough point in our cash and then we sort of sold that back to 20% of next 12 months revenues. And that's how we came up with the initial sizing. Since we did the capital raise, there's been a number of variances, unsurprisingly, as to what took place. So, for example, with the commercial downside case that we used, we didn't anticipate that there would be a third lockdown. We anticipated a second lockdown, but not a third one. Alternatively, there's been some positive developments, which would be, as you rightly say, we got the UK export financing and that wasn't in our thinking at the time. Also, when we did the commercial downside case, we didn't assume that there would be vaccines, and that's a positive as well. So there's a number of variances clearly looking out. It's still difficult to see how that's going to play out. The only piece of additional information I would give is Compared to our commercial downside case at the end of December, we were ahead of that from a cash perspective. So we were better than the commercial downside case at the end of December, despite the fact that we got into a third lockdown of that situation. But I hope that gives you a bit of a feel for where we're coming out.

Yeah, it does. Thank you. That's helpful. Thank you.

Thank you. And your next question comes from the line of Neil Glynn at Credit Suisse. Please go ahead. Your line is now open.

Thank you. Good morning, everybody. So the first question is just on unencumbered assets. You mentioned within the presentation assets, finance and lease liabilities of £12.2 billion. And I see PP&E of £17.5 billion on the balance sheet. So I'm just wondering, is something around 5A a decent way to think about unencumbered assets, or is there some other hidden value to think about? And then a second question, if I could ask Lynn if that's possible. It's great to see the move to sunny Dublin, but I'm just interested in your successor's opportunity for IAG Cargo. Given the obvious uptick in e-commerce penetration and the growth prospects there, Is this an opportunity to leverage that to expand IAG Cargo's presence, possibly with partners like Qatar, given that you don't operate your own?

If I go first, Cleo, I need to spend a bit more time. Our unencumbered assets are not up 5 billion. They're considerably less than that. I think when we look forward as to what assets are available to maybe do further financings or securitizations, the obvious places we would look potentially are with regards to our slot portfolio, which is very strong, and other assets that we have in the business such as the loyalty business. I think, I'm happy to take this one on a bilateral basis, but no, the unencumbered assets are not anywhere near $5 billion.

Okay, Neil, as I pick up your cargo question, the first thing to say is in the reasonably medium term, I think we're feeling very positive about the cargo outlook. Clearly, as the passenger restrictions continue, the yield environment for cargo is good. So our near-term focus is all about getting the group's aircraft up in the air and supporting the re-establishment of the passenger network, the kind of co-sponsored passenger and cargo flying. So that's about all of our near-term efforts going. But you're right, the general outlook for cargo and product development is strong. We are having some really positive dialogues with some airline partners too. play where we can't play on our own. But also we'll put our attention back onto our strategic plan where some of our investment in infrastructure, some of the digital investments we're making will support us, I think, coming through this pandemic really strongly at the end.

Thank you all.

Thank you. And your next question comes from the line of Stephen Furlong at Davey. Please go ahead. Your line is now open.

Yeah. Morning. Can I just go back to the base case in this going concern comment? I mean, rightly, you make the assumption that your revenue will be below 2019 levels. It seems to be more mixed related. Maybe someone for Sean, could you talk about, because I know VA in the past has been very successful in reconfiguration programs and how big that will play going forward in unit revenue with things like World Traveller Plus. And the second question is just, I know at the start you answered this question, Steve, in terms of unit cost. Probably you have to look at when it comes back, when the volumes come back to near 2019 levels. But I'm just wondering what all the restructuring is. Surely, if you do get back to 2019 volume levels, the unit costs have the potential to be below or even significantly below where they were in 2019. I know for example, Air France gave a comment on that. I'm not looking for a number, but I would have thought with the restructuring that the plan may be to get back below 2019 levels. Thank you.

I'll let Sean talk a little bit about cabin reconfiguration. for British Airways. But before I do, picking up on your 2019 non-fuel unit costs or unit costs and how they'll develop, my expectation is that when we do recover back to 2019 levels, that our unit cost performance should be better. That's certainly some of the work we've already done is moving us in that direction. But as Luis said in his presentation, We're not done with costs. We continue to look to take further costs out. So it would be our expectation to be below the 2019 levels, but we've still got more work to do to get there. Clearly, the restructurings that we've done in 2020 have given us a good start into that position.

Yeah, I think... The cabin reconfiguration program is ongoing and if you remember the logic of it, it was to kind of basically optimize the footprint of our long haul aircraft. And I was going to do that in three ways. One was to probably make sure we had the right alignment of first class capacity and we have implemented more 8S cabins and reduced the footprint of first. But the load factors of the performance of that cabin was performing very well in 2019. And we were looking then obviously to upgrade the business class product, which we are midway through. We have about 28% of our fleet now has the new Club World Suite and the net promoter scores are very high with that product. I think the exciting development as well you mentioned is World Traveller Plus. That's a very successful product and we are increasing the number of seats that are available for sale in World Traveller Plus materially. And I think that plays well to the kind of development of the market over the next couple of years. Because we do anticipate that corporate travel will lag other segments like BFR and leisure. And World Traveller Plus is a very strong leisure product and it's very popular. So I think things like the return to the 747s have actually accelerated the development of that product mix. And I think it actually works very well with the kind of trajectory of recovery that we anticipate. And the other thing I would just add to that is in terms of things like leisure products, to be a home-based business is a very strong franchise that we have. And that as well is a lever we can use commercially to kind of play into demand space as we see coming back more strongly in the next 12 to 18 months.

Okay. Thanks, Sean. Thanks, Steve.

Thank you. And your next question comes from the line of Andrew Lovenderg at HSBC. Please go ahead. Your line is open.

So morning, everybody. Can I ask you questions? One, can I ask about fleet? I'm a little bit curious to see where you are on the letter of interest, which is all a bit dated now for the MAX acquisition. And obviously, Aeropolis sits with some MAXs and MAX orders. So what are you thinking about short-haul fleet and MAXs? And then the second question, I'd quite like to draw the attention to the South Atlantic, where we haven't had very much discussion. And obviously, you know, the acquisition of Europa plays a big part in what your plans are. But if we look at the Latin American competitors, most of them are in Chapter 11, and the alliance configurations there are unstable or open. So how do you see your prospects for Europa? for gaining share, gaining competitive position, improving the competitive position on the South Atlantic, and where do you expect your partnerships to lie in that market? Thank you.

Okay. So in the first question, we continue having the option of the 737 MAX is something that we need to consider for the future. As we explained before, We are hoping that the demand is coming back from 2023, the demand that we have in 2019. In the meantime, we need to adjust the size of our fleet to that demand, but we consider, as before, that 737 MAX is a good aircraft. It's flying right now, and it's an alternative that we have for the future in our narrow-body fleet. And about Air Europa, I think the deal is, we explained before that it's very important from the strategic point for the group in order to maintain a proposal that we have for our customers between Europe and Latin America. It's true that we have some competition there that they are suffering in the same way that I think everybody we are suffering in this context, but some of them are in a worse situation. So we consider that this deal is going to give us the possibility to be stronger in that market and to offer a better proposal in terms of network to all our customers. So we continue committed with the deal. I think we will have more opportunities and that the map of the future of Latin America is not going to be the same map that we have in 2019.

Can I just build on that? But you don't have an alliance partner in Latin America at this time, and yet we thought that alliance partnerships were important for this industry. Would you aspire to have one in the future?

We have now still agreements with Latin. For example, we have joint businesses in Peru and Ecuador. It is true that if the Europa operation happens, we hope we need to reconsider the strategy in the region. But we have other alternatives apart from developing the relationship with LACAN. Okay.

Thank you. Thank you. And your next question comes from the line of Joakim at Librem. And just as a further reminder, Please, can you mute your line? We're not speaking. Thank you.

Yeah, morning, everyone. Two questions for me, if I can. Firstly, on transfer traffic, do you think that recovers faster or slower than point-to-point? I can certainly see restrictions on certain origin and destination flows constraining that, but equally opportunities to replace thinner long-haul routes. And secondly, can I just ask for some clarification on minimum or target liquidity as a potential revenue? Do you actually have a figure? I think there was a reference to 20% of 2019 revenue in some of the rights issue planning, but is that actually your threshold level, please?

Okay. On the... On the liquidity target, as you rightly say, we've tended to use 20% of revenue. But the moment of view over the course of the pandemic, given the uncertainty, is to bolster liquidity as much as possible and not to be too tied to a percentage. So that continues to be the case. With regards to your first question on transfer traffic, it's certainly the case during the course of Q4 that the transfer business has been helpful But really I don't think there's a general view that sort of says it's going to recover slower or quicker. I think it really just depends where the restrictions are and how your network fits to those restrictions. So it's been a healthy in Q4. I don't know whether you can actually draw a conclusion that says by definition it's going to go quicker. I think it's where the restrictions are.

Thank you. And your next question comes from the line of Alex Patterson at Peel Hunt. Please go ahead. Your line is open.

Good morning, everybody. Just on the sort of longer-term cost, you mentioned that they would be lower eventually after capacity returns, and you mentioned lower distribution costs as part of that. Can you say what other areas you think the savings will be made in? Is it, for instance, lower staffing ratios? Do you think supplier costs could be reduced? Something like that. And then just on forward bookings, you mentioned that long-haul bookings are running ahead of short-haul. Is that because the bookings are for periods further ahead? So are they from nine or 12 months out rather than short-haul being nearer term? What's the difference there? And then finally, I'm just trying to understand the sort of magnitude of the uptick in bookings. Where you've seen this surge this week, are those bookings at a normal level or a normal level for the capacity that you're flying, or are they actually better than that for the week that's just finishing now?

I think I can take the first one. The effort we are doing is an effort that is not... only in the labor part of the business. It's true that as I said before, in 2020, we needed first of all to stop the bleeding. So we have started a lot of actions inside the group and the different operating companies to diminish the outflow of cars. But we are now in the process to reduce all the costs in all the areas of the company, because we understand that this crisis is not similar to previous one, and we are going to have an aviation sector that is going to be different after all this. So we are attacking all the cost structures that we have, not only labor, suppliers, ownership, and we are putting a special focus also to try to have an increased ratio of variable costs because this crisis has shown that we need to be flexible. And that's the exercise we are doing right now. And I think that we will arrive to 2023 in a better position if we compare with the situation that we had in 2019 because, as we said, there is uncertainty about how it's going to be

the demand at that point and how is going to be the behaviour of the customer so second question in terms of in terms of long haul bookings the reason they've been so strong particularly I think in Q4 has been the strong and resilient visiting friends and relatives demand and also some degree of premium leisure has come through and that continues to to be the case. Whether there's a distinction between short haul and long haul and whether long haul's booking further out, I don't think that is the case. What's happened since the Prime Minister's announcement on Monday as we've seen a surge in bookings as Louise referred to. But that is short haul and long haul. In fact, I would say the short haul bookings have been stronger than actually the long haul bookings. And they're particularly strong in the Q3 period, unsurprisingly, because people are are gaining confidence that they think there's going to be a summer. So I wouldn't say there's a sort of core distinction between long haul and short haul given this recent surge in the news and the improvement in consumer confidence. Prior to that announcement, the reason long haul was better was because of the more resilient VFR demand and also because of the ability to use your network to transfer people over the hubs, which was also helpful from a demand perspective.

Thank you. Can you just say sort of in relation to the capacity that you're flying, are the bookings that you've had in the last week back to sort of a normal level, or are they still lagging behind what you'd expect at this time of year? Thank you.

Sean here from BA, I can take that. I think in the Q2-Q3 period, the bookings since the announcement were ahead of last year. So we saw that in the short haul segment. If you look beyond, say, the May period, we saw an uptick for the year before, and it was booking into the capacity that we published.

Great, thank you.

Thank you. And your next question comes from the line of Francisco Rodriguez at Banco Sabadell. Please go ahead. Your line is open.

Yes, hello. Thank you for the call. I have a couple of questions. The first one would be, again, related to costs. I don't know if you could give us any sense on how much of all these restructuring costs on the personal side could be, let's say, sustainable. or let's say forward and therefore could be retained. And the second one would be more on the cash flow and I would like to have a sense on what level of activity would you need to have to be breaking in cash flow. I don't know if it's fair to say that around 40 to 45% of activity compared to 2019 could give you this. possibility of being cash flow break even.

Thank you. About the first question, I think we have started this crisis in a different situation in the different operating companies of the group. And for that reason, the solution we are giving to the labor restructuring is different as I explained before. For example, in the case of Iberia, you know that we have a transformation program since 2013. We reduced the employee cost in 35%. So when we arrived to this crisis, we had an issue about the number of people working in the company because of the demand that we had that it was much lower. So the imperative measure there was to try to adjust the size of the labor force to the number of flights that we were flying. And in that sense, and the situation was similar in Vueling, in that sense, the furlough scheme, the ERTE, that we have in the plane, is the right vehicle to do that because you can adjust the production of the people to the production. In the case of V8, for example, we arrived in a different situation because we needed to adjust in one side the size of the labor force to the number of flights that we want to fly. But also we have a situation that in some collectives of the company, the conditions were above the market. So we needed also to be more productive. So all those measures that we have improved are going to be structural and are going to be there in time. Because as we said, we are now more efficient, we have more flexibility in the contract, and we can achieve more productivity. I don't know, Sean, do you want to expand that?

No, I'd agree. I think as well as adjusting the workforce to meet the new capacity outlook, We do have a more productive and efficient cost base in which to build forward and we have more flexibility in the business model as well. So I would echo what Louisa is saying.

On the second question with regards to sort of what percentage capacity would get you to sort of cash, maybe cash from operating activities positive. I wouldn't give a percentage, you know, because it depends on a number of different factors, what the pricing is, what the load factor is, what the mix of the business is. Well, what I would say is if we see consumer confidence come back, we will see pent-up demand and high bookings coming through would be our expectation. There is pent-up demand and people's savings levels and incomes are such that that would... generate further activity. I know BA did a survey recently which sort of said of its regular customers, over 1.8 million of them had missed out on at least one trip last year, if not several. We do think there's a lot of pent-up demand out there. So if there's consumer confidence, we'll start to see bookings coming through. That would be the first part of getting the cash flow positive. The second part will be on the EBITDA, which would be when people then can start to actually fly those bookings, which if the summer opens up, which is our hope and expectation, then you would expect to see the cash generation improve significantly. Will that go positive then? We'll have to wait and see because there's too many variables. But I think those are the dynamics that are going to drive us to cash positive generation.

Thank you.

Thank you. And your next question comes from the line of Guilherme Macedo at Kaiser Bank. Please go ahead. Your line is open.

Hello. Thank you for taking my question. Just one, if I may. In terms of your net year-to-emission targets, was there any change in your path to get there, namely in terms of offset and market-based measures? Thank you.

I hear you very well. Your question told you Can you repeat, please?

Yes. In terms of your net CO2 emission targets, was there any change in your path to get there, to the net CO2 emissions by 2050? Maybe what's relevant for me in terms of offsets and marketplace measures?

I said at the beginning that I think this crisis, after this crisis, our commitment with the sustainability and with objective of net zero emission in 2050 is even deeper than the one that we had before. So now what the targets that we have is further improvement to 80 grand CO2 per passenger kilometer by 2025, which is an improvement on our previous target of carbon neutral growth from 2020. By 2030, we target a 20% net reduction in emissions compared to 2019. And by 2050, we target a reduction of 50% CO2 gross emissions versus 2005. And I said before that with the four measures that... We are working on it. We will achieve the target of net zero CO2 emissions in 2050.

Okay. Thank you very much.

Thank you. And your final question comes from the line of Johannes Brown at CISEL Europe. Please go ahead. Your line is open.

Yes. Thank you. Just one left, basically. I think when you announced the Air Europa deal, I think you mentioned that one of the rationals for the deal is to develop the Madrid hub as a real competitor to the likes of Paris, Frankfurt and Amsterdam. And I was wondering whether you could elaborate a little bit how big that opportunity really is and what your competitive advantage is against, you know, Lufthansa, KLM, Air France to take away transfer traffic from them.

Okay, I think the rationale that we are playing at the time that is the the rationale that we maintain is that if Madrid wants to compete with big hubs in Europe, we need volume. And if we add the long-haul fleet of Europa and the long-haul fleet of Iberia, we reach an amount of long-haul aircraft similar, for example, to the number of KLM in Amsterdam. So I think if we want to have a 360-degree hub in Madrid, to fly to some destinations that now are not possible because we don't have the scale. This operation is key. It's key for Madrid Hub, it's key for Spain, it's key for the customers because they are going to have a better network, they are going to have more competitive prices, they are going to have access to a wider loyalty program. So all those are the benefits of this operation that, as I said, I think is fundamental for the Madrid hub.

Thank you. And there are no further questions. Please continue.

Okay. So we don't have any more questions. Thank you very much, everybody, for being here today. I hope next time we can do the meeting face-to-face. Take care in the meantime. Okay, I'll see you next time. Thank you very much.