International Consolidated Airlines Group S.A.

Good morning, everyone. With me here today in Madrid is Nicolas, Group CFO and the CEOs of BA, Iberia and Welling, John, Javier and Marco, Adam, CEO of Loyalty, Lynn, CEO of Perlingus, David Sheffard, Managing Director of Cargo, and also in the call. They will be able to answer all your questions that you can have later. And I'm pleased to say that this morning we confirmed an operating profit of 1.2 billion euros for the third quarter that we have pre-announced on 13th of October. This was 400 million euros better than the market consensus of 800 million euros. It was a significantly better result than a loss of 0.5 billion euros a year ago, and was 85% of the profit level of 1.4 billion euros in the third quarter of 2019. Revenue had fully recovered to 7.3 billion euros, slightly more than in 2019, despite flying only 81% of 2019 capacity. All businesses were significantly profitable and Boeing and IAG loyalty achieved higher operating profits than in 2019. Liquidity has remained at its highest ever level of 13.5 billion euros at the end of September, the same as at the end of June. Net debt ended the quarter at 11.1 billion euros, relatively flat compared to the end of June. Pensions have been very topical in the UK recently. The British Airways NAPS scheme has reached a head of terms agreement with the trustee concerning its 2021 perennial valuation. BA expects to continue to make no-deficit reduction contributions and its schemes are well protected from the recent volatility in the UK gilt market, which Nicolas will talk about later. Finally, I am pleased that shareholders approved the purchase of 50 Boeing 737s and 37 Airbus A320 Meos, the EGM, the last 26th of October. This aircraft will generate significant cost, sustainability, and customer benefits for all IAG's airlines. Demand continues to be strong, with bookings currently running at a rate of around 90% of 2019 levels in terms of volume and 100% in terms of revenue based on the last five weeks. Leisure bookings, premium and non-premium, have continued to be the strongest. Business Channel's bookings have recovered to around 70% in volume and 75% in revenue, around 5 to 10 points higher than what we last reported in July. A significant difference with the situation at the end of July is that in the last few weeks, we have started to accept bookings for two of our key Asia-Pacific fruits, Tokyo and Hong Kong. with a resumption of services from November after more than two and a half years of closure. We are conscious of the uncertainties in the macro environment and the ongoing pressures on households, but forward bookings remain at normal levels for the time of the year, even into 2023. Overall, for 2022, we continue to plan capacity to be around 78% of 2019 levels, including increasing to 87% in the fourth quarter from 81% in the third quarter. We expect to continue to restore capacity in 2023, but this will depend on the outlook for the demand as the year develops. The current plan for the first quarter of 2023 is to restore capacity further to around 95% of 2019 levels, in part reflecting the resumption of some Asia-Pacific services. In terms of the outlook for 2022, we expect an operating profit of around 1.1 billion euros, which will imply an operating profit of approximately 0.4 billion euros in the fourth quarter. We continue to expect operating cash flow to be significantly positive for the full year, and net debt is likely to be higher by the end of the year as previously guided. And finally, we are confident that we can return to pre-COVID levels of operating profit. And now I will hand over to Nicolas for the final presentation.

Thank you, Luis, and good morning, everyone. I'm pleased to say that we have shown a strong profit recovery this quarter. And as we pre-announced a couple of weeks ago, we were ahead of market expectations. Our operating profit of 1.2 billion euros was 85%. of 2019's profit, despite lower capacity and foreign exchange headwinds of around about €120 million. So even with these headwinds, we achieved an operating margin of 16.5%. You have a lot of information on this slide, but I will just pick out some of the key points. Firstly, passenger revenue recovered to nearly 100% of 2019 revenues. and this was achieved at capacity in line with our previous guidance of 81%, an increase from 78% in the second quarter. This strong customer demand enabled us to increase our passenger yield by 23% versus 2019, and our load factor recovered to 87%, only 0.7% lower than 2019. We saw very strong revenue metrics across all our airlines, with each airline recovering reporting double-digit increases in unit revenue. Cargo posted another strong quarter, with revenue increasing nearly 40% compared to 2019, with a reduction in air cargo traffic as sea freight recovered, which was more than offset than strong yields. Other revenue increased by 7% compared to 2019, driven by the good performance in BA holidays and IAG loyalty. Just moving on to costs, the non-fuel unit costs were up 25%, and this increase was driven by the following factors. Firstly, around a third relates to lower capacity flowing. Secondly, around another third is due to foreign exchange movements as a result of the strength of the US dollar against both the euro and sterling. And the last third is explained by the growth of non-passenger businesses worldwide. from BA holidays and loyalty, which have grown strongly, but do not generate or move in line with ASKs, and from inflation and one-off adjustments. The one-off adjustments include the backdating of salary increases from previous periods, and the 2019 base year included the lower level of British Airways bonuses than normal due to the strikes in that year. Fuel unit costs were up 39% due to commodity price increases and the strength in the US dollar. The year-on-year commodity spot price increased around 90%, although our hedge limited the year-on-year increase to 55%. Looking now at individual airlines, Aer Lingus reported a significant improvement in its profitability. We said in Q2 that Ireland was behind the rest of Europe in opening up its travel sector. So it's very pleasing to see that this quarter they were able to operate 90% of their 2019 capacity. and with the North Atlantic having fully recovered. The team made a great effort to prepare for the peak summer operations, with capacity increasing by 20% quarter on quarter. As I explained to you in the last quarter, Aer Lingus reported year-on-year figures are distorted by a change in accounting treatment to align to the group's commercial policies. So on a like-for-like basis, Aer Lingus passenger revenue was actually up 3% on 2019. while their capacity was still 10 percentage points lower. Passenger unit revenue grew by 14%, driven by a very strong increase in yields and load factors back to 2019 levels. The North Atlantic saw a big swing in the quarter with revenues above 2019, driven again by good yields in both business and economy cabins, offsetting lower load factors. In short haul, revenue was lower than 2019 as a result of reduced capacity, but with low factors actually above 2019 and strong yields, especially in the leisure sectors. Non-fuel unit costs were up 14% on a like-for-like basis. Employee unit costs went up around 9%, mainly capacity-related, and supply unit costs were up 13%, reflecting the adverse foreign exchange movements, reduced capacity, and inflation, particularly in airport charges and engineering. So overall, a very promising performance for Aer Lingus. British Airways reported a significant improvement in profitability during the quarter with a 12% operating margin. This was despite the imposed capacity constraints at Heathrow Airport and the Asia-Pacific region remaining substantially closed, which together resulted in capacity remaining at 74% of 2019. British Airways results were also impacted by the weak sterling that reduced operating profits by around £87 million. Despite this, passenger revenue recovered to nearly 90% of 2019 levels, driven by passenger unit revenue increasing by 20%, with very strong yield performance in all geographies and in all cabins. We continue to see leisure demand outpace capacity and business demand steadily improved, with business revenue 66% of 2019, with both channel yields above 2019 as well. In long haul, North Atlantic capacity was up to 87%, and overall long haul yields were up 24%. So turning to costs, British Airways non-fuel unit costs were up 34% in the quarter. Employee unit costs increased by 21%, although excluding the impact of the lower bonuses in the 2019 base a year due to the strikes that I just mentioned, this would have reduced to an increase of 10%. Supplier costs were up by 42%, and around 10% of this was due to the FX headwinds. Around 13% was due to the lower capacity flowing, and the remaining increase relates to the good growth in British Airways holidays, investments in marketing, and again, general inflationary pressures. Iberia had a very strong third quarter, with its operating profit reaching 90% of 2019 levels. and operating margins of 15%. All these different business areas reported a positive operating profit, with profit from the core airline businesses in line with pre-pandemic levels, despite the lower capacity. So overall, a very good performance in Liberia. Passenger revenues were up 5% on 2019, despite the capacity at 84%, with unit revenues increasing by 25%. With strong performance across the whole network, and especially in core markets such as Latin America and on the North Atlantic. Load factors were up to 89%, only 0.6% below 2019 levels, with long haul actually above pre-pandemic levels. And again, leisure demand was ahead of capacity, with revenue above 2019 and business revenue steadily improving to 77% of 2019. On costs, non-fueled unit costs increased by 20%. Employee unit costs went up by 25% and around 10% of this was in the impact of the reinforcing the summer operations and back payments relating to wage agreements. The balance was largely capacity driven and to a lesser extent, inflation related. Supplier unit costs increased 18% driven by increased costs in MRO and handling for third parties and group companies. and foreign exchange movements, lower capacity, and the investments again in marketing and in our catering services. Vueling fully recovered both its capacity and operating profits to above 2019. Capacity recovery was due to higher aircraft utilizations as Vueling actually had three fewer aircraft operating during the quarter than in 2019. And passenger revenue was 50% higher than in Q3 2019. with passenger unit revenue increasing by 13% and load factors above 2019. So all of Vueling's revenue metrics showed significant strength. The performance of the new bases at Paris Orly and London Gatwick continued to outperform expectations. And just touching on costs, non-fuel costs went down by 4%, driven by the positive performance in supplier and ownership costs overall. This slide shows our liquidity position, which, as you can see, continues to be exceptionally strong at $13.5 billion at the end of September. Our level of liquidity remains at its highest level since the start of the pandemic and represents more than half of the revenue we generated in 2019. As you can see from the chart, Our finance facilities of $4.2 billion have remained unchanged since the end of the first quarter, and our cash performance continues to be very strong at $9.3 billion, driven by our operating results and the continuation of strong demand and forward bookings. This quarter, we continued taking actions to strengthen our liquidity, and we extended by one year our $1.8 billion multi-OPCO revolving credit facility to March 2025. We also successfully financed two aircraft and have several additional aircraft actions in progress. These include having committed funding for four additional BA aircraft and a sale and lease back on A350 for Iberia, and with three more being arranged at the moment. This slide shows our gross and net debt position. Net debt rose only marginally during the quarter, up 80 million compared to the end of last quarter. Gross debt increased by 150 million, mainly driven by the strength of the US dollar and also reflected new aircraft deliveries that we received during the quarter. There was also a 400 million adverse non-cash movement in Q3, which was predominantly FX driven. As we have said in previous quarters, we expect net debt to increase by the year end due to the return to normal seasonality which typically results in the unwinding of working capital and deferred income in the second half of the year, and use the previously communicated €4 billion of capital spend for the year. You've all seen in the headlines in the press surrounding UK pension schemes and the volatility in financial markets, so I thought it was just helpful to briefly comment on these and reassure you. So two weeks ago, the NAPS trustees put out a statement to their members about the current situation in relation to LDI portfolios. You can see the main points of this on the left-hand side of this slide. And the key message here is that NAPS has not been negatively affected by the recent market volatility following the UK government's mini-budget announcement at the end of last month. And therefore, no extra cash was required from the scheme to fund derivative positions. Actually, the overall funding position of NAHPS has improved in recent months as the liabilities have reduced in value by more than the value of assets. Moving on to the right-hand side of the chart, you can see that we have agreed a heads of terms agreement with the NAHPS trustees regarding the March 2021 tri-annual valuation. And we hope we can announce the final agreement before or at the year end. However, in connection with the 2018 evaluation, no deficit contributions are currently being paid due to the overfunding protection mechanism in place, and none or significant reduced payments are expected to be paid in relation to the 2021 valuation. So lastly for me, this slide shows our current fuel hedging position. As we have been showing you previously, we've continued to use the market forward pricing curve for jet fuel hedging. We currently have about 68% of our expected consumption hedged for the last quarter of the year. And we also have nearly half of our expected consumption in 2023 hedged. And finally, we've updated our estimates of our expected fuel bill for the year, given the current spot and forward curve prices for jet fuel and FX to 6.2 billion euros. So in conclusion, we're pleased that in the quarter, we substantially recovered our profits. All businesses were significantly profitable at the operating level with all our airlines reporting strong revenue metrics. We expect to be profitable in the last quarter of the year with an estimated approximately 1 billion euros profit, 1.1 billion euro profit for the full year. We are very aware of the consumer and economic uncertainties and continue to focus on both our cost efficiency initiatives that are supported by the IAG group and maintaining strong liquidity position which gives us optionality as we continue to be able to successfully finance our aircraft deliveries. I will now hand over to Luis, who will tell you more about our performance.

Thank you, Nicolas. I will now give you a brief update on the business and the outlook. The management team continues to be focused on transforming our business so that we emerge from the pandemic in a stronger competitive position and that we excel across all aspects of our business. First of all, we continue to significantly enhance our customer proposition. Last time, I talked about some of the major product initiatives going on, such as the rollout of the VA's Club Suite product, the pending introduction of Averia's new Business Club Suite, the refreshment of their catering offering and the move by BA and Iberia into American Airlines terminal at the JFK Airport New York, which is still on a schedule for December this year. On this slide, we show some of the initiatives taken by each of our airlines since then, such as the extension of BA's joint business with Qatar Airways from 18 to 60 countries worldwide, and the launch and resumption of new routes by Erlingus, BA and Vueling later this year and in 2023. BA has continued to make progress to restore operational resilience. Recruitment at Heathrow and Gatwick has been accelerating. BA has recruited another 2,000 people since we last spoke at the end of July for a total of around 6,000 ready to operate currently. BA expects to recruit another 4,000 up to April 2023 in order to prepare for the peak summer in the third quarter next year. Flight cancellation rates have reduced and on-time performance improved in the third quarter compared to the second quarter. But September itself was impacted by the hurricanes Fiona and Ian, French ATC strikes and the Queen's funeral. Since mid-September, there has been an improving trend in on-time performance into October. BA is working with Kirovo Airport on capacity planning and the passenger volume cap will be removed from the end of October. IAG loyalty is going from strength to strength in terms of customer relevance and contribution to the group as we emerge from the pandemic. Customer acquisition in the first nine months of this year has been more than in the whole of 2019. Avios issuance to non-air partners has continued to increase at well above 2019 levels. The co-brand relationship between British Airways and American Express continues to develop strongly. The relatively new relationship between Avios and Barclays is growing strongly, including the launch of the largest Avios promotion ever with the Barclays 100,000 Duo offer. Further, Avios collection opportunities have recently been launched, such as the Wine Flyer, a wholly owned wine retail and delivery business. In addition, BA Executive Club members can purchase Avios on subscription at significant price discounts. Further, partnership and program enhancement are expected to be announced during the rest of the year. I know that many of you have questions about where we are in terms of collective bargain agreements with each of our employee groups amid the cost of living pressures on households and what this could mean for our unit cost. Our people are central to our business. and they are key to delivering for our customers. The pandemic and high inflation have created pressures for both our people and our business. So there needs to be a balance between the benefits to our employees and the competitiveness of IAG's business over the long term. The competitiveness of our cost base is fundamental to our capital allocation process in determining where and how much to invest for growth. Each of our operating companies are in different stages of negotiation and reaching agreement with our various employee groups, as shown on this slide. With regard to sustainability and climate change, the global aviation industry achieved a historic milestone earlier this month. At its 41st assembly in Montreal, the International Civil Aviation Organization adopted a global target of net zero emissions by 2050. The significance of this is that both governments and the aviation industry worldwide are now committed to net zero emissions. As a result, I would expect much stronger policy initiatives, such as incentivizing the production of sustainable aviation fuels, which we expect to be the largest contributor to net zero. We are very proud to have led global aviation towards net zero emissions. IAG was the first airline worldwide to commit to this goal three years ago in 2019, which was then followed by the One World Alliance in 2020 and IATA in 2021. We were also the first European airline group to commit to uplift 10% of our total fuel as SAF by 2030. And we have now secured 25% of our 2030 target commitment and at competitive prices relative to jet fuel. And our main sub-purchase commitments are shown on this slide. In terms of our premium product demand, premium leisure continues to recover the strongest. VA's premium leisure revenue had recovered to over 85% of 2019 levels in the third quarter, while Iberia's premium leisure revenue has recovered to 120% of 2019 levels. BA's premium leisure revenue ticked up to 100% in the month of September, but some of this increase was a result of revenue loss due to the two-day strike by pilots in September of 2019. But data for the first three weeks of October shows that VA's premium leisure revenue continues its underlying recovery to 95% of 2019 levels. Premium leisure has fully recovered on most of VA's routes and has not been at 100% overall because of the lack of flying to Asia-Pacific. Premium business revenue continues to lack premium leisure for both BA and Iberia, but has made a silly progress. For BA, premium business revenue has recovered back to 60% of 2019 levels since May and was relatively flat in the third quarter. The boost to almost 80% in September is also partly explained by the pilot's strike three years ago, But the first three weeks of October indicates a recovery in VA's premium business revenue to around 75% of 2019 levels. For Iberia, premium business revenue has recovered to around 80% of 2019 levels in the quarter. We will expect the corporate travel recovery to continue in the fourth quarter, driven by pent-up demand, more people returning to the office, and the gradual reopening of Asia. Latest bookings for business channels for the group indicate a recovery of 70% by volume and 75% by revenue in business travel forward bookings. And on the subject of forward bookings, here is an update of the booking charts that we have been showing to demonstrate the recovery demand over the last two years. These graphs show forward bookings in terms of volume of bookings. Demand strength has generally increased since we last reported. Overall, forward bookings over the last five weeks have been running at a rate of around 90% of 2019 levels in volume terms and 100% in revenue terms, the difference reflecting higher pricing levels than three years ago. Spanish domestic remains the strongest at around 105% in volume terms and 115% in revenue terms. European short haul is also strong at 90% in terms of volume and 105% revenue. Long haul continues to lag at 85% volume and 95% revenue, but there are five percentage points higher than when we last reported at the end of July. A lot of the difference in long haul with 2019 reflects the closure of most of Asia-Pacific due to the COVID restrictions. However, we have recently opened for sales on Asia-Pacific routes, such as Hong Kong and Tokyo, so we will expect long-haul bookings overall to improve. On a like-for-like route basis, such as the North Atlantic, booking volumes are running at around 90% and revenue at around 100%. Our capacity plan for the fourth quarter is virtually unchanged at 87% of 2019's level, which implies an overall increase for 2022 of around 78%. For the fourth quarter, Boeing plans the most growth in capacity within the group to 115% of 2019's level, up from 103% in the third quarter. Level is recovering capacity, the least, at 50% in the fourth quarter, but this is purely due to the closure of the Paris and Vienna operations in 2020 and its focus only on Barcelona. British Airways will continue to lap the rest of the group at 80% in the fourth quarter, but up from 74% in the third quarter. For 2023, we are not yet disclosing our capacity plans for the year, but we will do it at some point early in the year. However, I can give you an outlook for the first quarter, which we expect to be a further recovery to around 95% of 2019's level. Finally, conclusions. This quarter has proven to be highly profitable and better than previous market expectations driven by a strong passenger demand. Liquidity remains very strong at 13.5 billion euros. Net debt remains at around 11 billion euros compared to the end of June, which was better than we had previously expected. However, we expect net debt to rise again by the end of the year due to the unwinding of working capital and the timing of CapEx. As I have just mentioned, forward bookings remain strong, especially in the leisure segment, including into the early part of 2023. We will not expect most bookings for 2023 to come until the first half of next year. However, we are well aware of the inflationary and recessionary concerns out there. So far, we have not seen any signs of weakness in booking behavior, but we will watch this closely. Our guidance for the full year 2022 is to generate a significant prepcessional operating profit of around 1.1 billion euros. We also expect operating cash flow to be significantly positive for a full year, which is the same as previous guidance. We are confident that we can return to pre-COVID levels of operating profit after fully restoring our networks and fleet over the next few years. And the reason we believe that we can return to pre-COVID levels of profit is that we have a proven business model and investment case as shown on this slide. We have a unique structure with six OPCO CEOs and five IAG senior managers meeting every week to share best practices and to make decisions in the best interest of the overall group. This has been a good opportunity during the pandemic. We have a portfolio of world-class brands, which diversifies our exposure to individual markets, countries, and customer segments. We can leverage our successful consolidation track record of our global leadership positions in Europe and on the North Atlantic and Latin America routes to take advantage of any dislocations in the sector in the aftermath of COVID-19. We have already a competitive cost structure, which we have improved further with restructuring across the group and are continuing with our transformation program. And we can draw on our innovation capabilities, which will be critical as demand recovers and competition intensifies coming out of the crisis. And finally, as I have already discussed, we are a leader of the global aviation industry's sustainability agenda. And now we are ready to take your questions.