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.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone and wait for your name to be announced. To ensure everyone has the opportunity to ask a question today, please limit yourself to just two questions. Please also ensure that you are close to your microphone and not on loudspeaker. This will help with ensuring that our audio is clear and your question is understood. Thank you. We will now take the first question. One moment, please. And it comes from the line of from UBS. Please go ahead. Your line is open.

Good morning, everyone. Just coming back to the pension, you know, the deficit reduction scheme was over 400 million, if memory serves me correct, and you're now saying it's probably, you know, not going to happen. Can we assume that the NAPS pension value is now in surplus or at least flat based on that commentary? I know you haven't given out a number just yet. And then just kind of thinking a bit about next year, you know, you're kicking off with 95% capacity for Q1, assuming some form of ramp up during the course of the year. You know, maybe we get back towards or even maybe more than 100% capacity. How should we think about ex-fuel unit costs against you know, the current inflationary background. Should we expect versus 19, you know, below in line or above 19? Thanks very much.

Hi, Jared. Hi, it's Nicholas here. Just answering the pension, we haven't quite stopped signing the agreement yet with the pension trustees. We can't disclose where we are at the moment. But you'd imagine that back in March 2021, you were still in deficit from a training review point of view. But since then, you've seen kind of discount rates increase, which has reduced our liabilities quite significantly over that period of time. So that's why we've got kind of confidence. You know, we do a kind of a technical test every month to see where we are with the trustees and that currently is showing that in terms of the trigger points we don't have to make any payments and currently all vastly reduced payments anyway so that's why we're confident but we'll give you more detail of that as we get to when we when we actually sign agreements and get to the year end but that's that's in line with many pension funds that you see across the UK as as well Just in terms of kind of unit costs, ex-fuel unit costs overall. So I guess, you know, as I mentioned in the quarter, we've seen kind of costs go up. One, due to FX by about a third. Two, it's gone up by about a third due to volumes. And then a third has been to kind of one-offs and kind of investments we've made in inflation overall. So it's split into those sort of areas. So hopefully the FX might move in our favour for once, one time. So you're expecting for Q4, we're expecting kind of a non-seal cap to kind of go up by around about kind of 16%, 18% overall, so lower than it has done in the previous quarters. I think we think of kind of cost base in a number of – in kind of two chunks. One is in terms of employment, where if you go back a few years, we were – kind of hopeful to get actually cost reduction in employment unit costs. And I think with the kind of productivity measures, we'll still make good progress there. But I think with the kind of inflation that you're seeing in the kind of employment, I think, you know, you'll see a unit cost be much closer to being flat going forward overall. And then in supplier costs, you know, like everyone else, you're seeing in the market right now, everyone's seeing around 9%, 10% inflation going forward. We hope that softens into next year, and we're doing all we can to offset that with our kind of initiatives we've got, but that's the kind of headwinds that you're facing into overall.

Okay. Thanks very much.

Thank you. We will now take the next question. One moment. And it comes from the line of Savi from Raymond James. Please go ahead. Your line is open.

Hey, good morning. Thank you. A few questions. First, many U.S. airlines have been observing kind of a slight lessening in the off-peak travel patterns, be it day of week or even day of month, and prescribing it to potentially kind of the benefits of working anywhere. And I was curious if you're seeing similar trends along those lines. And then in terms of, you know, on the demand side, I was wondering if you're, you know, what the impact of the stronger dollar has been. I think, you know, some of your competitors have talked about point of sale strength on the transatlantic being really strong from the U.S. I was curious if you're seeing any changes in terms of kind of the European point of sale, perhaps kind of trips being diverted to short haul or are those now long haul markets where the currency inflation is not as high? Thank you.

About the first question, the trends that we see and if we see any change in the behavior of the customer. We are still analyzing what's going to be the behavior of the customer after COVID, but what we see is a very, very strong premium leisure trend. And also we see that there are a lot of people that they are blending trips for leisure and business. Once a lot of companies, they allow the people to work from different places. So it is true that some of the big days that we have in the past, like maybe Mondays and Fridays, now they are in some way more distributed. But I think it's too early to say what's going to be the big failure of the customer. About the second question about the dollars, we have a very balanced, in some way, in the different point of sales. For the time being, we don't see any improvement in the point of sale with the US, but we are working hard in order to increase the revenues that we have in North America. Maybe, Sean, you can expand on that.

I think just another point on that is we haven't seen any real dip down in UK point of sale. In fact, that's been very strong and continues to perform well. In Europe, point of sale has performed well. and you had put the point of sale has been very robust. So I think the exchange rate movements aren't really having an impact on the mix of traffic that we typically generate. I think all the segments out of all the points of sale at the minute are resilient and performing consistently.

That's helpful, thank you.

Thank you. We will now take the next question. One moment. And the next question comes from the line of Alex Irving from Bernstein. Please go ahead. Your line is open.

Hi. Good morning, and congratulations on a successful quarter. My first question is on fleet capex and net debt. So we've seen a reduction in net debt in the first nine months of the year. Can you please help us understand in a bit more detail how that evolved into year-end deliveries that you're taking during H2? And I need to hear on next year's deliveries and capex would also be appreciated. Second and related, how are you thinking about the pace of the leveraging that we put the pandemic behind us? Are you quite content to achieve this through organic free cash flow? Or would there be any reason you would choose to accelerate this, possibly with equity? Thank you.

So just picking up those kind of individually. So just in terms of our net debt. So we've seen a reduction in our net debt from $11.6 billion. at the start of the year down to 11.1 billion, so good progress there. We normally have working capital outflow in the second quarter of the year, so we did have outflow in this quarter, and you tend to have roughly about a billion probably outflow, one to one and a half billion outflow in the last quarter of the year if that trend continues overall. In terms of our capex so far, we spent about 2.9, nearly 3 billion of the capex, and we gave guidance of 4 billion overall for the full year, which is why with those two together, you expect the net debt to increase. But I think given the progress we've made so far, it'll be probably less than where consensus is sitting at the moment, which I think is about 13, just over 13 billion overall. Just in terms of kind of fleet capex, looking into... Next year, we kind of said at the half year that actually what we're trying to do is get our fleet back to 2019 levels at the moment. So we'll continue, I think, about 25, 26 planes being delivered into next year as well overall. So you'd expect the same sort of level of CapEx that we've had this year. Your deleveraging question, yes, we're very focused. It's a key priority for us both in deleveraging, both from a kind of ratio point of view, and a percentage point of view, and a quantum point of view as well. So, and what the kind of guidance we've kind of given is actually over the next couple of years, because of the level of CapEx, that you won't see deleveraging, but we will maintain our high liquidity position. And because of the high liquidity position, we've got no intention of accelerating through an equity race.

Very clear. Thank you.

Thank you. We will now take the next question. One moment, please. And the next question comes from James Hollings from BMP Paribas. Please go ahead. Your line is open.

Yeah, morning. First one, Nicholas, if you could just give me as much detail as you're willing, please, on a question related, A, to how much of your lease rates are fixed to be floating. I think they're all fixed, but that's an easy one. And then the detail, please, on your U.S. dollar. hedging for op leases as well as U.S. dollar hedging on CapEx. And the second one, just following on from Jared's question, just for absolute clarity, the pension contributions, I think you've delayed a decent chunk of cash contributions because of COVID. Am I right in thinking I should just take them out of the model? That's just, you know, cash which you've now saved, which would have been going out, I assume. We just now take that out of the models and there's basically zero cash we should be modeling. for the pensions.

Thank you. So just in terms of pension, yeah, I think that's probably the right thing. We're given guidance that just where liabilities are and assets, liabilities have reduced more than assets. So you're right to probably reduce that to zero going forward at the moment. But keep an eye on where kind of UK pension funds are overall. Just in terms of kind of leases on... Yes, you're right. All of our leases are on fixed rates going forwards. And just kind of out of interest, all of our debt's about 75% fixed as well. Just in terms of hedging on CapEx. We tend to kind of – I guess we look at – you've got the capex, which most of it comes in dollars, but actually we fund most of that in dollars as well. So you've got a kind of natural offset with those as well. But we tend to kind of hedge kind of around about 40% of our kind of future capex as well, both from a lease and a fixed lease and a finance lease point of view as well. Okay.

Okay, thanks. We found the one benefit of COVID is the pensions. Okay, thank you.

Thank you. We will now take the next question. And it comes from the line of Stephen for along from David. Please go ahead, your line is open.

Right, morning. Quick question on... I mean, back in 2019, pre-COVID, the company had given targets of operating margin returns and leverage and, you know, that it's something which other airlines have or still have and have given both on the North Atlantic and both in the U.S. and Europe. So is that something that's contemplated and when? And the second question may be just, can you just talk about the cargo market? Are you seeing any... How do you see the development of the cargo market? Obviously, capacity is going to come back in that market next year in terms of the bellies. Maybe there's some weakness from higher levels in that market.

Thank you. So I think the first question, we are very confident that we are going to come back to the profitability levels of around between 12% and 15% that we had previously before COVID-19. So, in absolute terms, an EBITDA of around 3 billion euros. That is what we achieved in 2017-2019. It's true that we have a very inflationary environment, and we need to see when we are going to arrive to that level. But we are very confident that we are in the right way, and these results in the third quarter support our goals. our thoughts about this. About cargo, demand is beginning to soften and world trade has begun to lose momentum in the second half of 2022. Yields are still high, but we see that capacity is reducing. So it is true also that we are flying more passengers, so the space for cargo that we have is reduced in some way because we were doing a lot of cargo only flights during the pandemic. And also during the pandemic, we choose where to fly. So we could fly, for example, to Asia destinations that we are not flying now with passengers. So we consider deals are going to continue high, but as I said, capacity is going to be reduced.

Very clear. Thank you.

Thank you. We will now take the next question. And it comes from the line of Jamie from Deutsche Bank. Please go ahead. Your line is open.

Morning, gentlemen. Two from me. Can you talk a bit about the sustainability of the current strong yield environment? At least one of your peers is suggesting 20% plus yields might carry on into Q4. In saying you've got booked volumes at 90% of pre-crisis and revenues at 100%, I think that implies a more modest 10% in terms of yield versus pre-crisis. So any comment there, please? And then secondly, when it comes to CAPEX, both taking delivery of new aircraft and upgrading cabins, is that happening on time or is it slipping to the right? And if so, How much of an impact is this having on your plans? Thank you.

Just picking up that last question, I guess our plans, we had quite cautious plans already in terms of delivery of aircraft already. So actually for us, it's actually happening pretty much on time. I think in terms of the refurbishing cabins, again, it's in our plans as well. You're right, we'd probably like to go faster on refurbishing cabins, but the supply chain at the moment is kind of holding us back on that. But I think we're making good progress. Sean, if you want to comment on that. Yeah.

At the minute, by the end of October, about 48% of our Heathrow long-haul flights will have the new Club World suite. We'd expect to get that up to 56%. And... you know, we'd be hitting towards 90% by the time we get to the end of 24 in terms of the Clubworth tweet embodiment. There has been pressure on some of the supply chains this year on some of the retrofits, but broadly speaking, we're kind of in the certain range of projection we gave in terms of embodiment.

Okay, and about your question about yields, I think when you say the results of the third quarter yields in long haul, around 30% higher than the yields that we had in 2019, and in the short haul, in the range of 15%. So what we see for the last quarter is a similar trend with a rush improvement similar to the rush improvement that we had previously in this third quarter.

I guess we're just not giving guidance until next year because we're just kind of conscious of the uncertainty with the consumer out there. So it's still looking positive at the moment, but we're just giving caution on that.

Okay, thank you.

Thank you. We will now take the next question. And it comes from the line of Satish Sivakumar from Citi. Please go ahead. Your line is open.

Thank you. I've got two questions. So first on business channel booking. So on slide three, you said that it has recovered back to 70% by volumes and 75% by revenues, implying a 5% yield versus 2019. And if you come back to the peers, they have actually said something around 15%. on yield. Can you actually help to understand why are you not seeing a similar strength to your peers on the business channel? And the second one is around the performance of BA holidays, like in Q3, what did you see on profitability margins and so on? And also on the holiday product, you do get a slightly longer booking windows. Any color on booking trends into 2023 on BA holidays would be helpful. Thank you.

About the first question, in the third quarter, what we said is the business channel was around 70% in volume and revenues around 75%. And if we look at BA... that in premium, in the third quarter revenues, they were 60%. We have seen that in October, the revenues of business passengers in premium, they reached 75%. How do you compare that with others? We need to take into consideration that we are not still flying to some places like Asia, Pacific. We will start in November. And also we need to take into consideration also the different configuration we have now in the aircraft after the retirement of the 747s in BA and also the 34600 in Iberia. So in general, the trend is positive. For example, if we compare October with the end of July, we see an increase higher than 10 points in volume and higher than 5 points in revenue.

In relation to BA Holidays, as shown here from BA, BA Holidays will have a record year this year, so it will break the billion pounds in terms of turnover. It's a 6% margin business, so that, again, is quite robust. And I think forward bookings are encouraging in terms of holiday intakes as we look into next year, albeit that we really have got to get into the kind of sale period in December, January for a clear view of what the summer is holding. But very strong demand for the Caribbean. And, of course, we've added a couple of new destinations into next year in the form of Guyana and Aruba. And, again, we're very encouraged by the early bookings of those new additions to the network.

Thank you.

Thank you. We will now take the next question. And it's from the line of Miniba Kayani from Bank of America. Please go ahead. Your line is open.

Good morning. So my first question is what's your expectation for overall kind of industry supply next year? Do you think there'll be issues around aircraft delays or airports or ATC continuing, or do you see a kind of ramp up similar to what you're indicating for your first quarter capacity for the overall industry as well? And then secondly, I just wanted to go back to the question earlier that Jamie had asked on forward bookings. And you said, if I understood you correctly, that RASC in fourth quarter is similar to the third quarter. So then how do I square that up with volumes of 90% in revenue of 100, implying 10% on unit revenues? Thank you.

I think that's the first question. Nidhi, I think... We are going to come back, the major part of the airlines, to capacities similar to the capacities we had in 2019. Because of that, I think we are going to come back to some problems of the past, like the ATC problems. I think we are improving in the different airports, but still there is a challenge that the airport can have enough resources for the capacity we are planning. So that's our concern, for example, in the Heathrow Airport. We accept that we are not going to have a cap anymore, but we also hope that the airport is going to have the resources necessary for the capacity that we want to fly. We could have some delays in the delivery of aircraft. But in principle, the capacity that we are proposing is assured if we see the demand there with the aircraft that we have now in the plan. And about the forward bookings, what we said before is that the rush improvement compared to 2019 in the last quarter was going to be similar to the rush improvement that we had in the third quarter. So I think we are not talking about absolute balance.

I think it's the shape of the pricing curves as well. You can take into account where we are in that quarter.

Thank you. We will now take the next question. And it comes from the line of Harry Gowers from JP Morgan. Please go ahead. Your line is open.

Yeah, morning all. Thanks for taking the time. I've got two quick questions. I mean, first one, Maybe if you could just give some color on the North Atlantic market right now, clearly demand is strong. So how are you seeing the competitive dynamics there? Is there any risk that carriers ramp up capacity there too quickly going into 23? And second one, you've just started taking bookings on those Asian routes resuming in November. Is the pent-up demand there very strong given the length of time that those routes have been out of action and yields are looking good? or is demand relatively sensitive to come back? Thank you.

Okay. So the first question, in North Atlantic, still the number of seats that we have are lower than the number of seats that we had in 2019. It's true that the premium seats are below around 1%, and the non-premium seats around 5%. So because of that, the behavior of the passenger rush is good, and you can compare also the behavior that we are having with other U.S. carriers. But as I said before, we need to take into consideration the number of premium seats that we have now in that market after we retire the 747. But in general, good behavior in North Atlantic. We hope it's going to continue. I don't know, Sean, if you want to add.

Yeah, I agree. I think the bookings have been very robust. And if we look at the performance by cabin, it's very encouraging. But as Luis pointed out, we do have a bit of a mix change because of the reduction in premium seats per aircraft that we now fly compared to what we flew in 2019. But I think that the demand is increasing. you know, trending, as we said, ahead of the supply at the minute, and that looks like it's carrying on consistently in the intake trends.

What do you say, Nathan?

AJ, yes, we're very encouraged by the bookings we see on Hong Kong and Anita. Anita starts in mid-November and Hong Kong follows in December. What's helping, of course, is the changes in the kind of procedures to enter Hong Kong with the move to a three-day kind of home-based... self-testing rather than a hotel quarantine, and that's certainly having a big improvement in the amount of people travelling to Hong Kong. We've got the final summit as well coming up, which is another kind of demonstration of confidence that Hong Kong is open for business. So I think we're very encouraged by the early intake since we confirmed the restart dates.

Thanks very much, and well done on the results.

Thank you. We will now take the last question of the day. And it comes from . Please go ahead. Your line is open.

Good morning, everyone. Two for me if I can. Firstly, on capacity for 2023, I know you're reluctant to give a number, but I was just wondering whether you could give us an indication of how much flexibility you have in both fleet and staff in terms of whether that's an up or a lower limit in 2019 and whether it's a range in terms of whether you've got a 10% range or 15% range in terms of the high to low. And secondly, you talked a lot about the strength and premium leisure. I was wondering whether you could share with us any sort of demographic of what sort of people and what, you know, what income levels they have in terms of who's actually driving this premium leisure surge and, you know, how economically sensitive or insensitive they might be.

Yeah, so just in terms of the capacity for 2023, you're right. We're kind of at the moment. We're not going to give guidance going forward. I think in terms of, as we said on one of the slides earlier, that we're on good track to get our teams up to full complement to be able to fly. And in terms of our aircraft coming in, deliveries we've got this year and next year, will give us a lot of the ability to get up to kind of full complement. So it's really about the flying east opening up. and that we're not trying to put all the capacity there going forwards. And I guess seeing the business to business channels kind of coming back even a bit stronger, coming back to where they were historically overall.

Demographic, I think what we have seen is BA has a more mature demographic and our demographic, you know, for people both booking in leisure and business tend to have a high level of loyalty penetration But that's carried on. We haven't seen a major shift in demographics. I think the spread of demographic in terms of people who are booking today versus 19 is quite similar. But, you know, our demographic is more mature than you would see maybe in other competitors. And I think that is probably an advantage in terms of, you know, consumer spending resilience that we would see and look to exploit.

Thank you. We have one last question, and it comes from the line of Achal Kumar from HSBC. Please go ahead. Your line is open. Achal Kumar, HSBC.

Am I audible? Can you hear me?

Yes, we can hear you.

Am I audible? Yes. Okay, perfect. Thanks. Good morning, gentlemen. So two for me, please. First of all, on the yield, just could you please break up the yield strength a bit? So basically, one of your peers has given a lot of credit to the capacity squeeze, to the right capacity, and that is helping the yield strength. Is that the case, you think? or do you think it's more because of the recovery in the premium demand, business travel? So if you could give us a bit of a breakup of the yield strength, where it's coming from. And secondly, I'm not sure if you can give us some update on Air Europa, and if that goes through, could that prompt a right issue or something? I mean, anything on your balance sheet, that would be helpful. Thank you so much.

I think about the first question about the yield. It's true that some of our main market capacity is lower than the capacity that we had in 2019. And for sure, this is helping the yield behavior. But it's true also that the demand we are having is very strong. and that's the reason we see an improvement in the unit revenue and the yields in the level that I told you before in the long haul and in the short haul. So I think at the end, supply and demand is what is determining the yield. But in other regions, like intra-European, Where we have, for example, welling with capacity above the level that we have in 2019, we see also the improvement in yields that we see in other regions. So I think it's a combination of factors, but it's not only related to the capacity. And about Europa, we are still considering next steps in the operation. You know that we have 20% of Europa now, and the ambition is to try to have 100% of the company, but this is subject, first of all, to an agreement with Globalia, and after that, for sure, we need... to go to the approval of the competition authorities, and that's a process that can take minimum one year. So that's the situation that we have right now, and for the time being, we are not considering any right issue today.

Okay. Thank you, and good luck.

Thank you. There are no further questions at this time. I would like to hand back over to the speakers for final remarks.

Thank you very much, everybody. I think we have presented strong results for the third quarter, and we are optimistic about the future, understanding that the situation that we have in the world that, as you know, It's complex, but we are confident we can deliver the results that we had previous to COVID. Thank you very much, everybody.