International Consolidated Airlines Group S.A.

Good morning, everyone, and welcome to the IAG 2023 Third Quarter Update. Today, as usual, I have the rest of the Management Committee here with me, as well as the Investor Relations Team. This has been another strong quarterly performance for IAG. We have delivered a record operating profit for the third quarter of 1,745 million euros. Sustained demand across our network has driven significant positive revenue performance across all our airlines. The very good unit revenue trend from earlier this year has continued this quarter, up 25% compared to Q3 2019 and up 2.2% against a very strong third quarter in 2022. As we have said throughout the year, While leisure has been good, corporate demand continues to recover more slowly, particularly at British Airways, although this is less relevant for the third quarter. And cost performance was good. Non-fuel cash was 3.5% better than Q3 2022, including the negative impact of disruption. So as a result, we have delivered a group operating profit margin of over 20%, including very strong margin performance at Aer Lingus and at our Spanish Airlines. The other main development in the quarter was that we took the opportunity to reduce our gross debt, repaying early the expensive £2 billion UKF loan that we have had to take out during COVID. As a consequence of this, we are pleased that S&P has upgraded both IAG and British Airways to investment grade. And overall, our continued strong performance means that we remain on track to deliver a year of a strong recovery in 2023 in terms of operating profit, margins, and in particular, our balance sheet. And with that, I will pass it on to Nicolas.

Thank you, Luis. And good morning, everybody. I'll start with the profit bridge for quarter three, highlighting both the drivers of the improvement in profit since the last year and then the results by each operating company. On the left, you can see that the increase in revenue has been the biggest driver, combining the increase in capacity with strong unit revenue growth. This was slightly offset by cargo revenue, where yields are still around 20% above the 2019 level, but a significant supply and demand imbalance remains across the freight market, which is reducing year-on-year profitability. Other revenue offset the declining cargo revenue with good performances in our loyalty, MRO, and our BA holiday businesses. None fuel and fuel costs reflected the higher level of flying activity. And you can see on the right that all of our airlines have significantly improved their profit year on year, which I will come back to later. This slide shows the key operational and finance metrics for the third quarter. And at the bottom of each box is the Q3 variants versus 2022. The 18% increase in group ASKs compared to Q3 2022 was driven by a recovery in all airlines, except for Vueling, where capacity was held broadly flat year on year as the company is making progress towards a sustainable labour agreement with its pilots unions, but has not yet reached an agreement. Total capacity for the group compared to 2019 is around 96%. Passenger RASC was up 2.2% year-on-year in Q3, building on the strong demand we saw last summer. Fuel CASC was down 6.2% year-on-year, driven by lower commodity prices, partially offset by hedging benefits last year. Non-fuel CASC for the third quarter was down 3.5% year-on-year. This included about a percentage point of impact from higher disruption costs across the business, such as the UK NAT system outage in August, with the majority of these costs in British Airways. We've reiterated our guidance for the year of a reduction of between 6% and 10% compared to 2022 for our non-fuel cask. And after taking into account the cost of disruption, we will be towards the lower end of this range. As a result of these revenue and cost metrics, we've delivered a record operating profit of 1.7 billion euros and a margin of over 20% in Q3. Our net debt has reduced 2.4 billion euros since the start of the year and our leverage dropped to 1.4 times, which is significantly lower than this time last year. Moving on to the summary of our operating units for the third quarter, you can see that all of our businesses have performed well. with all operating units reporting improved profit year on year. Aer Lingus, on the left, had good capacity and rate growth, especially in North America, helping improve both its profit and margins compared to last year, and a margin of 25.5% ahead of the third quarter of 2019. British Airways profits increased 205 million year on year to 617 million euros, with a margin of 15.3%. Whilst its unit revenue was broadly flat year on year, its capacity growth was the highest among our airlines with good growth across the Atlantic and the recovery of capacity to the Far East to 50% of 2019. This in turn drove significant unit cost benefits. Iberia has built on the exceptional and record profit in the first half with another record profit in the third quarter. A significant capacity increase coupled with a strong increase in unit revenue and a reduction in unit costs saw Iberia deliver another record and largest operating margin increase in all our airlines to 23.1% margin, and profits increased 194 million euros to 449 million. Vueling's capacity was slightly down compared to last year, although a strong unit revenue performance drove increased profit and a margin to 26.1%. And lastly, but certainly not least, our loyalty business saw significant growth in revenue and profits. While its high margin declined slightly year on year, this is by design as we invest to increase the attractiveness of our offering in order to drive higher engagement and higher profits in the future. Turning to recent trading, this slide shows the Q3 capacity and PRAS growth across all our regions compared to 2022. Despite a strong summer performance last year when PRAS increased 22% on 2019, P-RASC increased again year on year in most of the regions we operate to, and in most case, on the back of significant increases in capacity as well. In North America, this performance largely reflects British Airways, given its weight on its destination, with the P-RASC mainly driven by improvements in load factor. There was also particularly strong performance from both Iberia and Level. In South America, we saw positive P-RASC growth on a 24% increase in capacity, with the performance of Brazil a highlight. Europe saw particularly strong PRAS growth, with BA, Iberia and Vueling performing well. And by country, Italy, France, Germany and Greece were standout performers. As mentioned previously, we are recovering our capacity to the Far East from a low base. Our balance sheet continues to strengthen. As I mentioned to you last quarter, we started to focus on reducing our gross debt. I'm particularly pleased that we've reduced our gross debt by almost 2.4 billion compared to the end of Q2 and by 3 billion since this time last year. This has been driven by the early repayment of the British Airways 2 billion UK export fund back loan that was fully repaid in September and through the payment of the IAG 500 million euro unsecured bond that matured in July. The UKEF-backed loan had a floating rate of interest significantly higher than the interest rates we received on our cash, so the early repayment will bring down our net finance costs materially. As part of the UKEF repayment, British Airways also secured access to an additional £1 billion facility, which runs until 2028. This, together with maintaining our cash balance year-on-year at €9 billion despite the debt repayment, means our liquidity remains very high at around €13 billion. This gives us great flexibility to invest with confidence and look for further liability management opportunities in the near future. Leverage has also fallen slightly to 1.4 times compared to 1.6 times at the end of Q2, driven by the improved operating performance. This deleveraging contributes to both IAG and British Airways regaining their investment grain credit rating with S&P in September, which is another sign of the group's returning strength. As we've noted here in the slide, we continue to expect historic seasonal working capital trends to increase net debt by the year end, but to level significantly below the £10.4 billion we report at the end of 2022. We typically only show you this slide of the maturity of our debt at the full year and the half year. However, given the pay down of the gross debt by BA and the payment of IAG of the bond, we thought it would be useful to show you an updated version of this slide. As you can see, we now have a very manageable debt repayment schedule from 2025 out to 2029 and have removed the spike that we had in 2026. We also have very little maturing debt to repay next year. Moving on to our fuel hedging position, we are a little over 73% hedged for the fourth quarter and for Q1 next year. Once again, fuel has been volatile during the last quarter, with the price of jet fuel coming close to year-to-year highs in September. The USD dollar has also strengthened since the last time we presented results. Given we are close to the end of the year, we haven't given you a sensitivity as we've done in the past few quarters. Instead, based on recent forward jet fuel and spot foreign exchange rate, we expect fuel in the full years 2023 to be approximately 7.6 billion euros. And the last slide just shows, for me, it just shows our results down to net profit after tax, including the operating profit of 3 billion in the nine months to date. I just wanted to draw your attention to the fact that due to the rise in interest rates, we are now starting to generate higher income on our cash balance that you can see circled here. Finance income in the nine months of this year was €285 million, offsetting roughly a third of our finance costs. Of this, finance income in the quarter was €118 million. On that note, I will now pass you back to Lewis.

Thank you, Nicolas. I will now spend a few minutes highlighting some of the key points relating to each of our main operating companies. Starting with Erlingus, who saw particularly strong demand in premium cabins across the Atlantic with record low factors in the business cabin. They are naturally targeting the U.S. market with their network development, reopening Hartford and starting a new route to Cleveland this year. And for the next year, they have announced a new route to Denver and are reopening Minneapolis. Operationally, they are experiencing many of the same ATC issues that UK-based airlines are, which is affecting their on-time performance. Moving on to British Airways, they too saw good North Atlantic demand, particularly in the premium leisure segment. Naturally, for the third quarter, Mediterranean routes were also very strong, and Euroflyer continues to grow its network. BA's network plans focus on efficient expansion through frequencies and goads. And they announced last week that they are returning to Abu Dhabi next year. British Airways investing in stabilizing operations over the summer and made some progress. But the operating environment was consistently challenging, and as Nicolas has highlighted, the NAS system failure in late August was a particular pain point. Next, Iberia is seeing a strong demand across all of its network, and its corporate demand is much closer to getting back to pre-COVID levels. The Latin American network is seeing particularly good performance, where Iberia is using its newer aircraft to serve those markets more efficiently through better aircraft utilization. Iberia has also maintained its high on-time performance and continues to be one of the world's most puntual airlines. Moving on to Welling, it continues to see very good results from its strategic move to drive ancillary revenues and higher load factors, whilst capacity growth over the summer was more constrained. They have also benefited from lots of work over the past few years to improve operational performance, and OTP improved by 8 percentage points compared to Q3 2019. And overall, they have delivered a very good result in the quarter. And finally, IAG loyalty continues to grow well, with a record quarter for Avios issued and redeemed, and 1.3 million customers joining IAG programs, another record for us. Their investment in the customer now includes the release of further Avios-only flights, as well as the addition of Finnair's loyalty scheme to the business. Moving on to our outlook. We expect our capacity for the full year to be at 96% of 2019 levels, slightly lower than previously guide due to cancellation earlier this year. Our customer bookings for the fourth quarter are as expected and are currently around 75% of expected passenger revenue. This is typical for this time of the year. We remain particularly mindful of the wider uncertainties that could impact our customers, including macroeconomic and geopolitical challenges, such as the conflict in the Middle East. As Nicolas has already mentioned, our non-fuel unit cost guidance remains the same of an improvement of 6% to 10% compared to last year, albeit all at the lower end of the range due to the impact of the disruption. At the current fuel prices and exchange rate, and taking into account the 73% of hedging we currently have in place, the total fuel cost for the year would be 6.6 billion euros. And we expect to generate positive sustainable free cash flow this year and for the year end net debt position to reflect the usual seasonal patterns for the fourth quarter. So, in summary, this has been a very good quarter, with a strong demand and improving revenue trends across all of our operating units, delivering a record operating profit for IAG. Our strong cash generation has allowed us to continue to deliver, and we took the opportunity to repay £2 billion of expensive debt early, and we have now achieved investment-grade status with S&P. Overall, we therefore expect that the full year will see a strong recovery in operating profits, margins, and our financial strength. We look forward to welcoming you to our Capital Markets Day in a few weeks, where we will present IEG's strategy and objectives to deliver strong margins and returns for the medium and long term. And now, we are open the call to questions.