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.

Thank you, sir. As a reminder to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, it's star 1 and 1 for any questions or comments and wait for your name to be announced. To ensure everyone has the opportunity to ask questions today, please limit yourself to just two questions. Please also ensure that you are very close to your microphone and not on loudspeaker. This will help with ensuring that your audio is clear and your question is understood. Thank you. We are now going to proceed with our first question. And the questions come from the line of Satish Sivakumar from Citi. Please ask your question.

Satish Sivakumar Yeah, thank you. This is Satish here. I've got two questions. So firstly, around the disruption cost in order Yeah, if you could give any color or directional data versus, say, last year, given the UK NADS impact that we had, if you could share any color on the disruption cost, that would be super helpful. And the second one is around the BA holidays. And how does the booking flow look like into the next March or into Easter, actually? And how does that compare versus, say, last year? Yeah, thank you.

So we just said it impacted our non-fueled casks by about 1% year-on-year. If you do the maths on that, that's about a 50 million euro increase year-on-year revolve around that. As you know, it was quite a tough time operationally, particularly in terms of the growth overall, both internally and externally, and NAPS was part of that as well. We're not quoting the specific NAPS number, what the impact was, but it was a significant part of that. And the BA holidays. I couldn't quite get the question on BA holidays. Is that about forward bookings on trends?

Yes, I think B&H continues to book probably in line with the capacity plans we have next year, so I think the robustness we saw this year, certainly in the early stages of the booking curve, is consistent with what we're seeing next year. That said, we get into our sale periods as we get into Christmas and the New Year, and that's when you get the bulk of the bookings for 24 come in.

In the UK, the majority of it comes in Q1 of the bookings, so that's when we're already there.

That increase is actually from BA, not from the other sister airlines, yeah.

BA holidays is mainly from BA.

No, sorry, on the disruption cost, the $50 million increase year-on-year is mainly from BA, right?

The majority of it was from British Airways, but not only, yeah.

Okay, got it. Yeah, thank you.

we are now going to proceed with our next question and the questions come from the land of james hollins from bnp paribas please ask your question many thanks good morning uh two please just on business travel uh i don't know if i missed it maybe we could put a number on ba volumes i think you had talked about 61 um last time we spoke maybe how that's tracking into the even more important period in october And then secondly, I suspect you're going to say wait for the customer because they're wondering if you could guide or give any thoughts on 2024 capacity year-on-year currently, those thoughts related to delivery schedules, maintenance, et cetera. So any call would be great. Thank you.

Okay. So about business travel, as we said, it's taking more time to recover. In the first quarter, we were in 65% of volume if we compare with 2020. 2019 and 74% in revenues. The second quarter, 60% in volumes and 69% in revenues. And the Q3, the volume was 64% of 2019 and revenues 74%. As we have said, we see a correlation between the business travel and the people returning to the office. There is also a difference in the rate of recovery between the different types of business trips and between regions. For example, the long-haul business trips of over two days have recovered faster than the recovery of so-called trips and overnight stays. All this has been offset by a stronger leisure. And the recent trends show that business agencies' bookings in the last five weeks are for IAE 69% in volume and 78% in revenue. As I said, we have different rates across all our airlines. For example, in the last weeks, BA is around 64% in volume and 75% in revenue. Iberia, 86% in volume and 96% in revenue. And Erlingus, close to 60% in volume and 72% in revenue. But in any case, we are pleased to see that, as we said at the time of the Q2 results, business volume for VA has increased circa 10 points from the levels that we saw at the end of July.

The second question was about capacity for 2024.

Okay, so we expect this year, as we said, capacity to be around 96% of 2019 level. We are going to, all of the airlines of the group, except BA, will finish the year above 100% of the 2019 level. The main reason is BA retired during the COVID 747 fleet. Because of that, the long haul capacity will only reach 2019 levels by 2025. And it's going to take even more time for the business class capacity that they will reach 2019 levels around 2026. So, I don't know, do you want to add more color to that?

Yeah, no, I think... You know, our business class capacity would be down about 11% this year. We think it will then moderate back to 2019 levels by about 2026 when we start taking delivery of 799Xs. The other effect, I suppose, which is affecting ASKs as we report them is we're doing less Asia flying, and that means we're flying shorter sectors. So we also have a gauge like change because of the mix of traffic, less Asia and more Middle East and North Atlantic.

But overall for next year, we expect to be 100% capacity, if not a little bit higher, but we'll give you a bit more detail on that later.

All right, good data. Thanks very much.

We are now going to proceed with our next question. And the questions come from the line of Savi Seed from Raymond James. Please ask your question.

Hey, good morning. Thank you. Could you talk a little bit more about some of the mitigation measures you're making with the GTF issues and actually just more broadly what you're seeing on the maintenance cost side and how you're thinking about the magnitude of the headwind that can be in 2024? And then just also for my second question, just as you think about the business trends, just following up on the business commentary before, Is there anything about kind of being Aerolingus' network that means that they can't get to what you're seeing at Iberia? Or is it just more of a, you think Iberia is more of a kind of leading indicator here?

Okay, the first question, the EDF issues, We have been working with Prat & Whitney to identify the engines that are affected. We have 32 aircraft affected, 29 in Bueling and 3 in Iberia. But for us, this is less than 10% of our fleet that is over 360, 320 in the short haul. So this is going to have an impact for us, for sure. We are working with Pratt & Whitney in order to reduce the effect that we are going to have in our case. The big impact is going to be in winter season of 2024. So it's not so relevant as for other airlines that they have the same type of engine. Maybe, well, there'll be another.

Yeah, I think... Historically, corporate and business traffic is a higher percentage of traffic we have across the North Atlantic than you would see maybe across the South Atlantic or Asia Pacific and the rest of the world. So with BAs waiting towards that market, I think that probably explains the slower recovery to an extent compared to what we see at Iberia. So I think that's one factor. I think, secondly, what we are seeing probably more out of London is probably a decline in day trips That's beginning to recover, but that's something we see across the short-haul network in terms of people traveling out and back on the same day. That's a sector which is sore to recover.

Clarification on the maintenance. Beyond GTF, do you see headwinds with some of the supply chain issues from a cost perspective into 2024, or is that not much of an issue?

I think the main challenge is going to be to bring aircraft from the market to try to restore the capacity that we plan to fly. But we are working with Pratt & Wiener in order not to have an impact in our cost.

Understood. Thank you.

You're welcome.

We are now going to take our next question. And the questions come from the line of Jared Castle from UBS. Please ask your question.

Thank you. Just coming to Avios, 1.3 million members added. Can you just give us an update? What is the total membership? And just clarification, do you need to be an active member to be included in that number? And what's driving the additions at the moment, do you think? And then I'm just interested to get any thoughts on, I mean, again, maybe it's for the capital markets day, but non-fuel or ex-fuel costs next year, you know, given that, you know, it sounds like you're a little bit more cautious for this year given disruption. So hopefully it's less disruption. And at the moment, it sounds like, you know, you're going to be adding low single digit capacity. So directionally, maybe if you could just give some views there. Thanks.

Yeah, just on the non-fuel costs into next year, we're not giving guidance into next year at the moment, Jared, but I think we're hoping that inflation is going to subside from where it has been this year. We've got a little bit of capacity increase, which will help offset that as well, but we've also got our own transformation program we're working hard as well. So we'll give more direction on that overall. Just in terms of the AVIOS questions, I'm not sure, I haven't got the number for that. Maybe Adam can answer that.

Yeah, sure. I'm happy to answer it, Jared. So in terms of the membership, certainly we're pleased with the growth of the membership that we're seeing. That increase that you saw is members joining the program. We think that's because they're seeing the changes that we're making. in terms of the redemptions, the easier redemptions, the easier collection, our partners that we've signed up. So we think that's why what we're seeing, and we are seeing them turn into active members. So the number of 1.3, we expect the majority of those to be active, and that's doing something within a 12-month period. So certainly pleased with what we've seen in that space. Thank you.

We're now going to proceed with our next question. And the questions come from the line of from RBC Capital Market. Please ask your question.

Yes. Good morning. So on slide 9, you showed that long haul routes are lagging in terms of the year-on-year growth in passenger unit revenue. Would you just attribute that to capacity coming back in or the prior year comps. I'd be interested to hear your thoughts. Secondly, some airline management teams have been quite vocal on scope for aircraft availability to keep capacity constrained until the end of the decade. I'd be interested to hear your view on the sector outlook in this regard. Thank you.

Yeah, just in terms of long-haul capacity, actually, we think it was a good performance overall. I mean, if you look at North America, you know, versus 2019, we're up 6% overall, and versus 2022, we were up 22% in terms of ASK. So we think that was a strong performance overall. And if you look at South America, that's been, you know, South America into Europe for our businesses has been incredibly strong. So South America, ASK is It's been up 24% overall just from Iberia, 24% for the group overall, so actually we still think actually it's been a very solid performance long haul, so we're pleased with it.

Yes, aircraft availability. All the aircraft that we have in our plan, in principle, they are going to be delivered. We have the issue that we talked before about the ETF, but the impact for us is small. So, yes, I think we are going to have a problem with the supply of aircraft, and also we are going to have a problem with maintenance and with some parts. But in our case, we continue with the plan that we have in our business plan.

I think in terms of the kind of guidance we've given, we've always been quite cautious in terms of our delivery plan, actually. So we said at the beginning of the year we'd have 30 aircraft delivered, and we're still going to get 30 aircraft delivered this year, actually. So I think we've been taking into account that when we've talked to you before. So I don't think there's any change in our plans.

We are now going to proceed with our next question. And the questions come from the line of Alex Irving from Bedstain. Please ask your question.

Good morning. Two for me, please. First, there was some news the other day that the new Spanish coalition is considering a domestic flight ban where a train exists. How large would the impact on IAG be? And then secondly, there's also JetBlue has announced it's planning to begin service between Dublin and Boston and New York. That would take two and three player markets into three and four player markets. What ability do you have to respond competitively to that? And how large would you expect the impact on Aer Lingus to be, please? Thank you.

Okay, so first question about banning domestic flights. The impact is not clear, the proposal, but the possible impact for us is very reduced. But what is more important is that the impact in reducing CO2 is close to zero. I think the risk is that it can damage the Spanish economy and jobs, in general the whole aviation sector. And what we are asking is for real connectivity between the high-speed train in Barajas and to develop the staff in Spain. But what has been announced for us is going to have an impact very reduced.

Lynn wants to talk about.

Yeah, she likes coming on JetBlue. Well, JetBlue is coming in from JFK in Boston. It's no surprise to us at all, given they've already been putting their toe in the European market for a while. We've got strong market share. We've got good schedule. We've got year-round service. JetBlue are coming in on a seasonal basis. And we're used to competition across the Atlantic. And I think in terms of our fares and our product, I think we'll be competing really well there. And if I look ahead, we've got XLR coming into the fleet in the next couple of years, and that will enable us to strengthen our schedule proposition further.

Thanks. We are now going to proceed with our next question. And the question comes from Harry Cowers from JP Morgan. Please ask your question.

Hey, good morning. I've got two questions, if I can. The first one is just on the Q4 ex-fuel cask. I appreciate the four-year guidance. It's talking about the lower end of 6% to 10%. But, I mean, what's the best-case scenario for this quarter? Could Q4 be down a similar year-on-year rate to Q1, which I think was down about 13% year-on-year? And then just secondly, thoughts on where you expect full year net debt to maybe end up. I think consensus is currently around the 9.3 billion. Mark, thanks.

Yeah, so just on the kind of 6% to 10%, yeah, we're giving guidance. We're going to be at the kind of 6% range end of that as well. We haven't given guidance. specific guidance for Q4 in particular, but if you go through the quarters, we were 13% better in Q1, and that was kind of skewed by the ASK. It came back 2.5 in Q2, 3.5 in Q3 overall, and the balance comes out to 6%, so I think that gives you enough information to do the maths on it overall. Just in terms of net debt overall, so end of Q3, we're finished at 8 billion, and we said that was a good reduction since the year end, so really good place in that. You naturally get a working capital outflow in Q4, and I think consensus is around about 9.2 billion overall, which is, to some extent, not sensible.

Great. Cool. Thanks a lot.

We are now going to proceed with our next question. And it comes from the line of Muneeba Kayani from Bank of America. Please ask a question.

Good morning. Just wanted to ask on your forward bookings for the fourth quarter with the 75% booked. Are you seeing kind of any signs of demand weakness in any region? And could you give a sense of what sort of yields you're seeing on those forward bookings? And then secondly, can you talk about your plans for Gatwick? Thank you.

Okay, so about the first question, we are very pleased to see how the business is performing. I think for IE overall, the bookings for the Q4, as we said, are in line with expectations. And for Q1 and Q2, we have very reduced visibility. So as we said in the statement, we are very mindful of the geopolitical and macroeconomic uncertainties. and in particular the events that we are having in the Middle East right now. But the impact for us is limited because the flights to Cairo, Amman, and Israel for us is less than 1% of our total seats. So it's true that it's too early to see or to conclude if we are going to have any wider trend and implications. So, in general, bookings are in line with what we have in our forecast, but we are conscious about the situation that we have in the market.

Yeah, in terms of Gatwick, we're making progress in, as we said actually in the highlights, in building our Euroflower business, and Voiling are making progress as well in building their presence. So, British Airways would have flown about 19 aircraft at Gatwick, and we would plan to expand that as we head into next summer. And our long-haul business at Gatwick continues to perform well, and that's a stable schedule of about 11 aircraft that we deploy there.

Thank you.

We're now going to proceed with our next question. And it is from the line of Sumit Mehrotra from the Societe Generale. Please ask your question.

Thank you. So do you think we are now close to peak yield levels? Because I'm taking my cues from the BAP RASC was flat, indeed on a very strong capacity growth of 25%. But we also saw a very strong US point of sales. There's help from FX, et cetera. So really, is this as good as it gets on the long haul yields? That's my first question. Secondly, on your liquidity levels, $13.7 billion in the third quarter, down from $15.6 billion in the first half. I just wanted to know what elements now drive your strategy towards normalizing these levels. How do you see the liquidity levels evolving from here? Thank you.

I think about the first question. I think the performance in the Q2 and the Q3, as you have seen, has been extraordinary. If we look, for example, to the North Atlantic market, our RAS performance has been very, very solid, considering that we have a growth of more than 15% of the capacity in the quarter. So in the rest of the markets, Latin America, with a big increase in capacity, PRAS is above the situation that we had previous year. And when we see the internal European market and the domestic market adding a huge amount of capacity, we are still seeing an improvement of PRAS. So for the time being, we see a strong environment of revenues, but as I said before, we will monitor the situation.

Just in terms of – I think the question before was on liquidity overall. So we've got liquidity of about $13.6 billion. just over $9 billion of cash overall, which is the same as it was this time last year as well. So we've been able to keep good liquidity despite the kind of paying down gross debt overall. That's at a particularly high level overall compared to our overall revenue. But the reason we feel comfortable with that is we still have quite high gross debt, and we'll continue to look at kind of opportunities to pay down gross debt and reduce our interest further in the kind of near term overall.

We are now going to proceed with our next question. And it comes from the line of Connor Duell from Morgan Stanley. Please ask your question.

Great. Thank you very much. So my first question of the two is around profitability. So if I just basically the consensus number that you collected recently for this morning's piece, it gets you at a margin level very close to the kind of lower bound of the 12, 15% margin level you would kind of be targeting over the next few years. But then if I go to the slide eight of the presentation, there's still quite a bit of a margin gap for BA to close, let's say, to the rest of the carriers. And I'm just wondering, is it a bit optimistic to expect that that gap can be closed? And if it isn't, Do you actually think that maybe the margin over the next few years could be a bit closer to the midpoint of that 12% to 15% range or even towards the upper end? Interested to hear your thoughts there. Thank you very much. And on the second question would be on capacity. So not your own capacity, but overall market capacity on the Atlantic looks actually like it's due to accelerate quite a bit through the winter. I'm just wondering, are you concerned at all in terms of pricing pressure that that might bring about into early next year if indeed those schedules can be fulfilled by other players in the space.

Thank you very much. Sean, do you want to do the capacity one? Just in terms of the margin one overall, if you don't mind, we've got a capital market day just in a four-week time, so we'll talk about that overall. What we've always talked about is this 12-15% margin and just given levels of investment that we're making in the business and the uncertainty, we've kind of So we won't be at the top end of that at the moment, but I think we'll kind of talk more about that at the Capital Market Day, if that's okay.

And about capacity, when we see the capacity from all Europe to North America, in the Q3, capacity was still minus 3% if we compare with 2019. In Q4, it's going to be above 4%. It's true that London to North Atlantic capacity in Q3 was above the capacity that we have in 2019, and in Q4 it's going to be above by 2%. But if we see the situation in Spain, it's totally different. So capacity in the Q3, capacity from Spain to North Atlantic was minus 14%, and capacity in the Q4 is going to be minus 5%. So that's one of the reasons that the competition in some way is better from Spain than the situation that we have from London. And I think in Dublin, for example, if we see the traffic from Dublin to North Atlantic in the Q3, the capacity was 3% above the capacity we had in 2019, and in Q3 it's going to be also around 3%. Okay, perfect.

Let's proceed with our next question. And it comes from the line of Neil Glynn from Air Control Tower. Please ask a question.

Good morning. If I could ask the first question, if the data that I'm looking at is correct, at least capacity on the South Atlantic to South America seems to be going back to pre-pandemic levels over the winter. So similar question, I guess, to Conor's last question. Is this changing Iberia's ability to maintain the unit revenue premium over 2019 as that capacity is fully restored? Then second question, if I look towards your unit costs line by line against 2019, the labor costs or the employee costs as you report them stood out in the third quarter as seeing a very significant uptick in terms of growth on 2019 levels. It was up about 17, 18% per ASK versus 2019, whereas the half year was up about 12%. So is there something specific going on within that employee cost? Is it normalized? And if you could help me understand that step up from the first half to the third quarter, that would be great.

Thank you. Okay. About the situation in Iberia, as you said, capacity in South Atlantic is recovering, but the market share of Iberia after COVID has improved. And in the Q3, they increased the market share by 11% if you compare with the situation they have in 2019. And in the Q4, they are going to be around 8% in the total capacity between Spain and Latin America. So I don't know, Fernando, you want to add something about that?

No, basically, capacity in Latin America has recovered more than North Atlantic, but particularly in Madrid, capacity has recovered more, but ideally achieving that capacity recovery increase in the market size.

So, yeah, just looking at the employment cask as you go through the quarters, I mean, we were up about kind of left 12%. In H1, we're up about 17%, I think, in Q3 overall. I wouldn't read too much in the kind of quarterly variability overall. We've taken quite a lot of staff into British Airways to help with kind of the operation stability through the summer overall. But I wouldn't read too much into the kind of quarterly quarter.

We're now going to proceed with our next question. And it comes from the line of Andrew Lodenberg from Barclays. Please ask your question.

oh hi there two questions please um can you speak a little bit about what's going on with the uh europa competition policy review it all seems to have gone very very quiet um and the second question would come back to whaling and i know you are answered to savvy you know saying that the number of aircraft impacted on the gts is small relative to uh iag overall But relative to whaling, it's really not small. It's quite material. And at the same time, you've got the ongoing labor dispute at whaling. So yeah, how we meant to think about what's happening at whaling with their labor dispute and a very significant number of their aircraft needing fixing. Thanks.

Okay. So about Europa, we continue in the pre-notification phase with the European Commission. So we are in the process of submitting the information. We are engaging with potential partners for remedies. And we are still thinking that the operation is going to take around 18 months. So we think that this is going to be done if finally we can do the operation in the last quarter of next year. About whaling, Marco?

Yeah, with regard to whaling, so we are in tight contact with part of Whitney to mitigate and minimize the impact of the engine issue that we're facing. And we do not plan to have capacity reductions for next year, so we're planning to have all the mitigation activities that will enable us to really minimize the impact on our fleet. And as far as the labor conversations, they are proceeding positively. We have achieved an agreement with our cabin crews, and we are progressing positively also with the pilots of Whitney. we are going to be able to give some news during the Q4 about that.

We are now going to take our last question, and it comes from the line of Johannes Braun from Stiefel. Please ask your question.

Yes, good morning. Thanks for taking my questions. There's recent news that the EU Commission might ask for tougher remedies in any M&A transaction in Europe. What do you think about that one, and to what extent, I guess, will it impact also your plans with Europa and any further M&A plans there? And then secondly, just curious, any reason why not to give us a full year EBIT guidance at this stage? I think last year you gave us concrete EBIT guidance at Q3. Thank you.

Okay. About the first one, we are in the middle of Europa of preparation. I think European market needs consolidation. We need to compete in a global world with a big group of airlines and we need to have the scale. Also in Europe we are going to have more pressure in the sustainability area and I think scale is going to be critical to achieve the objectives that we have committed to comply with the mandate that we are having. So I hope that the approach is going to be to help the consolidation in the market in order to help that the airlines in Europe are going to be sustainable.

Yeah, just in terms of why we haven't given guidance. We gave guidance at the back end of last year, and that was purely as we were going from pre-COVID era to hopefully post-COVID era. So there was quite a significant step change. So we just wanted to help guidance with that overall. Going forward, we want to think we're a medium to long-term business, and that's why we focus on medium to long-term rather than short-term kind of profitability and guidance overall. And if we were far off external guidance and expectations, we would have to say something. And we're not saying anything at the moment. You've got guidance out there. I think our last published one was about 3.2 billion. And I think if you look at Q3, we've probably beaten guidance by about 100 to 200 million overall. So that'll play through.

Yes, thank you. Just going back to the first one, I think the EU Commission was saying that they would in future not only ask for slot concessions, but also for other remedies. Any idea what that might be?

No, to be honest, we are in the process of Europa. We don't know, to be honest, what this is about.

All right, fair enough. Thank you.

If I could just go back to a previous question, there was a question about labor costs in Q versus 2019. Just in 2019, we actually had the strikes in British Airways in Q3 as well, which actually meant our costs were actually lower in Q3 2019 than normal. So that's why you see a bit of a jump.

OK.

We have no further questions at this time. I will now hand back to Mr. Gallego for closing remarks.

Okay, so thank you very much, everybody. In summary, good quarter and Q4 looks positive. So looking forward to seeing you in our Capital Markets Day on 21st of November. Thank you very much.