International Consolidated Airlines Group S.A.

Welcome to the IAG Fall Year 2023 results. Presenting today are Luis Gallego, our CEO, Nicholas Cadbury, our CFO, and we've got members of the Management Committee here. And on that note, I will hand over to Luis.

Thank you very much, Stuart. Good morning, everyone. I'm very pleased to report that we have delivered a very good performance in 2023. We have seen the return of strong demand for travel across all our regions, and in particular in the leisure market. We have delivered a full year operating profit of 3.5 billion euros, up from 1.2 billion euros in 2022, and even ahead of the 3.3 billion euros that we made in 2019. This also represents an operating margin of 11.9%, again, strongly ahead of last year and close to pre-COVID levels. We have generated a significant free cash flow of 1.3 billion euros. This has delivered a strong balance sheet with leverage now below our medium term target and has allowed us to raise the business further through the active repayment of the expensive financial debt. And we have a positive outlook for 2024. We are confident in generating significant free cash flow. Discipline capital allocation will allow us to maintain our strong balance sheet. And we remain committed to the creation of sustainable shareholder value and returns. Our very good results are based on having the right strategy, as we laid out in our Capital Markets Day last November. In 2023, we increased our capacity by 23% compared to 2022. And in particular, we invested in our North Atlantic and South Atlantic markets. Building on the robust underlying demand Our transformation initiatives have delivered the strong operating profit and margins that I have just spoken about. Our Spanish businesses have performed particularly well, delivering 1.4 billion euros of operating profit, driven by Iberia's strong performance across its network and Vueling's leading role in Barcelona. British Airways' transformation, and in particular its focus on operational improvement, is starting to deliver positive results. IAG Loyalty has also grown its profit by 70% to £280 million, adding 4.9 million new members during the year and launching new features and partnerships to enhance the value proposition for its members. We continue to invest in our people who are critical to our success with over 13,000 new hires in 2023. And we have also made significant progress on our sustainability agenda that you know is key priority for us and all of our stakeholders. We have reduced our carbon intensity by 3.6% year on year and this week we announced a new contract that means that we have now secured one-third of our sub-target for 2030. Our strategy underpins our medium-term financial target. This year, we have already delivered strong results, but there is much more to come. Firstly, our operations are not where they should be at some of our hubs, and British Airways in particular is investing to improve its operations. Good on time performance has a very strong correlation to customer satisfaction, but also to cost efficiency and margin improvement. Our transformation program of over 1,000 revenue, operational, customer, and cost initiatives across the group will also drive margin improvement and create a better and more resilient business. Of our asset-light businesses, the expected growth of loyalty will boost group margins as well as free cash flow. We are investing in all this in 2024, which means a slightly higher cost in the year, but it will drive longer-term sustainable improvement. Margin improvement drives free cash flow, and along with our disciplined capital allocation framework, This supports investment in the business and also a strong balance sheet. And I will now hand over to Nicolas to take you through the numbers.

Thank you, Luis. In this section, we will review the financial performance of IAG for last year, highlighting last year's key revenue and cost drivers and how we generate significant free cash flow and how we strengthened our balance sheet. I'll also remind you of how we carry out our capital allocation. Let's start with the key metrics for 2023. As you can see, we've recovered significant capacity compared to last year, with a 23% increase in ASKs. At the same time, we've also improved our passenger unit revenue, which was up more than 8% year on year, and reduced our non-fuel unit costs by 4.4%. As a result of these revenue and cost metrics, we've delivered a strong operating profit of 3.5 billion euros and a margin close to 12% in the year. We also generated significant free cash flow of 1.3 billion euros after investing 3.5 billion of capital in improving our business. We further reduced our net debt to 9.2 billion and our leverage ratio stood at 1.7 times, significantly lower than this time last year. These results demonstrate the strength of our business and our brands alongside our disciplined approach to capital allocation and cost management. This slide is a breakdown of our performance by business. As you can see, all of our airlines and our loyalty business delivered a significant improvement profit performance during the year. continued developing its North Atlantic and short-haul network, helping to improve its profits to €225 million and a margin of 10%. British Airways profits increased by over £1.1 billion to £1.4 billion as British Airways continued to restore capacity. British Airways delivered a strong performance in unit revenue, particularly driven by leisure demand and also reduced its non-fuel costs, delivering a margin of 10%. Iberia continued building on its strong performance in 2022 and delivered good results across its airline, its maintenance, and its handling businesses. Revenue was particularly strong, resulting in profit more than doubling to 940 million euros and a margin of 13.5%. Vueling benefited from the strong leisure demand with very good passenger revenue growth and delivered nearly €400 million in operating profit and a good margin of 12.4%. And lastly, our loyalty businesses benefited from the growth in our airlines and its partnerships, reaching a record profit of £280 million. Loyalty's high margins declined slightly year on year as previously guided as we reinvested to drive higher customer engagement and higher profits in the future. This next slide shows our results at profit after tax of 2.7 billion euros. I would just draw your attention to our finance income that benefits from the rise in interest rates during the last year. We showed this slide in our capital market day last year. It shows how we have both high quality and diverse earnings. The left-hand side shows the diversity of our customer revenue mix by business and leisure customers as well as by industry sector. As you can see, leisure and direct customers are 80% of our revenue and we're up 30% year-on-year as we've benefited from the strong demand. Business revenue was 20% of our revenue and was up 32% year-on-year. Within this business segment, we have a diverse exposure to different industry sectors with no reliance on any one single sector. On the right-hand side, it shows the contribution and recovery to our profits from each of our businesses. You can see how our Spanish businesses are significant profit contributors to the portfolio, accounting for 1.4 billion euros and around 40% of our profit, up from around 20% in 2019, so very good performance. It also shows the opportunity in British Airways, who were only at 90% of 2019 capacity, with further capacity recovery coming this year. I would also highlight that IAG loyalty has substantially increased its contribution to group earnings to 9% of profit compared to about 6% in 2019. Turning to our revenue performance, this slide shows our regional performance in terms of capacity and passenger unit revenue for the last quarter and for the full year. Overall, it was a very good year with strong summer performance and the fourth quarter performed in line with our expectation against a tough comparative set in Q4 last year. The fourth quarter is currently more seasonable due to the lower mix of business travel and we have deployed significant capacity over the year that is still maturing. In North America, we had an excellent year, growing our capacity by 23% and our PRAS by nearly 4%. In the fourth quarter, we continue to deliver planned capacity growth through all our long-haul airlines that is maturing. It is early in the new year, and I'm pleased that we are seeing a positive North Atlantic booking trend into the second and third quarter. In Latin America and the Caribbean, we again had a very strong year, with capacity up 19% and PRASC up 8%, with strength in leisure demand and the continuing links growing between Spain and South America. We naturally saw a softer PRASC performance in Q4, as the increase in new capacity takes time to mature. I'd also point out that our PRASC in the region is up around 35% since 2019. In Africa and the Middle East and the South Asia, we grew our capacity and passenger unit revenue. We understandably saw a slowdown at the end of the year in some of our routes to the Middle East. We're recovering our capacity in the Asia Pacific from a low base on around 40% of our 2019 capacity. Our capacity increase was mainly driven by the resumption of our routes to Beijing and Shanghai from British Airways. Overall, we're very pleased with the results this year that demonstrate our ability to leverage our network and partnerships to capture the opportunities in our strong markets. And Lewis will come and just talk later about some of the positive booking trends that we're seeing now. Just turning to costs, our non-fuel unit cost improved 4.4% on last year. We benefited from the increase in capacity, our transformation program, and our efficient new aircraft. which are all helping to offset both inflation and the investments we are making to improve our customer proposition and in our IT systems. We were a little below our previous guidance of around about 6% as we had higher cost of sales related, relating to higher maintenance activity and revenues in Iberia. And we also had some more disruption, particularly weather related, than anticipated, reducing ASKs in the last quarter. I would note that our airline non-fuel cask was better by 5.2% year-on-year. For 2024, we expect our non-fuel unit costs to increase slightly year-on-year as we continue to invest in resilience, IT, customer enhancement, and continue to offset inflation through our transformational initiatives. This slide shows our balance sheet and liquidity position at the end of 2023. As you can see, we significantly strengthened our balance sheet during the year by repaying around €4 billion of expensive non-aircraft related gross debt, including €3.3 billion of early repayments of UK EF and ICO loans and the €500 million of IAG unsecured bond, which matured at the beginning of the year. This helped restored our investment grade credit rating from S&P for both IAG and for British Airways. We also maintain a very good liquidity position by replacing the UK EF loans with more flexible facilities. At the end of 2023, we had net debt of 9.2 billion, a reduction of 1.2 billion euros year on year, and leverage ratio of about 1.7 times, slightly below our target range of 1.8 times. This slide shows the results of our active balance sheet management last year. as a result of which it leaves us with very manageable debt repayment schedule, having removed the spike that we had in 2026 from the UK EF with no significant maturities this year. And also, I just mentioned that we also don't expect any kind of pension payments as well this year. We've added this new slide to help explain how we generate positive free cash flow in 2023 and how we intend to do so again in 2024. As you can see, we generated free cash flow of 1.3 billion after investing 3.5 billion in capex in 2023, driven by our strong operating profit growth. And this is before funding income. From 2024, we again expect to generate significant free cash flow as we benefit from further capacity recover and lower interest payments, importantly, following expensive debt early repayment. We will also continue to investing in the business and our gross debt is expected to be around about 3.7 billion euros that I will come to later. I'm not going to go through each line, but this should really support our confidence in the year's free cash flow and our ability to create value for our shareholders in the future as well. This slide shows our fuel hedging position for 2024 and into 2025. as well as the sensitivity of our fuel cost to different jet fuel price sensitivities. As you can see, we've hedged around 65% of our fuel requirements for 2024 and are a little over 80% hedged for Q1. This gives us some protection against the recent fuel price volatility. You can also see the sensitivity of our fuel cost to different jet fuel price scenarios, ranging from €730 to €980 per metric, which I hope helps you with your modelling. As set out at the capital market day, this slide shows our gross capital expenditure by category for 2023, as well as our guidance for 2024. As you can see, we invested 3.5 billion euros in 2023, slightly lower than planned, mainly due to the timings of aircraft delivery and pre-delivery payments, and some other timing difference relating to maintenance and spare engines. For 2024, We expect to increase our gross capital expenditure around about 3.7 billion as we invest in 20 new aircraft deliveries, in our product offering, for example, the continuing rollout of our new club suite of British Airways and upgrading many of our lounges and continuing to modernize our customer facing and our back end IT systems. And of course, purchasing ETS credits which go through CapEx. As we announced in November last year, we expect our gross expenditure to be around about 4.5 billion euros on average over the next three years. The increase from 2024 levels reflects the expected introduction of the Boeing 777-9 in 2026, the increase in deliveries of the Airbus XLRs, the refurbishment of the profitable A380s, and the higher ETS purchases that will be required to make. These investments will enable us to continue to develop our hubs and networks, enhancing our customer experience, and improving efficiency to support our long-term growth and profitability. Just briefly on ETF, just to kind of help you, the cash flow relating to buying the ETF credits does appear within our CAPEX figures as we're buying forward. As you have seen in the cash flow slide earlier, the cash we spend on ETF doesn't appear on the operating cash flow, as the amounts that we have charged to operating profit is then reversed through provision releases overall. And I just want to point this out to make sure that you don't double count the ETS charge in capex and in free cash flow. I'd also just point out that this capital is gross before the benefit of our aircraft financing arrangements. We don't show net capex as many others do, as net capex only takes into consideration sale and lease back financing. And we have a far wider choice of funding than this. And we decide the best type of funding on several factors, including the best rates and the best terms in the market at the time. We funded the vast majority of our aircraft capex last year, and we expect to continue to do so. This page just shows our fleet size by year and the aircraft deliveries in 2024. We will receive 21 new aircraft this year. We will take delivery of seven wide-bodied aircraft and 10 narrow bodies, as well as taking the delivery for the first time of three Airbus XLRs towards the end of the year. Also, we will receive one new A330 for level, which will be a direct lease, so will not require capital investment. These new generation aircraft will graph fleet to 592 and will help us to increase the proportion of new generation aircraft, which at the end of last year represented 31% of our total fleet. You can see that a few of our deliveries are yet to be assigned to airlines and sit under IAG in the chart as we wait upon the outcome of local labor negotiations. And as you know, a disciplined approach towards capital allocation is critical to the group as part of the success of IAG. For my last slide, I would like to remind you about the way we think about capital allocation, a fundamental aspect of the IAG model to drive sustainable value creation. As you know, we've had a robust and disciplined approach towards allocating capital for many years. Our first priority is to make sure we have a strong balance sheet and with our cash generation last year, we have delivered on this. Secondly, we are investing in a more efficient fleet, strengthening our position in our core markets and hubs and targeting future growth opportunities. We are building our competitive advantage, investing in our customers, delivering the best products and services and future digital experience. and we're being one of the leaders in the aviation industry on sustainability. And lastly, our commitment to paying dividends and returning excess cash. We're pleased with the operational and financial performance in the business, and we have strong conviction in the free cash flow creation for the group for this year and beyond. And if this performance is sustained, we look forward to resuming returning excess cash to our shareholders in the near future. On that point, I'll now hand back to Lewis.