International Consolidated Airlines Group S.A.

Good morning, ladies and gentlemen, and welcome to the International Airlines Group's first quarter year 2025 results. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session through the phone lines, and instructions will follow at that time. I would like to remind all participants that this call is being recorded. I will now hand over to Luis Gallego, Chief Executive Officer, to open the presentation. Please go ahead.

Thank you very much. Good morning, everyone. Welcome to our update for the first quarter of 2025. As usual, I'm joined by Nicolas Cadbury, our CFO, as well as the rest of the IAG Management Committee. I would like to begin today by highlighting the key attributes about IAG that help to deliver the strong results in the first quarter and underpins our long-term world-class targets. Our fundamentals are strong. We have unique strengths in our network, apps and brands. Our customer base is high quality across all of our airlines. And we have additional businesses that drive capital life, high margin earnings growth. Our execution based on our well established transformation program and delivered by our talented people is delivering world class margins. And we are focused on creating value for our shareholders through sustainable dividends and returning excess cash to shareholders through our share buyback program. So IAG has delivered another strong quarter in Q1 2025. We grew revenue by 9.6 percent. All of our core markets performed well, particularly the North and South Atlantic. Our operating profit grew by 130 million euros to 198 million euros. And our margin increased by 1.7 percentage points to 2.8% in our quietest quarter. Operational performance has been good, particularly at British Airways, despite the impact of the Heathrow one-day closure. I'm pleased to announce our order today for 53 wide-body aircraft, as well as 18 orders in the first quarter. That will support the delivery of our strategy and signal our confidence in the long-term future of this business. And our balance sheet is getting stronger, which, as I have just mentioned, is underpinning a sustainable dividend and additional cash returns for our shareholders. I will now hand over to Nicolas to take you through the financial details. Thank you, Luis.

Good morning, everyone. I'm pleased to announce our excellent financial results for the first quarter of the year. This slide highlights the key drivers of profit and showcases our strong performance. The total revenue increased to €7 billion, driven by our leading networks and brands, as well as our growth in attractive markets. We also delivered good growth in our cargo and MRO business, as well as BA holidays. The strong revenue performance offset the increase in non-fuel costs, which were broadly as expected. The increase this year weighted to the first half, as we discussed at the results in February. I will come on to the split of costs in more detail later, but underlying airline non-fuel costs increased by around about 3%. Thanks to the strong revenue growth and the lower fuel price, we increased operating profit by 130 million euros to 198 million euros. We saw good performance across all the operating companies. This was despite the late timing of Easter. It had an adverse impact this year and the closure of Heathrow Airport on the 21st of March, which cost British Airways around about 50 million euros. Despite these headwinds, our transformation programmes continue to deliver and benefits our businesses, helping us increase our operating margin by 1.7 points. Now let's look at our operating company's performance in detail. I'm very pleased that almost all our businesses have delivered an improvement in operating results this year. Aer Lingus achieved an improvement of approximately 27 million euros in its operating results and increased its operating margin by nearly 9 percentage points. This is primarily due to a strong unit revenue performance benefiting the airline's network growth together with stable market capacity during the quarter. British Airways had a very good performance in the first quarter, with operating profits increasing by nearly 90 million to 96 million. And as just mentioned, this included the impact of the one-day closure of Heathrow Airport in March. This improvement was driven by the very strong demand in North Atlantic markets, along with the benefits of its ongoing transformation program. Iberia achieved a strong revenue performance, mainly driven by the demand across the North Atlantic and Latin America. This resulted in an increase in profits of €100 to €137 million, an operating margin growing approximately three points to each 7.5% operating margin. Welling had a really positive start to the year, although it was the airline most impacted by the shift in Easter holiday timings. This, combined with the changes in calendar dates and other celebrations in Spain, was the main driver of the year-on-year performance. IAG Loyalty reported operating profits but broadly flat compared to 2024 at £88 million. This now reflects the required adoption of HMRC's view of accounting for VAT on the issuance of Avios, which the group strongly disputes. Excluding this change, Loyalty would have reported a 5% increase in operating profit, £97 million. IAG Loyalty continues to drive strong underlying performance great engagement with the airlines, loyalty programs, and third-party partners. VA holiday performance contributed positively to the group's results. Moving to our regional performance in more detail, overall, we continue seeing a strong demand and unit revenue in our core markets during the first quarter of the year. We grew capacity by 3.2% and delivered a unit revenue increase of also 3.2%. This performance was driven by high yields, and helps by a positive currency impact of around about two percentage points. We look at the performance by region. The North Atlantic saw the strongest increase in unit revenue of any region year on year. The robust performance was evidence across each of the transatlantic airlines, all of them experiencing high single-digit or double-digit percentage increases in revenue. In particular, premium cabins performed well. And the deployment of the Airbus 321XLR aircraft by Iberia and Aer Lingus is also proving to be very successful. Latin America and the Caribbean carried on being one of the stars of the network, yet revenue increased by 1% after an increase in capacity of over 7% by the great sub of performance in the southern hemisphere. Europe continues to be another one of the best performing markets, being the one most negatively impacted by the Easter shift. Africa, Middle East and South Asia saw a strong performance with all our airlines with presence in the region having unit revenue and capacity increase. Asia Pacific remains our smallest market and is still only 50% of 2019 levels. Increased capacity by 70% in the quarter, reflecting the resumption of routes from Madrid to Tokyo with Iberia and London to Bangkok with British Airways. and unit revenue performed well given the high growth. If we look at the performance by segment, the premium segment has sustained strong performance in both long-haul premium and short-haul premium. We saw a good start to the year for the non-premium segment. As you would expect, the month of March was affected again by the Easter movement. But overall, we saw a strong start to 2025. We still plan to grow capacity around 3% this year, focused on our core markets. As noted last quarter, we anticipated that the increase in our non-fuel unit costs for this year would be weighted to the first half of the year. Therefore, the 8.8% increase in non-fuel unit costs for this quarter was broadly in line with our expectations. Three factors contributed to the increase. Firstly, 2.2 percentage points was attributed to the negative impact of foreign exchange. Secondly, approximately two percentage points was driven by the non-airline business of the group, MRO, loyalty, and holidays. And in particular, you can see the related revenue benefit of MRO in the increase in other revenue this year. And thirdly, one percentage point was due to the negative impact of the one-day closure of Heathrow, which was clearly not expected. So this leaves the underlying airline non-field cost increase of around about three percentage points. Benefits of this cost investment is also particularly being seen in British Airways best on time performance achievement formation of IAG. Fuel unit costs reduced by about 7% mainly driven by lower commodity price and we also benefit the group's new generation aircraft for better fuel consumption. 2025 as a whole We expect the non-fuel unit cost trend to be in line with our previous guidance, an increase of 4% approximately, including FX headwinds. And fuel costs, we are currently 65% hedge for the year, to be around about 7.5 billion a year. This slide shows our financial results at a net profit level. Profit after tax and exceptional items was 176 million pounds profit in the first quarter. This is an increase of 180 million euros on last year. As well as the high operating profits, we have seen continuing improvement in our net financial costs, primarily due to the reduction in gross debt. Going the other way, the tax charge was broadly normalized this year against the credit last year that came from the Spanish Constitutional Court decision. Turning our attention to our balance sheet, I am pleased to report continuous strengthening Net debt has decreased by over 1.4 billion compared to the end of last year to 6.2 billion euros. And gross debt has reduced by 1.9 billion euros over the same period. As a result, net and gross leverage has reduced to 0.9 times and 2.2 times respectively. This is significantly below our net leverage ceiling of 1.8 times and within our desired range 1.2, 1.5 times. which positions us to return excess cash to shareholders. We remain committed to reducing our gross debt, a process that began in January with a repurchase of €577 million of our 2027 and 2029 senior unsecured bonds. We continued in March with the redemption of our €500 million 2025 bond using cash. Additionally, we still plan to keep approximately two-thirds of 26 respected aircraft deliveries this year, be unencumbered. This slide illustrates the schedule of our financial non-aircraft debt maturity, and as I just described, you can see that after the partial early payments of the bonds and the redemption of the 2025 bond, there's really minimal major debt repayments due in the coming years. It's also worth noting at this point that during the quarter we received upgrades from our rating agencies. S&P upgraded IAG and British Airways to a strong BBB investment grade, And Fitch also upgraded British Airways to BBB as well, which we're very pleased about. And to conclude for me, I'd like to remind everyone of our disciplined approach to capital allocation, which is fundamental to generating long-term value for our shareholders. Our first priority is to maintain the strength of our balance sheet by targeting net leverage below 1.8 throughout the cycle. Currently, we have a significant leap below that, 0.9 times. Our secondary priority is to invest in the business to support sustainable profit growth. This quarter, we've increased our capacity by just over 3%, receiving a delivery of five new aircraft, while expanding our margins. We exercised options for 18 aircraft in the first quarter, and today we've announced an order of 53 aircraft for the group, medium, term, long-haul requirements. These aircraft are for combination of replacement and growth supporting our strategy to strengthen core network and airline brands. We will deliver and will be delivered between 2027 and 2033. And of course, we're committed to sustainable shareholder returns as we announced in March through an ordinary dividend, which is set at a level which is sustainable throughout the cycle, the proposed final dividend of six cents per share as we announced at year end. And additionally, we have planned to return excess cash to shareholders when net leverage is below 1.2 to 1.5 times, depending on the commitments and the outlook. So far, we've purchased 530 million euros of shares so far this year, completing the 350 million euro buyback announced in November and starting the program of up to 1 billion buyback announced this February. On that note, I'll now hand back to Lewis.

Thank you, Nicolas. As usual, I will spend a couple of minutes highlighting the ongoing transformation across our businesses. Erlingus continues to focus on its leading customer offering. This includes a focus on its long-haul services, improving on performance and investing in digital and technology. British Airways is continuing its transformation towards delivering its 15% operating margin target. It is still rebuilding its network after COVID, adding resilience to address operational challenges and investing in its lounges, club suite, and onboard service. Iberia is building an ever stronger presence in the Latin American market, as well as seeing a strong performance from the new 321 extra-long range route to Boston. On-time performance remains very strong, and improvements are being developed for digital customer service. Vueling also continues to be very focused on its customer proposition. It remains one of the world's leading airlines for punctuality and is constantly evolving its digital customer support throughout the travel journey. Finally, IAG loyalty is issuing and redeeming more Avios than ever before. This one's increased by 16% in the quarter and redemption by 10%. During the quarter, Loganair joined the airline partner group, and both Iberia and British Airways have now launched their new club loyalty programs, which offer new ways to earn tier points and new benefits. Moving on to our outlook. While we are mindful about macroeconomic uncertainty, our outlook for the full year is unchanged. We continue to see good demand for our services, and the diversity of our portfolio of businesses is capitalizing on that. We are seeing a strong demand in Latin America and Europe, while demand across the North Atlantic is robust. Strength in the premium cabin is mitigating some recently seen softness in the US point of sale for economy leisure travel. We are encouraged by our book position for the second quarter, and although our visibility for the second half is limited at this point, with around 29% book. This is broadly in line with the last year. And the attractive structural drivers for both demand and supply remain. In summary, we continue to execute our strategy to deliver world-class margins and returns. We are focused on making our portfolio of market-leading businesses even stronger We started our transformation program several years ago, precisely so that they would be well positioned for any economic scenario. And we have a strong financial foundation, which is getting stronger and will continue to differentiate IAD. So we are confident in the future of the business and our outlook for the remainder of the year. And with that, now we open the call to Q&A.

Thank you, Lewis. Ladies and gentlemen, we will now begin the question and answer session. To ask a question on the phone line, please signal by pressing star one on your telephone keypad. We do ask that you please limit your questions to a maximum of one. And your first question comes from the line of Andrew Lovenberg from Barclays. Please go ahead.

Hi there. Congratulations on the good performance. Can you perhaps speak about the trends on the North Atlantic and how recently did the weakness appear in terms of U.S. sold and how, you know, is it responding to the rapid macro developments? Is it a clear degradation or is it a volatile one? And then obviously your European counterparts spoke of weakness in European sold. Are you seeing no weakness at all out of Europe? Are you seeing no weakness out of UK but some out of Spain or the other way around or indeed Ireland? How does it look from European sold perspective too? Thanks.

Thank you, Andrew. To be honest, it's difficult to compare because we have the change in the period of Easter this year. We have also sales, different periods of time, the blackouts in Madrid. So it's quite hard to read. But as we said before, for the second quarter, the booking levels are close to 80%. And they are above what we had last year. But for the age two, the visibility that we have is still very limited. It's only 29%. So what we see by region is a very balanced group. South America is very strong. Europe, Africa, and Middle East, they are also very good. North America, point of sale UK, is holding up. Point of sale US, as we said, is softer in economy, but all premium cabins are strong. So the point of sale US for us, for the group, is 17% of our revenue. And we can say that it's 50-50 between premium and economy. And the premium traffic is offsetting that we have seen recently, but that we don't know if it's because of the comparison with the base.

Your next question comes from the line of Steven Furlong of Davey. Please go ahead.

Oh, good morning, gentlemen, and congrats on the results on the aircraft order. Maybe I'll just ask about the aircraft order. you're obviously very happy to take Boeing aircrafts. Could you just make a comment, Luis, on the EU's potential stance on tariffs? Or you obviously feel that that is not going to ultimately materialize in terms of import duties, et cetera, particularly for the Boeing 787s. Thank you.

I think... important to say that we started the tender for the white body aircraft last year so and as you can imagine the decision to allocate capital to our fleet is a long-term strategic investment so we welcome the framework of the deal that was announced yesterday still we don't know what's going to be the the total agreement for aviation. We don't like tariffs, and we consider that tariff-free aviation and supply chains have helped to develop aviation and to create jobs and the situation that we have right now. But it's good news that we are not going to have tariffs in Boeing products, and we will continue working with the government to see if we can expand this to all the supply chains.

Okay, thank you. The Boeing aircraft are all for UK delivery.

Your next question comes from the line of Sabi Seeth of Raymond James. Your line is open.

Hey, good morning. If I might follow up on Andrew's question a little bit on the corporate side, I wonder if you could provide a little bit more colour on what you're seeing there across the various regions and just kind of long haul versus short haul as well. Thank you.

Corporate travel has really been in line with the rest of the business actually. It's been holding up quite well. Not really too much to say about it overall. We've seen a little bit of mixed difference in British Airways. We've pulled a bit back from Hong Kong and China, which used to be strong corporate. and we're kind of putting on more Middle East, which is slightly less corporate, so there's a bit of a mixed difference there, but actually overall it's pretty much in line with where we thought it would be.

And no kind of incremental change since all this kind of global noise. No.

I appreciate it.

Your next question comes from the line of Jamie Robotham of Deutsche Bank. Please go ahead.

Morning, gentlemen. I'll use my one question to ask about Spain. So Iberia seems to have had another great quarter. I think LATAM has a lot to do with it. But if we just focus on the Spanish end of the equation, economically, the country appears to stand out in a very good way. But recently, I know we're talking about domestic traffic growth having slowed a bit to just one percent. And there also seem to be increasing headlines about anti-tourism protests in Spain. So just any concerns at all about the outlook for the core Spanish business?

Thanks. Well, this is Marco from Liberia. In fact, not. We have reported a very, very solid Q1 results in that respect. You can see that there is some element that has to do with the easter shift that of course it has a relevance for the uh quarter result but it's purely an easter shift in fact if you look at the perspective for q2 we don't see weaknesses in this respect so we can see this market is still developing in a solid manner i can echo carolina from well thank we the easter shift for welling

has an impact, but what we are seeing is quite healthy and in line with the expected. We are not seeing weakness.

Thanks, guys. Jamie?

The next question comes from the line of James Hollands of BNP. Your light is open.

Thanks very much. If I could ask on unit cost ex-fuel, please. Clearly, you've retained guidance affiliate up four percent i was wondering if you could give us the new split of underlying versus fx i think it was two plus two uh and if it has changed um maybe just run us through what it was in particular and staying on cost there's one question maybe run us through this sort of the the the quarter movement and you obviously said it's h1 weighted should we expect h2 flat to down or maybe just run me through how you're thinking about thanks

Yeah, we're just going to stick to full year guidance, James, at the moment. So, yeah, we said at the end of the year it was 2% underlying and 2% FX overall. It's kind of a little bit higher on the underlying, a little bit lower on FX at the moment, and the underlying bit has gone up mainly because of the cost that has come through on Heathrow and a very small amount for Madrid as well, but that's the only difference on it. So it's not too dissimilar from where it was.

Okay, thanks.

Your next question is from the line of Rory Cullane from RBC Capital Markets. Please go ahead.

Yes, good morning. I've got a question about your pension, which is the UK or pension assets that the UK government has announced reforms to facilitate the release of some pension services. Do you think this... Sorry, Jim, I was struggling to hear you, I'm afraid.

Could you repeat the question? We can hear about pensions, but that's all we can hear.

Yeah, okay. Hopefully you can hear me better now. So the UK government has announced reforms to facilitate the release of some pension services. Do you think this could potentially apply to any of the net pension assets on your balance sheet? Thank you.

I think it's still under consultation, actually, so I don't think it's actually gone through a finalised amendment, so we'll review that as it comes through. But we're, yeah, not something we're considering at the moment.

Thank you. You have a question from Harry Gowers at JP Morgan. Please go ahead.

Yeah, good morning, everyone. Just one question on the other revenue line. I know this line, it can be lumpy and maybe hard to forecast, but obviously the Q1 other revenue is up 40% year over year. So, you know, is that going to continue over the coming quarters? Like how much of that can we extrapolate out to the full year? Thanks a lot.

We had a very strong quarter one. I think we'll probably have a good quarter two as well off the back of it, and it's particularly around MRO, which is very strong at the moment. That's kind of third-party kind of maintenance and that kind of fleet of engines at the moment. I wouldn't extrapolate it as a kind of 40% going forward overall. We had slightly weaker comparatives this time last year as well, so it's probably roughly around about probably half that across the year.

Great. Thanks, Nicholas.

Your next question is from the line of Connor Dwyer of Morgan Stanley. Your line is open.

Thanks very much. The question I have is just really around, I see, the plane order and how that kind of feeds into, if any, changes in capacity growth expectations in the kind of more medium to long term. Is this kind of very consistent with what you've been saying before in terms of capacity growth, or does it potentially lead to perhaps a little bit of acceleration to how you've been thinking about things beforehand?

I think the fleet order, first of all, we need to replace the aircraft that we have. We have 777, for example, in BA that they are reaching the end of their life. But part of the fleet order is to replace those aircraft parties for growth in line with what we set in the capital market in 2023, that we are going to be around 4-5% of growth per year.

Perfect. Thank you very much.

Your next question is from the line of Baptiste Bourdeau de Pontenay of Bank of America. Please go ahead.

Hello. I just want one question, please. So one of your competitors said that for some of the transatlantic volume gaps, it could also be caused by shorter booking windows, given the uncertainty. Is that something you you think is also a possible explanation. Thank you.

It might be. I mean, that'd be speculative if it was. We've seen some strong short bookings, actually, particularly in Ireland and in Europe at the moment. But I think it'd be kind of speculating if we saw that.

And your next question comes from the line of Guilhem A. Sampaio from CaixaBank. Please go ahead.

So thank you for taking my question. So how do you see the industry transatlantic capacity reacting to this demand softening? And how do you expect to deal with this softening in the future, in terms of cost or in terms of internal capacity? What kind of flexibility do you have?

So I think what we see in our main market, the capacity for the second quarter and for the third quarter. We see, for example, that in North Atlantic, the traffic between Europe and North Atlantic is going to fall in the second quarter around 0.8%. We are going to have a fall in all of our hubs except Dublin. They are going to have an increase. In the third quarter, the traffic between Europe and North Atlantic or the capacity between Europe and North Atlantic is going to We see it's going to be flat, and we see a strong growth in Madrid and also in Dublin. We look at the South Atlantic. In the second quarter, the traffic between Europe and Al-Aqar is going to be almost flat. I think London is going to decrease, and Madrid is going to increase around 1.5 percent. And if we look at the third quarter traffic between Europe and LACA is going to the capacity between Europe and LACA is going to decrease around 2% with a decrease in London and Madrid. So I think in general the environment is a good environment. And then if we look at the European traffic the second quarter we are going to have an increase of capacity or around 3% and the same for the And the capacity that we have, the plan we have for this year is going to be a growth of around 3.4 percent.

I think although you've got some uncertainty short term on this, I think if you – one thing we are certain about is across the North Atlantic over the medium long term, it being a very strong market.

And our final question today comes from the line of Jared Castle at UBS. Please go ahead.

Great. Last but not forgotten. You changed the tier point program. You know, we've had a good few weeks now of the new loyalty program. I wanted to ask about, you know, how's the customer response been towards that? You seeing any change in behavior? you know, also how competitors are responding. So anything, you know, on the loyalty program changes and how that's impacting the business positively or negatively.

Maybe if I go from British Airways, I think we're seeing the behavior that we expected. So one, I think executive top bookings are tracking in line with the rest of our wider bookings. Number two, I think we're seeing people get rewarded more fairly, and we're seeing people get rewarded for an increased share of wallet. I think it's also important to note that over the last two years, we've made a number of changes to the proposition. We've more commitments made for redemption, which customers receive positively. We've reduced things like our carry-on post charges. We've also implemented spend-based earn, which means we issue more money to customers. And now I think revenue-based tier is something which is much fairer. So I think the behavior and the trends that we expected are certainly the ones that we're seeing, which is very encouraging.

And I'd add from a loyalty perspective, we're seeing similar on the Iberia side as well. And we are seeing some evidence that more club members are booking on-air holidays too. So we expected that to be Pastor Jones, and I think we're seeing early signs of that.

Thanks.

And this does conclude our Q&A session. I will now hand back to Luis Ganeo for closing remarks.

Luis Ganeo Thank you very much, everybody, for being here today. As we said, a strong U1. We have limited visibility for the second half of the year, but we are sure that the strategy that we are following and the strength of the different airlines and businesses in the group is going to continue delivering good results. Thank you very much.