International Consolidated Airlines Group S.A.

Good morning, ladies and gentlemen, and welcome to International Airlines Group half-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 want to hand over to Luis Gallego, Chief Executive Officer, to open the presentation. Please go ahead.

Thank you very much. Good morning, everyone, and welcome to IAG's half-year results for 2025. As usual, I have Nicolas Cadbury with me, our Chief Financial and Sustainability Officer, as well as other members of the IAG Management Committee. I would like to remind you of the key elements that make IAG a world-class investment case. Firstly, our fundamentals are strong. We have unique strengths in our network, our hubs, and our brands. Our customer base is strong and resilient across all of our areas. And we are growing our earnings opportunity through IAG loyalty and our global partnerships. Secondly, our execution is strong. We are consistently delivering world-class margins through our transformation program powered by our talented employees across the globe. And thirdly, we are creating substantial value for our shareholders through sustainable earnings growth, robust F3 cash flow generation, and significant shareholder returns. We have had a strong first half of 2025. Our new group by 8% reflecting continued strong demand for our network and brands. Operating profit reached almost 1.9 million euros, up 43.5% year on year, with Q2 delivering 1.68 billion euros, an increase of 35.4%. Our transformation program supported a 2.9 percentage point increase in operating margin to 11.8%, as we improve our customer offering and our operations. We are investing in our digital and technology capabilities and our driving efficiency throughout the group. Our balance sheet remains strong with net leverage of 0.7 times giving us flexibility on capital allocation. And we continue to create significant value for our shareholders. We have grown adjusted ETS by 70%. And so far we have announced 1.5 billion euros of cash that we are returning to shareholders I will now pass over to Nicolas for his review of the numbers.

Thank you, Luis. Good morning, everyone. I'm pleased to announce another excellent set of results for the first half of 2025. This slide breaks down the key drivers of our profit improvement, highlighting our strong performance and the benefits from fuel and EPEC tailwinds in addition to our transformation program, which continues to deliver benefits across our businesses. Total revenue grew around 8% to just under €16 billion, reflecting strong demand for our network and brands. Passenger revenue grew 5.6% with capacity up 2.7% and yields up 3.9%, which more than offset the small decline in overall load factors. We delivered good growth in our cargo business, with the IAG cargo team prioritising premium products in high-yield regions such as Asia Pacific and India. Our third party MRO business saw particularly strong revenue growth alongside our growth in loyalty and holidays. The revenue performance more than offset the increase in non-fuel costs, which were as we expected and as previously highlighted, weighted to the first half. We split out the effects in a separate item and you can see we benefited from the depreciation of the US dollar in the first half and the lower effective fuel prices. Putting these together, we increased operating profits by 569 million euros to 1.878 billion euros. Now let's look at how our operating companies performed in more detail. I'm very pleased that most of the operating businesses have delivered improvement in operating profit in the first half. Aer Lingus increased its operating profit by 71 million to 80 million euros, an operating margin by 6 percentage points to 6.8% in the first half. H1's performance was driven by the record second quarter operating profit, with strong unit revenue across long and short haul, disciplined cost control and the benefits of 20 million euros from the annualisation of the pilot strike last year. British Airways operating profit increased £260 million to £824 million, with margins increasing by 3.5 percentage points to 11.7%. This was despite the £50 million impact of the one-day closure of Heathrow in March that we've already mentioned. The improvement in profit was driven by strong demand in the North Atlantic market and lower fuel prices and favourable effects. Iberia continues its excellent trajectory, delivering a €202 million increase in operating profit to €564 million, and a 14.5% margin, which was up 4% percentage points. The strong demand, especially in the South Atlantic, continues, and again we benefited from the lower fuel prices. Welling's operating profit margin was broadly flat in the first half, with the favorable fuel and FX and good leisure demand being offset by the weaker demand in some markets, such as Germany and the Benelux. IAG Loyalty reported £191 million operating profit, broadly flat year on year, but this now reflects the required adoption of HMRC's view of account for VAT on the issuance of Avios, which the group strongly disputes. Excluding this change in treatment, IEG Loyalty would have reported 9% improvement in operating profit to 210 million pounds with an operating margin of just over 17%. Moving on to our regional performance for the quarter in more detail. Overall, we continue seeing strong demand and unit revenue in our core markets during the second quarter. The group capacity by 2.2% and delivered a unit revenue increase of 2.6%. This performance was driven by high yields and helped by a small currency tailwind of 0.4%. If we look at the performance by region, the North Atlantic unit revenue increased by 0.6% in the second quarter on a capacity increase of 1.8%. Although this was lower growth in Q1, we were very pleased with this result given the level of uncertainty in the market and as previously indicated, we also had easier comparisons in Q1 2024. Similar to Q1, our premium cabins performed well and mitigated some softness in US point of sale economy cabin leisure demand. Latin America and Caribbean continues to be one of the star performers in the network. Unit revenue growth increased 5.1% on broadly flat capacity. Roots to Argentina, Peru, Colombia, and Ecuador performed particularly well. Europe unit revenue performed well for tourist and leisure destinations. And I've already mentioned that we saw some weakness in Northern Europe markets overall. And to finish off, Africa, Middle East, and South Asia also performed well despite the impact of the conflict in the Middle East. As noted last quarter, we guided that the increase in our non-fuel unit costs for this year will be weighted to the first half of the year. Non-fuel unit costs increased by 6.6% in H1 with the 4.6% increase in Q2 in line with our expectations. Three factors contributed to the increase. Firstly, approximately 0.6 percentage points, which were attributable to the negative impact of foreign exchange, primarily caused by the strength of sterling against the euro. Secondly, approximately three percentage points was driven by the non-airline business of the group, particularly MRO, but also loyalty and holidays. And in particular, you can see the related revenue benefit for MRO in the increase in our other revenue. And thirdly, about 0.5 percentage points was due to the negative impact of the one-day closure of Heathrow in March. So this leaves an underlying airline non-fuel cost increase of around 2.5 percentage points. Fuel union costs reduced by approximately 10% driven by lower commodity prices and we continue to benefit from the fuel efficient new generation aircraft that we're purchasing. We now expect non-fuel costs to increase around 3% compared to previous guidance of 4%. We have a small increase in underlying costs compared to our previous guidance due to low capacity growth and slightly higher resilience costs. with FX now expected to be a small tailwind in the second half as current exchange rates. On fuel, we have approximately 77% hedge for the remainder of the year and now expect fuel costs to be around 7.1 billion euros. That's $700 million, $700 per metric ton. This slide shows our financial results down to net profit. Pre-exceptional profit after tax increased approximately 60% to 1.3 billion in the first half, which, in addition to the lower share count from our share buyback program, drove a 70% increase in adjusted earnings per share. The 60% increase in profit after tax was driven by an operating profit increase of approximately 44%, as well as lower net finance costs primarily due to the reduction in gross debt as well as FX retranslation benefits. This was partially offset by the increase in tax, which has now broadly normalised this year against the credit that we received last year, stemming from the Spanish Constitutional Court decision. We generated 2.1 billion euros in free cash in H1. Operating cash flow was 3.8 billion in the first half. Although this was incredibly strong, this was a decrease compared to the first half of last year. Whilst we generated 560 million more in operating profit, there was a reduction of 427 million working capital, mainly due to foreign exchange impact on the ongoing and due to the impact of the ongoing impact of VAT payments on our loyalty program. CapEx was 1.7 million euros, an increase compared to H1 2024, but in line with our guidance, reflecting the delivery of 13 new aircraft. We also made a net €447 million payment to HMRC to appeal the VAT ruling in ASU Loyalty, which again, as we say, we strongly dispute. I'm pleased to report that our balance sheet continues to stretch from gross debt reduced €2.5 million compared to the end of last year, benefiting from €577 million bond buyback in January, and the maturity of €500 million of unsecured bond in March 2025. And we also benefited from the FX benefits of about €1.3 billion. Gross leverage reduced to two times. Net debt has decreased to €5.5 billion, down from €7.5 billion at year-end. with net leverage now at 0.7 times, benefiting from the strong results and the seasonal working capital inflow, which we expect to predominantly unwind by the year end. We still plan to keep approximately two thirds of our 25 expected aircraft deliveries this year unencumbered. And just to note, the BA NAPS defined benefit per annual valuation has now been agreed on the pension fund. with the scheme having a surplus of 1.7 billion pounds, an improvement from the deficit of 1.6 billion in 2021, which confirms we do not have to make any deficit reduction payments. As a reminder, ensuring the business is approximately invested in is a priority for us. This slide shows our CapEx guidance for the year, which remains at around 3.7 billion euros. We now expect to take 25 new aircraft deliveries this year, one aircraft fewer compared to the 26 deliveries we expected at quarter one, with one A321 XLR delivery slipping into next year. And as a reminder, this is our gross CapEx expenditure before any sale of these back transactions. And finally, for me, I just want to remind you about how we think about our capital allocation, which, as you know, is core to creating value for all of our shareholders. Our first priority is to maintain our balance sheet strength, targeting net leverage below 1.8 through the cycle, which is a proxy for investment grade. Our second priority is to invest in the long-term strength of the business, with a focus on rebuilding our fleet, improving our customer experience, enhancing our digital capabilities, and advancing our sustainability agenda. And of course, we've committed to a sustainable shareholder return. Firstly, through ordinary dividends, which has been set to be sustainable through this cycle, with the interim dividend announcement moving back to our historic quarter three cadence. And secondly, by returning excess cash to shareholders. We started to do this with 350 million euro share buyback program that we launched in November last year. and we are approximately two-thirds the way through our €1 billion share buyback programme we announced in February of this year, which is expected to be prepared to complete this November. And on that positive net point, I will now hand back to Luis.

Thank you, Nicolas. The foundation of this strong set of results is based on the relentless execution of our strategy to deliver low-class margins and returns. As I mentioned at the beginning, the three strategic imperatives to deliver this are strengthening our core businesses, accelerating capital life earnings growth, and maintaining a robust financial and sustainability framework. Our medium term mission is clear, operating margins of 12 to 15%, return on invested capital of 13 to 16%, and net leverage below 1.8 times through the cycle. This time last year, we presented this next slide to highlight the three biggest near-term driver-specific ambitions. Last November, we told you how we are transforming British Airways, taking it from a 10% margin business in 2023 to 14.2% last year, and we are making good progress towards delivering its 15% margin target by 2027. Last month, we told you how Iberia has transformed from losing 1 million euros per day in 2012 to an operating profit of just over 1 billion euros in 2024 to a business that is targeting to deliver 1.4 billion euros of operating profit at a margin of between 13.5 and 15%. And next year, we will give you more detail on how IAG loyalty plans to deliver higher margin cash generative capital life earnings growth for the group from just under 500 million euros in profit last year. We have a diversified portfolio of leading positions in our core markets. In the North Atlantic, London to the US is the world's largest premium and travel market and British Airways is the market leader so it is continuing to build its presence in this highly attractive market. At the same time, the delivery of the first Airbus 321 Extra Long Range to Iberian Aer Lingus is opening up a highly profitable plugin through frequency, seasonality, and point-to-point network opportunities that rely on the unique positioning of IoT's hubs. Spain to Latin America is a fast-growing and highly attractive market with a re-investing in frequencies to core cities. Fairly, the intra-European market, including the Spanish domestic market, is one of which the IEDs, airlines have strong and focused positions. Welling is strengthening its market share at its Barcelona hub, and Iberia is enhancing its short-haul period traffic. Elsewhere in Europe, Erlingus is adding leisure routes and British Airways is building its point-to-point leisure markets through Euroflyer and Cityflyer. The biggest driver of customer satisfaction and efficiency is on-time performance, which has improved significantly in the last couple of years. British Airways delivered a 10.6 percentage point increase in on-time performance in the second quarter, driven by its new HIPRO-operated model supported by digital and artificial intelligence-driven tools to speed up and improve decision-making. Airline rules also show strong improvement, also through ground operation initiatives and technology support, while EV and Boeing remain among the most punctual airlines globally. This is all despite ongoing challenges from air traffic control, as well as the steeper closure in March and geopolitical disruption in the Middle East and Ukraine. For our customers, we are investing in strengthening our brand propositions at every stage of the travel journey. On this slide, we have given you a small selection of examples, but in reality, there are thousands of things that we are doing every day to make our offerings the best for our customers. These investments are designed to make their travel experience more personalized, seamless, and resilient. As a result, customer MPS is strong across the globe, up by six points in the year to date, particularly driven by improvements at British service. Cost transformation remains central to our strategy as we look to deliver our businesses to their full potential. This is through initiatives to deliver efficient and productive operations, use our economies of scale to get the best deals and to reduce overheads. On this slide, we have given you some examples across each of our areas where we are combining our expertise in the airline sector with better, leaner processes and leveraging the development of digital technology. This is also an appropriate point for me to mention that today we are announcing that we have allocated the 50.737s that we have ordered to Boeing. They will be delivered from late 2026 onwards. All of these initiatives are a fundamental part of growing our earnings, margin, and returns in the medium terms. IAG loyalty continues to grow strongly as they expand their airline and non-airline partnerships. We have recently launched a partnership with Le Chateau, which has seen 15 million avios issued, as well as announcing tier point earnings with American Express. In the first half, average insurance was up 70%, credentials up 15%, and active customers up 9% year-on-year. British Airways holidays also performed well, with revenue up 8% and beach destinations growing 18%. Underpinning all the above initiatives, our people are at the heart of our success. We created around 2,500 jobs in the first half of this year, which will help to deliver improvements in customer service, resilient operations, and transforming the business in the long term. We continue to invest in their skills, development, and careers, which is reflected in the awards that we win. And we have reached multi-year agreements with most of our teams, including new deals with VA's non-pilot group and Averia's cabin crew. We are continuing to make good progress on sustainability. We have secured over 200,000 tons of sustainable variation fuel for 2025, 25% more than last year. We signed a landmark scope-free agreement with Microsoft and continue to lead policy development through initiatives like the UK SAF revenue certainty mechanism. We remain committed to advancing SAF policy and reducing our environmental impact. Looking ahead to the rest of this year, we expect to deliver good earnings, growth, and margin progression, which is delivering strong shareholder returns, while being mindful of ongoing geopolitical and microeconomic uncertainty. Demand remains strong across our core markets and brands, with premium carrying a strength partially offsetting some softness in U.S. coin-of-sale economy ratios. As of 29th July, we are around 57% booked for the second half of the year, in line with last year. And we remain confident in the longer-term outlook for our business. And on that note, we will move now to the Q&A session.

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 1 on your telephone keypad. We ask that you please limit your questions to a maximum of two. We'll pause for a moment to assemble the queue. We will take the first question from the line of Andrew Loebenberg from Barkeys. Your line is open.

Hi there. Congratulations on the super numbers. Can I invite you to talk to us about the headlines of the day out of Heathrow? and how you expect the process to move forward with the Heathrow proposal and indeed the competing Aurora proposal that I think you're more supportive of. And as a second question, could you update us please on what's happening with the revitalisation of the app and web at BA? Because it looks like that timeline seems to be slipping. But yeah, where are we going with this? or if that's at BA. Thank you.

Good morning, Andrew. Thank you for your questions. About CIPRO, we are going to work with both parties to understand their cost proposals better. They have just submitted two credible proposals. And to be honest, we are open to different options to reduce the cost, to reduce the investment, and to reduce the complexity. The good thing is that we are sure that competition is going to be good to improve things. We have seen in commercial aviation how competition has helped to have better price and better products, and we are sure this is going to happen also at the airport. But in any case, this is a huge investment. We continue saying that we need to change in the regulatory model in order to have a runway that can be affordable to take heat rope It's the most expensive airport in the world. And if we don't have control about the level of investment, we can duplicate what the passengers are going to pay. And then this growth that all of us, we want, we have the risk that it's not going to happen. So as I said, we are pleased that there are two proposals, and we are going to work together. to see how we can help in this. And I want a second question.

Yeah, Andrew, if I give you a broader context about some of the digital transformation we're undertaking, there's a couple of key enablers of the transformation that are now live. One is the new Redman system, which went live two weeks ago, and that's a pretty critical interface with the new digital experience The second migration we've undertaken in the last couple of weeks as well is moving to a new checking system. So we've decommissioned our old flight system, and we're now an Anodeus GFE. And the third thing we have rolled out is a new payments platform, which is live on MDC. So they're critical sort of enablers of the broader digital transformation. In terms of .com, about 25% of our revenue and about 85% of our roots is going through the new .com booking flow. So we're able to analyze a control group of the new experience versus a control group of the old experience, and that's pretty exciting. And in terms of the app, as I was saying, With so much change going on and other modernizations, we weren't going to roll the app out for a piece cover, but we're looking at Q4, Q1 to get that fully operational in the network. So broadly speaking, we're on track. We're very happy with the rollouts that we've implemented. And in terms of our kind of expectations versus our original plan, we're where we need to be.

Thank you.

Your next question comes from the line of James Holland from BNP Paribas. Your line is open.

Gracias, gracias. Two for me. Just on the US point of sale economy leisure, clearly your statement was almost verbatim what you said at Q1. I was wondering if there had been any sign of economy leisure or US point of sale getting any better or indeed any worse, and whether there's any sign of weakness the other way around. Clearly you've not flanked it, but just wondering... out of view there and secondly on the other revenue um again nicholas you talked about that i think normalizing to about 20 after going nuts in q1 i think q2 is still up 30 maybe give us some a feel for what it might be doing in h2 i know it's quite short term maintenance but um any guidance will be useful thank you okay so thank you so about your first question uh

In North America, we have a strong first half, as we have seen in the presentation. When we look at the second half and the bookings that we have, we still see some softness in the U.S. point of sale in economy leisure, but it's true that this is partially upset by the strong premium cabin. what we see is a trend that is slowing slowly sorry improving but we have volatility to be honest this week we are following carefully what is happening because we don't see a clear trend Yeah, just kind of other revenue as well.

You can see it's been a very strong path of other revenue and it wasn't just maintenance as well, it was our holiday business and our loyalty businesses which were up strong as well, but particularly strong from our maintenance business. I think it was up about 40% in the first half of the year. I think that kind of reflects that kind of all the airlines are having to work harder on engines and get them ready for the summer overall. So as we said at kind of Q1, we would expect that to moderate through the year and we expect kind of typical other revenues to roughly be around about 20% up to the full year.

Okay, thank you.

Thanks, Tim. Your next question comes from Stephen Furlong from Davie. Your line is out to me.

Yeah, good morning. Maybe two questions, but I think they're probably for Nicholas more, maybe. It's topical in the IT sector at the moment, but the level of investments that are needed over the next couple of years, so the airline industry obviously has been delayed in delivery, so CapEx is going to step up over the next couple of years, so can you just talk about that again, and how that helps your franchise. And then just related to that, it just seems to me that the market seems to underestimate the level of free cash flow in the business. So I guess generally or generically in the future, I assume the biggest driver is the operating performance. But is there stuff going on in the next couple of years below that line? Maybe people are underestimating working capital or cash taxes or lack of restructuring provisions or something like that. That would be great. Thank you.

That's right, yeah. Just in terms of capex, what we said for this year, we said we'd give about €3.7 billion of capex next year. Then we said for the next two years, we would expect it to step up to round about €4 billion, maybe a little bit shorter than that next year overall. And just we kind of do remind everyone that when she gets to 2029 to 2030, that's when you start hopefully getting the big kind of step up in Boeing and Airbus's delivery and production facilities. So that's when you do get a step up in. So we gave guidance overall for the next two years to put £4 billion into your models overall. As we said, historically, we've spent about £1.8 billion a year on non-fleet CapEx, and that's particularly around ID, around property, around lounges and refurbishing of that. So we think that kind of level of spend will continue. for the next couple of years, but we think that will give us a long-term benefit and payback kind of over time. So we think that's the right thing to do. I think you're going to comment on free cash flow. I think you're right. As you know, we did a teaching last year on free cash flow. I think we've still got some way to go. I think people are getting a better understanding of it, I think. particularly when we speak to investors in terms of our cash flow, but I think you're right to kind of keep growing that. But I think, you know, we've got a positive working capital flow overall. It always depends on which way FX is going. We've got our taxes we just said is normalising over that time, but despite that, We're a strong kind of cash flow business. I think the bit that people will probably be underestimating is the kind of consistency of delivery that we're delivering on our EBITDA, actually, overall. So I think that's the bit that's probably missing overall. But that strong kind of cash flow has given us a strong balance sheet, which has given us, you know, real flexibility about how we invest in the business, how we continue to strengthen our balance sheet, but actually also shareholder returns as well. Does that answer your question, Stephen?

Yeah, that's great, Dave. Thanks very much.

Your next question comes from the line of Alex Irving from Bernstein.

Your line is open.

Good morning, too, from . First of all, to come back to Sean and the new RN system at BA, how is this performing so far, and what sort of rapid improvement are you hoping for as your previous RN system when it's all budged in? Second question, we're a few months on from some of the changes to the exec club from earlier in the year. Is this having a discernible impact by now, either positive or negative on, you know, revenue? What impact do you expect it to have for the next couple of years?

Thank you. Yeah, if I were to just replay it, it's how the new RevMan system is going is the first question, and the second question is about the changes to the club. Is that right, Alex?

Yeah, it's just going to be blinding. Correct, so the impact on the club. Yes.

Yeah, and I think one of the big benefits of the new recommend system is our ability to implement what we call dynamic pricing. So historically, airlines would be limited to the number of lenders and the asset in terms of inventory buckets. And our ability to do trade-off pricing between those selling classes was relatively, I wouldn't call it clumsy, but limited. Now we can put a lot more step-ups and trade-offs into our pricing ladders. And too early maybe to give you an assessment of the impact. We're only trialing it for the last three weeks, but my teams are very excited about its potential. In terms of the club and that we've added here as well, we've seen executive club or club revenue perform in line with our broader network. So no discernible difference between the revenue coming through people who are members of the club and the revenue coming through our wider network and it's growing in line with the capacity that we've expanded the airline by. I think we are in the transition phase. What we are seeing is, you know, people who were, you know, booking high-quality revenue and holidays are getting tiered earlier and we expect our tier sizes to be broadly at the same level they were pre-change. But there will be some people who get in there who use engagement and some people will drop out who were in those tiers historically. So, you know, that's part of the transition that we are forecasting and expecting. Yeah, I would agree. Adam Daniels here. Just to update, particularly on the holiday side, we are seeing an increasing number of the BA club members start booking the show race holidays, and we're seeing that in terms of the quality of revenue that's coming as a result. So certainly those people that are doing that are increasing their chances of retaining and, in fact, going to the next year as well.

All right. Thank you.

Your next question comes from Sally Smith from Raymond James. Your line is open.

Hey, good morning, everyone. I'm just curious if you could provide an update on, you know, what you're seeing on the kind of corporate and cleaning and leisure side across the various kind of geographic areas. And then if I might also... Yeah, on the... Just a little bit of a longer-term question. Taking this... taking a step back.

Sandy, you're breaking up. Sorry, your second question. We haven't got your second question.

Sorry, yes. So, for the first question, just if I might, on the corporate, just what you're seeing on the corporate as well as premium leisure size. And across the various entities. And then second, maybe on the just a longer-term question, just on the price-sensitive segment, kind of your view on what, in intra-Europe and domestic Europe, like, what the impact of these rising kind of taxes and fees and SAF requirements might mean for kind of price-sensitive demand, especially as you're looking to kind of invest even more in welling.

Thank you. So, IE business passenger volumes dropped in the second quarter close to 8%. It was a smaller amount, minus 1%. The biggest decline in volume was in Iberia. close to 12%, but the decline in revenue was less than that, around 7%. And in the case of British Airways, we had a decline in volume, but in revenue, we were almost flat. So North America point of sale, following the announcement of tariffs from US government, we saw some volatility. And in British Airways, the corporate revenue in the second quarter was minus 3% in comparison with last year, with a huge impact in April, but mainly because the Easter this year was in the second quarter. But we maintain, in the case of British Airways, the target to improve the business revenue for this year. even driven by North Atlantic that we see is recovering. And in the case of leisure traffic, the premium leisure revenue in the second quarter, the case, for example, of British Airways was 7% above what we had last year. So things are doing well. I don't know if you want to add something.

Yeah, I think, you know, the Easter effect is one thing to bear in mind. But we are seeing, you know, North Atlantic revenue, if you look over the past, business revenue was up about 4% and North Atlantic was up about 7% in that context. So that's encouraging.

I think maybe to add just on the Latin America part, that is the part of Greece performing very strong, so we are ahead both in revenues and volumes, not only from 2024 last year, but even compared to pre-COVID in terms of revenues, we are 8% ahead of last year and 38% in the first half compared to 2019.

I think your second question was about the impact of taxes in Europe. I think you're probably referring to kind of the taxes we've seen in Schiphol and Amsterdam. So, currently, to give a phrase of what the signal is running.

Of course. So, in the Netherlands, we've seen last year a 19% tax increase. It has had an impact. So... Although we had fields going down, we couldn't get to the lows we wanted, and the result of everything together was we couldn't pass the taxes through. So this is having an impact on demand clearly.

Do you see that as a longer-term issue? Just looking just multiple years, is this a concern where maybe the price-sensitive pie is going to shrink over time?

I think we've always said, just in terms of our approach to Europe, that it's a very positive market for us. We're very strong in terms of leisure destinations and city destinations. We're quite cautious in terms of what the impact of the EU's approach to what sustainable aviation fuel headwinds are going to be. So we're kind of cautious about the amount of growth we put in there overall. We've always prioritised our long-haul growth. given the kind of margins we may have made, particularly across the South and North Atlantic as well. But we do see a kind of specific opportunity, particularly in dwelling, to grow that kind of leisure destination, and particularly the excitement of getting the new 737s in, which is going to make it more efficient business, help improve its margins overall, which will really give kind of great benefit to our kind of customers and to the business.

I appreciate all the call. Thank you.

Your next question comes from Jared Castle from UBS. Your line is open.

Morning, everyone, and a very strong set of results. Don't know how much colour you can give, but just wanted to see if you could say anything on where things stand with you and the tap process at the moment. And then secondly, we've got the UK autumn budget coming up. Again, don't know how much you can say, but you know, any conversations you're having with the transport minister, especially in the light of Heathrow and, you know, how potentially that could affect your business, I guess, in October. Thanks.

Okay.

So, about the first question about the EAP. So, you know that the government on the 10th of July, they announced that they were going to privatize part of the company. In the first place, they announced 49%, but that includes a 5% right for employees. We are waiting that they sign this, and then we have clear indications about how the process is going to be and the conditions. We said in the past that we are interested to see if it's something that can be good for the group. And we think that the best place to develop TAP is a group like IAE. We have shown how the different airlines that they join the group, they improve their performance. And also we see that we have very complimentary networks. And also we have a vocation And I think that's something that is good for the development of TAP. But as I said, we need to wait to see the conditions. And we cannot obtain the margins that we have in the group between 12 and 15% in the different airlines if we don't have the freedom to do the right thing to develop the business. So that is going to be the main concern for us in this process. And about Heathrow, we talked before, we support the expansion of Heathrow, but if we have the right regulatory model, the current regulatory model, to be honest, I think it doesn't matter, the proposal, because at the end, the customers, they need to pay almost double of what they are paying today. And today, Heathrow is the most expensive airport in the world. But we agree with the agenda of growth, but what we don't want is a new terminal empty. So what we need to work together is to define the best proposal, the most efficient proposal and affordable to develop the business.

Just a couple of topics in relation to your statement. If we think about things we are doing with the Department of Transport, we welcome the progress of sustainability and the move to enact a revenue certainty mechanic for staff production. I think that's a very positive development. Also, the speed at which we're moving forward on airspace reform, which will be critical to enabling the expansion that we foresee on the ground. At the same time, like every other business, we've got to make sure about the burden on businesses that we're already bearing, whether it's national insurance, and the inflationary effects of some of the policies we've seen that need to be tempered. But we are working well with the Department of Transport on issues like airspace and sustainability, which we welcome.

Great. Thanks. Your next question comes from Barry Giles from JP Morgan.

Your line is open.

Yeah. Good morning, everyone. First question, just on your revenue comment for H2, you say that books revenue is Is it in line with last year? Can I ask, you know, within that, what are you currently expecting or seeing in terms of the FX impact on that revenue over the second half? And then second question, just on the lower capacity guidance for this year, I'm actually a bit more interested in 2026. So do you think that lower capacity, you know, that you've guided to is more structural or will that just be added back?

next year and then just maybe whilst we're there how much capacity growth are you actually penciling in for uh for 2026 at the moment thanks a lot okay so maybe i'm going to start with the second one and then nicholas will talk about the effects in the revenues so uh this year we are reducing uh the capacity uh for the full year uh from three percent that we said to 2.5 percent uh and I think one important part is related to the resilience that we are building. You know that we have also issues with availability across the group. Also conflicts around the world, particularly in the Middle East. We need to reduce flights. And ATC across Europe, and in particular France, you know that the situation is even worse every summer. So we build resilience in the different airlines. uh and we are delivering good results when we look at the puntuality but uh uh we we need to come back to a normal situation in the future and then we will have more capacity and uh other revenues uh nicolas and effects yeah just on the effects it's probably back kind of one percent

kind of headwind for the second half at the moment, but you know, ethics will be moving around a bit, so it gives us a little bit favourable on the costs and a little bit of a headwind on the working.

All very clear. Thank you both.

Your next question comes from the line of Jamie Roberton from Deutsche Bank. Your line is open.

Morning, gents. Just one from me. I wondered if you'd be willing to talk a bit more about the North America BRASC. So obviously it slowed from 13% to 1% in Q2. I just wondered how negative you think that could go in Q3. I suspect the trough then will come Q4, Q1 when the comps get very tough and then we might see an improvement when we're comping the current quarter this time next year. But maybe just some thoughts there. On the shape of that, especially as you said, you've been seeing some slow improvement in transatlantic demand in recent weeks.

Thanks. Thanks, Jamie. I liked your heading of your notes this morning, still delivering, but that was right on target. Thank you for that. So just in North America, we did see a slowdown from Q1 to Q2. I'll just remind you that in Q1 2024, which was kind of just the beginning of the kind of conflict in the Middle East, we had seen a kind of soft period. So we saw particularly strong economic, slightly easier comps for this year overall, which is why you saw very strong comps in Q1 this year overall. We're probably not going to go into too much detail overall. We've got capacity in the North Atlantic continues to grow around about kind of 2% overall. And as Lewis said overall, that it's going to slightly down overall revenue of kind of year on year at the moment so but as you said it's been quite volatile it's been improving slowly over the last few weeks a lot of them deteriorating which is positive but as I say it's quite volatile so we kind of don't call that a trend yet.

And at the same time, as Mark was speaking, we do see continuing the strength in South America. You've seen that in H1, we've had a rough improvement over the last increase, both of ourselves and the market, and we do see the positive trend to continue.

Thanks, guys.

Thanks a lot. Your next question comes from the line of Muneeba Khayeni from Bank of America. Your line is open.

Good morning. Thanks for taking my questions. Firstly, just wanted to ask on your thoughts around the buyback at this point. The current one ends in November. Leverage is well below 1.2. Kind of how is your thinking for another buyback in November potentially? And then secondly, just a bit more on capacity. What are you seeing from the industry capacity across the main market? You know, you've talked about strong demand and some of these improving trends. Do you think there could be more capacity coming back on the transatlantic? So, just what you're seeing on that. Thank you.

Okay. So, I'll start with the second one. Capacity. What we see for the third quarter and the fourth quarter, is Europe to North America capacity in Q3 and Q4 is going to increase around 3% versus last year. But when we look at our FAPs, in the case of Heathrow, it's going to be a capacity almost flat. We see an increase, important increase, again this summer in Dublin. American carriers are having capacity there. and we have an increase in doubling of around 9% in comparison to the capacity that we had last year. In case of Europe, Latin America, we see also an increase in capacity from 3%, and in the case of Madrid, Latin America, the increase is similar. We see around 3%. We see that the American currency in general They are moving capacity from the north to the south and then we have places like where they are locating more capacity. But in general, in the North Atlantic, especially in the situation of downing, we see a good environment for the last quarter.

On the share buyback, there's an approach to it as well. We finished the quarter with 0.7 leverage, which is a good position. It came from a strong operating performance. It also helped as well by a little bit of FX as well. FX gave us probably about 0.1, 0.1 to 0.2 benefit over that period. And I think, as I said, consensus for the full year is around a kind of 1 to 1.1 overall. So that kind of puts us in a – it's a really nice place to give us kind of flexibility and gives us options overall. I'll leave it to discussions we're going to have at the board in Q3 about how much we give back in terms of share buyback and dividends, but I think our overall approach to it there's always been, we want to make sure that the dividends are sustainable. So I think you'll see moderate increases in dividend in Q3 overall. And although we've had a really good rise in our share price over the last year, we're still on a P ratio of kind of six times overall, which if you look at our long-term average of kind of eight times, and if you look at where the U.S. carriers are eight, nine times at the moment, and we're servicing similar markets, then we still think that actually the right thing to do is to prioritize the shareholder program going forward. So I think that leverage and that kind of mentality gives us a kind of good opportunity, positive outlook on where we should be going in the next year.

Thank you.

Your next question comes from Kasia Bank. Your line is open.

Hello. Thank you for taking my question. So the first one on ex-fuel unit costs, you have a relatively benign environment for the second half of the year. The comparison basis is going to be inflated for the early part of 2026. So, is there any initial thoughts that you could provide us on your expectations for X-real unit cross-evolution in 2026? And secondly, on Vueling, I appreciate your comments on the allocation. Is there any initial idea that you could provide us on where this is going to be allocated? Thank you.

Just on the Vueling, we've got about three aircraft being allocated in 2026.

Yes, it starts in 2026. We're going to work on the plans and give more information later. But the first planes will come to

Right at the end of the year, if they will. And on ex-fuel pricing for next year, we'll probably give you a bit more kind of colour of there, but we know the ex-fuel is six months rather than give that now. We're focusing on making sure we deliver that 3% that we've committed to you today. So, if they will.

Okay, thank you.

Your next question comes from the line of Gerald Hughes from Pannier Ligurium. Your line is open. Morning everyone, a couple from me if I can. Starting with the 177's going to dwelling. I might say that's going to leave dwelling with a mixed fleet at least for the time being and what's your plan to firstly mitigate the cost and complexity from having a mixed fleet and secondly is that going is that likely to stay a mixed fleet in the long term and secondly on BA holidays I think you talked about beach holiday beach destinations being strong Can you just clarify, when you say beach, do you basically mean Mediterranean, or does that include Caribbean? And more broadly, what's the shape of the destination mix for BA Holidays, long haul, short haul, beach, or non-beach? Can you just give us some comments in terms of what the important destinations for that business are, please?

Okay, so the first question about the wedding, please, So what we have announced today is that the 50 Boeing 737 that we have firm orders, we are going to allocate in Boeing. The intention, for sure, is that at the end of the process, we replace the whole fleet of Boeing with Boeing products. but that is going to be dependent on the performance of welling for sure. If welling complies with the plan that we have, then the intention is to replace the fleet and to reduce in a reduced period of time understanding that is going to be a long period because we are talking about a lot of aircraft. So we are talking about maybe six years of replacing aircraft if we can comply with the plan.

And about, of course, having a mixed fleet for some time creates inefficiencies. We have a very strong plan to minimize those inefficiencies. Of course, we have to recruit, we train and everything, but we have plans to mitigate that. And this is, for RENI, I have to say, great news, because RENI has been in a strong transformation process. You can see the results on our non-fuel class evolution in the last year. And this will be absolutely key to help us, along with transformation, to restructure our cost base and amplify the growth opportunities for wealth.

And about... Yeah, sure. So in terms of when we're talking about beach and the link, that's primarily focused on short-lived beach. So we are seeing some good strength there, particularly in places like Corfu, Greece generally, Malaga is very strong. But we are seeing also some strength in other beach destinations, so certainly in the Indian Ocean, Dubai and Caribbean is certainly coming back I think as well. So that's where we are in terms of beach destinations. Chilwell Beach is our biggest segment and performing well.

We look forward to seeing your holiday booking coming through Gerald. Your next question comes from Rory Cullinane from RBC Capital Markets. Your line is open.

Yes, good morning. I did miss the beginning of the call, so if it's already been addressed, please ignore me. But in the last 12 months, you've delivered a 15% EBIT margin, so you're slightly over-earning relative to the midpoint of your medium-term margin target. Would you accept that, or are your targets now

bit conservative thank you uh just if we just finished the course of kind of the legislative kind of just under 12 percent margin over overall for the half year uh it was a good progress year one year overall we've got our margin of 12 to 15 percent uh targets we've kind of reiterated that just in in march so i don't know who's to kind of go on top of that i think the thing kind of there's there's a few things we've seen a strong market at the moment you'll see a kind of favourable fuel price you're seeing favourable effects and there's always opportunities at the top end of those range at the moment but we think the best thing to do is kind of keep with that guidance at the moment okay thank you yeah it was the last 12 months was the 15 thanks for his comment There are no further questions. I want to hand back to Luis Gallego for closing remarks.

Okay, so thank you very much, everybody. I think to wrap up, we have seen another strong set of results. We are operating with very good brands in very robust markets, and I think the most important thing is through our transformation program and the execution that we are having. We are delivering what we are promising to you every quarter. And we are going to continue working hard to achieve the results that we want for the rest of the year. And I wish you everybody a very good summit. Thank you very much.