International Consolidated Airlines Group S.A.

Good morning, ladies and gentlemen, and welcome to the International Airlines Group Recorded 2025 Results Call. 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, we'll 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, and welcome to the IAG third quarter results. Today I have with me Nicolas Casbury, our CFO, as well as members of the IAG Management Committee. This has been another good quarter for IAG, and we are on track for another very good year. Our strong fundamentals underpin our best-in-class value creation over the long term. We are continuing to see robust demand for travel across the group. Our leading network and brands have helped to deliver a strong revenue performance in the quarter with PRAX broadly flat at constant currency against a record quarter last year. Our transformation initiatives are delivering effective cost control, supporting our competitive flow base on which we are delivering market leading margins at 22% for the quarter and over 15% on a last 12 months basis. As Nicolas will show you, every single one of our airlines has reported a margin over 20% this quarter. This was also one of the best summers operationally that we have ever had, which is also supporting positive NPS performance. Our balance sheet continues to be strong, giving us optionality around our capital allocation. whether that is investing in the business at high rates of return or reducing our gross leverage as we take and encumber aircraft deliveries or as we increase our dividends, as we are doing with this set of results for our shareholders. And we intend to announce further returns of excess cash to shareholders at full year results in February. So for the short term, we are confirming that our outlook for this year is unchanged. And in the longer term, we are confident in our strategy to create value for our shareholders. And on that note, I will hand over to Nicolas to take you through the details for the quarter.

Thank you, Luis. Good morning, everyone. I'm pleased to announce another strong set of results. On the left, you can see the breakdown of the key drivers of the profit increase we've delivered in Q3. These are shown on a constant currency basis, with the impact effects shown separately. We delivered a passenger revenue increase of €177 million, or 2% up. Cargo revenue decreased slightly as we cycled over the elevated yields from the Red Sea disruption in 2024. And other revenue continued to perform well, with the increase including higher IAG loyalty revenues, together with increased third-party revenues from Iberia's MRO business. As we guided, the performance of non-fuel costs continued to improve quarter on quarter, and the increase was partially offset by lower fuel prices. We split out the FX into a separate item, and you can see that we had an 8 million euro overall headwind from FX on profit, with benefits from the weaker US dollar more than offset by weaker sterling euro in the quarter. Overall, we increased profit by 40 million euros on the record performance in Q3 last year. Opco, Iberia, Aer Lingus and Loyalty showed strong profit growth, whilst BA and Vueling profits were slightly down year on year. BA is shown in euros here and so was impacted by the depreciation of sterling against the euro, driving a larger reduction in euro terms than in sterling terms. Now let's look at the operating company's performance in more detail. Aer Lingus increased its operating profits by 31 million euros to 170 million, and its operating margins by three percentage points to 21.6%, despite competitor capacity growth in Dublin. Q3's performance was driven by the expansion of its networks, particularly on the North Atlantic, and the impact of the industrial action of approximately 30 million euros in Q3 last year. British Airways saw its operating profits decline slightly by £18 million and its operating margins remain high at 20.2%. Unit revenues fell 1% driven by the expected softer trading in US sold North Atlantic economy leisure and by 7% capacity growth in European short tour. Non-fuel unit costs increased by 3% driven by employee pay deals and resilience costs not being fully offset by the transformational benefits. Iberia continued to report strong results, with operating profits increasing €56 million to €510 million, and its operating margin increasing 2.2% to 23.7%. Iberia also saw softness in the North Atlantic, driven by capacity capacity into Madrid. However, it was fully more than offset by the continued strong demand in the South Atlantic regions. Non-fuel costs increased by 2.2%, primarily due to resilience costs and higher ownership costs from the new aircraft. Welling operating profit was €20 million lower at €272 million, but at a high operating margin of just over 25%. Good non-fuel unit cost performance was offset by a decline in unit revenue driven by slightly weaker demand, particularly in Benelux and Germany and the UK, as well as the effect of investing and strengthening some of its core markets, which was not fully offset by the strong demand in other markets. IAG Loyalty reported £141 million in operating profit, up £16 million year-on-year, at a margin of nearly 19%. Moving on to our revenue performance in more detail, overall demand for travel continues to be strong, driven by demand for our network and our strong brands. The performance was in line with the guidance we gave in an outlook at the entrance. It grew capacity by 2.4%, with unit revenue declining by 2.4%, and around two percentage points of which was due to currency movements, so only marginally down on an underlying basis against a record quarter last year. If we look at the performance by region, North Atlantic capacity increased by 2.9%, with unit revenue decreasing by 7.1%. It's really important to note that around half of this was due to currency headwinds from both weak US dollar and sterling against the euro. The trends were similar to those we reported at the interim results. We continue to see some softness in U.S. point of sale economy leisure and an impact on our transfer flows of U.S. direct capacity growth into secondary markets in Europe. Premium demand held up well. South Atlantic continues to be the star performer in the network. Unit revenue increased 0.6% on a capacity increase of up 2.9%. Iberia's performance continues to be strong, with the routes to Argentina continuing to perform well, along with routes to Venezuela, Ecuador and Colombia. Europe unit revenues decreased by 6% on a capacity increase of 2.4%. I've already mentioned weak demand for welling, weaker demand for welling, and the additional capacity from British shareways. In addition, there were FX headwinds from the weak sterling euro, representing about two percentage points on unit revenue impact, with Iberia and Aer Lingus performing better. To finish off, Asia-Pacific performed well, and Africa and the Middle East and South Africa partly saw the impact of additional capacity to Saudi Arabia and South Africa. Just turning to Q4, so far we're pleased with the revenue performance, with passenger revenue held positively year on year, including the North Atlantic. We did have a particularly good in-month booking in December last year following the EU elections, so we do have some tougher comparatives over the next few weeks. Despite this, we are confident about the long-haul market in particular. And while it's a bit further away, H1 is so far looking positively. Just to note, as you've seen, the currency impact on P-RASC in Q3 was minus 2%. In Q4, we currently see higher adverse effects on revenue of around 3.5 percentage points, most of which is due to the average sterling to euro rate, which was about 1.2 euros last year. And this year, it looks like it'll be around about 1.15%. Clearly, the majority of the translation FX impact on revenue is offset by favourable impact on costs. I guided last quarter that the increase in our non-fuel unit costs this year would be weighted to the first half of the year, and I'm pleased that we're broadly flat in Q3 compared to plus 4.6 increase in Q2. This is a good performance overall and in line with our expectations. Currency benefited these unit costs by about 2%. Employee unit costs increased 2.9% due to agreed salary increases, which were only partially mitigated by productivity benefits for more punctual operations. Supplier cost inflation was more than offset by procurement-driven transformation initiatives, part of our wider transformation programme. Ownership unit costs increased by 9%, driven by investments in new aircraft products and IT. Fuel unit costs reduced by almost 11% driven by lower commodity prices and the fuel consumption savings from the new generation aircraft we're investing in. We continue to expect non-fuel unit costs to increase around 3% in line with a guidance I gave you at the last quarter. And likewise on fuel, we continue to expect fuel costs to be around 7.1 billion euros. This slide shows our financial results for the nine months down to net profit. Operating profit increased by around 18% and pre-exceptional profit after tax increased by approximately 20% to 2.7 billion euros, which in addition to a lower share count from our share buyback programme, drove a 27% increase in adjusted earnings per share. I'm pleased to report that our balance sheet continues to strengthen. Gross leverage reduced to 1.9 times down from 2.6 at this time last year, driven by the regular maturity of our aircraft financing and paying down IAG bonds. Net debt was relatively flat year on year, despite the shareholder returns, and net leverage decreased to 0.8 times due to the year on year profit improvement. We still plan to keep approximately two thirds of our expected 25 new aircraft deliveries unencumbered. And we still expect to spend approximately 3.7 billion on CapEx this year. This is my final slide. I want to remind you about how we think about capital allocation, which is core to how we create long-term value for our shareholders. Our first priority is to main our balance sheet strength, targeting net leverage below 1.8 times through the cycle, which is a proxy for investment grade. Our second priority is to invest in long-term strength of the business at high rates of return with a focus on rebuilding our fleet, improving our customer experience and enhancing our digital capabilities and advancing our sustainability agenda. We're of course committed to a sustainable dividend return and are delighted to announce an interim dividend of €220 million. This represents approximately 50% of the anticipated annual total dividend. And as with the earnings per share, the dividend per share will also benefit from the share count reduction. Furthermore, with the current 1 billion share buyback programme nearly completed, we intend to announce further returns of excess cash to shareholders at our full year 2025 results at the end of February. We are confident of a strong end to the year and feel that this is a more appropriate time for the board to make their decision in line with pre-COVID practices. And on that positive note, I will now hand back to Lewis.