International Consolidated Airlines Group S.A.

Good morning, ladies and gentlemen, and welcome to the International Airlines Group Full Year 2025 results. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session throughout 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 to Luis Gallego, Chief Executive Officer, to open the presentation. Please go ahead, sir.

Thank you very much. Good morning everyone and welcome to the IAG 2025 full year results. As usual, I'm joined today by Nicolas Cadbury, our CFO, as well as the other members of the IAG Management Committee. I'm pleased to be announcing a record set of results today, highlighting the excellence of IAG's performance in 2025. We are delivering for our customers as our investments in operational and customer related performance have led to another year of improving punctuality and customer net promoter scores. We are delivering record operating profit, operating margin and return on invested capital. And we are delivering for our shareholders through the increased dividend and new excess cash returns of 1.5 billion euros. This is a significant increase on the 1 billion euros buyback we announced last year. We continue to see a supportive demand environment that encourages our positive outlook and as a result we are planning further excess cash returns in future. And we look to the future with great confidence as we continue to leverage our business model and execute our strategy which will create value for our shareholders in the long term. In 2025, we have delivered world-class financial performance in each of our key metrics, continuing our track record over the past few years. We continue to grow revenue with robust demand for travel in our markets. Our operating profit and operating margin are now both at record levels, and our earnings per share has increased by over 22% this year. Our balance sheet is now in a very strong position. This has benefited from the strong free cash flow that we are now consistently generating, despite a big step up in capex during the year. And for our shareholders, we are creating significant value by earning an excellent return on invested capital of 18.5%. The fact that we are delivering strong results is not an accident, starting with the fundamental premise of IAE. Our group structure promotes excellence and accountability, while providing the group level support and direction that individual businesses benefit from. Our portfolio contains diversity of markets, brands, and business models that continually increase the resilience and sustainability of our performance through the cycle. Bringing this together is the secret sauce of IAG and set us apart from any other airline group. Moving on to our strategy and targets, we are sticking to what make us best in class. Our three strategic imperatives are designed to make our business stronger, more resilient and less cyclical. We have set out margin and return on invested capital targets that are appropriate for the group through the cycle, and we believe support a more sustainable long-term future. We are pleased to be delivering results that are at or above the top of those ranges, and we will continue to target the full potential for all of our businesses through our transformation program and capital allocation process. Ultimately, we want to create value for shareholders by delivering sustainable profitability and creative growth in the long term. Over the past couple of years, we have highlighted three major areas where we could create significant value and we are delivering on our commitments. British Airways has already reached its 15% margin. but still has more to deliver on its transformation program, including the commercial platform and fleet deliveries. Iberia is well on the way to its €1.4 billion profit target, with an exceptional margin last year of over 16%, and will continue to grow profitably in its core markets. and we will tell you more about the loyalty exciting potential at our investors day in june both as a business in its own right as a significant contributor of value to the overall group performance and on that note i will pass over to nicolas thanks listen hi everybody uh a piece to share off with your results

This first slide shows our very strong operating profit and margin performance. We've delivered a record operating profit of 5 billion and 24 million, up 581 million versus last year. This is driven by a strong passenger revenue growth and also good other revenue growth from loyalty maintenance and also sustainability incentives and supported by the lower fuel bill, of course. Our cost performance was in line with expectations and with the guidance previously provided to the market. I'm pleased with our margin performance, which continues to rank among the best in the industry at 15.1%. It sits at the top end of our target range at 1.3 points higher than last year. On the right side, you can see how our strong markets, hubs and brands drove this exceptional performance in all our businesses, which we will detail in the next slide. All our operating companies delivered excellent results this year, building on the strong performance also achieved last year. Ellingus delivered a strong improvement in 2025, increasing its operating margin to 11%, with operating profits at its second best level on record. The airline was affected by industrial action in a base there last year and managed to hold unit revenue flat while growing frosty. This was despite a very tough competitive environment in Dublin, particularly from US carriers, that is ongoing. Alongside this, Airlink has delivered strong cost for discipline, supported by its transformation programme. British Airways delivered an excellent margin performance at the upper end of the group target range. This was supported by strong premium leisure and improving corporate demand, with cost performance reflecting investments in the business alongside its transformation programme. Iberia also had a tremendous year, reaching a record 16.2% operating margin. The airline made excellent progress against its flight plan 2030, delivering €1.3 billion of operating profit this year towards its €1.4 billion ambition. Driven by the strong revenue performance, particularly in Latin America, Iberia's costs were particularly affected by engine availability on both long haul and short haul, leading to extra disruption and resilience costs. The cost increase also includes the cost relating to its growing MRO business, which was particularly strong in the first half of the year. VLAIM delivered a robust set of results, generating an operating profit of 393 million and a 12% margin, among the strongest in the European low-cost sector. Revenues reflected a softer summer travel environment in parts of Europe, particularly northern Europe. partially offset by the continuing strength in the Spanish domestic market. What really stands out, however, is Welling's strong cost performance that Lewis will touch on later. And IAG loyalty, including holidays, continues to deliver high-quality, high-margin earnings. The business yet again delivered the 10% margin growth ambition we set for it, supporting £469 million of profit and an 18% margin, excluding the impact of the VAT dispute with the HMRC, which is subject to ongoing litigation and we feel confident the operating profit would have reached over £500 million. Turning now to our revenue performance in more detail, overall demand for travel remains strong throughout the year, underpinned, as just mentioned, by the diversity of our network and of our strong brands. Capacity grew by 2.4% in line with our guidance that we gave at Q3 results, and we'd live an increase of 1% in passenger unit revenue at constant currency, flat on reporting basis, a solid outcome against a record 2024. If we look at the default performance by region, we are pleased with the North Atlantic performance, where we grew capacity by 1.4%, with unit revenues up 1.5% in constant currency, and importantly showed an improving trend as we went through the second half, with Q4 unit revenues up 1.8% in constant currency. Underneath this trend, we're consistent with what we highlighted throughout the year, with good premium demand partially offset by some softness in U.S. point-of-sale economy-led demand and continued impact from U.S. direct capacity growth into our hubs in Dublin and Madrid and secondary European markets. BA drove the Q4 performance with unit revenue and constant currency increasing strongly year on year, driven by strong premium cabin and business travel demand, particularly from the US point of sale, despite a tough comparator last year. Latin America being the strongest performer in the network, our capacity increased 3.3% with unit revenue at plus 3.3% as well at constant currency. Iberia delivered another excellent year and drove the Q4 performance with premium cabin, Latam point of sale and business travel all performing strongly. In Europe, we increased our capacity by 2.2% with unit revenue down 2.1% in costs and currency. As mentioned earlier, this reflects the softer demand in parts of the summer and also the additional British Airways capacity. Domestic saw a growing capacity by 2.2%, with unit revenues flat for the reflecting strong demand, particularly in the Canary and Balearic Islands. In Africa, Middle East and South Asia, it increased capacity by 2.7%, with unit revenue up 0.8% of constant currency. And finally, Asia-Pacific delivered a strong recovery, with capacity up 6.4% and unit revenue up 4.2%. supported by a refocus of the network towards stronger performing markets such as Bangkok and Kuala Lumpur and the full year impact of Iberia's relaunched routes to Tokyo. As per this year, we're planning to continue to grow the business in a disciplined way with capacity up around 3% in 2026. And briefly touching on what we're seeing so far this year, we're seeing a strong Q1, including the North and South Atlantic, and some additional benefits from the shift to an earlier Easter. At this point, I'd just like to highlight the FX as a major factor. Over 2025, we saw the pound weaken against the euro and the dollar weaken against the pound and euro. At these current rates, you will know that there will be a significant FX headwind on revenue this year, particularly in the first half of the year, which will be reducing progressively into the second half. And of course, this will apply to our cost base in the reverse with a favourable FX impact. Total unit costs improved 0.4% and non-unit fuel unit costs increased by 2.8% year on year, actually in line with our guidance. This full year cost performance benefited from FX movements of 1.3%, although it's worth noting that the increase in costs relating to the growth of other revenue to the MRO also drove around 1.3% of uplift as well. So both the FX and the other revenue costs neutralised each other out. Employee cost unit costs increased 3.8% driven by operating investments and payments linked to strong financial performance. Supplier unit costs rose by 0.8% with transformation initiatives helping to offset inflation pressures and support investments in our customer experience. Ownership costs increased 10% reflecting the new aircraft, cabin retrofits, lounge upgrades and digital platforms, all of which offer the benefit of our customers. Those impacts were partly offset by a 9.1% reduction in fuel costs driven by lower prices and partly offset by an increase in carbon-related costs, both ETS and Corsair. We remain confident that our transformation programme will continue to underpin cost efficiencies as we move forwards. For 2026, we expect non-fuel costs to be down around 1%. That includes a benefit of around about 2%. So, in other words, they're up 1% on a constant currency basis. Fuel prices have been very volatile. On the 31st of December, our fuel bill, based on the forward curve, then was estimated to be 7 billion euros, including 62% hedge that we have in place. Since then, jet prices have increased following the recent escalations and tensions in the Middle East. So based on the current forward curve, we can see an increase to around about 7.4 billion euros. We'll have to see how this plays out over the next few weeks and months. This fuel fill-up scenario also includes a year-on-year increase from ETS and Corsair of roughly €150 million. Adjusted EPS increased by 22.4%, reflecting both the strong performance with the growth in adjusted profit after tax of 17% to 3.3 million, and the share buyback programme that reduced our weighted average shares count by 4.3%. Overall, this performance underscores the continued momentum in our earnings and our focus on delivering sustained value for all of our shareholders. We achieved a free cash flow of £3.1 billion after investing £3.4 billion of capital in the business. This was supported by the positive working capital movement, partly driven by IAG's loyalty and the Amex contract renewal, as well as an interest-paid benefit from the early debt repayment. These benefits more than offset higher purchase of carbon assets ahead of the change is to free ETS allowances and a payment to HMRC relating to the IAG loyalty tax appeal that were not settled until the earliest in 2027. I'm pleased to report that our balance sheet continues to be very strong with net debt leverage of 0.8 times and liquidity over 10 billion, positioning us well for the years ahead. Our gross debt benefited from a 1.3 billion favourable FX impact related to the US dollar denominated debt from the weakening of the US dollar. We aim to keep our gross debt leverage between 1.5 and 2 times. To this aim, we finished the year at 1.9 times, having repaid 1.6 billion in non-aircraft debt and taking two-thirds of our 25 aircraft deliveries as unencumbered. We remain committed to investing in our fleet, enhancing customer experience and building resilience. We've shown on this slide the phasing of CAPEX over the coming years, which will put our CAPEX allocation and balance sheet decisions into context. In 2025, CAPEX was slightly lower than planned due to the timing differences and there were phasing of some customer-related investments. This year, 2026, we expect capex to be around about €3.6 billion, with 17 aircraft deliveries, continued cabin retrofits, including British Airways A380s and 787-9s, and ongoing investments in property, especially the improvement to our lounges. Looking forwards, we've been saying for a while now that our capex will increase in the coming years as delayed aircraft from the manufacturers start to get delivered and make up for the lower capex numbers we've seen over the last few years. For the last four years, this increase has continuously pushed to the right. However, we expect to start seeing this increase materialise in the next few years. In 2027 and 2028, we expect CAPEX to average €4.9 billion, mainly reflecting the delivery of the Boeing 737s for Vueling and the start of the 777-9 deliveries for British Airways in 2028. CapEx is then expected to increase further to an average of €5.6 billion for 2029 to 2031, as the 71 wide-body aircraft we've ordered in 2025 and the previously delayed wide-body aircraft deliveries start to materialise, with around about 70% of these deliveries being replacement aircraft. Beyond this period, we'll return to our normalised CapEx run rate of around about €4.5 billion from 2032 onwards. We're able to do this as we're making good returns on capital and have high disciplined approach to capital allocation to support our ambition to deliver focused capacity growth by 2% to 4% over the median term. With this increase in future capital spend, we will still be strong cash positive throughout these years and will continue strong shareholder cash returns with a higher capex delivering higher profits. Given this confidence in our past generation, the current very strong balances, and in preparation for this CapEx trajectory, we've decided to widen our guidance on distributing excess cash returns to 1 to 1.5 times net debt leverage. And finally, our disciplined approach to capital allocation and how we manage our balance sheet investments and shareholder returns. Firstly, we remain focused on balance sheet strength. Across the cycle, we maintain our net leverage aim of less than 1.8 times, this being a proxy for investment grade rating, which we are with both Moody's and S&P. And as I mentioned earlier, in the near term, we want our gross debt to be 1.5 to 2 times, which puts our balance sheet in an extremely strong position. Secondly, as I just described, I will continue to invest in the business and will be doing so at high rates of return on capital. Thirdly, we committed to a sustainable dividend through the cycle. For 2025, this equates to a total dividend of £448 million, and our intention is to grow this broadly in line with inflation, while dividend per share will grow faster as we buy back shares. And lastly, we'll continue to return excess cash to shareholders as we've just announced a further €1.5 billion of excess cash returns over the next year. This represents around about 6.5% of today's market capital. And over the three years since 2024, we will have distributed just under €3 billion of excess cash, around 13% of today's market cap. Given our financial framework and ambitions will still allow us to continue significant excess shareholder returns over the coming years, while also reinforcing the balance sheet in anticipation of the higher capex. Overall, this disciplined approach ensures that our balance sheet remains a source of strength supporting the business through the cycle, giving us the flexibility to allocate capital where it creates the most value, and positioning us to continue investing for the long term, while delivering attractive returns to our shareholders. Thank you. I'll now hand back to Lewis to continue with the strategic update about our business.