International Consolidated Airlines Group S.A.

Good morning, ladies and gentlemen, and welcome to International Airlines Group Half Year 2026 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, and welcome to IEG's first half of 2026 results. A particular welcome today to Jose Antonio Barranuevo, who has now taken over as our group CFO. Also, as usual, I have the rest of the IEG Management Committee with me today. This first slide captures the essence of where we are today as a group. Since its inception in 2011, we have built IAG into a world-class business. So we now have a diverse portfolio of globally recognized brands in large and attractive markets, delivering industry-leading margins and significant free cash flow, and creating long-term value for our shareholders. These fundamentals make us well-positioned to navigate the current headwinds that the industry faces. And as a result, we have delivered a robust first half performance. We have grown our revenue based on continued strong demand for travel. This highlights the strength and diversity of our markets and propositions. Our disciplined cost control during the half has supported the resilience of our margins, partly mitigating the selling increase in the price of jet fuel. We continue to have a strong and efficient balance sheet, which give us the ability to manage a crisis like this with confidence. And for our shareholders, we are committed to paying a sustainable dividend and completing the excess cash return. With the actions that we are taking, we expect to deliver an operating margin within our target range of 12% to 15% despite the headwinds the industry is facing. We delivered a good financial performance in the first half, with industry-leading margins that again highlight the quality of IAG's business. We grew revenue by 1.0 overall in the first half, comprising a strong first quarter revenue growth of 1.9% and resilient second quarter revenue growth of 0.2%. This is despite the effects of the Middle East crisis, which had an immediate impact on our capacity and fuel costs, that gave us limited time to respond with mitigating actions. However, we did manage to recover around 60% of the fuel costs increased through our own pricing and cost actions in line with our expectations. These varied across our regions. Broadly speaking, our long haul operations were very positive and in short haul, it was more competitive. IAE loyalty continues to perform well as a differentiated proposition to our airlines, increasing profit by 25% to £239 million at a margin of 19.3%. So our profit for the first half was 1,757 million euros, a resilient performance overall. And I will now pass you to José Antonio to take you through the numbers in more detail.

Thank you, Luis. Good morning, everyone. I'm pleased to share our first half results with you. This slide shows the key drivers of our first half performance, both by revenue and cost drivers on the left and by business on the right. We delivered an operating profit of 1.757 billion euros in the first half of the year, down 121 million euros on last year, a robust performance despite headwinds from fuel. We delivered an operating margin of 10.9%, which is a sector leading first half with the sector leading first half performance, which is consistent with our confidence in delivering a full year margin within our 12 to 15% target range. Passenger revenue increased by 828 million euros at cost and currency driven by continued strong demand for travel and our diverse portfolio of markets and brands. Cargo revenue was down 23 million euros of lower cargo volumes, mainly linked to the suspension of routes from the Middle East, were only partially offset by a 3.3% improvement in yields. Other revenue was slightly lower than last year, mainly reflecting a change in how certain MRO components in Iberia are now charged directly by the manufacturer to our airline customers, which reduces both revenue and cost by an equal amount. I'm pleased with our disciplined non-fuel cost performance as our transformation programs continue to deliver savings. However, our hedging program only partially offset the rising commodity prices, leading to a 12.5% increase in fuel unit costs. FX was a net 52 million drag on operating profit in the hub, with the translation impact of a weaker sterling against the euro more than offsetting a small, favorable transaction impact. And on the right-hand side of the slide, you can see the performance of our business. Breeze Airways was one of the standout performers, growing operating profit by 44 million euros year-on-year. IG Loyalty also delivered a strong performance, increasing its profit by 48 million, reinforcing the qualities of this business that we set out at the recent investor day. Iberia, Welling and Aer Lingus also lower profits, mainly reflecting the impact of high fuel costs. And in the case of Aer Lingus and Welling, some highly competitive markets in more price sensitive segments. I'll come back to each of these on the next slides. Turning to the second quarter, Operating profit fell 274 million euros year-on-year to 1.406 billion euros with a margin of 15.8, a reduction from a 19% margin last year. Passenger revenue increased 318 million, excluding FX impacts, driven by higher unit revenue, although this was not enough to offset the 489 million euros increase in fuel costs at cost and currency. driven by high commodity prices following the outbreak of the Middle East conflict. This quarter was also negatively affected by the partial shift of Easter in the first half. Profits from all airlines were affected by the immediate impact of high fuel prices. But again, you can see in the slide the quality of the IG loyalty business, which increased its profits by 20 million euros year on year. And now you can take a look at our operating company's performance in the first half of the year in more detail. British Airways deliver an operating profit of 885 million pounds, an increase in margin to 11.9%, with a strong first quarter improvement of 90 million pounds, more than upsetting the initial impact of Middle East cancellations and higher fuel costs. Iberia reported an operating profit of 526 million euros, down 38 million versus last year, but delivering a strong 13.5% operating profit margin. Iberia continues to see a strong demand, particularly to Latin America, but the reduction in profit reflected the impact of higher fuel costs and some cancellations linked to additional engine maintenance. Wallings operating profit was down 49 million euros year-on-year to 46 million euros, reflecting, again, higher fuel costs and continued competitive pressure in some markets within the European local segment, which is naturally more price-sensitive. Aer Lingus delivered an operating loss of 34 million euros compared to an 80 million euros profit last year. This was driven by the combination of higher fuel costs and competitor capacity growth, especially from U.S. carriers. IG loyalty continued to deliver high quality, high margin earnings with operating profit up 48 million pounds to 239 million pounds with a margin of 19.3% up 3.4 points versus last year. Profit growth came mainly from the loyalty part of the business driven by non-airline partnerships with the holidays business affected by the suspension of the routes to the Middle East. Turning to our Quarter 2 regional performance, group capacity was slightly down below the original plan of around 1% growth that we guided to in May, reflecting additional cancellations linked to the Middle East conflict as well as aircraft availability. In the North Atlantic, which represents around 30% of our capacity, unit revenue increased 7.3% at cost and currency. This was driven by British Airways, which delivered very strong unit revenue growth with strong premium demand and strong corporate demand in all points of sale. Latin American Caribbean continues to be a strong performer with unit revenue increasing 2.4% at cost and currency on a 5.3% increase in capacity. Driven by Iberia, which continues to grow its capacity to the region, including new A321 XLR routes to Recife and Fortaleza in Brazil. For Iberia, premium demand continued to outperform, with point-of-sale Latam and Spain performing well. However, in point-of-sale Argentina and Mexico, Iberia saw a shift in demand due to the World Cup. Congratulations to the winning team, by the way. with outbound tourism from these countries shifting from Europe to North America. In Europe, unit revenue increased 1.2% at cost and currency. This very strong outperformance compared to the wider European market was delivered to British Airways Heathrow Network and Premium Demand, highlighting its differentiated proposition. The European short-haul market remains highly competitive, given significant capacity growth from other airlines which limited our ability to recover the fuel cost increase through pricing. In the domestic market, unit revenue increased 1.7% on a capacity increase of 6.7% helped by disruption to rail services in Spain. And in the rest of the world, performance was also very strong. In Africa, Middle East, and South Asia, capacity was down 17.4% as we suspended most routes to the Middle East But unit revenue on the remaining routes increased 13.2%, helped by customers avoiding traveling via the Middle East, particularly corporate travelers on British Airways. And in Asia Pacific, capacity fell slightly as VA redeployed A380s from Singapore to Johannesburg, which was only partially upset by the launch of Gatwick to Bangkok route. Unit revenue performance in Asia was strong, increasing 6.2% at cost and currency. Turning to unit cost, non-fuel unit cost increased by 1.3%, including a benefit of three points from FX. Employee unit cost increased 2.4%, reflecting pay deals, headcount growth driven by plant capacity growth, and the increase in employers' national insurance in the United Kingdom. Supply unit cost improved 5.4%, with our cost transformation initiatives more than offsetting inflationary pressures, although it's worth noting that FX especially impacts engineering and other aircraft costs, the majority of which are denominated in US dollars. There was also a tailwind from the change in Iberia's MR contract basis that I mentioned earlier. Ownership unit costs increased 8.8%, driven by new aircraft as well as customer focus and Digital Investments. And fuel unit costs rose 12.5%, reflecting the significant increase in commodity prices from late February following the conflict in the Middle East. And this was only partially offset by our hedging program, which delivered hedging gains of €769 million in the first half of the year. Looking forward, we are around 70% hedge for the remainder of 2026, and run 40% hedge for 2027. This next slide takes us down to profit after tax. In the first half, we recognized 149 million euros of exceptional costs, 114 million at Iberia and 35 million euros at British Airways related to their transformation and workforce programs. Before these exceptional items, profit after tax was 1.146 billion euros, down 11.9% year-on-year. So overall adjusted EPS decreased by 10.9%, benefiting from our ongoing share buyback program. We generated free cash flow of 2.905 billion euros in the first half of the year, 808 million euros higher than last year. Operating cash flow was up 409 million euros year on year, mainly reflecting the 447 million euros payment to HMRC, which we made last year to appeal the IEG loyalty VAT ruling. On the other hand, working capital was a smaller inflow compared to last year, mainly due to fuel prepayments we made to mitigate the impact of the Middle East conflict together with lower capacity growth. CAPEX was 1.291 billion euros, down from 1.690 billion euros last year, reflecting the delivery of just three new aircraft in the first half of this year, compared with 13 in the first half of last year. We now expect 16 deliveries for the full year, with the majority being delivered in the fourth quarter, and one delivery now slipping into 2027 compared to the update we gave you in May. Full year capex is now expected to be around 3.4 billion euros, and we expect to continue to take the majority of the remaining deliveries unencumbered. We continue to take action to maintain our balance of strength Net debt reduced to 4.7 billion euros, down from 5.9 billion at the end of last year. Net leverage also reduced to 0.6 times, and gross leverage reduced to 1.8 times. This was driven by the net impact of the repurchase of the convertible bonds, the issuance of new and secure bonds, the repayment of aircraft financing, and 0.5 billion euros in aircraft lease extensions. And finally for me, a reminder of how we think about capital allocation. Our first priority is to maintain our balance sheet strength targeting net leverage below 1.8 times and gross leverage of between 1.5 and 2.0 times. Our second priority is disciplined investment in the business, targeting a return on invested capital of 13% to 16%. And third, we're committed to a sustainable ordinary dividend. In 2025, the total dividend was 441 million euros, with the final dividend of the year of 0.05 euros per share paid this last June. We will update the market on the 2026 interim dividend of our quarter three results. Also, we continue to return excess cash to shareholders. With around 800 million already completed of the 1.4 billion euros program that were announced in February 2026. And finally, I wanted to share some thoughts from my two months as IG's CFO. Whilst I've been in the group for 13 years now, the experience over the past two months has strengthened my view that IG has the right model, the right strategy, and the right execution capabilities. Even though the current situation is highly challenging, we're still generating high margins between 12% to 15%, high return on invested capital, and a strong pre-cash flow, allowing us to continue A, investing in the business, B, creating long-term value for our shareholders, and C, rewarding them through dividends and returns of excess cash. The conclusion is clear. The model works, we're highly resilient, and I have huge confidence in the long-term future of IG. And on that note, I will hand back now to Luis.