International Consolidated Airlines Group S.A. (IAG) Earnings Call Transcript & Summary

Okay. Good morning, everyone, and welcome to IAG's FY 2019 Results Presentation. I'll just hand over to Antonio Vázquez, our Chairman.

Hi, good morning, everybody, and you're very welcome to the IAG result presentation. I'm glad to be here with the top management team of IAG and the Senior Independent Director, Alberto Terol. So thank you for coming all of you. As far as the 2019 result is concerned, the Board is extremely happy with the strong set of result for both the full year and the last quarter, even though the second half of the year has not been easy in terms of we had that -- the industrial action and some other disruptions around. In fairness, the Q4 result has been a record in terms of absolute operating margin and operating profit. As far as the shareholder return is concerned, we have announced an interim dividend of -- with the occasion of the third quarter result of EUR 0.145 per share. And I'm pleased to announce that the Board is recommending a final dividend of EUR 0.17 per share. So this makes a total dividend for 2019 of EUR 0.315, which is slightly higher than the EUR 0.31 in respect to 2018. This demonstrate the Board confidence in the -- IAG's financial result, financial strength, strategy and outlook, especially in the face of the uncertainty that this -- on travel demand that this coronavirus is causing right now and representing right now. In view of the management's plan to acquire Air Europa later in 2020, the Board has decided not to recommend additional return to shareholders at this stage. Including the final dividend, we will have returned a total of EUR 4.4 billion to shareholders since 2015. I understand that these kind of meetings are to talk about the numbers and not to talk about the feelings, but I have to share with you kind of feeling today because somebody -- is the last presentation of result of IAG by Willie. Willie will retire almost in 1 month, and I want to share with you my point of view, my feeling right now. And since we last started working together and at the point in time, I'm talking about 9, 10 years ago when -- how we were trying to merge 2 companies in not very easy situation. So we were putting together 2 big restructuring plans. And so since this point in time until now that we have in front of us one of the top leaders in the airline industry and one of the most [ solid ] group in the airline industry, it has been a long journey. And Willie and I, we have been working together for many, many years right now. And of course, we did not agree always, but -- which is very healthy, by the way. And -- but I can tell you that we have been having all the time a full consensus on putting always on top of everything the interest of the company and shareholder. And that had been the big glue, which has been making us work together very efficiently, very well. I'm really grateful for this year. Integrity, leadership, determination, vision, commitment, that's kind of Willie's attributes, we are -- will be forever in the foundation of IAG. So I really thank you very much, Willie, for having working with you such a long time and I think we will never forget you. Thank you. I want to welcome formally Luis as a CEO, which he will be formally in one month from now and Luis will take over from Willie. With the whole life in aviation, I think the transformation of Iberia has been a business case, which a lot of our competitor have been trying to copy but never anybody has been able to match. And I think it's with the skills of -- personal and professional skills of Luis and the exceptional leadership of Luis and the wonderful experience that has been Luis working together with Willie for these many years, we have a wonderful ingredient to be successful in the future and for you to be successful in the future. So Luis has the full support of the Board and I hope you will all be extremely happy with the performance of the company under the leadership of Luis. So I just hand over to the management team led by Willie to go on with the presentation and to go back to the numbers. Thank you.

Thank you, Antonio. It's good that we've finally agreed on something. So ladies and gentlemen, I'm not going to spend too much time by way of introduction because the Chairman has actually covered a number of the points that I was going to make. But I just do want to highlight a couple of issues, because clearly there'll be a lot of distraction given what's going on in the current environment. But I think reflecting back on 2009, it's important to realize that we did actually make quite a lot of progress on the key strategic objectives for the group and we have continued to invest in the right areas of the business. We've looked for opportunities to consolidate and Air Europa, I believe, will be a fantastic acquisition by IAG. We're working on that, and hopefully we'll be able to close that deal off in the second half of this year. We've invested in the product, as we said we would, and the response from customers has been really positive to that. And we will continue to do that through the coming years. And it's not just in BA. I know there's been a real focus on what BA has been doing, but it's right across the group. And I think what's particularly pleasing for us is we're seeing that these investments are being rewarded in terms of the improvement in our Net Promoter Score, which, as you know, is one of the key metrics that we use. We balance all of our investment decisions against the impact that they have on NPS. And we're seeing real positive momentum, particularly at British Airways and at Vueling who did an exceptional job in 2019 responding to the challenges of Air Traffic Control in Europe. And it's important to point out 2018 was the worst year on record for ATC. 2019 was the second worst year on record. So we went into 2019 hoping that it wouldn't be any worse than it was in 2018. We saw a slight improvement. But it was still the second worst year on record for Air Traffic Control. Our leadership position in our key markets continues to be strengthened. We added 4% capacity, but we saw traffic increase by 5.6%. And you can see North America up by 3.6%; Latin America, 15.6%; intra-Europe, a combination of domestic and our EU [ flying ] of 3.8%; and Asia, 5.5% (sic) [ 5.0% ]. A number of new routes by all of the airlines. And again, these are designed to strengthen the network to ensure that we have leadership, particularly on the North Atlantic and on the South Atlantic and we continue to invest in our common platform. This year and last year, but this year in particular, strong emphasis on what we're doing to ensure that not only are we financially sustainable but environmentally sustainable. And we launched, as you know, last year, our Flightpath to net zero by 2050 and I'm really pleased to see that that initiative is being picked up by others. The investment in new aircraft -- I continue to be astounded by the fuel performance of these new aircrafts. So the A350, 1,000 in BA, 900 in Iberia. These are making really significant improvements in fuel burn, fuel efficiency and therefore carbon efficiency. And the 321neo LR, which Aer Lingus has introduced on the transatlantic, showing about a 22%, 23% improvement in fuel burn versus the 757. So the unit cost performance of these aircraft are absolutely excellent. And we're making really good progress under the leadership of our new CIO, John, who's here today on IAGTech. So good, solid investments in the foundations of the business and making good progress which led to, I think, a good set of results in 2019. Although the operating profit, as you know, was slightly down, the margin slightly down, that's largely due to the disruption that we encountered through the year, which we have highlighted to you separately. We saw a few headwinds in terms of a cost of EUR 738 million. Passenger unit revenue and our nonfuel unit costs developed exactly as we said they would. So it was a positive set of results. We had a very strong fourth quarter performance, as the Chairman has said with a return on invested capital just slightly below our 15% target at 14.7%. It would have been above 15% if we hadn't had the disruption. And on carbon, on our carbon efficiency metric, we improved by 1.9%. So that's ahead of our annual target of 1.5% improvement. And as the Chairman has said, we continue to make returns to our shareholders to reward them for the confidence that they have shown. These are just a quick snapshot of the key metrics that we've mentioned before, but I think good, strong performance by all of the airlines in the group and a strong performance for IAG. I'm going to hand over to Steve who will take you through the details of the financial performance, and then I'll come back to make a few comments at the end.

Thanks, Willie. Good morning. So let's talk through the financial results. As Willie rightly said, strong operating profit for the full year, EUR 200 million down. For the first time in 4 years, we've actually had an FX benefit this year rather than an FX hit, so EUR 67 million FX favorable for the year. So if you did a constant currency, we're down EUR 267 million. We think these are strong results, as I say, because the fuel bill was up EUR 738 million. Clearly, there was significant strike and disruption in the year. And one matter that we haven't touched on already was it was a challenging economic and demand environment in 2019 compared to [indiscernible] 2018. And that brings us down to look at traffic and capacity. As you know, we went into 2019 looking to reduce -- looking to grow our capacity by 6%. But because we could see the demand environment was weaker, we've been cutting capacity throughout the year and we finished growing capacity only 4%. So we took 1/3 of our planned capacity growth out. And the BA strike accounted for about 0.4 of that capacity reduction. Well, I'm pleased to say is albeit we grew slightly less than we intended, our seat factor benefited, and we finished the year with a record seat factor at 84.6%. So good numbers and good seat factor. If I look at passenger unit revenue, clearly, what we did on capacity helped support and maintain the unit revenue. And as Willie just said, we came in on guidance in terms of the passenger unit revenue only being slightly down at 0.5 point. In a couple of slides, I'll take you through some more detail as to what the passenger unit revenue has done by region. In terms of total unit revenue, you've basically had a trade-off really. Iberia MRO and BA Holidays have had very, very strong years and cargo has had a very challenging year. I think we've outperformed the market in terms of cargo, but it has been a challenging year. So those 2 have largely offset, and hence, why the total unit revenue is very similar to the passenger unit revenue performance. If I look at nonfuel unit costs, if I look at the airline CASK at constant currency, we've improved the position by about 0.9, which, once again, evidences our strong cost control. And if I look at total unit costs, you can see then the fuel bill coming through there and so total unit costs were up 1.4% rather than down. So that's the shape of the full year numbers. Let's have a quick look at the shape of the Q4 numbers. Similar kind of pattern, record operating profit for Q4 of EUR 765 million. That's impressive, given the fact that the fuel bill was up EUR 103 million. We had an even bigger FX benefit in Q4 of EUR 79 million so that was offsetting a large part of the fuel bill. The other factor that I think is worth considering in Q4 is we still had some degree of hangover and uncertainty related to the BA pilot strike in September. So record operating profit for Q4. Capacity down at 1.9% for the quarter, on guidance. We guided to that figure. And once again, a very strong seat factor. Seat factor in Q4 was at 84.3%. If I turn to the passenger unit revenue, very similar figures to the full year number, being down negative 0.4%. But in terms of total unit revenue, more adverse than the full year. Actually, the cargo Q4 performance was more challenging than the full year picture. If I look at nonfuel unit costs, negative 1.7% for the airlines at constant currency, aided by some key customer compensation -- sorry, key supplier compensation in Q4. But even if you strip that out, there's still a good 1 point better than the prior year. And in terms of total unit costs, actual total unit costs down in Q4 because the impact of the 2018 fuel hedging starts to reduce. And so you're cycling off an easier base. So strong Q4 numbers. Let's talk a little bit more about passenger revenue. Overall, I would call this a mixed regional performance for Q4. We've basically got all of the regions, except North America and domestic, showing RASK improvement compared to Q3. And you'll see in all the regions, except North America, have lower ASK growth in Q4 than compared to Q3. If I quickly take you through each of the regions. If I look at domestic, we still grew quite a lot there, 8% ASK growth in the quarter. Clearly, that can have some dilutive effect on yield. In addition to that, Vueling, which makes up over 50% of our domestic ASKs, was impacted by disruption, particularly in Catalonia and some unrest there. If I look to Europe, I think Europe, a much better RASK performance in Q4 than Q3. Basically, it was down 1.1 points of RASK in Q3, up 1.7% in Q4. Much better performance helped by capacity reductions. If I look at the opcos, Vueling and Iberia performed well on Q4 in terms of Europe. BA still had some hangover from the strike, and as I say, in addition, if I look at the countries that most improved, the Spain market and Germany market were particularly strong. The weaker performance -- performers were Italy, France and the U.K. If I turn to Asia Pacific, over 90% of our ASKs are on British Airways, and the key performer in Asia Pacific for the improved performance that we've seen there was Tokyo. There was good underlying performance and then that was further aided by the Rugby World Cup. And this is good performance both into Narita and into Haneda. And as you know, Iberia also flies into Narita as well, which also had a strong performance. So Asia Pac, very strong performance for the quarter. If I look at AMESA, once again, also a strong performance. 90% plus of the ASKs are for BA. And the 2 standout areas there were India, particularly Delhi and Mumbai. Clearly, I think we're still getting some benefit from the demise of Jet. And also Riyadh was a very strong performer in Q4, not surprisingly with the Aramco IPO. If I look at LACAR, LACAR has improved considerably. Still negative RASK, but much better than we've seen in previous quarters. And interestingly enough, the story in LACAR has moved on. We've spent most of the year talking about Argentina and Brazil. Actually, those positions have stabilized. In fact, Brazil was one of the most positive performers in Q4 for the region. The real story now in LACAR in Q4 was with regards to Chile, and due to the political unrest there, really saw a drop-off in the RASK performance and we remain cautious about that market. Bear in mind that we have 3 airlines flying into Chile, both BA, Iberia and LEVEL. And then if I look at the North Atlantic to North America, as you can see, probably the area most affected by the BA strike in Q4. So the vast majority of that RASK decline in North America was in October and primarily related to uncertainty, and therefore, poor booking levels for British Airways. I was pleased to see in November and December, you could see the RASK starting to improve once certainty started to return to the market and we've reached resolution on the strike. So that's a quick run-through of the unit revenue performances. Let's turn our focus to costs. As I say, for Q4, cost performance, very strong at 1.7%. If I run down through each one of them. Employee costs have been [ flattered ] a little bit because we've made lower bonus provisions in Q4 this year than in previous years. So there is some [ flattering ] of the numbers there. In terms of supplier costs, I've mentioned a couple of significant credits we've had from key suppliers. But there's been good underlying supplier cost performance as well, particularly in engineering. If I look at the ownership costs, up 4.2%. No surprise there. This is -- in an IFRS 16 world, this is all depreciation of aircraft. And as we continue to renew the fleet, we see those ownership costs coming up. But on the -- at the same time, when we see the ownership costs coming up, we also see benefits in terms of fuel efficiency. And we've added a little box to the left there to show you the sort of rolling fuel efficiency improvement that we're seeing. That 1.6% is for the 12 months rolling. You'll be pleased to know the number is pretty similar for Q4 as well. And in terms of Q4, you can see our fuel unit costs up 2.4%. As I touched on earlier, the fuel bill was higher. If I look at where we are from a hedging perspective, we've gone into 2020 about 90% hedged for the full year. About 1/4 of that position is in collars and about 3/4 of it is in swaps. And we ran a scenario here. We keep changing this, and as you know, this week's been a particularly volatile week. So we reran the numbers last night. And with our current hedging profile, we think the fuel bill would be EUR 5.9 billion for this year, using a $490 per metric tonne jet price and a dollar to EUR exchange rate of 1.09. If I turn to return on invested capital. As Willie has already alluded to, our ROIC for the year was 14.7%. So very strong performance. If you look at the individual opcos, still Aer Lingus way out ahead at 22%. You have Iberia and BA in the 14s. And you have Vueling a bit lower at 13% return on invested capital. Still a decent return on invested capital, slightly impacted by some of the challenges with regards to disruption. But overall, a really strong return on invested capital figure. If we hadn't had the strike, as Willie has alluded to, we would have been over the 15% target. In terms of performance and operating profits. Just a helpful warning on these. These numbers are not at constant currency. These numbers are at outturn exchange. And basically, what you're seeing here is the impact of the higher fuel prices and the [ slightly ] harder economic demand environment, meaning each of the opcos have delivered an operating result slightly lower than the previous year. But if I just make a few comments on each one. In terms of Aer Lingus, other comments in the year which I think are interesting is, one, we've had impact through aircraft delays. We were expecting 4 A321LRs for the summer of 2019, we got 1 in August. That level of disruption does mean you are going to suboptimize your performance. If I look at BA, clearly the story, over and above the weak economic demand, has been the strike. If I look at Iberia, half 1 was a tough period for the business, a much stronger performance in half 2. And if I look at Vueling, clearly affected by the ATC challenges that we've already alluded to and other disruption. But overall, slightly off of last year. But given the overall context, as we say, a strong performance. If I turn now to earnings per share. As you can see, our operating profit was off EUR 200 million year-on-year. But if you look at the profit before tax, we're pretty much level EUR 2.964 billion [ place ] EUR 2.947 billion. The thing that's propped up the profit before tax in 2019 is these net currency retranslations. When we put all of this through IFRS 16, put all of this dollar-denominated debt on our balance sheet, we took out economic hedges to cover that and we mark-to-market those at the end of each period. And it so happens that in this period, we've had a significant credit. If you remember, we had a significant credit at the end of the half year as well. So overall, our profit after tax was slightly down at 1.4%, but our earnings per share, up 1.7%, and that's because our share count is down. Two factors behind that. We did a buyback in 2018, so the share count is down because of that. And secondly, we redeemed the convertible this year, which also reduced the share count. Last slide for me, which is talking about leverage. And what you can see is gross debt up about EUR 1.5 billion primarily due to aircraft deliveries. We took 45 new aircraft this year, which is a staggering number. You can see cash very strong, up nearly EUR 0.5 billion at EUR 6.7 billion at the end of the year, very strong cash position. And as you can see, net debt-to-EBITDA, slightly up at 0.2 turns up at 1.4, but well within our 1.8. I would expect the net debt-to-EBITDA to go up at the year-end. It's particularly strong at the half year because the cash position tends to build in the first half of the year and then come off in the second half of the year. And so we'd expect the cash to be building during Q1 of this year. So very, very strong. I think it's worth just reflecting for a moment on those strong numbers. And it reminds me somewhat of the Capital Markets Day presentation where we said we've done a lot to restructure our business and take real underlying costs out of the business, hence, why our profitability is strong and sustainable. We also said we had a very strong balance sheet and we do. Our leverage is low and very high cash position as well. And we said that positioned us very well, because if we went into choppy waters, two things would be good: one, we'd be very resilient; and two, we'd be in a good place to exploit opportunities that come along. I didn't realize when I said that that the choppy waters would come quite this quickly, but they have done so. So we're in a very good position going into these slightly uncertain times with a high cash position. Thank you.

Yes. Thanks, Steve. So turning to the outlook. And I'm hoping that you've all had a chance to read this. I'm not going to read this word for word, but maybe I'll just make a few comments. It is clear that the industry, and we, as part of the industry, is being affected as a result of the weaker demand, as a result of the coronavirus. Initially, we saw this in China and it had a knock-on effect into other parts of our network in Asia Pac, which, as you know, represents about 8 -- just over 88.2% of our total capacity. We responded quickly. And I think we were one of the first to announce route cancellations at the end of January. We have taken measures at that point to reassign some of the capacity that we're taking out on to other parts of the network where we saw demand continuing to be strong, that's both in the case of BA and Iberia. Since Monday, we've seen a significant change in Italy with the announcement of the measures taken by the Italian government with a number of cities in the north of Italy. And that has led to very strong falloff in demand in Italy, and it's also impacting on some other European markets. So we have taken a lot of capacity out of the Italian market during the month of March. Some of that has been announced already, so that is being actioned as we speak. So we'll be making adjustments to the schedule for all of the airlines. So we're seeing this across the group. And we will look at some potential capacity adjustments on other parts of the short-haul network as well. In addition to that, we have witnessed some weakness in the business channel, business sales channel. So not -- shouldn't just read out as premium cabin, it's both premium and nonpremium, particularly with the cancellation of a number of large-scale events and corporates introducing restrictive travel policies. The net impact of all of this at the moment is that we will reduce our growth target, which was around 3% ASK growth for 2020 down to 2%. And just to give a rough example or a rough indication, about 1/3 of that is on long haul and 2/3 of that is on short haul. So that's as we sit here today. The adjustments that we've made to the long-haul network are out to the end of June. So we've canceled China until mid-April in the case of BA, the end of April in the case of Iberia. But we have reallocated capacity to other destinations out to the end of June. The adjustments that we're making to the short-haul network are to the end of March. Now people have asked me if you could give us a bit of flavor as to what we were seeing. If we were doing this last Friday, I think we would have given you guidance. And we would have been clearer in terms of what we were seeing because the situation in Asia had appeared to stabilize by last Friday. We had clearly seen a strong fall in demand but it had stabilized, and we had adjusted capacity to reflect that. And I think we would have been very comfortable at that stage with what we are seeing. There has been a big change since Monday on Italy. So we need to see how that impacts over a period of time. I would expect it to follow a similar pattern to what we've seen in Asia, but it's far too early for us to call. And for that reason, it's impossible for us to give you accurate profit guidance. So at this stage, we clearly can't give you any details, but we will update you as soon as we can see patterns and trends that we would be comfortable with. Underlying, I think the investment case in IAG remains very strong. We have clearly demonstrated that this is a group that delivers what we promise. I think that has set us apart from a number of our competitors. Our structure is unique. And you're seeing the benefit of that now with our ability to respond quickly, move capacity around, take capacity out, have flexibility within the fleet that we have ensured as we've grown the business over the last few years. And all of this is designed to ensure that we can be financially sustainable through the cycle. We go into this particular downturn in a very strong position. Our balance sheet, as Steve has said, is strong. Our cash position is very strong. And more importantly, we know what to do. We know what levers we can pull. We know how quickly we can operate them, and we're doing that. So you should expect us to continue to take initiatives to adjust the capacity, to match the underlying demand that we are seeing, to move capacity around. And that's the flexibility that we have. And that's all designed to ensure that we can maximize our profitability in the current year and going forward. But importantly, to ensure that we're in a position to respond strongly when the recovery takes place. And it is very much a when rather than an if. So we don't want to do anything that would jeopardize our ability to respond positively when we see that recovery. The progress that we've made is going to continue. We have a very disciplined approach to the allocation of capital. I think that's been one of the strengths of the group, and that is something that we're proud of and will continue. Our companies, the operating company is very focused on ensuring their brands are strong and they have strong operational performance. And that again was delivered very well in 2019. We're leading with consolidation in the industry. We believe that we'll see a lot of consolidation this year, and it's the form of consolidation we like to see, and that's that the weak are going to disappear. It's clear there are a number of airlines that went into 2020 in a very weak position. What we're seeing at the moment is going to, I think, accelerate the demise of a number of the weaker carriers in the industry. So we will see consolidation in 2020. That will be in the form of failure. I don't think there's anybody out there that would be interested in acquiring any of these weak and failing airlines. I expect them to disappear. The demand that does exist there will be provided by the strong carriers, including ourselves. Our cost efficiency has continued to be a real focus, and that will continue under Luis. He's absolutely committed to the targets that we've set, which is to target a 1% CAGR improvement in our nonfuel unit cost. It's not going to be 1% every year, I need to stress that, because there will be some years when it will be less than that. And there'll be some years when it will be significantly greater than that. And at the heart of all this, we have a dynamic and creative culture and that's going to definitely benefit us through this period. And all of this underpinned by our commitment to ensure that we have environmental sustainability alongside our financial sustainability. That's become more important and will be equally important, if not have greater importance as we go forward. Everybody, the Chairman, Steve, me, Andrew, everybody, we're going to talk about this to remind you what we've done. And we've shown our commitment and our confidence by the Board approving the final dividend for 2019 at EUR 0.17 at our Board meeting yesterday, subject to shareholder approval at our AGM. And you can see our cash priorities there. We'll reinvest in the business where that investment will generate accretive growth. We are committed to maintaining and sustaining an ordinary dividend. We will pursue opportunities for inorganic growth, and we've demonstrated our absolute discipline in relation to that. We've turned down opportunities where we didn't believe there was value there. And we've pursued aggressively opportunities where we could see real value. And the acquisitions that we've made, I believe, have been fantastic. And then any surplus cash that we have, we will return to shareholders. To remind you about the letter of intent with Boeing, it continues to be in place. It is a letter of intent. We're following carefully the recertification of the aircraft. We're in close contact with regulators and with Boeing management, as you would expect. And our intention is that once the aircraft has returned to service, we would look for shareholder approval. So we will not look for shareholder approval until the aircraft is back in service. Personally, I think this is going to be a great aircraft. We need competition, both in the narrow-body and in the wide-body field. Both of the manufacturers have challenges at the moment, but I believe Boeing will address these issues. And the recertification, which has been incredibly thorough, will allay any concerns that people have in relation to this aircraft. So I think it's a great option that we have. It puts us in a strong position as we move forward. And we will continue to update you in relation to that, if and when there are developments. Very pleased to see that the investments we're making, as I said earlier, are proving to be effective, and that's demonstrated by the improvement in our Net Promoter Score, 9.5 point improvement in 2019 to 25.8. It's not where we want to be. We have a target to get higher to 33. But you can see the measures that we are taking will take a bit of time: significant investment in the BA, Club World products, feedback from customers is very positive. We'll have 33% of the fleet in the new configuration by the end of this year, more than half the fleet by 2021. We're not going to pause or delay the reconfiguration of the aircraft. This is the right thing to do, and we are going to continue with that investment. Indeed, if we have an opportunity to accelerate that, we will. So there is a real commitment to this. It's proving to be as positive, if not slightly more positive than we had thought it would be. And as I said, it's not just in British Airways. All of the airlines are making investments. Aer Lingus is very focused on developing Dublin as an effective transatlantic hub and that requires additional infrastructure to be provided by Dublin Airport, but there's good relationship between Aer Lingus and Dublin. Iberia has invested in its hard product on the ground and indeed we'll be making some announcements in relation to the in-flight products with the Iberia long-haul business class in the near future as well. And Vueling did an exceptional job in 2019, as I said, the second worst year on record. But to be able to improve their on-time performance by 7 points demonstrates that they took the right decisions at the beginning of the year. And that's reflected not just in their on-time performance, but in their customer satisfaction scores as well. And we will continue to be the thought leaders when it comes to environmental issues. We led the industry by announcing our commitment to net zero by 2050. Really pleased to see others follow. We need the industry to respond positively on the issue of the environment. This isn't going to be a competition issue between one airline and another. This is an industry requirement. And the more airlines that get onboard and the more airlines that talk about their environmental credibilities, the better for the industry. So I'm really pleased that others are committed to this as well, and I expect more and more airlines to do so. We've embedded management incentives in our plans for 2020 to ensure that we're driving the right behavior. So in addition to looking at the impact of investments in our Net Promoter Score, we also look at all investments in the context of what does this do for our environmental performance. So we've got a completely joined up thinking when it comes to financial and environmental and customer sustainability. And you've seen the pathway to achieve these targets. This is a credible pathway that we are absolutely committed to, including investment in new aircraft, investment in sustainable biofuels, investment in new technology and recognizing that we're going to have to pay more through carbon offsetting to ensure that we can get to net zero. So this is going to be a cost that everybody in the industry is going to bear, and that cost, clearly, we expect to see carbon prices increase as we go through our path to 2050. Now you will recall that we introduced the Permitted Maximum notice in February of last year. We're pleased that we were able to withdraw that in January of this year, and we keep this situation in relation to our non-EU shareholding under review. This has nothing to do with Brexit. I know some people confuse it and mix it with Brexit. As you know, this was in our bylaws and our articles when we created IAG. So it just reflects the fact that we have to satisfy governments around the world around the ownership structure of our airlines. So we'll keep this under review, and we -- it's important for me to note, and it's in the presentation here, that the Board is authorized to reimpose the Permitted Maximum at any time if necessary. But the situation, as I said, will be kept under regular review by the Board. On Brexit, it's done, I believe. I read in the paper it was done. So there will be some negotiations. I remain convinced actually that we will see a comprehensive air transport agreement. I know from close engagement with both EU officials and U.K. officials that this is what they want to see. It won't be exactly the same as existed. Well, the U.K. was part of the EU, but I believe we will see a comprehensive air transport agreement. We have, as you know, submitted our plans to the national regulators in Spain, Ireland, France and Austria. And the commission have been notified about the remedial actions that we will take. Important to note that the U.K. government has not asked us to take any remedial measures in terms of ownership and control. And we'll continue to make progress. I think the opportunity to acquire Air Europa, as I said, is fantastic. That is subject to regulatory approval. We hope that we can progress that in the second half of this year. We'll continue to invest in new aircraft and new products. Really pleased to see a new partner with IAG Loyalty, Barclays. That's going to be, I think, a fantastic initiative for IAG Loyalty. We'll continue to invest in our network, strengthen our position in the key channels that we have. And that, again, will be enhanced by the acquisition of Air Europa. And we'll consolidate the growth that we've seen in the intra-European market. And we have commitments, as I said, to improve our environmental performance, targeting 87.6 grams of CO2 per passenger kilometer in 2020. It's going to require work to get there, partly facilitated by the investment we're making in these new aircraft, which, as I said, are producing fantastic results. Now I've included a couple of other slides. I'm just going to comment on Luis in a moment. But if I was to sort of wrap this all up and say, what do I think? I would say that our unique structure is really going to demonstrate value now. It's at a time like this when we can prove to you that IAG has the ability to adapt, to withstand, to address anything that gets thrown at us. We have the advantage of having that flexibility that I don't think others have. We have the ability to make decisions quickly and implement those decisions quickly. We don't waste a lot of time debating them because, to be honest, we've gone through all of this before. We've all seen it before. So we've learned from the experience. It's easy to forget some of the challenges we've gone through. But we know what to do in a time like this and we know how to respond, and you should expect us to continue to do that. We will continue to look for opportunities to pursue consolidation where that makes sense, where that is positive for our shareholders. As I said, I expect to see quite a bit of failure in the industry this year, not just within Europe, but globally. And that will give us opportunities to expand, to fill the gaps that are left there. We will continue to lead on the environment because leadership is required. We will continue to focus on our cost performance. We're proud of it. It's a positive thing to do. We're always looking for initiatives to see how we can do better, and I know Luis is absolutely committed to doing that. All of this supported by a strong performance in 2019. And pleased to say that's reinforced by our confidence and the Board's confidence to say that we are continuing to return cash to shareholders, given the commitment that they've made and the support that we've received from our shareholders over the years. And finally, you can see a big smiling Luis Gallego there at the top. Delighted to be taken over. He's still smiling. Even with coronavirus, he's still smiling. I think the thing I would say here is, first, for the benefit of people who don't know Luis, we've included a couple of charts in the online presentation, so you can see what his financial performance was in Iberia. I've talked about it to you before, so I'm not going to labor on this. But he is, I think, one of the exceptional leaders in our industry. He's demonstrated leadership capabilities through what he's achieved in Iberia. And it's not just a financial transformation. Some people focus on that. It's a total transformation: the brands, the culture, the atmosphere, the engagement. At every level in Iberia, you have seen it transformed. And I know Luis will continue to do that. Significantly, he's had the opportunity to pick a number of the new players here. So delighted Marco is here. Marco Sansavini who is taking over at Vueling. And Javier who's taking over at, give me a second out here, at Iberia. And when Luis and I sat down to consider who should replace him at Iberia, we had the same names on the list and the same person at the top of the list. So Javier was our #1 choice. We're delighted that he's agreed to do that. When we looked then at replacing Javier at Vueling, we had the same names on the list and the same person at the top of the list. So unfortunately, we do think alike. So... And then of course, really sorry to see Drew leave the business. I think Drew has had a fantastic influence on the business and has done a great job. But again, replacing Drew and Adam Daniels, we announced yesterday, will take over. We say Avios there, but we've actually rebranded quietly Avios as IAG Loyalty and it was just too long a name to put on the chart there. So Adam who was the Commercial Director at Avios is now the CEO of IAG Loyalty. So these are people that have been chosen by Luis. And clearly, he also had significant input in you, that Steve would be appointed as the Group CFO with Enrique's retirement. He was involved in the selection of Alistair at strategy and involved in the selection of John at IAGTech. So we have a very strong team here, completely dedicated to continuing to deliver in the way that we have in the past. And I have absolutely no doubt in my mind, given the experience around that table, given what all of these people have gone through, the knowledge they've had of previous challenges that we faced that we're in very safe hands and that we will respond in a very positive way to the challenge that we face as a result of the coronavirus today. So you're in safe, very capable and very exciting hands with Luis and the new team. And I'm looking forward to the next month. I'm still fully engaged, I can assure you. But on the 26th of March at midnight, I'm handing him the keys. And at that stage, on the 27th, I'll be wandering around London, looking for somebody to have a drink with. But stay out of my way, unless you want some trouble. So I think on that, maybe, Steve, if you want to rejoin me here and we'll start taking some questions. Andrew, if you want to moderate it. I don't know, do we have a couple of -- yes. So we have some microphones David and Andrew will...

Yes. Can I ask just maximum of 2 questions, please. And if you want to ask more, then you can do so towards the end of the session. Thanks. James?

It's James Hollins from Exane. I think I speak for everyone, Willie, when I say a fond good riddance from us all. Two questions. Just on LEVEL, my colleague here or peer competitor, wherever James is, noticed there's no CEO of LEVEL at the moment. Just wondering if you could talk about the performance of that potential growth rates through this year and, obviously, leadership. The second one was on Air Europa, whether the current market might lead to a review of the price and potentially of the deal?

So with LEVEL, Fernando Candela has done a fundamental review. He sees a fantastic value and his track record is great. So what we asked him to do was to go back and start again and just challenge us as to whether the model works and then challenge us to whether our application to the model works. And what he has done is he's confirmed what we believe is true, that the model does work. He questioned some of how we went about doing LEVEL. And I think his observations were fair. If you remember, we launched LEVEL earlier than we had expected to. So we did, if you like, rush it to market because we wanted to get into Barcelona ahead of one of our competitors. So the first year of operation in Barcelona was fantastic, largely benefited by a very strong performance of Buenos Aires. And we redirected a lot of capacity into Buenos Aires. So that probably flattered us in a way and hid some of the underlying issues that we didn't need to address at that stage because the revenue performance was so strong. With the devaluation of the currency in Argentina, it did then put the operation under a bit of stress. And he's looked at some of the things we did that he said if you were to do it again, you wouldn't do this. So we had -- the commercial model wasn't right. We were selling on different platforms. We weren't able to fully exploit ancillary sales. So there were a number of issues there that he is now correcting. I think the other issue was Paris has been a disappointment. The market has not responded in the same way in Paris as it did to Barcelona with stimulating new and additional demand. So the performance in Paris is under review. So he's convinced the model works. He's correcting some of the mistakes that he believes we made in terms of the application towards that model, and I think we're in very capable hands with Fernando with LEVEL. So we had planned to add capacity to Paris this year. We're not going to do that now. So that capacity has been redirected to Barcelona. And we're looking at -- we're reviewing -- we're continuing to review the performance of the Paris operation. And then your second question was...

Air Europa.

Yes, sorry, Air Europa. No, we remain committed to this. And to be honest with you, it is subject to competition approval. We will address those issues that arise from that. But I think this -- the case for consolidation is very, very strong. And we're -- we want to have a stronger position at the Madrid hub and this is a fantastic opportunity to do that and create a real international hub, not just a, as Luis has talked about it in the past, hub for Latin America, but a hub for the global network. And we're better placed to do that through the acquisition of Air Europa. So we remain committed to that acquisition.

It's Alex Paterson from Peel Hunt. Two questions, please. Firstly, just obviously, the current environment with coronavirus demand being weak for Asia Pac, you responded, and now Europe. It may spread to other areas, we will see. How will you -- other than cutting capacity, efficiency savings and so on, how will you respond? Do you expect to adjust fares? Do you think that if this follows the path in Europe as it seems to have done or was doing in Asia Pac, that it will be temporary and you would, therefore, if you bring fares down, put them back up again? What do you see? And then the second question is just out of interest, in your time at IAG, is there anything that you wish you had done differently or something that you would have liked to do that you've not been able to?

Yes. I think -- and our thinking at this stage is that we're -- we would expect to see a similar pattern in Europe to what we've seen in Asia Pac. We are reviewing all of our commercial policies. We may not do things exactly as you would expect because we've learned from what we did in the past. We did things back in 2001, 2008 that we thought were right, but then having reviewed them afterwards, realized that we could have done it better. So I've talked about this previously, in 2008, we took a lot of capacity out. We combined flights, absolute sense. We ticked that box, capacity reduction. But what we then found is with the recovery in demand, we had no seats to sell at the higher prices. So in revenue terms and in profit terms, it was suboptimal. So having learned from that experience, we're not going to repeat the mistakes that we made. So we'll do it in a different way. And I'm not going to explain all of the commercial initiatives that we're going to take. But some of them may appear to be counterintuitive at this stage, but that's based on the learning that we've had from similar situations in the past. So as I said, what we had seen in Asia Pac and had we been doing this last Friday, we would have been saying, yes, we've seen demand fall. We've adjusted capacity to that demand. The market has adjusted capacity to that demand. The demand appears to have stabilized at a lower level. And that certainly was the trend. We looked at this very carefully over the last few days. So this time last week, that's the message you would have got, that it seems to have stabilized and that it will recover then in due course as production in China starts up again, as businesses start traveling, as we see the falloff in the number of cases being announced. So I'm expecting to see a similar pattern, but I'm not an expert in this. But certainly, this is the type of pattern that we've witnessed in the past. So I don't think we're witnessing anything that's different today. One of the stats we looked at, which gave us some degree of comfort, we looked at calls to one of our call centers over the first 3 days. So this would have been Tuesday, Wednesday and Thursday of last week. So if you remember, it was the Northern Italy issues were highlighted, I think, on the Monday, a number of government issues, travel advisories on Monday, corrected them on Monday evening. So we got a lot of calls, as you would expect, then on Tuesday, Wednesday and Thursday. It peaked, and if you looked at Ireland, in particular, it peaked on the Wednesday and I think triggered by talks of the cancellation of the Ireland-Italy rugby match. So about 1/3 of the calls we received on Wednesday related to coronavirus, customers either wanting to cancel flights, looking at options to change their flights or looking for advice. It then dropped off significantly on the Thursday. So I think we're seeing consumers respond to the media focus that exists. So there's certainly data that we're looking at that gives us reasons to be. I don't know what words you use here, confident maybe, that the patterns that we'll likely to see will be similar to what we have seen. But as I said, it's just far too early for us to be in a position to be able to give you accurate guidance at this stage. So -- and that's the reason. We'd love to be able to do that, and we've debated it. We just can't give you accurate guidance and I think we'd be misleading you if I said that we could give you accurate guidance at this stage. We'll watch this pattern over the next few weeks. And clearly, we'll update you as appropriate when we have information that we think will be of value to you. And in terms of do I have regret, the only thing I regret is I regret not recruiting John 3 years ago. I think he's made a fantastic change both to the culture and to the capability of our tech. So I'm really pleased with what John has done and I'm very excited about what you're going to see from John and the team going forward in relation to our IT and digital capabilities within the business.

Stephen Furlong from Davy. I just want to ask, Willie, in terms of IAG today, the fixed/variable cost nature of the business compared to if you go back to the BA Group into the financial crisis, maybe just qualitatively talk about that. I think people will be interested in that.

Yes. So if you look at it, our employee costs are 23% of our cost base. If I look at full year 2019, fuel was 27%. So if you were to take things like fuel handling and en route charges, which are, you could say, are directly related to the operation of the aircraft, that's 50% of our cost base. So clearly, when we don't operate the aircraft, these are costs that we generally can avoid. And we need to be careful because what we saw, and if you remember, in 2001, because of the nature of economic regulation for airports and Air Traffic Control providers, they recover it in future years if they don't get their revenues in the year that it happens. But that's just a very, very rough example of what you do. And then within our employee costs, we clearly have flexibility within the labor contracts that we have, and they vary across the group. So the immediate action that we've taken, as you would expect, is we've now postponed any future recruitments. It requires sign off by the CEO in each of the operating airlines if they are to recruit people. What we want to do is be careful that we're not going to put at risk our ability to respond when the market recovers. But we think that's a sensible measure, and we prefer to be operating on the side of caution at this stage. We have a number of initiatives. There is pent-up demand for part-time work, for unpaid leave. So these are things that we don't normally facilitate at this time of the year, so we'll be able to do things. So these are all sort of I would call these business-as-usual routine initiatives that we will apply very quickly in relation to what it is we're seeing. So we're taking a view, as I said, on long-haul through to the end of June. On short haul, at this stage, it's through to the end of March until we can see the patterns that give us some evidence to make a longer -- when I say longer-term decision in relation to capacity for April, May and June. But we do have a lot of flexibility in the cost base. And then if you look at aircraft, we will have a number of aircraft in our fleet that are fully depreciated. We have -- and that's both wide-body and narrow-body. We have aircraft that are coming off lease. We were looking at taking additional leased aircraft this year that we now won't take into the business. We're committing to taking all of the aircraft that we have purchased. We don't see any reason to change that. So these are, I would describe, as the measures that you would expect us to take both centrally and in each of the operating companies as well. Any discretionary spends, we will adjust, we will postpone some investment to later on in the year or maybe into next year. We're not going to postpone any key investments in products where we can see the opportunity to make progress there. So as I said, we remain fully committed to the reconfiguration of the BA business class products on our long haul. And I think that's absolutely the right decision for the business.

It's Andrew Lobbenberg from HSBC. Willie, give you an invitation to have a little chat. Talk to us about the third runway and how you feel about that. Just a little farewell gift. And a second one, talk to us about the relationship with Qatar, please, because you moved heaven and earth to get the European ownership up and he goes and buys them all, doesn't he? And at the same time, somehow, you've got then to kiss and make up with the Americans. So that's remarkable. Yes, tell us about those, and we'll miss you.

So on the third runway, I have to admit that it didn't come as a surprise to me. And I had a unique experience yesterday when one of the lawyers came to me and said, we gave you the wrong advice because they told me that that case would not win. So it's always nice when you get an apology from a lawyer. It wasn't Chris, by the way. Yes, it's not -- you still pay them. So I wasn't surprised, and I'm not surprised that the government has said that they're not going to appeal it. I think that's the right decision by the government. Equally, I'm not surprised that Heathrow decided they will appeal. I'm now calling on the CAA to stop Heathrow spending money on the third runway. And okay, look, if Heathrow wants to spend money on the third runway, let them, but don't allow them to pass that cost on to us because I believe the chances of the third runway being built are significantly reduced as a result of the decision yesterday. In effect, they've got to go back to square one and start off again. And even if they do, I think the challenge on the environmental front is still significant. And they have no way, absolutely no way, on earth of meeting the cost challenge. So I've been saying that for some time. I think I've been absolutely consistent that I didn't believe they could do it either on environmental grounds or on cost grounds, and my view on that hasn't changed. And in relation to Qatar, yes, I'm really pleased. The relationship between Qatar and American has improved significantly. And as you know, they've announced that they're reengaging on commercial initiatives with codeshare. And I think that's a very positive development. It didn't in any way interfere with our relationship with American, on the one hand, and with Qatar on the other. But what was very helpful was that being in the middle, we were able to bring the 2 sides a little bit closer together. And I think that's a positive development for us and also a positive development for oneworld. And I have to say I'm really pleased with the way American is responding to the challenges that they are facing, but the recent announcement of a closer relationship with Alaskan, I believe, is very positive. We've had a long-standing relationship with Alaska on the West Coast with British Airways and we see opportunities for Aer Lingus there as well. So these 2 initiatives are very significant initiatives. And they've invested in IAG because they believe it's an excellent investment. And I can't comment on how people make investment decisions, but it did come as a surprise to me. We had no advanced knowledge of that decision. We were advised the night before it was publicly announced. But that was, I think, after they have formally advised the CNMV in Spain that they have made the acquisition. It was a courtesy message to us that they would be making an announcement at 7:00 the following morning. So I know the Chairman and Luis will have engagement with Qatar after I leave. And I have no doubt that that will continue to be a positive engagement.

Firstly, thanks, Willie, for your decade at IAG and thanks from the analyst community. I think we've all found you honest, insightful even if you haven't had the answers at time. So we always thought the company was in excellent hands. So thanks very much. Coming on to that then, Luis, I mean I guess, early days. The strategy was given in November. Is there any areas where you could or would tweak? Or is it just exactly as is? And the secondly, just kind of -- just coming on to the cost control. I guess you've decreased your capacity down to 2%. What's the natural run rate, I guess, of capacity growth that you require in order to bring down ex-fuel unit costs? Or is this a year where the minus 1 isn't a minus 1?

I think where we're seeing growth at the moment, and we clearly have brought our growth down, so as Steve said, 4% last year when we sort of targeted it. In fact, if we go back when we were doing the business planning process, we were looking at about just over 7% growth. We then took a decision as IAG that that was too high and took a central decision to moderate that down a bit to 5.9%, which is the figure we gave you this time last year for 2019. We did make at that time strong comment that we would look to moderate that further as we went through the year. Now I think this time around, we have responded to what people have said that maybe we should go the other way where we have a lower growth target and look to improve on that if we see opportunity rather than announcing a higher growth target and look to reduce it. And that's exactly what we did. So we were looking at this year at around a little over 3%, maybe towards 3.5%, 3.2%, 3.5%. We've taken that down now to 2%. I suspect, as we stand here, it's likely to be below 2%. But then that may go up in the, if we were talking here maybe in September, we'd be looking at opportunity of putting capacity in to respond to underlying demand and particularly in an environment where I think a number of airlines will have disappeared at that stage. The natural level of growth for IAG, I think is probably in the order of 5%. If I look at the combination of the group where we have, if you like, the traditional legacy airlines and then the value airline, Aer Lingus in the middle and then low cost, Aer Lingus clearly has opportunities to pursue very strong growth. And the transatlantic, the performance there continues to be impressive. And with the availability of the 321LR and then the XLRs, I think this -- what that can do to the network and just the hub at Dublin will facilitate a strong transatlantic growth opportunity for them, less so on the short haul. But if you look at the combination of the airlines in the group, and particularly with the acquisition of -- with Air Europa, that's where I believe it rests. And at that level, I don't see any issue with the business being able to pursue that 1% nonfuel unit cost CAGR reduction. I know and Luis -- I'm going to do the talking today because he'll be doing it from now on, so I'm not going to hog this stage, but I know he's committed to that. But if I were looking at the next 10 years, I would be very comfortable that we can achieve those sorts of targets.

Carolina Dores from Morgan Stanley. I have 2 questions. First, for Steve, in terms of liquidity, fully agree that EUR 6.6 billion of cash, it's good liquidity. But you also have EUR 4 billion of payables that expire in 30 days. So in a stress scenario, I guess, are you looking today to increase your overdraft limits? And how much is that? My second question is if either your financing or your -- or the credit lines that you have for the hedging have financial covenants and which are they?

Okay. In terms of liquidity, as you rightly say, we're very comfortable with the level of cash we have. And as you see from the accounts, we were sitting on about EUR 6.6 billion at the end of the year. And due to the natural cycle, that continues to increase over time. So cash position is good. We have revolving credit facilities. So we have $1.3 billion revolving credit facility as well. And you're absolutely right, we have the ability to take out additional credit lines as well. So we're very, very comfortable with the liquidity position we have. With regards to covenants, we're in a strong place. What the treasury team has done over the last few years is make sure that the guarantees, et cetera, that we provide and the covenants we provide are pretty minimal to be honest. So I think we're in a pretty strong place.