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

Good day, and thank you for standing by. Welcome to the Half Year 2023 International Airlines Group Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Luis Gallego, CEO. Please go ahead.

Thank you very much. Good morning, everybody, and thank you for joining the IAG results presentations for the first half of 2023. With me today, I have Nicholas Cadbury, our CFO, as well as members of our management committee, including the CEOs of our main airlines. We have had a strong start to the year, reflecting that our airlines are based in large markets with good demand for our services. We have recorded a record profit, both for the half year and the second quarter with operating profit for the first 6 months of EUR 1.26 billion, which is also a big increase compared to this time last year. Specifically, our Spanish businesses are performing very well with a record profit at Iberia. Iberia's margin in the second quarter was just under 18% compared to 8.7% in second quarter 2019. At the same time, we are continuing to invest in our customers and operational performance, where the operating environment is currently challenging. Bookings are looking strong for third quarter, due in particular to a strong leisure demand. And financially, we expect net debt and leverage to continue to come down as we generate more profit and positive free cash flow this year. I will now hand over to Nicholas to talk you through the financial results for the period.

Thank you, Luis, and good morning, everybody. I'll just start with the profit bridge for the first half of the year and highlighting both the drivers of the improvement in profit since last year and then the results by each operating company. On the left of the slide, you can see that the increase in revenue has been the biggest driver, combining the restoration of capacity with strong unit revenue growth. That is slightly offset by cargo revenue, where yields are actually still 20% higher than 2019 levels, but there is a significant supply and demand imbalance across the market. The other revenue growth came from across our Loyalty, our MRO and our BA Holidays businesses. Nonfuel and fuel absolute costs reflect the higher level of flying activity and also the higher hedged fuel prices in the half. You can see on the right that all of our airlines have significantly improved their profit year-on-year, which I will come back to later. This slide shows the key operational and financial metrics for the half and at the bottom of each box is the Q2 variances versus 2022. The 31% increase in ASKs compared to H1 2022 was driven by a recovery in all airlines, especially in the first quarter when we were annualizing the Omicron constraints and a 20% improvement in ASKs in Q2. Passenger RASK was up 18% in the half and up 14% in Q2 versus last year with very good growth in unit revenues across all of our IAG Airlines, reflecting the strong demand. Fuel CASK was up 5.7%. Fuel spot commodity prices were actually lower year-on-year, but we benefited last year from hedges put in place before the Ukraine war sent prices higher. Nonfuel CASK for the half was in line with our guidance, down 7% year-on-year. In the quarter, nonfuel CASK was down only 2.5% lower, lower than our year -- full year run rate expectations due to additional disruption costs and investments we made in resilience. These added around 2% to 3% to our CASK. Despite this, we are still comfortable with our previous guidance for the full year of nonfuel costs being down 6% to 8% on 2022. As a result of these metrics, we've delivered a record operating profit in the half at EUR 1.3 billion and a margin of 9.3% in the half and a margin of 16.3% in the last quarter. With this good profit performance and a strong inflow in working capital, our net debt has come down again to EUR 7.6 billion, and leverage is now 1.5x significantly lower than this time last year. Moving on to the summary of our operating units for the half. You can see it has been a good financial half for all of our businesses. Aer Lingus has returned to a profit after a loss-making first quarter, reflecting the more seasonal aspects to its activities. British Airways has made a big step-up in profit comparisons to last year, driving both revenue and unit cost benefits year-on-year. Iberia has had an exceptional start to the year, making a record profit of EUR 372 million and 11% margin following strong demand across the South Atlantic. The increase in nonfuel CASK year-on-year largely related to the MRO and Handling business. Like Aer Lingus, the Vueling result is also more seasonal, but they performed very well with GBP 96 million profit for the half. And finally, we have given you more detail on the Loyalty business again, and you can see how it makes an important contribution to the Group's profit at a good margin of 25%. This next slide just shows you how our operating profit of EUR 1.3 billion reconciles to our statutory post-tax profit of EUR 921 million. I'll just draw your attention to the fact that we are now starting to get much better financial income on our cash, where we're earning around 3.5% in Q2 at an increasing rate compared to our current average cost of financial debt of around about 5%. Moving on to our cash flow. We've generated a net EUR 2.4 billion cash flow inflow in the half. You can see that this has been achieved by the EUR 2.2 billion EBITDA and a positive deferred income of just under EUR 2.4 billion as we built strong Q2 revenue. Offsetting this is our continued investment in our fleet, customer propositions and IT programs with EUR 1.3 billion of CapEx and EUR 225 million of ETS is purchased in the period. As mentioned earlier, our net debt at the 30th of June was EUR 7.6 billion. We expect to continue to benefit from the positive EBITDA across the year with a large proportion of the working capital unwinding in the second half, in line with normal seasonal trends. We maintain our previous capital guidance of around about EUR 4 billion for the year with 19 more aircraft expected to be delivered in the second half compared to 11 in the first half. Given the recovery of the business and our strong liquidity, we're starting to focus on reducing our gross debt. And in July, we repaid a EUR 500 million unsecured bond. At the year-end results, we gave guidance that net debt would be flat year-on-year. At this point, -- when we gave this guidance, consensus operating profit was around about EUR 2 billion. As we said at the Q1 results, we expect net debt to reduce in line with any operating profit improvements above this level. We show in the next slide, at results in February to remind you of the manageable debt maturity profile over the next few years. And as mentioned, we may look for opportunities to repay some of our gross debt in the second half if the markets are favorable. Moving on to our fuel hedging position. We're around about 67% hedged for the remainder of this year and just over 40% for 2024. Again, as the commodity price has been so volatile over the last year and the last few months even, we've shown some scenarios of our total fuel bill at different levels. Turning to recent trading. This slide shows the Q2 ASKs and PRASK growth across all of our regions compared to 2022. I won't go through these individually, but you can see our core markets of South and North America and Europe are showing a strong performance overall. We've shown very large ASK growth in Asia Pacific, reflecting that the market was substantially closed last year, and we've now opened up flying to China, Japan, Singapore and Australia. And lastly, for me, what does that mean for the rest of the year? We continue to see strong demand in the third quarter, which is 80% booked. We have less visibility into the fourth quarter, which is very typical for this time of year. And so far, for Q4, we are seeing no sign of weakness, and our booking curves are actually slightly ahead of normal years. This is due to the strong leisure demand that books further out, although with a higher mix of corporates in Q4, we expect this to normalize as we go through the rest of the year. Our capacity expectations for the year are unchanged at 97% of 2019 ASKs with the main area of shortfall coming from BA's Asia network with growth at each of the other airlines. Our nonfuel cash expectations continue to be in the range of 6% to 10% as previously guided. And finally, as mentioned a couple of slides ago, we expect net debt to continue to reduce year-on-year. On that note, I will now pass you back to Luis.

Thank you, Nicholas. I will now spend a few minutes talking about the strength of the Group and its business model and highlighting some of the work we are going to deliver our strategy. Firstly, I would like to remind you that IAG has a unique structure based on driving high and sustainable returns in our operating companies. A big part of that is the way we have deeply managed our portfolio to maximize value. And I think if you took -- if you look at these results, you can see the benefits of that portfolio approach in the balance of success we are having in our core markets. We are investing in our fleet, our cabins, the service delivered by our people, both onboard and elsewhere and in our digital offerings. We have historically improved efficiency at all our airlines and our transformation program is designed to do exactly that over the next few years. And finally, we recognize that our sustainability agenda is essential to the future of the business. The result of all this is that we are very focused on driving long-term sustainable value for our shareholders. One of the major drivers of long-term success is the leadership positions that we have in our hubs and major markets. And we continue to invest to ensure that our market positions are strengthened. On the North Atlantic, from London, British Airways is now flying the equivalent capacity of its prepandemic schedule. However, the market dynamics are slightly different as we have less premium capacity than we flew before due to the retirement of the 747 fleet. So we are focused on that market as we restore our fleet capacity, which will drive an increase in business class seats with an associated revenue benefit. Aer Lingus has a strong position in Dublin, particularly addressing its core U.S. market balancing efficiency with an attractive and value-oriented products, and they are expanding their network to places like Cleveland and Hartford. On the South Atlantic, this is a slightly different market to the North Atlantic, where we fit the Madrid hub and compete with other carrier groups from across Europe. Iberia is focused on building its market share, such as adding frequencies to destinations like Bogota and Mexico City. And finally, Vueling and LEVEL contribute both to our strong leadership position in Barcelona, but also through LEVEL to the North and South Atlantic proposition. We are currently investing a lot in our fleet, which drives better customer product, is more efficient and is more reliable. On the left, you can see that we have now mostly restored our narrowbody fleet to prepandemic level with a few more to come still at British Airways. And on the right, you can see that both British Airways and Iberia are still recovering their widebody fleet after the retirement of their all and inefficient 747 and 340 fleet, respectively. Our announcement last night means that we can accelerate that recovery process with BA's firm order for 6 787s and the addition of 1 A350 to Iberia. It is worth noting that this year, Iberia has been delivering a large part of its long-haul growth through greater utilization as Vueling has done in short-haul. And in the boxes above each chart, you will see that over 40% of both narrowbody and widebody are more efficient new generation aircraft, which is over 240 aircraft. At this point, we are also recognizing that for many of our customers, we would like to improve our operational performance. It's not helping that the European aviation environment is extremely difficult. Weather-related cancellations have increased by over 200% on 2022 at BA in the first half. The Ukraine conflict has cut EU airspace by 20%, which has a knock-on impact in other parts of European airspace. And we have also seen sustained amounts of industrial actions, ATC strikes in France, Italy and Germany as well as strikes earlier this year by some Heathrow staff. Iberia continue -- continues to be one of the world's most punctual airlines and Vueling is proving very resilient. On-time performance at both BA and Aer Lingus have suffered. The situation compared to last year is different. At BA, the core operation is more stable with significant recruitment being the biggest part. The main focus this summer has been on recruitment, managing the supply chain and the use of well-leased aircraft in both long-haul and short-haul fleet. Elsewhere across the network, we have a number of initiatives that are focused on delivering a resilient operation this summer. Aer Lingus have focused on removing bottlenecks, such as checking and for U.S. connections. At Vueling, it has mostly been about using data and systems to have a more joined-up approach between planning and on the day delivery. So they are Europe's second most punctual low-cost carrier despite their significant exposure of French ATC. And at Iberia, one of the most punctual airlines in the world, they are looking to improve even on this performance with investment in additional resources. We believe that this as well as a large number of other initiatives will deliver better performance for our customers. As well as in our fleet and operations, we are continuing to invest in the customer proposition for all points of the customer journey. Part of that is to ensure that our premium products are attractive and support the demand from both leisure and business travelers in the future. Both British Airways and Iberia are implementing new business suite products with 55% of BA's Heathrow-based long-haul fleet now embodied with a new product. BA is also enhancing and developing its lounges and lounge products such as the new JFK Terminal 8 lounges, but also at Heathrow Terminal 3, [ Newark ] and Chicago. And all of our network airlines are investing in an enhanced food offering for both premium passengers and also economy passengers. We continue to invest in IT and digital and our major investments in moving systems into the cloud is continuing. From a customer perspective -- from a customer service perspective, sorry, we are rolling out digital capabilities such as live chat, baggage tracking, customer pre-flight messaging and online menus. And we are investing in our customer service with a new bigger call center that is equipped with a new CRM and better telephony systems. Our Loyalty business continues to do well as a high-growth, capital-light and cash-generative part of the Group. We continually innovate to create ways for customers to engage with Avios. And in particular, we do this as we invest in our proprietary technology. On the collection side, we are working on both the airline and non-airline sites, such as through airline and financial service partners. We are also making it more attractive for our members to redeem their points. British Airways has now released Avios-only reward flights to 7 popular destinations. And we are also seeing growth in redemption at BA Holidays with around 20% of bookings now using Avios to save money. And moving on to our people. They remain core to our business. In the first half of the year, we have recruited 7,000 people across the Group. We are also investing to ensure we have a good supply of pilots into the future with cadet schemes at both Iberia and British Airways. We are targeting better diversity at senior levels of our organization. Most importantly, we are in the middle of negotiations with a number of our employee groups, and we hope to agree this over the next few months to the satisfactions of all parties. We are working towards ensuring that we can reach long-term sustainable agreements that allow us to be competitive with other airlines and to be able to invest in the business for the future. And finally, sustainability continues to be a long-term part of our strategy. Firstly, it is important to say that IAG has a positive impact in the economies where it operates. We ask PwC to assess this based on 2019 data. The results show the important contribution IAG is making in the U.K. and Europe, the job it is supporting and the way it supports tourism. This amounts to a direct and indirect contribution of EUR 70 billion in GDP and supporting more than 600,000 jobs. During the first half of the year, we continue to make progress on some of our key sustainability initiatives. We are actively advocating for policies to support the production of sustainable aviation fuel, including with the design of the SAF mandates and supporting supply incentives. We continue to work towards our target of using 10% SAF by 2030, securing more supplies of SAF such as the investment we announced earlier this week with Nova Pangaea in the U.K. And don't forget the investment in fleet we talked about earlier, where the latest generation aircraft are around 20% more fuel-efficient than previously. And the modern widebodies that we are currently receiving are up to 40% more efficient than the 747s and 340s they are replacing. So to summarize, this has been a good start to the year, delivering a record first half profit. We are looking forward to delivering another strong quarter in the summer, which is now almost 80% booked and finishing the year positively. And we will continue to invest in our Group-wide transformation program that is creating a more efficient business and opening up additional revenue streams. As a result of the good financial performance, we expect to generate sustainable free cash flow this year and to continue to deliver year-on-year. And looking beyond 2023, we are convinced that IAG's unique business model and attractive markets can deliver sustainable benefits for all stakeholders in the long-term. And now we are ready for your questions.

[Operator Instructions] Thank you. We will now take the first question. And the first question comes from the line of Stephen Furlong from Davy.

Okay. Maybe 2 questions, please. Can I ask about sustainability and the excellent efforts you're doing there. My understanding is that if CORSIA isn't kind of further developed another more countries are -- become part of it, then there's a provision for -- in the EU for ETS, long-haul to fall into ETS in 2027 onwards. And I'm just wondering what you think about and you -- are you worried about that, that long-haul will have to pay more allowances? That's the first question. And then kind of a particular one on Gatwick. I'm just maybe -- my understanding is in Gatwick, BA wants to expand and the slots that it gave back in the pandemic, whether in-house to Vueling or to easyJet. Maybe you can just talk about what are the plans there for the slots that you gave back? That would be great.

Yes. As you said, we are pushing to have CORSIA as the solution -- the global solution that we need in aviation. And in parallel, we have the ETS rules that are going to apply to the intra-European flights. So you know that the allowances are going to be reduced. We are pushing that this ETS scheme can in some way help the production of SAF that as you know, we have a short base and the SAF that we have is very expensive. So SAF is the only sustainable solution for long-haul flights. We have commitments of $865 million in order to comply with our commitment of 10% sustainable aviation fuel by 2030. So in U.K., what we are asking the government is to have a mechanism to stabilize the price in order to guarantee the investment in the plants that are needed to have this 10% of SAF. So we are going to continue leading this transition to a sustainable aviation and trying to change the policy that we have in Europe and U.K., more oriented to the seat, to the [indiscernible] that they are using in the states and is helping more to the development of the industry. About the second question about Gatwick, maybe Sean, you can answer about that.

Yes. Stephen, yes, on Gatwick, Euroflyer is now up and running, obviously, at a fairly significant scale. We have set up a separate airline operating certificate, and we're operating about 18 aircraft there this summer. Our plan would be to get that up to about 26. And we do have arrangements to take slots back from people we have leased them out to particularly easyJet over the coming years to enable that. That's in the headroom and capacity for Vueling current operation, which again has increased and it's performing very well.

We will now take the next question. It comes from the line of Savi Syth from Raymond James.

If I mind, just if you could provide a little bit more color on business and premium demand trends? I know you mentioned it, but basically, essentially a business, just where is it trending relative to the past? And the second question that's tied to that then is just I know your plan as you kind of thought about this kind of coming out of COVID was that business kind of recovers to maybe 85%, and we've kind of definitely been surprised at how strong premium leisure has been. What are the implications for earnings seasonality going forward, like on a long-term basis or do you kind of expect it to be pretty similar to kind of prepandemic?

Okay. So corporate traffic is recovering more slowly than we thought at the beginning of the year. It's true that business travel is recovering at different rates across our airlines and the different regions. We see a correlation between business travel and people returning to the office. So for example, our Spanish airlines are seeing a stronger recovery in business travel, if you compare it with British Airways or Aer Lingus. It's true that the summer period is not a big period for business travel. And the recent trends show that BA revenue was around 69% and volumes remain around 60%, 61% of 2019 levels. Iberia, they see something different. Revenues closer to 95% and volumes of 82%. We see also a difference in the rate of recovery between the different types of business trips. For example, long-haul business trips, over 2 days trips have been recovering faster than the recovery of our short-haul day trips. And if we look specifically to British Airways, for example, so since the end of COVID, business volume has recovered each quarter. In the period -- from the second quarter of 2022 to the first quarter of 2023, the average increase in volume comparing with 2019 was 10% per quarter. But from second quarter of 2023, we didn't see any recovery. The volumes are plateaued at 61%. It's true that the volume of flight cancellations don't help, but we see that things are not improving recently. But we are more optimistic about the future because for the third quarter, BA is forecasting to reach 68% of corporate traffic if we compare with 2019. And that's a 7-point improvement if we compare with Q2, mainly it's going to be due to less disruption. Also, we need to take into consideration, and in 2019, we had a strike, but it's important also the underlying growth. When we look, for example, at September, bookings are coming -- business bookings are coming well and are ahead of the expectations that we have. So as you can see, things are coming back, are coming back slowly. Are we going to reach the 85% that we set? We think we are going to come back there, but it's going to take more time than we thought originally.

That's super helpful. And just on the kind of the earnings seasonality thoughts there that I mean, if it even does have an impact?

Yes. In the Group, we have different airlines, seasonality is different in the different airlines. For example, we see now that this slow recovery of corporate traffic is having a bigger impact, for example, in Aer Lingus and now we have a more seasonal airline. But in the case of British Airways or Iberia, we don't see that this is affecting to the seasonality of the company.

We will now take the next question from the line of Jarrod Castle from UBS.

Just a question. You say that summer is 80% booked. Do you think that's the right number or are you missing out on potential yield uplift for close-in bookings? And then just related to pricing, there's obviously been some comments from U.S. airlines on pricing weakness, maybe it's U.S. airline specific or [ those ] airline specific. Do you think some of that will come Europe's way, I guess, in the future? And then just lastly, new Heathrow's CEO starts, I think at the beginning of October. So I guess what would be on your hit list in terms of things you'd want done differently at Heathrow or things reinforced and I guess, just the health of that relationship at the moment and going forward?

Yes, just in terms of the 80% book for the summer, I think we're looking at the right number there. It's slightly ahead of where we were a year ago in terms of booking trends, and I think you'd expect that kind of a slightly mix -- big mix of leisure that we're seeing. So I think -- and, of course, during the summer period, you have a much less dependent on corporate travel. So I think at the moment, you're seeing actually those short-term bookings are being filled by leisure at the moment. So we feel quite comfortable. And as we said earlier, we're not seeing any signs of weakness and a similar sort of trend in yield that we saw in Q2 as well across that as well. So...

Okay. And about the question about Heathrow. I think we welcome the new CEO. I'm, for sure, we are going to try to continue improving the relationship with the airport, at the end, it's going to be beneficial for the customers. And I'm sure that we will talk about a lot of things, but main topics, I'm sure will be the Heathrow charges that has been a battle and we continue with the battles because we are operating in one of the most expensive airport in the world that when you see the experience of the customer is not one of the best, to be polite. And also another topic is the electronic travel authorization that you know that we are talking about that now, and it's something that can be a big problem for the connecting traffic in Heathrow if we compare with other hubs in Europe. So I don't know, Sean, if you want to add any color.

I think that would be one thing we'd work with Heathrow to have alleviated, because I think having an ETA for clients and customers doesn't make sense. And we need to work together on that. But as Luis said, I think we need efficient and very much improved infrastructure and delivery for customers. And we need to make sure that the charges sustain a competitive position for Heathrow. And we'd work with Thomas in the same way that we've worked with the previous regime on delivering that.

And I think you asked also about the weakness in general in the unit revenue. And as we said before, we don't see that. I think we are -- we see for the third quarter a similar trend that we had in the second quarter, and unit revenue increase compared to the 2019 similar to the one we had in the second quarter. It's true that we see a decrease in the last quarter, but it's not linked to any weakness. It's linked more to the normal seasonality effect.

We will now take the next question from the line of Jaime Rowbotham from Deutsche Bank.

2 from me. I was going to ask about Q3 yields, but you just covered that. So instead, just looking at Slide 20, big difference in on-time performance between BA and Iberia. I think that probably has a lot to do with Heathrow, which you just talked about a bit, the differences there versus Madrid. But maybe you could just expand a bit on what you can do to improve on-time performance further at British Airways? And then the second question relates to IAG as a platform for consolidation. Just wanted to get a sense of how ambitious you're feeling in the current environment. Obviously, Air Europa has agreed subject to antitrust. I think the Portuguese government said a process for TAP will take place before October. And presumably, there are other lower profile opportunities around Europe. So how great is IAG's appetite in this current phase of industry consolidation, please?

Okay. Starting with the [ OTP ], it's true that we have 2 different behaviors in British Airways, Aer Lingus and Iberia and Vueling. I think the environment that we are operating in Europe is very difficult this summer. As I said before, we have air strikes, ATC problems, ground handling. We have less airspace as a consequence of the situation, the Russian invasion of Ukraine. We are having problems with weather, including thunderstorms, high winds, et cetera. And we are having issues that in all the industries, supply chain issues. British Airways and Aer Lingus are particularly impacted. It's true that we are managing better the situation in Spain. I think in the case of Iberia, it's a process that started a long time ago. And they changed the company to become one of the most punctual airlines in the world. And they are managing better the situation. It's true also that during the COVID, in Iberia, it was possible to maintain all the employment. So they have the people that they had before, they have the right skills. And in the case, for example, of BA, they have hired a lot of new people for this summer. And you always need a period in order to improve the performance. But in any case, when we look at, for example, at the number of cancellations in BA this summer, and we compare with the last year, the late cancellations have been reduced 40% flying, 20% more flights. So our ambition is to improve punctuality in Heathrow, in Gatwick, in Dublin. But it's true that the environment is not helping, but we know how to do it, because as you said, we are having very good operation in other airlines of the Group. And about the platform for consolidation, yes, we continue -- we created IAG as a platform in order to consolidate the European aviation because we think is needed. For that reason, new companies joined the Group in the past, and we always are looking to opportunities to develop the Group. So in the case of Air Europa, it's something that we closed in November 2019. And we are -- even with COVID in the middle, we continue trying to do this operation that is critical for the development of Madrid hub that we have seen in these results is a hub that is growing. And I'm sure it's going to be a big support for the Group in the future. So that operation, we are still in the pre-notification phase with the European Commission, and we are in the process now of submitting the information. And we are talking with potential partners for remedies. And we are working, trying to demonstrate the consumer benefits that are going to come with this operation, and also trying to show that Madrid needs a hub to compete with the bigger hubs in Europe. And that the European airlines, we need to have the size to compete also in a global world, where you have the U.S. carriers that are -- yes, they have concentrated their market or you need to operate to compete with Chinese carriers, Gulf carriers, et cetera. And [ TAP ], as you said, is something that we are analyzing, but we need to wait until the privatization process will start, probably in October. And at that point, we will determine if it's something interesting for the Group or not.

We will now take the next question from the line of James Hollins from BNP Paribas.

Yes. 2 for me, please. One on pilots, the other on British Airways. So on the pilots, I guess, for Nicholas, I was wondering in your cost guidance, what you're assuming on BA, Aer Lingus, Vueling wage increases? And any more detail on where we are on those negotiations? And perhaps while we're on pilots, whether the Iberia pilots are agitating for a pay increase despite them having a long-term deal? And then for Sean, I read a very interesting article in The Sunday Times about, for an interview with yourself. Turning on this platform, you might discuss a little bit more detail on some of those issues you were talking about British Airways, whether it's staff morale, some of the costs required to improve the business back end, front end, et cetera, a key focus. I'd just love to get a bit more on this platform from you, Sean.

So, James, just starting on pilots. We're -- as you know, we've agreed for the next 3 years with Iberia, our CBA. So that's in a good place overall. And you can see with the operating -- the company is operating incredibly well at the moment as well. This is the season where we're in negotiations with most of our other airlines at the moment with our pilots and our cabin crew as well. So I think right now, it would be kind of inappropriate for me to kind of comment specifically on any of those deals as well. But we're going to be expecting a robust flying pattern over the summer holiday. So really, the guidance I'm going to kind of refer you to is the guidance that we've given you before, which is kind of, we think overall, both employee and our supplier costs and our ownership costs, we're down about 6% to 10% year-on-year overall. So I think that's as far as I can go on that overall.

In relation to BA, yes, I think we are kind of midway through transforming the company. And I think there's a lot of progress being made. But maybe if I kind of structure this in 4 key components. I suppose the first thing is leadership and the kind of people we have driving the transformation. And we have brought in, I think a lot of very, very strong leaders to really accelerate the pace of improvement in the business. And more recently, we have a new Director at Heathrow, Tom Moran, who's joined from Thameslink. And he's a very, very impressive and experienced professional who I think will really help with the Heathrow challenges that Luis has spoken about. I think secondly, is resourcing. We've made significant progress on rebuilding the resources in the company. We've added 3,000 people alone in the first half in advance of this summer. And we've covered about 13,000 more people since the start of the end of the pandemic. So the resources we're getting there. You mentioned morale. I think we are seeing significant improvements in employee engagement. We're putting a lot of work into making sure that people have the right skills, the right training and the right tools to do the job of the day and make sure really that we support all of our frontline operational people in looking after our customers, and that's trending very much in the right direction. If we look at investments, we have, as Luis mentioned, significant fleet deliveries coming. And the great news is they all come with new products. The Club Suite is very, very well received. I think it's in the top 4 business class experiences globally. And we now have 55% of our Heathrow fleet has the Club Suite. That will rise to 63% by year-end, and we start reconfiguring the 787-8s and 9s next year. So I think the hard product will work, and that's going very well. We've also put significant investment into our contact centers. We've had a new site in [ Delhi ], a new site in Bucharest and a new site in Kuala Lumpur. We've increased our call handling capability by about 30% year-on-year. And finally, it's putting in some foundations on tech and experience. And a lot of work going in to migrate out of our data centers into the cloud, we'll be complete with that next year, and we're redeveloping ba.com and looking to transform the digital experience. And again, we have a new leadership team leading that program in British Airways. So there's a lot of foundations going in, a lot of progress being made and very exciting developments that will begin to impact the business positively in the next 12 months or so.

And the next question comes from the line of Guilherme Sampaio from CaixaBank BPI.

2, if I may. The first one, coming back to bookings, again, if you could provide some view on how our bookings performing across your key geographies? And if you could provide some granularity on gross bookings and cancellations? And the second question, if you could update us where your NDC volumes are at the moment? And to what extent these are being channeled through the [ GDS ]?

So just for bookings, I mean, we won't go into individual geographies overall. And I think we've already said that we've seen the kind of continuation of Q3. There's been similar trends of Q2 with kind of no weaknesses in there. And we've seen our -- particularly in our core markets of North America, South Atlantic and across Europe continues to be strong. All leisure destinations, again, continue to be kind of holding up very well. So it's the only area where we're kind of cut on capacity rather than bookings at the moment is flying East. And that's just because we don't have the number of planes flying across to the same number of destinations, the same number of frequencies that we had in the Far East at the moment. And that will take us a couple of years to get back up to that sort of level of capacity. So I think that's where it is on that in bookings. Next question was on kind of cancellations overall, which you'll see, I think if you look at cancellations overall over the last kind of this year versus last year, actually, you'll see the kind of level of cancellations overall is down. We're still higher than we would like it to be, of course, but we're still kind of focusing on making sure they kind of come -- continue to kind of come down a little bit. There was another question as well, which I missed actually.

On NDC, if you could update us where are your volumes right now in terms of the overall volumes? And to what extent these volumes have been channeled through the GDS?

I don't think we disclose the actual levels of [ NDS ] that we do kind of specifically overall, but it's an kind of increasing share of our business overall. And pleased with how that's kind of going at the moment.

Direct.

Yes. The direct side has continued to grow as a proportion of our business, both for leisure and for corporate.

We will now take the next question from the line of Harry Gowers from JPMorgan.

2 questions, if I can. So the first one is disruption. There's been, I guess, increased noise around potential disruption in the last few weeks, especially in places like Gatwick. So how confident are you, you can complete your Q3 capacity without large delays or last-minute cancellations? Are you relatively confident in the system in general or your major airports? And then just second one, just going back to the corporate travel point because it sounds like you think the slower recovery versus expectations this year is probably more cyclical in nature rather than a higher structural impact. So is that the case? Because it sounds like structurally, you still expect those corporate volumes to get back to around 85% of 2019 levels?

Yes. So I'll just start on the corporate one. I'm not sure about cyclic -- I'm not sure about cyclical overall. I think in some sectors, you've seen it probably a bit more cyclical. I think kind of you've seen in the finance sector has been the beginning of the year was a bit subdued, probably level of kind of transactions that were going on, actually, but we've seen that kind of recover a bit lately overall. So I think it's just a steady growth back. It's particularly correlated to kind of when people are working from home and as they're coming back into the office as well. So you've seen Spain recover almost back to 100%. And if you go back to offices in Spain, they're back to almost [ 100% ], where if you go to Ireland, it's still kind of Mondays and Fridays are pretty work from home. So that's -- it's kind of correlating with that at the moment. And you'll see in the U.K., as you work from home is going to continue to -- work from office is continuing to improve. And so it's going to be improving with that base as well. And as we said, we're starting to see Q4 very early, but we're starting to see kind of encouraging signs from bookings on the corporate travel.

Just on the disruption in the U.K. airports. We're in the 29th of July, so we're in peak summer. And we've already been in peak summer as well in June, which is a very big period for North Atlantic. So I think July, we've seen improved reductions in disruption compared to June, and we expect that to carry on as we head into August. I think Gatwick, our operation is obviously smaller than some other operators out there. And I think we're not seeing the level of disruption for the BA operation than Gatwick, as you may see overall at the airport, but that has some specific challenges in relation to air traffic control capacity that we monitor closely. At Heathrow, as we said earlier, I think our resourcing picture is much better. We obviously are vulnerable to the external environment and the airports we do fly to the Northern Europe as well are seeing similar levels of challenge. But we are focusing on the things we can control, particularly supply chain, technical resilience and resourcing. And we do see them be stable and getting better as we look into August.

We will now take the next question from the line of Andrew Lobbenberg from Barclays.