Good morning and welcome to our presentation of the Q4 and the full-year results. I'm Bogi Nils Bogason, and as usual, I have our CFO with me, Ívar Sigurður Kristinsson. First we will go through a presentation and following that a Q&A session, and please send us your questions to ir@icelandair.is. Going into the numbers and information, first I would like to say that we delivered a solid fourth quarter, but the full-year results did not meet the expectations that we had at the beginning of the year. However, we are definitely on the right track, and here are some of the key milestones from last year. We generated record revenue, transported more than five million passengers for the first time in the company history, and the load factor was at a record high.
We delivered an outstanding on-time performance, ranking among Europe's most punctual airlines, and by that strengthening the customer experience. We also generated record Saga Premium revenues and significantly strengthened our position as the leading hub carrier here at Keflavík Airport. We continue to drive operational efficiencies with improved productivity that was depicted by 8% capacity growth on 2% less FTEs. We carried out initiatives under our transformation journey that are expected to deliver over $100 million in annual impact when fully implemented. Significant changes and challenges in our external environment had a negative impact on the bottom line. Geopolitical developments led to depreciation of the US dollar, increasing our operating cost by $44 million. This also affected the demand to Iceland from North America, which is our largest market, and had a negative impact on the transatlantic market as well.
Salary increases in Iceland have far outpaced what we see around us, posing a challenge for export-driven service industries, and on top of this, carbon emission costs more than doubled between years, amounting to $43 million. We are addressing these challenges head-on and continuing to make necessary changes to improve performance across the company. As a result of the challenges, EBIT for the full year ended at a negative $17 million. However, our bottom line improved with a net loss improving by $10 million, and we delivered a record passenger revenue of $1.5 billion, and unit revenues increased by 2%. Unit cost increased by 2% as well for the whole year, and our cargo and leasing businesses performed very strongly. Net cash from operation was $305 million, well above 2024.
The equity ratio at year-end was 15%, and we closed the year with $458 million in liquidity, which is a very strong position to be in, and that's over $400 million increase between years. But Ívar, please take us further into the financials.
Thank you, Bogi. Starting with the traffic data for the fourth quarter. This was one of our strongest fourth quarters we've seen in recent years. We carried 1.2 million passengers, which represents a 13% increase year-over-year, which also was true for the RPKs. We delivered a record load factor, as Bogi mentioned, reaching 84.3%, up almost a percentage point from last year, and improved our yield by 4%. This growth came even as we expanded capacity by 12%. We saw passenger growth across all markets, led by the market from Iceland, which saw an impressive 23% increase from last year. On the sustainability perspective, then we achieved a 3% reduction in CO2 emissions per OTK, and this improvement was driven by higher utilization of our 737 MAX and A321LR fleet, and higher load factors.
Looking at the fourth quarter financial performance, then we delivered a very strong quarter when it comes to top-line revenue. Operating income increased by 17% year-on-year, was a record of almost $407 million. This was mainly driven by robust passenger revenue, which also grew 17%, and in other operating revenue, those grew quite well as well, driven by a $10 million gain on sale of operating assets. Operating expenses rose 15% to $392 million. Weakening of the dollar had a meaningful impact here, as the FX movement for the quarter added around $70 million to the cost base. Despite the cost headwinds, EBIT loss narrowed by $2 million, was negative $30 million, and the EBIT margin improved by 2 percentage points as well.
If we look at performance by segment, then most notably the route network improved by more than four million, while cargo was down by a little more than 1 million due to softer fish exports from Iceland. On the salary costs in the quarter, increasing 21% year-over-year, but when we exclude the FX impact of the weaker dollar, then the underlying increase was 13%. The split between the cost drivers, contractual salary increases, contributed to around $9 million of the increase, and the weakening of the dollar inflated costs by approximately $8 million. To counter those increases, the operational efficiency improvements were quite meaningful, as we only increased the FTEs by around 3% on 12% more production, and this resulting in 9% labor efficiency improvement. And if we look at the entire year, then that measure had an improvement of 10%. Fuel costs for the quarter, increasing 13%.
A few moving parts there as well. On the positive side, fleet renewal and efficiency initiatives reduced the fuel consumption, but on the other hand, these gains were overshadowed by the increase in the emission-related costs. Those costs rose by more than $8 million due to higher unit prices in the quarter for those units, as well as fewer free allowances compared to last year. Our hedging positions, looking into 2026, we have already hedged approximately 40% of the consumption at around $670 per ton, which is well below the current jet price, and we also have some hedges already in place for 2027. If we analyze a little bit the full-year results, which Bogi highlighted earlier, then here we have our year-on-year EBIT bridge, and there we can see the impact of the record revenue increasing by $170 million.
And then against that, the top-line growth was offset by higher operating costs, including the high salary increases and the increased emission-related expenses. We can also see in this slide the positive impact of the transformation program, delivered material impact, contributing to more than $30 million in savings on the costs. And then again, largest headwind, the weakening of the dollar, adding about $44 million. And if we exclude that impact, you can see that the underlying performance was up by around $40 million year-on-year. And also here on the right side of the slide, you can see that the quarterly development of EBIT, so strong improvement in Q1, but then we had the sharp weakening of the dollar in Q2 that impacted our EBIT, and that kind of followed through into the third quarter.
Just a summary on the FX movements here, kind of how it flows through the overall income statement. You can see that the bottom line impact is around $26 million, even though the EBIT impact was higher, around $44 million. The reason is a positive impact on both finance income as well as on the tax line, making the impact on the bottom line somewhat lower than on EBIT. On unit revenue performance, it's encouraging to see that we managed to grow the unit revenue by 2%. This is for the full year on the 8% more capacity, and also taking into account the pressure on the fares on the transatlantic. The RASK was driven by the record load factor as well as improved yields.
Looking at the quarterly development, then we saw unit revenue improvement in all quarters, except the second one, while the fourth increase stood out with the 5% increase. On the cost side, up 2% for the full year. Currency impact also having an effect there, of course, and excluding that, we had the underlying unit cost decreasing by 1%. As mentioned, we have faced the inflationary cost pressures in 2025, and this underlying kind of reduction in the unit cost, it reflects quite strongly on the benefits we are seeing from the one transformation program, as well as how we are utilizing our resources better year-round. Cargo and leasing, both segments delivered strong performance in 2025 and improving significantly year-on-year, and just showcasing the great execution by both of those teams.
Leasing business achieved an EBIT of $20 million, and cargo business improved well year on year and had an EBIT margin of 5%, and a good improvement from the year before. Cash flow, liquidity, very strong cash from operation, $305 million, $106 million higher than last year, explained by more positive movements in the working capital as well as positive FX impact. Cash and marketable securities, $366 million at the end of the year, and if we include the undrawn credit facilities, then liquidity was quite healthy at $458 million at year-end. Finally, here you can see the balance sheet. Equity improving by $17 million to $286 million for the year, but however, as the balance sheet is growing, then the equity ratio was 15% compared to 16% last year. Bogi, over to you for the business update.
Thank you, Ívar. First, briefly, a little bit more about the salary increases, and as we have mentioned, the sharp rise in salaries here in Iceland in recent years, they are negatively impacting the operations of export companies, and this slide here clearly illustrates the challenge. Since 2020, the wage index in Iceland has increased by 49%, which is significantly higher than in our main competing regions. But in response, Iceland has placed a very strong focus on increasing efficiency. As a result, our productivity improved considerably last year. At the same time, our collective bargaining agreements with our key groups, pilots, cabin crew, and mechanics, have expired, and negotiations are now taking place, and the objective is clear. We have to secure long-term agreements that support Iceland's competitiveness while the company will continue to be a very attractive workplace.
Lastly, it is very important that we here in Iceland reshape our labor market model and move closer to the Nordic approach where the export industries set the tone for salary increases. Such a shift would definitely significantly improve Iceland's long-term ability to compete and contribute to lower inflation. To our ongoing transformation journey that we have mentioned before, there we continue to make very strong progress, very important progress, with over 230 initiatives already implemented, which will support an expected annual impact of over $100 million when they are fully delivered. We are driving optimization, organization restructuring, and efficiency measures across the whole business, and at the same time, we are strengthening revenue generation through more agile and responsive pricing and refined product offerings by unbundling selected services. Overall, the one journey is making a real difference for the company.
Turning to our broader social impact, Icelandair plays an important role in the Icelandic economy and the wider community. Last year, our tax footprint amounted to $322 million or over ISK 40 billion, and that just reflects our position as one of the country's largest employers with more than 3,500 FTEs, where our gender equality is a key priority for us. On the environmental side, we remain fully committed to reduce our carbon emission. Since 2019, we have lowered CO2 emission per operating ton kilometer by 22%, mainly driven by the fuel fleet renewal program. However, despite our considerable achievements in lowering CO2 emissions and investing in a more fuel-efficient fleet, our environmental costs doubled between years.
It is therefore essential that the Icelandic government ensures the competitiveness of Icelandic companies by providing a predictable operating environment and by actively defending Iceland's interests within the EU regulatory framework. Then to our network, our hub position at Keflavík continues to strengthen, and our capacity here at Keflavík is now close to 70%. Maintaining a leading hub position is critical for Icelandair, and it supports unit revenue performance. Last year, we expanded our network with new destinations and increased frequencies, giving customers more choice than ever before. This strong position provides a solid foundation for our 2026 schedule, enabling us to expand where the demand is strongest and reinforce Keflavík as a competitive and attractive connecting hub.
This year, 2026, we plan for a 2% increase in capacity, and our focus remains firmly on the markets to and from Iceland, where we continue to see strong demand and attractive yields. At the same time, we are not growing in the peak season, and by that, we lower seasonality and improve our resource utilization. Growth this year will mainly come from European destinations with increased emphasis on Southern Europe and Scandinavia. We will continue to operate three connecting banks during the summer, creating more than 800 connection possibilities across our network. This year, we are adding three new destinations: Faroe, Venice, and yesterday, we announced Gdansk in Poland. Overall, the 2026 network builds on our strengths, focusing on the most profitable markets, improving connectivity, and supporting the continued development of our hub here in Keflavík.
Onto the fleet, this year, we will operate 52 aircraft. We continue to add Airbus A321LRs to the fleet, and by doing so, we are improving efficiency and reducing complexity for the long term. Unfortunately, one of the three Airbuses that we had planned to have in operations before the summer will be delayed until later this year due to delays at Airbus. This year, the fleet will be leaner, more efficient, and mostly composed of the newest technology aircraft, with 90% of flights operated on those aircraft, offering the best available customer comfort and fuel efficiency. Looking further ahead, we have a purchase agreement for 13 Airbus A321XLRs with deliveries beginning in 2029, which will open up new markets, enable us to expand the boundaries of our current network.
Then to the financial outlook for the year 2026, we expect profitability to improve year on year and that we will return to profit driven by stronger performance in the passenger network. Unit revenue is anticipated to grow faster than unit cost, supported by our strengthened hub position in Keflavík, strong booking status, and rebalanced summer schedule that focuses on the most profitable markets. Both the leasing and cargo segments are expected to continue delivering strong results. So overall, the foundations for this year are solid with clear opportunities for improved profitability. And this morning, we published our traffic stats or traffic numbers for January, and they are showing a very promising start of the year. Demand remains strong on the to and from markets, and we saw 15% growth of passengers with improved load factor, and the yields were up by 7%.
Our on-time performance continues to be among the best in Europe. So overall, the first month of the year confirms the positive momentum that we are seeing on the revenue side and gives us a solid platform for the months ahead. Then a few takeaways here at the end. Last year was another eventful year where we delivered significant progress in the areas within our control: record revenue, record load factor, outstanding on-time performance, and strong operational efficiency. At the same time, external factors had a negative impact on our margins. Our ongoing transformation journey continues to play a crucial role, and our leading hub position at Keflavík strengthened. So all in all, we are in a strong position to turn a profit this year. It is time for Icelandic shareholders to reap the rewards after having stood by the company for many years.
And finally, I want to thank our employees for their resilience and exceptional work throughout the year, and our customers for choosing Icelandair. Thank you, and now to the Q&A, and I hope we have some questions from the audience online.
Yes, we have a few questions already. Good morning. The first couple of questions are around the financial guidance. First, your financial guidance remains quite broad and doesn't explicitly reference a return to profitability. Should we interpret that as limited confidence in achieving a positive EBIT this year, or is profitability simply not something you're ready to guide on yet? And another question on this, we can take it together. Are there any specific reasons why guidance is not issued? Are you still aiming at reaching the 8% target in the near future?
Ívar, would you like to start here?
Yeah, maybe starting on the financial guidance, then we think kind of just based on the operating environment and kind of the current situation, so to speak, that it's not prudent to put forward a narrow range for the EBIT guidance for the year. As you know, this is quite a low-margin business, so kind of a meaningful guidance as this year would have to be quite broad. And I think if you look at the industry, other airlines around us, especially in Europe, it's quite rare that they publish EBIT guidance for the full year at the start of the year. So at this point, we are definitely planning to make a profit this year and by that, improving our profitability year-on-year. There was a second part of that question.
Regarding the 8%?
Yeah, the 8%. Do you want to take that, Bogi?
Yeah, we are definitely still aiming to reach the 8% EBIT on average through the cycle, and that is definitely still the goal for the company, and all our long-term plans are into that direction.
We have a couple of questions regarding the collective bargaining agreements. You're currently negotiating new agreements with pilots, cabin crew, and mechanics to improve competitiveness and flexibility. How large is your wage cost gap versus European peers today? What specific changes are you targeting in areas like productivity, duty times, and scheduling? When do you realistically expect agreements to be in place, and what is the downside if negotiations are delayed? Another question on this. Just take them together. You've taken good steps in improving labor efficiency. With the salary contracts still being negotiated, what raise can the company aim for without eating up the efficiency you've already achieved?
Yeah, many questions in this one. Yeah, it's right. As I went through, the negotiations are ongoing, and it's also you saw the slide, and we all know that the salary increases in Iceland have been much higher in recent years than in our neighboring countries, and that is quite challenging for especially export service industries like we are in. We need to work on this together. The company and the unions, the interests are definitely, we can say, hand in hand. The company needs to be competitive, and what we are aiming for is more flexibility, and just in short, we need to be more competitive. It's very hard to say that or have mentioned an exact pay gap between us and some other airlines.
You can't find two airlines around us which are exactly the same, so we have to look at a peer group, and doing that, we need to be more competitive than we are today, and that is the focus of the negotiations with all the unions. Of course, it's different from union to union, but we can say the mantra in the negotiations are more flexibility and to be more competitive.
Here's a question on carbon emission costs. These costs have increased sharply and appear to be eroding Iceland's competitiveness as an export and hub-based aviation market. Do you feel there is sufficient understanding at the government level of how quickly this is impacting airlines like Icelandair, and do you expect any policy relief or adjustments in the near term?
Yeah, there is definitely an understanding within the government and within, we can say, the politicians, but time flies, and there is definitely an urgency in place. We just have the exemption, or if you call it exemption, until the end of this year, and our government is definitely working in Brussels to have a long-term solution, and we need to have some predictability sooner than later. And it's definitely not just about aviation here in Iceland or shipping in Iceland. It is for the whole economy and the whole nation. Without competitive flight connections or shipping connections, the economy here in Iceland would suffer a lot. So it's in the interest of the whole nation that the government needs to find a long-term solution here, and the government is definitely aware of what needs to be done, but the urgency is there.
A bit further on the external environment. Have the recent changes in the environment changed your approach in regards to hedging currency risk going forward?
I mean, our hedging policy on liquidity risk is quite clear. We hedge 40%-80% of the kind of net exposure for the coming 12 months, and kind of on the balance of currencies, then we are kind of selling foreign currency and buying króna, and we are just following the policy, and we continue to do that.
Here's one question on the tourism market. In 2025, visitors from China were the fastest growing of any country with 30% growth year-on-year. Do you have partnership agreements and/or code-sharing in place to tap into this market?
Yeah, we have been strengthening our partnership portfolio with new agreements in recent years with Turkish Airlines, and by that, we are strengthening our flow to and from Asia and Middle East, and that is our strategy to continue to work with airlines on a partnership basis, and we definitely see those opportunities in Asia, and we are focusing on that.
That concludes the questions this morning.
Thank you very much. Thank you very much for attending, and have a nice weekend.
Thank you.