Good morning, everybody, and welcome to the IAG Capital Markets Day 2023. I'll be very brief. Usual safety briefing, emergency exits. I'm not very good at this, I'm not well trained, but there, there, and there. There's no scheduled fire alarm drill today, so if you do hear the fire alarm, please make your way out as quickly as possible. We've got an app for today. Hopefully, everybody's been sent the app. If you haven't, there's a QR code on your table. There's a function on there that will allow you to put Q&A through the day into that, and we'll come to it at the end. We've got one long Q&A session at the end.
So as I say, if you wanna put your questions in there, we'll make sure we come to all of those as we get along with things. Our agenda for today, we're gonna talk about the leading positions we have in highly attractive growth markets. We're gonna talk about our world-class brands that all operate in those markets. We're gonna talk about the loyalty program that IAG has, and the opportunity we have in that business. We're gonna talk about how we're transforming everything across the business, delivering a step change in what we do. Leadership and sustainability is a key thing we need to do as an airline, as an industry, and we'll show you how IAG is a leader in that in the industry.
Then finally, how our disciplined capital allocation will lead to our intention to maximize shareholder returns. Just very quickly on the timetable, this is the running order. There'll be a coffee break at around 10:30 A.M. Adam will give you the details on that later. Please go and chat to some of our colleagues who are at the back there during those breaks. They're all very experienced and know an awful lot about what they do. So I think a key part of today is during the coffee break and during the lunch break, is talking to those people. So without further ado, I will introduce you to Luis Gallego, our CEO.
Thank you very much, Stuart, and good morning, everyone, to this Capital Markets Day, the first one since 2019. At that time, we talked to you about our unique business model and our resilience in case of a downturn. We didn't expect a pandemic after that, to, to be honest. But we have successfully proved that what we told you was true. We are proud to tell you that we are coming back to a strong profit, and recently we recovered, both in IAG and in British Airways, our investment-grade ratings. So our strategy delivered what we thought. However, last year, we decided to review our strategy in the context of the post-COVID environment, and the conclusion of the exercise was that we only needed a slight update in what we call our strategic imperatives.
Let's talk about our strategy. First, we want to strengthen our core. We want to strengthen our positioning in our core markets. In particular, we have a big focus on America Latina. We are strengthening also our portfolio of world-class brands and operations. This means that we are investing in the customer proposition, and we have a significant opportunity, mainly in British Airways. We also think that there are opportunities to add capital light growth through partnerships and alliances. The second pillar of our strategy is to drive earnings through our capital light businesses, and in particular, IAG Loyalty. This is a high-growth, high-margin, and cash-generative business that also provides a lot of value to our airlines. The third pillar is that we want to ensure that IAG is a financially and operationally sustainable business.
We will continue to ensure that our balance sheet is strong, that we are disciplined with our capital allocation, and we are going to continue leading the industry through the net zero emissions by 2050. Transformation is what underpin everything. We are creating a step change in the way we do the things across the organization. We are using our proven structure and the business model in order to help the different airlines to reach their full potential. We are investing in the network, we are investing in our customers, and in the operations. We are also driving efficiency and investing in innovation, IT, artificial intelligence, and data. And last but not least, we are doing this with a team that has unrivaled experience in leading and transforming businesses. This strategy will deliver sustainable growth, world-class margins, sustainable free cash flow generation, increasingly a strong balance sheet...
This means that we are committed to maximize shareholder returns through dividends, and when the conditions allow, additional returns. We have four near-term strategic priorities. I have already talked about transformation, which now is centrally driven by IAG. The aim is very simple: all our businesses must reach what we call the full potential. The approach is not only focused on cost, we attack all the angles of the companies: revenues, efficiency, innovation, et cetera. We have a successful track record of transformation in this group. We are going to leverage these transformations that we did in Spain, delivering over EUR 1.5 billion in operating profit from our Spanish businesses. This is going to provide a more balanced group and a bigger diversification of profits across the IAG portfolio. We will continue investing in British Airways.
We are going to invest in order to deliver higher customer satisfaction, satisfaction that is going to lead to higher, higher profits and margins. Lastly, IAG Loyalty is not going to be anymore an IAG platform company. They are going to be more important in some way for the group. We are going to develop IAG Loyalty as a priority for us. As I said before, they are delivering high margins, and it's a capital-light growth, and they will deliver sustainable cash flows. One thing that I think is important also for them is the least seasonal of our businesses. Underpinning all this, we are going to have a priority, that is to have a very strong balance sheet in the core of everything we do. IAG, we have a proven, you know, business model. You know that we are an active, you know, portfolio manager.
We have excellent airlines attending different market segments and customer segments, but the model that we have is not similar to the model that others have. So from the group, we define corporate portfolio, we allocate capital, and we also do the, what we call the performance management. The concept of capital allocation is critical for this group. We are independent when we make capital decisions, and for me, this is what we call the secret sauce of IAG. We are going to drive also value through M&A, partnerships, and joint businesses. We are going to drive top talent management, sorry. We are going to ensure that we have the right people in the right place. We will continue driving the sustainability agenda, facilitating also capturing more synergies at group level, and we will drive innovation.
In the operating companies, they will continue having accountability of the P&L, commercial and operational independence. They will manage customer proposition, and they will do locally the management of the people and labor relations. All this is underpinned with our group platforms that you know are centers of excellence that bring a specific expertise or drive the benefits of the scale. You can see here the management committee. You can see it's a very experienced and diverse group. Some of the members, they come within the group with a track record of delivering transformation in the different airlines they were before. Some of them, they come from outside, and they are bringing different perspectives and different experiences. I think what is critical in this group is that they are a very collaborative team. Teamwork is in the DNA of our leaders.
We share knowledge, and we share best practices in order to help all the airlines to reach their full potential. Every week, we have a meeting together, and we have the opportunity to have an internal benchmark. That's very important for the group. It's worth noting that all the CEOs in the different airlines, they come from other parts of the group. So, for example, Sean Doyle, he was the former CEO of Aer Lingus. Fernando Candela, he was the former CEO of Iberia Express, Iberia, and he launched the transformation area that I talked before in 2020. Lynne Embleton now is the CEO of Aer Lingus. Before, she was the CEO of Cargo, and she was managing director of BA Gatwick. Marco Sansavini, he was the chief commercial officer of Iberia in the time where we did the big transformation of the company.
So you can see in the following slide, the strong historical performance of the different companies in the group, and this has been done for these people. So the right strategy, implemented by an experienced management team working together, has made possible that IAG is coming back to our leadership position in financial performance, but also our balance sheet is stronger, and we are generating higher margins than our peers. And I think a relevant question is, why invest in aviation? We have two slides to remind you that this sector has been always a long-term, secular growth sector. This industry has been always a growth industry. Even a global pandemic has changed the long-term growth trajectory of the industry, as you can see in the slide. And on the right-hand side, you can see some of the drivers of that growth.
Travel is an increasing priority for the younger generation, but travel is a priority for everyone, mainly after COVID. In the aviation sector, low barriers to entry and also the rational deployment of capacity have historically been the two key headwinds that we had in order to generate returns above our cost of capital. I think all this changed after the global financial crisis, and since then, industry has been much more rational. It's hard to see now irrational behaviors, but I think additional to this, we are going to see a period of time where we are going to have even more constraints to enter in this sector. We have, for example, a shortfall in aircraft deliveries.
During the pandemic, aircraft manufacturers, they had to stop the production, and they are still trying to building back the production to the levels that they had before. Second, you know that there are some issues with some types of aircraft and engines, and there is a lack of maintenance capacity to absorb all these challenges. For example, I am sure we will talk later about the problem with the Pratt engines, the GTF, and the impact that can have in the narrow-body operation. As you can see from the right chart, from the right-hand chart, sorry, that the current orders for the European network are barely enough to cover the retirements that we are going to have in the following years. And why invest in us?
The total market to and from Europe is worth around EUR 180 billion per annum in revenue terms. Around 85% of our passenger traffic is in the three attractive markets that you can see on the left-hand side of the slide. 31% of our traffic is en route to North America, 19% en route to Latin America and Caribbean, what we call LACAR, and it's a territory where I told you before that we have an opportunity to grow in order to generate the EUR 1.5 billion from that sector in the world. Over a third of our passengers are in the European short-haul market, and the remaining 15% is in the rest of the world, mainly dedicated to point-to-point operations. We are also based in some of the largest European hubs.
London Heathrow is clearly the leader in Europe, but Madrid is the fifth-largest, and Barcelona is the eighth-largest hub in Europe, and both of them, they have capacity to grow. The size and the positioning of our hubs in the western side of Europe also give us a major competitive advantage in our core North and South Atlantic markets. This geographical position is ideal for passengers that they want to connect from Europe to the Americas. Likewise, our home countries have the biggest point-to-point flows to the most part of the American countries, and this is very important in order to strengthen our hubs. In this slide, you can see the framework that we use to allocate capital as a neutral parent between the different markets.
The framework is based on the concept of profit pools, and we look at this through different lenses: regions, hubs, and business units. Our core markets of U.S., Latin, and Spain domestic should be of no surprise to you. Near core market, markets are smaller, but like our core markets, also where we hold number one or number two market share position. Other markets, like India, are markets where maybe we are not the leader, but where we have a competitive advantage, and we have the potential to grow this profit pool. We will select to grow in these markets, either organically, inorganically, or through capital-light alternatives. The North Atlantic is our biggest market and profit pool.
We have a leadership position with the largest network, operating around 150 daily flights from all of our hubs and carrying 44 million passengers per year. Latin America is an attractive and fast-growing market, where we have a very strong market share and where we are increasing our network. The transformation that we did in Iberia is allowing us to generate world-class margins, and also to invest in the region. We are going to have more opportunities with the deliveries of the new 350s, and also the 321 extra long range is going to be an opportunity to develop new market that we couldn't attend in the past. Brazil remains a market to develop for us. So Air Europa is an important step to deliver our strategy in the profit pool of Latin America.
Air Europa can give Iberia the scale that is needed in order to compete with our competitors in Europe. It will provide greater connectivity for our customers. We will add more origin and destinations to our network, and also, the Madrid hub will increase competition within the different hubs in Europe. This is going to be very good for the customers in general. Also, to have a bigger hub in Madrid is going to be better to compete with the big carriers all over the world and in the different regions. It's an opportunity also to have Madrid, and to develop Madrid, as a 360-degree hub. Usually Madrid, we fly to the west, but we have an opportunity to fly to the east. It's good to say that IAG will have a very strong track record in acquisitions.
So in 2013, we acquired Vueling, and we increased the number of passengers in 2013 by 43%, 70% in 2014, and 15% in 2015. In 2015, we acquired Aer Lingus, and since then, we have incorporated new long-haul aircraft, 14 new long-haul aircraft, and transatlantic LEVEL, now they have 19 routes in operation. The deal of Air Europa also will provide a more sustainable company, both financially and environmentally. Outside of our core markets, mainly flying to the east, we will fly to the main point-to-point markets. We talked before about India, where we have a strong cultural ties, and we are going to have growth opportunities there. We are considering organic growth and also leverage our partnerships in order to deliver incremental profits in a capital-light way.
In the slide, you can see the different colors, which countries that are included in the different joint businesses. The largest of these is the joint business with Qatar Airways. That is the one that cover the major number of countries, and Julio are going to talk later, is going to talk later about this. So our group structure provides opportunity to grow in multiple ways: organic growth, partnerships, or inorganic growth. You can see here everything we have done in the last year, but at this point I want to talk about LEVEL. Before COVID, we had an AOC in France to operate from Paris. We had an AOC in Austria to operate short-haul operations, and we were operating also long haul from Barcelona. During COVID, we canceled the operations from Paris and Austria, but we decided to maintain our operations from Barcelona.
As you saw before, Barcelona is the eighth airport in Europe and has a huge potential. Now we are going to revamp the company, developing the Aircraft Operating Certificate, what we call the AOC, to operate long-haul flights in the way we announced when we launched the company. This will allow us to be more efficient and will open new opportunities to develop the company. In regards to the short-haul operations of LEVEL, we are considering to relaunch short-haul operations with a new AOC, but we are going to wait until we have more clarity about the Air Europa operation before taking the final decision. Moving to our portfolio of world-class brands. Every brand is very strong in its own markets and focused on particular customer segments, and you can see in the slide.
So growing our brands and customer proposition is essential to our network strategy. As a reminder, day-to-day operations are responsibility for the different OpCos. So each one of them, they determine where to invest in order to differentiate their company from the key competitors and to deliver to the customers what they value most. We will talk later about the different brands and the investment we are making them. British Airways, I told you before, is an area of a strategic focus. We are investing a significant amount in transforming our IT, our commercial platforms, our customer proposition, and our operations. Particularly, we have a big focus in Heathrow. So delivering this, we will deliver higher customer satisfaction, higher profits, and higher margins for the long term. And we have the best Europe's loyalty program.
IAG Loyalty has become an increasingly attractive part of IAG, and they are generating external revenue of over GBP 1 billion and profit growth of 10% per annum. This business is generating strong cash flows, high profit margins, and deliver capital light returns. We have over 40 million members, and this provide the opportunity to build relationships with our customers and gain, gain a lot of insights. As I said before, it's the least seasonal of our businesses. IAG is another key component of the group that is going to help to improve our margins, generate cash flow, and achieve our return objectives. IAG, we have been always the leaders in the path to net zero emissions. We were the first group worldwide to commit to net zero emissions by 2050, and we remain committed to this target.
We have a clear pathway to arrive there, and we are investing in new aircraft, sustainable aviation fuel, carbon removals, et cetera. We are doing everything is in our hand to comply with these targets, but it's true that we remain still dependent on government policy, particularly incentives to develop the production of SAF. Our people. Our people is key in all this. In order to be successful, people is a clear differentiator. We are investing in our people, giving them the skills that they need in order to improve the customer experience. We are closing multi-year agreements with the different collectives of the company, and this is going to give us a stability in order to develop an efficient growth.
This is my last slide before the team. They are going to explain in more detail what I told you before. We will focus on delivering sustainable growth through disciplined investment in our core markets. We are going to invest in our brands, our customers, and our operations. We are investing in our capital light businesses, and in particular, IAG Loyalty, to deliver high growth, high margins, and higher cash generation. All this is supported by our transformation program that now is embedded in the group and across all our businesses. This means that our financial targets for the medium term remain the same: margins between 12%-15%, return on invested capital between 13%-16%, ASK growth will be at 2%-3% once we have reached a steady state.
As I told you before, we remain committed to have a very strong balance sheet. So for our shareholders, our commitment is to have earnings per share growth, return to paying an ordinary dividend, and the opportunity for further shareholder returns. And now I'm going to hand over to Sean, Lynne, Marco, and Fernando to talk about our global leadership positions.
Thank you, Luis. We're going to do a run through a number of slides, and we'll expand on, I suppose, the framework Luis presented earlier, which is about the discipline of capital allocation that we have in IAG. We have core profit pools, which underpin the cash generation and the sustainable returns in the business. We'll go deep on the US today and highlight the characteristics of that market and the competitive advantages we do have. We'll also talk about the emerging business and the exciting opportunities in southern Atlantic, and we'll talk about domestic and intra-Europe, which Marco will take us through. But this is our framework, and what you see here is, okay, what's very important to maintain share and grow and prioritize? Well, the US is critical.
You know, we're very well positioned to capitalize on our hubs, our geographic advantage, our language advantage, and our partnerships. So North Atlantic will continue to be a bedrock of our investment strategy, and we're very confident about the returns that we will generate there. We also, you know, serve that market out of a number of our hubs. So all of our hubs, we serve the North Atlantic, and it's also supported by the value we generate in our business units. So loyalty, a critically important part of our customer penetration, and of course, the profit of the operating companies.... Now, that doesn't rule out investment we will make in other opportunities. So markets like West Africa, South Africa, very important to the BA franchise. And also we have opportunities in potential future profit pools that we are very excited about, namely India.
But this is kind of, I suppose, a prioritization of where we channel our investment, and we'll talk through some of the opportunities and characteristics of that. If we look at the Europe market to the US, it's the biggest single market. About 29% of all revenues are generated from this segment. This is rolling 12 months, I think, to quarter two. I spoke about the fact that Dublin, Heathrow, Madrid and Barcelona, very well positioned to flow traffic into Southern and Northern Europe. And we also have opportunities to flow traffic into rest-of-world markets like Africa and the Middle East. And of course, our cultural links and our language is, again, a very powerful lever that we do have. We also have developed, with Finnair and American, the largest joint business across the North Atlantic.
A number of gateways that we can serve over the U.S., fantastic loyalty, reciprocity, and that's been a very, very strong lever for growing this business over the last 12 years or so. And because of our hub presence in places like Heathrow, Dublin, and Madrid, we also have an opportunity in terms of penetration of high-value premium markets. So large profit pool and a very, very important lever for cash generation. To kind of illustrate the importance of the profitability of the North Atlantic, these are our top 10 routes, and I guess people can guess number 1. But the point we're making here is 7 of our top 10 are across the U.S. market. And if you look at the color coding, that is the absolute profit generated by operating company. It's not just all about British Airways here.
You can see Aer Lingus and Iberia have very, very important profit pools, which overlap with profit pools that BA will have. So at a route level, again, you can see the diversified portfolio by hub and brand we have, but when you add it all up, this is again a very, very important part of our portfolio. Sorry, final slide from me. I mentioned premium. You can see here the US IAG penetration of the premium market outweighs anything we see in the US industry, and it's much, much bigger than we see in the rest of world industry.
So that is underpinned by things we will talk about later in more detail, but a strong ground experience, making sure that we have lounges, check-in, premium, curation, all of the things we are investing in to make sure that we are very competitive and relevant to that segment. And secondly, making sure that we have leading products in the air. So BA has first class, which is becoming a USP across the North Atlantic. And of course, we have got privacy suites in Iberia, in British Airways. American have been putting huge investment into their products, and as both, IAG and a partnership, we're very committed to making sure that we compete effectively for this very, very important premium segment. Lynne?
So the U.S. is the biggest long-haul market from Europe. It's a market that matters across IAG and a market where we have a natural advantage. And Sean talked about the premium nature of that market, and of course, that's not equal across all of the European cities. But with IAG's portfolio of airlines, we can adapt to the different market characteristics that we see. So if you take London and U.K., it's a phenomenally premium market, and BA can design its airline around those market characteristics. So Sean mentioned the first class cabin, but what we also see is the way in which the aircraft are deployed, and the seat configuration means that they can tailor to that premium market. So more than one in five of the seats on the BA North Atlantic is premium.
Now, on the Spanish and the Irish markets, it's not as premium. And so what you see is that's reflected in the Iberia fleet and in the Aer Lingus fleet, where roughly one in ten of the seats there are premium. And it's important to know that for, for the business cabins, we're targeting the business traveler, but we're also targeting the premium leisure traveler, and it's that dual purpose in those premium cabins that allow us to have high seat factors all year round. The other important thing on this slide, key point to note, is how the fleet is changing across the Atlantic. It has changed, and it is changing. So those fuel-thirsty 747s, the fuel-thirsty A340s and the 757s that we had have all exited.
As we transition to a modern fleet, we get all of the customer benefits, the fuel efficiency benefits, and of course, the environmental benefits that go with that. Now, IAG is fortunate to sit on some of the biggest markets from Europe to the US, and that, of course, is helped by that historical connections, particularly Ireland and the UK. And when we take UK and Ireland and Spain together, we account for a third of the US-Europe revenues. And on the right here, you can see that the market has consolidated around 3 large joint businesses. Now, we don't think this reduces competition, but we do believe it makes the market more rational. Our joint business that we established some 13 years ago, it's deepened and it's strengthened over that time, and our joint business is the leader in that market.
With strong home markets and point-to-point demand, with a great partner, and with the geographical advantage of our hubs on the west of Europe, we are ideally placed to win in this market. You can see that in our network. We've got more destinations in the U.S. than either the Sky or the Star joint businesses. If you look at the map, the paler dots, if you can see them there, they're the destinations and the routes that we had before the joint business, and the darker colors are the ones that we've developed since. You can see an incredible growth in our network across the Atlantic, and this includes markets that we've already announced for next year, LEVEL for Miami—Miami for LEVEL, and Denver for Aer Lingus.
The important thing is, across the airlines, we all see plenty of profitable opportunities and growth in this market. We can get at that growth, helped by a new tool in the toolkit coming next year, as we welcome the A321XLRs into the fleet. This is for Aer Lingus, and it's for Iberia, and these aircraft, narrow-bodied, extra long range. We really like these airplanes. We like them for three reasons. We like them because they are smaller, which makes it ideal for entering into secondary cities or smaller markets that aren't over-served by other carriers. With them being small, they're also great for adding frequency without doubling capacity in the market. They're really useful for Iberia, too, as they can match the seasonality between North and South Atlantic. We like them because of their size.
We like them because of their costs. Unsurprisingly, they are significantly more cost-efficient than the older generation 757, as you can see on the slide, that they replaced. But importantly, they're also cost competitive against the larger wide-bodied aircraft that we deploy across the Atlantic. So that gives profitable economic growth for us. And we also like them because of their range, so these are getting into more cities than we're able to do with our existing 321LR aircraft. And it's important that we emphasize that, that advantage of geography is much more important for us at IAG, being on the west of Europe, than it is for other airlines, where this aircraft simply doesn't get into as many markets in the US. So to close the US profit pool, it's important. We have a leadership position.
It always has been a key, key market for IAG. It is today, and we're very confident it will be in the future. So to hand to Fernando to talk about South Atlantic and Latin.
So moving into Latin America market, this market is increasingly attractive. It's smaller in terms of size, in terms of contribution to the total profit, but growing really, really fast. And it's a major component of the EUR 1.5 billion that Luis mentioned before, which is the target operating profit for the Spanish businesses this year, between Iberia, Vueling, and LEVEL. So like the US, our hubs are geographically well positioned to Latin America, and also Spain has a strong cultural link with the Latin America region. Madrid, as you can see in the right-hand side of the slide, is the most important hub to Latin America. It's more or less, it's more than twice the next biggest hub in Europe to Latin America, which is Paris Charles de Gaulle.
In conclusion, these advantages allows us give us the ability to have a leadership position in the Latin America market. We are servicing Latin America market with three brands. We are operating from Madrid with Iberia. It accounts around 43% of our total revenues and is an important part of the total profit of Iberia. Also, from Barcelona, we are operating with LEVEL on long-haul operations, and it's 45%. It's 50/50, more or less, Latin America and North Atlantic from Barcelona, and it's a strong opportunity to growth, as Luis mentioned also before. For British Airways, it's less important. It's a small relative weight, but also it's a key contribution to this profit pool, serving the largest point-to-point destinations from London to Latin America.
We do believe that Iberia's improvement is structural. Let me, let me explain with these three, three aspects why we do believe that really this structural change in profit is something that, that will remain. First, of the enablers, one of the key enablers is the fleet renewal. The new Airbus A350s are not only more efficient and faster, are also more reliable. So it means that we have recovered capacity, pre-COVID capacity with less planes, increasing utilization and improving our unit, our unit cost. So Iberia has taken a conscious decision, as you see in the, in the second, in the second part.
We have the largest network from Europe to Latin America, and we took the conscious decision to recover capacity quicker than our competitors, increasing our relative market share, and now having a much more strong position than we had pre-COVID due to... And you can see here in the dot, the, in the red points, we have increased capacity, we have increased frequencies versus the capacity we had in 2019. And third one, it's about the demand side. We have a significant more Latin America citizens living in, in, in Madrid, in Spain. Not that, not only significant, 50% in the last five years has increased. And also the profile of these citizens is completely different.
As you see, below, Bloomberg stated that Madrid is like the new Miami, and it means that there is a significant increase in the demand, in the premium leisure demand, in air travel, in hotels, and also the real estate investment, for example, in Madrid, is driving why we are achieving these sustainable higher yields and higher unit revenues. And also one area of relative weakness that Luis mentioned before also is Brazil. It's an opportunity that is untapped. Another growth opportunity, we will want to take full advantage is LEVEL in Barcelona, the long-haul growth in Barcelona. As a reminder, we started this operation in 2017. At that moment, some long-haul, low-cost projects were launched in Europe, pioneered by Norwegian. They have some examples of airlines that launched this model, but-...
Attempting to operate with this model, but most of them has been unsuccessful. However, the same cannot be said about LEVEL. LEVEL is generating a double-digit profit margin, and there are some keys behind the success of this operation. Not only the competitive cost base, also the huge transformation program that the team has run during the last years. But also, one of the group advantages, the IAG's extensive presence in Barcelona, the Vueling network we have in Barcelona that allows us to fly around 20% of our long-haul passengers coming from a Vueling short-haul flight to Barcelona. Currently, LEVEL has five aircraft. The next phase of LEVEL growth is to have around eight planes by 2026.
Also, we're excited with this new growth and also with the opportunity to develop this operation with a new AOC, a new Air Operator Certificate, that we'll be launching in Barcelona for long-haul operations. As we mentioned before, not only the structural benefits of the A350s, and as Lynne introduced, the arrival of the A321XLR, extra long range, will bring a huge opportunity also for the operation from Madrid and the next phase of growth in Latin America. The extra long range, not only allow to build frequencies, only allow us to open new destinations and to allocate capacity, more capacity to Latin America without additional, additional large widebodies. The map on this slide shows you the number of growth opportunities we have in Latin America, enhancing our network with secondary cities and also increasing frequencies in the current destinations.
The growth here will be a combination of organic growth, organic growth through partnerships, and also in addition, the inorganic growth through the acquisition of Air Europa, that is, is now subject to the regulatory approvals. So I hand over to Marco to cover the European part.
Thank you, Fernando. So after having heard from Lynne and Sean about our global leadership position in North America, and now from Fernando about the leadership position we hold on Latin America, here we are with the other two regions, Europe on one side and rest of the world. And as Luis mentioned at the beginning, in Europe, we have the third core profit pool that we have as a group, represented by Spain domestic. But also, we have a number of near-core markets, such as London Gatwick, or profit potential pools for the future, and equally in the rest of the world. So if we start from the European flows, you can see from this chart representation of the different markets. And as Luis mentioned at the beginning, the total intra-European market represents 180...
Sorry, the total European market represents EUR 180 billion, of which the intra-European one is a third, around EUR 66 billion. And you can see it here, represented in this chart, through the international flows and the domestic markets. And you can see in red, the ones that touch one of our home markets. And you can see that the largest single international market in Europe is the one between Spain and U.K. You can see that 9 out of the 11 largest international markets are touching our home markets, and you can see that the single largest domestic market is Spain. And no surprise, therefore, that Spain domestic is one of our core profit pools.
You can see from this chart, entered very graphically, in blue, what is our leadership, leadership position or relative position in the main Spanish airports, and you can see in gray, what is our relative position in the international flows. And how it comes? It comes thanks to the fact that we have a unique combination of, at the same time, a leading network carrier and two very efficient and competitive local carriers, being Iberia Express and Vueling, which provide, at the same time, a platform to compete very effectively with local carriers in point-to-point traffic and connecting traffic to the hubs in Madrid and Barcelona. And they combine it with an absolute operational excellence.
Iberia Express and Vueling have been repeatedly the first and the second top-performing local carriers in punctuality, throughout, well, in the current year, for instance, and with a more than 10 points advantage versus our local carriers' competitors. That is very instrumental to our cost competitiveness, because that allows to have a higher utilization, less backup resources, and of course, lower EU261 costs. Next to that, of course, combined with a very, very strong brand recognition. No surprise about our core profit pool in Spain domestic. What about the rest? Now, if we look at our total footprint as a group in short-haul Europe, you can see that almost 50% of the fleet is deployed, in fact, on local carrier operations. We have around 400 aircraft, of which 197 are deployed to feed our network carriers.
So these are the short and medium-haul operations of Aer Lingus, of British Airways, of Iberia. But next to that, we have 190 aircraft dedicated to not only the two Spanish local carriers, but also the growing initiatives that we have in the rest of the network. And in particular, you might know about the launch of Euroflyer two years ago, that established a local carrier operation in London Gatwick, where BA considered that the best vehicle to compete and grow in London Gatwick was a local carrier operation. Therefore, the total portfolio that we have of local carriers in Europe allows us to look at growth opportunity with a lot of confidence. Even though in a different stage, Iberia Express is ready to grow in Madrid, in Spain.
Vueling has a big potential to grow, but at the moment, it requires, in order to unlock these growth opportunities, to achieve sustainable collective level agreement with all our labor groups. We have significant opportunities of growth, as I said, both with Euroflyer in London Gatwick, but also with Cityflyer in London City. That, as you know, is the point-to-point corporate market that Cityflyer helps to address. That gives you a sense of our core current profit pool and the potential future profit pools that we have in Europe. What about the rest of the world?
Now, rest of the world, as Luis was also indicating at the beginning of the presentation, is an area that encompasses Africa, Asia, Middle East, so highly attractive markets, where our way to grow is primarily through asset-light joint businesses that allow us to have a very, very broad depth without having to invest too much capital to reach it. You can see here the three joint businesses that help doing that: the cooperation with Qatar Airways in the Qatar joint business, the cooperation with Finnair and Japan Airlines in the Siberian Joint Business, and with China Southern in the China Joint Business. And you can see the depth that that allows through the map that we have in front of you.
Now, I'd like to focus one second a bit more deeply on the Qatar joint business, because it's pretty unique in the industry. In fact, in the Qatar joint business, next to the traditional network synergies, for consumer benefits that are managed through the joint business, you can see that we have also a unique partnership in terms of establishing a global loyalty currency, in the sense that, Qatar Airways adopted Avios, and Adam will elaborate more on that, as their global currency of also for their loyalty program, as well as additional areas of cooperation in Cargo and in maintenance activities and in procurement activities that allow us to develop more opportunities to generate synergies.
All in all, also, we look at Qatar not only to expand our footprint all over in the Far East part, but as Sean was mentioning, one of the, we believe, potential future profit pool is India, and the cooperation with Qatar is pretty much instrumental to enhance our footprint over there. In summary, what we have been presenting to you in this section of the global leadership position is referring to what Luis was mentioning at the beginning. Not only are we emerging from COVID with world-class margin and returns, but also with a mix, with a portfolio that is more balanced and more resilient for the future. What you can see from this chart is basically our distribution of potential future profits by region and by hub.
You can see that while, of course, North Atlantic remains the backbone of our profitability, you can see that the highest growing profit pools are the ones related to LATAM and domestic Spain, or to the, what we call, adjacencies. So the additional business asset-light , like indeed, the loyalty program that Adam will elaborate on. And you can see it also by hub. So you can see by hub that our reliance upon only Northern European hubs is relatively reducing, thanks to the increase of the contribution of the Southern European hubs, and that's the reference of the EUR 1.5 billion that the Spanish businesses will contribute in future to the group. In essence, therefore, not only stronger in terms of margin and returns, but also more balanced and more resilient.
And now let me give the word to Julio to elaborate on our world-class brands to address these markets. Thank you.
Thank you, Marco. Good morning. I'm going to talk to you about our world-class brands and lay out our plans to invest in the customer experience we deliver. Let me just move on. IAG have several world-class brands, globally recognized and trusted. Each brand has a unique identity, customer proposition, and strategy. Our airline brands are anchored around IAG, leveraging the scale, our efficient platforms, such as Cargo, GBS, or Hangar 51, and benefiting from world-class expertise across the group. Our customers live and breathe the airline brands and Avios, our global loyalty currency that connects the brands. Following extensive research, we have found that customers can be classified into seven distinct demand spaces, which you see here on the top. Our airline brands are well-positioned across those seven demand spaces.
British Airways and Iberia are premium brands, each in their respective geographies, targeting demand spaces in the premium front cabin and the trade-up back cabin. Aer Lingus is a value carrier, primarily targeting smooth flying, global getaway, and leisure indulgence demand spaces. Vueling and LEVEL focus on frugal demand spaces as well as some demand spaces in the trade-up back cabin. Now, what do our customers tell us? How do they perceive our brands, and why do they choose us? Our customers choose British Airways, Iberia, and Aer Lingus primarily for their extensive network and schedule offering, because they trust the brands. For BA specifically, they like the premium. They like the fact that it is a premium brand. For Iberia, they like the outstanding customer service with a human touch.
Aer Lingus passengers and customers tell us that they, they are proud to fly with Aer Lingus. Similarly, Vueling customers, they like the extensive network and schedule, low fares and promotions, and an enhanced travel experience, which clearly distinguishes them from other low-cost carriers. Level is our most recent brand. Customers choose Level for their inspiring long-haul destinations, low fares and promotions, and because the brand is digital, fun, and modern. We are going to invest EUR 2.5 billion over the next three years in enhancing the customer experience. That is twice the amount we were investing pre-pandemic. We are going to invest this amount across or in customer product, service, and in digitalizing the customer journey. On the next slides, I'm going to show you for each brand, who our customers are and where exactly we are investing this money.
Let me start with British Airways. British Airways customers are global travelers. BA is one of the few brands or of the few airlines operating to five continents. Our customers are affluent, are willing to pay for a premium experience, and our customer base is becoming more leisure-focused. 75% of BA's customers are traveling for leisure purposes. On this slide, we're showing you on the top, where BA differentiates themselves from their competitors, and on the bottom, where we are making significant investments. BA excels in a premium check-in and lounge experience, a best-in-class onboard experience, and a personalized service. Significant investments. We're making significant investments, particularly in improving our lounge experience, in the cabin product and service, and in enhancing customer care. Sean and José Antonio will be talking in more detail about these areas.
Moving on to Iberia. As Fernando laid out, Iberia connects Europe with Latin America. Madrid is the largest European gateway, and our customers are increasingly choosing our premium cabins, recognizing Iberia for constantly innovating to improve the customer experience. Iberia is investing in digitalizing the entire customer journey with a particular focus on the early phases, so the dreaming, the planning, and the booking phase. For example, through a new personal area where customers can review their past flights in a very entertaining and inspiring way. Iberia is also making improvements to all baggage-related processes, from communication of the baggage carousel to creating automatically a report when the bag hasn't traveled, and proactively helping the customer throughout the process of the delivery of the bag.
So customers won't have to queue at the airports and won't have to call our call centers. Iberia started rolling out the award-winning A350 Next cabin, a suite-style business class, which they are employing across the South Atlantic. And the Todo Comienza-- Todo Empieza Conmigo, Everything Starts With Me, program delivers a customer-centric, warm, customer-centric service. Around 5,000 employees, both from the headquarters and from customer-facing teams, have attended this program over the last year. At Aer Lingus, we have a unique customer base, a proud Irish heritage, and a large Irish diaspora in North America. Aer Lingus customers benefit from a U.S. Customs and Border Protection preclearance in Dublin, and anybody like that, as I have recently waited for more than three hours at Customs and Border Control in the U.S. will really appreciate this.
Aer Lingus customers are have a high affinity with the brand and prefer direct bookings and communication channels. As Lynne mentioned earlier today, Aer Lingus will be the launch customer for the A321 XLR from Q4 2024. In addition, we are refurbishing our short-haul fleet with new seats, and we are refreshing the cabin interior across the short-haul and long-haul fleet over the next few years. Aer Lingus are investing in digital, self-service, and disruption management capabilities throughout the customer journey, utilizing a mobile-first approach. Employees live and breathe Aer Lingus, and a special training for employees ensures continuity for this very much Aer Lingus specific touch in communicating with customers. Moving on to Vueling. Vueling customers are tech-savvy explorers who seek an elevated, low-cost travel experience.
Already today, 40% of Vueling customers use the Vueling app to manage their trips, and that number is constantly increasing. Vueling is investing in digitalizing all touchpoints, providing an end-to-end travel, end-to-end digital, and fully self-managed experience. This is particularly valuable when customers' journeys get disrupted. And we know that giving our customers this control really enhances their experience and particularly compared to Vueling's competitors. Compared to other LCCs, as I said, Vueling wants to, or aims at providing an enhanced customer experience, and therefore, we invest in technology, tools, and a customer-centric team, highly engaged in Barcelona. Level is our most recent brand, and it is already now the number one long-haul airline in Barcelona.
We're very excited about today's announcement to create an AOC, which will allow us to grow the airline and offer many, many more destinations for our customers. So in conclusion, IAG has a portfolio of world-class brands. Each brand has a distinct brand positioning. We believe, we believe long-term sustainable returns require exceeding your customers' expectations, and are investing EUR 2.5 billion in enhancing the customer experience over the next three years. Thank you. Next is loyalty. I'm going to hand over to Adam.
Thank you, Julio. Good morning, everyone. Julio's talked to you about the airline customer plans. Now let's talk about what loyalty is doing. As Luis has highlighted, it's a central part of our strategy. What are we doing to engage with customers and drive loyalty with them, and how is the loyalty business performing? Well, our strategy is to invest in our customers to drive higher returns. Luis highlighted this slide at the start of his presentation, and let me go through it because there's quite a bit here. This circle in the middle is what we term the loyalty flywheel, and what we're trying to do is to get this flywheel to spin as fast as possible. So on the right-hand side, we're investing to drive deeper customer engagement, and if we do that, then we're delivering higher financial returns on the left.
How do we invest to drive deeper customer engagement? Well, the answer is, we do that through many things that Luis and Julio have talked about. We invest in lounges, we invest in the product, we invest in service. But critically, we also invest in Avios, the currency. Because we give Avios to customers when they fly, and also we invest when those customers use those Avios to go on inspirational rewards. And we believe if we get that right, then what happens is we get Avios earning, customers earn Avios beyond flying with our partners, like American Express, Barclays, et cetera, financial services, retail, and travel. And obviously, we have a relationship with them, and there's money coming in from that activity.
Also, we believe we can launch new ventures on the back of that, on the back of the currency and on the back of the customer database. We launched our first new venture about 12 months ago, the wine business, which you may have heard of. Then critically, and often forgotten, is if you get that right, then you get more loyalty to the airlines themselves, and so you get a greater share of wallet, and you get more revenue to them. So the theory of this is that you invest in the customer, you get better, higher returns for the loyalty business and the airlines. You can see the strategy is working. The IAG Loyalty profit is up 65% versus 2019 year to date.
Avios collection, so the Avios being collected is 20% higher than it's ever been before. Spending points is actually 25% higher than it's ever been before. So you can see there's a great deal of activity in this space. As Luis talked about, membership in our loyalty programs continues to grow. We got over 40 million members in all the IAG programs, and it's growing at its fastest rate. Over 2 million customers have already joined the IAG programs this year. That's the highest rate we've had. And the age group may be slightly different from what you might have imagined, with over 40% of customers under the age of 45. But what do customers want from a loyalty program? Well, we asked them, and we got back three main areas.
First of all, they want a program that they can understand, that's simple, that recognizes great collection opportunities for the currency and aspirational rewards. So let's take each of these in turn. So first of all, making it simple, this isn't probably the simplest of slides, but, what it's trying to demonstrate here is that all the IAG programs have moved to the same approach when issuing Avios for flying. We've moved to something called spend-based earn, and quite simply, how much you spend is how many Avios you earn. And so we've got an example here. If you've got a 1,000 EUR fare, and you are flying on Iberia, so Iberia is the top line here, and you're a member of Clásica, 1,000 EUR fare times by 5, 5,000 Avios. If you're a Platino member, 8 is the multiplier.
8,000 Avios. So simple, customers can understand it, and we've seen a very smooth implementation so far. We plan further simplification and recognition for our customers. So one of the things we're going to implement is a single Avios balance across the airlines. So instead of having a balance in British Airways Executive Club, a balance in Iberia, plus a balance in AerClub, we're going to have one virtual balance, which we're going to roll out individually in the airlines. We're going to improve benefits to the program, making some of those benefits more relevant to the individual customer. We're going to deliver more cross-airline recognition, so if you're a Gold Card customer flying on Iberia, a Gold Card British Airways customer, you'll be recognized. And consistent elite tiers, too.
What we're trying to do here is, yes, increase the loyalty for an individual airline, but also increasing the loyalty across the group. Our partnerships—let's move now from recognition to great collection opportunities. Our partnerships are making it easy, easier to collect. We've launched more marquee partners in the last four years than we have in the previous 10. You can see some of them here today. Some of them are existing partners we've had for quite some time, which but are growing fast. Uber is probably one I would highlight. Uber's launch with British Airways Executive Club, you link the two accounts, and you can earn Avios when you take an Uber. We've launched this 12 months ago. Nearly 400,000 customers have linked their accounts already.
And if any of you, I know a lot of you are BA Exec Club members, if any of you are unsure about how to do this, because sometimes it's our best-kept secret, in the break, there's a few of us up that can help you and make sure you're linking. In addition to that, we've announced new currency partnerships. This is slightly different. This is when, an airline, or another partner takes the Avios currency, adopts it as their currency for their scheme. So this is what happened with Qatar Airways about 18 months ago. So Qatar Airways keeps their Privilege Club, but the currency they use is Avios. And so you can transfer Avios between Qatar Airways Privilege Club and British Airways Executive Club, and soon to be Iberia Plus, too.
and you can redeem your points across those, and we've seen significant engagement on the back of that change. And Finnair is also going to be the next airline to come aboard. They will adopt the Avios program, sorry, the Avios currency, I should say, in Q1 2024. And customers are collecting Avios in record numbers. As I said before, collection is 20% higher than it's ever been. Over 60% of all the collection is outside of flying, and chief amongst that is financial services, where we have co-brands and relationships across the world with a number of our airlines. Our U.K. card portfolio is the strongest, and if you bring our U.K. card spend, so customers spend on the card, it accounts for over 1% of U.K. GDP.
We believe there's an opportunity to grow further in this space. I can tell you today that the majority of BA Exec Club members do not have a co-brand. There's an opportunity to grow materially further from where we are. But it's all very well getting people to collect points. You've got to make sure customers can actually use them, and we have been focused on making sure customers can use their points. And it's no surprise to see that the spending of points is growing at a faster rate. We delivered more guaranteed seats, over 5 million guaranteed seats, across British Airways and Iberia. So every single aircraft, when it takes off from British Airways, has 4 business class seats available and 8 economy seats that you can book on pure redemption. We've implemented something called Reward Flight Saver, low cash options in British Airways.
So you can fly across Europe for GBP 1 and a certain amount of Avios, to the east coast of the USA for GBP 100 and a certain amount of Avios. And surprise, surprise, 80% of our customers are choosing those low cash options. We've implemented the ability to get a discount on your holiday with BA Holidays using Avios, and now 20% of all British Airways Holidays customers are taking that opportunity and getting a discount on their holiday. And lastly, we've implemented something called Avios-only flights. These are flights you can't get on if you've got cash. You can only get on them if you're a member of the programs and you've got the currency. And we've implemented them at peak times deliberately as a thank you back to our customers.
Geneva at half term in February, Corfu in August, and I lost my bet because I thought that the Corfu flight would sell out before the Geneva flight, and it was the other way around. So that's one of the reasons why, by the use of points, spending of points is up 25%. And there's more to come in 2024. Improved pay with Avios on British Airways, so this is the ability to get a discount on a commercial fare. For the majority of fares, you'll be able to discount the entire commercial ticket down to GBP 1. We're gonna deliver more Avios-only flights. We're delighted with the customer reaction to that. We're gonna do more of them. Iberia are gonna join British Airways in adopting Reward Flight Saver, the ability to fly across Europe for EUR 1.
We're gonna improve the hotel and car redemption opportunity, using points for that, working very closely with BA Holidays, because we see lots of customers looking to use their points in this way. In summary, what we're trying to do is to invest to drive deeper customer engagement. If we get that right, then we extract higher financial returns. A couple more bits of information for you. I think as highlighted, as Luis highlighted, we've now got over GBP 1 billion worth of revenue coming in externally to, from the group, for people buying the currency, partners buying the currency. Our profit margin is very healthy, over 20%, with a very efficient conversion of revenue to profit. Our plan is to grow this business double-digit, profit growth of more than 10% every year.
So focusing on investing to drive deeper customer engagement, extracting financial returns, and making Avios a global currency. Thanks very much. The good news is, I'm not handing over to somebody else. I'm handing over to the break. So, there's now a break, 25 minutes. I'm not quite sure exactly what time it is, but 25 minutes from now, the doors will open, and you can get a cup of tea or a coffee. Thank you very much.
Good morning again. Welcome back. Today I, now I would like to talk to you about IAG's transformation plans. I'm here with Sean and with Jose Antonio, that they will go later in more detail about BA transformation. So I would like to share with you how we implemented the group transformation view. As Luis mentioned earlier today... Sorry. Transformation is in our DNA, is in the DNA of the group, and however, when Luis asked me to lead transformation, after he was appointed CEO of the group in 2020, we decided to implement the approach in which we believe. This approach is not just the traditional cost cutting. It's an approach based on efficiency, people, culture, innovation, targeted investment, and very disciplined and granular performance management.
Our main objective at that time was to ensure that we reach the full potential of all our businesses and embed transformation in the DNA of our airlines. We drive, for to drive that change, we created a small team at group level, a group transformation office, to coordinate the program, and also we built teams across the different top costs to ensure that we were delivering transformation, to ensure that we made things happening, with the business areas. This transformation is already happening, and it's delivering value, and it's creating better business, more resilience, and more profitable.
The key message on this slide is just to show you that we are identifying opportunities in all of our businesses, or our businesses have done a lot during COVID, and in some way, 2023 results are due in part to the transformation initiatives the teams delivered during this period, but there is still a lot to do more in the future, and initiatives are identified, quantified, plans are on track. We are touching every single area of the business, every single work streams, including IT, suppliers, people, operations, fleet, customer, and commercial.
Some of the initiatives you have heard before when Adam presented the commercial opportunity, the customer opportunity we have in front of us in loyalty, and some of them you will hear, you will hear later, particular, for example, commercial replatform for British Airways, which we expect to deliver a lot of value in the coming years. IT and operations are also a key focus for us, and of course, people and culture. We have included these charts just to show you how granular we are, and we look at every area and every business in a forensic detail to support the delivery of world-class margins in our profit growth. On the revenue side, we have some initiatives to deliver in the coming years, normally new or improved commercial platforms.
For example, boosting the Vueling's bundle and products, increasing ancillary revenues, but also from the very big IT developments to the very small initiatives. For example, we are always improving the payment improvements to improve the conversion in our web finance, in all of our web finance. On the cost side, we will continue developing NDC strategy, particularly in BA and Aer Lingus. Also, for example, Vueling has implemented a new line maintenance model to improve efficiency, reliability, and also better cost. This slide is an example of one of our transformation initiatives, supported in the concept we call best practice, which relates to fuel savings. I find this slide particularly interesting for two reasons. The first reason is that it shows how fuel is so important for us.
We manage it with a lot of granularity, every ton counts. We are looking for new ways to save fuel, to reduce fuel consumption, and then to reduce spend, and then to reduce CO2 emissions. But most important, and I like this slide because it shows the power of this group, the power of IAG, how we are continue learning each other and how are we adding value, sharing best practices between the different airlines. Even 12 years after creating this group, we continue to find opportunities for improvement and learning each other. We are building on strong foundations, with the support of previous experience and execution. We have done this before. As you probably know, Iberia transformation has been a unique case in the industry. This transformation was led by Luis, but also delivered by his team.
Marco was at that time Chief Commercial Officer, and now he's leading Vueling. José Antonio was at that time Chief Financial Officer, and now he's Chief Financial in IAG. So they are helping to transform other businesses in our group. Iberia transformed from an unprofitable and uncompetitive airline in 2012 to a profitable airline, resilient, vibrant, and customer-oriented. And the story of Iberia transformation had a clear, a very clear path. First, operations were in the center. But to drive excellent operations, you need engaged people, you need to transform the culture, and then customer are satisfied, and then NPS improve, and then unit cost is reduced, and then higher revenues comes, and you can achieve your profitability targets. I think some of you were there when Iberia launched the Plan de Transformación in 2012 to stop cash burn.
Then in 2014, in 2014, they launched Plan de Futuro to reach sustainable and growing profits, and then the team delivered what they committed. The Iberia transformation helped the company to deliver six years of increasing profits until COVID arrives. But the strong foundations has proven its resilience and allow Iberia to recover capacity earlier and to recover quicker from this shock. And that's not only the work of the last months or of the last years, it's the work of ten years of deep transformation. As a conclusion, we follow a forensic analysis, a forensic and granular analysis of all the transformation initiatives. We see lots of opportunities to create step changes in our businesses. We'll ensure more resilient and profit business in the future, and will drive sustainable earnings for the group.
I hand over to Sean, and he will talk in more detail about BA transformation.
Thanks, Fernando. José Antonio, our new CFO, is going to co-present with me. But what I wanted to do, first of all, is talk about transformation that's underway in BA, and talk about maybe the support we get from the center and the group, because it's fair to say that an awful lot of what we're trying to do, we're drawing from the transformation and experience that we have seen Iberia drive and Vueling drive over the last five years. So we get great benchmarking, we get great support, and we also get robust challenge about the execution of the things that we are prioritizing. But what I wanted to do is give you a framing as to what we navigate through in terms of what's very important in BA, what are our strategic imperatives as we look to invest in transformation.
We spoke earlier about global leadership positions, and our leadership position is critical that we maintain that in London. That's about the depth of our network. It's also about the breadth of our network. One example is the North Atlantic. We offer 31 cities out of London on the North Atlantic. The nearest European rival is about 22. We added Cincinnati this year. We want to keep on building out the breadth, so we have the best offering in the marketplace for travelers, but also make sure the big markets, we increase the depth. So leadership is very important. Lead at Heathrow, lead at City, and reinforce our leadership position in London with the developments that we have at Gatwick. Premium proposition. We spoke about the size of the premium market in Europe and the overweight exposure IAG has to that sector.
A lot of that is concentrated in London, where historically it's been about 2.5 times more trade-up or premium passengers than you see in any other European gateway. This has always been in the DNA of the brand. We need to commit to execute it and execute it consistently, and we have to drive a step change in our net promoter scores. Now, if you want to be a premium customer-centric business, you're not going to get there unless all of your people are aligned and behind what you're trying to achieve. So colleagues will be, and I don't want to use a cliché, at the heart of what we're doing. We're putting a huge amount of effort into recruiting, training, building capability, providing support, making sure people have the tools to do the job on the...
Colleagues in British Airways are going to get behind our plan, and we're making great progress on engagement. Now, efficient execution. You know, two core elements to this. One is we've got to drive our on-time performance up to above industry standards, and that's been challenging as we look at the rebuild we've had over the last couple of years. And secondly, we'll have to be very focused on making sure we have the right cost base for the business model that we have chosen. We have inflationary headwinds. Our business isn't as high growth as other businesses, so I think innovating on cost control is going to be a very, very important lever and discipline that we carry on embedding. And finally, we talk about sustainability, and Jonathan will talk about sustainability later, from a group perspective, and this is led by group.
But the point here is British Airways as a brand is a great platform to showcase and lobby and demonstrate some of the things that we are doing to drive our businesses towards net zero. So, you know, if we execute all of our transformations, we're very confident about strong margins and strong returns, and strong margins sustained through the cycle. Now, you know, what are we doing then, in terms of, a bit more granularity? Well, we have over EUR 7 billion of investment planned. A chunk of that is fleet renewal and fleet replacement, but we're also investing in our customer experience. As well as taking new planes with the Club Suite and new products like Panasonic IFE and better seats in all cabins, we're also retrofitting all of the aircraft. Product is a step change in terms of experience at NPS.
We've also got Wi-Fi rolled out across nearly all of our fleet at the minute, and that gives us both service opportunities, but also there's some innovations in terms of what we do with our crews that we're gonna explore as well in a couple of slides. Commercial. You know, people will say to me, "Fix the operation, fix the app." We're gonna fix the app. We've a team in this building working on a revolution of ba.com and our digital experience. We will start dropping elements of that next year, but in the next two years, we will rebuild from the ground up our digital experience, and not maybe catch up with some of our competition, but leapfrog our competition. The IT estate, we need to put in good foundations. We are in the middle of a cloud migration.
By the time we get into the mid- all of our critical applications will be out of the data centers and in the cloud, and we're using that opportunity to modernize our applications as well. Of course, the foundation layer for any airline that strives to be excellent is operational resilience and technical resilience, and I'll talk in a lot of detail about both of these levers when we get into the deck. To talk through the customer and commercial elements of it, I'm gonna hand over to José Antonio.
So thank you, Sean. So customers is a top priority for British Airways, and we're working really, really hard to offer them a world-class experience throughout the whole customer journey. For example, you can see here on the brand dimension, 2023 was the year in which we launched our new uniforms, designed by a prestigious creator, Ozwald Boateng, alongside with some of the IBEA, some of the BA colleagues. Currently, we have over 30,000 BA colleagues proudly wearing this uniform in client-facing activities, so pilots, cabin crew, airports, operational ground teams. We're getting terrific feedback from both our employees and the customers. And also, it's worth noting that over 90% of the garments are being produced with sustainable fabrics, so therefore further supporting British Airways' commitment for a sustainable operation.
In terms of ground experience, the focus is the enhancement of our lounges and our check-in areas. Last year, we opened 3 new lounges at JFK when we moved with American Airlines to Terminal Eight. This year, we have approved a budget of over GBP 200 million to invest over the next years to completely upgrade our lounges around the world, and that includes a full-scale refurbishment of the London Heathrow lounges. We also have invested this year in a refresh of the premium check-in, the club check-in area in Heathrow. We have moved it to the north side of the terminal, to a better place, more with more space, more premium, closer also to public transportation, and with better accessibility to the north fast-track security facilities.
In terms of onboard experience, we continue renovating our fleet, and we are investing strongly on the rollout of a new Club Suite in our planes, in London Heathrow long-haul planes. Right now, we have around 60 of those planes already with this Club Suite embodied in there, and we will have 75% of those planes next year, and close to 100% by the end of 2025. The feedback we're getting from our customers is fantastic. There's 23 points of additional customer satisfaction of those customers that use this Club Suite versus the ones that use the previous product. We also know that premium service is very important for our customers at British Airways, and we're investing a lot in growing that jointly with our cabin crew team.
We have recruited additional 4,000 cabin crew members since the start of 2022. We're investing in detailed tools for them to be able to provide better service to our customers. We have consolidated all our London Heathrow teams into one single team to be able to capture efficiencies and flexibility in rostering. We are launching additional training courses, both for the first class cabin crew teams, but also for our premium cabin crew teams. Then lastly, on the customer care dimension, we have changed completely our telephony system, going into a much more modern system in our call centers that incorporates automation, incorporates robotics, to be able to minimize the manual processes. We're also starting to test some artificial intelligence features, such as in speech analytics.
Final point on this slide, we have launched a proactive customer care team that offers solutions to our customers while they are still on board on the planes. For example, in a situation where there's a likely misconnection, there will be this air-to-ground system that will allow our team to rebook our customer in a different flight. So the moment he or she lands into intermediate destination, the problem will be solved by that time. So as you can see, a lot of things going on in the customer space, small, medium, and large, but a lot of dedication, a lot of focus, and a lot of investment in this area. If you go into the commercial capabilities, our transformation plan is also fully transforming the commercial way of doing things in British Airways.
Starting from the right-hand side of the slide, you will see in 2024, we launch a new platform for payments. We are going to replace the old one, been around for a few years now, and this new system should allow us to access the new ways of paying, the alternative ways of paying, the Google Pay, the Apple Pay. It would also provide a lot of opportunities to our customers to use Avios as a currency to book their flights, further enhancing the attractiveness of a loyalty program. And obviously, the retirement of the old platform will allow us to have some cost savings by retiring that platform that's been around for too many years now. In 2024, we will also launch our new revenue management system.
State-of-the-art, very modern, with new capabilities on dynamic pricing, and also allowing us to forecast in a much more accurate way, the demand. This should allow us to maximize even further our flight and ancillary revenues. Then on the left-hand side of the slide, the most exciting project that we have on the table now, which is the full, on the digital side of our commercial activity, we're working currently on the re-platforming of our webpage, ba.com, and the relaunch of our app. This is the biggest single large investment that BA has ever done in all, in all its history outside of fleet purchases. Once we complete this project, we'll have state-of-the-art app and webpage that will give us full retailing capabilities, including deeper personalization.
It will also give us 100% online self-servicing, which will mean our customers can, will be able to manage the whole trip by themselves without any interaction with agents, with call centers, and will also allow us to have a much shorter product development cycle. Meaning we'll be able to enhance the application and enhance the webpage in a very efficient manner, reacting very quickly to changes in technology, in the market, or in customer needs. We are developing this, delivering this project through agile methodology. We had the first drop a few weeks ago, the 31st of October, with the launch of the homepage and the first flight booking.
During 2024 and 2025, we're going to ramp up our capabilities, and we will roll out the rest of the app and the web into the other routes of British Airways. We are extremely excited about this project, and as Sean mentioned, once it's finished, it should place British Airways as one of the leading airlines in the world in terms of digital commercial interaction with our clients. So as you can see, both on customer and on commercial, a lot going on with focus, with dedication, and with significant investment on the transformation of British Airways. So I'm going to hand over now to Sean to cover what we're doing in the IT dimension and also on the operational dimension.
Thanks, Jose Antonio. I mentioned about the IT infrastructure, and I said we are, at the minute, building a lot of resilience into our operations. So as well as migrating our applications to the cloud, we're also building up better BCPs. So half of the desks at Heathrow now can work on what we call a common platform. If our network isn't working, we can still use those desks and check people in. We can still board people on flights, and we have backdoor access to a number of our critical systems that we wouldn't have had this time last year. We've also got an autonomous telephony system in the UK call center, and we have a capability with Amadeus to fall back on if our core system doesn't work.
So as well as making sure that we deal with root cause in terms of getting out of our data centers, we're also increasing the level of BCP resilience that we do have. And as I said earlier, about 95% of our systems will be migrated to the cloud as we get into 2024. You know, the investment is about 10% of our total capital budget. We mentioned EUR 7 billion of investment. About EUR 700-750 million is going into digital capability and into IT. Now, I think Fernando spoke about the Iberia transformation and how on-time performance was an absolute cornerstone. I think we've put, you know, that at the center of what we need to do as well. If we look at this virtuous circle, we wanna tap into, one, transform our operation.
Two, it drives customer experience more than any other lever. Three, our colleagues love working in an operation that's running well. It has a huge halo on NPS on colleague NPS. Four, in financial performance. I think, one, you know, getting our customers to support us and come back to us. Two, taking a lot of those disruption and non-performance costs out of the business. And finally, it's a very, very efficient way to run your business from a carbon perspective. Now, you know, the backdrop of the starting position is more challenging than it has been historically. We have airspace challenges. We've 20% less airspace in Europe than we did, and we see events like Sunday and events like we saw in October, that we are vulnerable to variables that are outside of our control.
In BA, we have taken about 11,000 people into the business since 2021. So one in two people at Heathrow are new in their jobs. So we have a challenge to make sure that we are training and equipping and giving people the right tools to fulfill a great operation for us. And supply chain, again, is challenged as we come out of the geopolitical stresses and the rebuild of China. You know, that is what it is. We're gonna have to navigate around it. We're gonna have to work smarter and really be agile in the way we deal with some of these external variables. Because, you know, what's at stake here is make sure we get our operation right, get our NPS up-...
Get our employees in a much better place in supporting our operation, and drive the financial metrics by really turning this flywheel much more quickly. What I've got up here is a bit of an articulation about the causes of delays, and on the left is kind of the gap that we're looking to close. So we want to improve our OTP in double digits. On the right is a breakout of all of the reasons why we don't hit those targets today. In red, we have put in the internal variables that we have control over. In blue, there's the external variables that I spoke about earlier. The good news is, over two-thirds of what we can influence is within our control. That's a much better ground operation at Heathrow. You know, much sharper onboarding processes and disembarkation processes on dealing with excess baggage at gates.
And just making sure that we're on it in terms of getting those doors closed. Making sure as well that we roster better resilience into our pilot and cabin crews, make sure that the port times are working. You know, make sure that our stand planning at Heathrow, which is a congested environment, is world-class. And also making sure that our technical performance and our supply chains are delivering far more for us than they are today. So we're going to have to address every single one of them. This is a law of incremental gains. There isn't a silver bullet. If it were, we probably would have found it by now. And if I summarize, kind of, okay, what are our four top things that we're investing in to drive this?
One is we're going to put a big investment into Heathrow, and I'll talk about that in a bit more detail. Heathrow is a fantastic opportunity. We have a great terminal. We need to really make sure that the operation gets to world-class, and has a step change from where it is today. Secondly, we need to design a better operation. We are doing much better integrated planning. You know, upstream planning of our fleet, our schedule, our block times, all of the kind of sophisticated variables that make an airline work, we are challenging them, redefining them, with a view to driving on-time performance. Thirdly, we need to drive technical reliability to a better place. We're making very, very good progress as we head into the winter.
The external environment is more challenging, but we will be investing in our engineering and technical resilience. And finally, we have a huge opportunity to modernize the way we run our operation by pulling all of the data in our systems, putting it into a data platform, and having much quicker and much more AI, machine-learning driven decisions to deal with all of the various scenarios that we have to encounter. So Heathrow, what are we going to do? Well, first of all, we're going to invest in the right level of resource, and we'll put more resource and train more resource into Heathrow this winter. We are going to go back to what we call team-based zonal working. And part of what we will do there is split up, say, Terminal 5 into seven areas.
We have a team manning a certain subset of the terminal, and they will basically man and run all of the stands and all of the baggage flows across those zones as one team. That's a step change from where we have today, where we have mass allocation of big resource pools. We've benchmarked this with other airlines, and our view is this is probably the right way to really drive a step change in our, what we call, below-wing performance. Now, part of what we need to do as well, to shore it up, I think, this new model, is invest in tighter spans of control. We will invest in management, which will manage those teams at a ratio of about 1 to 30, and that's a step change compared to what we have today.
And we think, you know, that team-based working, that competition between teams, that better management oversight, would really be critical to driving an on-time culture. We're also going to invest in resources and equipment, make sure that the small and the big things that people need, like tugs, like RDTs, you know, like PCs, like chip and PIN devices, that that is all working. And we have much more robust processes to audit all of our kit at the airport, which we run in a, on a weekly basis. And using performance data and dashboards with our colleagues to flag areas where we can collectively improve. And I spoke about, you know, resilience. And, you know, Heathrow is the busiest airport in the world for two runways. It's within 50 miles of two other busy airports. When things go wrong, we need to get better at recovering.
We will have much better automated reaccommodation capability next summer. We'll also have much better ticketing and reaccommodation capability in our connection center. And we're also moving a lot of functions that were centralized in back office, back out to be on the front line, so that we have much greater management integration of things like task allocation, shift management, and the way we deal with scenarios when things are not going according to plan. So we have a big program led by Tom Moran and René at Heathrow. That's underway. It's getting traction, and our view is to have the vast majority of this launched by next summer. I spoke as well about what we can do in terms of design. And we're getting a lot better with what we call dynamic planning of block times.
Block time is the amount of time you allocate for a plane when the engines turn to when it lands at the other end. What we find, of course, is block times vary. You know, they can be longer in summer, they can be longer on Saturdays when you got airspace issues and stacking. They can be shorter in winter when you got tailwinds. But we haven't been dynamic enough in managing this variable, so we're doing a lot of work into putting more intelligence into dealing with this variable. We've also gone through every single process that we have in terms of what it takes to turn an aircraft around, and we've recalibrated all of those tasks, and we've rolled out what we call new standard turn assumptions into Heathrow as we moved into the winter schedule.
That is actually driving an immediate impact on performance. We've also got some rules in the way we build a schedule. You know, we can't have more than four A380s depart in an hour. It causes too much concentration of resources in one place. We don't want to have more than four long-haul departures rolling every 20 minutes. And those rules are now being embedded in the operation with minor schedule changes, and again, are driving much greater resilience. And connections that are repeatedly failing, we know what they are. Again, we're redesigning those connections to make sure that when people book a connection with a tight connection over Heathrow, that the chances are you're gonna make it more often than you're not. I spoke about engineering, and this again is a foundation layer.
You know, the operation sometimes has to cope with issues that emerge in the hangar. But we got to fix the basics, which is get our technical dispatch reliability up to above industry. Make sure we're fixing cabin defects. Make sure that we're recruiting and attracting top talent. Make sure we got a world-class supply chain, which is delivering quality and cost. And again, we have a very big transformation program underway in this space. But also, we've opportunities to future-proof this business. And what we're doing today is we're putting all of our maintenance records onto eLog. We don't have paper maintenance records anymore, it's all electronic. Now, that's creating a big data pool of electronic intelligence relating to our engineering operation. What that gives us is the ability to diagnose defects a lot quicker than we would have done.
You know, a defect on a paper report could take two days to figure out what you do. We can do this now in hours. And then thirdly, what we can do with all of that data is use diagnostic analysis to make sure we're doing predictive maintenance. Not wait for, you know, a spare to be changed when the manual says it will, but figure out when things are actually occurring in terms of faults, and get out there ahead of it, and avoid having to make an intervention reactively. So, you know, the right is very, very exciting in terms of the future we're creating in our technical organization. And we're doing the same in our operations. We're modernizing our applications.
We're putting data out of those applications into what we call a data layer, and we're building digital tools then to make sure we make operational decisions much more intelligently and much more quickly. I'm gonna show a little video, which brings it to life here from some of the people at British Airways as to what we're doing in this space.
At British Airways, we're transforming our operation using the very latest technology and data, empowering our colleagues to make better decisions and improve the service we offer our customers. We're harnessing the masses of data we create every day using state-of-the-art solutions, including machine learning and AI, and rapidly analyzing it to make better decisions that impact and benefit our entire network. Our Mission Control system gives us access to masses of real-time operational data at Heathrow. We can instantly see information about our aircraft, our customers' onward travel plans, or whether they require assistance, and we can also check when baggage loading teams or caterers arrive at the aircraft site.
Mission Control uses real-time data to provide us a live view of all our aircraft and vehicles on the ground at Heathrow. It allows us to proactively manage the stand plan and benefit our connecting customers and our baggage proposition to deliver the best service that we can for our customers.
Pathfinder analyzes real-time weather, air traffic control, aircraft capacity, and customer connections data. It predicts the likelihood of flight delays so we can take preemptive action to minimize the impact on our customers and our schedule. eLog is one of the tools we're using to help us digitize our maintenance records. Pilots and cabin crew input information in the air that is instantly delivered to our engineers on the ground.
The data will automatically appear in our ground system within seconds, so we're no longer waiting 2-3 days to be able to order parts and to plan maintenance activities.
The digital data from across our aircraft fleet enables us to see patterns of problems, so we can predict when they're likely to arise and plan our maintenance program.
Avatar gives passengers a seamless experience because it allows us to fix faults before it even happens in the aircraft, so it doesn't cause a delay.
These tools will revolutionize how we work, replacing time-consuming manual processes with tech-based solutions to ensure the right information is in the right place at the right time. We're embracing these changes to build a more resilient operation that quickly recovers from disruption, a more efficient operation that optimizes our resources, and an on-time operation that minimizes delays across our network.
Okay, a final slide from me. This isn't all about just what's happening in the future. I wanted to showcase that we are seeing improvements right now. We've had a 20-point improvement between November and September in OTP. A lot of those design changes that I spoke about in the winter schedule, it came live on the first of November, and we have seen an immediate improvement. Now, you might say we should expect an improvement as you go into winter because it's less busy, and that's fair, but we're also seeing the gap to 2019 performance narrow quite dramatically as we look at the last six weeks. I was speaking to René in the lobby earlier, and Heathrow's performance this morning is at 90% at the minute, and the first 50 flights all left bang on time.
So we are seeing the benefits of a lot of this focus and transformation right now, but there's a hell of a lot more that we expect to drive as we head into the winter and into next summer. And look, some of the sub-KPIs are also in the right direction. We've an 80% reduction in checked bag delays. We've had a 90% reduction in hand baggage delays, and a 35% improvement in delayed baggage. So to kind of wrap up, the operation is gonna be at the heart of our transformation. We've a very exciting investment program planned. Our people are very excited about driving this with us, and the early signs are very encouraging that we are turning a corner. And finally, just to recap, you know, that will underpin a world-class customer experience.
We can do all of the great things on board that we want, but we simply have to get the fundamentals of on-time performance, baggage, and the airport experience right. We've got some really exciting plans in terms of our commercial platform. I would call it not just a commercial platform, it's gonna be a customer platform. We want to win the battle for digital convenience, not just catch up with some players who are maybe better than us, but leapfrog. We're modernizing the foundational layer of our IT estate, and as I said, a huge focus on operational and technical excellence. So with that, I'm going to hand over to Jonathan to talk about sustainability.
Good morning. Thank you, Sean. Thank you, Juan Antonio, and, yeah, so I'm Jonathan Counsell, Group Head of Sustainability at the International Airlines Group. So what I'm going to do, I'm going to give you an overview of our sustainability strategy, but I'm going to focus on our priority issue, which is reducing our carbon emissions, and I'm going to particularly focus on sustainable aviation fuels. But first of all, please let me set some context. So, Luis showed this slide. I just want to talk through it because it really helps set the scene in terms of the approach that we take towards sustainability. Now, it's clear to all of us that climate change is a critical issue for aviation. We are a difficult to decarbonize industry. We have a limited set of solutions.
So our strong view is this is most effectively addressed at a collective industry level. IAG, at IAG, and with our airlines, we have a long track record in sustainability, and we think because of that, we're in a strong position to support that sector-wide approach, and that all starts with setting the right commitments. And the question we all get asked is: What is the right target on climate change? The fundamental principle there is you need to follow the science. Climate change is not about what you can do, it's what you have to do, as led by the science. And the leading authority on this is the United Nations. So back in 2018, the United Nations released their latest major report, basically determining from all the evidence that's available, what do we need to do to avoid the worst effects of climate change?
That's when the target of net zero emissions by 2050 first appeared. So based on that evidence, the following year, we as IAG, we also committed to that same target, and we were the first airline group to do so. But for us, that was a start point. Our plan was always: How do we get the rest of the industry to commit to this target? And we used our influence with our industry partners, and particularly our alliance partners. So you can see in this chart, the first step for us was to persuade our Oneworld alliance partners, which in total represent about 20% of the industry.
They have airlines all over the world, and that, once we got Oneworld to commit at the ICAO stocktake in 2020, it was relatively straightforward then to get the complete industry commitment through the IATA AGM in 2021, and then finally all the governments to agree just at last year's ICAO General Assembly. It's worth noting, we are the only industry that has committed to net zero emissions by 2050 at both an industry and global level. But commitments are great. Now, we've got to think about delivery, and in recognition of the importance of sustainable aviation fuels, and I'll talk quite a bit about that, we set a target of 10% SAF by 2030. It's worth bearing in mind, the total global supply in 2021 was about 100,000 tons.
So as a company, we were committing to 10 times the global supply, but we felt that was achievable because of all the momentum we'd seen with government policy. But in a similar fashion, it wasn't about IAG. We went through the same process. We persuaded our Oneworld alliance, and I'm encouraged to say that now 6 governments have also committed to 10% SAF by 2030, including the U.K. and the U.S., and in addition, 50 airlines around the world, representing just over 40% of global capacity. So it's fair to say we have a commitment across the industry, but now we really do need to focus on delivering on those commitments. So what I'm going to do now is just talk you through our carbon roadmaps.
I love carbon roadmaps, which is just as well, because I've spent half my life working with them, but they are the best way to depict how you're going to reduce your carbon emissions over the next 25 years or so. So this is IAG's latest plan. We talk about the four pillars, so I'll quickly talk through those. The first pillar is operational efficiencies. The second pillar is new aircraft and engine technology. We have combined those in that dark blue wedge. As you can see, delivering an important 42% of our emissions reduction by 2050. But the one I'm going to focus particularly today is on sustainable aviation fuels, so that's the green wedge. 41% of our emissions reduction in 2050. 70% of our fuel in 2050, we believe, can be on sustainable aviation fuels.
If you saw this chart five years ago, that level would have been half of that. So that's a reflection of the momentum we've seen in the last five years. But we recognize, both at an industry level and at IAG, we are not going to be able to get to absolute zero emissions by 2050. We are going to need to invest in reductions outside of our sector. So what does that mean? At the moment, that means investing through emissions trading schemes and offsets, our global offset scheme, the Carbon Offsetting and Reduction Scheme for International Aviation. But as this chart shows, when they become available, we will start to migrate those investments into carbon removals, because we believe they are a more robust way for reducing our emissions. So let me just go through some of these, these pillars in a bit more detail.
So starting from the top with the new aircraft. So you can see 2023, in the next five years, we talk about old generation and new generation aircraft. New generation are essentially best in class in terms of carbon efficiency. So we're going to increase the proportion of those new generation aircraft from 31% to 58%, more than a doubling, and that is through delivery of 179 aircraft, 146 short-haul aircraft, and 33 long-haul aircraft. And as you can see on the right there, the new narrow body aircraft are 20% more efficient than the aircraft they replace. Wide bodies are from 15%-40% more efficient than the aircraft they replace.
And before I go into more detail on sustainable aviation fuels, I just want to talk a little bit about some of the innovative partners that we're working with to help some of those other activities. So operational efficiency. So we've been working with i6. They're a, well, actually, they're a fuel management services company, based here in the U.K. And what they've helped us do, they've helped to digitize our fuel management processes and also optimize the amount of fuel that we load onto the aircraft. The biggest variable weight on an aircraft is actually the fuel it carries. So if you can, minimize the amount of fuel you can carry within safety boundaries, that's going to save you a lot of CO2.
So, last year, Fernando gave a great chart showing all of the fuel efficiency initiatives that we're following. We saved over 100,000 tons of CO2, and this organization significantly helped us with that. I mentioned carbon capture. We're talking to half a dozen companies to help develop them. This one, very excitingly, based in California, they use mineral absorption technology. They basically take calcium carbonate, they heat it up, becomes calcium oxide, and then they lay it out in a series of towers, and it absorbs CO2. And then you take that CO2 from the calcium carbonate, and then you sequester it. They launched their first commercial site last week, last Thursday. Relatively small scale, but it's quite exciting to see that these technologies are happening now.
One of our priorities is to make sure to help this market, is to make sure these carbon, credits are eligible within our primary carbon pricing instruments, particularly the UK and the EU Emissions Trading Scheme. And then on the right, hydrogen. So, we believe hydrogen has a role to play, mainly in short-haul flying. ZeroAvia, the world's leading hydrogen fuel cell company, based here in the UK. This is their Dornier 228 19-seater. This year, it's just completed a successful test program, and there's Luis, in the picture there when we visited. We, we declined the offer to go on that flight, but, maybe in the future. And they are also working on a 76-seater, so a Dash 8, so that's been retrofitted in California.
Both of these aircraft types we expect to be in service before the end of this decade. So hydrogen is happening now, certainly for very short-haul aircraft. Now, so that's just talked around some of the other pillars, but let me focus on sustainable aviation fuels. And this chart really explains why SAF is so important. There are two dimensions on this one. So this is the range of flights, and this is the timing. SAF is the only technology that is enabled, that is available today to help us reduce our carbon emissions in any form of scale. But probably more importantly, that the consensus across the industry, it is really the only viable solution for long-haul travel. And as you can see, that represents 70% of our emissions. So it is absolutely critical for aviation as a whole in terms of its decarbonization strategy.
You can see here the view on where we are with hydrogen and electric-powered aircraft. So first, narrow body, as opposed to commuter and regional, we expect to be in service in the mid-2030s, but we don't expect them to reach commercial scale till the mid-2040s. Our general view is by 2050, they could help reduce our emissions by up to 10%. So they will play a role, but it is relatively small. So where are we in terms of that 10% SAF target? The first thing is we've now built a dedicated team of SAF experts that are enabling us to source SAF in the U.S., the U.K., Europe, and the rest of the world. We have secured 25% of that 10%, so 10%, 1 million tons, 250,000 tons.
That represents a financial commitment of $865 million. Our strategy is diversification, and we do that on pathways. Currently, there are 8 pathways that are approved, up to a 50% blend, with another 6 coming along in the next few years. So we diversify on pathways, on different feedstocks, but also on geography, which enables us to manage our SAF risk, but equally importantly, maximize how we exploit the policy incentives. And I'll talk about that in a second because that is absolutely key to any SAF strategy. These are the 4 plants that we have contractual supply with that's delivering us that 250,000 tons. You can see a lot of the activity is in 3 of those are in the U.S. because that's where we have the most strong policy support.
LanzaJet is probably the leading SAF company in the world. Just on Friday, they were successfully awarded a GBP 9 million grant from the UK government to help with their early development funding, development work. And between those two plants, we'll be looking at 100,000 tons of SAF a year. And then through Onew orld, we have offtake agreements with a company called Gevo and also a company called. And you can see, so we've got company, geography, and pathway diversification. There are at least a dozen other SAF companies across other pathways. The one that is particularly exciting, you may have heard, is called Power to Liquids or eSAF. This is essentially where you take carbon dioxide from the atmosphere, you mix it with green hydrogen to create a truly 100% sustainable fuel.
Now, this will be some years away because you do need a lot of renewable electricity, electricity to make that happen. But we believe by 2050, up to 50% of our fuels could be these Power to Liquids, these eSAF. So where next? Overall, one of our key metrics is grams of CO2 per passenger kilometer. So this measures the efficiency with which we're running our business in terms of climate change. So it's a culmination of all that fleet renewal, those operational efficiencies, but also your deployment of SAF. So 2025, we are on track to deliver our long-term target of 80 grams of CO2 per passenger kilometer.
It's work in progress today, but from what, from our current plans, we can deliver another 12% improvement, by 2030, getting us down to 70 grams of CO2 per passenger kilometer, which is a very competitive number relative to our peer group. And it's worth saying that, across IAG, 7,400 of our managers are directly incentivized to improve this number through our bonus structure. Let me talk about policy. So how do we-- So the question is: How do we make SAF happen faster? and it's policy. Spend a lot of time with politicians, and, and this is why. If without policy, you are not gonna be able to get that investment to build those SAF plants.
We believe just to hit the current mandate levels across the UK and Europe, we're gonna need upwards of 50 plants by 2030. Now, as I said earlier, the US, by far, in the lead here, we have very strong statewide incentives. If you look at California, Washington, Oregon, and Illinois, and just recently, on top of that, you have the Inflation Reduction Act. And the beauty of policy in the US, it cumulates, so you get all of those, all of those incentives. So it's no wonder that by far, the majority of any investment in SAF capacity is taking place in the States. So US in the lead, good progress in the EU. We have the Emissions Trading Scheme, which covers most of our intra-European allowances, emissions, and, the mandate is now in legislation.
So the EU SAF mandate, 6% by 2030, escalating to 20% by 2035, and then 70% by 2050. So that is creating a very strong demand signal. In addition, they have formed some incentives. They've provided, for example, 20 million SAF allowances. So this is an incentive for airlines to close that gap between the current SAF price and jet fuel. Here in the UK, we are behind. We have gone through the second SAF mandate consultation. We wait for the details for that to be announced, which should happen before the end of the year, but they still have to put that in legislation. As we've always said, a mandate on its own doesn't drive investment. We need further policy incentives.
The UK government, they have committed through the Energy Bill. Will they look at that? But we don't like the current timing. They're talking about 2 years before we'll get that legislation in place, and therefore, you know, we have a target here in the UK of 5 plants in construction by 2025. That looks quite difficult if you're not gonna get that policy incentive to 2026. So work in progress and more to do in the UK. So overall, in conclusion, you know, we have a comprehensive strategy across all of those pillars through fleet investment, SAF, carbon removals. We will continue to be a market leader, primarily by supporting deployment and investment in SAF production capacity, but reinforcing the message, this has to be done in partnership across the whole industry.
We need suppliers, we need manufacturers, we need airlines, we need energy companies, and of course, we need regulators. So the key to all of this is policy. You only get investment where you get policy. But with that, I am absolutely fully convinced that we at IAG and the industry can get on track to deliver our net zero emissions ambitions. Thank you. Nicholas is going to be maximizing total shareholder returns.
T hank you very much, Jonathan. This is the last section, and I'm gonna be focusing on maximizing total shareholder returns. Luis has already taken you through this slide, but hopefully, this really pulls out the key points for the day. The key success of our strategy will be delivering total shareholder returns, which are underpinned by sustainable profitability and also accretive growth.
You've seen we are focusing on strengthening our core leadership positions in North and South Atlantic and Europe from our major hubs, and strong partnerships are giving our customers real global reach right across the world. We're strengthening our portfolio of brands, enhancing our revenue through upgrading our customers' experience, and we're also helping offset inflation through forensic process analysis, procurement scale, and the use of tech, technology and really transforming ourselves. Our loyalty business is an asset-light way of encouraging our customers to stay within our environment and also provide great cash generation at strong margins.
... This strategy, together with strong asset allocation and balance sheet framework, provides sustainable, more resilient free cash flow and profits and careful accretive growth. I will come back and just summarize our key medium-term ambitions at the end of this presentation. This slide just shows our revenues. We have a high quality and increasingly diverse revenue stream, which I hope you've seen today. You've heard today that our Spanish business is significant and growing in relevance. On this slide, you can see that both Iberia and Vueling in the middle here have grown over 20% since 2019, and Spain now accounts for over a third of our total revenue. I'd also just like to highlight that IAG Loyalty has doubled in revenue contribution since 2019 as well. Our customer revenue is also diverse.
We have a high percentage of premium customers and a good split between business corporate, travel and leisure, and direct channels. And within the business channel revenue, you can see on the right, is also spread across many different sectors. And this diversity of revenue gives us both resilience as well as the ability to derive premium yields across the business as well. There's a lot on this slide, so you'll have to take a while to read it, but the team has shown you, that transformation is across all of our operations and is, is encompassing across revenue and also with our cost base as well. And this slide summarizes on the left, that transformation touches every line of our business to deliver our revenue and margin goals.
We're transforming our customer experience to drive high yields over the long term, and we're transforming our cost base and operations, leveraging scale, reducing disruption, and reengineering process. On the right, I've just set out the approach of our airline unit cost categories. On ownership costs per unit do go up, as we bring in new aircraft, but this is offset by the new fleet, helping to drive fuel efficiency and operational performances. In supplier costs have seen significant inflation over the last few years, and we do expect to see this moderate, as expect to moderate in the near term.
We expect to also offset the majority of this inflation going forward through the work that Sean has just talked you through in improving resilience, in optimizing our selling channels, and also leveraging procurement scale and the technology investments that we're making. On employment unit costs, we are investing in our teams in 2023 and 2024, especially in BA, to drive that long-term operational efficiencies that'll pay back. We have agreed multi-year agreements with the majority of our teams across the group, and this provides stability to develop an efficiency platform, and we're starting to get greater links between salary and performance. We've also got team efficiency programs in all of our business, transforming our airport processes and increasingly seasonal flexibility across our different businesses as well.
So overall, at an airline unit cost level, and just to be clear, that's excluding BA Holidays, Loyalty and MRO. With the investments we're making, I would expect a small overall increase in non-unit costs next year, and then the investments to offset a significant part of the inflation thereafter. This will, of course, depend on the global inflation environment. Just in terms of capital allocation, IAG has always had a really robust and disciplined approach to allocating capital, but there's nothing like the last three years to really help focus the mind on this. We will continue to operate within a capital framework of net debt leverage of less than 1.8 times. We believe this provision positions IAG well to achieve a good cost of debt and get access to diverse sources of funding.
It also provides us with the confidence and the resilience to both invest in our business organically and selected inorganic M&A, if and when they arise, and to pay a sustainable dividend to our shareholders. There may be short periods of time where we want to go either side of this leverage metric to make more of the opportunities that are in front of us or to protect ourselves at certain times, but this is principally what our goal will be. When we think of, allocating capital, we do think about all of our stakeholders, and we see investing in our customers, our employees, and sustainability as a real virtuous circle to ensure that we can, turn, in turn, return capital back to our investors. So how do we prioritize our capital spend? Our priorities are spread across these five categories.
Firstly, as just mentioned, we want to secure our balance sheet, and you'll see we've deleveraged significantly, but with an uncertain external macro and geopolitical world that I'm sure you will read about ahead of us in 2024, we want to make sure that this is really secure. Secondly, we want to invest in strengthening our key hubs and growth markets by carefully rebuilding our fleet. And thirdly, we invest in improving our customer service, products, and sustainability. And last, but definitely not least, we're committed to delivering a sustainable dividend and returning excess cash, if no attractive inorganic opportunities arise. So I'm just going to step through those. ... This slide here on the top left shows our EBITDA, debt, and leverage ratios, and it shows we're rebuilding our balance sheet strength.
We've reduced net debt by over EUR 3 billion since the peak, and our leverage is in a good place. The sustainability of our leverage profile long term has resulted in S&P upgrading us to investment grade just this September. With the strong performance we have had this year, we've repaid a significant part of our variable debt. This slide is the maturity of our debt over the next few years, and you can see with our variable debt, we've repaid EUR 2 billion of the UKEF-backed debt in British Airways, and we've recently just in October repaid EUR 800 million of the ICO debt in Iberia. This leaves us with about 83% of our gross debt now just relating to aircraft financing and the remaining non aircraft debt spread, you know, over six years.
You can see, actually, in 2024, we've got very little to repay in the very near term. We've also had a step change in our pension position at the bottom of this graph as well for British Airways. At the bottom of the page, you can see that every year we used to pay GBP 500-700 million into the pension fund. The fund is now in technical surplus, and we do not anticipate to pay any further contributions in the near term. So this is really quite a turnaround to our cash generation. This slide shows the headroom we have on our balance sheet framework and liquidity. At the end of September, our net debt was 1.4 times, which gives us 0.4 headroom versus our target of less than 1.8.
But with working capital seasonality, we would expect this headroom to reduce to about 0.2-0.3 by the time we get to our year-end. On the right, that you can see our liquidity of over EUR 13 billion, of which EUR 9 billion is in cash and about EUR 4 billion in facilities. And this gives us flexibility, if necessary, to withstand a possible economic downturn, continue to pursue our strategic ambitions, and of course, execute Air Europa. Just turning to our second slide, rebuilding our fleet.
This slide here shows the total average capital spend we're planning over the next three years, and you can see that just over half the spend is spent on our new fleet, and the majority of the spend is replacing the fleet back to its 2019 levels to strengthen our hub and key growth markets. The fleet-related spend covers maintenance and improving our customer experience on board, and IT increases as we accelerate, replacing legacy IT, step change BA's commercial platform that Jose Antonio talked about, and invest in our customers' digital journey. The other spend includes upgrading the lounges, and ETS also steps up as EU and UK credits are phased out. So this slide shows on the top left, that we are building back our fleet to 2019 levels.
So this is the number of aircraft that we'll have at the end of each year. On the short haul in red, we have fewer aircraft that are increasing utilization, especially in British Airways, Aer Lingus, and Vueling. We are also increasing gauge as we retire the Airbus 319s and replace them with Airbus 320s and 321s. On long haul, in blue, in 2022, you can see the impact of the retirement of the 747s and the postponement and the deferrals of deliveries in the last few years during the pandemic years. Across 2023 and 2024, we have 26 long-haul aircraft deliveries, most of which are those deferred aircraft now coming in, with about half of these going into BA to rebuild their capacity. And we're bringing 3 aircraft already in the fleet that we stored back into service.
On the bottom left, you can see the mix of committed aircraft we are bringing in, including the new 737 MAX, starting delivery in 2025, the long-haul XLRs that Lynne talked about, which start to be delivered in late 2024, early 2025, and the introduction of the 777-9s, which come in right at the back end of 2026. You can see on the right that we are really modernizing our fleet mix to new generation aircraft that are more cost and carbon efficient. This slide shows our expected ASK growth that those deliveries will give us. From 2019 to 2023, the decline is in line with the retirement of aircraft that we've just shown you.
We then have a step-up next year to around 6%-8% increase in ASKs, with both short haul and long haul up around the same levels. Short haul, driven by small increases in fleet count and gauge and utilization, and long haul are growing primarily due to the deferred planes being delivered this year and next. From there on, we expect ASKs to grow on average by 4%-5% per year, with long haul growing ahead of short haul, in line with our deliveries and with our ambitions to strengthen our core profit pools and selective growth markets. This slide just sets out the thinking on our fleet financing and ownership. On the left, you can see there are many things that we take into account, when we're considering, what sort of finance we're going to do for our ownership.
But most of all, we make sure we're optimizing our funding principles based on kind of minimizing our cost of capital, maintaining investment grade balance sheet, and ensuring we have a kind of diversity of funds. We try and finance all of our aircraft, and when we do, we show, when we show the funding choices on the right, which demonstrate that we have a wide pool of supply and flexibility.... The fleet is currently around about 55% operating lease and about 45% owned and finance lease. But rather than have a set percentage target for each of these, we balance them case by case, based on optimizing these real fund, fund, funding principles overall.
Turning to the third priority, at the beginning of this session, I mentioned that it's important to invest in all of our stakeholders to get that virtuous circle going. Over the next three years, we'll be investing EUR 1.7 billion on IT, making us more resilient and in our customers' digital experience, and we're investing EUR 1.5 billion on our products to again, improve customer experience in the airports and on board, which we've already taken you through. We've also allocated investment in sustainability, particularly SAF, that Jonathan has just taken you through, to enable achieving our industry-leading target of 10% by 2030. Returning cash to shareholders is an integral part of our total shareholder returns. In the five years leading up to the pandemic, we actually returned EUR 4.1 billion to our shareholders.
We're absolutely committed to generating sufficient free cash flow to enable us to return to paying a dividend in the very near term. We want this to be sustainable, so we will review our exact timings regularly over the next year or so, and we'll return as soon as possible once we've ensured two things: We can invest in our strategy with total confidence, including the acquisition of Air Europa, and that our balance sheet continues to be secure. Just touching on Air Europa, in February, we announced the acquisition that we anticipate the completion to be towards the back end of 2024. On this page, I've reminded you of the deal terms, and we're working with the European Commission to complete this as fast as possible.
The purchase price was fixed at EUR 400 million a year ago for the remaining 80%, and we expect this transition to have a limited impact on our balance sheet overall. So to summarize, our financial ambitions over the medium term. On a balance sheet framework, with our focus on free cash flow and disciplined capital allocation, we'll manage our net debt leverage to less than 1.8 times. With a rigorous approach to capital discipline, we're prioritizing where we spend our capital across the fleet, customers, and infrastructure, and we have plans to spend about EUR 4.5 billion per year.
On returns, with the investment in our network and customers supporting our yields and the forensic analysis of costs and processes, we believe the margins of 12%-15% and returns of 13%-16% across the cycle are realistic and achievable in the medium term. In the near term, we do want to ensure that we can secure our balance sheet and invest in our business with confidence. Once we have this confidence, the focus on cash flow and world-class margins allows us to be committed to dividends and returning excess cash to shareholders. In conclusion, I hope you've taken away today that we're really focusing on really, three kind of key, key things overall. One, overall, transforming our business, but really leveraging the Spanish platform and really becoming a much more balanced business as a result of it.
We're investing in British Airways to get back to really strong returns, but also good operating as well. And we've got a really great platform, a great growth platform in loyalty overall. So those things, together with our disciplined approach to capital allocation and revenue and cost transformation, we're confident will deliver world-class margins. We're continuing to strengthen our balance sheet and prioritize our capital spend, and we're committed to shareholder returns once we have absolute confidence that they are sustainable. I'm now going to invite the management committee up onto the stage so that we can do a Q&A. Sure, so you're gonna...
Hello? Can you hear it? Just to make the point before we have any questions, we're not gonna talk about trading at all, which will disappoint some of you. But the MC here, I'll work through the questions on the floor. There's the Slido function in your app. There are a couple of questions in there already, so we'll come to that if we run out of questions on the floor. We're a little bit early, but we don't wanna drag this on too long. So if we can have one question each, there's a little bit of time, we'll come back to a second one. Otherwise, we'll all be in lunch afterwards if you want follow-up questions. So who would like to go first? We'll start with Alex here.
Thanks. Alex Irving from Bernstein. My question is around non-fleet CapEx. So we're seeing a step up in the 2024-2026 period. I was thinking a bit longer term, is that level of non-fleet CapEx likely to come down, preserve, or grow from that 2024-2026 baseline, please?
CapEx in the, we've got EUR 4.5 billion of CapEx. It's a step up from EUR 4 billion in the, in the current year that we're in at the moment, steps up to EUR 4.5 billion. It'll, it depends what the market's like as well.
You can see we're pretty committed in terms of the fleet that we're committed to over the next three years, and I would expect it to be staying up in the kind of fours for a few years after that as well. But we'll have to look at that when the market comes.
Non-fleet.
So it was
Non-fleet.
It was non-fleet specific.
Non-fleet specifically, yeah, I mean, focus on the end of the-
Yeah, I guess you could break that down. I think just because of the pandemic, we've been for probably three years where we've probably underinvested, because no one was investing in some of the products on board, but also in the airport. So you've probably got a slight step up in some of those non-fleet-related spend as well. And I think you've seen some of the investments we've got in IT are quite a step up, particularly in British Airways, through the commercial platform, which we're really excited about and think it'll give really good payback over time. I think the reality, though, in IT, though, is actually you're going to see more kind of IT spend across every single business, and you probably won't see it in CapEx.
You'll probably see it more in OpEx, particularly as we're investing more in kind of digital. The one area that you will see a step up, though, is in the ETSs as well, though. You saw that's gone from about EUR 200 million to about EUR 400 million, and that will increase. Of course, the more SAF we buy, the more you can actually offset that overall as well, though.
I'll go around the table.
Thanks very much. Conor Dwyer from Morgan Stanley. My question is really around profitability. So obviously, the Iberia margin's tracking, you know, meaningfully ahead of pre-COVID levels. But the margin for the group target is still kind of in line with what we kind of would have been seeing pre-COVID. So my question is: Is there an expectation of kind of a structurally lower margin for BA even after the transformation has taken place? Is that simply just around the retirement of maybe some very profitable older aircraft, or anything else in there? Thanks.
So the question was about BA margins, and I think we've given similar sort of margin targets than we had before. And I think if you go back to kind of 2018, you were seeing some very good margins coming out of British Airways. I think probably what we've tried to kind of talk to you today and what Sean and José Antonio presented, that actually we really believe in just continuing to invest in the product, which will generate kind of good, sustainable margins overall. So we're not giving individual margins by operating company overall. But we think, you know, British Airways operating out of Heathrow should be towards the top end of our range of margins.
Yeah, we told you about the objective that we have at group level, that the objective for the different airlines in the group remains the same. So margins between 12%-15% for all of them, and so that's the plan they have for the following years.
Just one other point to add is, BA will take more delivery of long-haul aircraft, so I think you'll have a better mix of long versus short-haul in the years ahead than you would have had this summer. And, you know, that, that's another lever, I think, in terms of the, the margin evolution.
Stephen Furlong from Davy. I'll just follow on, on the BA point. In the past, there was, you know, a lot of talk in BA about positive premium, the mix, basically, and that is kind of negative now. And is that a function of the, just the fleet and how it's been retired and renewed? In other words, is the mix going to go back on premium, non-premium positive? Thank you.
What you would have had is some aircraft that are retired that are very high premium mix. You know, these kind of what we call high business class configured 747s, and we're replacing those aircraft over time with 787s and 777s. But our overall average seat count per aircraft will be, you know, very similar to the run rate we would have had between 2012 and 2019. We'd have between 56-57 business class seats per aircraft. We've rationalized first class down from maybe 14-8, but we would expect premium capacity to get back above 2019 levels by about 2025. But there would be a minor movement downwards on the mix because of this spike we had in 2018, 2019 in particular.
Now, I think what I would say is, World Traveller Plus, which is a very profitable cabin, we'll have a 27% increase in that footprint. And I think considering the strength of the premium leisure market, that that's a very, very good place to be.
Thanks. Good afternoon. It's Jarrod Castle from UBS. 2019, a different world, but the question was put to the then CEO, Willie Walsh. In order to achieve your targets, what economic backdrop do you need? And if I recall correctly, the response was, "It's not about the economic backdrop, it's about the resilience we've put in the business, and hence, you know, we think we can achieve it in most situations." Unfortunately, we then had COVID. So I'm putting the question again, when you look at those targets, what kind of economic backdrop are you thinking about? Thanks.
I think we're not. The targets we've given today are being medium term. We're particularly focused on giving medium-term targets rather than near-term targets today. So I think you will all, if I could probably divide the room in two in terms of what people think about what's going to happen in the next kind of few months overall. So I think, but I think go back to the kind of answer you probably got in 2019. I think, you know, I think hopefully today, you're seeing a more resilient business. I think if you see the split between our Spanish business, South Atlantic, and North Atlantic is a much more healthy, balanced business.
I think if you look at our customer base between business and leisure, and the kind of variety of leisure businesses we've got, and even our premium. If you look at our premium customers, we've got particularly in BA, there was a slide up there which showed kind of 36% of our seats are premium overall. But actually, if you look at our makeup of our customers in British Airways, you know, you know, I guess, unfortunately for many, we're in a much more resilient customer group than most overall. So I do think, I do think it's about the resilience of the business as well. I think the thing that Luis has really brought to the business, though, is the transformation of what we're doing there as well.
Particularly, focusing on kind of not just riding the market yields, but actually how do you invest in the business, particularly the technology, which I hope you've shown, which gives a better customer experience, which helps you to kind of yield manage better as well. But actually, also, you know, the bit that Fernando took you through in terms of our approach to cost base as well, really reducing our kind of fixed cost base to help it be a much more resilient business as well over time.
Thanks a lot. It's Harry Gowers from JPMorgan. If I could ask on cash or free cash flow in particular. So, you've reiterated the 12%-15% EBIT margin target sustainably. What could you expect maybe in terms of the free cash flow drop through, or normalized free cash flow on average from that target midterm?
So the question is, the 12%-15% margin, what is the free cash flow overall? We haven't given a free cash flow number. Overall free cash flow is seen as operating profit minus kind of interest and CapEx overall. I think hopefully, what we've given you is the components to help work it out overall. So I think giving you the margin, we've been quite clear about what kind of level of CapEx it is, as well. What hopefully you've also seen, though, as well, is this cash, this business has been very cash generative this year. So we've got to a good place, and we expect to be good cash generative, you know, in the near term as well.
I'm going to ask a question on the app to encourage you all to use it. How are you planning to manage the GTF issues over the next few years? And is there anything you can talk about in terms of discussions with Pratt on that?
You know that we are less affected than other operators. We have 29 aircraft affected in Vueling, and with the two deliveries that we are having now for Iberia Express, we are going to have five aircraft in Iberia Express, 321, also affected by this issue. In our case, this is less than 10% of our narrow body fleet. But we are taking action in order to maintain the capacity that we want to fly, mainly in Vueling. So we are talking to Pratt. We are close to reach an agreement in order to be compensated for the capacity that we are trying to lease from the market. So we are advancing in the deals with different providers in order to replace that capacity.
This is not going to have an impact in the plans that Vueling have for the next year.
Hi, it's Julian Cook from Attica. Can I ask the CEOs of each airline to share their vision for their company? Thank you very much.
Maybe if I start, I think what we want to, you know, really do is deliver on that transformation. So get the customer experience, you know, up to where we want to get it to. But, you know, ultimately, it's about leadership, and I want to maintain that leadership position in terms of, you know, playing the role of flying the flag and connecting Britain with the world and the world with Britain. So rebuilding the network, but doing it in a way that's better as an experience than we would have had even before the pandemic.
Should I go next?
Yes.
Well, what we see internally is we're looking to make Aer Lingus bigger, better, and more sustainable. The bigger comes through in the fleet. We've got ambitious long-haul growth for the airline. The better comes across in the digital experience, the customer experience, but really importantly, in the brand, and that's for customers, and it's also for our employees.
Thank you.
I think for Iberia, the challenge is to consolidate the current moment in terms of operational excellence, customer satisfaction, and financial returns. I think it's a perfect combination between internal factors, the outcome of the ten-year transformation, plus the fleet investment, and also the structural change in the demand in the traffic between Latin America and Madrid. To consolidate this position and to play in the first division of the European airlines.
As far as Vueling concerned, we have articulated that internally. We will be the leading low-cost carrier in the markets we choose to serve by unfolding our full potential through Vueling Transform. What does it mean? Let's say externally, we went through a pretty profound transformation process during the COVID that has enabled us to emerge now stronger on the cost side. So for instance, we changed the line maintenance, we changed the contracts that we have with handling. We changed our seasonality. That was a great opportunity for Vueling. Vueling used to be a very seasonal airline, with a ratio of 1.42. So we were producing 40% more in the summer than in the winter. Right now, we have reduced it to half, and also we have doubled our ancillary.
All the areas that we detected that can bring us to full potential are the ones that will enable us to be the leading low-cost carrier in the markets we choose to serve. I think what we showed in Spain domestic is a good example of that.
... Hello, Guilherme Sampaio from CaixaBank. Could you touch upon the flexibility that you're embedding in your plans? Since you obviously are benefiting from a high premium leisure traffic on LatAm, although with possible risks in terms of sustainability on one hand, and perhaps competition aiming to get back some market share. Flexibility.
Hmm?
Flexibility in terms of capacity allocations.
Flexibility in terms of capacity allocations, particularly to South America.
Okay. Yes, we said before that we are receiving the A350-900s in Iberia. We will receive the A321XLR. This year also, we went to the market to lease two additional A350s because we saw the opportunity to deploy them in the different markets. We need to wait the Air Europa operation, because in case we can do it as we hope, we are sure we are going to have remedies in this operation, so we can have an excess of aircraft that we can deploy in the different markets. So we are going to have flexibility to even put more capacity in South America, if it's needed.
And then we talk also about the opportunity we have with LEVEL from Barcelona, where we are going to develop more the opportunity that we have there with the new aircraft and a new AOC.
Let's go far side.
Hello, everyone. It's James Hollins from BNP Paribas. My one question is about two areas conspicuous by their absence. The first, historically, you've talked about a group-wide technology. I think the division is called GBS. Correct me if I'm wrong. I was wondering if maybe that's been de-emphasized or reasons you haven't talked about it. I know you've talked about BA IT, but maybe just one of the dozen or so people might want to step up and have a chat. And the second area is on BA Holidays. Clearly, another company is very willing to talk about performance, EBIT, margin, et cetera, on their holidays division. I suspect yours is doing quite well, so maybe someone would like to talk about that as well. Thanks.
I'm gonna start with the IT question. So as you say, we have the IAG platform, where we have IT, but we have a hybrid model where we have centralized functions at group level, but we do things locally. And now we are in the middle of the transformation of that model in order to give BA the flexibility and the speed that they need in order to deliver the transformation. So I don't know, Jorge, if you want to add something about this because you are in charge of that.
I mean, you are right, but right now, in the model to move the most capabilities to the opco, basically, because we think the development area has to be near the business. I mean, because we are going to work, and the future is to work in an agile world, and now we are in the middle of moving these capabilities to opco. And a clear example is Nexus in BA. Nexus is the new BA platform, and I think this is going to allow us to increase our agility and our speed, transforming the IT area.
BA Holidays has performed very well. You're correct, and I think it's indicative of the strength of the UK leisure market. You know, we're at a number seven or eight in terms of ATOL operators as a tour operator. I think there's two other levers which are very exciting. One is the fact you can now earn Avios on BA Holidays, and that's getting traction, as Adam spoke about. And I think that's a really strong opportunity in terms of cross-fertilizing, you know, both of those levers. Secondly, as we've relaunched Euroflyer at Gatwick and rebuilt that leisure network, we're seeing very, very good penetration of BA Holidays packages on those flights. So I think it's a very positive outlook on BA Holidays.
Just going to follow that up with another question from the app. What are your plans longer term for Gatwick and maybe Manchester?
Maybe if I bring up Gatwick, we've got our long-haul program reinstated there, and we've built Euroflyer up to about 19 planes this year. Based on the progress we're seeing, we're going to expand Euroflyer again next year.
And if I take Manchester, so we started an airline in the middle of COVID, in our UK AOC Manchester operations, and that was profitable very quickly. We're really pleased with how it's going. We've got so many growth opportunities. The decision really is where we put them between Manchester and Dublin, but we expect to see growth there. Down here.
I'll be quick. Neil Glynn from Air Control Tower Research. Maybe a question for Adam on the loyalty side. You've obviously got a huge amount of new collection partners, and I guess there's quite a range of performance across those collection partners. So just interested in the context of the revenue growth plans you have, do you manage all of those collection partners to the same standard? And is that a key driver of future growth expectations? Thanks.
... Sure. I think, you know, I talked in the, in the slides about the fact that the, the, the predominant partners are in financial services. So you've got travel, financial services, and retail. And if you look at those, the biggest of those is financial services. So we have a similar within the, within the vertical, if you like, we have a similar view of performance and how, you know, how we're looking to perform, you know. It- and that's split by geography, so clearly the UK, slightly different from the US and Spain, et cetera. I think the retail environment is slightly different. And, so we're looking for a few more things from, from, from retail. So visibility is very important.
So the relationship, for instance, we have with Sainsbury's and Nectar, the visibility of the Avios currency is a very important part of that. So when we sign deals with retail operators, visibility is a central part of it, because we want to get the Avios currency known. So we do within the vertical, similar, but different across the verticals.
Then as a follow-up, again, from the app, what are your plans to integrate Aer Lingus into loyalty?
Yeah. So, and I'm sure Lynne can talk to this as well. So we are, Aer Lingus obviously have earn and burn Avios today. And we, Aer Lingus were actually very early adopters of spend-based earn. We talked about that when you collect Avios. And we've been working hard with the teams to extend the capability out into other places that you can use Avios within the Aer Lingus network. We've launched a number of partners in Ireland, chief amongst them, the Bank of Ireland credit card. And we have quite a few plans, hopefully coming to fruition in the next few months around partners in Ireland.
Yeah, we've grown our AerClub membership significantly over the last couple of years. But one of the great things about being in this group is that when we have centers of excellence like the loyalty team, then there's a bit of rivalry going on between the opcos to say, "We want to go first." So every time I get Adam over to Dublin, which is every couple of months, the main message is: anything Cooley is doing, Aer Lingus is the right place to test it out, 'cause we're smaller and agile, and we want it first. But he doesn't normally give me first batch of things, but there's so many things in the pipeline with the loyalty team, and we're working really well, all of the opcos, with IAG Loyalty.
Hi, it's Andrew Lobbenberg from Barclays. Can I ask about how you choose to allocate your brands and your operating companies across the different markets? Because if we just have the example we were just speaking about of Manchester long haul. I mean, yeah, Lynne, I love you to bits, but why does it necessarily go to you? Why don't we have some, you know, knackered old triple sevens on that route, or why don't you put Level on it, for example? At Gatwick, why do routes go to Vueling, not to BA? And, you know, just looking to the future, you know, how would you allocate capacity or operations between Europa, IBX, Iberia, Vueling, Level? I mean, simple, isn't it? I mean, it's really not simple.
It's a very good question, and it's a question that we had in the analysis of the strategy last year. So, as you say, we have different brands attending different segments in the market, and different customer segments, Julio explained before. I think the major part of the brands, except LEVEL now in Barcelona, they are associated to their own AOC. And I think that's also important because the cost structure that we have in the different airlines is different. So when we took, for example, the decision to fly from Manchester with Aer Lingus, we were talking about that.
Mm-hmm.
We were talking about if LEVEL could be an option to deploy capacity there. But when we made the analysis, we saw that the opportunity that we could have with the Aer Lingus brand and the profile of customer that we have in Manchester, could be more important, for us, and that's the reason we took that, that approach. In the case, for example, of, BA, you know that during COVID, we stopped the operations, short-haul operation, from Gatwick. And we were analyzing, several options at group level. For example, we analyzed if Vueling could be an option to fly from Gatwick, or if, BA, could, fly that operation in case they had the cost structure that, that is needed to be competitive in Gatwick.
Because in Gatwick, in the last 10 years before COVID, we lost money in a short-haul in nine of the 10. So we needed the right cost structure and the right proposal to the customer. So because British Airways they closed an agreement with their people and they are delivering the cost structure that we need, we are developing BA Euroflyer with the brand that we consider is the best for that market. In any case, we are operating, for example, summer slots in Manchester today with a Vueling brand, and it's something that we are going to revisit in the future. If we continue delivering with BA Euroflyer in the way we are delivering, it's for sure an opportunity to develop the company.
If not, we have, for example, Vueling, that they can deploy capacity in the market. But we are also waiting for the Air Europa operation. With Air Europa, we are going to have more AOCs and more brands in the group, and at that time, we need to take a decision if we want to keep all the brands or we want to reduce some of them... or it's better to have a dual brands, brand strategy in some of our hubs. That's a reflection we are having, but we are waiting to take the final decision where we close, if we can close, that we hope the Air Europa operation.
Hi, Savanthi Syth from Raymond James. Just kind of curious if you could talk a little bit about your distribution strategy. You know, that was a big focus in the past. It seems like you've had a lot of success, and now a lot of it is direct distribution. But could you talk about that strategy and across the different entities?
Do that. We launched our new distribution model in 2017. You are alluding to it. At that time, less than 4 for BA Iberia, less than 4 bookings were digital. More than 6 bookings were through the GDSs. And through the GDSs also means you, you lose any, you know, information and the contact to the, to the, to the customer. Since then, we have made great progress. We were, BA Iberia both were leadership airlines at IATA Leadership Airlines. We now have more than 7 out of 10 bookings digital, so either through our websites, our apps, or through NDC. That provides us much more information about the customer, but also lets us provide a much better customer experience.
For example, we look at NPS by, you know, by distribution channel. The NPS between NDC, which is, you know, new distribution standard that is used, for example, for distributing via agencies. That NPS is the same as when we distribute direct, so the customer experience is seamless, you could say. While if you look at the NPS for bookings that come via GDS, there's a big drop. The big drop is also due to, you know, us having less information about the customer and not being able to, A, distribute all our content, not able to distribute all our ancillaries, but also when there's disruption, really supporting the customer in the same way as if it's a digital booking. We are committed to 100% digital.
As I said, BA, Iberia, more than 7 out of 10. We have Vueling, well, we have Aer Lingus first, with more than 8 out of 10 bookings digital, and we have Vueling with way more than 9 out of 10 bookings already digital.
Thank you. Ruxandra Haradau-Doser with HSBC. Could you please talk about Madrid Airport, the airport operator planned significant CapEx over the next years? That should be reflected in the tariffs during the next regulatory period. Do you see the requirement for this CapEx, and, do you expect, Air Europa to move to Terminal Four as well after the acquisition? Thank you.
I think, we are talking to Aena about the possible increase in the charges there. And for sure, what we want is, that the Madrid Airport continues as competitive as it is. I think Madrid is, an airport where we can still, put capacities through that in the peak times. You don't have, a slot, but, you can distribute, capacity throughout the day. So I think we are now talking with them in order to have, reasonable investments to continue, the deployment of capacity that we have, there. And about Air Europa, yes, if we do the operation, we will operate, together in the T4.
Again, we need to see the remedies that we can have from this operation, that I am sure that we can have a space to operate together, there. I don't know, Fernando, you want to add something about the investment or?
Exactly. The key point is that Madrid is not fully constrained. In some valley schedules, we can grow, so we can re-accommodate. With our big portfolios as well, we can accommodate the growth.
Two questions on sustainability. Do we expect the EU to increase the mandate to 10%? And secondly, how are you planning to manage the cost differential between SAF and jet?
Starting by the ETS, we don't, as you know, it has just been approved and became law, the 6% mandate. It scales up fast, so it's 6% by 2030, but it's 20% by 2035. So we are not expecting changes right now. As you know, we do have a commitment of 10%, so we have a commitment that is above the mandate, in Europe, and this is what we are working towards. When it comes to the price gap between jet plus ETS cost and SAF, what we have been doing... So Jonathan was explaining that we have secured, and when we say secured, it is, it's contracted, it's not just MOUs, at what we consider, very reasonable premiums.
We were also talking about the SAF allowances in the EU, and we do expect that incentives to bridge the price gap will come into place. As you know, regulation is still work in progress. So at this point, we know what we know, but we do expect there is more coming up. So I think we are our ambition is until 2027 to be able to procure that 10% that we have committed to at a reasonable premium. So there will be a premium, and there will be an impact in cost, we know that, but we are working to minimize that.
Eva?
Mehvish Kiani, Bank of America. I wanted to talk about the North Atlantic. We talked about the importance of the U.S., and if you look at North Atlantic capacity, a lot of the U.S. airlines have added on quite a bit already. So in your metrics, how have you thought about kind of your capacity, and kind of the big six on that over the next couple of years?
If I talk maybe about BA, I think we did see a lot of capacity come in this year, and that's probably to be expected, because Heathrow generally is one of the places where capacity will come in pretty quickly in a recovery. If you look next year, I think the capacity outlook begins to moderate quite significantly. I think if you look at OAG published stats, Heathrow looks at the minute, like it might get 2% more ASKs, you know, in summer 2024 compared to summer 2023. Maybe that's reflective of the natural constraints in deploying, and actually some capacity has been taken back out of the market compared to last summer. So, you know, I do see... I'm not surprised with the scale of increase this year, and I'm not surprised it's moderating as we look ahead.
I think from our perspective, we have flexibility as we take more long-haul planes into the network. We've headroom to convert short-haul operations to long haul. And I think one of the things which I think is exciting is having a hub here that flies to the U.S. We can develop spokes quite effectively, whether it's Pittsburgh or Cincinnati. Because the feed comes from the Europe end, we can develop those secondary markets, which, we have been doing consistently over the last, you know, 10 or 12 years, especially since we've had the 787 fleet, join British Airways.
I think in Madrid, this is part of the resilience of the group, because in Madrid, the situation is just the opposite. The capacity has recovered below 2019 levels in between Madrid and North Atlantic. So that's part of the reason, because Iberia has increased market share, premium deals. So in some ways, it's a balance in the group portfolio between the performance, the two halves between Europe and North Atlantic.
Yeah, thanks. Just a follow-up question on... I was looking at the Europe to Spain capacity. And if we look at 2019, Ryanair had about 19%. It now has 21.8%. In 2023, it's looking to have another percentage increase next year. And in the meantime, Vueling and Iberia are pretty much flat. So basically, Ryanair is eating up, you know, every year, 1% more. How you, you know, how do you deal with that? Or are you just gonna see in the next decade, the same situation as Italy, where Ryanair now has a 40% market share?
You can expand on this, but Ryanair, for example, they have a strategy to develop capacity in those markets. But in our case, we have Vueling, we have Iberia Express, as you said. In the case of Vueling, we are still pending to have an agreement with a collective of pilots, and we said that we are not going to invest in more capacity there unless we close the agreement, because we need to have the right cost structure in order to compete. I think Iberia Express, they are talking also between Iberia Express and Iberia in order to develop Iberia Express. You know, that the development of one company, of Iberia Express, is a link also to the development of Iberia.
In the case of Vueling, what they are doing is, with the same number of aircraft, they are increasing the capacity through utilization. I think part of the transformation of Vueling is to be much more efficient. Marco, you can comment on the utilization you're having now, maybe.
Yeah. Maybe just add one consideration. 70% of the capacity that Iberia Express and Vueling operate is in overlap with Ryanair, and 90% is in overlap with other local carriers. So competition doesn't scares us because it applies in flows where we do have a leadership position or we can compete very effectively. In fact, we were amongst... I mean, if you look at the results of the last 12 months, Vueling was amongst the top 2 most profitable airlines, despite this level of overlap with Ryanair. Said so, there is a growth opportunity there that at the moment, still we are not unlocking for the reason that Luis was mentioning. We need to have security about our long-term labor costs to do that.
But what also Luis was mentioning is that in the meantime, the transformation is allowing us to increase. For instance, in 2023, we increased ASKs by 9% with the same number of planes and the same assets in the company, and that is a result of the increased utilization. And that is a bit, that positive wheel that also Sean was referring to, that when you have a very, very strong operation, that allows you also to reduce the backup assets that you need to operate the network. So, we increased very significantly our punctuality. Now, we are one of the most punctual airlines in Europe, and that allows us then to operate, to increase our utilization.
At the same time, I was referring before to the fact that we are changing quite radically our shape of seasonality. So by increasing our activity in the winter, we are able to increase ASKs without needing more assets. And by the way, that also has a positive impact on our CASK ex-fuel.
Satish from Citigroup. In one of the slides, you mentioned that the premium cabin is up by 8 percentage points in the Iberia. What is actually driving that? Is it the existing customers actually increasing the frequency of bookings there, or is the new customers who come in and upgrade themselves from economy to premium cabin? Also wanted to understand is like, what has been the retention rate? Basically, whoever comes in first, coming in for the first time, much of that customers, you're able to retain them back into the premium cabin. Repeat bookings, basically.
Of Latin America traffic, we have experienced an increase in load factor in the premium cabins, but on top of that, an increase in yields. Particularly also in North Atlantic, is an increase in the number of passengers flying in the premium cabins. Normally, load factors in premium cabins were like 10, 15 points below economy cabins, and now we're more or less at the same level. It's due to more premium traffic from these markets to Madrid.
Makes us change, because you pointed out there has been 50% more immigrants from Latin America coming into Spain. So is that the key driver there, or is it just the inbound from North America actually contributing that?
So to understand your question, but structurally, we are receiving a change in the demand between Latin America and Madrid. It's not just related with travel, with air travel. Demand is correlated with real estate investments in Madrid. It's correlated with premium leisure hotel demand in Madrid. So it's supporting that this change in the structural demand is something that we can expect for the coming years. Yeah. I think that in all the airlines and in all the markets, what we see after COVID is that a lot of people that they didn't fly in premium cabins before for leisure purposes, they are flying now. So we see this in all the airlines in general.
In the case of Iberia, what we see different is that, what Fernando explained before is, Spain and Madrid is a place where a lot of, a lot of people from Latin America, they are moving, and that's the reason he said, is the new Miami. So you have a lot of wealthy people that they are investing in Spain. When you see what's happening with the houses, for example, in Madrid, and the price of the houses, and the number of Latin America people, that they, they are moving there. So this movement is helping to this premium leisure traffic that we didn't have, before. And I think that's, something that's happening in Iberia that we don't see in other regions.
Thanks. Gerald Khoo from Liberum. Can I ask about LEVEL? You're clearly a believer in low-cost long haul. Given that, why aren't you growing it faster? I think you talked about only getting to 8 aircraft by 2026, if I remember correctly. And do I hear correctly that you're looking at going back into short haul? And if that's correct, why are you doing that, given that you've already got a low-cost, short-haul, low-cost platform in Vueling?
Why we are launching the AOC in the long haul and why we are exploring the short haul AOC? Yes.
Why aren't you growing long haul faster, given... 8 aircraft doesn't sound like a huge number.
Okay. So in the case of the long haul, in the group, we decided a long time ago that we wanted to launch a long haul, low-cost, long-haul operation. We thought that Barcelona was a good opportunity. We wanted to do it something very fast, and that's the reason we launched the company based in Iberia, AOC, understanding that that was not the future. But we wanted to have a quick response to the market. We said at that time, we will launch a new AOC because we need to be efficient in the company, in all the areas of the company, and we see an opportunity in Barcelona. After that, COVID came, we decided to stop everything.
It was the time to survive and to put the focus in, yes, in trying to maximize the, the, the cash position of, of the company. Now what we are going to do is to come back to the plan that we had before. It's a long-haul, low-cost AOC to fly from Barcelona, and maybe not only from Barcelona. In the future, we can have other opportunities. Andrew was asking before, why not LEVEL in Manchester? Oh, it's an option that we can explore in, in the future, if we can use the long haul from LEVEL, from other places. In the case of the short haul, I think we had a short-haul operation in Austria before the COVID, and we could fly also, in the past, that short-haul operation with the Vueling AOC.
But we decided to have a new AOC because we thought it was the right structure, the right cost structure, and the right proposal to the customer to have another AOC. And that's something we are considering now, to have another European short-haul AOC that we can develop in some markets in Europe, but as I said, we prefer to wait to the Air Europa operation, because can happen that we are going to have more AOCs that. And for example, Air Europa, they operate with the 737s, and you know we are going to receive 737s. So we prefer to wait until we decide brands, AOCs, where we put the aircraft, and that's the reason we want to have the flexibility.
Johannes Braun at Stifel. I was wondering about the BA Holidays, how they get along with easyJet Holidays, actually. You think you lost market share, market share there because they are growing very strongly? Or do you think Thomas Cook's demise leaves room for everybody?
I think we're growing our market share, actually. I think we're very happy with performance, and I think we were the first kind of really in the U.K. market to integrate the airline side and the holiday side, and I think easyJet are following that path. I think we have a different product. You know, we have a very strong long-haul product because we fly long haul, whether it's South Africa or the Caribbean, as well as having a very strong, you know, Mediterranean product. And I think actually the integration of loyalty to earn is a USP we have that won't be easy to replicate, especially considering the penetration we have in the program. So, I think when you have that ability to integrate and combine these levers, it's a vehicle for growing share.
So, no, I think easyJet are progressing, but it looks it's at the expense of other tour operators.
I'm just gonna ask another question on the floor to Nicholas. Why, when so much has improved in the business, do you still have the same margin targets as you did before? And secondly, do we still have the 15% ROIC hurdle for investments?
Just in terms of so why do we have the same margins as we had before, I guess the way we stand back and look at, we want to make sure we're giving a sustainable return to our shareholders. So we look at our cost of capital, we make sure we're giving a good premium to that. And then I think once you get beyond the 15% margin, in our sector, which is, by the way, world-class in the many. I can only think of one or two other airlines who are doing 15% margin overall. I think if you're getting over that in competitive markets where we operate, I think there's a danger that you actually let more competitors come into your market as well.
So our view is once you get to that kind of 15%, the best thing to do is to reinvest back in the customer, and back in your employees, to really get, drive that sustainability, over the, the long term. So that's really, what we're, what we're keen, to, to do. In terms of hurdles for return on capital, we've given a range of 13%-16%. The way, the way we stand back, hopefully you've seen of how, how we do it, but we kind of risk assess it when we're going through it as well. So when we're, when we're looking at, new startups such as LEVEL and how much money we put those, we risk assess it. So there's different kind of hurdle levels for different sort of investments that we have.
Thanks for the follow-up. A question for Fernando. On, on Latin America, obviously, the joint businesses, the benefits are very well understood through the group. And remembering back to, I think it was 2017, where a JV with LATAM was announced, then Delta stepped in, of course. But is that something, a joint venture, as opposed to the code shares that Iberia currently enjoys in Latin America, something to think about as being on the agenda eventually in the future? Or is the current situation structurally strong enough that it's not necessary?
Okay. The current situation is, is, quite positive. Let's say we have, the current agreements we have with, with LATAM allows us to have, enough strength in, in the Latin America market. At the same time, we are developing a, a strong plan to improve the brand awareness of Iberia in Latin America. So it's, probably, one of the regions where our brand is recognized, far from our home markets. But I think the current situation is, is quite, is quite the same, and the relation with, with LATAM is positive with the, with the level of, of collaboration we have, and it's allowed by the, the current agreements we have.
One thing is that I was there when we tried to do the joint business with LATAM. So from long time ago, we know that if we could restructure Iberia, there is huge potential in South America, as we are explaining today in this Capital Markets Day. So we started trying to launch a joint business with LATAM. You know, that we have a joint business in Peru, Ecuador, but we tried to expand that joint business, but unfortunately, we didn't have the approval from the Chilean authorities. For that reason, we stopped the deal, and then we put the focus in Air Europa.
So Air Europa is something that we signed in November 2019, and it's something we continue trying to do, even with the COVID in the middle, because we consider it's the right thing to develop, Madrid hub. Also, you didn't ask today, but we are considering if TAP could be an opportunity for us to develop that market. Because we said before that Brazil is a market where, there is a huge potential, and we don't have a lot of capacity there. So we consider that, TAP can be a complementary option to this deal with Air Europa in order to have access to an important market like Brazil.
We consider that in the same way that in the North, we have a dual hub strategy with Dublin and London to fly North Atlantic, we can have that dual hub strategy to fly to Latin America from the Iberian Peninsula. So I think that's an opportunity, and that will increase the EUR 1.5 billion of profit that we talked before. Because somebody asked me during the coffee break if this EUR 1.5 billion was with Air Europa included. No, this is without Air Europa. So all this is additional to what we told you today.
Alex Paterson from Peel Hunt. Two questions, please. Firstly, and this would not include the UK, but I see a lot of countries have been extending high-speed rail links, particularly in continental Europe, and in fact, they're looking to connect them together. There's also creeping regulation to ban flights of over distances which would overlap with high-speed rail. Is that something that you're concerned about? And how would you react to that if that continues further? The second question is, in the UK, I see Gatwick is reapplying to convert its emergency runway into a second runway, and I think the plans for a third runway at Heathrow, now, I think in their 51st year, have evolved again.
Can you let us know what your expectations are there, and would retaining market share at both of those airports be a priority for you?
Carolina, you want to answer the first one? You want first one.
On railway. No, it's not something we are concerned about. Actually, in Spain, for example, we have been advocating for over a decade to have a connection between rail and Madrid-Barajas. So it hasn't happened in other European, Northern European hubs, that's the case. So we think rail connectivity for Madrid-Barajas would be a good thing in different terms. And also, it's about SAF again. So for us, the solution is not forbidding short-haul flights or anything, because that doesn't have a great impact on CO2 savings, actually, but having rail connectivity and developing in Europe the SAF plans. But the impact from what was announced in Spain recently is small for us, it's small for the environment, but we are very supportive of having rail connectivity into the airport.
I think, you know, the point I made earlier about leadership, gives us optionality. So we have a presence, both long-haul and short-haul, like Gatwick, and obviously Heathrow is our hub. If I start with Heathrow, I think we've always been clear that, any expansion proposals have to meet a couple of key criteria. One is affordability, and make sure that the cost of expansion, is economically viable, because the worst thing we want is expensive infrastructure coming and then having too much of the expensive infrastructure and airport charges, which, you know, don't allow us to compete. And secondly, is the environmental hurdle. And I do actually think that, you know, the progression of SAF is one very important variable when we look at the appetite, I think, of government to approve airport expansion.
I think Gatwick is an opportunity which didn't surprise us. We need to evaluate it. You know, I think obviously it's a lower capital expenditure project than you see at Heathrow, and we've optionality to kind of expand our footprint there if opportunities arise. Whether that means you hub in both airports, I think that would be a big step, and I think, you know, predecessors tried that and it hasn't worked. But we've a very strong point-to-point, short-haul opportunity at Gatwick and a very strong point-to-point, long-haul business there as well.
Just a second.
Just a quick question on the revenue management tool that's being rolled out on BA. That's usually... You know, it could be good, but then there's also kind of noise around the rollout. Could you talk a little bit more about what's you know, how that rollout's going to go and the timing around the contributions?
I think we're in the middle of developing the tool, and a lot of it is actually bought from the supplier, so we're not looking to build, it's more buy and integrate. I think what it will give us is, you know, a lot more dynamic price points. If you think historically, airlines have priced on the basis of the letters of the alphabet, and then we put all sorts of different type of price products into infrastructure, which, you know, fundamentally is analog, and this is digital pricing infrastructure. You know, in essence, you know, we manage then, I suppose, filling our planes less through what we call inventory controls, and more through algorithmic-driven price points. It also allows us, I think, to integrate ancillaries and bundling or debundling into, you know, a single revenue management process and philosophy.
Whereas today, they're kind of run, you know, as separate sort of revenue streams and entities. So, you know, obviously, execution is very important. I think we're working with some very robust implementation partners, and a lot of this capability is already developed, rather than, you know, we're developing it in a bespoke way.
All the MC except for Luis to go and sit down, please.
So very brief, thank you very much for being here today. I hope that you have a better understanding about our strategy. We told you that we are going to focus on sustainable growth in our core markets, following our discipline of capital allocation. That is the secret sauce of the group. We are going to continue investing in our customers, in our operations, and in our brands. We are going to develop our capital-light businesses, and in particular, IAG Loyalty. That is a business with high margin, high returns, and high cash generation. All these underpinned by the transformation that we are having in the group and in the different airlines that we have below us.
We have, as you saw right now, a very experienced team, and we think that with the right strategy and this team, that they have a long track record of delivering, we are going to make things happen. So, we maintain the financial targets that we had in the past. Somebody asked if we cannot improve that. We need to consider that those margins are one of the best in the industry, so it's difficult to come back to that. So we are going to have a range of margin between 12%-15%. The ROIC will be between 13%-16%, and the ASK growth when we reach the steady state, not talking about possible operations of M&A, would be around 2-3%.
All this, we are sure that, is going to deliver what we want at the end, that is to maximize the shareholder returns. So thank you very much for being here today. A pleasure for all of us. Thank you.
So very quickly, lunch is through there. The catering has kindly been provided by the Concorde Room in Terminal 5. Iberia have kindly provided the wine. There's lots of it. There's some jamón in there. You'll also find some products from Iberia, BA. Round the corner, you've got Hangar 51 and a sim for Vueling. So please stay around, talk to our management committee, talk to some of our colleagues up there, and I hope you found it useful. Thank you.