Good morning, everybody. I'm happy to welcome you to the Capital Market Day of IG and I'm happy to be with 3, non executive director. And with us, our Senior Independent Director, Alberto Terrell and Javier Ferran, Mark Bollant. And so we are happy to be with the management here and sharing this important morning with you. We announced an interim dividend at 3q 'nineteen result last week of 14 14.5 Euro cents and which is exactly the same than a year ago despite slide 4 in our net income due to the BA pilot strike and disruptions.
This demonstrate the confidence of the board not only in the way which the company is doing, but in the outcome of the company and the financial strength of our company. Including this interim dividend that is payable in early December, we will have returned $1,310,000,000 in cash to our shareholders along the year 2019. In total, we will have returned 1,000,000,000 to the shareholders over the 5 year between 20152019. Regarding the use of excess capital, the board will routinely evaluate shareholder return in the context of growth and an M and A opportunity. As far as our M and A is concerned, it has been a busy year at the beginning of the year.
We did announce a that with discontinued our interest in Norwegian shuttle because of the point in time, we did consider the transaction was too risky. And last Monday, we were happy to announce intention to acquire erudopa, which is basically a local operator in Spain and Latin America. And Louisa Gallegos, the CEO of Iberia is going to talk about the afterwards. As far as the board of directors concerned, this year, we in our ongoing refreshment activity of the board, we have appointed 3 new boom number, 2 non executive marketer win, which is bringing to the board very, very significant financial experience and having been PON and by Chairman of Deloitte for a while and also transfer experience because actually has been CFO of BAAE. Which was a former Heathrow company.
And Javier Faran has incorporated well to our board have Yurice ringing a very good experience in consumer good customers and a very, very long experience. And it's bringing us well a very solid experience and background as a CEO and chairman of a big listed entities. Javier is currently the chairman of the Agio. And last but not least, the incorporation of our Board of Steve Cunningham as an executive director replacing Enrique as a CFO of the company. The most of you know Steve and after today everybody will know Steve very well.
So, and I hope that we will remember Steve quite On Brexit, we have submitted that we did inform that we have submitted remedial plans to our National airline regulators in Spain, in England, in Dublin, in the and in Ireland and in Austria. And which basically are dealing with the requirement of having contingency plans in the for the post Brexit situation. And the assessment has been positive in the way that they all say that If we put in place the plans that we have presented, we will comply with the EU ownership and control requirement for post Brexit. As far as the permitted maximum is concerned, we put it in place in implemented it in the month of February, I realized and we realized the management and the board and everybody that is not an ideal situation. And we continue to evaluate the way to address it.
The only thing I can assure right now is that the board and the management is absolutely committed to removing the permitted maximum at the appropriate time. I hope you will enjoy today's presentation and from the IG leadership team. And I think you will conclude at the end of this presentation that IG is a unique compelling investment case. So I give the floor to Willie. Thank you for coming.
Thank you, Antonio, and good morning, everyone. Thank you for joining us. Welcome back to those of you who've been with us here before. As Andrew said, the agenda today has been driven by the feedback that you have given us. The format is also as a result of the feedback feedback that you've given us.
And we recognize that not all of the issues that you've asked us to deal with can be dealt with in terms of the formal presentation but we will have an opportunity at the end with plenty of time for you to ask questions on any of the issues that are covered or issues that may not have been covered that you would like us to address. Now, before I hand over to Alastair, I just want to remind you a little bit about what it is IAG has done, what we're doing today. And then Alastair and the rest of the presentations will take you what it is we're going to do going forward. We've talked for some time about the unique structure as we have within IAG, which enables us to focus on key areas to ensure that we are the most efficient airline group in the business. We've got And we're able to ensure that we cover all of the opportunities that are available to us in the markets.
And through this structure, we've been able to develop sustainable returns to drive transformation where transformation has been required. To ensure that we reward and remunerate our shareholders. And we intend to continue to do that going forward. Now you can see that that transformation has led us to deliver operating margins that are well in excess of what people believed was possible for especially legacy airlines in this industry. And we believe that those margins are sustainable and Steve will take you through the plans for the next few years, which will demonstrate that these margins will once again be achieved by the business.
We're also delivering industry leading returns and invested capital. And as you know, this has been a real focus area of IAG. We believe that this is something that the industry has started to focus on. I often pointed to the change that I can date back to 2008 where you see more and more industry leaders focused on this issue and more and more industry leaders talking about the needs to deliver real returns on invested capital. And this is one of the real strengths of IAG in that we can ensure that the capital that we assign to the operating companies within the business is done in the most efficient way It drives healthy competition between the airlines in the group and it ensures that all of our airlines are focused on sustainable investment that will generate returns in excess of our cost of capital.
And we've given you details there to an avenue to compare our performance to other airlines using the methodology that IAG has adopted for the calculation of return on invested capital. And we're doing this in very competitive hubs. You look at the position that we have in our hubs relative to some of our major competitors. And it's important to point out if you take Madrid, for example, although we have 49%. About two thirds of the capacity of Madrid Airport is not used today.
So there's plenty of scope for growth in that airport. So even in an airport, where there are effectively no barriers continue to do that going forward. Now I've talked about the unique structure. And you've seen this chart many times before. The corporate parents with the airline operating companies divided between the various segments that you can see there.
We give you an idea as to where we believe our Europa will sit as a value carrier within the group. And Luis will talk to you about his ambition for the acquisition of aerrier open later on today. Now what do we do? When we divide activities, one of the real advice And you've probably heard me say this before is that because we at IAG at the center are not distracted by the daily, daily operational issues that all of our airlines face. We have time to think long term.
We have time to think strategically about where the industry is going. So we set the long term vision for the group. We ensure that the portfolio is defined and that it's attractive and that capital allocation is done on an efficient basis. I like this, we exert vertical and horizontal influence. Now, that can be pushing and pulling, kicking and thumping.
But generally, it's done in a collaborative way to ensure that all of the operating companies are performing at their best and where we don't see the performance meeting the standards that we would expect we intervene. So we're not passive. And that's an important point. We're not a holding company that passively watches and accepts the performance. We're daily on a daily basis interacting with the operating companies where we believe it's necessary to do so.
And they have all the time then to focus on a deep understanding of what their customers want and a deep understanding of what the competitors are doing in their segment of the market. They define the customer proposition for that targeted segment group. They have standalone P and L responsibility. And that clearly has discipline associated with it. And then I think the really unique sense of IAG is that we can enable these operating companies to retain their individual identity and their culture, which we believe is very powerful So where we see value in the brands, we can retain that brands, retain the culture associated with that brands, retain the culture associated with the people who support brands.
And that's what makes us unique relative to other groups. I say we're unique But we recognize that there are some out there who want to copy us. Michael has made no secret of the fact that he believes our structure represents an opportunity. I think they will get there eventually. The difference is, however, Michael, I think, will struggle to take the hands off what Ryanair does.
And will therefore be involved. I know from personal experience, when I transitioned from being the COO to the CEO at Erlingus, I had to stop dealing with the day to day operational initiatives that I had been dealing with. I know how difficult that transition is. I know the transition between maybe being the BACO to the IAG CEO was difficult. So, I've gone through these transitions and I know how tough it is to let go the responsibilities that you've had and hand them over to somebody else and trust in that person.
I think Michael would struggle a little bit with that, but they may well get there. Lufthansa has said the same thing. And as we refer to Carsten, Carsten has been quite open about this. He loves running Lufthansa, the airline and that permeates throughout the whole Lufthansa group. And that's what separates the way we operate from the way they operate.
So we do have a unique structure. I think in time, people may well try to copy us. I think it will take time to do so because we're well ahead of them and having gone through those transitions. We're not static. We recognize that some of the things we did when we created IG have worked extremely well.
But we also believe that there's value to be generated by changing some of the things. Now, this says what we're going to do tomorrow. Tomorrow doesn't mean tomorrow. Obviously, it means in the future. But just to give you an example, if I take loyalty and you'll see a presentation from Drew, you can see today that it's pretty much a distinct Up Cove focus.
The loyalty of the BA exec club is very much driven by BA. Now we believe there's real value to do that at a group level to exploit all of the data that we have across the group in a way that we can't do on an individual OpCo basis. And Drew will demonstrate the importance of IAG loyalty and how that can be used to generate even further cash flow and profit for the business. In terms of talents, we spend a lot of time at AIG. And again, one of the advantages that we have is that we have time to assess the talent within the business.
We spend quite a bit of time as a management committee going through the senior people with in the business, understanding their performance, understanding how we can help them to improve and understanding how well we're prepared for future succession planning within the business. And we believe there's scope for us to do even more of that centrally. So, we're looking at improving and enhancing the activity that we do at the group. So, there's a lot of things that we're doing today that we do well, but can be improved upon. And that clearly will enable us to unlock future value for the business.
And finally, my team now I think somebody was having a joke when they said refreshed because if you look at the photographs there, I think the only person that looks refreshed is Lynn and she had just come back from a week's holiday. This These photographs were taken during one of our management committee meetings. And I think as we went through the day, you can see how refreshed people actually were. But what this is important is that of the twelve people there, only three of us were here at the beginning. That's myself, Chris Haynes, the General Counsel and Junior Simpson, the Chief of Staff.
Luis was the 2nd CEO of Iberia Javier, the 2nd CEO at Welling. Steve was the CEO at IAG cargo before moving to be a CFO and now becoming the group CFO. So we've had a lot of change. Lynn, in fact, is the 3rd cargo CEO we've had since we started. Steve was number 1.
Then followed by Drew and now by Lynn. So we've had good rotation within the team. A lot of talent has come from within the organization. And indeed, we've brought talent from side. We've got John who you'll see later on today and Alastair is going to follow me.
So we've got great talent within this business. We've got great opportunity to exploit that talent And where we see the need to bring talent in from outside, we're not going to be afraid to do that. So we've got the right people running the right businesses with the right brands delivering the right customer proposition in the right demand segments and it's supported by efficient innovative and professional support services with aligned businesses there to exploit additional value from the activities of Thanks,
Willie. Good morning, everyone. As Willie mentioned, I'm going to now build on what we've talked about in the unique structure. And I'm going to take you through the strategic investment case for IAG. And that's built around 3 of our strategic priorities.
Firstly, a portfolio of world class brands, secondly, growing leadership positions and thirdly, leveraging platform to create cost, innovation and efficiency. So kicking that off, a portfolio of world class brands. At the heart of the strategic investment case for IAG, is understanding that we have customers at the center at the forefront and the center of everything we are doing. As Willie mentioned before, we have a really deep and real time a higher group of our customers' needs. And when we understand that customers can travel for very different reasons and they can be in different places and different demand segments, We understand that those needs can be very different in those situations.
And we have a portfolio of brands that allow us to specifically focus on delivering those needs really focusing in on what the customer wants and what the customer needs against each of those different demand segments. We recognize that customers move between these But we believe and we believe it's demonstrated in our results and will be continued to demonstrate as we go forward that having brands focused on specific areas allows us to better address We recognize that we need as we think about these demand spaces across the horizontal axis here and where we are positioned currently and where our aspirations are, we recognize we are on a journey, but leadership is incredibly important with this portfolio of brands that we have. The current portfolio potentially adding to that portfolio with additional brands as we move forward. So there's work to do, but we're really encouraged because what we've seen in the last couple of years and what we believe our plans are going to demonstrate to deliver as we move forward is an ability to improve that Net Promoter Score this is the customer's view of believing in and recommending IAG carriers. And this is aggregated up at an IAG level.
Back in 2017, from 2017 to 2019, 24, so seeing continuous improvements over the last couple of years. And we're forecasting again that as we move forward, we will continue to deliver improvements in each of these areas. So that's really critical having customer at the center of what we do and that we drive these continuous improvements in Net Promoter Scores across our airlines. It's not just aggregated in that 1 Net Promoter Score. Actually, we're really encouraged because when you look across each of the elements of the customer journey, and this is again aggregated in IAG level.
When you look across each of those elements, we're seeing satisfaction improved in every one of those elements. This is basically a measure just so you're clear. It's the top 3 scores in customer satisfaction on a score to 10. The percentage of customers that are scoring that in the top 3 categories. And so we're seeing increases in customer satisfaction in every one of these areas.
And we believe there's lots more to come. To dive a bit deeper into focusing on one brand, particularly BA, again, looking at 6,500,000,000 plan over the next 3 to 5 years. And this is really important. Again, here, we've illustrated exactly where we've gone and started some of these transformations we've started to invest this money in lounges, in aircraft refurbishment and catering to soft product. And again, we can show demonstrated results from that investment.
So we are really focused on making sure we understand what the customers want and what they need and that we're taking action specifically in those areas to address those concerns. So that we can be their airlines of choice as IAG. Particularly for BA, that is resulting in improved NPS in both cabins and in both long haul and in short haul. So on this chart, we're showing you across the top, shortfall nonpremium and short haul premium and on the bottom, long haul nonpremium and long haul premium. In every one of those cabins, if you want to call it that way.
And on both short haul and on long haul, we are seeing MPS improvements. So we are really, really encouraged. The actions that we have been taking and that we're planning to continue, we'll continue to deliver this improved customer satisfaction continuing to strengthen our brands and enable us to have that really world class leading performance of brands in our portfolio. I think I'll highlight again here on the bottom in the bottom right. Long haul premium is the smallest improvement that we've seen to date.
But again, we're encouraged because of what we've got coming. And in this case, what we're seeing with the new aircraft and the new seats that we're bringing in this premium cabin, we're seeing really encouraging early signs from this. We will believe that although that's only a 2 point improvement that we've seen in the long haul premium cabin over the last couple of years, there's a lot more to come from this space. And the early signs from the reviews that we're seeing and customer's feedback is that really we are going to be able to drive these improvements in this space as well. The second strategic priority that IAG has is growing our leadership positions.
And what's really, really encouraging is that our start point say, start point 10 years effectively into IAG is that in each of our home cities, we have great leadership positions in each of these home markets. The left hand side is our view of leadership positions by revenue and the right hand side is looking at it by passengers. But in each of these cities, London, Madrid, Barcelona and Dublin, you can see that IAG has established strength in these leadership positions. Our choice of business model generating the revenue is allowing us to maintain those leadership positions. Our focus on customers in the demand spaces that we're looking at is allowing us to continue to do that.
And we think and we believe that as we go forward, we can continue to strengthen these positions. We may be able to potentially add new home cities or new home markets through inorganic activities. But particularly in the markets that we're already in, we believe there's an opportunity to strengthen our leadership positions, and that's an incredibly important part. That leadership element of IAG strategy. If we focus in a little bit on Europe, for the moment and looking at the European market, actually over the last circa decade back to 2008, we have seen considerable consolidation in this market.
So it's about a 20 point increase in what the top 5 airline groups accounted for since 2008. And IAG has played a really major role in driving some of that consolidation. But what we believe is that it's not done yet. We believe there's still a significant amount more that needs to occur in this space. And IAG plans to be part of that consolidation activity.
We believe that actually what we're seeing in the industry, particularly around credit cards, is going to drive some of that consolidation. What we're seeing here is the credit cards as airlines become get into positions of more distress, they're tightening those strings. They're restricting the access to that forward revenue. And there's a couple of examples here on the screen that you can see of where that has come out and where it's been public. Think this has a really, really significant impact on working capital.
And we estimate for a long haul carrier, the forward revenue for a wide body aircraft can be up 1,000,000 on credit cards alone. So this is cash that airlines need that is being restricted. As we see this dynamic shifting in the industry, we're seeing actually it's probably going to generate more and more opportunities for consolidation. Or it's going to see and I think it's a major contributing factor in where you've seen Norwegian come out and go and ask its shareholders for more capital, and they can only do that so many times. But this is a key changing dynamic in the industry that we believe will continue to support the ability for further consolidation in this space.
Not only are we seeing the credit cards and the changing dynamic in that space, but we're seeing the ability for startups and the trend of startups and failures start to change. If you look back to 2000, we've now listed the number startup airlines in a European context. And you can see actually a pretty dramatic shift in the shrinking number of start ups you're seeing each year come into this space. Also, if you look across this and we've provided the analysis, around 70% of those startups fail. So this is complex It's hard, and we're seeing an increased rate of failures in this industry, but it's not only startups that are failing.
And actually, if you look at a recent set of failures in this space, you've got both well, old, established legacy airlines as well as more recent startups, struggling to survive in this space. We believe that with our portfolio of brands and our strength as IAG, we can continue to play a key role in consolidating, particularly in Europe and potentially further a field. But having these leadership positions that we have in the markets provides us some resilience and positions us well for further consolidation as we move forward. The final strategic priority that I wanted to touch on that supports the IAG strategic investment case is around cost and efficiency in our platform. And as we look at IAG's performance in this space over the last, call it, 10 years, We believe we've shown and demonstrated that we are driving the industry in cost efficiency.
The graphs on the chart in front of you show our cost a non fuel unit cost performance index back to 20 10. And we've shown against the number of European and North American peers on this chart. What we can demonstrate here really, really clearly is approximately 11% of costs driven out since 2010. It's a formation of IAG on an index basis and looking at that on a non fuel cost basis. So we believe we've shown that I'd like to pick out a couple of points that in particular for IAG have enabled us to do that.
So not only are we developing our portfolio of airlines, And by bringing leadership airlines in there, we are driving synergies at a cost level each time that we bring new airlines into our portfolio of IAG. In addition to that portfolio, we have a platform of services. So we get synergies when we bring them together, but tapping them into the platform the common platform that IAG has enables further cost improvements. And fundamentally, and at a point which Willie hit upon, we also enable each of our individual optodes to transform when necessary. And Iberia is a classic example of this through Plander Fazero and it's Blander Fazero 2 where it is showing that it can independently go and transform cost issues that it has within its business or that any or other opcos have within their businesses forget to the level of performance that we need to have.
And we believe at a group level and an individual opcos, this cost efficiency that we have shown and this discipline at structurally changing our cost basis really positions us well against our peer sets to be able to weather any particular cycle that the industry faces. Now we've been on a long run of an upcycle But we believe this cost discipline is one of the things that stands IAG out at being able to be resilient in any downturns that may come in the future. There are other things in this cost performance, like density, like other bits that impact how this happens. And so the the combination of business models flow through into all of these sectors. But when you actually though break that down and try and equalize it, Again, we see each of our individual opcos on an equivalent seat basis having an incredibly competitive cost position versus their peer sets.
So what we've delivered now and this is all real reported data that we have we've gone back and calculated equivalent C kilometers as opposed to available C kilometers is that each of our Opcos are strongly positioned against their TSS and are able to then go and acute their business model to generate the revenue leadership that we spoke about before. In addition to this cost, we are incredibly focused on innovation and digital. In 2019, Frost and Sullivan had run a report that's towards the tail end of 2018 and into 2019. 66 Airlines airline groups participating. IAG came out ranked number 1 in this report.
Here on the screen, we've shown a subset of the airlines that participated in this report. It's an external validation of what we at our at our core, believe we are driving for the industry, innovation and digital transformation. We've spoken to you a number of times around the 5 key transformations that IOG is focused on. Shop order used to be called Shop Order Pay now called Shopwater Settle data marketplaces, automation and digital mindset. And across each of those, we continue to be really, really encouraged by the early wins and the early value that we are generating.
So across all of these spaces, we are seeing these not just proof of concepts. We're seeing these actually starting to be implemented and generating real value for our shareholders and for each of our businesses. I'm going to focus in a little bit on the shop order set up and NDC to wrap this up on this last element of our sort of strategic priorities. NDC, we are incredibly strong supporters. We're on the leadership the IATA leadership airline group.
And what I'm really, really proud and happy to say is that in fourth quarter of this year, we will be certified at the highest level from my Arthur of NDC readiness. So certified for NDC at scale. Going to be able to deal with complex bookings and interactions through NDC, and we're going to be able to deal with them at volume. So that certification is coming and IAG through British Airways Biery is going to be at the forefront of driving NDC adoption. Over the last 12 months, we've seen and continue to be really encouraged by the adoption rate improvements of NDC in each of British Airways in Iberia.
In British Airways, we've seen a 3x increase in adoption of NDC bookings over the last 12 months in Iberia at 7 times. And we've already gone out there and been clear that we are going to continue to drive of the things that we're going to do to support that is, development of unique content via these digital channels and through NDC. Fourth quarter this year, we are going to be introducing more price points on our long haul. That is also going to include the North Atlantic. So 3 more price points being introduced in there through these channels only.
We're also bringing in exclusive handbag only fares, and we see this as being one of the key elements, differentiating the content through these channels is going to continue to drive we're excited about the improvements that we're going to see over the coming years. We believe this puts us on a fast track to a low cost and efficient digital distribution. And that's really, really critical as we move forward into the next business cycle. Our objectives in this space are threefold, and they're really, really clear. We want to drive increased revenue through enhanced retailing capability, owning that content and being able to use that through the NDC channels and digital channels will allow us to drive those revenue improvements.
Critically, again, as I said, having customer at the core of what we do, we need to be able to improve the customer experience. And through these digital channels, like NDC, we're going to be able to deal with disruption and better meet the customer needs. And then finally, and again, wrapped in with this cost efficiency element, we see NDC as being a key, key lever at helping drive efficiency and lower costs through our distribution channels. Bringing that together again, and before I hand over to Willie to talk about sustainability, we see it as a really, really compelling strategic investment case for IAG, across those we're building on our unique structure and across our 3 strategic priorities around portfolio of world class brands, strong leaderships and growing leadership positions and their costs and efficiency and innovation. We believe we've got an incredible base to build from, and we're excited and we hope you're excited about the opportunities that go forward to create value for our shareholders.
So sustainability, I think one of the biggest challenges we face in the industry today. The challenge actually faced by all industries, particularly industries that are carbon intensive, but probably even more so for aviation because in the short to medium term, we don't see an alternative to fossil based fuels. And that's why it's important for us. For every ton of kerosene we use, we generate 3.15 tons of CO2. And until we can see a sustainable alternative to that, it's clear that our gross emissions will grow as gross emissions of CO2 and other industries decline.
And therefore, the percentage of CO2 that the industry is responsible for will increase. And in an environment where people are focused more and more on the impacts climate change. That clearly is an area that we have to address. So individually and collectively at IAG, we're absolutely committed to sustainability. Now, our primary focus will be on the impact that our industry has on climate change, but obviously there are other areas like noise, waste management, supply chain that we will focus on.
So it's not just about climate change, but climate change. Is clearly one of the major issues that people are focused on today. Now we've got a great track record. And often this prizes people, but BA has been one of the leaders in relation to environmental targeting and efficiency for many, many years. In fact, when I joined BA in 2005, we were already participating voluntarily in the U.
K. Emissions trading scheme. And VA had to argue with the government to be allowed to be included in that. And if you remember, the Kyoto Protocol excluded international aviation, but actually it allowed for domestic aviation to be included. So on that basis, BAR RGUs that they should be allowed to participate.
And the reason they wanted to participate is they wanted to get experience of operating with an emissions trading scheme. And that has been very powerful in enabling us to convince others that this is the right way forward. And we have been at the forefront of the industry's drive to improve the environmental performance. And we are committed to continuing to take a leadership role in relation to that. So what are we doing?
Well, we're embedding sustainability into the operating company's business plans into the IAG activities. And that may sound a bit odd because as I said earlier, we've been doing this for some time. But I think the reality of it is our focus on sustainability in the the environment, while real and important, almost that outside of the day to day commercial activities of the airline. And what we see today is that there's often a clear conflict between some of the things we do that make commercial and financial sense and the things we should be doing from an environmental point of view. So more and more, we want to ensure that we test everything we do financially that is sustainable against environmental sustainability.
And this is causing us actually to challenge some of the traditional things that we've done. There's great example of this. Earlier this year, I think June, July of this year, Euro Control produced a paper It's called this is from the Aviation Intelligence Unit Think Paper, and you can get us online. And the subject was fuel tinkering. Economic benefits and environmental impacts.
And I'll just read you some of the conclusions because I think it highlights one of the challenges we face as an industry. As aviation is a highly competitive market, airlines must do everything possible to minimize their operating costs. In particular, tools have been developed for identifying the value of performing fuel tankering A practice whereby an aircraft carries more fuel than required for its splice in order to save costs. However, fuel tinkering is not without environmental consequences. As the more fuel the aircraft carries, the more fuel it burns and the more CO2 it admits.
Based on the elements of information available to this study, it was estimated that fuel tankering could result in a net saving of 1000000 per year for the airlines. However, it would generate 286,000 additional tons of fuel burnt and 901,000 tons of CO2 emissions at an ECAC level per year within Europe. This represents a substantial economic benefit and a significant environmental impact. And this is a classic dilemma that we face that for many years, driven by ensuring financial performance, we've done things that may not be sustainable on an environmental front. Now I understand actually Panorama are going to do a a program at some stage, which I'm sure will be fascinating and Grace, and we'll have darkened rooms and actors speaking.
But the reality of it is this is public domain. It's not a secret. Now off that 900,000 extra tons of CO2, we generate about 18,000 tons of that, about 2%. So we undertake time frame. Now we undertake time frame for a number of reasons.
In some cases, we do it for operational reasons where fuel uplift at some of the airports we go to is sporadic and their we have to ensure that we have sufficient fuel for the return journey. We do it in some cases for operational reasons to enable the turnaround of the aircraft in line with the time that's available. And in many cases, we do it for cost because the cost Rancho between airports can be very significant. The cost differential according to this study between the price of fuel at Heathrow and the price of fuel as Glasgow is 25 percent more expensive at Glasgow. So we have done and we continue to do tinkering today.
We're challenging that. We're asking ourselves whether this is sustainable. And whether we should be pricing in the environmental impact of that So some of the things that may absolute sense for us in the past may not on environmental grounds make sense. Indeed, some of the routes that we fly today make commercial sense, but may not make environmental sense. And this is going to be more of a challenge.
So therefore, we've got to embed these issues into the way we think about doing our business. And you can see what we're doing. We are looking at incentives, incentivizing management to ensure that we're not incentivizing the wrong behavior. Because clearly the financial saving would have incentivized us to do fuel tank cream. But maybe that's the wrong thing to do and the wrong issue to incentivize.
So we want to make sure that we have our incentives aligned to the right activities to ensure financial sustainability, but also to ensure environmental sustainability. We're going to be completely open about what it is we do more and more. We want to disclose more of our activities and more of it will ensure that this is measured and audited by leaders in the industry. And at a board level, we have the appropriate governance. So the board is fully engaged in relation to this.
The board is at Salupi aligned to the thinking of the management committee and the management committee aligned to what the board wants us to do in relation to this area. So we're embedded in the business. We'll measure it. We'll monitor it. We'll auditors and we'll ensure at all stages that we have the right governance to ensure that we are doing the right things.
So why is this important? I do not dispute the scientific evidence that CO2 is causing climate change. It's leading to warming and warming is leading to more extreme activities as it comes to climate. The Paris Accord, as you know, set out an objective to limit warming below 2%. But it also had an aspiration to limit it to 1.5 degrees sorry, not percent, 1.5 degrees.
And more and more in recent years, people have begun to say that that has now not got to be an aspiration. That's got to be the goal. That's got to be what it is to do. And as a result, we're seeing countries adopt net 0 by 2050. And we believe that that is appropriate.
So we don't dispute the science. We think the science in this area is absolutely clear. Some of the science in relation to the additional impact of aviation is still immature and further study needs to be done in relation to that. But when it comes to CO2, I think it's absolutely clear. Now why is this important from an aviation point of view?
Well, you might think, actually, it's not a big deal because if you look at the distribution of non made CO2 by various segments. Transport is responsible for 22%. And within that, aviation is responsible for 11% road transport to 74%. So when you look at Aviation in a global context, we're just over 2%. So for many years, the industry said, don't worry about us.
We're only a tiny proportion of this. We're only 2%. So focus on other areas. And within that 2%, you can see actually that 60% of it is generated through international activities and 40% domestic. And up that 40%, three quarters of that is by 5 countries, U.
S, China, India, Russia and Brazil. Both five countries account for 3 quarters of the domestic CO2 generated. U. S. Alone is 17%, over 17% of CO2 produced by the aviation industry is produced the U.
S. Domestic market. Now this is one of the problems that we face with the international accord that we have. Because Corsia only addresses the international aviation. It excludes this domestic aviation.
And quite honestly, it was one of the reasons why the U. S. Airline industry was able to sign up to Corcya because it excludes a lot of their activity. And that's why I've been very clear publicly in saying that I think Corcya is a good first step, but it needs to be developed upon. If the industry is to demonstrate that it has the credentials to be allowed to continue to grow into the future.
And this highlights part of the problem. So if you look in 2005, the aviation industry generated about 6.40 tons 1,000,000 tons of CO2. So it was 2.3 percent of total global CO2. In 2018, that was 918 1,000,000 tons. And you can see globally, we're seeing CO2 increase, but we're still around 2%.
2.3%, 2.4 sense. The problem is when but we forecast what would happen in 2050 and this is just focused on CO2 as other industries start to improve their performance and decarbonize, we still see our growth increasing. And we would go from about 98,000,000 tons in 2018 to 1.8, possibly 1,900,000,000 tons of CO2 in 2050. And that's why people are focused on us. So the in percentage terms, you could argue we're not a big problem.
The problem is in absolute terms, we're going to continue to grow as most other industries can actually reduce. So as economic activity continues to grow a lot of industries have been able to disconnect their growth from their CO2 performance. We still have a short to medium term requirement for fossil fuels. Now there is a lot that will happen between now and then and I'll cover some of those now as we go through the action plan. So you can see at a global level, we've had the Kyoto Protocol you've had the U.
K. Climate change act, you've seen the Paris Accord. So globally, a lot of focus on this area. And what have we been doing or what have we been faced? What have we faced additional taxes, the introduction of air passenger duty, which was introduced as an environmental tax, expanded doubles in 2006 because of environmental reasons, increased further until the government finally acknowledged because they couldn't continue to argue that they were doing this for environmental reasons, but it was introduced in environmental tax.
ETS was being introduced that came into effect, then 2013 to 2020, the current phase, we get about 34,000,000 tons of allowances or 34,000,000 allowances. It represents about 45% of the activity within the intra European area. So, we're paying for about 55% of our emissions today through the EU ETS. Scheme. In 2020, that will start reducing by 2.2% from 2021, 2.2% per annum.
The amount of free allowances we get. So more and more of our activity into Europe is going to be covered by the emissions trading scheme. But the emissions trading scheme is only flights within the EU originally designed to get with flights into and out of the EU, including international traffic But because of opposition by other global economies to what the EU was doing, the EU decided to pause that while IKEO looked at introducing a global scheme. And in 2016, IKEO introduced what they call Corsia carbon offsetting and reduction scheme for international aviation. So this is a scheme that will apply from 2020.
Initially on a voluntary basis, but a lot of countries have signed up, I think covering about 78% to 80% of international global emissions. So there is a lot of activity going on to ensure that this is efficient. But at the same time, what we see is more and more countries looking at taxation. Now, in our opinion, I'm happy to debate this with anybody. Taxation does nothing to improve environmental performance.
And I think there's lots of evidence demonstrate that with what's happened with road transports. We believe that the emissions trading scheme and carbon offsetting scheme is the right way forward because the money that goes into those schemes actually goes to improve environmental performance. Taxation, the money that goes into the government coffers, not a penny of that, not a penny of that goes to improving environmental performance. Now, we've argued for these taxes to be hypoticated, there's no government that's willing to do that. So if you're serious about improving the environmental performance, Then the emissions trading schemes and carbon offsetting schemes are the right way to do it because the money goes directly to improving the environmental performance of industries.
More and more, as I said, these taxes are beginning to appear. And we believe that this is something that excites government. So we have to demonstrate that we're serious about doing this. And this was one of the reasons why we have changed our approach to our commitments. Now UK Aviation signed up to a pathway that aligns to the global aviation And you can see here, in interest, this is, so, reference to 2010 What's interesting about this is the 2000 and 5 figures were actually higher than the 2010.
In 2000 and 5 from memory, the U. K. Aviation was responsible for about 37,500,000 tons of CO2. That fell in 2010 to 34. That was clearly as a result of the global financial crisis where international activity energy, some domestic aviation activity declined through that period.
But using 2010 as a reference, you can see what happens in U. K. Aviation if we do nothing. Just looking at the forecast demands, our emissions as an industry in the U. K.
Would significantly increase, completely unsustainable. Nobody is going to allow that to happen. So what are we doing? Well, there is a lot going on. You can see we're reducing the amounts of CO2 through more efficient operations.
More efficient ATC rootings. And there's a lot of activity going in behind that. We're improving as a result of aircraft that have come into service, replacement aircraft that will come into service in the future. The development of sustainable biofuels, and this is an area of BA has been very focused on. And when we look at sustainable biofuels, we're focused on waste to liquid.
And the reason for that is we can't have biofuels that's using lands that otherwise would have been used for the production of food. So to be truly sustainable, you have to be clear in terms of the feedstock that you're using and to ensure that you're not competing for other sources. So sustainable biofuels will be part of the solution in the longer which you can see the impact. It's not going to be enough to offset the increase in CO2 So to achieve what was the global target of a 50% reduction in net emissions, we have to have some form of a global market based measure. And what we're seeing here is that a continuation of the EU ETS and Corcya.
Now originally it was expected that once Corcya came into play in 2020, the EU ETS would be replaced We don't believe that that will happen. And in fact, I think this is a strong argument for the EU ETF scheme to continue beyond 2020 aligns with Coresia as well. So the industry had said, we can improve our performance through a number of measures. 20 through activities that we're taking we're undertaking internally, but also because we recognize that we're going to have to pay our way and therefore provide financial incentive to other industries to decarbonize. And that the net benefit of that for the world will be what you see here in the dotted blue line.
Our plan is slightly different. And this is something that we've developed recently. So you can see here, if we were to do nothing, our growth emissions in 2020, which will be about our latest forecast, 31,000,000 tons of CO2. In 2018, the most recent reported figures for IAG was 29,900,000 tons of CO2 gross 27,000,000 tons net, the difference being the our participation in the EU ETS. But if we did nothing, our gross emissions continue to grow.
That's unacceptable. That's unacceptable to us. The people working for us in the business don't want to be associated with this. This isn't just about addressing concerns externally. This is about addressing concerns internally as well.
We want people to be proud to work for us as an industry. We want them to be absolutely clear that we are committed to playing About 4% is from domestic activity, 20% in Europe, 76% of it is from international activity. Interestingly, you can see here that most of the industry's emissions, about 85% of the industry's emissions are from flights in excess of 1500 where there is no alternative. A lot of the debate today is about taking an alternative to aviation, but in many cases, there is no alternative. And in our case, 70 8 percent of our emissions are from flights in excess of 1500 kilometers.
An important point out, if you look at Iberia, for example, the average stage length of the Iberia domestic network is about 8 60 kilometers. But a flight from Madrid to Tenerife, which is part of that, is about 1800 kilometers. Now there isn't really an alternative to get from Madrid to Tenerife from Madrid to Las Palmas on the down to flight. There is a shift. I'm not going to be taking it.
But we've got to be realistic here. Yes, there are some of the activities we're engaged into where there is an alternative available and a more sustainable form of transport available. And as I said at the beginning, that's leading us to questions some of the activities we were doing. But a lot of it is activity driven where there isn't an alternative sensible or sustainable alternative available. So you can see the industry targets were to achieve a 50% reduction in net emissions by 2050.
Following discussions with the board in recent months, we've decided that it's time for us to demonstrate our leadership again and to recognize that the debates that led to a target of 50% reduction, which was back in 2000 and 9, 2010 is no longer relevant today. And that things have moved on. So we committed in the last month to a target of net 0 emissions by 2015. Now that's a big change. And we have a pathway to get there.
Not all of it is, completely aligned because I think we're going to have to improve on some of these targets. But we're looking at an achieving 1.7% efficiency on an annual basis up to 2020. In 2020, our grams of CO2 per passenger kilometer, which is the standard industry measure, we're targeting 87 In 2018, it was 91.5%. We're looking by 2025 to have that as 80. In fact, I think we can get it below 80 with some of the things we're looking at today.
So we'll be looking to improve that target, but these are the targets we have today. To achieve 22,000,000 tons net emissions by 2030. Realistically, I think we're going to have to target something in the range of 17 to 18 to have us on a clear path to getting to net 0 by 2050. So we have a pathway We know what it is we're going to do to achieve the targets that we've set. And we're going to challenge ourselves to improve on these targets.
To accelerate the performance of the business. And how are we going to do that? I'm going to do it through a number of measures. New aircraft 142 new aircrafts by 2023. I think the later chart I know somebody's going to add it up.
I think we have 100 and but it's close enough. 143. Now the A350 recently, we took a group of journalists to demonstrate the UBA club products, which you can see outside of the door for those of you who haven't seen us on a flight to Toronto. On the day of the flight, on the A350 1000 that we operated that day, which configured with 3 thirty one seats, which is, as you know, replacement aircraft for our Boeing 747400s, which has up to 3 thirty seven seats. So it's a like for like replacement.
The difference in fuel burn for the A350 compared to the 747 because I got our team to run 2 flight plans, same payloads, same flight plan, same conditions, exactly the same external factors. So the only difference here is the performance of one aircraft against the other. The A350 was 38% more efficient. It burnt 38% less fuel and therefore generated 38% less CO2 like for like. That's a huge improvement.
So we're investing in new aircrafts and these new aircrafts have significant fuel and environmental benefits over the aircraft that they're replacing. Now as you know, some people argue that we should have accelerated the replacement of the 747s a number of years ago. And we did look at that. Part of the problem was we didn't have an aircraft available to us that was a like for like replacement. So we have replaced some of them with the 777-300s E or a fantastic aircraft, but in our configuration, like for like, we have about 293 seats.
That would give us a saving of about 24%. So it is significant, but we took a decision to end not to invest all of our effort and money and capital into a very good aircraft when there was an even better aircraft coming along. And I think absolutely the right decision because to achieve the targets that we believe are important, getting the benefits from new aircraft like the A350-1000s and the Boeing 777 that we'll take later on. These are significantly better than the aircraft that they will replace. So that's going to be that's going to be parts of the solution.
We're investing in fuel efficiency software. So all the time looking to improve the operational performance. We're looking at innovation and you'll see outside some of the there's a couple of sands there with, activities that we're investing in, including carbon capture with Mosaic. I think fascinating opportunity for us. So we're looking at biofuels, sustainable biofuels.
We're looking at carbon capture. We will see the production of biofuels from 2024000000 or 14000000 liters a year very excited about that waste to liquid. It represents about a 70% reduction in CO2 over the life cycle of that. We factor in everything. We factor in the CO2 that generated by taking the feedstock to the plants to CO2 that will be generated in the plants.
So it's looking at every aspect of the production of this to compare CO2 from a ton of caries seen today to CO2 from a ton of this bio fuel in the future, about a 70% reduction. That's really exciting. And that can be scaled up, but there is a limit to how much that can do in the timeframe that we're talking about. And then as we've said, there has to be some form of financial incentive or in our case the financial costs. Because we're going to have to invest and we're going to have to spend money to improve our performance.
But equally, we're going to have to give money through these gains to incentivize other industries that do have more readily available alternative sources of energy. So you can see the pathway that we've identified to get us to net 0. 39% of us will come So if you like the existing technology with aircraft changes, 18% by 2050, we believe will come from the sustainable biofuels that we're investing in. The balance 43% will come through efficient offsetting and emission trading schemes, which will include voluntary offset and carbon capture technology. So I said, we have a credible pathway to get there.
We recognize that we're going to have to spend money. We recognize that this is money that the industry and cost that the industry is going to face. We look at it as a blended cost of fuel going forward. So therefore, the more we can do to reduce our fuel burn, the more we can do to become more efficient, the better it's going to be financially and environmentally. And as we said at the beginning, this event is being completely offset 40 tons of carbon offset.
We looked at how everybody was getting here. The mode of transport being used, CO2 being produced by everything. To see how much CO2 that this event was likely to produce. So you can see where I'm going. This is probably going to be the last a couple of markets day.
I'll talk to that, Doctor. Last time, but, so we have offset all of and we've done this through ecosphere who are here today as well. And what you're going to see then going forward is we're going to continue to lead the We were instrumental in the industry agreeing to the 50% net reduction by 2050. I led the debate within IATA. We've got the rest of the industry to sign up to that.
We're the first to invest in what we believe is a truly sustainable biofuel waste to liquids. And we're the 1st airline group in the world to commit to net 0 by 2050. And in future, That important chart that you saw at the beginning, which sets out the investment case, you're going to see it's going to be underpins by environmental sustainability. So it's not just that we're focused on our financial performance and doing everything that is right to make sure that we have a financially sustainable business We're going to do everything and integrate all of our thinking, all of our planning, all of our activity to ensure that all of this is underpins by an environmental sustainable business in the future.
Okay.
Thank you, Willie. So I'm not quite sure how to follow that really. So, so my name is John Gibbs. I'm the new CIO. I'm going to spend the next 30 minutes talking about digital and IT.
First part I'm going to just talk about is some reflection on since I've joined. Second one is about the creation of IAG Tech, which what he's already highlighted as one of the platforms of IAG. And we'll talk a little bit about technology. So I think really I'm going to start off by just talking a little bit about before I joined. And I think we've recognized we've had stability issues some cybersecurity challenges.
We're talking media actions. And I think actually, if you look at some of the actions we've taken, that presents a really good foundation for the business, for example, UPS and diesel generators in our existing data centers. I think also we continue to focus on stability in cyber and some of those reduced real foundations for us going forward. For example, we were creating new data centers, data integration projects. And as you were investing in cloud based services, So as I look forward, I think actually we've got a good foundation, which includes, of course, cybersecurity investment.
And also, we've been doing things around operational stability. For example, we've actually been doing things like replacing legacy infrastructure evergreening, patch up dates, etcetera. So a really good foundation when I joined. I think the second thing I would say is actually putting the role of the CIO on the management committee is really important and recognize the importance of digital IT to the future of the business. That's given me really good insight into the business.
For example, Logan, I participated in the 2 day strategy session recently where the management committee and the board actually thought about the future of the group And actually that allows me to, as a digital leader, to get ahead of the game, and of course, as you bring in technologies ahead of when the business needs it. I think the second thing actually is, I think organization struggled with the difference between digital and IT. Quite often there's a gap between the two organizations, quite often an overlap and even sometimes competition. So bringing them together actually allows us to leverage the power of both digital and IT as an organization and to really accelerate. And of course, that will build on the fact that we're already the leading airline group within the digital sphere.
As you, I'd like to acknowledge also some great support from the board and also the management committee and the operating companies that have joined And I've been really pleased with how people have allowed me to understand how the airline industry works, but also actually to understand the individual airlines within it. And a good example is recently I spent 2 days at Air Lingus on Thursday and Friday last week, and I gave me a great insight into, for example, Hanger Six. A maintenance of repair operation that existed there. I think the final point, but if I talk about since I joined is actually, I believe we've got the right level of resources. And I think we've got the right level of investment.
It's just about honing exactly what
it is we're going to be doing.
So what am I been doing? So I've been looking at the business, understanding the challenges that face the organization, I've actually been spending a lot of work with our existing programs, reenergizing them. And actually, I've introduced a new brand, IAG Tech, which you'll see a video of in a second. Going forward, actually what I'm actually looking at is actually how do we do our digital IT capabilities much more effectively look at our strategy and enterprise architecture, and I'll talk about those in a minute, a new way of working and a greater transparency. I would like to do now is move into introducing IAG Tech.
Okay.
So, just kind of highlight a few of the things that we talked about in there, if we think so, we've brought together our digital and IT together. And the beauty of that is actually we've got over 1000 experts within the organization currently working around the world. And as in the video said, 500 people already working on product and service development. And of course, we have a world class IT supply chain as well. So the key thing here is bringing those two things together and focusing on a single vision, which is around technology excellence.
You saw in the video what that looks like. And of course, we already recognized as market leaders in digital. And actually from an external perspective, that's what we want to become which is industry leaders. And of course, that's about challenging the norm and looking at creative ways of using digital and technology. We also want to make sure that we have a great customer service journey, and I'll talk about that in a second and also about the way that we operate in the most efficient and effective manner.
And finally, about empowering our employees and being trusted by our stakeholders. As I look forward, We decided that we needed a refreshed and common purpose. And you've seen that gain in the video around Shell, the value business performance and delighting the customers, etcetera. I think the importance here though is actually what we wanted to do is ensure that we bring digital and IT across the group and the power of our combined teams. And you can see here, we came up with a logo powered by IAG Tech.
The organizational structure we put in the new place in organization structure in place, CI obviously sitting within the management committee, And then actually, we're organizing ourselves in a more traditional way around research, which looks at the 5 year vision technology, obviously, obviously, looking in the short to medium term development programs, looking at how we build a new capability, operations and in cybersecurity. Willie talks about a hybrid model. And actually in the case of Digital IT, that's actually how we do this. So we have but 8% of the capability that we're leading across the platform, so across all of our brands. And that's where we get real synergies around our processes our applications, our data and our infrastructure.
And then we recognize that the businesses need the opportunity to invest in capability that you need to themselves. That's the point at which we have, opco CDIOs, who bring the same capability, but from an organization perspective. Then of course, we're supported by GBS in terms of our HR finance and purchasing systems. Of course, we need to have good governance and control over what we're doing. And that starts off with the board.
And I present regularly to the board issues like cybersecurity and our investment in technology. As part of the management committee, we get a weekly opportunity to discuss the progress we're making. Our plans. And more importantly, that gives me insight into where the businesses are heading. So as an example, most recently, we were looking at the operational plans for the businesses over the next 3 to 5 years.
And I can immediately see how digital and IT can actually help to transform the business and especially on things like the sustainability agenda. On the left hand side, what we're trying to do is get much more intimate with the businesses in terms of the technology that they need. So therefore, we have governance at an OpCo exec board level. Which allows us to ensure that our strategies are aligned to the business strategies and actually our technology strategies influencing the business strategy and plans as well. And we also, at the same time, look at our product project, operational infrastructure and cyber security and risk challenges.
On the right hand side, this is where I lead the governance of the digital and IT capability. Ensure actually that we've got a regular drumbeat of governance. And that, of course, starts with our strategy in enterprise architecture. So for those of you who are not aware of obviously, the strategy is about our 3 to 5 year vision of digital and IT across the business linked tightly with the business plans. The enterprise architecture actually defines our processes, our applications, our data and our technology, and you define that as they are today.
You define how they look in the future. You need to find that roadmap. And this is really the opportunity to get real synergies across the group example, common ways of working around customer engineering, overhaul, etcetera, etcetera. And looking at the business, I could see some massive opportunities there. And as I said earlier, the foundations that we've got from the activities that the team have been doing before I joined really provide that form.
An example of that being the hybrid cloud project, which has got the Amazon Web Services as part of it. In terms of portfolio and project reviews, This is actually checking on our project status and program status. And actually, as we've been doing that, we've been able to accelerate some of the projects and programs we've already got. And then in week 3, we get into our operational performance, so stability. And this is a real focus on the stability of our systems, availability of our systems and ensuring that we're learning from and outages we have doing root cause analysis and continually driving improvements.
And it's that, but as he allows us to invest in things like the, replacement of legacy systems and also doing evergreening and patching and that sort of things. The final week we do is actually look at it cyber, our strategy, our plans, and we'll be using the NIS framework, and I'll talk a little bit about that in a minute. A regular review of cyber issues and every single incident that we have and every single challenge we have, we do a very detailed root cause analysis we're looking continually to improve what we're doing. And then of course, we work very closely with our audits and risk colleagues ensure that any of the risks that we've got within the digital IT environment gets escalated up through the organization. And for no serious of those, we obviously go board and the audit committee there and review the states of everything we're doing.
The other thing we're doing is actually refreshing our operational governance this is really how we manage our supplies on a day to day basis. So I've already talked about 1000 digital professionals inside our organization. But the world class supply chain. We really need to get that world class supply chain working efficiently and effectively for us. And this is where actually we start to use the strategic relationships that I've got with our vendors like Microsoft and Cindy, the MD, of Microsoft in the U.
K. And then an operational level, making sure they're delivering what we've contracted desivor? So I think, as I said, we're bringing 1000 people together across the organization and they're under a common identity of OAG Tech. And actually, the development of those people is really important, and we're reducing the concept of guilt, which some of you might have heard of, but effectively, guilt is where you bring common practitioners together and you look at the way they work, you look at the tools they've got and the skills they've got. And you take best practice from across the business and you deploy it to the rest of the business.
And this chart really basically says, we'll have a number of different guilds and then different areas of the organization where best practice exists. We identify their best practice and we then roll it out with increasing levels of maturity across the business. And that allows us to track a maturity increasing maturity of our Digital IT organizations. Other things we're doing, we're refreshing our professional development framework, and we're linking that into, I am things like the British Computer Society. And we're also linking that into the equivalent of risk of use IT in our other markets.
We just announced the launch of our new IAG tech friendship and graduate program. And that's going to build on the existing programs that we're running for British Airways and other partners. And then coming back to looking for best practice, welling as an example, in Spain, have an academy, and that academy allows us to assess individuals and also to develop their skills and we're going to be rolling that out then much more widely. And I think actually in terms of the bottom, the normal stuff around coaching and mentoring of what good looks like, but actually starting to get rotation of people through the organization. Not just within the IAG tech teams, but between IAG tech and rest of the organization, but also with our suppliers as well.
I think the final thing and hopefully the video talked a little bit to this, but actually I'm trying to create an exciting place to work because actually technology is an exciting place to work. And IAG as a group is a really exciting place to work as well. So what we're trying to do is get that to mirror and Matt together. And actually also to attract talent is more than just about offering good jobs nowadays. We've got to introduce things that excitement beyond the job and actually getting involved in activities such as STEM where we encourage young adults into technology and charities and things like that is another way of attracting talent.
So the next bit of this the presentation is really just exploring a little bit about how technology is being used in the group already. So we talked about Hanger 51 already. Launching in 2016, it's 4th iteration. And we've just gone through this year with 7 categories and will you mention sustainability was one of those. 474 applicants this year from 52 different countries all coming together with their ideas.
We did a pitch day on 3rd September, which was my 2nd day joining the organization. An amazing event and very inspirational. From that, on the day, we chose 11 finalists. These are people we want to work with. As an example, there are 2 within the sustainability area that we're working with.
And interestingly, another 2 that we decided to go straight to collaboration with. 4 finalists actually came out with sustainability at the sustainability area. And where they are now is in a 10 week collaboration process which actually at the end of January will allow us to look at the demonstration and proof of concept of that technology. Now sometimes people turn around and say, Hanger 51, great ideas, but does it actually get into production? And the answer is absolutely.
And here are some of the proof of concepts we're already doing. And what I'm going to do now is just take you through some of the journeys and there you'll see some examples. Sorry. So anyway, so if I look at the journey and you have to forgive me because I'm new to the airline industry and new to IAG. So what I'll come up with here is planning and booking has to start.
And then as people are at home selling to prepare for their travel, preparing to travel, checking lounge and bookings, onboarding, sorry, onboarding in Fly. Arrivals in your destination. And then finally, carrying out the purpose of your trip and then rewarding loyalty, which Drew will talk about in a minute. And what you can see is new technologies throughout this journey. So if I talk about voice, as an example, a much more intuitive interactive way of engaging with the organization.
We already have Alexa and Google Assistant applications that allow people to get access to their boarding cards flight information and actually do check ins. And if people aren't comfortable yet with Alexa, as an example, and you saw Alexa on the video, You can use your smart TV apps. And this is where Iberia have got an application that allows you to do all sorts of things about your journey. And I think what's interesting is you quite obviously the frustration of selling for an airport with a bag that becomes oversized. And then of course, you're rushing around to try to get stuff moved around between your bags, etcetera.
We've got a augmented reality application on your iPhone, which allows you to look at your bag. It will put an augmented reality size around it, and you then know whether your bag is oversized or not, whether it means to check-in or not. I think that's great. That'll really help people who really are not sure about what they can in contact on board. As we go into the kind of the checking area, I think we're really leading the market around biometrics.
And as an example, again, with Iberia, facial recognition technology throughout the journey, allowing you to quickly easily check-in, drop your bags and board onto the slides. Back to sustainability around digital newspapers. So obviously, we're trying to get away from printed press. So now instead of actually taking printed press on board a plane, and a couple of the associated fuel and costs associated with that. So you can download digital press before you board and view the electronic versions.
Once you're on board, of course, we've got our Wi Fi service dot air, but also an e commerce platform that allows us provided ancillary services. And then as you get towards the end of your trip, then actually we've got mindset conversational AI where you're able to ask your iPhone questions, about the destination that you're going to, for example, where are the taxis and things like that. And this again is a really intuitive way of finding out information about the nation that you're at. And of course, that allows us to build on that platform going forward. So looking at the next bit of the journey.
So this is around our operation. So again, we've got planning control on the left, passenger service and airport, baggage services, RAM Management, departure flight, imply, sorry, arrivals and aircraft maintenance. And again, you can see some, some modem technologies being deployed across that. For example, so those of you that are blockchain, sharing reliable real time information with our fuel management people. In terms of Tokes, these are the devices that you see big wide tractors where people actually connect to the plane and push the plane back.
Actually, that takes a couple of months of training and it's expensive. And of course, there's an environmental issue with the diesels, etcetera. We replaced that with an electric while remote control tug takes 2 weeks to train, and actually is a much better thing environment. Saw the automated dolly in the video. That's now into the 2nd phase of piloting.
And this actually vehicle is actually moving around other vehicles in the airport. So it's around fuel trucks, catering, buses, etcetera. So a real autonomous vehicle example. Ultimately jetties. This allows us to speed up the boarding process and also minimize the damage to planes as a result of overzealous airport operators hitting the side of the plane.
And then as we get to the top, robotics in terms of baggage handling, not just facilitation, but loading the banks onto the planes. And then actually on the in the middle, using a combination of video and AI to spot foreign objects on the ramp so that we actually avoid damage to the plane as it arrives and as it departs. As you get into the middle, we're looking at paperless workflows. So removing and simplifying the process for the teams around the aircraft. And then within the operations area, providing real time information about where the planes are in the airport, what we're doing with them, and how they're doing in the flight.
I think the thing that I find most interesting is the one that you saw on the video, which is around machine vision and So what we're using here is a video to look at what's going on on the ramp and then artificial intelligence to identify the tasks and how long each task takes. And what that's allowing us to do is to fine tune the activity that goes on around it more important, it allows us to then come back here and say, if we could just speed this up with automatic technology from both the real autonomous technology, then actually we can really make that operation much more efficient and also safer for the people who work there. Of course, what we're trying to do is capture data all the way through this and then use advanced analytics to actually predict problems with the planes. So we can then use predictive maintenance on the planes to avoid the planes being grounded while taking too long to depart. And the final thing up on the top is, as I said about, going into the hangar, with Air Lingus and Amyloid repair and overhaul and maintenance, We're actually using growing technology to actually spot the aircraft damage.
Of course, what others avoid you needing to put staff holding around the plane or have people operating at height. So a much more safer inspection process.
I think the other thing we've done, of
course, with this sort of technology is try to look at it across the journey as a whole. And you saw how cargo were using that to do inventory management as part of the video. So it's not just about our customer journey, which is where we want to be world class. And it's not just about having the most efficient effective operation. It's also about supporting and empowering our employees here I was just giving a few examples of what we're doing with our individual groups of employees.
So on the left hand side, providing tools will give us much greater insight into our customer and allowing us to produce personalized services, especially as you get towards the the cabin crew. So if you bought a plane, as an example, with BA, then you if you're a regular flyer or you return recently, then actually we can talk about your previous journey. We can also talk about angle preferences, for example, around meals and stuff like that. And of course, bringing all that information together, then selling an ancillary services and actually tailoring the offerings to our customer. And the other benefit of that, of course, is the way they get into the loyalty program, actually then use the data that we're getting from there as well.
In terms of commercial teams, operation teams, A lot of this is about machine learning, artificial intelligence and bringing in the capability of the technology to help the business plan a much more efficient and effective operation. In terms of, for example, choosing what are the routes that we want to work for Brookfly? And actually, how do we maximize the revenue on those routes? And then through to ensuring that we've got the best mix of aircraft crew and pilots to deliver that service. In this area, as an example, we're replacing quite a lot of legacy systems with one system and actually bringing in an integrated solution.
In terms of engineering, another example of doing the right thing with enterprise architecture. So we're looking at the processes that each of the L used for their maintenance repair activity. We're looking at the different products they use. And how the data is being used. And as you're saying, there is an opportunity to have a single process, single system and a single set of data across all of the opcos And that actually will give us real insight and actually able to raise everybody up to the highest level and then everybody learn from each other.
So we're looking at how we do the repair and overhaul capabilities there. And again, as I said earlier about building on the foundations that have already been brought in place, we've already done quite a bit around both finance and HR common systems and modernizing the systems in that environment as well. We talked an example in the, OpEx lines about how data is being used. And this is just really a case study using Welling, as an example, over the last 2 years, to show how we've improved our maturity around the use of data. So what Wellington has done is identified, key areas that they want to analyze and use data to improve their business, for example, in commercial, customer and corporate.
And on the next chart, on the right hand side, they then basically said the increase in levels of maturity from intuitive type of reporting, so effectively things like back roads and that sort of stuff all the way through to prescriptive type of analytics, which actually help you make the right decisions and has the most advanced forms of AI and machine learning in there. And you can see in 2017, generally a low level of maturity, but some level of usage But just in 2 years, the lower maturity has moved dramatically within that business. And you can see the net impact is we've gone from 9 dashboards to 93 got over 3000 uses of data on a daily basis. And to enable that, what we've been doing is investing in data scientists we move from 20 data scientists to 77. And of course, we've created partnerships with Google, Gartner, and other people.
So it just gives you a bit of a sense of growing maturity within the business around the use of data insights and actually starting to use prescriptive analytics to drive the business. And that's sort of the story is being repeated across each of our operation companies. So just in terms of becoming trusted again, then actually, I think there are two areas that we're investing heavily in. One is around cybersecurity, and I talked about the NIS framework. And the NIS framework is actually a U.
S. Framework for cybersecurity. Talked about how do you identify, protect, detect, respond and recover from cybersecurity incidents. And we're following that framework, and we're also following the U. K.
Government's board advice and guidance as a framework as well and investing heavily in each of these five categories. And we're already talking about business continuity. So I mentioned the fact we were investing in UPS and generators in existing data centers. And of course, we're also investing in new data centers And we're also investing based on the migration and hybrid cloud projects. So again, great foundations for moving forward.
And actually, we also talked about, we want to be the best at what we do. So we've already talked about leading in the digital space as a independent study. What we want to do is actually be the best on just in digital, but also in terms of the IT internal delivery as well. So we came up with these 5 things that we value, which you saw in the video. And within each of these areas, we're driving improving programs from being innovative, not just externally using Hang Fifty 1, but innovative in exactly how we do things in every way of working.
In terms of being empowered, again, we're talking about refreshing the culture. Today, as we've done this presentation, My leadership team has been out doing the same to the E1000 internal IT professionals and digital professionals. And that's a really exciting thing. We've already created a real buzz around digital in 'nineteen. And that's really important because we need to be attracting great talent into the organization.
And therefore, there needs to be a buzz around around the IAG Tech. And in terms of our process and governance, actually, we've got some great governance, but we need to simplify and really empower employees so that actually they can find the right ways of working and become much more efficient and effective delivering technology. We're also investing in the tools for the digital and IT communities. We've already got some great tools on the environment, but we're also introducing things like ServiceNow to allow us to deliver better service to our employees and be much more responsive to incidents. For me, one of the most important things I can do is actually drive the professionalism of the organization up And I've thought about the professional development framework, and I've thought about alignment with British Converse ID and those sorts of things.
And actually here, what we want to be doing is recruiting new talent into the organization at all levels. And we've got some exciting individuals joining the organization over the next few weeks months. And similarly, actually, it's about getting the academy. And for me, the academy isn't just about developing IAG tech capability. It's actually about creating a digital first mindset across the whole of the organization.
And that's really important if we want to become a technology driven organization. I think, in terms of transparency, for me, this is actually about transparency into what's really going on in the earlier state. So we're putting real time monitoring across the environment so we can actually see and understand the problems and prevent outages rather than actually respond to outages. And what you'll see as a result of that is an increasing level of stability in our systems. And that includes, of course, modernizing those systems.
And the final thing is actually not about agile frameworks and agile methodologies. It's actually about agility as a whole. So the whole of the IAG tech community becoming much more agile in the way they work. And that includes moving to agile spaces. And again, I'll talk about best practice Well, Wellings, we've got some great examples of how you create agile workspaces.
We're going to continue to roll those out across the organization. But it's also about training ourselves in new ways of working out the dev set of models model. And we've already got 500 professionals operating in a dev ops model. This is really the stage of that journey, the introduction of security end to end teams who can deliver products and services really quickly. And if you think about shop order settle, that's really important as we go forward with those transformation journeys.
So my penultimate slide really is basically, I've shown you some aspects of Digital 'nineteen, but actually there's an awful lot more we can do and are going to be doing. The new vision and enterprise architecture will be completed in quarter 1 2020. So by the end of that, we will have a really good view of how Digital Ninety and technology as a whole will look across the United Group over the next 3 to 5 years. And that includes, of course, the opportunities, as I've said earlier, about where process, application, data and infrastructure synergies can exist. And that will allow us to then actually look at our investments and make sure that the investments we're doing are the right investments.
And the initial look that I've had is they look right. And this is about fine tuning the investments we're making as opposed to massive changes. I think there's thousands of areas across the business where digital and IT can actually really help the business. And actually, depending on how you look at it, we can either drive those through shareholder value, accelerating business performance, delighting our customers and enabling employees or protecting the business the portfolio management process we're introducing will ensure we get the optimum blend of that because all of those things are equally important. As we go forward, we'll be using much more of a robust portfolio management process to choose the right investments to maximize returns.
And in terms of our plans, some of the stuff that you've seen, I've already talked about through the journeys, but there's lots of other stuff we talked about NDC in the presentation earlier. But within a lot more on global loyalty platforms, which I'm sure Drew will mention in a minute, we've got a group HR platform that's currently rolling out. Revenue management investments, and also disruption management and poor capabilities like that. And we're also massively investing in our infrastructure as well. So Windows 10 is a really good example.
I think we're quite well advanced in our Windows 10 rollout Office 36 five movement to teams as a collaboration environment. So again, the foundations are there. This is really just about accelerating that deployment of that. So my final slide is actually just to kind of summarize those three areas. I think the first thing is we've recognized the challenges that we've had around Digital And IT.
I think we took the right actions at that time And actually, we've subsequently built the right foundational projects going forward. And again, I've talked about those. So I do now a really positive position to start with. The introduction of myself on the management committee recognizes the importance of Digital And IT to the organization going forward. And that really allows us to leverage the capabilities that we've got in both of those teams.
And as I said earlier, by bringing them together, we've eliminated the gaps and removed the overlaps and actually stop the competition that quite often exists within companies between Digital IT teams. And that's been really well received by, the teams. I think we do have a really clear journey. That journey has already been started. As I've talked about the foundations, I think those are the right things.
What we're actually looking at is how do we build on top of that? And I think the first thing is we do have the right level of funding So I'm not looking for more funding. I'm not looking for more resources. This is actually just about fine tuning where we deploy those resources and how we use investment funds. Portfolio management is a key part of all for that.
I'm hoping that actually you're really excited by IAG Tech. I certainly am. I think we came up with a great brand there. We involved our IT function in and digital function coming up with that name. And actually, the color of the green, actually, for me, actually the sustainability agenda that we've talked about because that's a topic that I'm really passionate about.
And with that, we've renewed our vision and really focusing on our common purpose as an organization. And we're coming up with, I think, 5 values, which I think will really accelerate the delivery of digital and IT across the environment. And I think the new structure will help bring clarity to people who work inside IAG Tech and those people who engage with us to deliver new capabilities. As I said, I think we're investing in the right foundations. Certainly, we've selected the right strategic tools.
For example, animal and web services one of the market leading cloud providers there. And we've put over the top of their services, cyber security layers, which actually will protect us going forward. I think we've got a really innovative team in Hanger 51. And by bringing that team together with the rest of the additional IT teams, we'll be able to really accelerate how we take the Hanger 51 ideas through the business. And I think the final point for me is actually, and it's an advertising play, I think, which is actually there's never been a more exciting time to be part of IAG Tech.
So thank you. Thank you, John.
Thanks very much, John, and good morning, everybody. My name is Drew Crawley. I know some of you, but for those of you who don't know me, I'm the CEO of Avios. So why am I going to be talking about IG law today? Well, when I arrived at Avios a couple of years ago, the role of Avios and the P and L that Avios has is simply to sell Avios to third parties and make MARG and drive cash into the business.
And I quickly realized that to do that, the value of the currency is actually not determined in an area which I'm responsible for. That led me to think that, on a loyalty approach, will be a better approach because the value of the currency is established inside the frequent flyer programs of the airlines. And the frequent flyer programs of the airlines are made better by using the data that is available in those airlines. And the technology that we use to make custom to allow customers to work with us in a seamless fashion is also part of that. So IAG loyalty isn't just about how we monetize the currency.
It's about how we drive share of wallet in the operating companies and the airlines using data really cleverly, making the journey for those customers seamless and then being able to go out with a currency which has huge value and sell that onto third parties, you can enrich our programs and drive cash into our business. So what have I been doing over the last couple of years? Well, the first thing is change in that operating model. That was the first driver under Took. Second area that we wanted to look at was how can we create a technology platform that makes what we want to do to customers easier to deliver.
And in addition to that, how can we create a technology platform that allows third parties to integrate effectively with us? We've got over 900 collection partners. 100 plus of those are big partners who have been integrated into our Ecosystem for a number of years. They use old technology, all of the integrations are bespoke, and they have batch processing techniques for giving us data it's a legacy set of partner integrations that we have. If we're to grow our business, we need to be out there and have technology that allows customers 3rd party collection partners to seamlessly integrate into our business.
So we spent a lot of time and money on developing a global loyalty platform that is fit for today and fit for growing our business and extending that collection partnership. The third area that we've been focusing on is all the while we've been doing all this internal stuff, it was important to continue to improve the programs in the airlines. So we'll be making incremental changes. I'm going to cover some of those off throughout this presentation. Fourth area is important because for us in IG, we believe if you are issuing a currency to loyalty customers to drive loyalty, it's important that they're able to use that currency.
So the concept a few years ago in some airlines may have been, well, let's issue a currency that's not that easy to use and then make money on the breakage. That is still a part of all loyalty companies models, but for us, the real value in loyalty is engaging customers and driving share of wallet through the airlines. And to do that, you shouldn't issue them with a currency they can't use. So utility is important and ubiquity where they can collect and redeem those points is important too. And that's a big focus on what we're doing at Avios.
Growing our partnerships on the back
of that, as I explained, will be
a lot easier when we get great programs. Use data effectively and have a great tech platform to integrate new partners. And finally, to do all that, we had to change quite a bit internally in terms of the management So all of my management team is new, and we've made changes throughout the whole of Avios to enable us to deliver what I'm going to be talking to you about today. This is the schematic of what we've changed. So if you look at the Avios rewards currency all around B2B partner management, that's what Avios used to do.
And now we added these 3 things on the right. So program design, how we can make programs more modern, how we can meet the needs of customers and gauge them better, by making those programs more flexible and giving more choice to customers, how we use the data that those customers throw off. There is a ton of data that gives us huge amounts of insights that we should be using in program design, and in the way that we're improving the way we interact with our customers. And finally, digital services I think the biggest area of improvement that we can make and we're making progress on this, but there's still some way to go. It's being able to interact with customers in a seamless fashion.
Customer digital journey that we have in order for people to use their Avios can be improved. If you think about the modern tech companies, the Amazon of this world, you make 2 or 3 presses with the thumb and you've got something on its way to you. It's not that easy to engage with Avios through the programs today. So that's a key area, and we've set up this digital services area to enable us to do that more seamlessly. As the center of excellence for loyalty and IG, we also think it's important to understand what's going on in the outside world.
We've put some themes that we found in the loyalty market. On this slide here. I'll just put out a few of them. Program design, what we're seeing is huge, huge trends in personalization and flexibility programs. So having a static program probably doesn't do it these days.
What we do know is that if you take away some of the milestones within the programs that people are targeting for, they get up customers get upset. So in any due design going forward, we're not going to go completely opaque going to have some transparency so the customers know what they're targeting for, but we're also going to have more personalization and dynamism. I'll pull out payments and loyalty converging as cash usage shrinks and card usage goes up, the opportunity for new products and services coupled with the fintech and open banking revolution that we're seeing in Europe flows off huge amounts of data opportunities and huge amounts of opportunities for us to work with and being integral to payment solutions. Come up to speak about that a bit later. Going around, obviously, we need to be on the devices that customers are on, and we also need to keep the customer's data safe and get them control over the that we have to it.
Top right, we've seen airlines spin out frequent flyer programs and the currencies and then bring them back in. We never thought that was a great idea. We think being integrated and close to the airlines is the thing, and that's what will drive more engagement in customers and higher value and share of wallet to the airlines. A quick canter through something that you probably know already. These are the schemes where the Avios currency passed.
BA and Iberia, relatively mature programs that we're modernizing over the course of the next few years, air club and dwelling club, relatively new and growing in membership on a daily basis. 1 of the observations about Welling Club, people were saying, well, is loyalty appropriate for the low cost segment because they just buy on don't they? I don't think that might have been what Javier thought as well at one point until I showed him that actually top 10 routes in dwelling 40% of the customers who fly on those are members of the welling club. Now that gives Javier 2 things. It means he didn't have to go out and acquire those customers, so he's saving money by not having to acquire those customers, but they come back more often and he drives higher share of wallet in that 40% on his top ten roots.
Probably more interesting and more importantly is the number of customers who come fly on dwelling from the other airlines using their avios to redeem on welling. That is a nice revenue stream for Javier now. And I'm sure he's terribly grateful to his other colleagues in Iberia in particular. The basic ingredients. I don't need to go through that actually in the interest of time.
Here are the number of customers that we're dealing with. For comp purposes, we use the number on the left. This is a number that you'll see from the hotel companies and other airlines. It's basically what we define this as the 3 year active. So these are the people who are in the program and haven't expired.
On the right hand side here, this is the interesting one. These are the super engaged customers. These are customers who are doing something within a year that are either collecting Avios or redeeming Avios with one of our partners. And they're the people who we are really keen on growing. Getting maximum engagement from these customers.
This number is important, but the $9,000,000 is more important. And to broaden the scope of our programs, being part of One World obviously gives our customers a better choice and portfolio of network to fly to earn and burn their Avios on. So that's what we've got at the top. We've also got a selection of partners collection partners where customers can add to their Avios balances by doing what they do in their daily lives with brands that they love. And finally, on the bottom, we have access to the vast majority of brands that any customer would want to collect obvious on through our estore portal.
And a shout out to Avios Hotels. Those of you who haven't aren't familiar with it, that's a white label on the Expedia platform. Which allows us to give 15 Navios per pound spent when you're buying hotels at competitive rates that you'd get elsewhere. It's It's a stunning product that we need to market more aggressively. So tell your friends about it.
Why largely matters to IAG? Well, this is just a little insight into some of the Avios numbers, and I'll come on to the broader loyalty play in a minute. But what I like about this is it shows that we've got decent growth outlook over the next 3 years. The trajectory looks good. We've got great issuance and good redemption.
This supports the fact that we want customers to use the Avios that we're we're putting out there. Obviously, the issuance is growing a bit faster than the redemption because the issuance you have to issue for people to redeem. So that will catch up over time. We're going to get tuition about $150,000,000,000 Avios by 2022, of which $110,000,000,000 will be redeeming in that same year. Now why is that important?
Because these metrics are 2 of the metrics they use to determine whether a program is healthy or not. So this looks like healthy growth from our perspective for our programs. But also importantly, from an obvious P and L perspective, it's rather interesting. Avios P and L has been growing strongly over the past few years around about 10% and that we see continuing to grow over the period. And it has 20% operating margin with very little capital requirement.
But the most important thing because the accounting is relatively complex on the P and L side, but the most important thing is the cash it throws off. Now this is not financial alchemy. This is not us taking cash from the airlines and exposing it on this chart. This is cash that's come in externally. And it's net cash.
So we've taken off the cost of the redemptions that we that our customers undertake outside the IAG system and also the cost of the overhead from Avios. So this is a net cash, and you can see by 2022, and look, the annual cash will have grown 50% compared to this year. And a good CAGR on that as well. And that really is the interesting point about the Avios P and L. Getting back to loyalty.
This is the loyalty cycle that we are passionate about. And these are the areas where we like to intervene using data to ensure that we are making this cycle go as fast as we possibly can. So people fly, in or any number of our airlines, when we enroll them into the program, once we enroll them into the program, we thank them for flying by issuing them with Avios. And then we turn the head with another intervention, which says, if you enjoy collecting out Vios and here are the reasons why you all enjoyed collecting out Vios, why don't you think about one of our more than our partners? Got plenty to choose from.
Generally, at this point, people pick up one of the credit card co brands that we have. And then they receive those Evios from that cobrand partner and then they've got a balance to use to redeem. And at the point of redemption, that is when the engagement level goes up another level. So to get this spinning is critically important for us to drive our loyalty business hard. This is one of the reasons why.
So on the left hand side, this is for those of you who are familiar, this is the entry level of the British Airways program, but it's the same in all of the programs. For a customer there is not in a program, they generate this amount of value. Once they're in the program at entry level, the flying margin that we can achieve to them is three times that of a customer who isn't in the program. And then when we turn their head and get them interested in collecting outside IAG, they become 5 times more valuable. These same customers, when they make a redemption, even if they're not collecting elsewhere, they become 5 times more valuable as well.
So you can see the reason why we want to get that cycle spinning. Now the right look at this slide is as a world of opportunity. 33% of our journeys are the percentage of customers who are members of our programs. I think that we can get that to 50% you think about what the hotels do, that's generally around 50% to 60%. Some of the retailers' programs target 70 plus percent.
So for us, I think 50% is a stretching target, and that's what we should be aiming for. On our top 10 routes across IG, the penetration is a bit bigger, 38% still room to grow. On the right hand side, it just gives you the I guess it's the fact that the loyalty customers generate high yielding fares or buying high yielding fares. So a good reason to do it. Now this is the bit about the external cash coming in.
This number has moved a few years ago, 47% of the Avios issued were from third parties outside the IAG network. So got over the 50% mark and we're going to continue to grow this through the 930 partners that we have. The vast majority of these alveos come through the Financial Services area where people are collecting on spend 1,000,000,000 worth of spends associated with the customers in our programs. And that's equivalent to charter in 20 per minute. And the beauty of it is that business comes back to IAG on our airplanes.
So 89,000,000,000 Avios are spent every year broadly on travel broadly on our AG Airlines. Which is 11,000,000 reward flights a year. A few years ago, that was 6,000,000. And the royalties per hour was around about 600,000,000. Sorry, 600 per hour.
And what's changed that is that we have allowed customers to use their avios to discount commercial fares. Previous to that, they were available on inventory that was allocated by the revenue management systems. There were guaranteed amounts of inventory and then It was dynamically added and taken away according to the Redman demand forecasts. But now what we have here is a product, which means that avios can use on every single fare across the whole of the IG network, which means there is never any time when customers cannot use their currency. And that's what's driven 22% growth in rewards seats since 2016.
This is an example of how that works out, and this is a flight to Edinburgh that we took in 2016. It happened to have 15 reward seats that were available, add the pay with Avios stability to discount using Avios, and you open up and 33% more customers end up being able to use their currency. In fact, that looks like the schematic doesn't quite match up with the 33%. So we'll change the schematic. Right.
This is the tech that I've been talking about. The fundamental of the foundation is where you hold the points because that is where you integrate and build out all of the products and services for customers. And we've been adopting a new platform called the Global Loyalty Platform. Air Lingus and Welling are all already on it and the plans put BA and Iberia into it. And what this will do is it will give us the foundation to improve the customer proposition across all the programs.
So to do things like when a BA customer is flying on dwelling, they will be able to use their BA avios points to pay for food on dwelling. They can't do that today. So this will enable a bunch of things which we think are right and the customers want to be delivered. On top of that, we've built a microservices layer with APIs, and that's the modern way that companies connect with each other. The APIs provide services that customers can integrate easily.
So when we go out and sign up a new third party or indeed replace the existing technology of current third parties, we'll be able to integrate much more cheaply and much more efficiently and much more quickly. Typically, in integration, you to take between 6 12 months and costs a decent sum of money. We're aiming for our integrations with new partners to take between 5 8 weeks. Using these API platforms and services. And we can also build our own products on the back of these APIs.
So these are examples of products that we've built The one on the one in the middle you may be familiar with. If you're not, I would encourage you to download it. There's a BA rewards app. That's the place to go if you want to collect and redeem your Avios. It's got stunning offers on there.
You can earn stupid amounts of Avios for doing what you would normally be doing, but doing it through that app. We're rewarding through that. On the right hand side is what we think we need to be doing, if we're to be perceived as a modern tech data company. Which is we've got a developer platform. So that enables developers and other companies to come and play in the Sandboxes that we've created here and look at how they might develop their own product propositions for their customers using our currency.
Under they're developing that product through the tech that already exists. It's not live, but when they decide that they like what they do they're doing and they see that the impact that can have, then they can to us when we do the commercials. So that's how modern companies work, and that's what we need to be doing. Data. We've put all the customer data onto an intelligent customer platform.
Onto which we apply artificial intelligence. And this gives us the opportunity to do a number of things. We can model out any changes to any of the programs and really predict how that will impact customers. We're able to look at optimizing the algorithms for the best price at the right time for the right occasion. So we won't be sending customers redemptions, which cost $100,000, obviously if their balance is only $70,000.
So these are the algorithms from labor taylor effectively the offers that we're giving to our customers. We're going to be able to put the customer in control of their personalization and be transparent about AI logic. And on the top, we can, again, tailor offers using that data, which are unique to that customer going forward. Here are a couple of examples of that. So if you've used our estore, which is the portal on which we have all these collection opportunities, We're able to take the data of how you behave and interacted with the brands on that estore and predict the brands that you might want to interact with going forward.
We're actually using the Netflix algorithm, the recommendation algorithm that Netflix use, which is open source and available to everyone. And we've got a 92% accuracy with customers when we send them this. Secondly, emails that we send Iberia customers to get them into the non air partner ecosystem, using the data to tailor what we often have seen a 34% uplift in collection on those non air partners. So it does work this stuff. In addition to that, we've been adding choice for our customers So our Nirvana is that any IAG product or service on any IAG platform you are able to earn and spend Avios on.
And we're about 80% of the way towards that journey. So Erlingus this year, we launched Pay with Avios, We've had to see some baggage to a number of the airlines. Upgrades of flights are obvious. We've been trialing upgrades on British Airways at the airport customers have wanted to use their upgrade. They're Aviosk to upgrade at the airport for a while.
Now we had a trial, which we're looking to extend I'm going to do that in Iberia as well. So lots of things going on to make IAG collect and spend Avios any which way you want to on all of our products and services. And then we've added more partners to meet more customer needs in different on different demand occasions. So a budget is in addition to our Carhart portfolio, which is maybe appropriate to one of the dwelling customer's Airbnb for our younger audiences as well and so on and so forth. We've also been experimenting with pricing and looking at what customers don't like about how they interact on redemptions.
One of the biggest insights was that they prefer to use less cash when they're coming up to make a reward flight. So our introductory, blue ribbon offering on short haul is £35 8000 Avios for a return trip. We recently tested 115,000 Avios across 100 destinations. And that now is going to be our stock standard offering because the it was super popular. As you can see, 65% of customers shows that.
That one was available. We're going to make that available as well. We're not going to take that away. But customers will have choice and be able to use many more avios and only a pound. It booked a tremendous amount of seats over a very short period of time.
With a 17% increase in booking. So we're doing things like this all the time. And this is, once we've tested and learned that we embed them and make them formal as part of our overall offering. And this enables us to do this. This is an example of what we could do.
But if you go to market, you have a proposition, which says you only have to expend 50p for a flight as long as you've got 7500 Avios. And if you want to add a seat, you can spend a bit more. And if you want to pay for food on board, you can spend a bit more. So the total cost would be this. I think that's interesting because if you're a family of 4 and you want to go to Amsterdam, and this is still available.
This was quoted on the 25th October, but I just checked on my phone before I stood up. You can still buy this. Or if you're not keen on that, you can buy this. So this one goes from Heathrow on British Airways. This one goes from Gatwick on a low cost carrier.
And this one is going
to cost you, what is it,
£3.25 88 This one for your family is £234,900 Avios. I like this one. And there are still eight seats available at this price on this flight. So I suggest you get booking. Finally, to enrich all of our programs and indeed to drive that cash flow that I presented earlier, growing our collection of partnerships outside IAG.
We've organized along the lines of 3 verticals, The first is Financial Services, which is the engine room, really, with plenty of opportunities I'm going to talk about in a minute. The second is retail. The real pubs of retail isn't to drive massive profitability, but it's to drive massive visibility. So on a day to day basis, we want Avios and the brands of IG in front of customers because infrequent flyers don't come across Avios or or some of our airline brands as often. So getting a day to day visibility of Avios and the programs is the job of retail.
On the right hand side, we have this for relevance because we think if you want to buy a flight, you might want to buy a hotel as well or a car hire. So these are the areas that we've organized around. And importantly, Financial Services is the land of biggest opportunity, I think. So on the left hand side, we've got the standard co brand carts, these are a staple of most of the big frequent flyer programs across the world. And these are very successful.
They work brilliantly the customers, customers love them. The MPS of customers you hold the card is higher than the MPS of customers who don't. They work brilliantly for us. We've just re signed with Chase. We did a great deal with an improved proposition for customers with Chase and we're just promoting that in the U.
S. Now. Amex has been around and a very longstanding relationship, which works well for us. But we've got headroom for growth here. The penetration of these co brand cards across our base is roundabout 19%, 20%.
I think there's a lot of headroom for growth here and it's good growth. So that's one area of focus improving in that area. The second area that we're looking at is a whole of bank. And so to understand what we mean by this, this is a it's becoming a much more competitive area in Europe, in particular, with open banking. You have the Neo Banks on the right hand side of this chart, nibbling at the heels of the large banks in the U.
K. And across Europe. And we think there's an opportunity to embed and either replace their existing loyalty programs or add to those loyalty programs. Across the whole of the banking portfolio. So you'd get rewarded for switching a current account.
You'd get rewarded for putting your salary into that current get rewarded for setting up direct debits and so on and so forth. And once you've got that current account nailed, then you can incentivize customers to renew their mortgage with you. And what we know is that the cost of acquisition of customers in some of these areas is huge. So if we can so there's a lot of margin available for us to go and collaborate with partners and ensure that they're saving money by not having to go and acquire new customers, but at the same time as us enriching our offer for our customers. A whole of bank is interesting.
Current account, mortgages, Wealth Management and so on. Sameer is a great market. It's growing market. It's one of the most robust markets that we deal with, even back in the financial crisis, this is the strongest growing market. So we think having a car for the SME markets, which they can add their Avios to their personal Avios, that's a delightful proposition small business owners.
We've just launched this. If you live in London, you may have seen some of the advertising, but pushing it really hard and it's gone down really well. On the right hand side, I think there's a huge opportunity here for new forms of payment. There are lots of products I can think of. I'm not going to divulge too many of them.
But if you think about account to account payments, that is a almost zero cost to the merchant. Which gives you room to create products and services that you can sell on top of that. I think it's an opportunity for the IAG Airlines as well. To look at account to account and push that. But I think most interestingly, there's an option for us to add loyalty and data products and services on top because there's a fair amount of margin in between what they pay today with the classic rails of Mastercard And Visa.
And there will be plenty of examples of that to bring out open. We're also looking to launch a prepaid offering We think there's a space in the market. If you look at the growth of cards, credit cards are growing, but debit cards are growing about three times faster than credit cards at the moment. That's a bit of the market that we're interested in. And the monos and the stylings and the N26s and so forth, they all started off with prepaid They managed to generate millions of customers.
They don't make money. We know how to make money. And indeed on that note, I think probably all of the neo have been knocking our door in the last 3 to 4 months because I think they're looking at how they can differentiate themselves from the pack So there are active discussions going on the right hand side. There are active discussions going on here. I'd love to be able to tell you about, but there are big banks in the U.
K. And Spain, which we'll probably talk to you about next year, very exciting conversations and a world of opportunity. Looking forward, and I'm pretty sure this is my last slide.
We're going to do a lot
of what I've been talking about we're going to continue to do. The bit in the middle, I think, which is interesting, is data and data and tech. We need to reframe Avios as a Dayton Tech company that knows about loyalty. And we're on that journey. We've recruited the right capabilities.
We've got the right foundations that we're putting in place. And importantly, what that will do when we're there, it will also give us optionality of how we manage our frequent flyer programs across IAG. Give us optionality to decide if we want a single program across the whole portfolio, we will have that choice. It's much like the hotels, the bomb boys and the Hilton Dollars and so forth. They've turned their loyalty propositions into a platform.
I think that should be an area of opportunity that we should be exploring going forward. We need to get the foundations in place, but we're not far away from that. So I think all in all, a very exciting time. For loyalty. Thank you for listening.
Thanks, right. We now have the second part of the day, but kicking off with the presentation from Steve Gunning, our CFO, on the financial investment case.
I'll just let a
few people get seated. Okay. I think we'll start. So, good morning. I hope you had a lot of coffee.
Think we're into slide 112 or something more already. And I think we've got another 40 slides to go just for me. And then Luis is going to give you some light relief So financial investment case, you've already seen this slide up, and Willie announced this to it. And it is a genuine way that we look at our business. But when we've been going through the business planning process this time around, it's been with a bit of a different mindset to the one that we've had last 2 or 3 years.
There is no two ways about it that the demand has softened. And you've seen it and I'll touch on it in a few moments. We have been trimming capacity as a consequence of that. So This time around as we've been doing the business plan, it's been very much with a different context that says we need to be more cautious and we need to see how to adapt the business in these softer environments. And the way I've been looking at it is like this, IG has built a very strong core, and I'll take you through some of the reasons I think we have built a very strong core as a business.
But we continue, we're not complacent. We continue to make changes to it and develop it and strengthen it. And I'll take you through some of those. But at the same time, as we're looking at a weaker environment and think also had a really interesting slide where you had lots of airline failures that have taken place. And there will be more.
Are we poised to exploit the opportunities if we get into choppier waters? And secondly, if it's really challenging, are we resilient enough ourselves? How resilient is our business, too. All with a view to all three of those prongs taking you to deliverable sustainable cash generation and sustainable growth. And so I'm going to use those five boxes as my five headings for this presentation.
Before I do that, I just want to sort of flag one other thing. New CFO in, bidding for all the 4 months we've looked to change some of the metrics. Willie, the MC and the board have been very supportive in that. One of the other things we've changed in this is based on a lot of conversations I've had with a lot of people in this room, there's been some sort of question marks about a 5 year business plan, really how well can you predict here as 4 and 5. And I think that's a I think it's a fair challenge, particularly in an environment, which is more volatile.
So we've come to the conclusion. Let's guide for 3 years rather than 5 years. And that's why the numbers that you'll see in here are 3 year numbers, not 5 year numbers, just so you're not surprised I will take you through some of the new metrics as we go along. So I'm going to take you through these five boxes. Let's get moving a strong core.
It's all right to look back, but just don't stare. So in terms of the business we have been growing very profitably since the inception of IAG in 2011. You can see that in this red line. We've continued to go from strength. 2012 was clearly a very difficult year for a number of factors, but beyond then, It's grown strongly and strongly.
And what's interesting is there seems to be a point in 2016 where the global airline industry seems to have pivoted down that we've continued to go William and I were debating earlier this week. What were the drivers of that? Was that the American carriers giving a lot of their cost savings back? Is it the fact that fuel pivoted again and started to go up again? I think there's a number of factors.
There's not just one, but it's interesting you see that divergence. If I look at the operating companies within IAG, you can see they're all strongly profitable, and you can see that their profit margins are some degree, converging, albeit with different business models and different operating platforms all of them strongly profitable and performing well. If we look at return on invested capital, We've had a huge focus on this. Willie talked about this earlier, so I won't overemphasize it, but we have been very focused on making our capital work for us and generating good returns. And we have some of the best returns in the industry.
And then at the same time, we've been strengthening our balance sheet. And as you can see, our leverage, this is pre IFRS 16. These are the good old days. Pre IFRS 16 you can see our leverage has come down from where it was even in 2015. So we've been strengthening our balance sheet as we've been going along.
And then this slide, which I think is really important, since 2015 when we started to, give dividends we have paid back to shareholders 1,000,000,000 of dividends. But what's more remarkable is three things. One is we paid 1,000,000,000 of euros of dividends and returns to shareholders. 2, we've delevered during that time as well. And thirdly, which is on the slide, we've made over 1,000,000,000 of payments for pension deficits.
All in that period from 2015 to 2019. That should give you some confidence that this business generates a lot of cash. It is a very cash generative business. I think sometimes we have lost it a little bet in all of the numbers and all of the metrics, but this is a cash generating machine very much so. That's box number 1 out of the way.
So let's talk about maintaining and strengthening the course. So we're not complacent. We don't think we've got there. We don't think we have the finished article There's a lot more to do. Let's talk about some of those things.
Now the first thing I want to talk about is capacity. And I've alluded to, we've done this business plan on a different backdrop, a different environment, it doesn't feel like the last few years. And as you know, in 2019, because you follow the business closely, we have been trimming capacities have gone through the year. We actually walked into Capital Markets Day last year with a mindset of 6.5% the growth. I think we wrote circa 6% in the Capital Markets Day, pieces of paper.
I think by the time we got to February, we're down to 5.9 now we're down to 4%. We have been trimming capacity, and we've been very candid that, quite frankly, Q1 of twenty nineteen, we put too much capacity in about point. But if we look forward, what are we going to do for 2020? And what we're guiding at the moment, we're going to grow capacity just over 3%. And that's not adjusting for strikes or leap years.
That's all in there. So a leap year is probably worth about 0.2 and the strikes probably would take you down to about 2.7%. But we're guiding at about 3% growth for next year. And as you look at that, you can see that all of our operating companies have moderated their growth. Level, that is a reduction on the level growth.
It's primarily just annualization of the routes that have been put in place and also one en route, which I think off the top of my head is all in Boston. With regards to Arlingus, what you're seeing there is the North Atlantic, the long haul business is flourishing and there will be significant capacity growth there. On the short haul, we will be raining back capacity. Actually short haul capacity in Erlingus will go negative. If you look at Iberia, it's going to be growing our capacity on L.
A. It will be growing our capacity on Tokyo. It will be growing some of our capacity to the islands. But otherwise, some a key area. Dwelling, no growth, no growth for next year.
We are seeing weakness. We've indicated that over investor calls over the last month or 2. And we think at this point, 0 growth is the right way to do it. We could put some moderate growth in, but it wouldn't be sustainable growth. And it needs to be sustainable And then in terms of BA, on that plus 3 percent, clearly, there's 0.7 relates to strike.
There's a chunk in there that's for densification. And then you've got the full year effecting of Islamabad, Mumbai and Pittsburgh coming through as well. So that's 2020, but what about the 3 year period? We're also moderating growth there. So last Capital Markets Day, we said we were going to grow our CAGR of 7.4% over these 3 years.
Now we would have given you a 5 year number, but that was the 3 year equivalent. We're dropping that four points. Which is a lot of a SK reduction to 3.4 percent CAGR growth, which means our business at the end of year 3 will be just over 13% smaller than we were anticipating when we did the Capital Markets Day last year. If that's capacity, let's go on to fleet plans. And I've gone around and had lost conversations with you.
And what some of the feedback I've got is, is there this big CapEx spike coming a few years, 5, 6 years down the road wanted to try and give you some visibility of what is happening with both long haul and short haul fleet deliveries. So let me explain this slide to you a little bit. This is the 3 year planning period that we're looking at at the moment. In there, I'm showing you the new aircraft deliveries that are both replacement and growth aircraft. And then to give you some more guidance, albeit we're only doing a 3 year business plan.
I wanted to give you more insight as to what's happening years 4 to 10. These are the replacement aircraft requirements we have in years 4 to 10. And really you can see I think three stories come out of this, if you have time to ponder it. And it's about replacing the 3 old generation aircraft fleets that have been the core of our business. The first one is the 747s.
We've been slowly getting out of the 747s, replacing them with A350s. We're going to be replacing them with some 7779xs as well. And we will be out 340600s in Iberia. We've begun to replace those also with A350900s. And based on our plans at the moment, we will have the last A340600 retired in 2025.
And that then leaves us the last big core fleet that will need to be replaced over time, which is the 777200s. We have 43 of those aircraft as we speak. And that process begins in 2020 when we get rid of the 3 A markets and replace those. And you can see these brown bars here are the replacement aircraft for the 777 200s. And by the time we get to the end of 2029, we'll only have 8 of the 777s left to replace.
And that's the story of our short haul fleet, both the 3 years and in years 4 to 10 on a replacement basis. We do the similar exercise for the short haul, rather than the long haul then really there's one really big story coming through on here, which is the replacement of the A319s and A320 CO family and bringing in either 7 37 MAXs or bringing in the A320neo family. So you can see us bringing in the, the Airbus aircraft there and then yet to be determined the mix between those coming forward in years 4 to 10. As you can see, that does ramp up with a peak at the moment of 2024. Now I need to put a health warning on this on this slide.
Because in that 2 17 aircraft in years 4 to 10, there's about 60 aircraft that are what we call an early accelerated replacement aircraft. We don't need to replace them at that point, but we think for the purposes of, unit costs, we think, for the purposes of being sustainable and environmentally right that there is a lot of argument for replacing those 62 aircraft early. But we have flexibility. So in some ways, we've probably shown the replacement profile in the sort of the worst case scenario. So that's short haul.
I thought I should mention the 7 37 MAX very quickly. In terms of strengthening and maintaining our core, the key point for me on the 7 37 MAX is In a world where you have a duopoly and you convert it into a monopoly because you don't deal with both on the short haul aircraft, that doesn't seem strategically to make sense. So one of the key factors for us in the 7 37 MAX is not only getting a good price but it's also making sure that the supply is being competed over both Airbus and Boeing. We are still working on this. We haven't reached definitive agreement yet, we will let you know when we do.
Not only are we replacing our aircraft and renewing the fleet, but we are doing a lot of reconfiguration of the fleet as well. And one of the areas that we know we've had to strengthen is our business class product in British Airways. And what this slide shows you is the embodiment plan of the long haul aircraft that Heathrow for BA. And as you can see, it ramps up. And when we get to the end of 2021, we'll be over 50% of the way through the embodiment of the new club world suite.
This is an enormous logistical exercise, and I don't think people quite get the gravity of it. I asked for analysis the other day. Over 7000 club vector seats that we're putting in. It's a huge number. So when people sort of say, well, can't you go quicker?
And And the board have asked us numerous times, can you not go quicker? And the reality is the critical path is the supply chain from from the seat manufacturers. When you think it's 7000 seats, you start to understand why it's quite a challenge. We're very excited about the product. It's getting great reviews and that it is work in progress and it will strengthen our business considerably.
Some people have in some interviews and some meetings I've had, some people have been concerned very much about but this is a for a breast product. So it's far less dense. Isn't that going to hit your profitability? Because, okay, the ingang seats old, but it is dense. So that's very nice, isn't it, from a profit perspective?
I don't know if you recall, but I think it was Sean and I and is now running our linguists. But when we were both in VA, we presented in 2016 the cabin reconfiguration program. And we took a holistic look at the long haul aircraft for British Airways. And to cover long story short, we said we needed to shrink first because the load factors didn't justify all of that capacity. We needed to grow club by using some of that space freed up in order to have a less dense club seats.
We needed to maximize Board's Club World. And we needed to densify the back of the cabin as well, go to tenor breast on the 777s because all of our competitors have already done it. And what's interesting is if you look at this 7 77200, that's what it used to look like. That's what it'll look like under the club world configuration. You see the smaller first.
You see the more space devoted to club world. It's the same size world traveler plus cabin and actually there's more seats in the economy. Overall, there's more seats in the new configuration than the old one. We were very comfortable when we went through this exercise that our cabin reconfiguration program was going to be profit enhancing, not profit negative. So all of this investment in fleet, what does it do to our fleet age?
Well, at the moment, we're at about 11.4 on our fleet age. It's going to it's peaking in 2019 with the investment we've put in place, it will be coming down and fairly quickly over time. This investment in fleet is hugely beneficial from a sustainability perspective, from a carbon's perspective, we are seeing significant fuel cost savings coming through in light of having these new generation aircraft coming through. So when we talk about costs in a minute, you'll see that coming through that our fuel unit costs are coming down as a consequence of this investment. So this brings us to the, possibly one of the most exciting slides of the day.
I hope you agree, which is the CapEx slide. I've been relishing the prospect of presenting this point some time. First, first point is we're going to guide you now gross CapEx not net CapEx. So when you look at, say, last year's Capital Markets Day deck, it'll show in the blue boxes, 2.6 1,000,000,000 per annum CapEx. That figure was a net CapEx figure.
What do I mean by a net CapEx figure? What I mean is When we had sale and leaseback transactions, we would reduce the CapEx number by the sale and leaseback proceeds. So when we typically turned around and said, we, we leased roughly fifty-fifty in terms of on balance sheet, off balance sheet on pre IFRS 16. Again, forgive me. But when we said we'd do that sort of fifty-fifty, you could basically double the net CapEx number to get a broad proxy as to what the gross cap figure was, which would be just over 1,000,000,000.
So in 2019, And that was for the 5 year period. In 2019, our gross CapEx will be broadly 1,000,000,000. Which is a relatively low year. When we then look at our 3 years in the business plan, you can see that our Our gross CapEx can be 4.2,4.35.75.7 looks particularly high. It's due to the aircraft types that are coming in also due to the PDP profiles that are coming through as well.
But that's the profile that we've got for the next 3 years. And The 84% is, say, in 2020 is the fleet element and the 16% is the non fleet element. So that will be things like IT, property and certain product investments. So gross CapEx, not net, The average for the 3 year period would be 4.7%. Of that 85%, which is fleet, which is the 1,000,000,000 here.
11% of it is for growth and 89% of it is for replacement. And then if you look at years 4 to 10, our replacement average CapEx is billion. I hope that's illuminating. There's stunned silences. So I'm not sure I was expecting applause, but So this is our CapEx profile.
I think that gives you more visibility than you've had before using gross numbers. One of the reasons I wanted to get away from the net CapEx numbers is because sometimes it might incentivize you to choose a certain type of financing because of the way it moves your net CapEx rather than for the right economic reasons. And what are the right economic reasons? When we look at how do we decide how to finance aircraft? We look at the type of aircraft.
We look at is it a niche aircraft? Is it a commodity aircraft? Long are we going to have it in the fleet for? What's the residual value risk attached to it? And we also look at the overall fleet flexibility.
We'll touch on this later. We need to have a proportion of our fleets on leases expiring every year. To give us the flexibility that says if we get into a downturn scenario, we can reduce capacity without any punitive costs. That flexibility is really important. So you have to make decisions to ensure that you have that fleet flexibility as well.
Once we've gone through that process, clearly the funding principles you'll be very conversant with in terms of minimizing the cost of capital, etcetera. And then we have a lot of different choices as to how we choose or what we choose in terms of funding the aircraft. What we've said in the past is we would broadly use a guidance of fifty-fifty. What we'll do going forward is try and look at it on a case by case basis using this kind of thinking to make sure we are optimizing the way we purchase. So let's bring your sales on to costs now.
Cost is part of our DNA driving costs down. You saw some charts earlier that we've we've had some good performance in the past. We'll have some good performance in the future. It's interesting running through these. Fuel and carbon costs are down.
We have assumed in here that not only do we have EU ETS costs, and I think we've assumed a ton of carbon, but we've also put coarser costs in here at about $17 a ton in 20.22 onwards. Our carbon costs double in this 3 year period, yet despite the doubling of the carbon costs, our actual few unit costs are going are going up. No surprise you're buying brand new aircraft and quite a lot of them. So what's been interesting as we've gone through business planning process, we find ourselves having far more conversations right now about the trade off between ownership costs and fuel unit costs. It's almost dragging you back to a world where you look at total unit costs rather than this divorcing of non fuel unit costs and fuel unit costs.
I think that's the way we'll end up going in future months and years. But you can see this trade off between fuel and non fuel there on the ownership. In terms of employer and supplier costs, I can't take you through all the initiatives. There are probably hundreds of in our business to drive these costs out across all of the operating companies. We continue to target and push the operating companies to achieve a 1% non fuel unit cost reduction.
We look like we'll get there on an adjusted basis in 2019. And I did deliberately say an adjusted basis, because internally, we do adjust and we do talk about adjusted non fuel unit cost And what I didn't mean by that, there are certain businesses that we have in the group that generate revenues and costs that really aren't ASK driven. So Iberia MRO, Iberia Handling, VA Holidays and some aspects of Avios. Have nothing to do with ASK growth. These are businesses generating 3rd party revenues.
So we want to strip those costs out when we're looking at the airline non fuel unit costs. That's why we look at an adjusted basis. But because we're focusing on that now, And we're being sort of more rigorous in that. I have looked at the definition that we've been using for the adjustment. And we've tightened it up and we've sharpened it up because very often when we were adjusting out those costs, we were using revenue as a proxy.
Which was being overdressed to us. So the way we've changed it and there's a detailed appendix, I'm not going to take you through all the details of now, but by all means send me an email. But we're we've been far more hair shared about this. So if we are going to focus on adjusted, it needs to be robust. And it's not as helpful to us as it was.
So cost reduction, huge part of the DNA, and we continue to push hard on it. So the next box, are we poised to exploit opportunities? This shows you what we've done in terms of mergers and acquisitions work since the inception of IAG. And what is a wonderful thing for us to be able to say is we've been very successful at this. We've been very judicious with what we've gone after.
We've been very judicious with the deals that we've done. They've all generated good value. They're all deals we can be proud of. You saw with Norwegian, we looked at it It didn't work for us. We walked away.
It's great to be able to see our Europa up at the end there. And Louis, I'm not going to steal his thunder. We'll talk to you about our Europa shortly. But lots has been done and as Alastair was saying earlier today, I suspect there's more opportunities coming because I think some airlines are going to struggle in this environment. Are we poised and ready to be able to respond and take those opportunities?
The quick answer is yes. Net debt to EBITDA, our leverage is low. It's at 1.3. We are using 1.8 as a proxy for investment grade would only go above 1.8 if it was a temporary thing and it made absolute sense. But generally, we will use that as a ceiling.
As you know, we're now investment grade as well. We are we have a very strong balance sheet. We have a strong cash position. If there are opportunities, we've got the ability to exploit those opportunities. So let's talk about the other side of the coin, which is, you know, let's say it's really challenging how how resilient are we in that situation.
Now last year, Enrique put up this slide, the scenarios. I'm not going to give you another scenario. That that scenario is credible enough. What I did want to do is try and give you, say, just a little bit more color and a little bit more reason to believe as it were. It's interesting in some of the investor meetings I've had in one investor meeting, they'd actually photocopied this and put it in front of Williamitec just talk us through this one.
People are really focused on this slide, but I think we've got to go a step further and someone says, what's the underlying reason to believe. One of the questions we get is, have you just written the crest of the market or have you really made struck or change in your business. Hence, if there was a downturn, would you be resilient to it? What I wanted to just do here is put up some of the huge restructuring things have been taking place in our business since its inception. Now just before we brought in BA mix fleet following the cabin crew industrial disputes.
That was a huge, step forward for us in terms of flexibility and new contracts. Clearly, we generated the synergies through the creation of IAG. In terms of Iberia, probably the best airline turnaround story that you could probably see going from losing 1000000 to making 500,000,000 profit 3 phases of that. The plan to transfer my Cion, plan to Fatura, my Spanish is great, and plan to Fatura too. Be working on that all day.
But huge changes, you know, in that first plan, which I'm not even going to try and say again, we cut out huge numbers of routes that were loss making. We took out an enormous number of staff. It was really a painful process. Wanda Futuro, which, Louis headed up, you know, a completely new strategy for the business, you know, not just commercial costs, network alliances and in Planafeturo2, going from, survival into moving towards excellence. There has been huge structural change in Iberia and you can see it in their numbers.
If you look at cargo, we've got out of long haul freighters. I know this because I was there at the time. I actually have a picture on my wall, which is an interview. It's a poster from a journal. Where Lufthansa are ridiculing us for getting out of the long haul freighters.
It says never has IAG spun defeat so effectively. And I remember the day it came out and I went to my management team and said, we've succeeded. They're talking about this now. But the cargo market's tough, I'm sure Lynn might get a question later about it. We're in a great place not having 4747 long haul freighters on our books right now.
That kind of structural change was right. Why could we do that? Because putting both the BA and the Iberia cargo business together gave us a big enough network that meant we didn't need to supplement it with freighters. IAG maintenance strategy has generated tens of 1,000,000 of savings, BA has done a restructuring program. And then on the pensions, and I'll show you a slide on that later.
We've made huge strides on the pensions. In terms of, for example, we can now pay 50% up in terms of dividends without any further recourse to the trustees whereas it was at 35%. The 450,000,000 we were paying a year was going to go out to 2027. It's now going to go out to sort of 2023, 2024. We're actually now coming into land on that program so much so one of the big negotiating items was we didn't want to overpay, so we wanted an over funding protection mechanism.
There has been huge structural change in our business. If I drill down a little bit further, if I look on the BA side, If you look at the amount of employees now who are on new, more flexible contracts than they were before rather than the old legacy contracts, you can see those percentages rising all of the time. If I look to Iberia, this sums up the Iberia transformation in two words. Head count down 19% ASK is up 14%. That is structural change.
Pensions, I was alluding to it a few moments ago. Now our payment commitments go up to 2023. Subject to court approval, which we're hoping to hear the outcome of next week. The the blue bars disappear as well. We no longer need to put additional money into apps.
And so as you can see, really coming to a land a landing point on pensions. So with that structural change in costs, let's talk about the sort of revenue and brand side of things. One of the benefits that we have in the downturn is we have diversified brands. They're working with different operating models. We've got full service carriers.
We've got value carriers. We've got low cost carriers. We're in a well diversified position if things were difficult. If I look at our geographical split of our revenue by point of sale, we're basically a 3rd UK a third rest of Europe, 20% North America, and the rest of the world is about 14%, 15%. We're very well diversified from a revenue perspective.
We've refreshed this slide from last Capital Markets Day to show you how also our revenue is diversified, looking at the industry sectors when we went into 2000 and 8, 2009, we were heavily exposed to the Financial And Banking Institutions. Where we've diversified away from that. It's now only 2.7%. You look at this and you sort of say, think one of the figures it would be good for us to get at some point is the premium leisure split, but if you look at this peak 48%, most of that's going to be leisure you look at the non deal premium of 20%, a chunk of that's going to be leisure as well. So there's a good split.
Over 50% of our revenue is leisure. It's true that leisure holds up better in a downturn than corporate and business. So let's turn to another area, which is fleet flexibility. Now we've traditionally given you those lovely line graphs with all the diversions that you can take for each year. I thought we'd make it even more simple this time around, which is where's our flexibility?
Our flexibility is if things were really difficult, We've got a lot of aircraft that are pretty heavily depreciated we could put on the ground and it wouldn't cost us to do so. There's not a fixed cost that we're going to have to compensate for. And that's particularly important for BA. It's particularly important at Heathrow because of the slot rules there. You wouldn't be putting short haul aircraft on the ground.
You'd be putting long haul aircraft on the ground. And so having a plethora of 747 still, and 7772s that are heavily depreciated gives us flexibility. On the other side, as I was touching on earlier, we have a number of leases expiring every single leases that we've assumed that we would renew, so these are the red bars, we could choose not to renew them. That would then give us flexibility in a different way, in a low cost way to take further ASKs out. That's why we think we've got resilience in our fleet, if things were particularly difficult.
Our liquidity remains strong. We have a treasury policy that we keep 20 percent of last 12 months' revenue as cash. In fact, as you can see, we've gone a bit above that in the last few years. So we think we are resilient if it gets tough and we think in relative terms we're very resilient compared to our competitors. We're on the final straight, if that's any consolation.
So last section, the 5th box, talk about the financial metrics and where we've got to with the plan. Before I give you the numbers, which you can seen in the slides anyway. I just want to talk about the metrics that we're using. Now the right, the operating margin, ASKs and EPS growth the same as before. It's this right hand side where we have made changes over and above going from 5 years to 3 years.
Firstly, we have, what's the nice way to say this? We are no longer going to use equity free cash flow. I think there were some flaws in the equity free cash flow number, not least of which it didn't include pension payments. So I don't think it was a good measure of the cash available for distribution, whether it's dividends or whether it's a share buyback or whatever. So we've jumped to the answer quite frankly.
We've gone to levered free cash flow. This is genuinely the amount of cash that's left over after after the CapEx, after the financing activities, it's the last run before you draw the total. So we've shown you in the appendix. My apologies. There's a slight stake in the appendix.
I don't know if any of you've noticed it, but we've corrected it online. But we're going to levered free cash flow. So we're giving you the answer quite frankly. Gross CapEx rather than net CapEx, I think I've, bored you sufficiently on that one already. If you go to levered free cash flow, then you have to have a constraint, a control on that because it is after raising debt, etcetera.
And I don't think you'd want us and we wouldn't want to be raising debt in order to pay dividends, etcetera. So we're very clear that we should have a leverage target or ceiling and I've touched on it already that we would stay below 1.8 net debt to EBITDA. Ratio and we would stay within the investment grade zone. That keeps constraint there. So that's the reason we've gone down that road.
Those are the metrics we're going to use going forward and the management committee and board have been very supportive with that. Where have the numbers got to? I'm pleased to say despite the fact that we've more than halved our ASK growth over this period. We still deliver a 15% return on invested capital. And I'm pleased also to say that our operating margin is still in the 12% to 15% range and most of the time in the top half of that range.
In terms of our SG growth, we've talked about that EPS growth just slightly down. We guided 12% plus before guiding 10%. But that's not a huge surprise given the fact that we've taken out so many ASKs. The levered free cash flow averaged 1,000,000,000, which is very, very healthy. Gross CapEx, we've talked about through the 4,700,000,000.
And then as I say, net debt to EBITDA up to 1.8 and keeping investment grade. I think it's been a good test for us. To say if we took out so much capacity with the numbers holed up, the numbers have held up when we've gone through the planning, exercise, which brings you to one last thought, which is what's our cash return to shareholders thinking? Now this is what we said. I think this is what we said at the half 2.
Our cash priorities are around organic growth then commitments are sustained dividend in organic growth. We're not making any new amounts on this today. We are having conversations with the board. We're having conversations with MC as to what is the right way forward for us. We think there's more flexibility than we've had in the past.
We think with the pensions, changes that enable us more flexibility to move cash out to the group. There is a possibility and an ability to maybe do something different going forward. That's something that we would revisit when we come to the full year results rather than right now. This slide I'm not going to talk to you, but we've provided you this guidance in the past, and we wanted to give you that guidance again. Those are the five boxes the narrative that we've gone through is we've built a strong core.
We're maintaining and strengthening it. We think we're poised to exploit opportunities. We think we are resilient and all with a view to delivering strong cash generation. And that's, the conclusion basically We've gone through this process, and we're pleased that we've managed to hold to our targets. And that's it from me.
I'll hand you over to Luis now. Talk about something far more interesting.
Okay. Good morning, everybody. I'm sure that you heard last Monday to Willie and Steve talking about this transaction. So I'm going to be brief. I think the first thing to say is that this operation fits perfectly in what Alastair said this morning.
You know that the strategy of the group is to have a portfolio of world class brands also to develop our positioning, our global positioning in the world and in our core markets and also to try to leverage our platform to try to improve our cost and also to be more effective. And if I have to group all the advantages of this operation. I would say that we can group in 3 topics: MaditHub, customers, and our people. If I start with Madit's hap, Madit's hap is weaker. That the major European hubs that we compete with them.
And we have a less flight We have less international destinations. We have less countries. And it's a hub that is oriented to the Atlantic but mainly to South Atlantic. And with that size, it's difficult to compete with the big ones. With this operation, we are going to have a 63 aircraft, long haul aircraft.
So we are going to be very similar to the 65 that KLM has. We are sure that we are going to develop a 360 degrees hub because we are going to from Asia to Latin America through Madrid is something that can be developed for sure. And one thing that is also important, will it set at the beginning that Madrid has capacity to grow? That's true for sure. But we are having now a problem in the peak times of the hub.
We are arriving to a limit there. When we will combine the 2 hubs structure between Rupa and Iberia, I'm sure that we can create a smoother half. And then it will reduce the peaks. We are going to develop even more the airport. Talking about the customers, I'm not going to cover these slides that this one, I'm going to cover this one.
That is a new one that you didn't see on Monday. First thing is to say that the Spanish international airport market will remain highly competitive. We can see here the market share by airline in international traffic. And we see that Ryanair even with this operation will have 20% of the market share. And IAG will move from 70% to 19%.
If we look to the domestic market, we need to take into consideration that in Spain, we have a lot of kilometers of ISP train. Spain is 1st country in Europe, in number of kilometers of highest pretrained and is the 3rd one in the world. So when we compare, when we see the domestic market, we need to take to take into consideration that mode of transport. So in the right hand side, you can see the domestic market share to from Madrid including the highest speed trend. And you see that even with this operation, highest speed trend will have 53% of the market and IAG will move from 26% to 37%.
If we only look to the domestic market share by airline in Spain, we will move from 52% to 66%. One important thing is the network. The combined network that we are going to generate is going to be a future opportunity for our customers. Combining the unique destinations that we fly in Iberia and the unique destinations that Erudopa has, We are going to have around 1000 O and D new O and Ds that we are going to serve with only one stop. So our customers, they are going to have more flexibility, better carriers and more services.
And also they are going to enjoy a modern fleet because we are going to have all the new fleets that Steve said before, we are now joining in Iberia, the 350s path. Also, we are going to have the 787 that incorporating in the fleet. And that will help also to the objectives of sustainability that will set before. We consider also that the dual brand strategy in Madrid is key in order to attend the different customer segments need that we have there. And finally, the IID platform will help us to provide more opportunities to our customers.
We are sure that we are going to reduce the cost structure and with that reduction, we will invest more in all the things related with the customer. For example, the VIP Launches or the connectivity of the aircraft, etcetera. Also, to be more efficient, costs will allow us to be more competitive in prices as we have been during the last year. And I think we have an opportunity also in the loyalty program that you said before. Combining the loyalty program, we are going to give much more opportunities to our customers, customers, sorry.
And finally, talking about our people, I think this is a huge opportunity for them. If we create something stronger, is something that is going to help to protect the employment. And I am sure that we are going to develop further opportunities for everybody working in the group. As we have seen also before, IAG has a track record of developing the investments that we have done during this year. Willing, linguists are examples of business that we have developed and now they are much bigger than when we started those operations.
And I am sure we are going to generate a lot of opportunities for our people. And one last thing is that after the announcement, the main unions and the main travel agencies, they have said that they are supporting this operation. And I think that piece because they say this in the same way we see. They see that this is good for Madrid has and then it's good for the economy. And also for tourism, it's good for all our customers and it's good also for all our employees.
Thank you. Now I'm going to hand over to
Okay. I'm not going to summarize everything you've heard today, but I hope you've got a flavor of what it is we've been saying for some time. We've clearly structured this group well. Make no secret to the fact that we learned from what others did well and what others did not so well. We've got the right structure.
We've got the right people. We've got a deep pool of talent. And where we want to, we can attract people into the business supplement the talent that we have. We're well prepared for anything that comes at us. We see a softening economic environment and therefore we're adjusting our growth plans.
We still see growth. That's an important point to make, but we're moderating our growth. And even in that environment, as You've seen from the presentation from Steve, we will be generating very significant amounts of cash to be able to ensure that our So our 3 year plan is robust. I think we've been very clear in terms of what it is we need to do. We're building on a very strong track record of performance.
We're pursuing further in organic growth, which is why we created IAG in the first place. We think the acquisition of Area Europa is going to be really exciting for IAG. Very important, as you've just heard from Luis, we think it's great for Spain. We think it's excellent for Madrid. This will move Madrid's into a position to be able to be a global hub rather than just a European hub.
So this is a good news story. We have to engage with various different groups, including the competition regulators, that activity is going to take place over the coming months and we hope to close this deal in the second half of next year. So a lot to look forward to in 2020 clearly some challenges ahead, but everything you've seen today should convince you that this is a business that is well positioned to take advantage of any of opportunity that comes our way. And more importantly, this is a business that's in an extremely well positioned particularly relative to our competitors to deal with any problems, any downturn, any challenges that might come our way in the future. So, Steve just want to join me up here.
I think Andrew is going to deal with the questions. We have some microphones The rest of the management committee are here. They're all going to be available to answer your questions. And we have couple of other people from IAG who may step in if their bosses can't answer the questions adequately, but I'm assuming they will. So I'll hand over to Andrew now, and then we'll take Q and A for about an hour, Andrew, or maybe?
Yes, we've got till 1:30, so about 50 minutes. Can I make just a maximum of two questions preferably just one?
Thank you very much. Carolina Doris from Morgan Stanley. I'll start please 2. One is very quick. On Avias, it's the 1,000,000 of free cash flow.
If that compared to the 1,000,000,000 of cash flows available for distribution, because that if it is my question is, this is around 25% of the group's free cash flow, how much can it grow? Can it be 30%, 40% or 25% is the maximum proportion of free cash flow that obvious can get? And my second question is will you also an interview where you said that within 2 years, you don't plan to be in your position. So I guess, have you started also succession plans?
Okay. Let let me deal with the second one first, Steve. I'm I'm Drew. So, I've I've been I foolishly, when I was much younger, said I would retire when I was 55. And then when I got towards 55, I realized that was a silly thing to do.
But having put it out there, it's clearly been an issue that a lot of people have asked me about over the last few years. 58 now. I think in fact, some people have written some articles saying I have retired. I haven't I'm still here. But I think to be fair to everybody and especially the board who have been incredibly supportive of me.
I have indicated that I'm clearly getting closer to retirement rather than further away from this. And the board has been working for some time as you would expect them to do on succession planning, not just for my role, but for all of the senior positions within the business. So, I still love what I do, but my intention is to be retired within the next 2 years. So when that point will come, it will be something that I have to discuss with the Chairman and the rest of the board. But yes, I'm going to keep her promise I'll be retired by the age of sixty, before I'm sixty.
So I'll be sixty the 25th October in 2 years' time and not intend to retire by then.
In terms of the free, it reminds me a bit of when I was running the cargo business, because I would show the cargo contribution and make it look like I'm generating all of the profit for the whole group. I think the reality to Drew's point is have your support that level of free cash flow undoubtedly is all of that free cash flow in the Avios business? No, it's not. Some of that's sitting in other parts the subsidiary. But I think at the heart of your question is, can the business grow more?
And Drew, I don't know whether you want to comment on whether What do you think the growth prospects are?
Drew, it's not to say, yes, it can.
I think. I think the growth prospects are very good. More surety though, the thing that will dial up or better generate more cash is the degree of penetration of frequent fliers we get into our business that 33 number. If you get that to 50, those plans that we have with that level of cash flow don't assume that we'll get to 50. So if we do get to 50% is the remote applying effects across the whole piece and so collection goes up, the attractiveness 2 third parties goes up.
And that's what drives that third party cash flow. So yeah, I think the answer is yes. I think We've got plans in place, which will grow that penetration. I would like to be able to do that faster. And, that's what we're planning on doing.
I think this is one of the important reasons why we've said in terms of how we're structured today and how we're structured into the future. I don't think businesses, particularly airlines fully appreciated the value that can be generated from frequent flyer programs, loyalty programs. A lot of the models were based on issuing points and then hoping people don't redeem them. What we've learned and particularly since Drew has taken over and the detailed analysis of the data is reinforcing the presentation that he gave you. The more engaged you can get your customers in this, the more value you can create.
And we're taking a fresh view on this. But to really exploit this, we need to move the whole culture in relation to loyalty away from where it's traditionally been within the airlines to a point that we can be more effective doing this centrally. And the reason I say that is because and this is no disrespect to people in the airline. Often, the decision making in relation to these loyalty programs has been at low levels within the business. Where they don't fully appreciate the financials associated with it.
And that was something that became clear to me when I joined VA. I don't think the people there really appreciated the value of the points. And I used to see a customer would write a letter to complain and we'd answer that by saying, here's some points. At the present time, here's error miles. Somebody would write a complimentary letter, we give them error miles.
And quite honestly, people just didn't value inside the business. They didn't value what they were doing. They didn't understand that this was money and that this money was something that could be absolutely capitalized on I think Drew and his team have been able to reinforce the real value that's in this. And we're really excited about it. As we said to fully exploit this, I think what we've got to do is recognize that we now have a center of excellence within Avios, a center of excellence within IAG Loyalty.
And that's why we're looking at changing the way we manage that program to ensure we can fully exploit the value of that we believe is there.
Hi, it's Rashiki from Barclays. My first question is on one of the very early slides you presented at the beginning around taking some of the processes that you do currently at the co level or in the hybrid kind of format towards more IAG group level. So I was just wondering, do you think that the team within IAG is well invested and obviously you've added in the CIO role and sounds like you've upgraded the Avios team. But is there more investment in people, whether it's senior management or bodies that's necessary at IAG group? And then my second question is just on sustainability.
I think it's very clear and it comes across well what the group is trying to do over the next kind of few years to help the environment. I wanted to ask a bit more about what support you think you need from the wider ecosystem. So maybe things like greater policy support in areas such as inner fuels or more support from infrastructure, what's else is required within the wider system to help airlines deliver what they're trying to deliver on topic of sustainability?
Yes. I think in relation to talent, I believe we have the talent within the business. But as Drew said, when he gave his presentation, He's changed the management team and he's changed the emphasis and the expertise. And I think one of the things we've realized is to do this properly, you need to have professionals, you need to have experts who understand it, particularly when it comes to data, data analytics, you've got to have the right tools, you've got to have the right infrastructure where you have to have the right people. And it's difficult to make the case that you can grow those people internally.
You've recruited somebody to do something completely different and you turn them into a world class data analyst. Our view is no. We believe that there is resources. There are resources that we will need to bring into the business. And that's the great thing about it.
We are a very attractive group to work for and we have no difficulty attracting people to join us. But yes, we think there will be a change in in some areas where we will need to bring further talent within the business. And on sustainability, there are things that could help us. And the only thing I would say and I don't normally say things positive politicians. Well, I think the message has landed here in the U.
K. We've got the government to acknowledge that support, financial support for the development of a sustainable aviation biofuel is important. Previously, there was financial support for sustainable biofuels for road transports. When in reality, there is a more credible alternative for road transport through electrification that isn't available to us. So, further support in the area of research and development, particularly where it pertains to sustainable biofuels.
I think is important in the short term, but we are making progress and we are landing the message. We're just going to make sure that the message around what our industry is doing and what we're doing within the industry is heard and understood by particularly by our customers. Because we need to make them feel comfortable about continuing to fly with us. And we believe they should be comfortable continuing to fly with us. But that's the story that needs to be told in a better way than maybe we've done in the past.
Hi, it's Andrew Lob from HSBC. Can I ask on a europa? As you look to a future combining a europa into the family and with the other Spanish brands, is it going to be a case that the network and fleet ends up being slightly smaller than it would otherwise bin as you consolidate the overlap between them? Or is it a case that it will grow faster as you might look to the example of Ellingus, which took off growth as you go forward. And then my second question would be around the industrial dispute that plays out at BA with the pilot.
I think if we look into the causes of it, there was a very hot based around profit sharing. And there seemed a lot of enthusiasm for profit sharing from the pilot group and that was obviously a debate What's your attitude, rather than getting necessarily into the weeds of the dispute specifically, which you shouldn't want to do anyway? I'm sure. What's your attitude towards embracing profit share or resisting it across the group or at the OpCos?
On Europa, I'm not going to say too much about Aeruropa. Other than to point to, as you've done yourself, Andrew, what it is we've done with Erlingus, where Erlingus had to what I would describe is an ambitious plan to grow, which as a standalone entity would have been risky. What we've done with Erlingus is not only have we supported what was for them an ambitious plan, but we've actually accelerated And we believe that that opportunity exists within Spain as well as strengthening the Madrid hub to make the hub more efficient and a genuine global hub in the same way as with Erlingus. What has facilitated the the very strong transatlantic growth in Erlingus is making Dublin a transatlantic hub. So there's a lot of work that we need to do in relation to where you're And clearly, we have stated that we need to rationalize the number of brands we're operating.
The recent, very clear, a dual brand strategy at the Madrid hub is an effective model for us. And we fully support that. And we think that right based on everything that we have seen so far. But clearly operating with the number of brands we have in that segment if the market doesn't make So there is work that we will do, and we'll share that with you. But our focus between now and closing this deal will be making sure that those other parties that are going to examine this are clear and understand what it is we're doing.
Alex is here. I'm going to let him comment a little bit about VA just so you get a flavor of where it is. But our attitude to profit here is very clear. We already engage in profit sharing. We have no issue with this.
The business has to be sustainable as I've said in the presentations on environmental grounds and on financial grounds. So we want people to be excited about working here and we want people to be excited about what it is we're doing in the future. But it's got to be done on a reasonable basis and it's got to be done on the basis of guaranteeing the sustainability. And I've always said that one of the greatest challenges that the airline industry has had is the boom to bust where we've been too short term focused on short term profitability rather than long term sustainable profitability. And that's what we want to do.
And I think that's what we've done very successfully. We want the best people working for us. We want them to be excited about working for us. We want them to be committed to serving our customers. We want them to be committed to going out of their way to make sure our customers are delighted with their thing we do.
And we believe that's the future for IAG. We've got a great story to tell. And it's an exciting group part of. And, I have no doubt that that's where we will get to. Alex, do you want to just comment briefly?
Yes, perhaps a very super short because I shouldn't be commenting whilst we are having discussions with ACAS via ACAS with the pilot union. I would only say that there's been progress has been made. And we're very hopeful that we will reach an agreement at some point. And I think Christmas is a good day to be looking forward to it. The progress has been made.
And again, lots of discussions taking place in the background at the moment.
Thank you. Neil Glenn from Credit Suisse. If I could also take 2. The first one with respect to your position with Qatar Airways, it's I guess it's nearly 5 years since they took the stake. They're obviously your largest shareholder.
And I can see positives and negatives that I'm interested in your view in terms of how they influence your strategic position going forward. I mean, on the negative side, they're obviously the largest non EU shareholder, which is a little bit of a question mark at the moment. And of course, their relationship with American also I presume prompt challenges in some areas Whereas I can also see opportunities in terms of potentially cooperating with some other Qatar Airways investments even in Italy. So I'm interested in terms of how you put those pieces together, whether it's working for you now and what the opportunity is in the future. And then tied to that, the non EU shareholding or share purchase block at the moment.
I presume it's an area of focus to ultimately get that removed interested in your thoughts on latest developments there? And is there any kind of timeline to think about?
Okay. On Qatar, they don't influence our strategic thinking at all. They're very supportive as shareholders, but we don't have any consultation with them in terms of where the business is going. The first I would have heard about the Area Europa acquisition was when we announced it publicly. So there are very good long term financial investors, I would say it.
Now just that interfere with the relationship between Qatar and American is fun. And I have a front row seat to it because I often get invited into sort of referee between Doug and Akbar, which is great fun. But I think what you've seen, which is very interesting, the investment by Delta in LatAm where Qatar is a 10% shareholder. And the impact that that has American's relationship with LATAM tells you that things have changed. And I think you're going to see a very different I would expect to see a different attitude from American towards Qatar as a result of that.
So the 3 big U. S. Carriers clearly align themselves led by Delta to oppose Qatar Airways, while at the same time, they were doing everything to support themselves. And so, I think you'll see a change in attitude there. But Qatar doesn't we don't consult with them on any of the strategic issues.
They're an investor. We give them information in the same way as we give every other investor. In relation to the non EU shareholding, I can just refer you back to what the Chairman said at the beginning. The restrictions that we have in place at the moment, we want to see removed. There is a lot of activity going on.
I'd love to be able to share it with you. But I don't think that would be constructive at this stage because clearly we need to have constructive dialogue with a number of relevant authorities. First. But there is a lot of activity going on behind the scenes. And we're confident that we will get to the right place Chris Haynes, our General Counsel would probably tell me now to stop talking at this point.
Maybe Chris is don't know if you want to say anything, but I don't know. He doesn't he just stares at me and reinforces his view that I should stop talking at this stage.
It's James Hollins from Exane BNP. Very you're blowing the final whistle willy soon. Good to see you're still addressing a man half of your age.
Given you're leaving
Actually, I've given you're leaving your debt to
me already. So my question
Sorry, this isn't a
stand up. My questions are for Javier and Luis. So for Luis actually, I don't want to sound sick But is there really much more you can do at Iberia? Clearly, some of that data on the ASKs versus staff cuts. I suppose more more directly, is there a plan to Fulturaultres?
And might that deliver, even more impressive performance for my beer? And then on to Javier and welling. Clearly, there's no growth next year, but I think the chart shows there is some growth over the next few years. I was wondering you could just run us through the sort of underlying performance, clearly, Barcelona is difficult. Some of the reach you're doing is difficult and really sort of the controllable performance in terms of cost in terms of I suppose Bartliner Outbound in particular.
Thanks.
Okay. Well, I'll consider it, I'll let Luis and Javier answer those questions. So I'm still in control here. Well, maybe Javier? Yes.
So if you want to come up here towards the front, while Luis just addresses the Diberia issues first. Can we see you go first?
I go first. Okay. Now talking about Iberia, you know that our transformation is is based on the plan to putulo. I plan to give precisely that, a future to the company. We have organized the plan in several phases The first one was more related with labor issues, productivity.
We saw before the reduction in headcount and the the productivity that we have achieved during this year. The second part was most based in suppliers. What we can do with platform of the group. And this 3rd phase of the Planet Futuro that we are developing right now is more ways in the digital transformation of the company innovations and all the things that we can do to reach the excellence. That is the name that we have given to this place.
So we are sure that even in this competitive environment that we have right now, As you know, some of the markets that we are flying like Argentina and others in South America are not in the best situation right now. Are pretty sure that with all the initiatives, we are putting together in a new plan, we are going to continue with this performance of the company over the last years. Okay. And the question of on well in
our growing next year and the reduced growth for the following years. I would say, well, first of all, that's something that we're seeing. So we are seeing our competitors also flexing down and being cautious in front of the sometimes challenges, ecosystems in some of the markets. And in particular, some of our bigger competitor in Spain, they have announced also that there will be no growing even flexing down like 1% in Spain. Having said that, it doesn't mean that we are not continue building leadership So a 0 growth doesn't mean that we are not let me put it away growing in some of our spots.
We are being cautious in some others, but we are growing in in some of the places where we feel that we can have a accretive, profit growth The other thing that we highlight is that the company is, I mean, we do have flexibility. I mean, we have proof this year that we are able to flex down capacity a very agile way. I think that we our fixed cost is not big. So we've been able to manage that without, let's say,
without so
bringing down also and stripping down the cost. And it doesn't mean that we don't have the ability also to place that up if we feel that we see good opportunities. And that's something that could happen eventually that we can see good opportunities in the market and then we can place up if that is the case.
Stephen Furlong from Davy. And just when you wanted to ask about brands, whether you alluded to it on the Euro europa comments, but can you actually have too many brands? I mean, there was Air France for, I accept they're coming from a different starting point, but kind of simplifying the number of brands they have. And then because you also talk about world's leading brands and you could have too many and perhaps it might be. Maybe just the other thing, what would be kind of keep you up at night in terms of anything that you see is kind of a negative thing that could happen just in terms of either too much regulation or issues with competition or authorities or anything in the industry going forward?
Thanks.
Thanks, Steven. Yes, I think our assessment is, yes, we could have many brands. And I don't think the situation that we see developing, if we're successful with Air Europa, which we believe we will be in Spain, we would then have Iberia, Iberia Express, Air Europa, Vueling And Level. And then we have Erlungus BA operate in there as well. So but if I look at just within Spain, 5 brands, I think that could lead to confusion.
Now There's good reason to have all of those at this stage, but I think that's historical. That's looking backwards. I think going forward, we see that that needs to be rationalized. So we're conscious of the fact that we need to have strong global brands that are well recognized positioned in the right segments of demand space, as you've seen from Malester's presentation. And we believe we can do that.
Too many of them I think is going to create some confusion. In terms of sleep, I tell you I sleep really well. And having seen the presentation and knowing what the team can do will do and are confident about doing it in the future. I really do believe that this is a business that's in a great position. I look at where we were, the transition to where we've got to today and what we can do in the future.
And it is exciting. I said this a couple of years ago that I thought this was going to be the most exciting period in aviation. And you look at all the challenges that we face in recent years. And we've come through those really strongly. When a lot of others have either fallen completely or have deteriorated in terms of their our performance has continued to improve.
Yes, we have some challenges, but I'm absolutely convinced with the talent we have in the business, with the structures we have, with the preparation that we've done, we're well positioned to deal with anything On the issue of the environment, I hope you get the clear and strong message. We are totally committed to doing what's right ensure we have the sustainable business. We've been doing a lot historically. We're going to do it even better. And we will get challenged.
That the Panorama program, I'm sure, will sound fantastic for some people. It's interesting. I was just looking BBC have a measure of efficiency that they use. They I think it is right. I think they do tons of CO2 per pound of revenue, and they're currently aiming to get to something 15, we're 10,000 times more efficient on that metric than the BBC.
Now, I don't think they're going to mention when they talk about tinkering. But we actually do a lot of things really, really well. And when you look at the metrics we are very efficient and we're getting more efficient. And not just us, I think the industry is very good. What we've got to do is make sure people understand that.
But more importantly, think as an industry, we've got to recognize that there's a hell of a lot more work we need to do to ensure that we can continue to do what we've done into the future. And some of the things we've done, including time frame, may not make sense from what I can see, I can be clear with you. It doesn't make sense from an environmental deal.
Damian Brewer, RBC. First, can I touch on Steve's presentation, in particular, laid out a path for the cash machine with the long term reduction in CapEx, long term reduction in pension payments? But as you think about the short term capital allocation, clearly your inorganic opportunities don't come on on a regular basis, but when they do, they potentially offer you that 15% return. And if we're in a softer environment, clearly there's more M and A opportunities potentially coming, How do you or how is the board starting to think of the trade off between the short term benefits of things like share buybacks and special dividends versus the long term return on preserving capitals. You've got the balance sheet to take potentially large opportunities when they come in a end of the day, 15% on investment is better than 0% on cash.
And then the second question, again, kind of coming to that, bond yields continue to be down as indications we might see further reductions. And yet, we're not really seeing reductions in the kind of prices you're paying for infrastructure. How can you actually sort of move that debate forward and make what you're paying, not just here at Heathrow, but in Spain and other facilities start to reflect the environment we live in.
Okay. Well, on the second one, I'll ask Sean to make a comment because we've actually seen some success in relation to that with Dublin. As you may know, the commission for aviation regulation in Ireland has just issued its final determination in relation to passenger charges for Dublin Airport, which is regulated. And that argument was made and made very well. Sean, do you want to Yes.
Well, thanksfully.
In relation to airport charge at the Dobson Airport, they've fallen to about $7.50 versus $9.18 today and probably the key driver down of the charges and the weighted average cost of capital. And it was 5.8% and the last determination is now down to 4.2%. I think that's the phenomenon that we see happening across airports more broadly. And we're ensuring that in regulated airports that we mandate that that efficiency gets passed through. And at the same time, we've seen the infrastructure actually being deemed to be affordable in that context.
So we're quite encouraged by that development.
So you're absolutely right to highlight us. And it's one of the areas that we're very much focused on because I think this is an area where airports in particular have done exceptionally well in the past and we need to see better regulations but I'm pleased to say I think we are seeing some evidence of that now. Steve, do you want to? Yes.
I'm slightly cautious in responding to that because as I touch on earlier, it's a debate that's ongoing within the business. But a couple of thoughts. One is in some ways the structure that we have at the moment in terms of cash return in terms of a sustainable dividend. And then if we deem that there's excess cash, then to do something with that gives you that flexibility. I think the 1.8 as I touched on would be the our typical ceiling, but if there was an opportunity meant temporarily that you needed to go above that, then we would consider that.
We went through some of those thought processes when we were looking at Norwegian. So it's an ongoing debate it's absolute fair observation and input. I think you're going to have to wait for the full year results before I give any more insights on that.
I think one thing we would say about consolidation is the best form of consolidation is when the week disappear. And we're seeing that here. And I think I'll just demonstrate in his presentation. In the past where weak airlines were able to convince somebody to acquire them. We're not seeing that anymore.
And we're very clear on that. I can assure you, we guess I don't know, Alastair would could tell you here are some of the names. I keep telling him, don't tell me because I'm not interested. But everybody's phoning, I'll start to say, we'd love you to acquire us. We can quickly look at these and say there's no sustainable future for these airlines.
Where we see those opportunities, we will pursue the we're not going to pursue weak airlines that can't demonstrate a sustainable path to achieving the targets that we have. So think you're right. There will be a lot of opportunity, but I think most of the opportunity that's going to come in the next couple of years will be weak inefficient subscale airlines disappearing and you won't see people standing by to try and invest in them to keep going. There may be some exceptions to that. I'll tell you, it's always an exception to the roof, but, we firmly believe that now is the time to stand back and let the week fail and let them disappear.
Savi Sykes from Raymond James. Just 2, maybe shorter questions. 1, on level, just you had some time to sand level here. You've seen a lot of kind of this long haul low cost model not work out at other carriers and just wanted to get your updated thoughts on levels future and how that's incorporated in the organization. And then the short question I had actually was on Erlingus.
The margin for Erlingus kind of in the target came down. I thought I was a little curious given how well Erlingus has been performing and just kind of wondering what was behind that.
Yes. I think I'll let Sean comment on that, but it has come down, but it's still at an exceptionally high level. So I think we did point out in terms of return on invested capital that's I think it's had a significant benefit from some very capital efficient aircraft that would need to be replaced with Sean.
Think, yes, the Erlinda's margins, I think, are still industry leading because we'll be in the 13% to 15% range and probably at the top quartile of the group. So I think operating margin is again very healthy. And we're committed to sustain it at that level. I think ROIC was 26% last year. I think some of that is probably a degree of a capital holiday on short haul in particular.
I think even with a re fleeting plan that would kick in over the next 5 years, we're in the range of 22%, 23% again, I think ROIC is, in very, very rude health. I think the other thing which is happening, of course, is we've been transforming from being more short to alter more long haul and we do see more sustainable returns and great performance from the long haul business. So I think by any measure, the earning metrics are in pretty good health, but ROIC is moderating to something which is again above average, but probably more representative sustainable through the cycle.
Fernando Candela is here. I'm not going to call on him to comment because he's only had the role of CEO at level for a very short period of time. But just to say what we have seen there is that we still believe in this business model. It is a model that is highly dependent on low cost and having the ability to stimulate new market through price. It has been performing in line with expectation in some markets, we were having an excellent performance from Barcelona to Buenos Aires until the currency was devalued.
So that has clearly impacted on the short term profitability because we were operating with about 70 point of sale from Argentina. So when you've seen the devaluation in the peso, that's clearly impacted on the that the when we translate that into euro profitability. And France was a little bit behind the competitive landscape in Paris was worse than we thought it would be and didn't shake out as fast as we thought wood, but that's happening now with the you've seen Eglazor has failed and XL has failed. They last a bit longer than we thought with our gum. Going back to what I said earlier, nobody's stepping in to recover them.
So they're out of the market. That rationalizes the capacity But what we were seeing in France, and I think it's supported by some of the things that Javier was seeing, the market wasn't being stimulated as much we had expected it through price. But I think that was specific to power. So in the main, we see the model working, but it's been challenged by short term issues that have impacted on currency in Argentina and by some capacity issues in France. But Fernando, I'm sure we'll be delighted to present at next Capital Markets, and I'll commit into doing that.
For future years as well under income.
Thanks. It's Sarah cost from UBS, no capital markets, they would be complete without the 3rd runway. So do you want to give a bit of an update in terms of kind of has there been a narrowing of views between where you stand and Heathrow? And then also just on the back end of the fleet program, if there was a third runway, how we should think about this. And then just secondly, just on level, I mean, you kind of showed on slide 151 current operating companies and some of the targets in terms of right margin.
You've given the capacity for level, but do you think we'll get to a stage where you show ROIC and margin for
a level? Thanks.
On the 3rd runway, Yes. I remain very clear that if it can be built in a cost effective manner, then it would be good. I have zero confidence that Heathrow can build us in a cost effective manner. I think all of the stuff we've heard recently about Virgin is complete Yes. The company you look at virgin, their profitability non exist and the balance sheet non existence.
And the idea is that they're going to be able to grow the business to sustain the slots that they say that they want. It just doesn't add up. Quite honestly, nothing in relation to the sort of own way adds up when you look at it on a cold analysis of the cost. So if it happens, I'd be surprised. I think the challenges are getting greater and greater.
It's absolutely clear that Heathrow as a company cannot build the 3rd run way anywhere close to the price guarantees that they've given. So they can't even get close to it. And the environmental challenges are much greater today than they have been. So I think we're looking at a situation where political support for us will be questionable, environmental support for us will be 0 and financial support for us, I think, is is extremely difficult and waning by the day. So, I had said fiftyfifty in the most recent interview I did I can't see the odds being any better than that and probably the on-site declining that Heathrow will be built.
I just heard one way will be built. If it is we're now I'm standing in the middle of the taxiway. You're sitting watching me being overtaken by an airplane, but it comes right through here. For this building will be gone, which will be another reason why we won't be holding capital markets. On level, yeah, I think, look, we believe we can get to the margins.
And if we can't, we'll be honest with you. And we say we've looked, we've tried, we've failed, and we'll stop it. But we remain committed and we remain convinced that there is a profitable segment that is not properly served at the moment. It is limited in terms of its size, but there is a profitable segment that we believe we can operate in and we can generate margins and achieve the targets that we've set for the other airlines in the group. If we can't, we won't do it.
Thanks. Jamie Robotham from Deutsche Bank. Two questions, one for Willie on sustainability and one for Steve on free cash. Willy, on sustainability, part 4 of the path to net 0 emissions by 2050 was a lot of the areas like Courcia, which are going to cost IAG. Do you take a sort of optimistic view at all on your customers footing any of the bill there by offsetting their own emissions or do you take a more bearish view that the costs will all lie with IAG?
And linked to that, you talked about having to do things differently. And it just struck me, we've heard a lot about loyalty today that things like 50 P fares to go to Amsterdam. And I know people will have done a lot of hard graft earning the Avios and required to go with it, but Fairs like that might strike people as slightly controversial in a world where we're trying to encourage less emissions. So do you think loyalty might have to change at all or Avios alongside sustainability? And then, Steve, on the free cash, obviously, the move to guiding on levered free cash flow is very welcome.
Just to make sure I've understood the point, when you guide to 1,000,000,000 on average, it would be a lot easier to get there if you did sell and lease back on all your aircraft versus on non So is the working assumption still fifty-fifty like it was before or has that changed? Thanks.
So on sustainability, we see some evidence of customers wanting to do this themselves. And in fact, it's clear that particularly with corporate travel, a number of our corporates are already doing I think when they see what we're doing, and I think this is where, again, we want better engagement with our corporate. So they can understand it. We've already done the offsetting. They don't need to do it.
Or if they want to do it, and in some cases, they do because they want to be able to report that they're doing it. Then we're not double counting. But there is definitely some appetite for that. But I think what's more important is that We accept responsibility for it and we start taking the measures to ensure that everybody is covered So looking forward, we believe that you've got a price carbon into everything you do. And the EUATS then get turn the carbon today is about per ton.
That's much higher than it was a few years ago. It's probably well, it will get higher still. And as Steve said, we're factoring that into our plan. So in everything we're doing, where pricing carbon in there. Carbon will be more expensive going forward.
It has to be. And therefore, we're looking at this in the context of just blending it into the oil price. And importantly, we've demonstrated it. You've seen the charts there. We were growing our profitability as the oil price was increasing.
So this is an industry that can be profitable in a high oil price and whether that's a blended oil carbon price environment. And that's why we're comfortable that we can do both. We can be financially sustainable and environmentally sustainable. You've asked a great question. Is there a disconnect between loyalty and what we're doing on sustainability?
I don't believe there is. Because what you've got to remember is that in many cases, what we're trying to do here is we're trying to fill the seats that otherwise would be empty. And That leads to the incremental cost of carriage in terms of incremental steel burn and incremental CO2. So if you take that's the flight I did to Toronto. The basic ways of that aircraft before we put the payload on board.
From memory, it was about 152 times. So we then have 39 tons of payloads. So you're actually burning fuel just to fly the aircraft empty. That with just the crew and the seats, you're burning fuel to do with us. The more seats you feel, the more efficient from an energy intensity point it is.
So I looked at it. We had 26 empty seats. The incremental fuel burn for those 26 seats would have come to about 410 kilos of fuel for the flights. And that would have translated into 50 kilograms of CO2 per passenger if all of those seats were filled. So, we're looking at it in terms of the incremental CO2 being produced.
And what we see there is there is there's no disconnect between what it is we're trying to do. And in many cases, as Drew pointed out, these points are being redeemed by people who are flying. It's just that they can now fly for a cheaper price because we're using park cash and avios. But even the fares that Drew was showing you there, it's looking at what's the incremental fuel burn associated with carrying those passengers given that the seats had they not done it were probably going to be empty. And you know what our seat factors are around, what, 86%, 87%.
So we still got a lot of empty seats on the aircraft. And that's where the industry has been criticized. That's where we were poor in the past. Do you think historically seat factors were in the 70s, low 70s in fact? So you're flying this aircraft around with a lot of empty seats because flying was the was only available to the privilege fuel, the rich.
It wasn't available to everybody. So we've got to be more and more efficient. And this is an opportunity for us to increase our seat factors to ensure that those seats don't go empty and that people can't look at their loyalty. And yes, recognizing that it does generate an incremental fuel burn and an incremental CO2 and ensuring that we then have in the east area that we pointed out, schemes that will offset that or where we're already paying for this so that we can wrap this altogether and make a coherent and consistent story around everything is, is that we're doing. And if we see a disconnect, then we'll address it.
But we don't see one in relation to this. And we have debated this one quite a bit and we will continue to debate it to ensure that we're doing things that are sensible.
On the free cash flow, a few thoughts on that. I didn't exercise to look at the does the financing shape look different in this plan versus last plan. It's broadly the same at the moment. So that should give you some comfort. I wanted to put the principles up there because I think we should making the right economic decisions.
Interestingly enough, one of the challenges with using net CapEx and then equity free cash flow the way that we defined in the past was it actually prejudiced against say things like JOLCOMES, etcetera. And so I wanted it to be a more level playing field across the board. So particularly if you've got a if you've got, I don't know, triples have 9x, I think that will be a sort of spine of the fleet for a long, long time. An aircraft like that, I want people to be thinking about should that be a JoltCo where we can be having this aircraft 20 plus years and we should be otherwise we shouldn't be buying them. The way we've structured those metrics now will make that an easier decision for a CFO or the Treasury team or myself.
So there's not a radical change underneath. I think it's better to have proper guiding principles Actually, I think it will create better decisions what we've done.
Hi.
Thank you. Marshall from Commerzbank. Two questions are very short. I mean, you still have multiple loyalty programs, probably the only airline group, which still has or runs multiple ones, what's the rash mill of particularly having a known fiberia and Linges and British Airways instead of having one which promotes the IAG brand as well. And the second one, particularly if you look at multiple brands in Madrid, how would you think that there would be a rationale to even put it on the long haul to kind of at least semi premium brands, if you would put also Air Europa and then kind of mix at least or closer to premium print.
And particularly if you want to also fly to other areas like Africa or Asia more, wouldn't it then be rational to have just one big hub brand?
Drew, do you want to deal with the? Yes, sure.
Single program. That's a topic that's come up. I think that there is no rationale to not have a single platform. And that's what we're in the middle of doing now. So we're moving all the tech from the disparate programs all into the same platform.
When we've done that, we have optionality to choose whether you want a single program or not. I think the big debate is what value do the brands in their home market bring that might be diluted down if it was called something different. So if you look at what the hotel companies have done, the bond lawyers, the Hilton Honors and IHG rewards, The difference between hotels and us is that we have a center of gravity where large numbers of customers are around our main hubs in our home markets. And that's where the value of the home airline brands really adds significant value. So if we are going to move to a single program, I think we need to work out the answer to that question about how you blend the brands into that program so that you don't lose out what is in in shorthand in the U.
K, people think of the BA exec club and you would lose that if you went to a single program, what could replace it that would be better? Does that make sense?
On the airline, thanks Drew, on the airline brands, we're very clear. All the research we've done, we've done quite a lot of research in this area tells us that a jewel brand strategy, the hub like Madrid is actually the most effective way forward, given that we see different demand spaces as Alastair presented. And we think you get greater clarity around what the brand stands for. We've seen in the past that take VA as an example and Alex has talked about this previously, trying to compete or be competitive and attractive in every segment just dilutes the value of the brand. You've got to be clear in terms of what your brand stands for, what your customer proposition is.
Then deliver consistently to that. And we think in a hub like Madrid, there is scope for a jewel brands, particularly with the the network as we see it developing going forward. So having 5 brands, we think that's too much but a dual brand, we think is absolutely right in the long haul segment. We will do a lot of research. That's the advantage in having some time here to assess the positioning of the brands and the performance of the brands before we decide on what it is we're going to do in terms of rationalizing brands it is clear to us that we will have to rationalize the number of brands that we have operating in the Spanish market.
So when we go forward but we've got time to address that.
Alex Paterson from Peel Hunt, 2 from me as well, please. Firstly, just on the fuel savings, clearly, you're investing in more fuel efficient fleet as are some of your, in fact, nearly all of your competitors and peers, do you expect to retain all of the same savings from that, or do you think they will be sharing with customers? And secondly, just regarding the dividend, looking at your levered free cash flow to the cost of your dividend is getting on for four times. You're looking at 10% or more earnings growth in the next few years. But your dividend was flat at the interim stage.
Should we think about dividend perhaps being flat in years where you're profits are flat or down and growing to match the earnings growth when you have upside.
So on the fuel savings, I think it's important to point out that, yes, our competitors are investing we're going to get a greater step change. So part of going back to what I said, because we took a conscious decision not to skip the generation, but to not commit fully to a generation of aircraft recognizing that there was another generation of aircraft that would be even more fuel efficient coming along. We'll get a bigger step change in the fuel saving than our competitors. History will tell you that some of this will definitely be passed on to the customer. But we believe that given the position that we're in, we will retain an element of fact that our competitors won't be able to retain.
And that's why I think there is a tailwind for us in relation to the fuel benefit as Steve presented in this charge. On the dividends, as Steve mentioned and he comment there as well. We're going to do a lot more work on this. We've had great engagement with the boards. We've had some very constructive dialogue that needs to continue because we have had some significant change as Steve said in his presentation with regard to the and that gives us greater flexibility going forward.
So the interim dividends was if you like under the old rules, I think going forward, we want to assess the situation under the new environment. And the new environment you've seen from Steve's presentation is different to where we've been in the past.
Nothing to add to that really. I would say to my it's a thing. It's a discussion that's ongoing. Gerald?
Jeff.
Thanks. Joel Ku from Liberum. Can I ask a few questions about alliances? In the past, you've been very clear about the value that joint ventures bring, but do alliances still have material value to you obviously there's been some disruption with LatAm looking to leave one world. And I think Paul is not necessarily peaceful within one world.
So what value they'd ring, do they still, are they still the future? And do you see any value in the strategy that Delta's suing in terms of investment in other airlines, XC stakes. And finally, can you remind us what the situation is with Aer Lingus and the transatlantic joint business? Is there has there been any progress there, please?
Okay. Alliance has I've been very clear I think alliances are a poor substitute for genuine M and A activity. But given some of the restrictions that apply in our industry, they exist. They're all about revenue synergies. Anybody who tells you that there's a cost benefit or any cost synergy, they're misleading you.
So yes, there is a role to play. I think if there was an alternative, people will pursue it. I think the structure of the alliances have always said the structure is fragile, and we have seen people leave one and join another. So that's going to continue. But there is a role for them to play in the current environment and I expect that to continue.
But will it change? I've absolutely no doubt that it will. And I don't think LatAm leaving One World is the end of that. Do I give some credit to Delta. We took about this before and I've often debated this with investors.
If we see that we can generate strategic value by taking a minority stake in another airline, then we would have to consider it. We're taking a minority stake without having some form of control or some influence over what the airline is going to do has no value whatsoever because you may as well do that. So you can you can invest if you want to. The idea that I would pay a premium to invest on your behalf and get nothing in relation to control back for that premium just doesn't make sense. So it delta can genuinely exercise control through their minority investments.
Then I think that is a sensible way forward. Now they've done that in relation to Virgin, but it's a minority investment on paper only. As everybody knows, it's actually they control the airline, but they effectively own it as well. They've done so, pretty well with Aeromexico. I wait to see what influence they will exert over LatAm with the 20 and state given some of the other investors there as well.
So I give them credit because I think they do deserve credit for some of the things they do. But we only see that making sense where you get an element of control. If you can't get a controller influenced, then you're like Etihad. You think you have control, they take your money, they spend us, and then they tell you to get lost. And we're not going to do that.
On Erlingus, the process is ongoing. So we're working with the U. S. Authorities. So as you know, with no control over the timing that, but we continue to work with the regulators to seek approval to bring Erlingus into the joint transatlantic joint business.
Okay. Last question.
From ODDO. So my question is around the short term maybe Q4 and Q1. Just wondering in the context of given the uncertainties, again, around the Brexit, nuclear timetable and ongoing election, how you are doing today in managing the change in demand dynamics and what are the action implemented in order to regard to your pricing? Thank you.
So in relation to I didn't quite hear you put in relation to Brexit. Look, we're digging into our figures all the time to seek and we identify Brexit impact in anything that we're and quite honestly returns. Now, I know some of our competitors have said they see a Brexit impact. We genuinely cannot see anything that we can directly relate to Brexit So the one thing that I think is directly related to Brexit is U. K.
GDP. And you've seen the forecast for next year depending on who you listen to is a bit softer, still growing, but U. K. GDP growth. And ultimately, we do see UK GDP impacting on everybody.
But what's important to highlight and I think is different for us is we're really more dependent on London and the London economy rather than the U. K. Economy. And I think that's why some of our competitors have seen an impact that we haven't seen as they're more exposed to the rest of the UK outside of London. And the London economy is a different economy to the UK economy in general.
So, we're not seeing any impacts. We can't identify any negatives in any trends customer behavior, corporate behavior, everything that we're witnessing at the moment is in line with what we would expect it to be and nothing that we can associate directly with the Brexit. So given that we've gone through quite a period of uncertainty in relation to Brexit, we don't see that changing going forward. And the political environment is the political environment. We just get on and run the business.
And we adapt and we continue to improve regardless of who's out there challenging us. So we're confident that If you like the worst of Brexit we've seen already and the uncertainty associated with it is embedded in the business, but we can't see anything that we can say this is impacting on our bookings because there's nothing there. So, nothing in the 4th quarter as we said when we did the 3rd quarter results. I think that's it because I know there's food, lunch available for you and the carbon associated with that been factored into off setting. Can I just thank you again?
Appreciate so many of you coming along to hear what it is we've had to say. Obviously a lot of information that's been made available to you and I know those of you who want to follow-up on that will contact Andrew and the team over the coming weeks. And we look forward to talking to you when we release our full year results in think the end of February. Thank you very much.