Hi. Good morning, everybody. Welcome to this result presentation. I want to share with you that the board of director of IAG is extremely happy with the way the management is performing and managing the company. Once more, we're happy to share with you very good result. We are one of the fewer airlines worldwide to report an improved operating margin compared to one year ago. We are glad to present to you the highest operating margin from European airlines. As far as the dividends is concerned, the AGM in shareholders approving unit, our AGM, a final dividend of EUR 0.165 in respect to 2018. This makes a total of EUR 0.31 for last year, which is a 15% higher. In addition, the AGM approved as well the payment of special dividend of EUR 700 million, equivalent to EUR 0.35 per share, paid in early July.
As far as the board is concerned, we're pleased to announce the election of three new board member at the AGM. Steve Gunning as the CFO, who's going to be presenting to you today. Margaret Ewing, and Javier Ferrán. I'm happy to welcome the senior independent director of the board, Alberto Terol, which is joining us today. I hand over to Willie.
Thank you, Chairman. Good morning, everybody. Very pleased you could join us this morning for another good set of results. We continue to do what we promise. We're strengthening the platform. You can see evidence of that, and we'll see more when Steve takes you through the financial performance. LEVEL has continued to expand its business out of Barcelona. We've now opened the Amsterdam base as well. You're now seeing more tangible evidence of the investment that British Airways is making in new products. In addition to the new Club lounge at JFK in San Francisco, the first of the Airbus A350-1000 aircraft has been delivered. That's fitted with the new Club World suite. I think a number of you have been able to see that. We're seeing strong performance on NPS, particularly at British Airways and Vueling.
I'll take you through some of those issues later on in the presentation. When we look to growth, we're growing the business, I believe, in a very sensible manner. 3.4% growth on the North Atlantic, principally coming from investing in the strong network that we have, but expanding the network as well at British Airways to places like Charleston and Pittsburgh. LEVEL out of Barcelona to New York, the Aer Lingus transatlantic performance continues to be very strong, having launched Minneapolis just recently. Unfortunately, because of ongoing delays with Airbus A321s from the Hamburg facility, which clearly has been unacceptable, we've had to postpone the launch of Montreal from Dublin until summer of next year. LEVEL is also expanding our network into Latin America with the start of Barcelona-Santiago.
When we look at the growth on Latin America and LACAR Caribbean region, it's important to point out that some of that is actually into the Caribbean through the BA additional seating on the 777-200s that are operating from Gatwick. Europe for us has been good. Very strong performance on our domestic network. We are slowing growth in Vueling through the peak summer to reflect the difficult ATC environment, which we anticipated. That is having a positive impact both in terms of NPS, but equally, you'll see that it's offsetting some of the EU261 compensation costs that we would have seen, and we're investing that in resilience. We continue to take advantage of the strength of IAG in negotiating new contracts with the aircraft for both Boeing and Airbus.
We've seen the orders for the A321XLRs for Aer Lingus and Iberia, the order of the 777-9 for BA, and the recent letter of intent with Boeing for 200 MAX aircraft. Financial performance, I think, is very solid. An increase, as Chairman has said, in the quarter from EUR 900 million last year to EUR 960 million on a pro forma basis. Better results at BA and at Vueling. Flat at Iberia and Aer Lingus, a positive unit revenue environment. It's a good second quarter for us. We are maintaining our guidance for the year. It is unchanged, and you can read it in the document there. As the Chairman said, very pleased to see the AGM approve the final and special dividend. I thank all the shareholders who have written to me to thank us for the special dividend in particular.
You'll see we're slowing down growth as we had promised to do, so tapering that, particularly in the fourth quarter, and I'll take you through a more detailed presentation. Before I do that, I'll hand you over to Steve, who will take you through a closer look at the financial performance. Steve.
Thanks, Willie. Good morning.
Let me count you through the results. As Willie says, operating profit for the quarter, EUR 960 million. That's up EUR 60 million on last year. At constant currency is up EUR 52 million. FX, not a big story at an operating profit level in Q2. In terms of capacity, up 5.4%. As Willie was alluding to, we knew Q1 would be the highest capacity growth. It's less growth in Q2 at 5.4%. RPKs were up 6.6%, seat factor, load factor was up, too. In terms of passenger unit revenue, at constant currency up 1.1%, which is a turnaround from quarter one, where we were down 1.4% at constant currency on RASK. A two and a half point swing quarter on quarter. Clearly, there was a benefit of Easter and other holiday timings in that number.
Finally on this slide, non-fuel unit costs are up 0.4% at constant currency. If we strip out the sort of non-ASK driven businesses, Iberia, MRO, BA Holidays, actually the underlying non-fuel unit costs are actually down 1.7%. Overall, a strong performance, all with the backdrop of fuel costs up. Fuel costs were up EUR 245 million in the quarter. To grow profit in that context was a good result. Let me take you through a little bit more as to what's been going on with the revenue, because this is quite a turnaround in terms of how this graph looks compared to Q1. In Q1, all of the regions, with the exception of domestics, were showing a negative RASK movement. Now as you can see, all regions have improved with the exception of LACAR. Let me just give you a quick canter around these. Domestics.
Domestic was the one strong region in Q1. It continues to be strong. This is primarily driven through demand in the Canaries and the Balearic Islands, because there is this price discount assistance that the residents are getting there. As Willie just alluded to, in terms of Europe, it's a pretty good performance in Europe. Both Iberia and Vueling had positive RASK developments. If you looked at Q1, we were down 5.7% in Q1, so to be down 1.1% is a good improvement in those numbers. In terms of Asia Pacific, all of our routes have improved on the quarter, with the exception of China Mainland. I think the main drivers of that is partly the Chinese economy, but primarily the amount of capacity that's being put into the market by the Chinese carriers. With regards to MEASA, also a very positive performance.
Sort of three points to highlight there. Firstly, India. Our performance there has benefited from the demise of Jet, no two ways about that. Secondly, in terms of Nigeria, we did have some sort of turbulence in Q1, particularly with elections. Now we're the other side of that. We're seeing Nigeria perform more solidly, and also seeing South Africa perform more solidly as well. We have trimmed capacity there. Iberia took capacity out. BA has taken capacity out, so there's been some degree of rationalization. Overall, MEESA, a good performance. Probably the one challenging area at the moment is Latin America and the Caribbean. Clearly Argentina and Brazil have been a drag on this region in terms of performance. We think we're seeing both of those bottom out at the moment. Maybe even some slight signs of improvement on Brazil.
With regards to Argentina, probably a bit too early to tell. Interestingly enough, the rest of that region is performing well, so there is significant ASK growth, but there is significant revenue growth performance in that area if you exclude Argentina and Brazil. You turn around to North America and you would say, well, there is a very disciplined and modest capacity growth in the quarter at 1.5%. As you can see, a very solid RASK improvement of 2.9% unit revenue improvement. That is very good, particularly with new routes coming online such as Pittsburgh and Charleston in that quarter. Overall, strong revenue performance in the quarter, and it sort of underpins the overall results. I will turn now to non-fuel unit costs and fuel unit costs. As I said earlier, non-fuel unit costs up 0.4% at constant currency.
If you strip out the non-ASK driven businesses, actually an improvement of 1.7%. I don't think there's too much to point out on employee and ownership costs, both down at constant currency. Supplier costs are impacted to some degree by the non-ASK driven businesses. We see more engineering costs, particularly MRO-related costs coming through, and that's one of the reasons when you strip those out, you see the unit cost coming down rather than going up. With regards to fuel clearly is a story during the course of the quarter, up EUR 245 million in total. That's been a drag on the overall performance of the business. Interestingly, when you look at that, the actual commodity price year-on-year is actually up. In 2018, we had significant hedging gains. In 2019, we've had some modest hedging losses.
When you look at that overall, you'll see that the fuel bill has gone up. Let's talk a little bit more about fuel. This slide basically sort of gives you a scenario based on our hedging book at the moment. A few observations here. We've based this scenario on EUR 6.40 fuel, and you know as well as I do how volatile that is at the moment. I think it's a decent proxy. We've based it on $111 to EUR exchange rate. What you can see is in H2, so Q3 and Q4, remainder of this year, you can see that we're about 90% hedged. When you play through that scenario, our guidance for the fuel bill cost for 2019 is EUR 6.1 billion. If you look back to our numbers at the end of Q1, we were guiding at that point to EUR 6.2 billion.
A slight improvement there. I think if you look out to the four quarters of 2020, you'll basically see that at a EUR level, we're pretty much flat, slightly down in half one, and we're certainly down one to one and a half points in half two. That gives you a feel of where fuel's going and where our hedge book looks at the moment. If I look at the business as a whole, operating margin, 14.2% is very respectful. It's very good operating margin for the quarter. Only 0.4 down, despite the fuel headwinds, and ROIC above 15%, our target at 15.6%. All of the businesses have had a good performance in the quarter. A couple of things I would observe. If you're eagle-eyed, you'll have seen that the Iberia return on invested capital is down a point or so.
That's primarily driven by aircraft deliveries in the quarter, building up the capital base. You'll also see the Vueling operating margin actually improved on the quarter. That's partly due to the improved operational performance and resilience of the business, which Willie will touch on later on in the presentation. In terms of this next slide, these are the half year numbers rather than quarter 2 numbers, and these are reported currency, not at constant currency. What you can see here really is that the complexion of these results were set in Q1. Overall, we were EUR 205 million off of last year in Q1. Because we are EUR 60 million better in Q2, we clawed a EUR 60 million back in the second quarter. We're EUR 145 million off versus last year for the first half. You can see that coming through on the operating result numbers.
If you look at that penultimate line at the bottom, you can see the CASK number, which includes the fuel price in it coming through, and you can see a significant increase there as I've touched on. Overall, the fuel bill for the half rather than the quarter was up EUR 499 million. A significant improvement. In one sense, to only be EUR 145 off year-on-year is a good performance. If we look below the operating profit line, you can see the profit after tax was pretty much flat year-on-year and EPS slightly up. Only one item I would sort of bring to your attention here is the net currency retranslation credits. This is EUR 138 million credit. This mainly relates to FX hedging. We basically take out derivatives to hedge all of our USD debt payments going forward, including right of use assets.
Clearly, we took out a number of derivatives around the start of the year. At that point, the forward dollar rate was particularly strong. It was about $1.40 at that point. Since then, you'll know that the forward rates have come off. When we've marked these to market, we've had a significant gain in the quarter and in the half. Last slide from me, just looking at leverage. Leverage is reduced and improved primarily because we grow the cash during the first half of the year. We're sitting there with EUR 8 billion of cash at the end of half one. That's pretty much consistent with the cash position this time last year as well.
Interestingly enough, you'll know, as Willie alluded to earlier, that subsequent to this event in July, we would then have paid out about EUR 1 billion of that with the dividend and the special dividend. Overall, a strong set of numbers. I'll now hand you back to Willie.
Thank you, Steve. As I mentioned, we have trimmed our growth plans for the remaining part of the year. That's in line with the comments we made at Q1. You can see that for Q4, we're now saying 3.2% growth. That was originally when we first presented this chart at full year results last year, it was 5.9%. We've taken it down from 3.7, which was the last figure we gave you, to 3.2. That's very much in line with what we said. We would look for opportunities to trim the planned capacity increases, to adjust to what we believe is appropriate for the demand environment that we're expecting in the fourth quarter. You will see that flow through into next year. Growth this year now planned at 5%.
We had originally given you a figure of 6.5%, so you can see we're doing what we had said we would do, which was to look at the evolution of the year as we went through it and to take capacity out if we felt that that was appropriate. Our guidance remains unchanged. At current fuel prices and exchange rates, we expect our 2019 operating profit before exceptional items to be in line with the 2018 pro forma. Passenger unit revenue is expected to be flat at constant currency, and non-fuel unit costs are expected to improve at constant currency. Just to reaffirm that we expect passenger unit revenue at constant currency to improve for the remainder of the year.
Absolutely no change to the guidance that we had previously given you. You've seen this investment case many times, so we're not going to take you through it. Just to highlight a few issues, as the chairman has said, we now have paid a total of EUR 3.8 billion to our shareholders since 2015, and that includes EUR 1.3 billion in 2018 in relation to 2018. We calculated there a fantastic dividend yield of 8.2%. If you were to have bought shares on the 28th of February, that's what you would have got. It's clearly a very strong dividend yield. Our cash priorities remain exactly as we said. We're going to reinvest in the business to support accretive organic growth.
We have a commitment to maintaining a sustainable dividend and any surplus cash that is not going to be used for inorganic opportunities, and we're not pursuing anything at the moment, will be returned to shareholders. As we've said for many times now, it's only the manner in which we return that excess cash to shareholders that gets debated by the board. We've highlighted the problems with ATC. It continues to be a major issue, although we have seen a slight improvement in 2018 versus 2019. I have to give credit to Eurocontrol, but also we've got to take some credit ourselves because we have moderated our planned growth, particularly at Vueling, to remove the biggest problem areas that we witnessed last year. That does entail quite a bit of replanning of the network, but I think it was absolutely the right thing to do.
Although the environment has improved versus last year, it's still very poor relative to where we would expect it to be historically and relative to the targets that have been set for ATC providers across Europe. Eurocontrol, through their new Director General, Eamonn Brennan, is making a difference and has come up with a number of initiatives that is improving the environment for airlines, but it's still not good enough, and we continue to call for ANSP providers to make adequate provision of manpower to deal with the planned ATC environments that we expect to see in 2020, 2021, and beyond. Some of these issues can be addressed through additional resources.
Some of them require a more strategic approach to be taken by European governments. We will continue to lobby in a united fashion through our association, the Association of European Airlines, and we believe we are being effective in the lobbying action that we have. Now we turn to Vueling, because Vueling got badly hit last year, as you know, and encountered significant ATC disruption to its network, largely because of the poor performance in Marseille, where we had a number of strikes. We've redesigned the network and put significant resilience plans in place. That is proving to be effective. We've seen a 19-point improvement in our net promoter score. Our on-time performance has improved by almost six points. Flight cancellations are down over 80% versus last year. You'll have seen a number of other European airlines highlight the reduction in the number of flight cancellations.
That is down to a lot of actions that the airlines are taking, and Vueling, in particular, has contributed to that, and to a slight improvement in the ATC environment versus last year. I'm pleased to say that based on Eurocontrol statistics for the period that is available, unfortunately, we don't have it right up to the end of June, showed that Vueling improved from being number 31 out of the top 50 to number 12. It's not just reflected in the internal metrics that we're looking at. It's also very much evidenced by the data that Eurocontrol is providing us. We avoided quite a significant amount of the additional EU261 compensation that we paid last year, but that's been invested in the resilience. You can see there additional backup aircraft, additional crews.
We're operating in a suboptimal fashion to reflect the ATC environment, but it's absolutely the right thing to do for the business. We will continue to look at how we can strengthen that resilience as we go forward. LEVEL, you will have seen that Luis Gallego is now responsible for LEVEL as Chairman. The LEVEL management team reports in to Luis, and I think they will benefit from the significant experience that Luis has in the low-cost area and also understanding of the network into Latin America and North America. We've had some significant milestones. We've now carried more than a million passengers as of July of this year, and we've expanded to eight long-haul and 21 short-haul destinations. We put the fourth A330-200 into Barcelona with new destinations from Barcelona to New York and to Santiago. LEVEL France celebrated its first anniversary.
LEVEL Vienna also celebrated its first anniversary. We've now started the Barcelona base with three aircraft serving seven destinations. We're very pleased with the performance, particularly so with the performance of Barcelona, although, as we highlighted previously, the results have been impacted as a result of the depreciation of the currency in Argentina. Barcelona is still proving to be very effective. Some initial issues that we had to deal with in Paris, the operation is now solid and robust. We're seeing some of the shakeout that you would normally expect from the competitive environment there. Pleased with the way LEVEL is developing and very pleased with the guidance that Luis will be able to bring to that going forward. Now, I just wanted to clarify issues in relation to aircraft orders.
What you see there is the Capital Markets Day presentation that we gave you. Just to remind you that the recent aircraft orders that we have announced, including the LOI with Boeing, is absolutely consistent with the plan, the aircraft deliveries that we gave you at Capital Markets Day. In fact, as you can see from this, we still have a number of outstanding aircraft to be decided on. We're pleased so far with what we've ordered, but there is more work that we need to do. Disappointed, as you've heard me say previously, with the performance of Airbus. Very poor delivery from Hamburg on the A321. It's not just for us, as you know. I'm sure by now you've heard every airline that is excited about taking the A321LR express huge disappointment about the delays that they're encountering.
We need Airbus to improve their performance, and they need to get working on that very quickly, because quite honestly, the delays that we're seeing are just completely unacceptable, and it is impacting on the growth plans that we have. That's particularly true of what we want to do with Aer Lingus on the transatlantic. We're having very constructive discussions with Boeing. The LOI that we signed talked about deliveries between 2023 and 2027. We're actually looking to see if we can get some of those deliveries in 2022. The engagement with Boeing has been very positive and very constructive. The simple message is that all of this is consistent with what we said we would do when we gave you the fleet plans at Capital Markets Day. Now, my favorite subject, Heathrow expansion.
If you doubted my views on Heathrow, I want to just reassure you that I'm right and they're wrong. There is absolutely no way that Heathrow can expand in line with the promises that they've made. We will expose the comments for being untrue when they make them. The total cost of expansion is now EUR 32 billion. If we just focus on what was originally talked about in terms of being able to do it, and we're particularly concerned the amount of money that is now being spent in advance of getting approval. They will have embedded about EUR 3.3 billion of additional cost in the Heathrow RAB before they get approval. The regulator needs to step in. This is completely unacceptable. The costs are out of control, and we still challenge Heathrow to demonstrate that they can do it.
The government needs to be very focused on this. I have to be honest, I was very pleased with the commitment from the former Secretary of State for Transport, Chris Grayling, who I think was really good on this. I know he's been criticized for other issues. I can't criticize him at all because he got this message and got it very clearly. The only way we can support Heathrow expansion is if it's done in a cost-efficient manner, and that is impossible based on what we see at the moment. We're going to be spending quite a bit of time with the regulator and with the government on this issue. This is before you get into the issue of climate change and the commitments that the government has made.
We're absolutely committed to play our part to improve the performance of our airlines and within the industry to influence the industry. We were influential in getting IATA to agree, or get the industry through IATA to agree to long-term targets. We're still the only industry to have agreed these long-term targets. We're looking to continue to improve our carbon efficiency in advance of 2020, when we've committed to carbon-neutral growth, and then 50% reduction in net emissions by 2050. We're doing that through ongoing improvement in the performance of our business through operational measures. We're improving our performance by taking delivery of new aircrafts. Our carbon efficiency as of 2018 was 91.5 grams of CO2 per passenger kilometer. We have a target of 87.3 by 2020, which we're on track to achieve. We're also investing in sustainable biofuels.
We're absolutely convinced that this is a real possibility, we're prepared to put our money to support the development of the infrastructure and also to give the commitment to take the product. That should give encouragement to other investors. We're calling on the government to set up an office for sustainable aviation fuel to really drive the investment in this area because we believe there is a real opportunity. Through the CORSIA, which is the ICAO platform, the global first and the only industry to have a solution on climate change at an industry level. This will see industries aviation reducing its net emissions by 2.5 billion tons from 2020 to 2035. This is through investment in quality and measurable carbon offsets. This is very much the focus of the industry.
We want to ensure that we're playing our part, and we're absolutely determined to do so. Just to cover off two issues before I wrap up. You will know that the permitted maximum notice was issued. I think most of you are familiar with the background to this, to ensure that we can retain the operating licenses of the airlines. They must be able to demonstrate majority ownership and effective control by EU nationals. Like all listed airlines, we've had this provision in our bylaws. It's been in the bylaws since we created IAG in 2011. We announced the permitted maximum notice on 11th February 2019, when our non-EU shareholding had reached 47.5. We keep this under review and we intend to remove the permitted maximum when possible.
I can't give you any guarantee around when that will be, but this is under constant review and the board spent quite a bit of time yesterday just considering the current position and the options that are available to us. Turning to Brexit, I'm not going to rehearse the first couple of bullet points there because you will know the background to it. I would say that we remain confident that a comprehensive air transport agreement will be reached between the EU and the U.K. The important point is the next bullet point. As required by the EU, we submitted through all of our individual airlines, the plans on ownership and control to the national regulators in Spain, Ireland, France and Austria. These regulators have confirmed that the plans would satisfy EU ownership and control rules in the event of a no-deal Brexit.
The EU Commission has been notified about the remedial plans by the national regulators. Clearly the Commission has the right under EU law to investigate, and where appropriate, request the regulators to implement corrective measures. I'm pleased that the national regulators in Spain, Ireland, France and Austria have acknowledged that our plans satisfy EU ownership and control rules. Just to wrap it up, we're strongly of the belief that our, what was unique and maybe will not be unique going forward, as everybody seems to want to copy our structure. This does drive innovation and superior returns for our shareholders. We've got a strong portfolio of world-class brands. We've got global leadership in our markets. We take advantage of the integrated platform that we have. We've delivered on non-fuel unit costs.
At Capital Markets Day this year, we're going to give you, which I think is more important actually, is the adjusted non-fuel unit cost. Because as we've seen more and more of our business in non-ASK related activity, I think what you really do want to see is how are the underlying airlines performing, particularly in this area. We're going to go back and give you information on our performance from 2011 to date, in November on an adjusted non-fuel unit cost basis. Strong performance in second quarter of 2019. Very pleased with that. We're on track to meet our financial targets. We have an investment-grade balance sheet. We're paying dividends. We're pleased with the response from our shareholders, and we're maintaining our guidance unchanged for 2019. All in all, I have to say I'm pleased with what we've achieved so far this year.
Clearly, there's a lot of work that we need to do, but we're demonstrating our ability to respond quickly to any changes in the external environment, adjusting capacity as appropriate, and I have to take this opportunity to thank the team at Vueling for the actions that they have taken to stabilize the performance. It wasn't of their making, the challenges that they faced last year, but they've demonstrated that they know how to operate in difficult environments, and the measures that they've taken are delivering very positive results for our customers and for the business. On that, I'm going to hand back to Andrew. Andrew will take us through the Q&A session.
Thank you, Willie and Steve. It's time for Q&A. You'll see in the seat rest, there's a microphone. If you want to ask a question, stick your hand up and I'll pick you. If you pick up the mic. Asking your question, there's a gray button, you press that down. You keep it pressed down. The red light should show. We've got all the OpCo CEOs here and most of the management committee team. Feel free to ask your questions to whoever you want. James.
It's James Hollins from Exane. A few from me, please. Firstly, you didn't mention the premium versus leisure trend. I was wondering if you could sort of, ideally give some data on how those are tracking and particularly obviously Q3 is a more leisure quarter, whether you think Q3 RASK can be up or whether just H2 as a whole. Secondly, Willie, you were quite ambiguous on Heathrow. I was wondering, if you're right, and obviously your campaigning goes to plan, what do you think will actually happen? Both in terms of the U.K. government, will they just say, "Okay, fine. This is a hiding to nothing, gilt-edged platform, et cetera. Let's just cancel it." Secondly, what the CAA might say in terms of those tariffs.
Obviously, they've been, I think, relatively okay so far, saying they should be kept flat through the process, but just some more views because obviously you're closer to them than I am. Probably one for Alex. Obviously BA versus the unions, it's nil all at half-time, nil all full-time, nil all at extra time. I was wondering how we're looking as we go into penalties.
James, thanks for your questions. As you know, we don't break out the premium and leisure, but just to say premium is performing very well. Transatlantic premium in particular. Aer Lingus Transatlantic premium, really, really good. We're seeing good performance across the network, with the exception of the areas that Steve had highlighted. If you take out the Argentina and Brazil in Latin America, the rest of that area is actually performing very well for us as well. The areas that we'd identified previously, Argentina, Brazil, South Africa, and then China. China, I think is a combination, as Steve said, it's a supply issue with a lot of additional capacity. I think that reflects the second issue, which is trade, because I think you're seeing a switch in some capacity that would've gone across the Pacific, is now going into Europe. You're seeing capacity being redirected.
You're seeing a slowdown in some areas because a lot of capacity is not coming online for various reasons. With those exceptions, the rest of the network performs well, and it's performing well both in premium and in leisure. You can see in the IMR or Steve had mentioned this, that U.K. point of sale was good. I said again on the radio and TV interviews that I've done this morning, we're not seeing any evidence of a Brexit impact. Quite honestly, we cannot identify any impacts. I've heard what O'Leary has said and what others have said, and it may be that we're not as exposed to the whole of the U.K. in the way that they would be. Our business has a much heavier weighting towards London and the Southeast. That could be one explanation for us.
We're not seeing any impact on bookings or the profile of bookings going forward in terms of the visibility that we have. On the third runway, I'm sorry I wasn't clear enough. This is a really, really important issue, and it's not just important for us. It is important for us. I don't try and hide that fact, but it's important for U.K. plc. If you remember, Heathrow is out there trying to con people that this is good for the U.K. plc. It's not. It's good for them, and them only. To be honest with you, we're not going to allow it because they got away with this for too long. They promise on time and on budget. It's clearly neither on time nor on budget. It's gone so far off budget that we've got to call them out.
They're saying we can still do this for EUR 14 billion, but they don't mention that that EUR 14 billion gives you zero terminal infrastructure. Actually, to get the full value out of the runway, you have to spend EUR 32 billion. These are outrageous figures, and we really do need people to wake up to what's going on here, because if we don't stop it now and force them either to deliver to the original plans that they have or stop them, what we're going to be left with is the most expensive piece of infrastructure that will be underutilized. You're not going to get people coming in here if the costs are driven up as they will be based on this ridiculous investment profile that Heathrow is looking at.
They should be honest and admit at this stage that they can't do it, and maybe there's somebody else that could do it better than them. There are others who are interested. We'd have more confidence in some of the others who have expressed an interest in developing the infrastructure, and maybe that's what should be done. The CAA can't turn a blind eye to this, and the government can't turn a blind eye to it. We don't expect them to do that, and we don't believe they will do that. Turning to BA before Alex comments, let me just repeat what I've been saying to people. I don't like giving running commentaries when there's negotiations ongoing. Personally, I do need to acknowledge, I think BA pilots do a great job. They're very professional. We know they have issues that have upset them.
If I look at the pay offer that BA has made, I think it's a generous and I think it's a fair offer. This is being managed by BA. I'm not involved in it. I won't be involved in it. This is for Alex and his team to resolve. I'm pleased to see that some of Alex's team and representatives of BA spent a day yesterday with BALPA. Well, maybe, Alex, you can update us on what's going on.
Not a great deal more than that. I was going to say it's hard to tell if we're in the first half, second half, overtime, or penalties. I think the conversations continue. It's important that our team continues to be with them. They spent all day long yesterday. They may be together tomorrow, et cetera. I think it's best not to comment. Very productive discussions and if there's something certain about a football game is that it ends, and this will also end at some point, and we're looking forward to that.
Ireland's got a good track record on penalties. We lost on penalties to Spain, which obviously we have to do from time to time. We have done well on penalties in other competitions. Anyway, it's for Alex to deal with. I'm pleased. We do have to acknowledge, by the way, that BALPA has not served any notice of industrial action at this stage. That's not to say they won't, but they haven't at this point, which I think is a positive as well.
Gareth?
Yeah. On the data, there's quite a detailed explanation. I think it's on page 26. I'm just looking for it now. Yeah, page 26, note 17 on contingent liability. I think the best thing I can do is to point you to that, because there is a formal appeal process which we will follow, and we've been very clear we will pursue this vigorously. I think it'd be wrong for me to rehearse the arguments that we're going to make, given that the first step on that is that we make representations to the ICO, and that will be done in the coming weeks. You're asking the ICO to mark their own homework in one degree. There is an appeal process that follows that, and we've outlined some of that.
Maybe the answer to the question you ask is probably best covered if I refer you to page 26 of the report. On the environment and carbon, yes, you're seeing the price of carbon is increasing. We factor that in. Going forward, it's currently embedded in our fuel price. We will continue to embed it in the fuel price, but we will give you more visibility if you want it on that. Our gross emissions for the group last year was 29.99 million tons of CO2. We expect gross emissions to continue to grow. It will stabilize because of the investments we're making. The focus will turn to net emissions because we'll be offsetting some of those gross emissions through the various schemes that we're involved in. We're fully committed to that, and we're not arguing about it.
We think it's the right thing for the industry. We believe that in the short term, there isn't a simple solution for aviation. Therefore, aviation needs to use some of its money to provide incentive to others. We'll only do that where these are real carbon reductions. We want to make sure that the investments that's made by the industry are quality reductions. I think that's what everybody wants to see. We're not seeing any consumer pushback at the moment. There's clearly greater awareness in relation to the issue. I keep giving this statistic, and it is important, but 80% of all emissions from the aviation industry are from flights in excess of 1,500 kilometers. There is no alternative. As you know, a lot of people don't have an alternative option when it comes to travel.
There are options for some, but for a lot of people, there aren't any alternatives. Michael O'Leary often says it more colorfully than I do, but Ireland is an island, and I think will continue to be an island. There's not many easy ways of getting off the island without flying. What we've got to do is recognize that there will be a need for people to continue to travel by air. We've got to make sure that that's done in as efficient a way, and that we play our part to ensure that we reduce our environmental impact. It's great to see that Ryanair and everybody else is highlighting what it is they're doing. I think that's a positive for the industry. On capacity, you're right, we'll give you more detail at Capital Markets Day. We've said this before.
We admitted we got Q1 wrong, and you could have seen some of that in Q4 of last year. We tried some new things through Q4 and Q1, didn't work. We filled the additional space. As you know, we had RPKs in excess of ASK, but it was at a significant yield impact and unit revenue impact. We've stabilized that. We're now into positive unit revenue, and we'll be positive unit revenue for the rest of this year in Q3 and Q4. We recognize that some of the initiatives we tried, we're not going to repeat, and that means our Q4 ASKs have come down 3.2, and you'll see that flow through into Q1 and beyond. I think you'll see us, as you would expect, to moderate the capacity plans from the headline figures that we gave you at Capital Markets Day last year.
I'm going to take a question that's just been sent in by email from Neil Glynn at Credit Suisse. He unfortunately couldn't make it because of the evacuation of Bank Station. It's a question for Steve and one for Willie. By the way, if anyone else is out there who couldn't get here, just email me a question, and I'll pass it on. On cash flow, disposal proceeds of EUR 458 million were strongly up year-on-year. Is this all sale and lease backs? What does it imply for net CapEx in FY 2019? Does this explain why the lease repayments have doubled to EUR 823 million in the first half? A question for Willie, I guess, or even Alex. U.K. point of sale.
Given the weakness of GBP, how are you thinking about trying to stimulate point of sale in the rest of Europe and the rest of the world?
Yeah, I think on the U.K. point of sale, it's clearly something that we have levers that can be operated that maybe other businesses can't. What we've seen previously, when you see a weakening pound, the flow of traffic changes. There's nothing new in this. We've witnessed it back in 2016 when we saw a significant devaluation of the pound. We see it in other areas where we see currency devaluations. A great example of that was Argentina, where Argentina was 60% Argentina point of sale until they devalued the currency there. It's now switched into Europe point of sale because Argentina becomes a very attractive destination with the devaluation that has taken place.
We have the ability to do that, and we have the levers within our revenue management teams that they can pull to adjust traffic flows and take advantage of what should be increased inbound traffic into the U.K. I've heard a lot of people now talk about this as being an option, and particularly London, because I think London and the U.K. clearly has a lot to offer from a tourism point of view and also going forward, I think for a business point of view, when there's a bit more clarity around what's happening with Brexit. We're reasonably relaxed. We clearly will have a translation impact as we've seen before, but you guys understand all of that, given the BA profitability, BA revenue, BA profitability. In terms of the business, you'll see us putting a greater bias towards the non-sterling points of sale.
We’ve been able to manage that situation very well in the past. Steve?
In terms of the doubling of repayment of leases, I presume Neil's referring to the cash flow statement on page 11 of the IMR. Really what you're seeing here is the move from the pro forma report, the statutory reporting last year to the IFRS 16 reporting. Really all you're seeing is the payment split in a different way. Before, those payments would have gone through the operating profit after exceptionals. Now they come out of there, and they're split between the interest payments and the repayment of leases. It's a reclassification item. It's not a change in the expectation in overall lease payment costs. In terms of CapEx guidance, I think we've been clear on our guidance when we did the reclassification. Net CapEx will be between EUR 2.6 and EUR 2.7, and we'll update that guidance when we get to Capital Markets Day.
Thank you.
Damian, can you remember to press the, I think it's a gray button, otherwise it can't be heard on the webcam.
Hopefully that works. Damian Brewer from RBC. Two questions, please. First of all, on cargo, historically seen as lead indicator, the data there have been quite weak. There's some debate about whether that's really the case this time. Can you elaborate a little bit more about what you're seeing there, in particular, were there any sort of industries or customers in general which are causing the, I guess, disruption and weak pricing? Secondly, I don't really want to mention it, but the sort of B word, Brexit. Given what our politicians are talking about, could you elaborate a little bit more about how you're thinking about contingencies? For example, how much of the BA fleet is depreciated or near fully depreciated, how much flex there is around there, how you're thinking about the sort of treasury function in the event of another currency devaluation?
Thank you.
On cargo, for some time now, probably, I'd say maybe eight, nine years, there's been a significant change in cargo and passenger performance. We no longer see cargo as a lead indicator because where we've seen cargo change, we've seen passenger just continue. We do look at it quite a bit. In fact, just recently, we spent quite a bit of time to challenge ourselves again. Has this become an indicator? We don't believe it is. It is an indicator of trade. The environment in which we're operating, trade is one of the inputs. You can't read anything into cargo performance or read across anything that we're seeing with cargo performance to the passenger performance. That's been the case for at least eight, maybe 10 years now, I think. IATA has acknowledged that as well.
Lynne, I don't know if you want to comment on any cargo specifics.
Yes, can do. The cargo market is in a different environment to the passenger market for sure. The overall market decline that we saw in Q1 has continued into Q2. Q1 started with weakness in Asia. By the time we get to Q2, we're also seeing weakness in Europe. Of course, we've also got more cargo capacity in the market, which is part of what you're seeing in terms of yield decline is an overall supply-demand imbalance. If I look at the segments within this, there's some segments holding up very well. The perishables are holding up well, constant climate holding up pretty well. We are seeing declines in some sectors that may be of interest. Automotive, for example, and some of the high tech. We're seeing declines there. It's a mixed bag for us in cargo at the moment.
On Brexit, you'll know that we're currently operating 33, or as of the end of June, 33 747s. Clearly they're nearly all, some of them very close to being fully depreciated. In effect, you've got a fleet of 33 747s that you could say are depreciated. We've also got a number of 777-200s, the early deliveries of the 777-200s effectively fully depreciated. In relation to the long haul, there's quite a significant bit of flexibility there. On the short haul, a lot of flexibility with the aircraft that are leased, which is a feature of the business that we always look at to ensure that we have flexibility.
We've got flexibility to move aircraft around the group as well. At this point, we can't tell you what's going to happen after the 31st of October in the same way as you're not going to tell me. Our plans are based on there being a sensible Brexit. That's not a hard Brexit. In the event of a hard Brexit, we will review our plans, and you would expect us to change that. At this stage, we're very comfortable with the flexibility that we have, not just within the BA fleet, but right across the airlines in the group. We've got a lot of flexibility. I think we're actually very well positioned relative to a number of our competitors. What you've got to look at, and we do look at this, our relative position. We're extremely strong relative to some.
Anything that is going to impact on us is going to have a huge disproportionate impact on a lot of airlines out there who are in a very weak position today. You look at the strength of our balance sheet, our cash, our fleet, everything about the structure of our organization, our ability to respond quickly. We've all been here before. We've gone through a number of shocks. We know what to do. We've done it before. We do it better this time, and we do it better than anybody else, and we've got the flexibility that others don't have. Most importantly, the determination. I hope we don't have to prove it, but if anybody doubts it, we'll be able to demonstrate what it is we can do.
I think you're going to be looking to a lot of other airlines to see how they're going to survive, to be honest with you, given where they are at the moment and where they're likely to be in the event of a significant weakening in the economic environment. Yeah, Treasury.
Well, not too much to say. Clearly, we've seen the devaluation of sterling even from when we were looking at the guidance for Q1, and clearly we had to factor that in when we made the decision to hold guidance this time around. Clearly we have a huge sterling profit stream that if there's a devaluation of sterling has an impact at the euro level. Undoubtedly the case. We've seen this before in 2016 when the referendum result came out, there was a significant devaluation then. We had a bit of a playbook established at that point. One of the benefits of BA is more than 50% of its revenue is non-sterling denominated.
Because we've got strong point-to-point business as well, we do have the ability to reemphasize the point-of-sale mix that we have and emphasize the inventory availability to the other end of routes. Yes, could there be some initial turbulence? Yes, there could be. Do I think we've got the ability to adjust? Yes, I do. Those would be some of the factors we'd consider.
Shika.
Hi, good morning. It's Rushika from Barclays. three questions, if I may. Maybe firstly, just touching on the disruption environment in Europe. I think you've obviously said that you think a large part of the improvement has been because of the investment in resilience in Vueling and by other airlines. Obviously there have been a lot less strikes this year as well. How much of the improvement do you think is just simply a function of that? Maybe just a bit of color as to what you think Eurocontrol has done that has been particularly good. That would be helpful. Then maybe second question on the transatlantic capacity growth into the winter is quite clearly quite benign. Large part of that, it seems to be the function of what some of the other low-cost long-haul operators have done in terms of pulling back on the capacity.
Maybe if you give us a sense of your conversations with the joint venture partners around the more mature capacity growth and how that's playing out into the winter and next year. Then finally, on the Capital Markets Day, you've mentioned the cost guidance and the change in the definition there. Is there anything else that we can expect at the Capital Markets Day? Maybe something on LEVEL financials potentially? Thank you.
Yeah, I think as I said, we have to give credit to Eurocontrol. They're being much more proactive in terms of proposing solutions to the problems. I think there's good evidence to support them being given even stronger authority over the management of the network as we go forward. What they have proposed and what's being implemented is different routings to avoid the known pinch points. There's a lot of traffic has been taken out of Karlsruhe, which was a known pinpoint last year and continues to be. We're avoiding that. There's been a change in the payment structure because previously, the ANSP, the Air Navigation Service Provider, got paid on the basis of the filed flight plan, not the flown flight plan. You'd file to fly through a place like Karlsruhe or Marseille and then end up bypassing it. They still got paid.
The problem there is twofold. One, you're paying people for not providing a service. Two, the people that were giving you the service weren't getting paid for it. There was no incentive for them to take on the additional workloads. That's changed. I think they're two very tangible measures that Eurocontrol have taken that will make a big difference. Now you're seeing traffic bypassing these pinch points. There's an incentive for the neighboring ATC providers to take that because they're going to get paid for that work. Clearly now, hopefully, the ones that are performing will start suffering from a financial point of view. Also what Eurocontrol have asked airlines to do, and I think there is good adherence to this, is to fly the flight plan that you're given.
I know from past experience as a pilot, you're always looking for shortcuts, which is great if you want to get home a little bit early. The problem is that does add to the workload of the ATC providers. In an environment where they're already stretched, what I considered the right thing to do is actually causing problems, knock-on problems. They've encouraged us for everybody to behave. It was always expected that most airlines would, but there would be one particular airline that wouldn't. I'm pleased to say they are behaving, because it's in everybody's interest to do so. It's all playing to a situation where there's still a lot of ATC restrictions in place. The problem has not gone away. When you consider that there's been growth in traffic, Europe is handling more traffic this year than it did last year.
There's been a reduction in the overall delays. There has been a reduction in the strikes, you're right. Also there have been actions that can kick in if strikes are a feature that we see going through. It's a combination of a number of issues, but it is proving to be effective. On transatlantic capacity, I need to point out that Aer Lingus is not a party to the joint business, so we can't have any discussions with our joint business partners in relation to what Aer Lingus is doing, and they can't participate. The only thing we can say is what's being said publicly. I can't give you any information beyond what you will have read publicly because that would be inappropriate. What we see and what I think everybody is seeing is, there is moderation in the capacity plans that people have.
Transatlantic continues to be a very healthy environment. I think the fact that a number of the so-called low-cost airlines disappeared is evidence of that's a challenging business to get right. We believe long-haul low cost is a potential profitable segment of the industry, but it's only going to be profitable if you have low costs. A lot of these airlines just didn't have a low cost, certainly not a low enough cost to be profitable. There's still anybody who thinks they can do it, we just look at their cost base and we know they can't. I think the situation that we're seeing there is reasonably good. On Capital Markets Day, it's a bit early to give you some details. We're talking about the plans for that at the moment.
As I said, one area where I think you would get value is getting greater visibility on what we call the adjusted non-fuel unit cost, how we measure that, and going back and looking at the performance because that's really a more accurate assessment of the underlying performance of the airlines. Steve gave you the figure, the 1.9% improvement in adjusted non-fuel unit cost for the half and 1.7% for the quarter. These are having a big impact, and I think more visibility around that would be helpful to you. We'll definitely do that for capital markets.
Thank you.
Thanks. Jaime Rowbotham from Deutsche Bank. Three, please. Firstly, going back to ownership and control. The country regulators are happy with your plans, and as you've said, you don't really need a blessing from the EC. Would it actually be terribly radical just to push ahead with those plans anyway, thus rendering the ownership structure at the IAG parent co-level irrelevant, allowing you to lift the permitted maximum? Secondly, you talked a bit about the weakness to mainland China, but Asia PAC in general looked very strong in 2Q with the ASKs up seven and the yield up two. What's driving that? Is there a bit of Asia point of sale strength there? And also it looks as though Iberia is growing quite strongly to Asia. Could you talk a bit about what's going particularly well there in 2Q?
Thirdly and finally, this might be a long shot, going back to BA and the unions, I appreciate you don't want to talk too much given the ongoing negotiations, some of the numbers going around in the press talking about if we get into the unfortunate situation of strikes, there's a suggestion of EUR 45 million a day of potential strike cost. Is that a crazy number or is it a sensible rule of thumb? Thanks.
Okay. On ownership and control, it's always important to remember that we don't just fly within the EU. There are lots of other jurisdictions around the world, the structure we have in place has satisfied them. I think there's been a fixation around the EU issue. There's a lot of countries around the world that don't even recognize this concept of EU ownership and control. That's one of the things we've got to bear in mind as well. We're looking at this. I think, certainly Capital Markets Day will have a lot of clarity, because the prime minister said it's all going to be resolved by the 31st of October. Of course, we believe him. We'll be able to talk about that. On Asia PAC, Iberia's growth is obviously it's off a small base. Luis is here.
I don't know if you want to comment, Luis, but maybe before you comment, Luis, Steve, is there anything you want to say about that?
The only couple of things, just to be all routes. It wasn't specific all routes except the China mainland routes improved quarter-on-quarter. Probably what was encouraging was we saw Hong Kong improve to some degree, and that had been a challenging market environment. It was across the board, and we saw some improvement in Hong Kong, which was encouraging. I don't know, Luis, did you want to add to that?
No. In the case of Iberia, the base is very small because we are only flying to Tokyo and Shanghai. We have increased the number of frequencies to Tokyo from three to five. That is some of the huge increase that you see there.
On BA, I think the figure that's been quoted was in a submission that BA made to the court as part of their appeal. First and foremost, specific to BA, and it was specific to an anticipated type of industrial action. There can be many different forms of industrial action. The point I would make is obviously what might be negative and would be very negative for BA, obviously will be positive for other airlines in the group, and we will use other group assets. When we look at it from an IAG point of view, it's different to how we'd look at it from a BA point of view. I can't put a figure on it because we'd need to understand what form of industrial action is being taken.
When and if they do serve notice, we'll then put an appropriate mitigating plan in place. BA will do whatever they can do to assist the customers, and the rest of the group will do what they can do to take advantage of the unfortunate situation and support and help BA in their efforts to look after customers. We'll wait and see.
Malte?
Yeah. Hi, Malte Schulz from Commerzbank. Just to be a little bit more clear also on your expectations beyond, we've already talked a little bit on Asia, on North America, but on the rest, there is like a bit in Africa, India. What do you expect there to benefit more from the Jet Airways demise? Maybe also a little bit on your ex-fuel cost outlook for the rest of the year. Should we just think of it will decline in a more straightforward way, or is there a lower decrease in cost anticipated for the rest of the year?
The rest of the network, as I said, Steve highlighted India and Jet Airways, that there's not going to be a quick solution to Jet Airways. I know there's still people thinking about trying to reincarnate Jet Airways. I can't see that happening personally. There's always been strong demand into and out of India. That continues to be the case. There has been some traffic, additional capacity put into the market, but it's clearly performing better as a result of the demise of Jet Airways. The rest of the network, again, with the exception of the routes that we've highlighted, it's performing well. The areas that we've been very much focused on and have been challenging ourselves is in relation to specifically Argentina and Brazil. We are seeing evidence of Argentina stabilizing and Brazil maybe improving a little bit.
We're probably at this point more optimistic about Brazil than we are about Argentina. It's still way off where we had expected it to be. In relation to China, we don't see anything changing there because it's clear that the trade between the U.S. and China doesn't look like it's going to be solved anytime soon. The Chinese carriers are clearly looking to put capacity where it makes sense for them. The other side of that obviously is, though, that there aren't that many aircraft being delivered into China. I think this is going to be an issue. We've seen some figures that are very surprising in terms of what should have gone into China now won't go into China. The supply of aircraft environments is clearly challenged by the grounding of the MAX at the moment.
When we look at all of the moving parts, the general environment that we're seeing at the moment is quite good, and we don't see that changing quickly. What is clearly changing is the global economic environment, which is softening, but it's still positive. We've operated in worse economic conditions than this. We're looking at where we need to trim capacity, but we're also looking at where we think there will be opportunities. We're particularly looking at where we see vulnerable competitors as well, because I don't believe all of the airlines that are operating today will be operating this time next year. We're in a position to take advantage of that as well. On cost, given that we're reducing our capacity, it clearly makes the challenge of improving your non-fuel unit costs harder.
We're continuing to say what we say, that we see the unit revenue improving and the non-fuel unit cost being flat at a constant currency basis for the rest of this year. That's on the back of a reduction in the capacity that we've seen.
I've just got another question by email from Andrew Lobbenberg of HSBC. First question regarding the Latam joint business. What is the timeline and plan to get that operational given the decision by the Supreme Court of Chile? Secondly, on London Airport expansion, very clear about your thoughts on Heathrow. What are your views, Willie, on Gatwick's plan, London Gatwick's plan to use the emergency runway as a second runway?
On LATAM, clearly, we were disappointed with the decision of the court. We continued to discuss the options available to us with LATAM. Maybe Luis, you'd comment?
Yes. As you know, the restriction we have for right now is Chile. We are evaluating if we can develop the JV in the rest of the countries. We are now trying to find out if we can do that or if it's very complex to develop it that way. That's the situation we have right now.
On Gatwick, well, clearly, what Gatwick have demonstrated is that they can expand at a much more realistic price. I've always argued that the economic case for an expansion at Gatwick is much lower than at Heathrow. If Heathrow's third runway is costing as much as we believe it is now, then that significantly improves the economic case for Gatwick. The problem Gatwick would have faced is that if you build a third runway at Heathrow, they will lose customers from Gatwick. That's what history tells you, that the operators at Gatwick will look to move into Heathrow, and then there'll be a hole in the Gatwick capacity. If Heathrow isn't expanded, then I think there's a huge opportunity for Gatwick, and they've clearly demonstrated that they have a much more sensible approach to expansion.
As I was sitting there, I was thinking, did I give the guidance wrong in relation? I think I may have said non-fuel unit costs flattened. It's non-fuel unit costs improved.
That's right.
Thanks, Steve. You're supposed to interrupt me and correct me. That's your job now.
Sorry. You got it wrong, Willie.
Okay.
The other way around.
David. Sir David
Right. Okay. Yeah, two questions. Steve, the pro forma gearing falls to or fell to 1.2 under IFRS 16, and your predecessor had told us he thought it would be inefficient to go below 1.2 times. Secondly, just curious if you've got any thoughts about how much money you might be putting into the pension scheme as a top-up next year. I think it's just over EUR 800 this year, but maybe falls next year. Thank you.
With regards to whether it's sufficient or not, I'll leave Enrique to his thoughts on that one. Clearly, one of the things I've enjoyed over the last month or so from being in the role is doing our initial bond issuance, and it's been very helpful to have an investment-grade credit rating as a business to be able to do that. We got particularly good coupon rates on the EUR 1 billion we raised. It was a half a point and one and a half points. Getting the leverage at the right level is important for us. I do have a sympathy with what Enrique is saying, that going too low isn't capital efficient. In terms of pension schemes, two things to mention there. Really, the first one is, both of these or one of these is well documented in the IMR.
With regards to the APS pension scheme, we've reached agreement with the trustees, which we're now awaiting court blessing on, and we're hoping we will get that in Q4. The consequence for the company of that agreement would be we'd be putting no more cash into that scheme effective 1st of January this year. That would be a big progress and big development from where we were. Previously, we were putting in EUR 55 million a year, plus we were putting in a cash sweep element as well. That's good progress, but we're awaiting the court blessing, and hopefully, that will be in Q4. In terms of NAPS pension scheme, which is the one we closed to future accrual last year, previously had a deficit of EUR 2.7 billion.
It would probably be inappropriate for me to give too much guidance because we're in the middle of negotiating this with the trustees as we speak. Actually, the regulatory deadline was 30th of June for this. We've gone past the deadline. We are having good constructive talks, but they're vigorous talks as well. We hope to try and achieve clarity and agreement by the end of September. I think from my perspective and the way we're entering into these negotiations is having closed the scheme to future accruals a real positive. It de-risks the scheme. I also look at the quality of the covenant that BA has, which is stronger. Part of what the company is saying when it's going to those discussions is that needs to be reflected in whatever the deficit recovery payments are.
Questions in the room? Okay, I've got one further question on the email from Johannes Braun of MainFirst. He says, he has a question for Luis. On Latin American weakness, to what extent does the strong growth of Air Europa play a role, and how do you view the longer-term impact from a potential Air France-KLM, Air Europa joint venture for Iberia?
I think as Willie said, the two countries that we are suffering are Argentina and Brazil. The rest of the countries are behaving well. I think now we have an advantage in the cost structure that we have in Iberia. That's the reason we are growing, and I think we are competing very well with all the other companies that are putting additional capacity in this environment. I think that we are not worried about that. Our main concern is Argentina. They're going to have general elections at the end of October, and I think it's going to be a time where we hope the situation is going to be recovered.
Okay. Thank you very much, everyone, for coming. We referred to the Capital Markets Day several times today. Hopefully all of you can join us then.