Okay, thank you very much, and good morning. Thank you for joining us for the call. And before I hand over to Enrique to take you through the detailed presentation. Just allow me to make a few comments. We're very pleased with our first quarter performance.
As you know, it was a challenging quarter for European Airlines. And we've highlighted some of those issues talking about the fuel and FX headwinds the timing of Easter, which we always said would impact on our Q1 performance and market capacity in the quarter, which clearly on yields. Our passenger unit revenue declined by 1.4% at constant currency, but we saw a further reduction in our non fuel unit down by 0.6% at constant currency. And as Enrique will show you later on when you take out the non ASK related costs associated with Iberia MRO and BA holidays has improved even better than that. And while we saw a slight decline in our ROIC still ahead of our 15% target.
And we are sticking to our guidance for the full year We expect to get there in a slightly different way. We're now saying passenger unit revenue is expected to be flat at constant currency and non fuel unit costs expected to improve constant currency. And therefore, for the avoidance of any doubt, we expect passenger unit revenue at constant currency to improve for the remainder the year. We're also adjusting capacity, now forecasting full year capacity growth of 5.3% compared to the 5.3 or 5.9 percent that we gave before the previous call, and we'll go through that in a moment. And you may have seen yesterday we announced our AGM to be held on the 20th June and subject to the approval of our shareholders at that meeting You'll see some very generous cash returns to our shareholders with the final dividend of per share and a special dividend of euros per share.
So I'll hand over to Enrique who will take you through the presentation now. Enrique?
Good morning, everybody. You. So as it has been just said, Q1 2019 has been a challenging quarter for IG and for the industry, especially the European industry. We will be probably the only or one of the only European companies to achieve positive operating profit and positive net earnings figure for this quarter. And it shows our resilience and determination to reach and to commit to our targets, the ones that we share with you from time to time.
Operating profit then for this quarter has been reaching EUR 135,000,000, which is EUR 205 lower than last year, but if we carve out the negative impact of FX especially the strength of the dollar in respect of last year through the quarter. This means, the real comparable constant currency terms has been a drop of 144,000,000. And as you will see, most of this drop is basically referred to Easter holiday change in timing. And that's basically a type of confirmation of the messages that we've been sharing with you. Through the last months.
In terms of how this 1.35 has been built up, we have to mention, but the Packaged Center unit revenue performance at constant currency basis of minus 1.4. And total unit revenues, again, at constant currency terms of minus 1. This difference shows again the growth of our 3rd party MRO business. And handling business in the case of Iberia and also bridge share with holiday. On the cost side, we have been probably beating our expectations, the ones that we had for this first quarter and achieving a minus 0.6% improvement constant currency and pro form a compared with last year.
And as Willie was advancing, if we carve out the costs that are related to these non ASK activities as IPD at 3rd party MRO, which was solid in, etcetera, the real underlying positive performance on the unit cost non fuel unit cost basis has been minus 2. Of course, fuel has not been helped through the quarter. It has been a significant headwind for us for the rest of the industry and has been then driven total non unit costs again, constant currency basis and pro form a to a positive 2.2. Basically, the deterioration of the margins this quarter refer to the difference between this total unit revenue slightly negative performance and the total unit cost increase. We have been achieving, we have been producing a capacity increase of 6.1% against last year.
And then our PK figure of 6.4. It also notes, it also shows in some way that revenue weakness has been more related to yield pressure than to real, I would say, passenger numbers, flying in our network. If we can pass to the second slide, basically, we're trying to split and detail how the difference between the operation profit in 2018 and the first quarter 2019 has been doing. So first, remind you again, this negative net impact of a ForEx, again, stating that it's basically transaction related, so strong dollar related. Of course, We have been growing 6% and there is a margin increase, 722 in this, I would say, chart to volume increases.
It's about CHF 21,000,000. And then again, having to mention the negative impact of passenger revenues, which is basically related to yield, as I was saying, and very much, referred to Easter holiday migration on the timetable between somewhere in the middle between Q1 and Q2 last year and the full Q2 in this year. It's always difficult to evaluate precisely, surgically, what's the impact of the Easter holidays a reasonable guess, it has been around 1,000,000. Non passenger revenue improvement. Again, worth to mention the improvement in activity and then margins related to Iberia MRO also marginally bridge shows holidays.
And then, of course, fuel costs, fuel costs increases for the quarter, has been very relevant. The combination of market prices and hedges has been creating for us is headwind that in, unit terms, will be in the range of 15% our churn and 11% on a constant currency terms. The positive is coming on management and achievements on the non fuel costs, which has been bringing us a positive contribution of around 1,000,000 for the quarter, leaving them the operating profit for the first quarter at the 1,000,000 level. So unit revenue and capacity, this is a chart. There's a couple of pies is a chart that we bring to you every quarter, and this quarter probably is showing in terms of RASK One of the weaker performance that we have seen in the last quarters, it's related to capacity it's also related to weak demand in some cases and also very specifically in the case of Europe to Easter holidays.
So very quickly going through it. Domestic is still benefiting from these positive performance. On the IPD, specifically and also a little bit of dwelling domestic networks. It has to again with the incentivization of traffics attached with subsidies for Iceland, palletic and the and the Canary Islands. And then is Europe.
And, Europe, revenue unit, revenue weakness is very much related to Easter and weaker demand. And surprisingly or not, the UK does not appear as the weaker regions in this chart. In this quarter is more around Germany, Spain, and other areas that have been basically concentrating the weak revenue profile. Asia Pacific again, a very similar picture as the last quarters we've been sharing with you. And again, very specific weakness on some specific areas.
Again, mentioning in this case, Hong Kong, and maybe a little bit of, Tokyo, Hong Kong having to do basically with the overcapacity developments lately on some of our competitors. Africa, Middle East and South Asia has had probably one of the best performance. For the group on a low capacity increase. Latin American Caribbean, of course, is basically again a quite, concentrated negative impact, and we have to refer here again to Argentina, basically and Brazil. Although there is a difference, Brazil, we believe is already bottoming and maybe showing some spikes of a brightness In the case of Argentina is, again, a very troubled market, and is probably bumping on the bottom and we'll only get better probably through Q3 and especially Q4 when the impact of devaluation last year gets fully rolled over.
In the case of North America, we have a minus 2.3 But if we basically split or carve out the negative implications of the high growth we've been producing there in level Air Lingus and Iberia. With lower unit revenue, top of, structural basis. We see that that average in down effect has been creating most of the positive of the negative figure. And we can say that Bridgeshow is remaining on positive unit revenue performance in the North Atlantic which is again, a mature fact that we're, basically providing us confidence in the performance of this sector important sector for us on the remainder of the year. So on the cost side, of course, starting with fuel is 11.1%.
Will explain again in the following chart how we see the performance for the following quarters. It has had also to do with a strong performance, so low fuel cost, fuel unit cost, we had in the first quarter of 2018. That has made the comparables for 2019 slightly more difficult. Employee unit costs also as the previous quarter performing very positively. Again, you will see productivity of the group for the first quarter has been still growing, in a very significant way, more than 3% And this is, again, one of the structural facts behind these non fuel employee positive cost performance and savings.
Supplier is marginally negative But then it's here where most of the impact of the costs that are related to Iberia MRO maintenance costs, pretty sure it was holidays, handling costs are basically being charged So if we were to carve out the negative, so the savings, the negative figure in this quarter for the supplier would be consistently higher. Ownership is quasiflat and is also is a positive sign having to do with a number of additional aircraft. That we are bringing to our operations in these last quarters and specifically in Q1. So that's how we get non fuel 0.6 negative and really minus 2% in terms of underlying basis. And total nonfuel cost increase of 2.2%.
Referring now more precisely to, the fuel chart. We are basically reevaluating our fuel bill for 2019. And we are getting into an approximate figure of EUR 6,200,000,000 and this is referred to, carousel price of $6.7 per metric ton and the value of the euro against the dollar of 112. These are mainly spot type of references. So we feel comfortable with a figure of 6.2 has been the appropriate estimate for the fuel bill of the whole year, especially noting that our level that level of hedging for the remainder of the year is high.
It's above 80%. And this gives this figure quite a bit of consistency. You also see how the fuel cost increases for the following quarters will be gradually diminishing, especially in Q4, and probably entering into neutral or even slightly positive territory through 2020. This again, shows that we will be able to digest big piece this big increase that happened since early or mid-twenty 18. Keeping the basic achievements that we had stated on our Capital Markets Day in terms of results, in terms of profitability ratios.
So, talking about profitability rate ratios, ROIC has achieved a decline, since last quarter. This is basically the substitution of quarters. So Q11 2018 was a strong quarter in terms of profitability in terms of ROIC as well has been substituted by the first quarter in 2019, which, have been explaining as a weaker one. So this substitution effect has been creating this drop in ROIC for the last four quarters, but still showing a figure which is above 15%. Operating margin trend, has been dropping again because of the reasons I have been explaining.
Nominal margin for the last four quarters for the group, still holding at the 12% level. Another type of, type of consequence that you are seeing here in this chart of the application of IFRS 16 is about the, Roy convergence, which in the different companies of the group. So companies of operating leases have been benefiting and increasing the ratios And that's because of the right of use equivalent, that we have been evaluating is lower than the 8 times notional figure that we were using in the past. Having said that, which always is still the company achieving profits in the first quarter of the year, the same as the full group. Roy Kinelingo is still holding at very high levels, about 20%.
So most of our main messages our main achievements are being kept still there and will be there for the remainder of the year. So leverage improved. And again, this matter of the way IFRS 16 is an implication on our figures, especially on net adjusted test figures. Also, because as you see on the first quarter end of the quarter, is capturing a significant cash increase, having to do with the sales that are going to be flown, that have been already flown by our passengers through the month of April. So that cash increase has been one of the basic arguments and reasons why our cash position has been holding very strong, in the first quarter, even through these reduction in, our operating profit figure.
The other one has to do with basically less restructuring cash costs in this year against 2018. So finally, and because we don't want to bore you with too many figures, of course, you have on the appendix a lot of details. We're going to be running very quickly through these, of the application of, the IFRS 16 new accounting methodology. So the usual suspects with which we have been sharing with you, a little bit of a lower CASK ex fuel is having to do with the way, the rental costs are treated and now split between interest and depreciation. There is, EBITDA replacing EBITDA because there's no more, rentals to be considered as such at the operating profit level.
Higher operating profit margin, again, due to the exclusion of the interest element on operating leases. A similar, adjusted level of operating margin. So we were not so far away when we were applying the eight times and then we were split splitting the rental on a slightly artificial way between depreciation and interest charges. Normalized operating profit margin as the numerator of ROI calculation will be slightly lower due to adjusted right of use aircraft depreciation and also the inclusion of, amortization, depreciation of the intangible software investments. So adjusted EPS is going to be having up and downs depending on the age, the relative age of the operating lease contracts, but as a whole, the differences are going to be smoothen, through, I would say, the period of our business plans.
Also, the next 3, 4 years having positive or negative small deviations against the non IFRS 16 pre IFRS 16 figures net debt is here where we really find the big change. And of course, it has to do as we had advanced you. Which the fact that, the liabilities attached to the right of use calculations are well below the ones, notional ones considered under the 8x multiplier. So no surprises, and it has been, as we told you. And then creating a leverage, difference, positive difference.
So a significant reduction coming down then from the prevailing 1.6 levels, 1.5 levels to the one ish levels in which we are moving today. Equity free cash flow has been a pure cash metric will not change. And return on invested capital ROIC is going to be changing very slightly. Again, probably this could have positives and negatives for the next years, this year will be slightly higher basically because of the inclusion in the numerator of additional margins due to the way we treat other non fleet rentals and also these IT depreciation and which will be part of the numerator now. In the case of that denominator is going to be again, experiencing a little bit of a drop.
And then it's, again, on the new definition that we are applying, basically a new one that appears as a new element that appears as absolutely rational is now we are averaging the invested capital through the 4th quarters, last 4 quarters of the year instead of taking the end of the quarter last figure, which was EBITDA fair. Sorry for this very detailed explanations and I'm passing back the word to Willie to explain other important issues around that future performance.
Okay. Thank you, Enrique. So turning now to, capacity for 2019, as I mentioned in my opening remarks, We're now adjusting full year capacity growth to 5.3% down from the 5.9% that we pre basically gave you. And you can see that, that takes effect mainly in the 4th quarter with a reduction from what we previously announced 5.9 percent to 3.7 percent capacity growth in Q4. And this is a number of measures taken across all of the airlines.
I think it's fair to say we tried a couple of new initiatives in Q4 of last year rolling into Q1 of this year, which didn't quite work out as we had planned. And therefore, we won't be repeating that. And you should expect Therefore, the lower growth that we're showing in Q4, 3.7% that will flow through into Q1 of 2020. And finally, just to reaffirm our guidance for the year, as I said, we're sticking to our guidance and our current fuel prices and exchange rates. We expect 2019 operating profit before exceptional license to be in line with 2 2018 pro form a, passenger unit revenue is expected to be flat at constant currency and non fuel unit costs.
We expect to improve at constant currency. And again, just to reiterate, we expect passenger unit revenue at constant currency to improve for the remainder of the year. So I'll now hand back to the operator and we can start taking your questions.
Thank and answer session. We have a first question and it's coming from the line of Citi Syth from Raymond James. Please go ahead with your question.
Just a couple of questions for me. 1st, on the lowering of the kind of the revenue outlook slightly for 2019, kind of curious what regions caused that change. And so the second question, it's a bit of a long term and conceptual question that you do have JetBlue that's announced wanting to do a transatlantic and a bit of a difference with JetBlue versus kind of Norwegian is that they actually have a premium product and a strong network at least on one side. Kind of curious, your thoughts on what that impact might be, what the competitive Nest will be? And also just what the implications are for Eralingus given the strong relationship there with JetBlue?
Thank you.
Hey, thank you. I think the best way of dealing with the unit revenues, it reflects the weaker performance in the first quarter which clearly was lower than we had expected. Our outlook for Second And Third Quarter remains, as we had originally planned. We're not seeing any evidence of activity. That's unusual.
The areas of weakness across the network are the ones that we've highlighted to you before and there are the areas where we're making adjustments to capacity and they're principally in place like Argentina, Brazil, South Africa. So we've already announced we're canceling the Madrid Johannesburg Iberia root. BA is cutting capacity into South Africa as well, and we'll be slowing down growth in the fourth quarter into these markets. And it just reflects the macroeconomic environment in those countries. The rest of the network is performing pretty much as we had expected.
I think the issue in Q1 as we mentioned was a capacity issue, industry capacity issue. And to put our hand up. We contributed to that in Europe. So we had strong capacity growth in the quarter. In our case, as you can see from the figures, we grew capacity in the quarter by 6.1% and up Ks grew by 6.4%.
So we did feel the capacity we put in there, but it clearly was of an impact to the yield I think other European carriers. So similar situations and may not have been as successful in filling seats we were. So as I said, the adjustment to the unit revenue for the year really does reflect the difference in performance in the Q1 to what we had plans, the rest of the year, we see very much in line with our original expectations. On JetBlue, yeah, I think we've been hearing about JetBlue coming into Europe for 4 or 5 years now. So it doesn't come as a surprise to anybody.
And, I think they're talking about 2021, maybe 2022. We know like everybody else, there are delays to the delivery of Airbus aircraft. So that may impact on their timing as well. We don't really see it changing. We've been anticipating it.
We've been waiting for it. The relationship between Erlingus and JetBlue remains strong and we expect that to continue. So we're not proposing to make any changes to that. It's Erlingus is desire that they continue to work with JetBlue, and we see no reason why we should change that. I think everybody's waiting to see where in Europe, they actually fly to, given the slop restrictions that apply to most of the airports that they probably want to serve.
So we'll wait and see, but it's a long time away and it's not anything that would be concerning us.
Our next question comes from the line of Jarrod Castle from UBS. Please go ahead with your question.
Thank you. Good morning, gentlemen. And from Recare, if I'm not mistaken, this is the last set of results. So, I could guess on behalf of all the analysts. Thanks for all the help.
3, 3 from me. 1, any updates on shareholding structure conversations with the EU it's not constructive. 2, anything to be set at this stage in terms of conversations with unions and British Airways. And then lastly, you obviously got coming quite a big special and an ordinary dividend on the 8th July, but any thinking kind of in terms of the cash returns as we move through the year?
Thank you. So in relation to the conversations that we have, it's important to point out that the main conversations take place with the national regulator because it's a national regulator that has responsibility in the area of ownership and control certainly in the first case. We've had comprehensive discussions with those. I can't disclose the details I think it would be wrong for me to say that, and you should expect the national regulators to make some statements in due course. We engage also, at the highest levels with the commission, and we remain confident in our position in relation to our our structures and a post Brexit, whatever type of Brexit is, it is environment that we will continue to operate.
And we're pleased that the, air connectivity regulations have been passed and we've seen a corresponding and liberal approach being adopted by the UK government. So we remain confident in relation to these issues. The conversations with the trade unions in bridge always are ongoing. Obviously, we don't provide a ruling commentary in relation to that, but VA continues to engage in open dialogue with the trade unions. And if there's any news to report, we'll clearly be the first to tell you in relation to that.
And, yeah, you know, it's a lovely a special and ordinary dividend that will be approved by our shareholders at the AGM, hopefully on 20th June. In relation to any future, return, cash return to shareholders, that's obviously something that the board will discuss at the at the appropriate time. But we've always been clear that, where we're generating any cash in excess of the cash that we believe we can use sensibly that that's money to be returned to shareholders and the debate has always been around the form in which that money gets returned, not whether it gets returned And that continues to be the attitude of the board, which they have reaffirmed on a number of occasions and I have no doubt that the Chairman will reaffirm that at the AGM on 20th June.
Thanks very much.
Our next question comes from the line of Steven Furlong from Davy. Please go ahead with your question.
Hi guys. Just once again, Willie, maybe just to give your general comments on, I know your proponent of consolidation mean, you're well very well positioned in net debt to EBITDA of one times. But I think you've said very recently, maybe don't expect anything from IG in 2019, 2020. So just a general comment there. I just want to ask about the April traffic stats.
Maybe any comments there because it looks like a very strong performance by Erlingus, maybe it's Easter, not so much by level, but maybe the law of small numbers and then maybe just on the also the cargo market because that's also a bit weak. Thank you.
Thanks, Stephen. Yes, we're very clear. We believe consolidation will continue to benefit the industry in we're pleased with the activity that has taken place. And we're pleased that a number of our competitors are talking about actively pursuing further consolidation. I can reaffirm that we're not actively considering anything at this stage.
I said, we don't normally comment on rumors and speculation, but in relation to Thomas Cook, we're not looking to do anything with Thomas Cook. So I think the only ones I've seen to confirm their interest has being Lufthansa and I believe their interest principally relates to Condor, but we're not looking to do anything there. So again, as we've been clear if there is an opportunity, we are well positioned, but we don't see anything that's, that we would consider to be attractive or that makes sense to us. That's not to say it doesn't necessarily make sense to others, but it certainly doesn't make sense to us at the moment. And yeah, April traffic stats were good.
You know, you're right. April was very good for Erlingus. There is an Easter impact that. And it impacts on the airlines in a different way. It's Easter's, and like I said, it's only positive for and negative for business travel.
So we didn't see any change in, patterns associated with the Easter activity. And just to say it upfront, we see no impact of Brexit or any Brexit related issues either in the first quarter results or in anything we're seeing in terms of book impassions at the moment. I've been asked that by a number of journalists. And level, yes, it's just that it's in that growth spurt So you should expect to see us take a little bit of time for it to catch up. On cargo, the cargo situation remains challenging as we've always said.
It's structurally a market where supply always succeeds demand, and that will continue to be the case. As you see, wide budget growth to deal with the, growing international passenger demand and the associated empty space in the cargo holds. So we're not seeing anything that's particularly different. It's a challenging year, which we expected it to be. And we think that's going to be the case through the rest of this year, but it's we've long given up looking at cargo as a lead indicator for a passenger and that continues to be the case.
We don't see any correlation between the trends that we see in cargo and the trends that we're seeing on the passenger side of the business.
Thank you.
Our next question comes from the line of Jamie Robertson from Deutsche Bank. Please go ahead with your question.
Thanks. Good morning, Willie and Enrique. Just one question from me. The good start to the year on non fuel unit costs is clearly there for to see. But back at the full year results, you were also quite clear that this probably would not be one of the years where you were able to, reduce non unit costs and now you say it can be.
So could you just give some specifics in terms of what's changed please on the outlook for non fuel unit costs Thanks.
Yes, and I think this reflects the strength of IAG and the flexibility that we have that we can change and change quickly to respond to changing market conditions. And that's exactly what we did. As I said, we tried a different approach slightly different approach with some of the airlines to the commercial activity in the fourth quarter 1st quarter, and it didn't work. You know, I don't mind admitting we put too much capacity in there. We're able to fill it, but it's at the expense of yields.
And it was something that we tried thought it was right to do it and we got it wrong, and we're not going to repeat it. So when we could see that, that wasn't working the way we had planned, we started taking action early. And this is something that we've done. We responded early to the increase in the fuel price that we saw in 2017 going into 2018, and we adjusted pricing early. And that's what we're going to continue to do.
So it reflects the flexibility that we have. And if we see, the need for a change in approach, we'll do that. And We have a number of initiatives that we've accelerated in relation to our non fuel cost approach. There's nothing no major big programs there. It's just the ongoing focus that all of our operating companies and all of the managers in the business have in relation to costs.
And it demonstrates the, the control that we can access size over our cost base and we will continue to do that.
Yes. We achieved some improvements through Q1 on our cost management targets. And that's something that we want to retain. So that's nothing that we are going to be giving back again through the following quarters. On the other side, the underlying minus 2% gives us really a lot of confidence in our ability to make these improvements structural through the year.
So That's why we have been more confident in retargeting, a reasonable, a small and modest reduction in non fuel unit costs for the full year.
Our next question comes from the line of James Hollings from Exane. Please go ahead with your question.
Hi, good morning. First of all, many thanks Enrique and best of luck. And then a few from me. Just the first one, does that capacity planning in any way, if, certainly, if it were to go through into 2020, impact your CapEx guidance? Is it still technically 2.6to2.7 this year?
Secondly, it feels like many, many quarters since you haven't mentioned BA holidays as being extremely strong. I was wondering if that ever is showing signs of calming down or whether it's just super strong and maybe continues for a long time to come. And then thirdly, just on, clearly, you're not doing Thomas Cook. I'm just wondering on Norwegian. Obviously, you sold your shares and said you're not doing it.
Have you technically ruled yourselves out forever? And technically, when could you come back? Is there any regulation that says you can't come back fairly soon with another bid, particularly at DKK 38,000,000 where it is now?
So the, take them in reverse order, no, there's nothing to prevent us, but we're not on our waiting book. We're not active. So we're not locked out if something were to happen there, but I can assure you we're not looking at it and we're not intending to do anything. And as you saw with Liverpool, 3 nil down, you can always come back. So, you know, that's, but I'm ruling it out, at this stage.
But I hope that's continues to perform well. It's been a strong performer and continues to be a strong performer and it's become a real player in that market. And it reflects the customer base that we have and the network we clearly have as well, which is a particular strength that BA has that other carriers can't match. And you're going to have to remind me of your first question again. Sorry, CapEx, yes, no, no change.
We're still looking at CapEx this year, in line with the guidance that we gave you 2.6 to 2.7 yet, but we looked at you at a couple of markets day in November in relation to both future capacity plans and future CapEx plans. And as I said, the capacity, you should certainly expect us to adjust that from the previous figures that we gave you. And that should have an impact on CapEx associated with capacity growth, but it's too early to give you any insight into the the longer term impact of that, and we'll do that at Capital Markets Day.
As you got your Liverpool in there. I think I better mention I'm off to the Brighton and the Grand City Games. So I'll see if we can do a favor this weekend, Willy.
Please do. The seagulls you know, one of my favorite teams, obviously.
Our next question comes from the line of Andrew Lobbenberg from HSBC. Question.
Hi there. Can I ask about, failing in the performance in the quarter? There was there was quite a large drop in the margin. Was that just fuel and Easter timing or was there anything else going on there? Can I ask about the 787, delays that continue and and and seem to to to drag on?
How's that affecting your capacity plan? And, where might we go hunting for, for any consultation? Is it from roles that ATBC in any part of the financial statement? And then in terms of off level, obviously, we're not disclosing, you're not disclosing it profitability specifically, but, in its very high growth mood, is it performing in line with what you expected? And is there a differentiation between the rest performing long haul against short?
And, Enrique, thank you very much. It's been such fun working with you for such a long time.
Thank you, Andrew. Unwelling yet, so it's a Fuel and Easter principally. They did see some weakness softness in the Italian markets and in the French markets, which I think was not just Easter related, but it was principally, as you would expect, given the leisure focus that Welling has, it was principally the issues that you've highlighted, Andrew. On the 787, the additional inspections on the TEN engines will have an impact, because we have to take aircraft out of service to complete the inspections. We're not expecting to see any issues with the engines.
But as I said, it is the, there is a strict maintenance inspection program that does require us to take the aircraft out of service to complete those checks. And we will be pursuing additional compensation from Rolls Royce. I'm probably a little bit more positive about the situation clearly very frustrating and annoying for us, but we do think that roles have now identified solutions. It just requires them to get the solution manufactured and delivered to customers. So we'll have a very small impact on capacity with the 787 program, we will have to adjust that to deal with the additional maintenance, inspections required on the engines.
And level, yeah, it's still very early days. What I can tell you is level Barcelona is performing well, and it's profitable level power and in line with our expectations. Level, long haul in Paris is behind expectations. I think we've seen a very strong capacity and competitive situation in Paris, but we're seeing a number of competitors now withdraw, but, you know, the power's performance has lagged behind. And on the short haul, as everybody knows, Vienna has seen a huge increase in capacity.
So that has had a big impact on yields in the Vienna market, which are behind what we had planned. But as we have said before, the financial performance of level is embedded in the figures. There's no a separate exceptional cost that others are reporting in relation to their initiatives in these markets. So, we remain confident about level and particularly very encouraged with levels performance in Barcelona, more confidence given what we're seeing in terms of the competitive reaction now to our performance in Paris and Vienna is performing in line with what everybody else has said Vienna is doing. It's a market where customers and the airports are making, well, the airports certainly making money and customers are getting great offers, but it's challenging for the airlines.
But, as I said, it's a yield impact, the volumes that we're seeing and the customer reaction to the level of product on ShoreTel has been well in excess of our expectations.
Our next question comes from the line of Sumit Mehrotra from Societe Generale. Please go ahead with your question.
Thank you. Most important question being asked by Robin Bio. I just have to ask you about anything specific you saw in the domestic sector, you see unit revenue is up 2%. So if you could highlight a few geographies that have been doing well for you in the domestic sector. Secondly, on the North Atlantic market, you say that British Airways underlying unit revenues have been doing well.
What are your expectations for this summer, early in the case into the bookings, how the trends are in unit revenues, especially your thoughts about pressures from the long haul capacity growth from low cost airlines this summer? And then lastly about, I know you would have limited elbow room to discuss your employee costs. But do you expect the impact to be felt in Q3 this year and whether it would be more loaded towards H2 rather H1? From the BA discussion? Thank you.
Thank you. Yeah, domestic, as Enrique said, I think he pronounces Icelanders, we would say islanders. So this is, Spain activity between the Canary Islands and the mainland, which has been very, very strong that we've been using Iberia wide body aircraft to serve the market there. So it's just a very, very strong performance in the Spanish domestic markets that has continued. Into the second quarter.
On Transatlantic, Transatlantic is fine. You know, the business continues to strong. We're not seeing any unusual trends and we're not seeing anything that would concern us in relation to capacity. And in fact, I'd say quite the opposite. Because we have seen some capacity come out from the, the low cost carriers that have pulled back or disappeared.
So no, nothing to say on Transatlantic through the summer. And obviously, I'm not going to provide commentary on the employee discussions, they are ongoing and it would be wrong for me to say anything at this stage. But it's when there is information, we'll be very clear with you in relation to any impact. But as I said, we're, not going to provide a running commentary to the negotiations that are ongoing at the moment.
Sure. Thanks. Just a quick follow-up on the North Atlantic pit. Do you see the pressure this year to be lower than last summer?
It's competitive on the transatlantic. But I think the capacity growth is slower than people would have expected with the collapse of Wow and with Norwegian clearly experiencing challenges and adjusting capacity see accordingly and with the ongoing issues on the 787 and a few other things. So it's probably, there is certainly less capacity growth this summer than we would have expected. But the underlying demand environment continues to be very good. So it's, you know, it's been a good market and, the trends that we're seeing at the moment are very much in line with what we expected see in the second and third quarter.
And as you know, we've limited visibility into the 4th quarter at this stage, but we don't expect any significant change in the capacity outlook that has been adjusted as a result of those changes that I mentioned earlier.
Okay. Thanks. Thank you, Enrique.
Our next question comes from the line of Marty Scholes from Commerzbank. Please go ahead with your question. Hi.
Thank you. And first of all, of course, thank you, Enrique. Two questions left for me. First of all, can you give us a little bit more color on the different development within your premium cabins and economy, particularly on the long haul side, of course? And also, we spoke already a lot about North Atlantic, but not so much about Asia.
Do you also see any areas where you can rather maybe increase a little bit capacity and how do you and did you already adjust your kind of capacity outlook for the travel area like Hong Kong or is there anything planned?
Okay. I'll deal with Asia and I'll let Enrique just comment on the and premium long haul. On Asia, we're increasing capacity in some markets, but we have seen significant capacity coming in from the Chinese carriers, and that clearly is very significant less so for us because of our footprint in China relative to a number of our European competitors who would have a much bigger footprint in that market much bigger footprint in that market. Hong Kong, yes, we've seen a lot of capacity coming into Hong Kong as well. But yes, we've always had a strong position there, but it's principally from China and from the Chinese carriers with significant capacity growth.
But as I said, our exposure to China is a lot lower than our main European competitors. And Rick, do you want to comment on
Nothing very special to mention. So it's a the performance through the 1st 4 months of the year is very consistent with our expectations. So figures, yields, unit revenues on the premium cabin are performing as we thought. So There has been a little bit of a shift in terms of some of our companies having to do with the calendar, having to do with the timing of Easter. But what we are seeing for the 1st 4 months and what we are seeing into the rest of Q2, Q3 it's looking positive and no special weakness, to be recorded in the business maybe more, what we have seen in terms of the leisure and especially as we have said, very much referred to the intra European market.
So that's basically the message.
Okay.
Our next question comes from the line of Nuala Macron from Goodbody. Please go ahead with your question.
Hi, guys. Just two questions from me. First one, just on your pricing outlook specifically in Europe. So European pricing was down 5.7% in Q1. And while you that to improve in Q2?
Should we still be thinking about it as down year on year versus last year? And the second one is just on your platform. So previously, Willie, I know you're quite excited about what you were doing with your NDC providers, but that commentary seems to have faded a bit. A probably feeds interview. How are you feeling about spend in your overall IT systems?
Or are you happy with how they sit currently?
On the IT systems, yeah, we're happy we continue to invest where investment is justified. NDC is performing well, you know, with We're one of the leaders in relation to that and we're the, it's more of a commercial strategy and distribution strategy than an IT strategy in relation to, NDC, on Europe, yes, we've commented and I think everybody else has that capacity in Europe was strong growth in the first quarter was very strong. That's moderating, in the second and third quarter, but it was clearly from our point of view, although we filled it and improved our seat factor overall, as I said, 6.1% ASK growth across the network 6.4 percent OPI growth. It was at the expense of yield. And I think that's exactly what everybody saw in the European us.
So, you know, we, as I said, we put our hands up and said, we've got capacity around there, but we've adjusted it. And we're not seeing anything in second or third quarter that's as of line.
So maybe the max issues will contribute to moderate capacity increase through Q3 and Q4, depending on how the whole thing ends and when but it appears as some of our direct competitors were using or planning to use Maxx through the following quarters. And that's going to be also then a contribution for a moderation of our capacity growth into Europe.
Okay. So sorry. Just on the European side, while I understand what you're saying on the capacity side, do you actually expect pricing to be up year on year for the summer period for Europe?
No, we don't give any details of that. We'll give you the details after it's happened, but we don't give guidance in relation to that.
Okay, no problem. Thank you.
Our next question comes from the line of Neil Glynn from Credit Suisse. Please go ahead with your question.
Oh, good morning. If I could ask two questions, please. The first one, best of luck Enrique for the future. And I thought maybe as a departure gift, I might ask you a question on the transfer pricing for the first quarter within the unit revenues, if that's okay. Just looking towards the RASK down 1.4% year on year, you've obviously highlighted on the slides that the the differential between that and the regional performances is partially transfer pricing and antitrust redemptions, etcetera.
But the gap seems wider than it has been over the last few years. And I just wanted to check whether there was anything specific in there and whether that should normalize, if you will, through the rest of the year? And then the second question, just on the other revenue, obviously, a very strong performance year on year, I think partially due to maintenance as you've called out. But I guess your visibility is probably okay on the maintenance pipeline. For Iberia through the rest of the year.
So I was hoping that you could help us in terms of understanding whether there will be any particular lumpiness 2nd quarter, 3rd quarter or 4th quarter on that or whether it should be quite uniform through the year? Thank you.
Yes, I'll take the 2 questions. So on transfer traffic payments and flows, yes, they are they become in Q1 an important part of the difference between what we call the raw figures Regional TS Engineered Revenues and the final minus 1.4. The other ones to mention, which have also been contributing to and to bridge that gap are around ancillary growth. So ancillary has been growing effectively on this quarter in respect of last year. And again, other type of variety of reasons, among which Avios is one of them outdated paper is another one So there is a basket of different matters, why there has been this raw difference between the raw figures on revenues and the final, RASK combined figure for the group.
We see probably that gap is going to be closing through the following months. Especially we believe transfer traffic payments will become narrower through Q2 and Q3. They are explained by basically by the different, unit revenue performance, due to the different economic strengths at both sides of the Atlantic. On the maintenance business, MRO business of Iberia on third parties, yes, it has been a high revenue figure for the first quarter is going to be kept high, but gradually fading through the next three, four quarters. So we'll see that figure coming narrower basically into Q3 and Q4, although for the full year is going to be probably above the full year of 2018.
Our next question comes from the line of Johannes Braun from MainFirst.
And I guess left. Can you on that delivery of unit revenue recovery in the remainder of the year that you expect, is this, is rather based on Q2? Is it more on the Q3 trend? Or is it actually Q4 when capacity is cut down to that 3.7%.
No, it's as we said, it's Q2, Q3. It's not so much Q4 And the change from what we had said previously is really the Q1 performance. And we saw some, it's always difficult, as Enrique said, to call Easter and the impacts that that has But, it's principally as a result of the lower unit revenue performance versus our plan in the first quarter. For the rest of the year, we're very comfortable with what we see and it's very much in line with what we had expected to see going forward.
We have no more questions at this time. So I hand the conference back to you.
Yes. I'm going to let Enrique comment first and then I would like a short comment before we close
Yes. So this is, as you know, my last location to disclose quarterly results for IG. And of course, I have to mention, I have to say to all of you, it has been a great pleasure to work with you. It has been always very positive interaction, very understandable and really have enjoyed a lot. Of course, I've enjoyed more working here with the team on the IAG project.
It has been a fantastic 8.5 year period. We've been really enjoying building up this fabulous project, this fabulous group of companies. Which is probably at the very top of the range of the worldwide airline companies and groups. I have to mention very specific issue about our value. So when people think about IG, they think about Heathrow as maybe they mean one of our more valuable assets.
It's not such it's not Heathrow. It's our team. I think basically we have the best management team in the whole industry. And it's not the thin team. It's a very broad team.
So in reality, we are securing succession, which is going to be absolutely positive, absolutely valuable and will be ensuring the creation of additional value for the shareholders that we have in future shareholders that will have. But again, thank you. Thank you very much for your help and contribution.
Thanks, Enrique, and I speak for everybody around the management team to thank you for your fantastic contribution and We will wish you well in your retirement, but we will continue to work you hard until the 20th June when you retire. Now, I just want to make a personal statement. As you know, I like to be upfront with everybody and need to tell you that, I will be selling, part of my shareholding. And this is, to me, say, an outstanding financial obligation to my ex wife. And I know any CEO selling shares attracts headlines and theories, but I want to be absolutely clear with you that does not in any way reflect, the view of the business looking forward are my own wish to walk away from IAG, but owing to a combination of results and other issues, principally the Norwegian situation, I've been deemed an insider for most of the last 2 years and have not been able to sell any shares.
So I need to take advantage of this open period As you know, I've not sold any shares in IAG until now. My shareholding is around 2,000,000 shares, and I will be selling a portion of these shares to allow me to fulfill an outstanding financial obligation in respect to my divorce. And we will make obviously a formal announcement when the shares have been sold, but I thought it would be better that you hear it directly from me now rather than wait to after the event. And so as I say, it's not something I want to do, in fact, quite the opposite, but it's something I have to do. So on that very happy note, and I thank you all for joining the call.
And appreciate your support and we look forward to talking to you at our next results announcement.