Thank you very much. Good morning. Thank you for joining us for the call. 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. 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 impacted on yields. Our passenger unit revenue declined by 1.4% at constant currency. We saw a further reduction in our non-fuel unit cost, down by 0.6% at constant currency.
As Enrique will show you later on, when you take out the non-ASK related costs associated with Iberia MRO and BA Holidays, it improved even better than that. While we saw a slight decline in our ROIC, it's still ahead of our 15% target. 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 at constant currency. Therefore, for the avoidance of any doubt, we expect passenger unit revenue at constant currency to improve for the remainder of the year. We're also adjusting capacity, now forecasting full-year capacity growth of 5.3% compared to the 5.9% that we gave you at the previous call, and we'll go through that in a moment.
You may have seen yesterday, we announced our AGM to be held on the 20th of June. 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 EUR 0.165 per share and a special dividend of EUR 0.35 per share. I'll hand over to Enrique, who will take you through the presentation now. Enrique.
Good morning, everybody. Thank you, Willie. As has been just said, Q1 2019 has been a challenging quarter for IAG 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. 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 for this quarter has been reaching EUR 135 million, which is EUR 205 lower than last year. 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 EUR 144 million.
As you will see, most of this drop is basically referred to Easter holiday change in timing. 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 EUR 135 has been built up, we have to mention passenger unit revenue performance at constant currency basis of -1.4%, and total unit revenues, again at constant currency terms, of -1%. This difference shows again the growth of our third-party MRO business and handling business in the case of Iberia, and also British Airways Holidays. On the cost side, we have been probably beating our expectations, the ones that we had for this first quarter, and achieving a -0.6% improvement constant currency and pro forma compared with last year.
As Willie was advancing, if we carve out the costs that are related to these non-ASK activities as Iberia third-party MRO, British Airways Holidays, et cetera, the real underlying positive performance on the non-fuel unit cost basis has been -2%. Of course, fuel has not been a help there 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 forma, to a +2.2%. Basically, the duration 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 producing a capacity increase of 6.1% against last year, and then our RPK figure of 6.4%.
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 operating profit in 2018 and the first quarter 2019 has been doing. First, remind you again, this negative net impact of FX, again, stating that it's basically transaction-related, so strong USD related. Of course, we have been growing 6% and there is a margin increase having to do in this, I would say, chart to volume increases. It's about EUR 21 million.
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 EUR 65 million. Non-passenger revenue improvement, again, worth to mention the improvement in activity, and then margins related to Iberia MRO, also marginally British Airways Holidays. Then, of course, fuel cost. Fuel cost increases for a quarter has been very relevant. Combination of market prices and hedges has been creating for us this headwind that in unit terms will be in the range of 15% outturn and 11% on a constant currency terms.
The positive is coming on the management and achievements on the non-fuel costs, which has been bringing us a positive contribution of around EUR 22 million for the quarter, leaving the operating profit for the first quarter at the EUR 135 million level. Unit revenue and capacity. This is a chart, these couple of pies is a chart that we bring to you every quarter. 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. Very quickly going through it. Domestic is still benefiting from this positive performance on the Iberia specifically, and also a little bit of Vueling domestic networks.
It has to do again with the incentivization of traffics attached with subsidies for Islanders, Balearic and Canary Islands. Europe unit revenue weakness is very much related to Easters and weaker demand. Surprisingly or not, the U.K. does not appear as the weaker regions in this chart, in this quarter. It's more around Germany, Spain, and other areas that have been basically concentrating the weak revenue profile. Asia Pacific, again, very similar picture as the last quarters we've been sharing with you. 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 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 America and Caribbean, of course, is basically, again, a quite concentrated negative impact. We have to refer here again to Argentina, basically, and Brazil. Although there is a difference. Brazil, we believe, is already bottoming and may be showing some spikes of brightness. In the case of Argentina is again, a very troubled market, and is probably bumping on the bottom, and will 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 -2.3%, but if we basically split or carve out the negative implications of the high growth we've been producing there in LEVEL, Aer Lingus, and Iberia, with lower unit revenue type of structural basis. We see that that averaging down effect has been creating most of the negative figure.
We can say that British Airways is remaining on positive unit revenue performance in the North Atlantic, which is, again, a matter of fact that we're basically providing us confidence in the performance of these important sectors for us on the remainder of the year. On the cost side, of course, starting with fuel is 11.1%. We'll 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 year 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%.
This is, again, one of the structural facts behind these non-fuel employee positive cost performance and savings. Supplier is marginally negative. This is where most of the impact of the costs that are related to Iberia MRO, maintenance costs, British Airways Holidays, handling costs are basically being charged. If we were to carve out the negative, the savings, the negative figure in this quarter for the supplier would be consistently higher. Ownership is quasi-flat. It is also a positive sign having to do with the number of additional aircraft that we are bringing to our operations in these last quarters, and specifically in Q1. That's how we get non-fuel 0.6 negative and really -2% in terms of underlying basis and a total non-fuel cost increase of 2.2%. Referring now more precisely to the fuel chart.
We are basically reevaluating our fuel bill for 2019. We are getting into an approximate figure of $6.2 billion. This is referred to kerosene price of $67 per metric ton and the value of the euro against the dollar of 112. These are mainly spot type of references. We feel comfortable with a figure of 6.2 as being the appropriate estimate for the fuel bill of the whole year. Especially noting that our level of hedging for the remainder of the year is high. It's above 80%. 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. Probably entering into neutral or even slightly positive territory, through 2020.
This again shows that we will be able to digest this big increase that happened since early or mid-2018, keeping the basic achievements that we had stated on our capital markets day in terms of results, in terms of profitability ratios. Talking about profitability ratios, ROIC has achieved a decline since last quarter. This is basically the substitution of quarters. Q1 2018 was a strong quarter in terms of profitability, in terms of ROIC as well, has been substituted by the first quarter 2019, which I have been explaining is a weaker one. 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 consequence that you are seeing here in this chart of the application of IFRS 16 is about the ROIC convergence between the different companies of the group. Companies as Iberia and Vueling that had a higher component of operating leases have been benefiting and increasing the ratios. That's because of the right of use equivalent that we have been evaluating is lower than the eight times notional figure that we were using in the past. Having said that, which is still the company achieving profits in the first quarter of the year, the same as the full group. ROIC in Aer Lingus is still holding at very high levels, above 20%. Most of our main messages, our main achievements, are being kept still there and will be there for the remainder of the year. Leverage improved.
This matter of both the way IFRS 16 is having an implication on our figures, especially on net adjusted debt figures. 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. 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 this reduction in our operating profit figure. The other one has to do with basically less restructuring cash costs in this year against 2018. 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 type of basic consequences of the application of the IFRS 16 new accounting methodology. The usual suspects which we have been sharing with you. A little bit of a lower CASK ex-fuel, having to do with the way the rental costs are treated and now split between interest and depreciation. There is EBITDA replacing EBITDAR 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. We were not so far away when we were applying the eight times, then we were splitting the rental on a slightly artificial way between depreciation and interest charges.
Normalized operating profit margin as the numerator of ROIC 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. Adjusted DPS is going to be having ups and downs depending on the relative age of the operating lease contracts. As a whole, the differences are going to be smoothing through, I would say, the period of our business plan. Through the next three, four 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. Of course it has to do, as we had advanced you, with the fact that the liabilities attached to the right of use calculations are well below the notional ones considered under the eight times multiplier.
No surprises. It has been as we told you. Creating a leverage difference, positive difference. 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 as being a pure cash metric will not change. 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 this IT depreciation, which will be part of the numerator now. In the case of the denominator is going to be, again, experiencing a little bit of a drop. 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 last 4 quarters of the year instead of taking the end of the quarter last figure, which was a bit unfair. Sorry for these very detailed explanations. I'm passing back the word to Willie to explain other important issues around our future performance.
Okay. Thank you, Enrique. 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 previously gave you. You can see that takes effect mainly in the fourth quarter with a reduction from what we'd previously announced at 5.9% to 3.7% capacity growth in Q4. This is a number of measures taken across all of the airlines. I think it's fair to say we tried 2 new initiatives in Q4 of last year rolling into Q1 of this year, which didn't quite work out as we had planned. Therefore, we won't be repeating that. You should expect, therefore, the lower growth that we're showing in Q4, 3.7%, that'll flow through into Q1 of 2020.
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 items to be in line with 2018 pro forma. Passenger unit revenue is expected to be flat at constant currency. Non-fuel unit costs are expected to improve at constant currency. Again, just to reiterate, we expect passenger unit revenue at constant currency to improve for the remainder of the year. I'll now hand back to the operator, we can start taking your questions. Thank you.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this point, please press star one on your telephone keypad. Once again, that's star one on your telephone keypad to ask for questions, and the hash or pound key to cancel. We have a first question it's coming from the line of Savanthi Syth from Raymond James. Please go ahead with your question.
Good morning. Just a couple of questions from me. First, on the lowering of the revenue outlook slightly for 2019. Just curious, what regions caused that change? For the second question, it's a bit of a long-term and conceptual question, but you do have JetBlue that's announced wanting to do transatlantic, and a bit of a difference with JetBlue versus Norwegian is that they actually have a premium product and a strong network, at least on one side. Curious your thoughts on what that impact might be. What the competitiveness will be and also just what the implications are for Aer Lingus given the strong relationship there with JetBlue. Thank you.
Okay, 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 are the areas where we're making adjustments to capacity, and they're principally in places like Argentina, Brazil, South Africa. We've already announced we're canceling the Madrid-Johannesburg Iberia route. BA is cutting capacity into South Africa as well. We'll be slowing down growth in the fourth quarter into these markets. 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. We have to put our hand up. We contributed to that in Europe. 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 RPKs grew by 6.4%. We did fill the capacity we put in there, but it clearly was an impact to the yield. I think other European carriers saw similar situations and may not have been as successful in filling seats as we were. 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 planned.
The rest of the year, we see very much in line with our original expectations. On JetBlue, I think we've been hearing about JetBlue coming into Europe for four or five years now. It doesn't come as a surprise to anybody. I think they're talking about 2021, maybe 2022. We know, like everybody else, there are delays to the delivery of Airbus aircraft, 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 Aer Lingus and JetBlue remains strong, and we expect that to continue. We're not proposing to make any changes to that. It's Aer Lingus' 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 slot restrictions that apply to most of the airports that they probably want to serve. We'll wait and see, but it's a long time away, and it's not anything that would be concerning us.
All right. Thanks a lot.
Our next question comes to the line of Jarrod Castle from UBS. Please go ahead with your question.
Thank you. Good morning, gentlemen, if I'm not mistaken, this is the last set of results. I guess on behalf of all the analysts, thanks for all the help. Three from me. One, any update on shareholding structure conversations with the EU, if those are constructive? Two, anything to be said at this stage in terms of conversations with unions and British Airways? Lastly, obviously got coming quite a big special and ordinary dividend on the 8th of July. Any thinking kind of in terms of further cash returns as we move through the year? Thanks.
Thank you. 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 the 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'd be wrong for me to say that. You should expect the national regulators to make some statements in due course. We engage also at the highest levels with the commission. We remain confident in our position in relation to our structures and a post-Brexit, whatever type of Brexit it is, environment that we will continue to operate. We're pleased that the air connectivity regulations have been passed. We've seen a corresponding and liberal approach being adopted by the U.K. government.
We remain confident in relation to these issues. The conversations with the trade unions in British Airways are ongoing. Obviously, we don't provide a running commentary in relation to that. BA 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. It's a lovely special and ordinary dividend that will be approved by our shareholders at the AGM, hopefully on the 20th of June. In relation to any future cash return to shareholders, that's obviously something that the board will discuss at the appropriate time. 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.
The debate has always been around the form in which that money gets returned, not whether it gets returned. That continues to be the attitude of the board, which they have reaffirmed on a number of occasions. I've no doubt that the chairman will reaffirm that at the AGM on the 20th of June.
Thanks very much.
Our next question comes from the line of Stephen Furlong from Davy. Please go ahead with your question.
Hi, guys. Just want to, again, Willie, maybe just give your general comments on, I know you're a proponent of consolidation. You're very well positioned in net debt, EBITDA, 1x. I think you said fairly recently maybe don't expect anything from IAG in 2019, 2020. 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 Aer Lingus. Maybe it's Easter, not so much by LEVEL, but maybe it's the law of small numbers. Then maybe just on 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 Europe. We're pleased with the activity that has taken place. 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. As I said, we don't normally comment on rumors and speculation. In relation to Thomas Cook, we're not looking to do anything with Thomas Cook. I think the only ones I've seen to confirm their interest has been Lufthansa, and I believe their interest principally relates to Condor. We're not looking to do anything there. Again, as we've been clear, if there is an opportunity, we are well positioned. We don't see anything that we would consider to be attractive or that would make 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. Yeah, April traffic stats were good. You're right, April was very good for Aer Lingus. There is an Easter impact in that, and it impacts on the airlines in a different way. Easter, as Enrique said, it's normally positive for leisure and negative for business travel. We didn't see any change in patterns associated with the Easter activity. 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 booking patterns at the moment. I've been asked that by a number of journalists. LEVEL, yeah.
It's in that growth spurt, so you should expect to see it 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 exceeds demand. That will continue to be the case as you see wide-body growth to deal with the growing international passenger demand, and the associated empty space in the cargo holds. We're not seeing anything that's particularly different. It's a challenging year, which we expected it to be. We think that's going to be the case through the rest of this year. We've long given up looking at cargo as a lead indicator for 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.
Okay. Thanks, Willie, and thanks, Enrique.
Thank you.
Our next question comes from the line of Jaime Rowbotham from Deutsche Bank. Please go ahead with your question.
Thanks. Morning, Willie and Enrique. Just one question from me. The good start to the year on non-fuel unit costs is clearly there for all to see. 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-fuel unit costs, now you say it can be. Could you just give some specifics in terms of what's changed, please, on the outlook for non-fuel unit costs? Thanks.
Yeah, 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. That's exactly what we did. As I said, we tried a slightly different approach with some of the airlines to the commercial activity in the fourth quarter and the first quarter, it didn't work. 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, it was something that we tried. We thought it was right to do it, we got it wrong, we're not going to repeat it. When we could see that that wasn't working the way we had planned, we started taking action early. 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, we adjusted pricing early. That's what we're going to continue to do. It reflects the flexibility that we have. If we see the need for a change in approach, we'll do that. We have a number of initiatives that we've accelerated in relation to our non-fuel cost approach. There's 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 cost. It demonstrates the control that we can exercise over our cost base, we will continue to do that. Yeah. We achieved some improvements through Q1 on our cost management targets. That's something that we want to retain.
That's nothing that we are going to be giving back again through the following quarters. On the other side, the underlying -2% gives us really a lot of confidence in our ability to make these improvements structural through the year. That's why we have been more confident in retargeting a reasonable, a small, a modest reduction in non-fuel unit costs for the full year.
Thanks.
Our next question comes on line of James Hollins from Exane. Please go ahead with your question.
Hi. Good morning. First of all, many thanks, Enrique, and best of luck. Then a few from me. The first one, does that capacity planning in any way, certainly if it were to go through into 2020, impact your CapEx guidance? Is it still technically EUR 2.6 billion to EUR 2.7 billion this year? Secondly, it feels like 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. Then thirdly, clearly you're not doing Thomas Cook. 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 NOK 38 where it is now? Thanks.
Thank you. I'll take them in reverse order. No, there's nothing to prevent us on Norwegian, but we're not active, so we're not locked out if something were to happen there. I can assure you we're not looking at it and we're not intending to do anything. As you saw with Liverpool, three-nil down, you can always come back. I'm ruling it out at this stage. BA Holidays 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. It reflects the customer base that we have and the network that we clearly have as well, which is a particular strength that BA has that other carriers can't match. 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, EUR 2.6 to-
Capital markets
2.7. Yeah. We'll update you at capital markets day in November in relation to both future capacity plans and future CapEx plans. As I said, the capacity, you should certainly expect us to adjust that from the previous figures that we gave you. That should have an impact on CapEx associated with capacity growth. It's too early to give you any insight into the longer-term impact of that, and we'll do that at capital markets day.
As you got your Liverpool reference in there, I think I better mention I'm off to the Brighton v Man City game, I'll see if we can do you a favor this weekend, Willie.
Please do. The Seagulls are one of my favorite teams, obviously.
Always have been, right? Yeah. Okay.
Absolutely. Always have been a big fan.
Our next question comes in the line of Andrew Lobbenberg from HSBC. Please go ahead with your question.
Hi there. Can I ask about Vueling and the performance in the quarter? 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 seem to drag on. How's that affecting your capacity plans, and where might we go hunting for any compensation issues from Rolls? Are they to be seen in any part of the financial statement? In terms of Level, obviously, you're not disclosing its profitability specifically, but in its very high-growth mode, is it performing in line with what you expected, and is there a differentiation between how it's performing long-haul against short? Thank you very much. It's been such fun working with you for such a long time.
Thank you, Andrew. On Vueling, yes, it was fuel and Easter, principally. They did see some weakness, softness in the Italian market and in the French market, which I think was not just Easter related. It was principally, as you would expect, given the leisure focus that Vueling has. It was principally the issues that you've highlighted, Andrew. On the 787, the additional inspections on the Trent 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. As I said, 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. It's clearly very frustrating and annoying for us.
We do think that Rolls have now identified solutions. It just requires them to get the solution manufactured and delivered to customers. 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. Level, it's still very early days. What I can tell you is Level Barcelona is performing well and is profitable, Level Paris, 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 those competitors now withdraw. The Paris performance has lagged behind. On the short haul, as everybody knows, Vienna has seen a huge increase in capacity.
That has had a big impact on yields in the Vienna market, which are behind what we had planned. As we have said before, the financial performance of LEVEL is embedded in the figures. There's no separate exceptional cost that others are reporting in relation to their initiatives in these markets. We remain confident about LEVEL and particularly very encouraged with LEVEL Barcelona performance in Barcelona. We're more confident given what we're seeing in terms of the competitive reaction now to our performance in Paris. 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 are certainly making money and customers are getting great offers, but it's challenging for the airlines. As I said, it's a yield impact.
The volumes that we're seeing and the customer reaction to the level of product on short haul has been well in excess of our expectations.
Thanks so much.
Our next question comes the line of Sumit Mehrotra from Société Générale. Please go ahead with your question.
Thank you. Most important question's been asked by Andrew. I just have to ask you about anything specific you saw in the domestic sector. I see unit revenue is up 2%. 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 indications 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. 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? Whether it will be more loaded towards H2 rather H1 from the BA discussion? Thank you.
Thank you. Yeah, domestic, as Enrique said, I think he pronounces Islanders, we would say Islanders.
Sorry for that.
This is Spain activity between the Canary Islands and the mainland, which has been very strong. We've been using Iberia wide-body aircraft to serve the market there. It's just a very strong performance in the Spanish domestic market that has continued into the second quarter. On Transatlantic's fine. The business continues to be strong. We're not seeing any unusual trends, and we're not seeing anything that would concern us in relation to capacity. In fact, I'd say quite the opposite, because we have seen some capacity come out from the low-cost carriers that have pulled back or disappeared. Nothing to say on Transatlantic through the summer. 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.
When there is information, we'll be very clear with you in relation to any impact. As I said, we're not going to provide a running commentary to the negotiations that are ongoing at the moment.
Sure. Just a quick follow-up on the North Atlantic bit. Do you see the pressure this year to be lower than last summer?
It's competitive on the Transatlantic. I think the capacity growth is lower than people would have expected. With the collapse of WOW and with Norwegian clearly experiencing challenges, and adjusting capacity accordingly, and with the ongoing issues on the 787 and a few other things. There is certainly less capacity growth this summer than we would have expected. The underlying demand environment continues to be very good. 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 to see in the second and third quarter. As you know, we've limited visibility into the fourth quarter at this stage. 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 the line of Martin Schulz from Commerzbank. Please go ahead with your question.
Hi. Thank you. First of all, of course, thank you, Enrique. Two questions left from 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? 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 did you already adjust your capacity outlook for the trouble area like Hong Kong, or is there anything planned?
Okay. I'll deal with Asia, and I'll let Enrique just comment on the premium long haul. On Asia, we're increasing capacity in some markets. We have seen significant capacity coming in from the Chinese carriers. 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. Hong Kong, yeah, we're seeing a lot of capacity coming into Hong Kong as well. We've always had a strong position there, but it's principally from China and from the Chinese carriers with significant capacity growth. As I said, our exposure to China is a lot lower than our main European competitors. Enrique, do you want to comment on?
Yeah, nothing very special to mention. The performance through the first four months of the year is very consistent with our expectations. Figures, yields, unit revenues on the premium cabin are performing as we thought. There has been a little bit of a shift in terms of some of our companies having to do the calendar, having to do the timing of Easter. What we are seeing for the first four months and what we are seeing into the rest of Q2, Q3, is looking positive. No special weakness to be recorded in the business cabins. 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. That's basically the message.
Okay. Thank you.
Our next question comes on the line of Nuala McMahon from Goodbody. Please go ahead with your question.
Hi, guys. Just two questions from me. The first one, just on your pricing outlook, specifically in Europe. European pricing was down 5.7% in Q1. While you expect that to improve in Q2, should we still be thinking about it as down year-on-year versus last year? The second one is just on your IT platform. Previously, Willie, I know you were quite excited about what you were doing with your NDC providers, but that commentary seems to have faded a bit, and it probably feeds into our view. How are you feeling about spend in your overall IT systems, or are you happy with how they sit currently?
On the IT systems, we're happy. We continue to invest where investment is justified. NDC is performing well. We're one of the leaders in relation to that, and it's more of a commercial strategy and distribution strategy than an IT strategy in relation to NDC. On Europe, we've commented, 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. 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% RPK growth. It was at the expense of yield. I think that's exactly what everybody saw in the European market.
As I said, we put our hands up and said we got capacity wrong there, but we’ve adjusted it and we’re not seeing anything in second or third quarter.
Max
Out of line.
Maybe the MAX issues will contribute to moderate capacity increase through Q3 and Q4.
Yeah.
Depending on how the whole thing ends and when. It appears that some of our direct competitors were using or planning to use MAXes through the following quarters, and that’s going to be also then a contribution for a moderation of capacity growth intra-Europe.
Okay. 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 on the line of Neil Glynn from Crédit Suisse. Please go ahead with your question.
Good morning. If I could ask two questions, please. The first one, best of luck, Enrique, for the future. 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-over-year. You've obviously highlighted on the slides that the differential between that and the regional performances is partially transfer pricing and Avios redemptions, et cetera. 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. A second question just on the other revenue.
Obviously a very strong performance year-over-year, I think partially due to maintenance as you've called out. I guess your visibility is probably okay on the maintenance pipeline for Iberia through the rest of the year. I was hoping that you could help us in terms of understanding whether there'll be any particular lumpiness second quarter, third quarter, or fourth quarter on that, or whether it should be quite uniform through the year. Thank you.
I'll take the two questions. On transfer traffic payments and flows, yes. They become, in Q1, an important part of the difference between what we call the raw figures, the regional figures in unit revenues, and the final -1.4%. The other ones to mention, which have also been contributing to bridge that gap are around ancillary growth. So, as it has been growing significantly on this quarter in respect of last year. Other type of variety of reasons, among which Avios is one of them, outdated paper is another one. There is a basket of different matters why there has been this raw difference between the raw figures on unit 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 basically by the different unit revenue performance due to the different economic strength 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. It's going to be kept high, but gradually fading through the next three, four quarters. We'll see that figure coming narrower, basically into Q3 and Q4. Although for the full year, it's going to be probably above the full year of 2018.
Great. Thank you very much.
Our next question comes the line of Johannes Braun from MainFirst. Please go ahead with your question.
Yes. Hi. Just have one more general question, I guess, left. On that delivery of unit revenue recovery in the remainder of the year that you expect, is this rather based on Q2, or is it more on the Q3 trend, or is it actually Q4 when capacity is cut down to that 3.7%?
No, as we said, it's Q2, Q3. It's not so much Q4. The change from what we had said previously is really the Q1 performance. It's always difficult, as Enrique said, to call Easter, and the impact that that has. 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.
Okay. Understood. Thank you. Thank you, Enrique.
Thank you.
We have no more questions at this time. I hand the conference back to you.
Yeah. I'm going to let Enrique comment first, and then I will make a short comment before we close.
Yes. This is, as you know, my last occasion to disclose quarterly results for IAG, 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 I have enjoyed a lot. Of course, I've enjoyed more working here with the team on the IAG project. It has been a fantastic eight and a half 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 a very specific issue about our value. When people think about IAG, they think about Heathrow as maybe they mean one of our more valuable assets. It's not Heathrow. It's our team.
I think basically we have the best management team in the whole industry. It's not a thin team. It's a very broad team. 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 and future shareholders that we'll have. Again, thank you. Thank you very much for your help and contribution.
Thanks, Enrique, I speak for everybody around the management team to thank you for your fantastic contribution. We will wish you well in your retirement, we will continue to work you hard until the 20th of June when you retire.
We sure will.
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 meet an outstanding financial obligation to my ex-wife. I know any CEO selling shares attracts headlines and theories, but I want to be absolutely clear with you that this does not in any way reflect the view of the business looking forward or my own wish to walk away from IAG. Owing to a combination of results and other issues, principally the Norwegian situation, I've been deemed an insider for most of the last two years and have not been able to sell any shares. 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 million 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. 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 till after the event. As I say, it's not something I want to do, in fact, quite the opposite, but it's something I have to do. On that very happy note, can 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.