Good morning, ladies and gentlemen, and I'm glad to welcome you jointly with the management sitting independent director of the board of IG, but which is cool. And welcome to the IG Results Presentation 2018. I'm really glad another year to be here reporting, but a good result. And despite of the headwinds, fuel price up by 30% the worst air traffic control environment in Europe in the recent history and the impact of Forex, a change in the in our result, EUR 129,000,000. So despite of all these headwinds, we had been able to report 1,000,000,000 to have the 1,000,000 operating profit, which is 9.5% up versus last year and with an increase in our adjusted EPS of 15.1%.
Basic on those airlines that have reported so far, we are the only major airline group on either side of Atlantic to have reported a to 2017. So the management team led by Willie deserve a very deep and very strong recognition. As far as the shareholder return is concerned, at, the result present day of the third quarter of 2018, we announced that an interim dividend of 14.5 years 40.5 per share, I'm pleased to announce right now that the Board of Director has recommended a final dividend of per share. This makes a total dividend or for 2018 of per share, which is a 50% 15% higher than the than for 2017. And it is in line with the increase in the EPA's with APS Growth.
This demonstrate the Board of Director confidence in IG Financial's strength, IT strategy and the outlook. I'm also pleased that the board yesterday approved a special dividend of 35 per share of approximately 700,000,000 of additional return to shareholders. Total cash return to shareholders in respect to 2018 will therefore be just over EUR 1,300,000,000, which will be around EUR 260,000,000 more than previous years. Including this final special dividend, we will have returned a total of almost EUR 3,800,000,000 since 2015. But we're glad with this figure and looking forward to continue returning our shareholders.
I hand over to the management led by with him.
Thank you, Antonio, and good morning, everybody. Thank you for joining us. I have to say as you would expect, I'm very pleased with performance of the group in 2018, not just from a financial point of view, but, clearly making good progress on our strategic objectives as well. We've continued to invest in our brands and our customer proposition, strengthening the brands and our network you've seen the expansion of level at Barcelona and the launch of level at Paris and then exploiting the level brand to launch short haul operation at Vienna, and we'll do more of that in 2019. We've seen a very significant improvement in the British Airways net promoter Score.
And in fact, very strong Net Promoter Score for all of our airlines with the exception of Welling. And as you know, Welling was disproportionately in acted by the air traffic control environment in Europe in 2018. So not only were they hit by the en route ATC delays, but Barcelona was one of the most impacted airports on the European network. So we operate about 20201 flights, I think, in 2018 from Barcelona. 19% of all flights in Barcelona were delayed by ATC and the average delay on flights operating out of Barcelona was 19 minutes roughly 19 minutes.
That's across the whole airport. So when you consider the business model at Boilinghouse similar to other low cost airlines where quick turnaround times are a feature of the business. What the delay statistics don't show you is that a lot of the problems were caused, not just by ATC, but to the reaction to those ATC delays, which are not embedded in the ATC statistics. So if they delay the flight on the outbound leg and the flight remains delayed on the return leg, they don't count the return as being an ATC delay. So that clearly had a big impact on the, dwelling NPS.
We've taken measures to try and counteract what we believe will be a difficult ATC environment in 2019, and I'll talk about that again later on. In terms of fair, leadership position across our network, I know some of you last year expressed concerns about our growth plans. We had announced this time last year that we were planning to increase ASKs by 6.7%. We actually finished the year with 6.1, doing what we said we would do, which was to look to trim capacity as we went through the year. I think that capacity has been justified, particularly when you look at our unit revenue performance, which showed at constant currency at 2.4% improvement, versus last year.
We had 8% capacity growth in the Transatlantic. It represents 30% of our capacity across the network, in Latin America, which is about 16.5% for capacity 9%. And the Latin American market was a bit more challenging than I think we probably expected given the devaluation in Argentina and the economic environment in Brazil, I think our assessment of that is bottomed out. So it's an important part of our network, as I said, about 16%, 16.5% of total capacity, but over 50% of the Iberia capacity. And we had 7% growth on our intra European.
Most of that was in Spain. And as you know, Europe represents about 26% of our capacity. We grew at Gatwick. This was principally through the acquisition of the monarch slots, but also through the densification of the aircraft And going back to what I said about ATC, most of the capacity reductions that we had were we cut their growth ambition because of the ATC environment. The transatlantic performed very well.
New routes by Erlingus, Freight Airways, Iberia, and level. The Erlingus performance continues to be very strong, very pleased with, both Philadelphia and Seattle has been a fantastic success. And then in relation to the, what we call the platform, we continue to improve our non fuel unit cost down 0.8% down over 11% since we created IAG. We continue to take new aircraft 25 Faircraft delivered in 2018, more to be delivered in 2019 and beyond. And distribution, what we call NDC or new distribution capability API now represents about 17% of total indirect sales.
And the way to look at that is that although those sales are indirect, they're effectively at the same cost as our direct distribution. U. K. In, in, in, with Abios, we merged the British Airways programs. And we continue to see good work from our digital teams looking to slight new technology, and that's been clearly something that has not just improved our cost performance, but also improves our operational and customer performance.
Now just focusing on the high level financials and Enrique is going to go through these in detail. Return on invested capital 16.6 percent, above our targets. Lease adjusted margin 14.4 percent equity free cash flow. 2018 was a higher than average, CapEx year, so therefore lower than average, equity free cash flow, but still very strong to 1,800,000,000 and adjusted earnings per share of 117.7, 15.1 an improvement, and you heard the Chairman comment on the proposed final dividend and the proposed a special dividend to be approved by our shareholders at our AGM later on this year. So I'm going to hand over to Enrique, who will take you through the detailed financial performance, and then I'll come back after he has taken you through that to address some other issues.
Good morning, everybody. So I think we are going to be quite consistent through the morning in terms of emphasizing that 2018 has been a very good year in terms of our financial performance. And the rest of our operational performance as well. By the we focused on, the year 2018 full year figures We recognize, 1st of all, an increase in terms of operating profit. 1 of our main targeted, metrics of 1,000,000 and then reaching 1,000,000 for this year.
And, there has been a negative impact coming from net FX basically having to do with transaction, which has been in the range of 1,000,000. So in constant currency terms, the improvement year on year has been more on the line of 100,000,000, which is really a big, big increase, okay? By the Capital Markets Day, beginning of November, we were signaling an increase in operating profits more in the range of 200. We'll explain a little bit later about where have been, the levers that have allowed us to enhance the improvement just to reach the 280. But at the end of the year, it has been a combination of better unit revenues, lower fuel costs.
A lower non fuel unit costs as well. So the foundations of these improvements has to do basically on this combination of passenger unit revenues, growing by 2.4% in terms of constant currency, non fuel unit costs, which, have been decreasing on a yearly basis by quasi 1%, but that's unadjusted. So if we get to real underlying apples to apples comparison, would be finding that the real saving in unit terms constant currency has been closer to 2.5% for the full year. We have had, total unit revenues growing slightly higher than the passenger unit revenues. And that's because of our non ASK related, businesses And in this case, basically having to do with Iberia MRO 3rd party business and pre share with holiday business.
That has, improved our unit revenues on a total base up to a level of 2.9. And then total unit costs, of course, have, to include, the fuel costs, which as you well know, has been, a significant headwind through the year in the range of 12% in constant currency terms. So at the end of the day, we've been able to grow capacity in terms of 6.1% with an improvement in load factor. So really, we have been attending market that we're growing in terms of demand. So we've been able to improve load factors and unit revenues at the same time.
We've been able to reduce our recurrent underlying non fuel costs and to cope with an increase in fewer costs of 12%, improving our reported operating profit by 180,000,000. So I think it has been a big success. And, similar success has to do with the performance of the fourth quarter. We've been improving last year operating profit 4th quarter by 150 and 5, sorry, 1,000,000. So in a constant currency terms, it has been in the range of 114, which is slightly higher than the average of four quarters on a linear basis.
Remember, the 400 figure that we have noted for the full year. So 4th quarter has been relevant, has been important, helping slightly better than the average. And again, on a challenging capacity increase 6.7%, which we basically have been able to match with a real underlying demand. So we have been achieving a passenger unit revenue constant currency terms improvement of 1.5. We are going to be talking later more about the figure and how it's been allocated in our different strategic markets.
The second big reason behind our improvements in Q4 they have to do with a non fuel unit cost on a ASK related basis, right? So as you can see here, had a significant increase in non ASK related revenues, of course, dragging costs. We carve them out, the underlying performance in nonfueling costs has been very, very positive. And this, of course, has to do with several things. We'll talk to them, later on, very much having to do with what we call efficient growth model.
So we are growing fast with a very efficient growth model. And this has to do with not only the cost cutting plans and efforts efficiency improvements of our legacy carriers but also of our new value carriers and fast growing tools as a Erlinghaus and a level. So this is again a very efficient combination of growth, revenue management, cost management, and the challenge of fuel cost increase. So on this bridge exercise that we bring to you every time we can differentiate what has happened, in Q4 between last year and this year. FX in the quarter has not been very significant, slight headwind, but not very significant.
Growth, of course, has its positive impact, the 7%. Very importantly, passenger revenues and this bar, of course, has to do with passenger unit revenue impact on total improvement. Passenger unit revenue impact, very significant. And then fuel costs of course, representing a significant burden. This comparison is also a one that we are, proud about, So we are offsetting same day, same quarter, 70% what is 70% of the fuel cost drag through increased passenger management initiatives and, unit revenues.
The other one is non passenger revenue, which in this quarter has had a special impact. Of course, these bar represents additional revenues. And here, we should be decomposing this net 21 into a negative bar, of course, which has to do with you have more revenues, but you are creating more attached costs. They have to do with the supplies that we need to create this additional third party revenues. But then On the other side, there is a big improvement in other non fuel unit costs related to day to day operations.
And those are mostly recurrent, and we'll go through them later. And that's basically how we get through the 655. Let's talk a little bit of, revenues. 4th quarter, significant growth basically focusing on our main strategic markets again, North America, Latin America, of course, Europe Domestic and consistently less growth allocated to Asia Pacific. And Africa, Middle East And Salvation.
If we start with, North America, basically 5% out of the 8.2 has to do with new routes, new routes represents a significant percentage of a capacity increase that we are seeing in the 4th quarter. Our new routes basically have to do with our expansion through our new tools, talking about the linguists, we are talking about, level, but also in the case of British Airways on their own initiatives of opening new destinations that we have been informing you about. So the rest is basically related to growth in roots in which we already operate. This has been done with not a dilutive impact in terms of unit revenues. It's a flat type of performance But if we compare company by company and, root by root, what we are seeing is positive performance in bridge show with positive performance in Iberia.
And of course, dilutive effect in the case of levels and, Airling goods, where we are seeing growth levels in the range of 15% to 18%. In terms of Latin American and Caribbean area, we are also growing very significantly. And of course, that level of growth, 16.8, it's having to do, having a consequence in terms of unit revenues. This unit revenue negative performance is, very much affected by 2 special markets. One is Argentina, the other one is Brazil.
And what we are seeing lately is those markets or are at bottoming already, and that's the case of Argentina, or are slightly picking up again, which is the case of Brazil. So we believe we have gone through the worst and that we believe we are going to be having good news to show you later on in the year. When we roll over the impact of the devaluation in the case of, Argentina. And when we start picking up the pickup of demand that we are seen in the case of Brazil. Very good news on the domestic and European market, in spite of a capacity increase of quasi 7%.
So maybe here, our messages are slightly different to others that you may have heard, on on the region. That's basically because the way we are playing our capacity growth on our main strategic markets and how we cannot compare ourselves with what happens in the global Europe, but what's happening on our main strategic market and on our main hubs. So 4th quarter has been positive both in terms of European performance, the balance between capacity growth and unit revenue growth, very especially domestic unit revenues are still growing fast. There is a reason here that we are benefiting from still which has to do with the special discounts being given in Spain to residents in Baliariq Islands and the kind of reality. And this really has been exciting demand, feeling better at our aircraft lower systems and then improving unit revenues.
And we feel that's going to gradually defading through rest of the year as we roll over these, decisions and these incentives, but still it's going to be allowing us positive unit revenue performance for most of the year. Asia Pacific, it's less relevant, the same with, Africa Middle East, because of the lower, strategic significance, the lower capacity growth that we are deploying there. What we can say is Asia Pacific most of the markets are still behaving positively with positive unit revenue performance. And if we need to mention a market that is lagging behind that's, Hong Kong. And Hong Kong is about overcapacity.
So that's something that, will probably be adjusting further on through the year. But, we still on the positive side in terms of unit revenues in both, markets with modest capacity growth. And this is a non fuel unit cost performance Q4 again. Which I was, mentioned. Well, fuel, as a reminder, cost and currency terms has represented an increase of 9.2.
I was telling you before that, PUL costs in Q4 is one of the 3 pillars where we have based the improvement in operating profit. It remember when I was talking to you early November, that fuel prices in the market, were just coming down from $84, which has been the record of the dollars per barrel of print. So really our projections at that point in time, we're not very confident in terms of fuel savings The reality is fuel prices dropped since then. And even with a high level of hedging, we've been able to benefit from our color structures. And then achieve better reductions in costs than the ones that we mentioned at that point in time.
In terms of, unit revenues, we also have been able to achieve a better performance in the 4th quarter. And I would say, especially Europe has been performing for us better than we thought. And in non fuel unit costs, again, a significant improvement. Of course, we don't need to refer again to employee unit cost reductions, which is, at the end of the day, the result of all these significant plans and measures that we have been completing and they're green earlier in the year. It has to do with project assets.
It has to do with plant ecopetrolodos. It has to do with, pension fund agreements, etcetera, etcetera. And basically improvements in productivity you will see in our figures when you read them in detail, significant improvements in terms of productivity, which will be lasting at least for the first quarter of this year. Ownership costs, that's also a little bit of a miracle, I would say. We are investing in fleet.
We are investing in other critical non fleet areas. And at the same time, we are, able to maintain our ownership period costs flat against last year. So it has to do basically with this, idea of efficient growth. It has to do also with, how we've been able to achieve some very significant improvement in, leading costs because of the new terms and conditions prevailing in the marketplace. The operating lease market is really becoming a very efficient one.
I don't know if it's going to be lasting forever. But for the time being, we are achieving record low level of monthly rentals, which we had never seen before. So finally, talking about the supply and non fuel costs, you see a positive one. So This positive is fully related to non ASK supplier costs. So basically, the supplies, the contracts, the services that we need to fulfill, this business related to MREL 3rd party and reach shareholders.
If we strip that one out, this would be a negative figure. And by the way, when we do the right approach, instead of 0.5, we get to a minus 3.8. Which is easy to check with the figures because remember, the only thing that we are doing there is a very simplistic correction where we say let's let's take away as a negative cost, the increase in other revenues that we have achieved, those numbers you can make it, then you get to the minus 3.8. So this is fuel, fuel for next year. And again, we are facing a period of quarters, a row of quarters where we are going to be seeing increased unit fuel costs for the group.
We have made these exercise at $6.20 per metric ton of Carezent and $1.414 per euro. Of course, these figures are changing every day. So one day, we find this is a $6.50. The other day, we find this is a $6.30. I think it's basically a consistent figure with how the market is evolving, although there is a high level of volatility.
This pattern of assumptions is consistent with, a growth in terms of a non fuel unit cost for next year. In the range of 10.11 ish percent, which is slightly lower than the one that we have seen this year and the one that we have been able to manage efficiently. The other good type of message in this pattern in this chart is the way that increases are going to be diminishing just because of comparison with last year average figures for each quarter, right? And again, a little bit of the light at the end of the channel that could we could be seeing late in the year and early in 2020. If the prices and the dollar stays where we foresee them today.
Okay. And this is, how we have been able to perform in terms of margins and in terms of ROIC. So again, I think it has obviously been mentioned record level of ROIC for the group. And for most of the companies of the group this year. It is 16.6 against 16 on a similar accounting basis for last year.
So important improvement well above what we are calling the base recurrent base that, we have our reference on our business plan which is 15%. And we are seeing very high figures for, some of the companies of the group, Erling was improving 23 to 26, bridge share was improving from the 16 ish to the 17.3, Iberia also improving and getting into the above 13. Well in keeping, a very similar figure to last year in the range of 13.3,13.4. So basically it's showing that the way we are growing is also keeping a very significant focus on the profitability of our assets and our asset allocation and fund allocation, and decisions for the group. This is another way to tell a very similar story.
Think with a little bit more of flavor. I think the big message here is these operation profits and you will see also in terms of, profit after tax, we are, let CV this year, record levels for the group and record levels for each of the companies or the group. Of the main 4 level is a startup that's having a zone type of improvement through time. But, for bridge share with it has been operating profit margin increase of 0.7 up to 15.1. And in terms of, operating result.
It's, 305. So, these are just margin of 16.2 again, 0.5 percentage points above, previous year, sorry, for, elingo's for, bridge It's an improvement of 203,000,000 sterling against the last year figure and a positive 1% of operating margin improvement was a 1% of, laser adjusted margin improvement. For Iberia, it's also an improvement, of 1,000,000 against last year, reaching a record 4,000,000 with improvements in both operating margin and the adjusted lease margin. Welling is having a slight reduction in operating margin, but, an improvement in terms of the operating profit for the you know, the company has been going through. And of course, I'll remind you because we're referring to them, very in detail in the Capital Markets Day having to do with disruption, ATC disruption.
So living in the eye of a hurricane in terms of AGT. So despite that very significant difficulty. This figure is record for willing, and the same for the rest of the companies of the group. So what's happening below the operating profit levels, as you have been seeing, this improvement in terms of percentage, is around 9.5 percent, operating profit improvement for the year. Net financial expense has a modest growth in the range of 5%, which is better than the 7% or the 6 point 1 percent, sorry, average of ASK capacity growth.
So it has a lot of sense efficient use of assets as well and financing of assets. So the profit before tax figure will be growing by 11%. Tax effective tax being applied as a rate has been slightly improving, and we compare it with the last year's average, which were in the range of 2019. This year is in the range of 18%. And basically, profit of the tax will also be above 11% and diluted EPS, as Antonio and Dua have been mentioning, is slightly about 15 10.1%.
So balance sheet on a very and leverage on a very type of synthetic weight, we like to show. Of course, with being going through a significant level of CapEx this year, our asset base has increased we've been financing our new assets, increasing our level of debt. So we have been adjusting also the level of cash because we feel we are, comfortably above the technical level of cash that we should be keeping. So as a whole, our model and our ratios and projections have been supported by, rating agencies, Moody's and Santander And Poor's, which have concealed our debt and investment grade level. BBD and BAA 3 are stable for both SMP and Moody.
So what we can say is that, we are, now perfectly comfortable with the level of leverage with our liquidity structure. And of course, the big second message is it's sustainable. It's clearly sustainable. We say it because we are seeing our business plan, ahead. But also these guys, have been saying the same.
A very, very short insight into IFRS 16 and the future impact on our balance sheet and profit and loss account, you will be seeing through Q1, Q2, Q3 and Q4. Just arrows to express the main differences and trends that you are going to be seeing. Nothing special. A couple of figures which will be condensing, how the whole thing is going to be working. So in terms of what's going to happen on our, asset lines, both, asset and liability balance sheet lines, Of course, I think you are familiar with it.
It has to do with the recognition of, right of use, So all these right of use contracts that we have on Fleet and others were a non balance sheet item in the past. And you know, we adjusted our level of leverage and liabilities, recognizing an approximation using the rate of 8 times rents. So now it's not an approximation. It's the way IFRS 16, explain us we need to account for those additional assets in terms of right of use and liabilities. They have to do with fleet.
They have to do with other types of property and equipment. There are small changes on our current assets in terms of how we recognize some other contract maintenance contracts, the rate of recovery in terms of, the fleet contracts, the operating lease contracts, which create a little bit of noise here at the level of other current assets and also other current liabilities. Of course, there is a recognition of additional liabilities having to do with the net present value of the rent that we are committed to pay. And basically, that will create a balance sheet where total liabilities will grow. And the same for total equities and liabilities.
Just a couple of figures for you to keep. That recognition, notional recognition that we were giving ourselves. Through the eight times multiplier in terms of additional liabilities has been around 7,000,000,000. The right of use, precise accounting gives us compatible figure of 1,000,000,000. So there's going to be a reduction, in the total adjusted level of debt in the range of 2,000,000,000.
And that will be creating also an adjustment, lowering our leverage in terms of net adjusted debt to EBITDAR from the prevailing 1.5,1.6 that you have been seeing. To a level of 1.2. It expresses in some way that our approximation through the 8 times multiplier was a very conservative one. In terms of the profit and loss, So at the end of the day, nothing special. So it would come down to profits before tax profit after tax, there is minor adjustments that would be offsetting each other through time.
There's a little bit of maybe different recognition of, costs and, taxes through the period of time of the use of the operating lease, they are minor. So at the end of the day, we don't foresee nothing significant happening, at the bottom lines of our profit and loss account. Of course, the main difference is going to be about, our operating profit which now is going to be better. It's going to be higher. Why it's going to be higher?
Because the portion of interest related charges that was embedded in the rents now is carved out and then transferred below the operating profit line into additional, net expenses. So that That's going to be just the main difference, that we are going to be foreseeing, in our, profit and loss size and shape. It's going to be better operating profit, more financial expenses. At the end of the day, very similar net profit before and after tax. And that's something that we are going to be informing you through the next quarter.
So before the first quarter will give you some, insight on how those new trends in terms of accounting language are going to be affecting Q1 and then, the rest of the quarters. Having said that, I pass again the words. Willie? Thank
you, Ricky. Thank you, Willie. So Just, moving on to look at the outlook and the rest of 2019, we have here the usual chart that we show you in terms of our capacity plans. The year, we're now looking at a 5.9% increase in ASKs. And you can see that's probably flat across the various quarters.
Erlingus expect us to grow about 6.5% per share, where it's about 2.6%, Iberia 8.7 percent level. Obviously, it's from a small base, 95% roughly and dwelling at 5.5%. Just point out, the Erlungus capacity in the first quarter, 14.1%, that's unique to this particular first quarter. That's not something you will see on the recurring basis. So you're not going to see that sort of level of Q1 growth in 2020, 2021 and beyond.
So, altogether, looking 0.9% growth, ASK growth. We clearly will continue to to look at that. I think there will be issues in terms of growth that we will not have planned. And, clearly, we'll look at tapering growth where we see the demand environment changing through the year. And just to point out, in terms of BA 4th quarter, that's 5 looking over the monarch slots at Gatwick and also further aircraft densification at Gatwick.
So some of that growth is through the densification of the aircraft. And it's principally a Gatwick environment in fourth quarter for BA. So remind you of the guidance for the year, we're saying that at current fuel prices and exchange rates, we expect our 2019 operating profit before exceptional items. And the like for like. So excluding the impact of, IFRS 16 that Enrique has talked about, to be in line with the 3,230,000,000 that we reported in 2018.
Passenger units revenue is expected to improve at constant currency and non fuel unit costs expected to be flat at constant currency. Now the investment case, you'll have seen this chart before. We've talked about it already this morning. You know about our unique structure. You've seen what we're doing in terms of our our brands.
You've seen what we're doing in terms of our capacity growth and strengthening our network, the cost efficiency and there's clearly more of that to come We've delivered ROIC 16.6 percent margin lease adjusted 14.4 and, EPS growth, as we said, 15.1%. The regular dividend, that the board has recommended to be approved by our shareholders, increased to per share and then a special dividend. And we've always talked about, you know, if there is surplus cash, the manner of which we would return that would be discussed with shareholders. You can see the level. So in respect of financial year 2018, we're looking at the interim dividend, which is paid already paid in December and then the final dividend and the special dividend, clearly subject to shareholders' approval to be paid in July, looking at over 1,300,000,000 of cash to be returned to our shareholders.
So I think a strong performance, building on the performance of 2015, 'sixteen 'seventeen. Our cost performance, there's more that, we can do and more that we will do, we continue to have this longer term targets to achieve a 1% reduction in our non fuel unit costs on an annual basis. We've achieved 11.1% so far to 2018. That's been through structured programs in each of the airlines. There are structured programs in each of the airlines that will continue through 20 19 and beyond.
So we remain confident that this is an appropriate target of 1% reduction in non fuel unit cost It's not going to be 1% every year in the South Evolent number of locations, but we do see opportunities to further improve on our cost performance. And we will be pursuing those initiatives, with vigor as we progress through the year. So a lot more to come. I've talked about HEC disruption, and this is it is a feature of the business now, but I do expect, while 2019 won't show an improvement on 2018, I don't expect it to deteriorate, but I do expect that this can be addressed, going forward because some of the issues relating to this disruption are within the control of the air traffic control providers, and it's principally related to a mismatch which in their capacity as they believed was required based on the, the assumptions that some of these ATC units had for growth, which they got wrong. So they need additional manpower.
That takes time. Those recruitment processes have been put in pace, and we will see some of these structural issues addressed in 2020 and beyond. And I'm pleased euro control actually being very proactive and much more determined than I've ever seen before. So I think great credit to Eamon Brennan, the director general of Euro Control. And a lot of the statistics are produced and these are Euro Control statistics.
We're getting a lot of data from Euro Control now. So they're not trying to hide the problem. But as I did mention, these are You can see the light blue or airport related and the darker blue are on route related. The big increase that we've seen is in the on route air traffic control. But within the airport, as I pointed out, Barcelona was one that was particularly impacted.
And I know this is disproportionately hit filing. And maybe just to give you one statistic, and again, this is from Euro Control data. It's not our own data. Euro Control analysis shows that delays attributable to the airline to Vueling. So of all of the flights that they operated in 2018, for the flights were delayed just over 20%.
20.3% were directly attributable to the airline. Now that compares in Iberia, which is rated as one of the most punctual airlines in Europe in 2018, where delays attributable to the airline were almost 35%. So I think what you can say from that is that well, and fundamentally, is a very well run company, a very strong operational performance in its own right, what has been impacted very significantly by the ATC environment, both at Barcelona and at Europe. So with no concerns about the dwelling performance as they can control us, but clearly, we are concerned about the ATC environment, which is impacting on their performance. Level, pleased with the performance.
It's still very early days, but you can see the expansion of the network out of our Salona, and the red direction of some of the flying there. So we've, launched Santiago. We then launched from, Paris to Newark, Martinique and Guadalupe And then we have the network at Vienna, and we're looking to use the level brand short haul in Europe. We'll be making some announcements in relation to that. So performance so far is in line with our expectations.
It was actually running significantly ahead of expectations prior to the devaluation in Argentina. Argentina had been particularly strong performing root for a level, but we're pleased with this performance very positive customer feedback, both in terms of the brand positioning and the customer proposition. Now we announced, as you saw this morning, an order for 2018 Boeing 777 dash 9 aircraft for British Airways, with auctions on 24 or further aircraft. Things are an excellent aircraft, a perfect replacement aircraft the Boeing 747. These aircraft, just to be absolutely clear, were included in the Capital Markets Day presentation.
They're not additional. If you remember, we identified, for 2022, 2023, a number of aircraft to be decided. As you know, we were in discussions with both Boeing and Airbus, Rolls Royce and GE in relation to these options. So they're already included. We'll have 15 of those aircraft will be delivered in the period up to 2023.
We commented that 14 of the aircrafts relate to the retirement of the 740seven and 4 of the 18 that we've ordered are the start of the replacement of the 777200s fleet in British Airways. But they were all included in the Capital Markets Day presentation that we gave you. And you can see how then we've now covered off the replacement of the 747s with the A350s, whereas that A350s, which would be delivered into Brazil was in 351,000, some additional, still a fantastic aircraft in our configuration working very well and now the 7779, of which, I think, will be excellent in the fleet as well. Brexit, a lot going on. We remain confident that there will be a comprehensive transport agreements negotiated between the UK and the EU, as is stated in the political declaration.
There is good progress being made in the event of a no deal Brexit on the issues of aviation security, aviation safety, EU, UK market access, and ownership and control. And the UK government has already concluded a number of bilateral agreements with key countries, particularly the U. S, Canada, Israel, Switzerland, Norway. So those negotiations have been completed. There are agreements that will move into operation as and when the UK leaves the the EU.
We've done extensive contingency planning. Specifically, we've had very details and very constructive engagement with our national regulators and governments, particularly on the issue of ownership and control, and that's going to continue, including discussions with the European Commission, and we remain confident that our operating companies will comply with the relevant rules post Brexit. I don't need to remind you, but just to say it, you know, we are a Spanish company. We have a long established AOCs, in France, Ireland, Spain, and the UK, substantive business in these countries. We employ in total over 71,000 people.
It's 65,500 full time equivalents, but it's 71,000 people employed across the group So as I said, we remain confident that, there will be a comprehensive air transport agreement stated in the political and electoral and that our operating companies will comply with the rules. And finally, just to, come back and say a great year, very pleased with the performance, financial performance, is evident from the results that you've seen today, but we're also making good progress on the strategic issues as well. And just to reaffirm our guidance that we're looking at, excluding the impact of IFRS 16, our operating profit to be flat versus 2018, with an improvement in our unit revenue performance at constant currency and flat non fuel unit costs at constant currency. And, I think, David is, we have the microphone here. So we're going to take your questions now and, we'll have Andrew moderate this and to it in the usual format.
We do have a number of the CEOs with us, today, who will be happy to answer your direct questions as well.
Thank you very much. I'm Daniel from Bernstein. Congrats on the results in a tough environment. Three questions if I may. Number 1, not on Brex on the ownership structure because you had an announcement a couple of weeks ago, would you consider updating the corporate structure within your group to, at some point, remove you would be targeting for the next couple of years, minus 5%.
You listed several initiatives at the individual airlines. Is that to say that the performance you're seeing is more based on the efforts at individual airlines than on the group level. So question kind of goes to, are there any ideas on the group level across all air to continue to drive what would be the big ideas on group level. And lastly, on Avianz, maybe you saw quite an increase in the holidays in the overall, so in the non core revenues and the other revenue line. When would you expect or hope for AVOS to also start contributing into those other revenues, maybe as you progress that strategic initiative.
Sorry, I just missed that last bit. When would we expect
we've been talking about AVOS and how you're trying to rebuild AVOS. At some point, you're planning to hopefully make more money out of it. And when is that? And when will that contribute into that as well?
Thanks. So we remain flexible in terms of our structures, and any changes to the corporate structure would be in consultation with the regulators in the countries that we deal with. So we're not going to do anything unilaterally. We are I said, having very, extensive and constructive dialogue with the regulators in in our principal places of business and this will continue. So it is a complex issue.
I don't think it's well understood outside of the airline industry. People have confused and conflated a lot of issues and jumped to conclusions. But, I think it's been dealt with before we're confident that it can be dealt with again. So we have flexibility. We have a number of options within our existing structures but anything we do will be fully communicated, but it will be subject to the discussions that we're having with the regulators, and we're continuing to do that.
In terms of non fuel unit costs, I would say It's both from within the group and from the operating companies and will continue to do. There's no new big ticket items. It's delivering on the initiatives we've already flagged to you. There's more to come in terms of our approach to, maintenance. That's proving to be very effective so far.
Our distribution, which is a group initiative. So you've seen there, I mentioned NDC and API indirect bookings at 17%. Going to see that grow. And that's a group initiative that will contribute. We've talked about that being in the short term, actually, I think to our cost, but ultimately we get some cost reduction coming through on on that, our plans are running ahead of schedule in relation to that at the moment.
And then each of the individual operating companies have initiatives.
Procurement plans, which are a group plan. We are now focusing, for example, on improving with group bargaining power are useless charges in the main airports in which we jointly operate, right, we multi operate in Europe, for example, and that's very promising. But it's this combination about, I would say, centrally and group driven projects and also, efforts and projects that are driven more on an OpCo local type of effort.
And do you want to comment about the great performance of Adios already?
Exactly. So, Javier's will will basically improve in the next years. There was a question about how they were facing IFRS 15 changes in accounting and that now we have a they rolled over that issue, and they are facing, 2 or 3 years of very significant growth into the future. Talking also about, I think you were mentioning, non ASK related activities as Iberia MRO third business. So that's a very opportunistic area of our business, where we combine our own maintenance, plans and timetables with the ability to fill, these gaps these opportunities where the business coming from third parties.
And that's going to be staying like that. So we're not going to change the approach. Because we don't want to make a big independent business out of it. It's more about allowing us to reduce our total cost using efficiently our means and resources. And that's why we keep it as it is.
Thanks. Good morning. It's Jarrod from UBS. 3, if I may. 2 on the balance sheet, any indication of what the CapEx then will be in 'nineteen and maybe 2020, if I may.
And then just on the related to the balance sheet, the big special dividend, just some of the thinking versus special versus share buyback given how the share price has performed. And then third question, M and A now, where do we stand? We've obviously got reviews from Thomas Cook. You've walked away from Norwegian. Are you sitting on the sidelines at the moment.
2019
CapEx is going to be more or less in the same line as it seems. So we are forecasting net CapEx figure in the range of 2.6,2.7. Depending on, dollar levels, at the same time, we are forecasting for 2019 and increasing, free cash flow. So the combination for next year is of EBITDA growth and CapEx is going to be, providing us a net result in terms of negative cash flow, probably allowing to approach to the famous medium, which we have for the business plan, which is 2.5. So it would be probably getting closer to 2.5.
And in relation to the special dividend, the board considers several issues in relation to how the surplus cash should be returned to shareholders. And as you know, we do consult with our major shareholders, and take that into account and on balance, this time around, the board concluded that we should pay a special dividend and that special dividend as it would be recommended to our shareholders for approval at the AGM in June of next year. And on M and A, Just to confirm, we have disposed in full of our shareholding in, Norwegian. We completed disposal in mid February, from memory, but we have fully sold out the shares that we have in Norwegian. And we're not actively looking at anything at the moment, and a lot going on in the industry.
We were approached and have continued to be approached by airlines who are looking to be part of IAG. None of them have, particular interest to us, but we continue to look at opportunities. And that's the great thing about the group. We have that flexibility. To move quickly if the right opportunity came along, but we're not actively looking at anything at the moment.
At the same time, they're all these disruptions happening to different airlines are creating new gaps, right, in terms of capacities and destinations that are being abandoned, and we have to be active and quick enough to fill the strategic gaps that we are interested in. Damian
Brewer, LBC. Questions, please. First of all, on NPS, if we go away from the group number, which sounds like it's been heavily influenced by Whaling, Could you talk a little bit more about firstly Iberia and then British Airways and what happened there and if possible put some numbers on it and tell us in particular what's driven NPS to improve and what you've discovered in terms of the NPS work. Means maybe there's areas where you're putting cost in where customers just aren't recognizing it or prepared to pay for it. And then secondly, just on following up on the capital allocation point, Enrique mentioned about the lease rates.
Is that changing anything in the way you're about the lease versus buy balance and the duration at which you take leases. And in particular, and I think what seemed like a very opportunistically time, 777 order after what happened to Etihad, are you now purely looking at new aircraft or if there are distressed secondhand 777s out the Middle East? Would you still be looking at those?
Okay, on NPS, the, because we wait our NPS to passenger numbers, so that's the way we do it. We do also look at, internally we have waitings by revenue, waitings by profit, waitings by cabin. So we look at this internally, clearly, in a number of different ways, but the The single metric we used for one of our non financial metrics is NPS weighted by passenger numbers. So It is heavily influenced, therefore, by the big passenger airline, British Airways and welly. The welling performance showed a very significant decrease, versus 2017.
And that was directly, we can see it within the figures direct correlation to the on time performance and the disruption that Vale suffered through the Pake summer. The BA performance showed a significant increase over 10 points of improvement from 2017. The others were broadly flat versus previous years. What we're seeing in BA is a further very significant increase in January and so far in February So it's well ahead of, the targets that we have. And what we're seeing is actually the investments we're making are investments that are appreciated by the customer So I think we're targeting the right areas.
We're doing the right things. We're very pleased with the progress. This is a long term plan, long term, as far as everything in our industry is influenced by the short term, but this is a very structured plan of targeted investments all of our airlines do is, we understand where we need to invest. We understand where, you know, we may not be perfect but investment doesn't really, isn't really justified, and we know the critical areas that we need to focus on. So excellent metric that we use.
We go into it in a very detailed way, analyzing all of the, cabins within the airlines and the airlines and comparing, although MPS, you can't really use to compare one airline with another, but we do use it to try and get a better feel for what's going on. So I said, I think I'd have to say, that I can't see any evidence of us getting the investment wrong, and and in fact, all of the evidence shows that we're targeting the right areas. And you'll see more of us. So we have, as you know, a new business class seat coming with the delivery of the eight 50,001,000 into BA, that will have a noticeable impact on our club world, NPS. On On
the operational lease market, nothing structurally has changed. Remember, our aims and proportions in the operating lease market, have very much to do the combination of 3 elements. On one side, we need flexibility in the different fleets because we need to adjust our size and we need to be prepared for changes in technology. So we need flexibility on the other side. We worry sometimes about our ability to manage residual value exposure.
On some fleet. So that's another big reason why we hold certain percentages, which are different for the different terms of operating lease, finance. Thirdly, of course, we like cheap money, And, in this location, cheap money coming from rating leases has been a huge tailwind. Is it going to last forever Nothing less for it. I'm afraid.
But, you know, well, it has to do with this appearance of a flooding of new lessors, with probably a different risk approach. And, very eager to earn some positive yields on that investment and not regarding so much that is behind. And so that, that will be basically ending at some point in time. It has to do with Chinese less dollars, which are in some way in bans in the market. But, while it's there, come on.
Take it.
On the plates, we had very, very constructive engagement from, The way we run this is, although it's 2 aircraft manufacturers, 2 engine manufacturers, but there are 4 parties to negotiate with. So although don't have an engine choice on either the 7779 or the A350. We do negotiate separately with the engine manufacturers and the airframe very constructive engagement. They all wanted this. They wanted to win this.
This is probably, the most aggressive approach that I've seen from all 4, in, you know, I've been dealing with these issues now for as part of 20 years. It's even longer, it's the best that I've seen in terms of them wanting our business. We're very pleased. We think the 7779 is the right aircraft what we're trying to do here is to replace 747s. So we needed an aircraft that had a similar capacity to the 74 We'll operate the, 7,000,000 with 3 twenty five seats in a forecast configuration.
I think it's 81st 65 club 45 or 40 something, 45 club world sorry, world traveler plus and then 206. So if that does not just 25, but it's somewhere near there. So very similar to the configuration that we have on the 747s today. We continue to look and we did look through this process at secondhand aircraft, we had, detailed discussions right up to the very end, but we concluded that the right aircraft at this stage is the 777 And I would remind people that 4 of these orders will start replacing the, 77,200 days, and we've got 46 at those. So there are more aircraft to be replaced, which means that, you know, all four of the players have still a lot to play for but, you know, I think this was a very good process and was placed with the outcome.
Hi,
it's Andrew Lop from HSBC. Can I ask about the recent deal, Titro, around incentives and airport charges? And then also interested to see how that plays into your thinking around the negotiations on the 3rd runway and the 3rd runway pricings, so how that fits together? And then a third question would be around level and how it trades on the short haul because you discussed the long haul in the presentation, but Vienna is quite a lively place, nice chocolate cake. But you're also deploying it into Amsterdam.
So, yeah, what are your expectations there and indeed to roll it up potentially further elsewhere in Europe?
Yes. So, as you know, the recent negotiations with Heathrow were to address the fact that they have over recovered So, we've said all along these guys are bandits. So, they have over recovered and we got to get that money back. And it was the manner in which we get it back was the negotiation. So we were pleased that we've got an agreement, a commercial agreements with through and they're engaged with all of the airlines, but as you would expect, given the scale of our operation at Heathrow, we would be one of the most significant So there is a new pricing structure, which, Heathrow talked about, and we believe it's right to incentivize growth I disagree with what Heathrow said in terms of all of the airlines that Heathrow operate below the IATA global average.
That's state factors. We don't. In fact, most of our airlines operate above the IATA global average seat factor. But there is capacity and scope for us to to grow and improve seed factor further, and particularly as we have gone through that process of adding additional seats to the aircraft. So I think this was a commercial negotiation.
The outcome is one that we're pleased with. I wouldn't read anything into the longer term. I still have significant concerns about Heathrow's ability to deliver a third runway in a cost effective manner. It's clear from things we've seen that the 14,000,000,000 that there's no way they can achieve the expansion at that price, and we think that price is high. So based on everything we're seeing the moment, we remain concerned that the expansion plans at Heathrow are unrealistic.
And we're very clear, and I'm pleased that this issue has been addressed and accepted by the government and the CAA that the expansion cannot be at the expense of passenger charges. So we will continue to constructively engage with Heathrow and the regulator on the expansion plans, but, I still have my doubts. And I don't think I'm the only critic of Heathrow. I know I'm probably one of the more vocal critics of Heathrow, but, I can assure you when I talk to my counterparts across the industry, they all share my view in relation to the performance of Heathrow and concerns about the potential impact of increased charges as we go forward. So but Andrew, I wouldn't read anything into this.
We saw them as 2 very separate issues, but we are pleased with the outcome of the negotiations that we've had And, so your second question, yeah, you, you obviously have access to the international. You've seen that the level will be in Amsterdam I was told I wasn't allowed to mention that, but given that you've seen this and I've seen this, that is the plan we're looking at 3 aircraft in Amsterdam. I think we'll announce it formally in about a week's time. And the reason we haven't announced formally so far as it's not ready to go on sale. So, we think using the Level Brands in Europe is to try and it's just, it's free branding, and it's exposing the brand, and it's giving us an opportunity to do things in a different way.
To test things. And as I said, it's the flexibility that we have within the group. So, Vienna itself, very competitive. One comes to surprise know that everybody has put a lot of capacity into Vienna. I did notice that Vienna had made record profits, last year.
Just reinforces everything I say about airports. We do all the work and they make, a lot of money on the back of all of the hard effort that we have, but, we will be adding level activity to Amsterdam and we will formally announce that in a couple of weeks' time.
Glenn from Credit Suisse. If I could ask three questions, please. The first one, just in terms of your guidance, obviously, you've got a unit fuel bill headwind into 2019. I'm just interested in terms of you think about revenues. Do you either back yourselves on the industry's more concentrated structure to recover that fuelville headwind or is that actually based on a more bottom up view of the revenue picture as the year develops?
And second question, maybe following on from Andrew a Heathrow question, because just focusing on BA short haul at Heathrow. Just interested, can you give us some color how far away is that from covering cost of capital at the moment. You're obviously charging for in flight catering now. I guess the Heathrow deal incentivizes boosting the load factor there. So how do you think about how returns might develop it via a short halt in the future?
And then the, the third question, which is on
Sorry, one second.
The 3rd question BA margins, excuse me. Obviously got 15% now in terms of the operating margin for 2018. The guidance would suggest that that margin might fall in 2019. Of whether BA's margins have indeed peaked now? And how do you think about that in the future?
Thank you.
So on revenue, as I said, the The environment in 20 or as we've commented, the environment in 2018 was quite challenging on the number of fronts and a few foreign exchange ATC. I think we did well against those issues. So fuel bill 2018 and increased by just under 700,000,006,73,000,000. I think it was, and we're looking, you can see from the chart there at 6,100,000,000 in, in 2019. So there is a big, I should say, big fuel headwind coming your way, we, I think we did very well in 2018.
I think we're being realistic given our assessment of the capacity in the markets that we're operating in But we're still looking at a unit revenue improvements on a constant currency basis in, in, 2019. And I think that's important. So while our non fuel unit costs are effectively flat, constant currency in 2019 unit revenue is forecast to improve. And that's one of the things we're all the time looking at the various different metrics to ensure that we can by June, to get the right results. Yeah.
To keep the margin that we are aiming at. BA short haul, yes, you're right. Incentivize short haul, safe factor improvements as Heathrow and we believe there is scope for us When we looked at the Heathrow short haul performance as Heathrow, we do have to take into account the contribution that it makes to the, the long haul engaging traffic. We don't do that at our linguistics, for example, but the way Heathrow operates and the extensive long haul network that BA has, we do have to take that into account. So the, when we look at our short haul performance and VA short haul does in order to cover its cost of capital, but there is scope for improvements.
In terms of BA margin, I wouldn't say it's peaked. I can remember when we hit 10%, everybody thought we'd peaked, it, there's still work that BA can do, and I think there are initiatives that BA plans to do, And as we look at things over a 5 year period, typically we're looking out when we're looking at these investments and the changes over 5 years look at the improvements that we get in 5 years, recognizing, as I've said many, many times, individual years, we'll see changes. But, I think there is still scope for BA to improve its performance. So I don't believe it speaks by no means. I don't believe it speaks.
Traditionally, we were talking about, a total operating profit margin target as hassier one for the industry for us of 10%. It was a little bit of a magic figure. If we get to 10% for the full year, we'll be getting close there to where we need to be. We've shown figures where the operating profit margin of the 4th quarter for the group, which is the 2nd worst of the year after the first quarter. The 4th quarter is the 2nd worst is 12%.
So I absolutely agree with really this much, much more to be done. Both on the revenue side, but also for sure on the efficiencies on the cost side. And it's going to be done.
Jamie Robotham from Deutsche Bank. 3 from me, please. Firstly, I know it's small in early days, but I'd like to revisit, quickly level in Austria following up from Andrew. I mean, one of your competitors, you'll know who it was suggested that the discounting there is too hot for level to handle and suggested retrenchment on your part. I presume that's somewhat off the mark and I'm interested to know how strong your resolve is in that highly competitive environment.
And second question on the topic of excess liquidity, you didn't need it for Norwegian. You've used some of it today for, additional shareholder returns. Is there any way to use some of it to accelerate the upgrade to the BA long haul premium offering And if the answer to that is no, perhaps you could just give an update on that upgrade. Are the 7 77s going to be retrofitted on time? Presume you're going to receive your A350s on time.
Last question, revisiting unit passenger unit revenue progression in 2019. How do you see the phasing? Q1 is clearly when you need it the most based on the fuel slide you showed us. It going to be very different in the summer, do you think, to the end of this winter and beginning of next? Thanks.
Okay. Level Austria. What you need to remember is the results for level are embedded in our performance here. We don't separate it out and say it's an exceptional call. So I struggle to justify how people can do that.
So our performance shows an improvement in profitability based on the embedded performance of level in the figures there. So, we're more than capable of holding our own. We're not stupid we're never going to do silly things. We'll do what's right for our business, but Vienna is clearly extremely competitive at the moment. I don't think anybody, for so, of the amount of capacity that has gone in there.
But we're a very efficient operator levels cost performance is excellent. And that's one of the advantages that we have with, with level both long haul and with short haul In terms of, surplus cash, if there's an opportunity to improve or accelerate the program in BA, we will do it. We don't believe there is. And that's for a number of reasons, but principally relates to the supplier of the product. So we've looked at, you know, the planned maintenance we have the ability if we had any confidence that we could get the equipment to put on the aircraft, we can and we have see, you know, made changes to the program.
We've identified additional hangar capacity. So we're lined up to do it. We have a desire to do it, but we've got to be realistic. Everybody knows that, this is an area that has been, quite challenging. And continues to be challenging.
So we're not going to, we're not going to make promises that we know we can't deliver. But if for some reason, somebody else fell out and one of these suppliers has an excess of capacity. Well, then we have the capability of accelerating, but, the 777s will be retrofitted I believe based on everything we see, they've been retrofitted in line with the program that we've identified, but as I said, we're willing to accelerate it, but we don't see the opportunity. We're not going to break out passenger unit revenue.
But, we have to tell you, they're not going to be opportunities, anything that cut through the fourth quarter of the year, of course not, we recognize Q1 is going to be, a difficult year because of headwinds. So on one side, eat the hoist. It's Easter. Yes. Yes.
Yes. On the other side, we had a very benign few sorry, dollar price last year. To be much tougher this year. Thirdly, our peak of capacity for 2019 is going to be in the 1st quarter. So things are going to be getting easier since, quarter 2, quarter 3, especially quarter 4.
So yeah, we are still betting strongly for this, increase in, unit revenues through the year is not going to be exactly symmetrical.
Yes, as you know, Easter is going to have a big impact on Q1 performance, given that it was Q1 last year and that's Q2 of this year. Very significantly, it's definitely in Q2. We've had some years where it's sort of bridged both. It's not, you're not going to see any yeast reflect in Q1 of the Thank you.
The 3 small questions for me. 1st, I know you gave the growth by brand. I was wondering if you could talk a little bit about how you're thinking about growth by region. And along those lines, what are the trends in the region that you're looking at as you head into 1Q, it looks like some of the U. S.
Carriers are talking about transatlantic, maybe softening somewhat from the trends we've seen the last few years. And then the last question, just with IFRS 16, would you consider kind of switching to talking about pretax income instead of operating income, focus on the guidance?
You can do it with IFRS 16. Not your favorites. Go by region, it's going to be similar to what we've seen. We've clearly got to focus on the transatlantic, because that is an area despite what people have been saying that we see as being very positive. The expansion, the new routes that we've launched, and I would highlight Nashville, as being, excellent, Seattle.
Fantastic. And interesting one of the things we're seeing with, Erlingus is the very strong premium, cabin performance in Erlintas. I think that reflects what we're seeing in in Dublin, the strong Irish economy, but particularly in Dublin economy, very significant U. S. Investment, strong demand, and Sean pointed out to me that actually another positive of that in premium bookings.
We're getting a lot of it direct. So it's been a significant feature of the Erlinda's performance in in 2018 and one that we believe will continue in 2019. But the broad focus of expansion, so if you look, Iberia, as I've said, is 50% of Iberia's capacity in Latin America and Iberia, you know, forecasting to grow at around 8% you can imagine it's very much welling is in Europe. Erlingus is transatlantic BA and is across the network. So it's a broadly similar structure of, of growth rates and mix.
IFRS 16 impact on the profit and loss, I think I went through it. No, so basic differences is on one side, operating profit will increase. And that's because all the financial charges embedded in the rents going to go below the line. And that's big figures, right? On the other side, the net financial expenses are going to be agreed because it's just reallocation.
And then net after tax and pretax are going to be affected by those 2, by the volatility on the currencies that, maybe affecting the financial charges and the, restatement of debt denominated in foreign currencies. And also a little bit, having to do with the different timing accruals from the point of view of tax from from the point of view of accounting, net net through time, very, very, very small differences. We should be foreseeing nothing very special on a 2, 3 year average in terms of net income. Yes, absolutely. Although our own goals are going to be re measured mathematically, come on, we're not going to be playing with the figures.
If it's going to represent an increase of 200, our figures and target will be increased by 200, so
It's James Hollins from Exane. 2 for Alex, to begin with. 1st on BA labor relations. I think I've seen a few headlines on quite a significant vote for industrial action. Where it might have been at Gatwick.
Just wondering if you could sort of update us where we are on that, and I think there's another headline on only a 1 year deal being offered on wages, just a general they'd be good. The second is on Gatwick BA. So wondering if you had sort of optimized your monarch slots as planned for this summer and whether that's involved quite a big switch from short haul last summer to long haul this summer. And then back to you, Willie. Just wondering now, clearly, Norwegian is firmly behind was wondering if you could sort of reveal what eventually led to you not doing and whether personally you regret that it didn't happen.
Alex? Yes,
very quickly on labor related. You've seen a headline this morning. And as we do when we finalize a particular pay deal, we're in the middle of discussion. So we wouldn't really comment on that, but we haven't seen any behavior that would be extraordinary in terms of where we are in negotiations, which is very early on. And that applies to the whole company, anything that you may have seen in Gatwick think it's minor and it's been, assault and the small things related to small things.
Gatwick, indeed, last year, began to implement slots very quickly, we have to use leased aircraft. This year will be our own aircraft. We are adding long haul capacity very slowly. So there'll be an extra aircraft coming in at the end of this year. Very, very, very encouraged by performance in Gatwick.
Gatwick has been working on its cost base. Very hard for the last 10, 15 years. Today it's an incredible position from a competitive cost base. It is the best in terms of OTP and NPS, etcetera, with any of its competitors. So full support to the Gatwick team from that perspective, very happy with what they're doing there, adjusting very quickly to a tough environment overall for them operationally with a single runway, etcetera, but doing very well in that process.
On Norwegian, no no regrets, you know, the, the way we did this was we had a board subcommittee consisting of, the 2 of us with the Chairman and the senior independent director. We were unanimous in our views as we should recommend to the board that we do not proceed. I have been talking to Bjorn for over 2 years trying to get him excited about LNG. He was excited. Unfortunately, it was a deal that ran out of time.
And, it's absolutely no regrets. It's the right decision for us. I think we saw an opportunity we went first. And in the end, we decided it wasn't worth pursuing. Beyond where we are.
So no, I wish them well, but it's clear that they still have very, very significant challenges ahead of them. And we will continue to focus on our organic growth, and, we have opportunities to do that. Thank
you.
Penny Gucci from Morgan Stanley. Maybe to come back in a slightly different way on the BA what do we assume in your flat cost guidance is baked in for a deal? Is it what we've seen in the press as the offer that's on the table from your side, the 2.7% or how do we sort of square the circle on at least what's included within this year's guidance. And the second question is to come back on your earlier comment, Enrique, on the evolution of free cash flow for this year. Could you talk us through that math?
Because I'm not quite sure how you get there with a flat EBIT. And a flat CapEx number year on year. So
So what's embedded in our plan is what we said. We know that flights will continue. We know that safety and security regulations will, have been agreed. We know that there are, measures that have been taken in relation to, ownership and control. So we continue to operate in terms of Brexit based on a realistic assessment of where we believe will be through 2019 and beyond.
And the engagement we've had with the regulators, as I said, have been very constructive. So, we remain confident that these issues will be addressed And ultimately, we've seen nothing to suggest that it won't be a comprehensive air transport agreement reached, at some point, between the UK and the EU. That's the stated political ambition of both. It's the long term, direction of both the EU and the UK and to aviation, and we've not seen anything that causes us to change our view in relation to that.
And then, going to be very precise on the figures, but that'll give you a little bit of a flavor. So we know first quarter is going to be challenging. It's going to be challenging because of Easter holidays. Because for us, it's a peak capacity period. We have some ways to deal with these specific weakness on the first quarter, a very clear one has to do with the impact in our entry labor costs.
Of what we did last year, and that will be rollover after April. So there's going to be some offsetting mechanisms that we are going to be using. And we are now seeing the pattern of, bookings and revenues, that we'll be prevailing for, April, a little bit of May, a little bit of June. And we see how the revenues that, have been lost for the first quarter because of Easter are coming back. So we believe Q2 at Q3 are going to be recovery, quarters.
And Q4, you see, the fuel prices are not going to be a challenge. So we expect to be able to improve. So that's a little bit of the flavor of how we see the different challenges and opportunities through the fourth quarter of the year.
Maybe just a quick follow-up on the first question. I was more inferring on the labor relations point FBA as in what deal is baked into your unit cost guidance?
Yes, but we have baked in assumptions. This. Yeah.
It's Alex Paterson from Investec. I have two questions, please. Firstly, just back on Heathrow, you seem very confident that, the cost is going to exceed what is currently mentioned, are you confident that passengers and yourselves are not going to bear that? Are there safeguards in place? What needs to happen to make sure that that they're culpable, not yourselves.
And then secondly, on the ATC, I think you should start was clearly the issue, the need to get more staff in, is that happening? And also, obviously, capacity is going to continue to grow in of the staffing levels will continue to rise, are they going to be able to catch up and stay ahead, or are we perpetually going to be in a challenge of staff shortages?
Yes. On Heathrow, I think there's a number of parties that will be looking at this, including Heathrow shareholders. Because to be honest with you, if I lose a shareholder fee through looking at a bill well in excess of 14,000,000,000, I would have to question the management's desired proceed with expansion, our bookings. So I think you've got to look at the various players here. You've got the CIA, you've got the UK government you've got all of the airlines.
It's not a situation where, as I said, I may, it would have been more vocal, but I'm not the only one that's, concerned and critical of the plans So I've yet to hear anybody who has been positive about spending 14,000,000,000 and even fewer people being positive about ATO spending more than CHF 14,000,000,000. So I don't think it's going to happen, and we're certainly not going to be quiet. And it's not a case that it's It's me. It's everybody in IAG and it's everybody in the industry, that, you know, will resist this. On ATC, the word specific Carl's rule was the specific area that got, it's Manpower planning completely wrong.
They assumed a reduction in past year. Our reduction in demand through their area rather than what everybody else saw was an increase So I'm happy that that will be addressed. There have also been changes made, which I think are positive the system you could argue is crazy. The payment for HCC is paid based on the flight plan that you file, not based on the flight that plan that you actually follow. And what that has done is, you know, where there are, neighboring ATC units, if the aircraft has filed through one but flies through the other, the one that actually flies through doesn't get paid, and the money goes through the one that didn't actually have to do the work.
It's a strange structure. That has changed now. So the payments will be based on the flight plan that was actually followed rather than planned. That's a big change, but that now incentivizes both airlines and ANSPs or navigation service providers to be more efficient. And I can see it from an ATC point of view, If you're not going to get paid for this additional activity, you're saying, well, where the hell should I accept this?
So there's been no incentive for neighboring, air traffic control providers to accept it. Now to be fair, most of them have been very good and have accepted this. But the idea that you accept additional work and you know you're not going to get paid for us and the ones that are inefficient and have not made the plans are going to continue to get the money just doesn't add up So that has been a very significant change, and that's why I'm confident that as we move forward, we will see a change because there's now a financial incentive for those to be efficient and there's a clear financial penalty for those that don't provide the capacity And that's a very critical structural change that we see from this year. So you know, ATC will be a challenge this year, and we factor that in We've already factored in, different routes planning. We've factored in capacity.
We've factored in the projected traffic flows and timing of flows as well. So we've done what we think we can do, even in that environment, I think it will continue to be a challenge in 2019. I'm hoping because of action we've taken and action that has been taken, despite the fact that we have we are going to see an increase in traffic. It's less than the increase we saw last year that, the situation for us anyway should be more manageable. 2020, 2021, I believe that there are solutions.
Hi, can I just come back on Penny's question, because I'm not sure I followed the answer? Enrique, I thought you said that the free cash flow in 2019 was a expected to be better than in 2018. And your EBIT has guided flat. And I thought you said CapEx was going to be the same. So I know in answering to Penny, you described how you're expecting a flat EBIT, and that's good.
But I'm not understanding how a flat EBIT, and a flat CapEx gives you better free cash flow unless we're just playing with IFRS 16. EBITDA is going
to be slightly above Well, not slightly. Some 1,000,000 above last year. But is that
because of IFRS or something real? EBITDA?
Yes. No, just because the way the net, financial expenses are going to be reallocated. EBITDA is going to be higher figure, okay? Yes. Yes.
And then Yeah. But apart from that, we'll be having, a reduction of about $100,000,000 in terms of net CapEx as well. And we're having other, pension fund related, payments that we did in 'eighteen and that we are not participating in 'nineteen. So at the end of the day, we are foreseeing an improvement in free cash flow in the range of 200,000,000.
Thanks very much.
Okay. Yeah, just thank you again. We're pleased with the performance, pleased with the progress. A lot for us to do, but confident about our performance in 2019. And the Q1 will be challenging as we've talked about, but the rest of the year, we believe we're in very good shape and looking forward to seeing you are talking to all that, our Q1 results.