Good day and welcome to the IAG Quarter 1 Results Conference Call. At this time, I would like to turn the conference over to Willie Walsh CEO. Please go ahead, sir.
Q1 results. And I'm pleased that we're reporting another strong quarter performance with an operating profit of 1,000,000 It's up from 1,000,000 last year with improvements in all of the operating companies And we also saw the continuation of the positive trends in unit passenger revenue at constant currency and also improved non fuel unit costs. We're maintaining our guidance for the year despite the significant increase in the fuel price. So at current fuel prices and exchange rates, we still expect our operating profit for 2018 to show an increase year on year. Both passenger unit revenue and nonfuel unit costs are expected to improve at constant currency.
We've added a small update in relation to Norwegian to confirm that we have had contacts with the Norwegian board regarding a possible offer, but have not reached any agreement. And as results, we're currently considering all of our options in relation to Norwegian. I'll hand over to Enrique now who will take you through the details presentation, and then I'll come back and say a few words before we take your questions. Enrique? Thank you, Willie.
So as Willie said, our operating profit for the first quarter has been 1,000,000, which represents a very significant improvement of the results of the same quarter last year, $120,000,000 improvement, margin of operating profit has reached 5.6%. And these are very high margins for all of our operating companies. As a whole for the group, it represents a 2.3 percentage point increase in margin against the same figure last year. Our capacity has been growing by 4.1%, slightly below the forecasted figure. That's mainly because of some weather disruptions, especially in British Airways and the linguists.
The figure of our RPKs, our demand figure has been growing by 6.1%. So a significant improvement in terms of seed factors. And it means that on our strategic markets, the balance between the capacity that we are deploying and the demand is performing positively. And of course, it's showing on our in passenger unit revenue figures. The figure for the quarter in constant currency terms has been an increase of 3.5%.
Still, we are doing some work on trying to understand how much of these improvement is related to the change in Easter holidays against last year, as you know, this year is the holidays was more skewed towards the month of March. So first quarter. And if we take the passenger unit revenue constant currency figure for the 1st 4 months. So including both March April, and we compare it with the last year figure, the passenger unit revenue improvement would be still growing at 2.4%. So the underlying trend, apart from the positive impact of the is the holiday different timing is positive, is still positive.
When we come to the non fuel unit cost metrics, we have achieved a positive, so negative, so reduction in terms of non fuel unit costs of 0.9%. This has to do with, 1st, lesser third party activity. On our MRO Iberia business and also in with solid figures. But if we strip that one out, the underlying non fuel unit cost trend, is also negative, so positive for the first quarter of the year. -0.3%.
When we get a little bit of an insight into Q2, this non fuel unit cost performance is going to very probably keep on being positive, so negative because as you remember, well, We will be rolling over the disruption that occurred in June for Pitcher with, that created quite sizable increases in non fuel unit cost. Also, we are we'll be starting since the month of April to account for the savings that we will be achieving on the new pension fund schemes for bridge showers. Of course, we have to talk also about, fuel and fuel has been a tailwind and probably will be a tailwind further on through the year. In terms of our impact as we've seen for the pages. It has been, sizable in constant currency terms, around 10% unit cost increase, it has not been so important in euro terms, and that's because the dollar weakness that we are accounting for in this first quarter of the year.
And that's probably something that will be also extending to the next months because the strength of the dollar last year was both in Q1 and also in Q2. So if we get into the following page, where we are, recording the different sources of contribution to our improvement in operating profits for the first quarter. We are recognizing on one side a positive forex impact. As I told you, and I mentioned around a weaker dollar against Q1 last year, But of course, we are having to highlight the very significant contribution on passenger revenues. And as you see, is not so much in volume terms is, of course, in price terms, 156.
And if we compare that one with the fuel cost negative impact, just I would say the sense of the size of the bars will be giving you an idea of how much we are recovering, of the fuel cost, which is over recovering in this Pacific case on the fuel cost increases. We are also mentioning the a lesser level of 3rd party revenues that we are accounting in basically the area of 3rd party MRO activity in Bridge. And that has been partially offset by, we have to mention a stronger cargo contribution, stronger cargo performance for Q1 in respect of last year, which is a continuation of what we have seen in the previous quarters. We also have to mention as a positive contribution, the improvement on non fuel unit cost performance. We'll be talking a little bit more about in the following pages.
So coming back to unit revenue performance. And here, we are bringing a chart that you're used to, well on one side, capacity increases. And changes on the other side, unit revenue performance. And as you see, in the right of the hand circles. We can acknowledge that revenue unit revenue performance has been positive or very positive in all our main strategic markets.
But we need to talk especially about 3 of them. On one side, North America, both at Lancy, on the other side, very positively in Latin America. And thirdly, again, I mentioned on the intra European traffics. So starting with the North America and North Atlantic performance, an increase in unit revenues of 3.8%. And as you know, I think we need to fine tune the figure because we are investing in growth, both in level and linguists.
So that means opening of new routes which will have a maturity phase until they get to full contribution. So if we were to talk just on like for like routes that we have been operating, the improvement in unit revenues at North Atlantic would be reaching 5.1%. So the underlying market is strong between our basic hubs and the North Atlantic destinations, which show us is up 5%, Iberia 4%, so strong strong performance. But I think the best in the chart is Latin America and Latin America, as you see, has had an improvement and increase in unit revenues of 8%. And it's both Iberia Bridgehell is the true operation companies have been achieving very significant improvements.
Of course, we have mentioned Argentina, We have to mention Brazil. And very especially, we have to mention our corporate share with, Santiago De Chile, which has had an excellent performance. Through the quarter. The Caribbean destinations have also been performing positively. In Europe, also positive unit revenue performance, 4.3%, against a capacity increase of 6.5%.
So there, the balance is still working between capacity and demand. And we have to say that the whole of the group. So the 4 companies have been improving their unit revenues in Europe through this first quarter. So less relevant, but also positive improvements in Asia Pacific especially in the case of Iberia and Tokyo and also improvements in Africa, Middle East and South Asia. A little bit of a reference on domestic.
You see that the figure in terms of unit revenue improvement is lower. It's 1.6 it's very much influenced by welling, well in growth, especially to the Canary Islands which, as you know, is a long route and that brings and drags down unit revenues average for the whole of the group. So we follow to the next page where we have a little bit of an additional reference to non fuel unit costs. The message at the top of the chart is very clear non fuel unit costs under control. And this is because really we have been improving our unit cost performance both on the employee side, on the supplier side, and on the ownership side.
And if I have to summarize the underlying reasons why it has to do with what we call efficient growth. And probably the best way to summarize efficient growth is how we've been performing power through the period first quarter against last year has remained basically flat as our capacity has been growing by 4.1%. So capacity has been improving more than 4%. Also to mention ownership cost improvements, this is a combination of better utilization. Especially at dwelling, also Erlingus.
And also, we've been able to reduce the asset value of the assets of some of the assets that we're working with in especially in Iberia, the cases for the A340600, which we have been operating in the past on a lease base But as we have, asset value guarantees on those aircraft, we've been able to repurchase them to operate them at a very low ownership cost. So if we follow through the fuel chart, is there where we basically are recognizing the impact of what we have seen in the market in the last couple of weeks So we've been seeing a few market fuel prices increasing to a level of 700 dollars per metric ton of kerosene. Probably that's part of that increase that has to do with temporary tensions and political type of turmoil around some of the countries, some of the producers, But there may be also underlying strength in that market. So we are referencing our figures to the $700,000,000 per metric ton. And on that type of reference and using a dollar euro rate of $1.21, our fuel bill will be growing to 5,400,000,000.
Which is an 800,000,000 increase over last year. Of course, part of that increase has to do with growth, with the 7.8% growth in terms of ASKs that we'll be producing this year against last year. So getting into the ROIC page, again, it's a very significant improvements against last year. And against the figures that we disclosed by theendofFebruary. We have to be, I would say, transparent enough recognizing that as we are using the 4 last quarters, We are probably, over, recognizing a little bit Easter holidays because this year was mainly March and last year was split between March and April.
So after saying that, the figures and the improvements that we're accounting for and recognizing are very significant. As a group operating margin, Q1 2018, has been 6.9%, again, a very significant figure, 2.2 percentage points above last year. It represents in terms of ROIC of last four quarters a 16.7% figure. And as you know, improvements are across the board are, in the case of, Erling was very relevant. And this is mainly related to Easter holiday impact in Airlingoes in year 2018.
So as you see, operating margin has been improving by 11 profit for the month for the quarter has been quasi breakeven, which is a very positive figure for Ellinghaus in this seasonal low seasonal first quarter. For Iberia, it's also improvement in margin, 2.4 percentage points. And ROIC has been reaching 13.2%. For Bridge share with operating margin, Q1 has been 9.9% and I make a little bit of stop here because those type of levels were the ones that we show is we're considering for average full year targets just maybe 8 years ago. So achieving these margins in the first quarter is very relevant.
And for Whelling, also an improvement of 3.3 percentage points and ROIC last four quarters, 13.6%. So a little bit of a snapshot on our basic financial position. And balance sheet metrics. So gross debt since March last year, has been reduced by SEK 1,300,000,000 and that's basically having to do with regular repayment of our balance sheet debt. Cash and cash equivalents since March has been basically kept at 500,000,000 level.
We have to consider here that the figure of March year 2017 was very positively affected by Easter holiday. So it was including the sales, most of the sales cashed in for the Easter holidays, but of course, not the costs of the travel because the costs of the travel were basically accounted for in the month of April. So the 7.4 is again a very high figure for March year 2018. And it reflects an on balance sheet net debt, which is negative. So cash positive by 100,000,000, nearly 500,000,000 euros.
Aircraft lease capitalization has been gradually increasing, reflecting the increased number of leases in our fleet structure. But even accounting for those, the adjusted net debt has been reduced by EUR 500,000,000. And so the adjusted net debt to EBITDA figure has been coming down from the 1.5 times to one point two times. That has been recognized also by rating agencies and Standard And Poor's has been the final one to attribute which show is with investment grade rating for their debt. So finally, a little bit of a, a review which you already know about on the consequences, positive consequences of the new pension fund skins that Bridgedale's team has been able to agree with unions and pension fund trustees.
On, I would say, very positive outcome for the company and also for the group. So as you know, and the NAPS scheme has been closed for future accruals, that Bob's scheme has been closed for future contributions since 31st March of 18. And these would be representing not only improvements, both from the point of view of the balance sheet, and also from the profit and loss account. But it would mean a much less much lower level of volatility and exposure for bridge share with and the group to changes in interest rates inflation, etcetera. So a quick reminder of the figures will show that, on the income statement, one off net exceptional gains will be, have already been, improving our figures by 6,000,001,000,000.
And this will have an impact in our income statement for the rest of the year. Of 60,000,000 sterling from Q2 and into Q4. In terms of our balance sheet, attention vulnerabilities will fall, by EUR 872,000,000. And, as transition cash arrangements for the beneficiaries of the of the funds of the pension funds, we've been allowing cash transition payments of EUR 192,000,000. As you know, the triannual revision of the pension fund deficit as only started by theendofMarch.
I'll and we'll be taking some quarters. There is a deadline for finalization, which is end of June next year. But we hope that these agreements, these initiatives, will result, as I told you, in probably lower figures and, sure, a much lower level of vulnerability. And now I bring back the word to Willy.
Okay. Thank you, Enrique. So just to reaffirm Our guidance for the year remains unchanged and our current fuel prices and exchange rates we still expect operating profit for 2018 to show an increase year on year and both passenger unit revenue and non fuel unit costs are expected to improve at constant currency. And finally, before I take your questions, just to give you a snapshot of our capacity plans, which remain broadly unchanged some minor changes between Q2 and Q3, where we'll be reviewing Q4 capacity in the coming weeks. And I'd expect to trim that figure it down, but the capacity plans that we have perfectly justified by the returns that we're generating and by the demand that we're witnessing in the market.
So with that, I'll hand back to the operator and we'll start talking, taking your call.
You. We'll now take our first question from Daniel Roeska of Sanford Bernstein. Please go ahead.
Good morning, gentlemen. Congrats on the excellent result this quarter. Three questions, if I may. And maybe Willie, just could you expand a little bit on your last capacity comment, looking towards Q4, turning that, could you talk a little bit how you see the sector in 2019? If fuel prices remain high, how you would think about your capacity deployment next financial year?
And secondly, on Brexit, just a short follow-up question. Any update on ownership structures for Erlingus or Iberia in that context and any update on the U. S. UK OpenSky's progress. And lastly, I'll touch on consolidation, outside of Norwegian.
If we exclude that for just a second. With high fuel prices, more consolidation may be likely, what would you be looking for in terms of a target in the European market? So what what criteria would you be looking for if you were thinking about acquisition in the European space in more general terms? Thanks.
Thank you. In relation to capacity, we keep that under a constant review. And we're we're very pleased with the capacity that we're witnessing from the industry. As Enrique said in the presentation, the Q1 results clearly demonstrate capacity that we've put in was very much below what the demands was in the quarter. And we believe that that's going to continue through the year.
But obviously, with the higher fuel price, we would expect some people to trim back and we'll be looking to do the same. And we'll have a view on 2019, year 2019 later on. On Brexit, As you know, we've not made any changes to the Iberia structure. That's been in place for some time. In relation to Erlingus, we didn't put an ownership and control structure similar to BA in Iberia in Facebook.
We have one ready to put in place, if necessary, and we'll continue to monitor that situation. And on the discussions between the UK in the U. S. I've had regular dialogue with the Secretary of State, Chris Grayling, who remains confident and I share his confidence in relation to that issue, he's reported goods and constructive dialogue with his counterparts in the U. S.
And you've seen our comment in relation to Norwegian. We have had some contact with the board. I understand, I haven't seen it yet, but I understand Norwegian has issued a statement to confirm that that, contact didn't go anywhere. And, we have a look at all of our options in relations in Norwegian, but we're not actively looking at anything else. What we do expect to see, and I think a number of people have said this is some of the weak carriers are clearly looking even weaker and with the fuel price, where it is, I suspect the challenges that they face, they're just going to increase So I wouldn't be surprised to see a few of these weaker carriers slip further into difficulties and potentially see some exits from the Marcus in the latter part of this year, but we're not actively pursuing any other issues and we're not considering anything And as I've said already, we're going to consider all of our options now in relation to Norwegian given that the initial contact we've had with them has not led to any agreements.
We'll take our next question from savi Syth of Raymond James. Please go ahead.
Hey, good morning. I'll limit to two questions here. Just one, could you just remind me your greatest exposures from a corporate and business standpoint and what trends you're seeing on that as you look had from a travel spend standpoint. And then secondly, I know Welling's been kind of focusing on growing in Italy. But with Qatar being a big investment of Air Italy, I was just wondering if there was any kind of meaningful opportunity for any of the IAG brands to partner with Air Italy?
Thank you. On corporate and business activity, the demand remains good in pretty much all segments. We monitor the B activity very closely and the performance in the first quarter and the forward bookings that we have for are good. We're not seeing any areas of concern, some areas stronger than others. But in general, it's a It's a healthy outlook.
In relation to Italy, yes, welling will continue to look at opportunities to grow organically there and those opportunities I think are increasing with the ongoing challenges faced by LaTalia. We're pleased to see the commission, consider again the state aid that was made available to Alitalia. We have objected to that We don't believe that that's appropriate. And, we will keep that situation under review. Originally is looking for some interlining or co chair or transfer, we're happy to do that we've already demonstrated that it's something we can do and will do where we see opportunities to work with other partners So it has absolutely nothing to do with the shareholders in IG or in any other, airline as we've commented on before.
In relation to our linguists, we've been pleased to have successful dialogue with Ryanair about transfer passengers at Dublin Air from Ryanair onto the Air Lingus Transatlantic Services. So, where it makes sense from a consumer point of view, we're happy to put arrangements in place to facilitate consumers who want to transfer between airlines. And that's regardless of the ownership issue.
If I may follow-up just on the corporate 1, what was or actually maybe premium versus economy? Could you can elaborate what the trends were in the quarter?
No, we don't do that, but, you can say it was a strong quarter, but, as I've said, all of the corporate activity has been good and the outlook that we have for corporate activity remains good.
We'll take our next question from Steven Farlung of Davy. Please go ahead.
Good morning, well done on the good results. Just two questions for me. I'm just on the guidance. I mean, the guidance is the guide And I was just wondering, last year, you talked about specifically at this stage of Q2 And why you haven't done that this year? Is it just because the environment hasn't really changed?
Maybe you're expecting with fuel that the an acceleration or improvement in the peak summer. And secondly, on costs, which were very good in Q1. And I know guided down for the year just as you did at the full year. Were you surprised that they were kind of benefiting faster because I certainly was I got the impression it was going to be Q1 maybe slightly up and then down for the rest of the year. So maybe it's just phasing.
Thank you very much.
Thanks, Steven. Yeah, as you said, the guidance is the guidance. I think in Q2 of last year, we just started seeing trends that we wanted to highlight and that's why we specifically made an additional reference at Q2, but I don't have anything to add other than think it is positive that we're saying with the significant increase in the oil price, we continue to hold our guidance and expect our operating profit to improve during the year. And on costs, the Q1 performance was better than planned. I think credit to all of the airlines for that.
We've been clear, we have a long term goal in relation to non fuel unit costs It's not going to be an even achievement through the quarters and through the years, but we're very confident that that longer term goal of reducing, by 1% per annum on average over the period is a goal that we will achieve. But there's good focus in all of the airlines and you should expect to see that continue through the year, but there it's not going to be a, and even achievements through each of the quarters during 2018.
We'll take our next question from Neil Grinn of Credit First. Please
Good morning. If I could ask 3 quick ones, please. Enrique, you mentioned the productivity strength of performance in the first quarter, which I've noticed Employees were flat year on year in first quarter, driving that. Just interested, can you hold this Can you hold employees flat for the rest of the year, or how do you think about headcount developments as the business grows? Then the second question, into the second quarter, I guess the second quarter should be helped by the U.
S. Point of sale given the seasonality of the business. Just interested to what extent Q3 might be, in any way, vulnerable given a greater reliance on U. K. And Europe, given, I think, the U.
S. Might be a stronger point of sale right now. And then finally, can you confirm, if a transaction proceeds, would the buyback currently planned to be influenced in any way by that?
Let me deal with the last question and And I'll hand over to Enrique's comment on the others. Our intention continues with the stated objective to do a of 1,000,000, regardless. So it's not going to influence whether we don't proceed with Norwegian The reason why I included it in the bullet point, I didn't specifically make reference to it in my opening remarks, but just to reaffirm that it is our intention to do that buyback this year. And Megan?
Yes. Yes, productivity, you can expect to see increases, for the full year and significant increases. You have to take into account that we are planning for a capacity increase of 6.8% and that will allow the 4 operating companies to manage efficiently their workforces. So the number of employees is not going to be remaining flat, but you are going to be seeing sizable improvements in productivity through the year.
And on Q2 and Q3, we're not expecting our seeing or anticipating any changes to the behavior in terms of booking profiles. So we haven't seen any changes and the forward booking activity that we have in Q2 is in line with what we would have expected. And obviously, we've less visibility into our Q3, but what we do have is not showing any signs of change. So I don't think we'll see a change in the the sort of normal patterns that you would expect in Q2 and Q3.
Great. Thank you.
We'll take our next question from Jarrod Castle of UBS. Please go ahead.
Thanks and good morning gentlemen. Just in coming back quickly, I've got 3, one on cost control. If you could give some color in terms of, the operating units, I mean, is the bulk of it coming from BA or is it equally split? And secondly, just on Page 10, in which unit would level be, currently based on that slide? And, as and when will you start to split it out?
And then just lastly, IFRS 16, I don't think you're kind of adjusting for it yet. But can you give an idea at this point, what it would mean for balance sheets? And obviously, when you're talking about operating profit, the adjustments there? Thanks.
Yes. In terms of cost control, yes, and nonfueling the cost performance, it has been positive for all the airlines. Of course, with some special tailwinds for airlines that have been growing faster through the quarter. So especially, erlingus, swelling, and Iberia. So That's basically something that will be continuing through the following quarters.
If I jump to IFRSA 16, we are still on the process of reevaluating its impact in our accounts. The early findings that we are reaching is the impact is not going to be sizable. Both in terms of liabilities and in terms of operating profit. Of course, operating profit will be closer to the one that we have been calling adjusted operating profit just to reflect that type of difference. But as a whole, what we are seeing is impact is going to be low or moderated.
And in relation to Page 10 level doesn't appear in that. So you see it in the IAG figure, but it's been stripped out of the Iberia figure. So It will in due course, you will have more visibility around it, but it's a small entity at the moment growing this year, but it its performance is reflected in the IAG, but not in any of the other opcos.
Yes. And so just related to two level, whether or not you do Norwegian, does that have any impact in terms of your growth plans for level? Can you say?
What I can say is that we approved at the IG board, the acquisition of 2 additional aircraft for a level yesterday. And we're continuing to look at options for levels growth. So we're not in any way changing our delays or delaying or slowing down. We continue to look for opportunities, but, we are continuing to see good opportunities for level and are looking at additional European cities. The performance out of Barcelona is very positive, particularly as I've said before, into Buenazares, and we've added capacity in there.
And the performance that we're witnessing in terms of advanced bookings at Apartus is also very positive. So we're not changing our approach to level.
Thanks very much.
We'll take our next question from Andrew Lobbenberg of HSBC. Please go ahead.
Hi there. Can I ask about some of the aircraft types that are delivering some challenges So, the neos that are being delivered with a bit of delay, I think, to most participants in the industry? To what extent is that, that affecting you and how you're addressing that. Then on the 787 and the engine issues on them, How is that affecting you? Are you affected by the ETOPS issues?
And I think there's some stuff on the wires yesterday about Qatar perhaps. Helping you? And then finally, can you talk about the industrial relation situation at Failing, where settler are? Are taking some industrial action that it's not having too much operating impact. How quickly do you expect to close that out to what extent are you concerned that that drags into the summer?
Does it impact bookings? Does it impact the unit costs?
Okay. On Neos, we're clearly very disappointed with the performance of AirPods. I've made my disappointment known to them directly. They understand the frustration that we're experiencing. It's not impacting on our plans because we have flexibility within the existing fleet.
So we're we're looking at covering neo delays with existing CEOs and some options for extensions on CEOs, but I prefer not to do that. But it hasn't as yet had a major impact. It's causing our teams to have to work a lot harder in rejigging their schedules it clearly, is not as attractive to operate with the CEO as is with the Neo particularly in the current fuel price environment. So it's a very frustrating positioned for all airlines to be in who are dependent on Airbus to deliver these aircraft. But we are having, discussions ongoing with Airbus in relation to these issues.
On the 787s, yes, we've had some impact. We expect that impact will be increasing as we go through May, June, July, and we hope that it will be fully resolved in August or by the end of July going into August. So we're able to rejig our schedule to some degree to cover off the ETOPS issue. So that hasn't been a particular problem for us, but clearly, the availability of 787s and rolls power 787s. And it's impacting, as you know, and pretty much all rolls power 787s will see us with a number of 787s unavailable through that May, June, July period.
We are in discussion with a number carriers, which includes Qatar. They've been very flexible and helping us with regard to Lyft will be subject to, approve those from the regulatory authorities. So we've not concluded anything, but Catcher have indicated that they should be able to assist us with additional aircraft, if required. And on swelling, yes, I'm not concerned about this at all. I think it's, it'll be resolved when it will be resolved.
It's not having any impact on bookings. The team at Welling are managing the disruption extremely well. And they're clear, they're prepared to have negotiations on sensible issues. But on other demands, there's no way that they or we will proceed to some of the demands that the trade union has made, we recognize that there are some pay related issues that we need to address and want to address. And we're happy to have that dialogue with them.
So, it's not an issue of concern. It actually isn't done at the IAG management committee agenda. So it's being dealt with by Javier and the team at Welling, and I think it's being dealt with extremely well. So we've left it to him to address an unconfident he will handle the situation. And his performance and performance of his team has been excellent.
So it's not an issue of concern to us.
We'll take our next question from Damian Brewer of Royal Bank of Canada. Please go ahead.
Good morning, everybody. Three questions. First of all, just looking particularly at that RASK differential between Erlanger level than the North Atlantic. When you look at the business as a whole, could you give us some idea of what the mix of sort of relatively immature routes was in Q1 and what that'll look like in Q2 and Q3? Secondly, on the frequent flyer program, you've indicated back in November at the Capital Markets Day, And again, after the Q4 report, there were changes in the offing.
Could you give us some idea of when those might be we might get more on those? Whether you're still thinking of the sort of dynamic pricing approach you've thought of in the past? And very finally on capital allocation, I know you highlighted the NEO issues, but it appears Airbus seems to have issues with a dearth of A330 orders. Is that having any influence on the way you're thinking about capital allocation and the next growth step for level? Thank you.
Thank you. We don't give a break down of the various routes. But just to say, on Erlingus And Level, the important point that sometimes missed, clearly not missed by you, but missed by some people is that, although they operate as a lower unit revenues, they're operating at a significant lower unit cost unless the model, You've seen the presentations from Steve and Kevin on the spiritual cycle that he talks about, the value carrier model, which is driven continuing reduction in his unit cost, which enables him to be more price competitive and it's proven to be very successful. And you can see the performance of Erlingus in terms of their ROIC in the first quarter. On Avios and frequent flyer.
You've seen some changes already. The Avios Travel reward program has been closed and the people in that have been migrated in the BA Executive Club. So you're beginning to see some of the changes that we had envisaged coming to reality. There's a lot of work going on behind the scenes. And we will give a further update on that, but that's the first sort of noticeable change that you should have seen in relation to Avios.
And on capital allocation, I'm pleased to say, we haven't changed our view. We're still, we're taking advantage of some specific niche opportunities that are available to IAG and may not be available to others. And that's I think a feature of the, that the aircraft types that we have in our fleets and the flexibility that we have within the operating companies to access aircraft both new and secondhand at very attractive pricing. And we're very flexible in terms of the aircraft models that we will consider for a level and indeed for the airlines within the group. So, I think there's some unique opportunities open to us, and we will be disclosing some of that in the near future, but we continue to be in dialogue with Boeing and Airbus on white body aircraft, very constructive dialogue with Boeing and we'll be meeting them again in the coming days actually to continue to progress that.
But we found them that's Boeing to be particularly constructive in the dialogue that we've been having with them off late. And that also applies to the engine manufacturers. We've had some very good dialogue with GE, both in relation to wide body and narrow body engines. So, you know, it's clearly frustrating that we see some delays in these programs But I have to say on the other hand, we are seeing some opportunities that we're taking advantage of and you should expect that to continue through this year.
We'll take our next question from Anand Day of Deutsche Bank. Please go ahead.
Yes. Hi, good morning, everyone. I just had a one on BA management. Clearly getting the pension stuff sorted is a very big tick and that's been occupying a lot of their time. At the IAG board, what are you now charging them with?
Obviously, there's
a lot of costs that
has to come out and they've got the program, but there anything else in particular that you would now ask them to focus on? Thank you.
Not going to let them speak, but, Alex and Steve are actually here at the table.
You can hear
the laughter and the apprehension as they wait to hear my answer. No, at the IG Board, we're very pleased with, the progress that has been made in relation to the pension issue. We know we still have issues to manage in relation to that. There is still a significant deficit that needs to be address, but I think the progress in recent months has been a significant milestone and a very positive one. They are tasked with continuing to make progress, particularly in areas like their cost base, but also in terms of operation of performance and customer satisfaction.
And they're doing an extremely good job on both of those. So Our Q1 performance in terms of punctuality was very, very good. And that's despite the sort of challenges they face with aircraft issues. And the net promoter score performance continues to improve. So they're doing what we want them to do and we expect that to continue through the year.
And I think the guys are now breathing again. So, I'll leave it at that.
Can I ask a follow-up as well? It's IAG level. With the introduction of kind of hand baggage only fares on the transatlantic and the U. S. Guys going down the basic economy route.
Does that mean that the antitrust JV needs to be renegotiated at all or does it just slot in exactly the same way as it always happened in the past? IED product changes, I mean, you have to negotiate the structure or not?
No, it doesn't, because it's a metal neutral approach. So these issues apply across the JV. We clearly have dialogue with the regulators in relation to bringing Erlingus into the joint business. So that's a separate dialogue, not in any way, impacted by changes in the model. And as you know, the introduction of these basic fares are hand baggage only are designed to give more choice And that's exactly what we see.
So we see people are choosing these fares and then many of them decide to take advantage of the additional purchase opportunities. So I think it's a positive, feature for consumers and is generally very welcomed by consumer groups and by competition regulators. So, I don't see it having any impact.
We'll take our next question from Mark Simpson of Goodbody. Please go ahead.
A few sort of small tidy up questions. On the other revenue line, just want to confirm that's down to Iberia's MRR activities rather than anything else. On the BA trimming of the FY18 growth forecast, any regional bias to that level, obviously, one thing that surprised you on the launch was the extent of the ancillary spend you were seeing per PAX. Has that leveled out in any way? Is that still growing as you begin to understand that product better?
Just wondering if you could talk about that? And then a final quick question. Just wanted to clarify on the dividend, sort of 25% payout policy. And given the size of the exceptional items this year, is that on a clean basis or reported basis?
Okay. On the, other revenue, yes, you're absolutely right. It's, Iberia MRO.
3rd party revenues. Yes. And that's the sole matter of difference between this year and last year.
On CA notice hold, no regional bias in relation to any of the capacity changes that BA has made. On level, the, yeah, we're continuing to see very good performance in terms of the ancillary revenue. In fact, the level performance, financial performance out of Barcelona has been very encouraging. There's still work for us to do there to fully flow it that model, but what we've seen so far is very encouraging and it is ahead of plan. And we're applying some of the learnings that we see on a level, to the other operating companies which is, helpful as well.
And on the dividend, what we say on dividend is the underlying profit after tax. So clearly the, these exceptional items don't interfere That's all we've said. It's the underlying profit after tax.
Yes. And you have to take into consideration that these improvements, both in balance sheet and the income statement are not so much cash related. They are non cash related.
So So more likely to influence sort of decisions about buybacks at a later stage in terms of your balance sheet strength?
Yes. We'll consider all of these issues at the appropriate time, but we're not making any change. And that's why I just wanted to reaffirm that we have that intention to do the $500,000,000 buyback this year.
We'll take our next question from James Collins of Exane. Please go ahead.
For me, please. The first one is just on, whether you'll be seeking compensation from Rolls Royce for those trend issues on the 787 and maybe just discuss whether effectively this whole process with the Airbus 3 20s as well will cost you money or whether it should be net neutral of CX operational rejigging the second one, do you think Q2 constant currency RASK will be up or will Easter mean it's not And the third one, really, if you can keep this to a yes or no answer, because obviously we're all keen to get ready for the big seagullsbee man United game later. Can Norwegian execute its current growth program as a stand alone business?
Okay. On compensation, we're definitely going to be pursuing compensation from Rolls Royce. We're very frustrated by their performance. I've made that absolutely clear. So there's no question that their performance is unacceptable.
And we want them and expect them to do a better job, but we are pursuing them for compensation. The same applies with any of these deliveries. So we do have contractual terms, which covers some of this, but in some cases, we're going beyond what's in the contract. And we expect these suppliers to respond to our demands because clearly they've got to factor in the ongoing relationship that they want to have with us and we do have options and we're going to exploit those options and deal with all terms of suppliers if we don't get the response that we expect On Q2, we don't break it down, but obviously, Easter does have an impact and that's why Enrique sort of gave you outlook and the performance over the 1st 4 months. So you can see that there is a big Easter impact in March and some Easter impact in April.
But if you want to look at the 1st 4 months, it's been a positive trend, but we're not going to give you sort of a quarter by quarter RASK performance.
Although the 1st, the 1st half would be positive.
And on the third question, I have to give a yes or no answer. You better ask the question again then.
Can Norwegian execute its current growth programs a stand alone business?
No.
Question from Johannes Aron of MainFirst Bank. Please go ahead.
Yes, hi. I have three questions, if I may. Firstly, we had a lot of one off costs in the last couple of quarters. Just, can you confirm that the Q1 results are free of any those one offs And also in terms of the Q2 cost performance, what will be the impact of the IT outage not reoccurring in Q2 in terms of year over year unit costs? Secondly, I understand that the Spanish route charges will decline by 12% next year.
Just trying to understand how significant that will be for Iberia Unfueling for the 2019 budget. And then lastly, any any new thoughts on what can be done in Vienna organically after the Nikkei deal did not happen?
Yes. On the one offs, every quarter has a lot of non comparable issues affecting their cost performance. In general terms, they offset each other. This quarter, we have had disruption in terms of weather. So we have had some abnormal level of passenger compensation and disturbance in terms of our operations.
But, it hasn't been affecting materially the cost levels of the quarter. The only one to reference, as we said, is the lower MRO activity for third parties in the case of Iberia against the same quarter in last year. Next quarter, as I advise you, we are going to have a couple of new issues. One is we'll be rolling over the disruption costs that Prischel was suffered in June 2017. The other one is we'll be starting to account differently.
For the pension fund obligations because of the new agreements that we have in place. And that's something that you will be seeing in the full quarter results by the end of July. But
all of
those were in our plan for the year. So this There's no, nothing additional in that. And on the end, yes, we are looking at opportunities at Vienna and we're continuing to actively pursue that We see a number of slots have become available following the acquisition of Nicky by by others. And they have returned a significant number of slots to the slot pool. We are looking to take advantage of I don't know why they returned them.
Probably they haven't been able to operate them, but there are slots there that we think are attractive and therefore, we are continuing to look at an organic, opportunity at Vienna. We see that as an attractive market and we may or may to something soon, but we're certainly looking at that as an opportunity. And sorry, in relation to Spanish charges, 2019, we'll be looking at that later. My experience there is, these charges decrease in one place and increase somewhere else. So the net results never serializes in the reduction.
So they look interesting headlines, but I've yet to see any significant benefit from them. But clearly, that's something we will be looking at in terms the dwelling and Iberia cost base in 2019. We've not had a detailed analysis of that. We've had a high level another detailed analysis, and we'll be doing that in the coming months. We normally do that in July August.
Okay, fair enough. Thank you.
We'll take our next question from Fatif Sivakumar of Bank of America Merrill Lynch. Please go ahead.
Good morning, guys.
A couple of questions. Where do you see year on year trends are on yield and forward booking for next few months? And secondly, on the FX side, what will be the full year FX impact at the current spot rates?
Okay. We don't give guidance in terms of yields, but just let me repeat what I said earlier. The current trading performance is good. We see good underlying demand in all segments. The premium business corporate activity remains good as does the leisure activity, and that's, at all points of sale, we're not seeing anything that is causing us concern or surprise in any parts of the network at the moment.
So say that our general commercial outlook remains encouraging for 2018. But obviously, we've got very limited visibility, into the fourth quarter. And as I said earlier today, you know, we have good visibility on 2nd quarter and some visibility on 3rd, but we don't really at this stage any way of visibility on fourth quarter.
On the Forex front, it's going to depend on dollar behavior and the surname behavior, as you can imagine. So at these levels of dollar euro rate, we expect to have probably a moderately positive impact in terms of transaction. Net impact. We may be having a moderately negative impact in terms of translation as a whole, they are going to be more or less compensating each other. If we can expect a net at this moment in time, which is very early in the year, could be a net positive, a moderate net positive impact.
We will now take follow-up question from Anand Dave of Deutsche Bank. Please go ahead.
Yes. Hi, good morning. Sorry, there's one I forgot to ask as well. It might not be so much a Q1 question. But on level,
I think you said in
the past that 90% of the bookings are from brand new customers to you. There's no cannibalization Iberia long haul. So I just wanted to check that, A, that's still the case. And then secondly, I'm just trying to figure out do you guys see this as just a nascent new market that you're opening up? Or do you think there's potentially substitution from people taking their city breaks short haul or anything like that.
So is it just incremental pure demand or is it coming from somewhere, not necessarily your businesses but somewhere else? Thank you.
Yes. It's a very good question. The situation we see is the same as before. We're not seeing any cannibalization That has surprised us, but there's absolutely no evidence of cannibalization. It's clearly something we'll be looking at now in greater detail as we expand out of Paris.
But even with the expansion that we've seen in in Barcelona, there's nothing there that indicates. And in fact, one of the
main performing routes for Iberia in this quarter in South America has been Buenos Aires. At the same time, and with similar levels of a RASK improvement as the ones that's level is achieving. So no sign at all of contamination in the respect. And
I think our the evidence we have so far is that this was underlying demand that wasn't being served, so that there was a clear demand for this service, if the price was right. But I think there is some substitution from, short haul to long haul. We're not seeing it in any bookings that we have. But I think when we look at the customer profile and we do, some of the research with the customers, I think they have been influenced by the opportunity to take a short break to a destination that they wouldn't have looked at previously. But in the main, this is stimulating a whole new market, and that's why we remain very encouraged by the performance of level and the reason we're continuing to look at the growth and possibly accelerate the growth level
We'll now take a follow-up question from Neil Grinn of Credit Suisse.
Follow-up, I just wanted to make sure we're all on the same page with respect to CapEx expectations for 2018. And Enrique, would it be possible to confirm the growth number for this year as you currently see it?
Yes. I think no major changes with the exception of the impact the unplanned impact. We don't know yet how much about the deferrals in the delivery final delivery dates of Nils. But in principle, it's a net figure of around SEK 2,800,000,000 for 2018 as we plan.
Great. Thank you.
As there are no further questions, I'd like to turn the conference back to your host any additional or closing remarks.
Okay. Thank you very much. As I said at the beginning, it's a strong performance in the first quarter. We're pleased with the performance of all of the companies within the group and pleased to be able to maintain our guidance for the year. And obviously, if there are any developments on any of the issues, we will disclosed that as and when required, but I'm not expecting or anticipating any announcements in the weeks ahead.
Thank you very much and look forward to talking to you at our next call.
That concludes today's call. Thank you for your participation. You may now disconnect.