Good morning, ladies and gentlemen, and welcome to the International Airlines Group first quarter year 2025 results. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session through the phone lines, and instructions will follow at that time. I would like to remind all participants that this call is being recorded. I will now hand over to Luis Gallego, Chief Executive Officer, to open the presentation. Please go ahead.
Thank you very much. Good morning, everyone. Welcome to our update for the first quarter of 2025. As usual, I'm joined by Nicholas Cadbury, our CFO, as well as the rest of the IAG Management Committee. I would like to begin today by highlighting the key attributes about IAG that help to deliver the strong results in the first quarter and underpin our long-term world-class targets. Our fundamentals are strong. We have unique strengths in our network, hubs, and brands. Our customer base is high quality across all of our airlines, and we have additional businesses that drive capital-like, high-margin earnings growth. Our execution, based on our well-established transformation program and delivered by our talented people, is delivering world-class margins. We are focused on creating value for our shareholders through sustainable dividends and returning excess cash to shareholders through our share buyback program.
IAG has delivered another strong quarter in Q1 2025. We grew revenue by 9.6%. All of our core markets performed well, particularly the North and South Atlantic. Our operating profit grew by EUR 130 million to EUR 198 million, and our margin increased by 1.7 percentage points to 2.8% in our quietest quarter. Operational performance has been good, particularly at British Airways, despite the impact of the Heathrow one-day closure. I'm pleased to announce our order today for 53 widebody aircraft, as well as 18 orders in the first quarter. That will support the delivery of our strategy and signal our confidence in the long-term future of this business. Our balance sheet is getting stronger, which, as I have just mentioned, is underpinning a sustainable dividend and additional cash returns for our shareholders. I will now hand over to Nicholas to take you through the financial details.
Thank you, Luis. Good morning, everyone. I'm pleased to announce our excellent financial results for the first quarter of the year. This slide highlights the key drivers of profit and showcases our strong performance. The total revenue increased to EUR 7 billion, driven by our leading networks and brands, as well as our growth in attractive markets. We also delivered good growth in our cargo and MRO business, as well as BA Holidays. The strong revenue performance offset the increase in non-fuel costs, which were broadly as expected, with the increase this year weighted to the first half, as we discussed at the results in February. I will come on to the split of costs in more detail later, but underlying airline non-fuel costs increased by around about 3%. Thanks to the strong revenue growth and the lower fuel price, we increased operating profit by EUR 130 million to EUR 198 million.
We saw good performance across all the operating companies. This was despite the late timing of Easter, which had an adverse impact this year, and the closure of Heathrow Airport on the 21st of March, which cost British Airways around about EUR 50 million. Despite these headwinds, our transformation programs continue to deliver and benefit our businesses, helping us increase our operating margin by 1.7 points. Now let's look at our operating companies' performance in detail. I'm very pleased that almost all our businesses have delivered an improvement in operating results this year. Aer Lingus a achieved an improvement of approximately EUR 27 million in its operating results and increased its operating margin by nearly 9 percentage points. This is primarily due to a strong unit revenue performance benefiting the airline's network growth, together with stable market capacity during the quarter.
British Airways had a very good performance in the first quarter, with operating profits increasing by nearly EUR 90 million to EUR 96 million. As just mentioned, this included the impact of the one-day closure of Heathrow Airport in March. This improvement was driven by the very strong demand in the North Atlantic markets, along with the benefits of its ongoing transformation program. Iberia achieved a strong revenue performance, mainly driven by the demand across the North Atlantic and Latin America. This resulted in an increase in profits of EUR 100 million to EUR 137 million and operating margin growing approximately 3 points to reach 7.5% operating margin. Vueling had a really positive start to the year, although it was the airline most impacted by the shift in Easter holiday timings. This, combined with the changes in calendar dates of some other celebrations in Spain, was the main driver of the year-on-year performance.
IAG Loyalty reported operating profits that were broadly flat compared to 2024 at GBP 88 million. This now reflects the required adoption of HMRC's view of accounting for VAT on the issuance of Avios, which the group strongly disputes. Excluding this change, Loyalty would have reported a 5% increase in operating profit to GBP 97 million. IAG Loyalty continues to drive strong underlying performance, greater engagement with airlines, loyalty programs, and third-party partners. BA Holidays performance contributed positively to the group's results. Moving to our regional performance in more detail, overall, we continue seeing strong demand and unit revenue in our core markets during the first quarter of the year. We grew capacity by 3.2% and delivered a unit revenue increase of also 3.2%. This performance was driven by high yields and helped by a positive currency impact of around about 2 percentage points.
If we look at the performance by region, the North Atlantic saw the strongest increase in unit revenue of any region year-on-year. Robust performance was evidenced across each of the trans-atlantic airlines, all of them experiencing high single-digit or double-digit percentage increases in revenue. In particular, premium cabins performed well, and the deployment of the Airbus A321XLR aircraft by Iberia and Aer Lingus is also proving to be very successful. Latin America and the Caribbean carried on being one of the stars of the network. Unit revenue increased by 1% after an increase in capacity of over 7%, followed by the great sum of performance in the Southern Hemisphere. Europe continues to be another one of the best-performing markets, despite being the one most negatively impacted by the Easter shift.
Africa, Middle East, and South Asia saw a strong performance, with all our airlines with presence in the region having unit revenue and capacity increase. Asia-Pacific remains our smallest market and is still only 50% of 2019 levels. Increased capacity by 17% in the quarter, reflecting the resumption of routes from Madrid to Tokyo, with Iberia, and London to Bangkok with British Airways. Unit revenue performed well given the high growth. If we look at the performance by segment, the premium segment has sustained strong performance in both long-haul premium and short-haul premium. We saw a good start to the year on the non-premium segment, but as you would expect, the month of March was affected again by the Easter movement. Overall, we saw a strong start to 2025. We still plan to grow capacity around 3% this year, focused on our core markets.
As noted last quarter, we anticipated that the increase in our non-fuel unit costs for this year would be weighted to the first half of the year. Therefore, the 8.8% increase in non-fuel unit costs for this quarter was broadly in line with our expectations. Three factors contributed to the increase. Firstly, 2.2 percentage points was attributed to the negative impact of foreign exchange. Secondly, approximately 2 percentage points was driven by the non-airline business of the group, MRO, loyalty, and holidays. In particular, you can see the related revenue benefit of MRO in the increase in revenue this year. Thirdly, 1 percentage point was due to the negative impact of the one-day closure of Heathrow, which was clearly not expected. This leaves the underlying airline non-fuel cost increase of around about 3 percentage points.
The benefit of this cost investment has also particularly been seen in British Airways' best on-time performance achievement formation of IAG. Fuel unit costs reduced by about 7%, mainly driven by lower commodity price, and we also benefit from the group's new generation aircraft with better fuel consumption. For 2025 as a whole, we expect the non-fuel unit cost trend to be in line with our previous guidance, an increase of 4% approximately, including FX headwinds. Fuel costs, we are currently 65% hedged for the year, to be around about GBP 7.5 billion a year. This slide shows our financial results at a net profit level. Profit after tax and exceptional items was GBP 176 million profit in the first quarter. This is an increase of EUR 180 million last year.
As well as the high operating profits, we have seen continuing improvement in our net financial costs, primarily due to the reduction in gross debt. Going the other way, the tax charge was broadly normalized this year against the credit last year that came from the Spanish Constitutional Court decision. Turning our attention to our balance sheet, I am pleased to report continued strengthening. Net debt has decreased by over EUR 1.4 billion compared to the end of last year to EUR 6.2 billion, and gross debt has reduced by EUR 1.9 billion over the same period. As a result, net and gross leverage has reduced to 0.9x and 2.2x , respectively. This is significantly below our net leverage ceiling of 1.8x and within our desired range of 1.2x-1.5x , which positions us to return excess cash to shareholders.
We remain committed to reducing our gross debt, a process that began in January with a repurchase of EUR 577 million of our 2027 and 2029 senior unsecured bonds. We continued in March with the redemption of our EUR 500 million 2025 bond using cash. Additionally, we still plan to keep approximately 2/3 of 26 expected aircraft deliveries this year unencumbered. This slide illustrates the schedule of our financial non-aircraft debt maturity. As I just described, you can see that after the partial early payments of the bonds and the redemption of the 2025 bond, there is really minimal major debt repayments due in the coming years. It is also worth noting at this point that during the quarter, we received upgrades from our rating agencies.
S&P upgraded IAG and British Airways to a strong BBB investment grade, and Fitch also upgraded British Airways to BBB as well, which we're very pleased about. To conclude for me, I'd like to remind everyone of our disciplined approach to capital allocation, which is fundamental to generating long-term value for our shareholders. Our first priority is to maintain the strength of our balance sheet by targeting net leverage below 1.8 throughout the cycle. Currently, we have a significant leap below that point at 0.9x . Our secondary priority is to invest in the business to support sustainable profit growth. This quarter, we've increased our capacity by just over 3%, receiving a delivery of five new aircraft while expanding our margins. We exercised options for 18 aircraft in the first quarter, and today we've announced an order of 53 aircraft for the group. Medium-term long-haul requirements.
These aircraft are for a combination of replacement and growth, supporting our strategy to strengthen core network and airline brands. We will deliver and will be delivered between 2027 and 2033. Of course, we're committed to sustainable shareholder returns, as we announced in March, through an ordinary dividend, which is set at a level which will be sustainable throughout the cycle. The proposed final dividend of EUR 0.06 per share, as we announced at year-end. Additionally, we are planned to return excess cash to shareholders when net leverage is below 1.2x-1.5x , depending on the commitments and the outlook. So far, we've purchased EUR 530 million of shares so far this year, completing the EUR 350 million buyback announced in November and starting the program of up to EUR 1 billion buyback announced this February. On that note, I'll now hand back to Luis.
Thank you, Nicholas.
As usual, I will spend a couple of minutes highlighting the ongoing transformation across our businesses. Aer Lingus continues to focus on its leading customer offering. This includes a focus on its long-haul services, improving on-time performance, and investing in digital and technology. British Airways is continuing its transformation towards delivering its 15% operating margin target. It is still rebuilding its network after COVID, adding resilience to address operational challenges and investing in its lounges, club suites, and onboard service. Iberia is building an ever-stronger presence in the Latin American market, as well as seeing a strong performance from the new A321XLR route to Boston. On-time performance remains very strong, and improvements are being developed for digital customer service. Vueling also continues to be very focused on its customer proposition.
It remains one of the world's leading airlines for punctuality and is constantly evolving its digital customer support throughout the travel journey. Finally, IAG Loyalty is issuing and redeeming more Avios than ever before. This one increased by 16% in the quarter and redemption by 10%. During the quarter, Loganair joined the airline partner group, and both Iberia and British Airways have now launched their new club loyalty programs, which offer new ways to earn tier points and new benefits. Moving on to our outlook. While we are mindful about macroeconomic uncertainty, our outlook for the full year is unchanged. We continue to see good demand for our services, and the diversity of our portfolio of businesses is capitalizing on that. We are seeing strong demand in Latin America and Europe, while demand across the North Atlantic is robust.
Strength in the premium cabins is mitigating some recently seen softness in the U.S. point of sale for economy leisure travel. We are encouraged by our book position for the second quarter, and although our visibility for the second half is limited at this point, with around 29% booked, this is broadly in line with last year. The attractive structural drivers for both demand and supply remain. In summary, we continue to execute our strategy to deliver world-class margins and returns. We are focused on making our portfolio of market-leading businesses even stronger. We started our transformation program several years ago, precisely so that they would be well-positioned for any economic scenario. We have a strong financial foundation, which is getting stronger and will continue to differentiate IAG.
We are confident in the future of the business and our outlook for the remainder of the year. With that, now we open the call to Q&A.
Thank you, Luis. Ladies and gentlemen, we will now begin the question and answer session. To ask a question on the phone line, please signal by pressing star one on your telephone keypad. We do ask that you please limit your questions to a maximum of one. Your first question comes from the line of Andrew Lobbenberg from Barclays. Please go ahead.
Hi there. Congratulations on the good performance. Can you perhaps speak about the trends on the North Atlantic and how recently did the weakness appear in terms of U.S., sold, and how is it responding to the rapid macro developments?
Is it a clear degradation, or is it a volatile one? Obviously, your European counterparts spoke of weakness in European sold. Are you seeing no weakness at all out of Europe? Are you seeing no weakness out of the U.K., but some out of Spain, or the other way around, or indeed Ireland? How does it look from a European sold perspective too? Thanks.
Thank you, Andrew. To be honest, it's difficult to compare because we have the change in Easter in the period of Easter this year. We had also sales in different periods of time, the blackout in Madrid. It's quite hard to read. As we said before, for the second quarter, the booking levels are close to 80%, and they are above what we had last year. For the eighth two, the visibility that we have is still very limited.
It's only 29%. What we see by region is a very balanced group. South America is very strong. Europe, Africa, Middle East, they are also very good. North America, point of sale U.K., is holding up. Point of sale U.S., as we said, is softer in economy, but all premium cabins are strong. The point of sale U.S., for us, for the group, is 17% of our revenue. We can say that it's 50-50 between premium and economy. The premium traffic is offsetting this weakness that we have seen recently, but we do not know if it's because of the comparison with the base. Your next question comes from the line of Stephen Furlong of Davy. Please go ahead.
Good morning, gentlemen. Congrats on the results and the aircraft order. Maybe I'll just ask about the aircraft order.
You're obviously very happy to take Boeing aircraft. Could you just make a comment, Luis, on the used potential stance on tariffs, or you obviously feel that that is not going to ultimately materialize in terms of import duties, etc., particularly for the Boeing 787s? Thank you.
Okay. I think it's important to say that we started the tender for the widebody aircraft last year. As you can imagine, the decision to allocate capital to our fleet is a long-term strategic investment. We welcome the framework of the deal that was announced yesterday. Still, we do not know what is going to be the total agreement for aviation. We do not like tariffs, and we consider that tariff-free aviation and supply chains have helped to develop aviation and to create jobs and the situation that we have right now.
It is good news that we are not going to have tarriff in Boeing products . We will continue working with the government to see if we can expand this to all the supply chains.
Okay. Thank you. Aircraft rules for U.K. delivery.
Yes.
Your next question comes from the line of services of Raymond James. Your line is open.
Hey, good morning. If I might, to follow up on Andrew's question a little bit on the corporate side, I wonder if you could provide a little bit more color on what you're seeing there across the various regions and just kind of long-haul versus short-haul as well. Thank you.
Yeah. Corporate travel has really been in line with the rest of the business, actually. It's been holding up quite well. Not really too much to say about it overall.
We've seen a little bit of mixed difference in British Airways. We've pulled a bit back from kind of Hong Kong and China, which used to be strong corporate. We're kind of putting on more Middle East, which is slightly less corporate. There's a bit of a mixed difference there. Actually, overall, it's pretty much in line with where we thought it would be.
No kind of incremental change since all this kind of global noise? No. No. I appreciate it.
Your next question comes from the line of Jaime Rowbotham of Deutsche Bank. Please go ahead.
Morning, gentlemen. I'll use my one question to ask about Spain. Iberia seems to have had another great quarter. I think LATAM has a lot to do with it.
If we just focus on the Spanish end of the equation, economically, the country appears to stand out in a very good way. Recently, Aena were talking about domestic traffic growth having slowed a bit to just 1%. There also seem to be increasing headlines about anti-tourism protests in Spain. Just any concerns at all about the outlook for the core Spanish business? Thanks.
This is Marco from Iberia. In fact, not. We have reported still a very, very solid Q1 result in that respect. You can see that there is some element that has to do with the Easter shift that, of course, it has a relevance for the quarter result, but it is purely an Easter shift. In fact, if you look at the perspective for Q2, we do not see weaknesses in this respect.
We can see these markets are still developing in a solid manner.
I can echo Carolina from Vueling. I think the Easter shift for Vueling has an impact, but what we are seeing is quite healthy and in line with expected. We are not seeing weakness.
Thanks, guys. Jamie,
your next question comes from the line of James Hollins of BNP. Your line is open.
No, thanks very much. If I could ask on unit cost ex-fuel, please. Clearly, you've retained guidance with ex-fuel up 4%. I was wondering if you could give us the new split of underlying versus FX. I think it was 2 plus 2. If it has changed, maybe just run us through what it was in particular. Staying on cost as one question, maybe run us through the sort of the quarter movement. You obviously said it's H1 weighted.
Should we expect H2 flat- to- down? Or maybe just run me through how you're thinking about it. Thanks.
Yeah, we're just going to stick to full year guidance, James, at the moment. Yeah, we said at the end of the year it was 2% underlying and 2% FX overall. It's kind of a little bit higher on underlying, a little- bit lower on FX at the moment. The underlying bit has gone up mainly because of the cost that has come through on kind of Heathrow and a very small amount from Madrid as well. That is the only difference on it. It's not too dissimilar from where it was.
Okay. Thanks.
Your next question is from the line of Rurik Lane from RBC Capital Markets. Please go ahead.
Yes. Good morning.
Sprinty, I've got a question about your pension, which is the U.K. or pension assets. The U.K. government has announced reforms to facilitate the release of some pension surpluses. Do you think this?
Sorry, Tim. I was struggling to hear you, I'm afraid. Could you repeat the question? We can hear about pensions, but that's all we can hear.
Yeah. Okay. Hopefully, you can hear me better now. The U.K. government has announced reforms to facilitate the release of some pension surpluses. Do you think this could potentially apply to any of the net pension assets on your balance sheet? Thank you.
I think it's still under consultation, actually. I don't think it's actually gone through finalized at the moment. We'll review that as it comes through. Yeah, not something we're considering at the moment. Thank you.
You have a question from Harry Gowers at JPMorgan. Please go ahead.
Yeah. Good morning, everyone. Just one question on the other revenue line. I know this line, it can be lumpy and maybe hard to forecast, but obviously, the Q1 other revenue is up 40% year over year. Is that going to continue over the coming quarters? How much of that can we extrapolate out to the full year? Thanks a lot.
We had a very strong quarter one. I think we'll probably have a good quarter two as well off the back of it. It is particularly around MRO, which is very strong at the moment. That is kind of third-party kind of maintenance and that kind of fleet of engines at the moment. I would not extrapolate it at 40% going forward overall. We had slightly weaker comparatives this time last year as well.
It's probably roughly around about half that across the year.
Great. Thanks, Nicholas.
Your next question is from the line of Conor Dwyer of Morgan Stanley. Your line is open.
Thanks very much. The question I have is just really around, I see the plane order and how that kind of feeds into, if any, changes in capacity growth expectations in the kind of more medium to long term. Is this kind of very consistent with what you've been saying before in terms of capacity growth, or does it potentially lead to perhaps a little bit of acceleration to how you've been thinking about things beforehand?
I think the fleet order, first of all, we need to replace the aircraft that we have. We have the 777, for example, in BA that they are reaching the end of their life.
Part of the fleet order is to replace those aircraft, partly for growth in line with what we said in the capital market rate in 2023, that we are going to be around 4%-5% of growth per year.
Perfect. Thank you very much.
Your next question is from the line of Baptiste Bourdeau de Fontenay of Bank of America. Please go ahead.
Hello. Just one question, please. One of your competitors said that for some of the trans-atlantic volume gaps, it could also be because of shorter booking windows, given the uncertainty. Is that something you think is also a possible explanation? Thank you.
It might be. I mean, I'd be speculative if it was. We've seen some strong short bookings, actually, particularly in Ireland and in Europe at the moment. I think it'd be kind of speculating if we saw that.
Your next question comes from the line of Guilherme Sampaio from CaixaBank. Please go ahead.
Hello. Thank you for taking my question. How do you see the industry trans-atlantic capacity reacting to this demand softening? How do you expect to deal with this softening in the future? In terms of cost or in terms of capacity, what kind of flexibility do you have?
I think what we see in our main market, the capacity for the second quarter and for the third quarter, we see, for example, that in North Atlantic, the traffic between Europe and North Atlantic is going to fall in the second quarter around 0.8%. We are going to have a fall in all of our hubs except Dublin, that they are going to have an increase.
In the third quarter, the traffic between Europe and North Atlantic or the capacity between Europe and North Atlantic is going to increase 2%. London, we see it's going to be flat, and we see a strong growth in Madrid and also in Dublin. We look at the South Atlantic, in the second quarter, the traffic between Europe and LAC is going to be almost flat. I think London is going to decrease, and Madrid is going to increase around 1.5%. If we look at the third quarter, traffic between Europe and South Atlantic is going to, the capacity between Europe and LAC is going to decrease around 2% with a decrease in London and Madrid. I think, in general, the environment is a good environment.
If we look at the European traffic, the second quarter, we are going to have an increase of capacity of around 3%, and the same for the third quarter. The capacity that we have, the plan we have for this year, is going to be a growth of around 3.4%. I think although we've got some uncertainty short-term on this, I think if you one thing we are certain about is across the North Atlantic over the medium to long term, it being a very strong market.
Okay.
Our final question today comes from the line of Jarrod Castle at UBS. Please go ahead.
Great. Last but not forgotten. You changed the Tier Points program. We've had a good few weeks now of the new loyalty program. I wanted to ask about how's the customer response been towards that? You're seeing any change in behavior?
Also, how competitors are responding? Anything on the loyalty program changes and how that's impacting the business positively or negatively?
Maybe if I go from British Airways, I think we're seeing the behavior that we expected. One, I think executive bookings are tracking in line with the rest of our wider bookings. Number two, I think we're seeing people get rewarded more fairly, and we're seeing people get rewarded for an increased share of wallets. I think it's also important to note that over the last two years, we've made a number of changes to the proposition. We've made more commitments made for redemptions, which customers receive positively. We've reduced things like our carry and post charges. We've also implemented spend-based earn, which means that we issue more miles to customers. Now I think revenue-based tier is something which is much fairer.
I think the behavior and the trends that we expected are certainly the ones that we're seeing, which is very encouraging. I'd add from a loyalty perspective, we're seeing similar on the Iberia side as well. We are seeing some evidence that more club members are booking on their holidays too. We expected that to be part of the change, and I think we're seeing early signs of that.
Thanks.
This does conclude our Q&A session. I will now hand back to Luis Gallego for closing remarks.
Okay. Thank you very much, everybody, for being here today. As we said, a strong Q1. We have limited visibility for the second half of the year, but we are sure that the strategy that we are following and the strength of the different airlines and businesses in the group is going to continue delivering good results.
Thank you very much.