Good morning, ladies and gentlemen, and welcome to International Airlines Group's half-year 2026 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, and welcome to IAG's first half 2026 results. A particular welcome today to José Antonio Barrionuevo, who has now taken over as our Group CFO. Also, as usual, I have the rest of the IAG management committee with me today. This first slide captures the essence of where we are today as a group. Since its inception in 2011, we have built IAG into a world-class business. We now have a diverse portfolio of globally recognized brands in large and attractive markets, delivering industry-leading margins and significant free cash flow, and creating long-term value for our shareholders. These fundamentals make us well-positioned to navigate the current headwinds that the industry faces. As a result, we have delivered a robust first-half performance. We have grown our revenue base on continued strong demand for travel.
This highlights the strength and diversity of our markets and propositions. Our disciplined cost control during the half has supported the resilience of our margins, partly mitigating the sharp increase in the price of jet fuel. We continue to have a strong and efficient balance sheet, which gives us the ability to manage a crisis like this with confidence. For our shareholders, we are committed to paying a sustainable dividend and completing the excess cash return. With the actions that we are taking, we expect to deliver an operating margin within our target range of 12%-15%, despite the headwinds the industry is facing. We delivered a good financial performance in the first half, with industry-leading margins that again highlight the quality of IAG's business.
We grew revenue by 1.0% overall in the first half, comprising a strong first- quarter revenue growth of 1.9% and resilient second- quarter revenue growth of 0.2%. This is despite the effects of the Middle East crisis, which had an immediate impact on our capacity and fuel costs, that gave us limited time to respond with mitigating actions. However, we did manage to recover around 60% of the fuel cost increase through our own pricing and cost actions in line with our expectations. This varied across our regions. Broadly speaking, our long-haul operations were very positive, and in short-haul it was more competitive. IAG Loyalty continues to perform well as a differentiated proposition to our airlines, increasing profit by 25% to GBP 239 million, at a margin of 19.3%. Our profit for the first half was EUR 1,757 million, a resilient performance overall.
I will now pass you to José Antonio to take you through the numbers in more detail.
Thank you, Luis. Good morning, everyone. I'm pleased to share our first half results with you. This slide shows the key drivers of our first- half performance, both by revenue and cost drivers on the left and by business on the right. We delivered an operating profit of EUR 1.757 billion in the first half of the year, down EUR 121 million on last year, a robust performance despite headwinds from fuel. We delivered an operating margin of 10.9%, with a sector-leading first- half performance, which is consistent with our confidence in delivering a full- year margin within our 12%-15% target range. Passenger revenue increased by EUR 828 million at cost and currency, driven by continued strong demand for travel and our diverse portfolio of markets and brands.
Cargo revenue was down EUR 23 million as lower cargo volumes, mainly linked to the suspension of routes from the Middle East, were only partially offset by a 3.3% improvement in yields. Other revenue was slightly lower than last year, mainly reflecting a change in how certain MRO components in Iberia are now charged directly by the manufacturer to our airline customers, which reduces both revenue and cost by an equal amount. I'm pleased with our disciplined non-fuel cost performance as our transformation programs continue to deliver savings. However, our hedging program only partially offset the rising commodity prices, leading to a 12.5% increase in fuel unit cost. FX was a net EUR 52 million drag on operating profit in the hub, with the translation impact of a weaker sterling against the euro more than offsetting a small favorable transaction impact.
On the right-hand side of the slide, you can see the performance by business. British Airways was one of the standout performers, growing operating profit by EUR 44 million year-on-year. IAG Loyalty also delivered a strong performance, increasing its profit by GBP 48 million, reinforcing the qualities of this business that we set out at the recent Investor Day. Iberia, Vueling, and Aer Lingus also lower profits, mainly reflecting the impact of higher fuel costs, and in the case of Aer Lingus and Vueling, some highly competitive markets in more price-sensitive segments. I'll come back to each of these on the next slides. Turning to the second quarter, operating profit fell to EUR 274 million year-on-year, to EUR 1.406 billion, with a margin of 15.8%, a reduction from a 19% margin last year.
Passenger revenue increased EUR 318 million, excluding FX impacts, driven by higher unit revenue, although this was not enough to offset the EUR 489 million increase in fuel costs at constant currency, driven by high commodity prices following the outbreak of the Middle East conflict. This quarter was also negatively affected by the partial shift of Easter in the first half. Profits from all our airlines were affected by the immediate impact of higher fuel prices. But again, you can see in the slide the quality of the IAG Loyalty business, which increased its profits by EUR 20 million year-on-year. Now we will take a look at our operating company's performance in the first half of the year in more detail.
British Airways delivered an operating profit of GBP 885 million, an increase in margin to 11.9%, with a strong first quarter improvement of GBP 90 million, more than offsetting the initial impact of Middle East cancellations and higher fuel costs. Iberia reported an operating profit of EUR 526 million, down EUR 38 million versus last year, but delivering a strong 13.5% operating profit margin. Iberia continues to see strong demand, particularly to Latin America, but the reduction in profit reflected the impact of higher fuel costs and some cancellations linked to additional engine maintenance. Vueling's operating profit was down EUR 49 million year-on-year to EUR 46 million, reflecting, again, higher fuel costs and continued competitive pressure in some markets within the European local segment, which is naturally more price sensitive. Aer Lingus delivered an operating loss of EUR 34 million compared to an EUR 80 million profit last year.
This was driven by the combination of higher fuel costs and competitor capacity growth, especially from U.S. carriers. IAG Loyalty continued to deliver high- quality, high- margin earnings, with operating profit up GBP 48 million to GBP 239 million, with a margin of 19.3%, up 3.4 points versus last year. Profit growth came mainly from the loyalty part of the business, driven by non-airline partnerships, with the holidays business affected by the suspension of the routes to the Middle East. Turning to our Q2 regional performance, group capacity was slightly down, below the original plan of around 1% growth that we guided to in May, reflecting additional cancellations linked to the Middle East conflict, as well as aircraft availability. In the North Atlantic, which represents around 30% of our capacity, unit revenue increased 7.3% at constant currency.
This was driven by British Airways, which delivered very strong unit revenue growth, with strong premium demand and strong corporate demand in all points of sale. Latin American Caribbean continues to be a strong performer, with unit revenue increasing 2.4% at constant currency on a 5.3% increase in capacity. Driven by Iberia, which continues to grow its capacity to the region, including new A321XLR routes to Recife and Fortaleza in Brazil. For Iberia, premium demand continued to outperform, with point-of-sale LATAM and Spain performing well. However, in point of sale Argentina and Mexico, Iberia saw a shift in demand due to the World Cup, congratulations to the winning team, by the way, with outbound tourism from these countries shifting from Europe to North America. In Europe, unit revenue increased 1.2% at constant currency.
This very strong outperformance compared to the wider European market was delivered through British Airways Heathrow network and premium demand, highlighting its differentiated proposition. The European short-haul market remains highly competitive, given significant capacity growth from other airlines, which limited our ability to recover the fuel cost increase through pricing. In the domestic market, unit revenue increased 1.7% on a capacity increase of 6.7%, helped by disruption to rail services in Spain. In the rest of the world, performance was also very strong. In Africa, Middle East, and South Asia, capacity was down 17.4% as we suspended most routes to the Middle East, but unit revenue on the remaining routes increased 13.2%, helped by customers avoiding traveling via the Middle East, particularly corporate travelers on British Airways.
In Asia Pacific, capacity fell slightly as BA redeployed A380s from Singapore to Johannesburg, which was only partially offset by the launch of the Gatwick to Bangkok route. Unit revenue performance in Asia was strong, increasing 6.2% at constant currency. Turning to unit costs, non-fuel unit cost increased by 1.3%, including a benefit of three points from FX. Employee unit cost increased 2.4%, reflecting pay deals, headcount growth driven by planned capacity growth, and the increase in employers' national insurance in the United Kingdom. Supply unit cost improved 5.4% with our cost transformation initiatives, more than offsetting inflationary pressures. Although it is worth noting that FX especially impacts engineering and other aircraft costs, the majority of which are denominated in U.S. dollars. There was also a tailwind from the change in Iberia's MRO contract basis that I mentioned earlier.
Ownership unit cost increased 8.8%, driven by new aircraft as well as customer focus and digital investments. Fuel unit cost rose 12.5%, reflecting the significant increase in commodity prices from late February following the conflict in the Middle East. This was only partially offset by our hedging program, which delivered hedging gains of EUR 769 million in the first half of the year. Looking forward, we are around 70% hedged for the remainder of 2026 and around 40% hedged for 2027. This next slide takes us down to profit after tax. In the first half, we recognized EUR 149 million of exceptional costs, EUR 114 million at Iberia, and EUR 35 million at British Airways, related to their transformation and workforce programs. Before these exceptional items, profit after tax was EUR 1.146 billion, down 11.9% year-over-year.
Overall adjusted EPS decreased by 10.9%, benefiting from our ongoing share buyback program. We generated free cash flow of EUR 2.905 billion in the first half of the year, EUR 808 million higher than last year. Operating cash flow was up EUR 409 million year-over-year, mainly reflecting the EUR 447 million payment to HMRC, which we made last year to appeal the IAG Loyalty VAT ruling. Working capital was a smaller inflow compared to last year, mainly due to fuel prepayments we made to mitigate the impact of the Middle East conflict, together with lower capacity growth. CapEx was EUR 1.291 billion, down from EUR 1.690 billion last year, reflecting the delivery of just three new aircraft in the first half of this year, compared with 13 in the first half of last year.
We now expect 16 deliveries for the full year, with the majority being delivered in the fourth quarter and one delivery now slipping into 2027 compared to the update we gave you in May. Full- year CapEx is now expected to be around EUR 3.4 billion, and we expect to continue to take the majority of the remaining deliveries unencumbered. We continue to take action to maintain our balance sheet strength. Net debt reduced to EUR 4.7 billion, down from EUR 5.9 billion at the end of last year. Net leverage also reduced to 0.6x , and gross leverage reduced to 1.8x . This was driven by the net impact of the repurchase of the convertible bonds, the issuance of new and secured bonds, the repayment of aircraft financing, and EUR 0.5 billion in aircraft lease extensions. Finally, from me, a reminder of how we think about capital allocation.
Our first priority is to maintain our balance sheet strength, targeting net leverage below 1.8x and gross leverage of between 1.5x and 2.0x . Our second priority is disciplined investment in the business, targeting a return on invested capital of 13%-16%. Third, we're committed to a sustainable ordinary dividend. In 2025, the total dividend was EUR 441 million, with the final dividend of the year of EUR 0.05 per share paid last June. We will update the market on the 2026 interim dividend at our quarter three results. Also, we continue to return excess cash to shareholders, with around EUR 800 million already completed of the EUR 1.4 billion program that we announced in February 2026. Finally, I wanted to share some thoughts from my two months as IAG's CFO.
Whilst I've been in the group for 13 years now, the experience over the past two months has strengthened my view that IAG has the right model, the right strategy, and the right execution capabilities. Even though the current situation is highly challenging, we're still generating high margins between 12%-15%, high return on invested capital, and a strong free cash flow, allowing us to continue, A, investing in the business, B, creating long-term value for our shareholders, and C, rewarding them through dividends and returns of excess cash. The conclusion is clear. The model works, we're highly resilient, and I have huge confidence in the long-term future of IAG. On that note, I will hand back now to Luis.
Thank you, Antonio. As usual, I will start with our strategy summary slide, which is how we are delivering our strong financial results. Our first priority is to focus on our strong core, which means that we strengthen and grow our global leadership positions through developing our hubs and our networks. We are also investing in our brands with value propositions across different customer segments. Secondly, we are driving capital- light earnings growth primarily through IAG Loyalty. As you have seen, this is going very well. Thirdly, we are basing this on a robust financial and sustainability framework in which we focus on creating value for our shareholders in the long term. This is designed to drive sustainable profitability and accretive earnings growth. Our strong core of diverse markets and brands is providing its value in the current environment.
As you can see on this slide, our resilient performance is being delivered by our leading positions in a number of large and attractive markets with powerful brands and customer propositions in those markets. I would like to highlight that our different customer segments are making important contributions. We are seeing good revenue growth from business customers, whilst leisure and VFR traffic, particularly premium travelers, provide the sticky volumes that provide underlying resilience. Our strong and resilient margin performance is driven by our ongoing transformation program, which focuses on operational customer and cost improvement. This is a long-term continuous improvement culture that underpins our resilience. BA is seeing the benefits of its commercial transformation through the new revenue management and payment platforms. This is delivering revenue upside, particularly in this dynamic trading environment.
BA also recently started to roll out the new app, with 93% of sessions now going through the new version, with better experiences for customers across all four aspects of its functionality. Iberia continues to implement its strategic medium-term Plan Vuelo that was announced last year. It is growing its long-haul fleet efficiently and profitably with the new XLRs, as well as reshaping its workforce to introduce new skills using the latest technology and AI to drive higher productivity. Aer Lingus has recently announced a major transformation plan in which it will make network changes, invest in new cabins, and reduce costs with a clear path to position the airline better for the long term. Vueling announced its Plan Rumbo at the beginning of this year, setting out its long-term transformation plan to carry 60 million passengers a year.
A fundamental part of this will be the transition to a Boeing 737 fleet that will deliver a significant reduction in cost. In the meantime, they continue to focus on digitalization in the business with respect to both customers and operations. Finally, IAG Loyalty is delivering on its plan to build to EUR 1 billion, which I will cover in more detail in a minute. We are continuing to invest in the business to drive a better customer experience, resilient operations, and long-term earnings growth. Our aircraft are our biggest investment, and we have 16 deliveries coming this year. This includes the final XLRs, which is an aircraft type that is performing extremely well. We are also looking forward to the first of our six Boeing 737 deliveries to Vueling at the end of the year. On board, we are retrofitting aircraft across our network airlines.
Most of BA's Heathrow long-haul fleet will have the new Club Suite by the end of the year. The first A380 has just started its retrofit, which will also include the new first seat as well as the Club Suite. Both Iberia and Aer Lingus are retrofitting their A330s to deliver a more premium proposition with both business and premium economy cabins. As mentioned earlier this year, we have started the installation of Starlink across the group. This is driving the significant customer satisfaction increases on flights where it is available, and take-up is very high. We have 353 devices connected on one flight, which was more than one per passenger.
We expect 50% of our long-haul fleet to have Starlink by the end of the year. Vueling will be the first low-cost carrier in Europe to have Starlink, which will be fitted to its new 737s when they are delivered later this year. We also continue to upgrade our lounges around the world with the imminent opening of the new Emerald Lounge at Madrid Barajas for Iberia. BA has announced an intention to upgrade their lounge at Newark Airport. One of the benefits of our transformation program in the last few years has been that all of our airlines are now delivering sector-leading on-time performance on both a European and global basis. Aer Lingus has outperformed its largest competitor in Dublin for the last 37 months in a row.
British Airways had its best ever quarter in the first quarter of this year. Iberia and Vueling were both in the top five European airlines for the year- to- date. This has helped deliver strong customer NPS and an efficient operation, which underpins our profitability. As I mentioned at the beginning, IAG Loyalty is continuing to deliver strong results in terms of its financial performance, as well as strategic initiatives. Avios issuance issued went up by 15%, and the number of active members increased by 9%. New partnerships were signed with bp pulse and Uber Eats in the U.K. and Cinesa in Spain. The holidays business was affected by the Middle East crisis but has seen some additional demand in the Caribbean, Indian Ocean, and short-haul Europe.
Holidays has also seen significant benefits from the new BA Club Tier Point link, with a significant increase in revenue per booking from Gold and Silver cardholders. We continue to make good progress in our sustainability program. Primarily, we are ensuring that we comply with our obligations, securing SAF volumes toward our 2026 requirements. We are working with partners to encourage the production of advanced SAF in the future. We are also engaging with governments and regulators to ensure that carbon-related targets are achievable and do not unfairly penalize European airlines. In particular, we are evaluating the recent EU ETS proposal for its likely effects. In principle, we prefer that they support CORSIA, the global United Nations initiative. As always, it is our people that are critical to our success. We hired 6,000 people in the first half of the year, increasing our total headcount to around 78,000.
This reflects the normal seasonal increases in pilot and cabin crew ahead of the busy summer season, as well as more manpower in our south ground handling business. We have a new agreement in place with ground teams at Iberia. Moving on to the outlook. As seen in the first half, we are well positioned to navigate the near-term headwinds facing the industry, showcasing the strength and resilience of our business. We are booked at around 57% of expected revenue for the second half, in line with last year. We continue to expect to recover around 60% of the increase in the fuel price through revenue and cost initiatives, and supported by our transformation program. Based on our revenue and cost actions and our decision to take out inefficient capacity, we expect to deliver an operating margin this year within the group's 12%-15% target range.
This, in turn, will generate significant free cash flow. We are delivering for our shareholders through dividends and our excess cash return, we expect to continue to improve again next year. We are confident in delivering long-term value creation for our shareholders. Now, we are opening the session to Q&A.
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 ask that you please limit your questions to a maximum of two. We will pause for a moment to assemble the queue. Your first question comes to the line of James Hollins from BNP Paribas. The line is open.
Thanks very much. First of all, congratulations, Luis and José Antonio, on the World Cup. I think we were all a bit Spanish that day. Two questions, please. First of all, on this capacity reduction, maybe just sort of unpack a little bit where it is being removed, maybe if it reflects sort of strategic reductions or just late aircraft availability. I think you talked about that impacting Q2, whether you are still seeing ongoing engine issues in particular. Then maybe we could hear from Lynne on Aer Lingus. I saw some media on the transformation plan. It looks like quite a biggie there. Maybe just a bit more on what is being done, cost- cutting, strategy, et cetera. I think it is quite a big one to get that turned around. Thanks very much.
Good morning. Talking about capacity, as we said, the full year capacity now is guided flat. The main reason is that we canceled a big part of our operation in the Middle East. We are going to resume that operation, but slowly. For example, we will resume Doha on September 1st , Riyadh from October 1st, and also Dubai and Tel Aviv. It is taking time, we are following the situation there. The other reductions is more because we want to have capacity discipline, we are evaluating all our flights. At the end, what we want is to preserve the margins of the company. It is true that we have some issues with the engines. I think in general, the situation is improving, but maybe, Sean, you want to comment about that? So be it.
I think we have an improvement in the Rolls-Royce Trent availability, so we have less aircraft out this year than we did last year. I think that's enabled us to grow the North Atlantic, for instance, in the first half, where our capacity was up 5%. We have taken reductions in the Middle East, as Luis said, but then we have redeployed some of that capacity into markets like India, where we've actually added an extra frequency to Bangalore and increased gauge in markets like Mumbai and Delhi. We've also added capacity into Nairobi, which is performing well. I think it's fair to say that we still have some supply chain challenges that we're navigating through across our fleets in long haul. Generally speaking, we're seeing more of our aircraft operating this summer than we would have last summer due to an improvement in the Trent situation.
If I pick up on the Aer Lingus one there, James. Yeah, this is our first half one loss outside of COVID for some time. Of the EUR 114 million swing in profitability, only EUR 45 of that is fuel. What we're looking at is quite a changed structural environment to the one that we used to operate in, where the group margins were more easily in reach. We've seen, since those days, a 40% increase in short-haul capacity from competitors, 50% from long haul. We just can't sustain that level of revenue pressure with the cost base that we have today. We are confident we can get there. We do have a plan. It starts with head office, where we've been doing our zero-based budgeting on the cost base, but importantly, taking over 25% out of senior management so far.
We're also consulting with our unions over a similar number out of head office in total. We've taken the weakest flying out of the network. That's a 6% reduction that we announced recently. We do have a lot of transformation on the revenue side, not in the tech side, but also in product. We've mentioned premium economy and the business class refresh. We do need to see productivity improvements as part of that bridge to get to the group operating margin. If we do all of those things, I think we're confident that we can get to being an investment case for IAG again. We do have a lot of aircraft requirements going up, and we'd like to make that case.
Lovely. Thanks a lot.
Your next question comes to the line of Alex Irving from Bernstein. Your line is open.
Good morning. Two from me, please. First of all, I want to pick up on recent comments from Emirates refusing the first 777X because of rework requirements. I think United said they also don't want them. Do you share that view, or do you think they could possibly work in BA if offered? More broadly, how confident are you in getting 777Xs? I believe you'll do your first ones next year. Second is some of the recent news flow around easyJet possibly being taken private. If some parts of easyJet were to become available for sale, thinking about holidays, U.K. medium haul, maybe some mainland European slots, would they be strategically interesting to you? Thank you.
Thank you, Alex. Talking about the 777, we are going to receive our first 777 in principle in 2028. We choose not to have the first serial numbers of the aircraft, we are not concerned about that. In principle, we don't see the same problems. About easyJet, we are, as a group, always analyzing opportunities of consolidation across the sector because we think that further consolidation can help to make European aviation more efficient. The only thing we can say is that we regularly talk to airlines and assess consolidation opportunities, we are not going to comment on anything about easyJet.
Clear. Thank you.
Your next question comes to the line of Stephen Furlong from Davy. Your line is open.
Yes, good morning. Two questions, please. First of all, CapEx. I see the CapEx now for the year is EUR 3.4 billion. Just remind me what the CapEx is expected to be or what you've said for the rest of the decade, or a broad indication, and obviously it steps up. I say that in the context that the net debt- to- EBITDA is 0.6x, and you talk about excess returns of 1x to 1.5x. Maybe just talk about, given that, where your leverage is.
The second question, just on the market. You keep saying that the European market is competitive, and I'm just wondering, what's the issue? Is it too much capacity? Is it the competition? Is it Ryanair? Or is it inherent in the restructuring needed at the airlines? Maybe in particular Aer Lingus and Vueling, because it sounds like BA is okay there. Thank you very much.
Thank you. On CapEx, we guided in the February results about our CapEx profile for the following years.
We're roughly in the same numbers that we shared with you at that time. CapEx for this year, 2026, it's going to be around EUR 3.4 billion. For the next two years, 2027 and 2028, we gave you an average of around EUR 4.9 billion. For 2029 to 2031, a EUR 5.6 billion average, returning to a run rate of around EUR 4.5 billion after 2032 onwards. We're roughly in the same place. There's obviously little changes that happened when the deliveries slipped to the right. Roughly, we now have the same CapEx profile that we told you a few months ago.
About Europe is the most competitive region. We have elevated capacity growth, in particular where there are ultra-low-cost carriers in some markets, like for example, Italy. There are other markets that continue to be healthy. When there is a battle, it's tough, to be honest. In principle, our domestic market is performing well. We see a stable trend, and it's a solid contributor. I think that's the market where we see the biggest impact.
Okay. That's great. Thank you very much.
Yeah.
Your next question comes from the line of Conor Dwyer from Citi. Your line is open.
Hey. Good morning, guys. First question actually was following up on the second question there, which was around the European short-haul market. As you say, obviously it's quite competitive at the moment, and I'm just kind of wondering what your views are on how that develops over the next few years. Obviously, you had mentioned that easyJet may be taken over. Do you have any views on consolidation just for that market as a whole? In terms of the order books within there, generally speaking, it looks like capacity growth could be mid to high single digits if retirement rates stay as low as they are. I'm just thinking, what's your view on that run rate going forward? The second question is, as we look into winter, obviously you're cutting capacity growth will have a higher weighting from the likes of corporate.
Generally, they'd be a bit less price sensitive. Should that improve your ability to raise pricing into the winter? Maybe perhaps an update within that of how corporate is overall tracking at the moment. Thanks very much.
Thank you. No, it's difficult to predict what the intra-European so-called market is going to be . If this situation continues, I am sure that some competitors, they are going to suffer, and they are going to reduce capacity. It's true that we can have some consolidation, that maybe we are going to have also less capacity from people that they are not so strong in order to survive to this situation. We are following that very carefully. If we have some opportunities, for sure, we will take action. The second question was about the business traffic and corporate traffic. Q2 was very strong in corporate revenue. High single digits year-on-year. It was driven by volume and also by yield. BA was very strong. BA corporate demand also worked very well in North Atlantic and domestic.
It's something similar to what we are seeing for the rest of the year. We continue to see strong business demand, in particular, as I said, in the North Atlantic and domestic region. It's true that we also have some traffic from the Middle East that is coming to our hubs, and it's something that is going to decrease on time. We hope that this conflict will be solved at some point, but that's also helping us. I don't know, Sean or Marco, you want to comment on that?
Yeah, I think North Atlantic has been very robust, and we've had both volume and price increases. I think technology and financial services have been strong, but also small and medium enterprises, we've seen volume growth there. Also, a combination of personal and business trips has been a growing segment. I think as Luis said, if you look at the rest of world, flows like North America to India, we're doing very well on business traffic, and a lot of that traffic at the minute is bypassing the Gulf hubs. I think we're capitalizing on that, and we've added more capacity into those markets to build on that momentum. Look, I think we're seeing that trend continue as we look into the second half of the year.
As you say, in the winter, that makes up a bigger mix of our business, but the trends are encouraging.
The same can be commented from our previous standpoint. We had an 8% increase in our corporate traffic in Q2. In particular, the strongest one was North America, but in general, throughout our network, long-haul network in particular, we did see that strength.
Wonderful. Thank you very much, guys.
Your next question comes to line of Jaime Rowbotham from Deutsche Bank. Your line is open.
[Non-English content] Luis, José Antonio. Two questions from me, one on revenues, the other on cost. Firstly, you've mentioned that 57% of expected revenues for H2 are booked, that that percentage is similar to this time last year.
Clearly, your expectation is for revenue growth year-over-year in H2. Can you offer any thoughts on how you see the constant currency PRASK for the group progressing in Q3 and Q4 from the 4.6% level seen in Q2? In particular, do you see any price cuts from U.S. legacy carriers that might affect how that progresses? Secondly, pleasing to see that the flat ex-fuel CASK guide is there despite the much lower ASKs. Could I get you to talk a bit more about the EUR 149 million of restructuring costs? What's been done exactly at BA and Iberia in H1? Is that just part of BA transformation and Iberia's Plan de Vuelo? How much restructuring do you envisage in H2 for anything else at those two airlines, along with the announced restructuring at Aer Lingus? Thanks very much.
Thank you. Yes, as you said, the tail position is 57% of expected revenue booked for the second half. It's similar to the percentage that we had last year, not in absolute terms. Because what we see for the second half is a broadly similar behavior in PRASK of the behavior that we had in the Q2. That's the performance that we see for the year. Maybe, José Antonio, you want to comment on the cost side?
On the cost side. Two comments here. First one, obviously Q2 was a good reaction. It was a disciplined approach to cost. In the new situation, we are going to continue putting focus on cost for the remainder of the year. As you say, the guidance we're giving on non-fuel CASK, given the lower capacity, shows that we're disciplined and we can react quickly to the situation when it's needed. In terms of the exceptional cost, you're right, they're part of the transformation programs of both Iberia and BA in terms of having a more efficient employee base, especially in the case of BA, more on the headquarters. In the case of Iberia, also including some of the operational parts of the business. It's a part of the ongoing transformation that we are having on both businesses.
I don't know if, Marco, you want to say something else.
Yeah. Out of the 149, there are EUR 114 million that are corresponding to what we call the voluntary furlough scheme in Spain, the ERTE, that touches almost 1,000 people in Iberia. That has been agreed with 100% of the support of the unions. 85% already of the people out of the 996 have been applying to that. We are in full implementation of that. That not only ensures that we have a change in our profiles to be prepared to face all the initiatives that we have in the Plan de Vuelo, but also allows to have a structural lower cost base in our labor costs. It has a double effect, both in efficiency and capability to execute our Plan de Vuelo.
Yeah. In British Airways, it is, as José Antonio said, focused on our head office functions. What we found over the last four years as we were rebuilding the airline, we felt it was the right time to have a look at how we're set up in terms of back office functions, both in terms of efficiency and effectiveness. We're going through a range of consultations across a number of functions with a view to streamlining and removing duplication. It also puts us in a good position to exploit new technologies to be more effective and efficient. We're probably about 60% of the way through that program, and it will carry on for the remainder of this year and into the early phases of next year.
Thank you.
Your next question comes in on the line of Savanthi Syth from Raymond James. Your line is open.
Hey, good morning. Two questions. Just first on the comment about the unit revenue and the second half looking similar to 2Q. Wondering if you could provide a little bit more color on maybe regional or other dynamics. I would have thought maybe improving because you've seen fuel move higher and maybe higher selling fares as you go through the year, and then maybe the World Cup impact not as big in the second half. Secondly, just on competitive trends. Appreciate what Lynne called out at Aer Lingus. I was wondering if you could talk a little bit more about what you're seeing at Iberia.
Good. Good morning. Yes. The pass-through that we expect is around the 60% that we said. The reason is that the pass-through varies by region, by route, by customer segment. For example, in the long haul, it's easier than in the short haul. We talked before about the intra-European market, how tough it is now. Overall, what we see for the rest of the year is that the performance is strong across most key markets. North Atlantic, we see positive trends. In Latin and domestic, we see solid performance. Asia Pacific, we continue with a good evolution. The places where we see some softness is European, intra-European, that we talked about before, and the Middle East, because we are not flying there mainly.
The trend continues, and that's the reason we said that the unit revenue that we expect for the rest of the year is similar to the unit revenue that we saw in the Q2. We are still having the benefit of strong business demand, mainly North Atlantic and domestic. We don't see anything today or nothing today that can change the confidence in the full year outlook. Maybe, Nick, you can comment.
The second question, I think, was about Aer Lingus.
Iberia. Sorry.
Sorry, I didn't get it.
It's about the capacity going into Dublin transatlantic.
Sorry, I thought the question was, what does that mean for Iberia? Transatlantic, we've seen significant capacity over the first half of the year. The accumulated impact of the capacity over the last few years is what's causing us the real problem, because the market hasn't been able to grow into that. What Aer Lingus is doing is tapping into the transfer market more. Our load factors on long-haul, for example, have been flat in Q2, but that comes at a lower yield. We have the passenger cap likely to be lifting in Dublin. We want to make sure that we can take advantage of that, but we need the lower cost base to do that.
In terms of Iberia, indeed, we have seen, of course, the Spanish market is performing well, and that tracks also long-haul capacity, both from North America and the South Atlantic. If you look at North America, for instance, both Delta and JetBlue increased capacity or introduced capacity from Boston to Madrid, as well as some services to Barcelona. Of course, in our case, we've been growing capacity in that region by 18%, and you still see a very solid performance that we are having, which is a combination of the fact that demand supports the capacity that we're having. At the same time, we have a very competitive proposition. As you know, we are doing this capacity increase primarily with the XLR that is performing very strongly. It allows us to open routes that previously were not served directly.
Like for instance, now we're open in Toronto, or we've been open in Monterrey or Recife in South America. As you can see, our profitability, despite the significant growth, remains at the level where we were. That is also a factor of the fact that in parallel, we are continuing on our plan the way through improve our cost competitiveness. As you were seeing in the first half, we have reduced our unit cost by more than 2%. The combination of the two facts allows us to remain industry- leading in terms of our EBIT margin.
Very helpful. Thank you.
Your next question comes to line of Harry Gowers from JP Morgan. The line is open.
Yeah. Good morning, everyone. Two questions from me. The first one, I just wondered if we could get some extra color on transatlantic demand into H2, because when I think about the shape of your numbers versus the 7% transatlantic RASK in Q2, could we actually see pricing accelerate on the transatlantic into Q3? Because the comparatives from last year with the tariff impacts are weaker, and the U.S. airlines have spoken about accelerating pricing and the strength of demand there in Q3. Just some extra color on transatlantic. Second question, one for José Antonio. Obviously still new to the role, any early thoughts on what you might want to do differently with the business? Are you happy with the current capital allocation? Where can you see any room for improvement on your side? Thanks a lot.
Thank you. Just talking about North Atlantic, the second quarter performance was very good. The commercial RASK was +7.3%, up to 6.7% that we had in Q1. A big part of the increase came from British Airways. When we look at the future, the third and fourth quarter. In the case of BA, business revenues, as I said before, continue to grow, and that's what underpins the high RASK that we are having. In particular, North Atlantic point of sale is doing very well. Also, what we see is that the leisure traffic is growing from the third quarter. We think this is also going to help. In the case of Iberia, we talked before that they are adding a lot of capacity in the North Atlantic, and this is having an impact in the unit revenues.
If we talk about LATAM, the situation is different. I think that we are adding a lot of capacity in the region. The competitors also, they are adding capacity. We've had an effect of the World Cup and some traffic from Mexico and Argentina. They went to the north. We see a strong performance for the rest of the year. I don't know if Sean and Marco, you want to comment?
Yeah. Maybe on Latin America, just quickly. What you see there is that capacity from Latin America to Spain in the second quarter, industry capacity increased 17%. Despite that, we can see that the unit revenues that we've been having are positive in constant currency versus last year. What we see there is that demand remains solid, even though just in June, as Luis was mentioning, we did see some World Cup related, most likely, in particular in Argentina, effects. The overall underlying demand remains very stable, very strong in fact, and both on the business and on the leisure side, and therefore we remain confident to keep seeing that demand continuing in the future.
Yeah, just to add, I think if you look at Q2, business revenues were up 16% in BA across the North Atlantic, but the U.S. point of sale was much stronger. That was over 22%. What we look at it, we look into the winter, we do see capacity overall begin to moderate. I think if I look here at H2, what's published London to U.S. We think we'll be down about 3%, and Europe to U.S. will be flat. We have seen carriers pull back from published schedules, and I think that will support the fuel recovery ambitions that we have for half two.
Harry, in terms of the question to me, I think the priority, the focus of this year, has to be to navigate through the current situation. We walked into the crisis in a very strong position. I think we're proving so far, and we'll prove it at the end of the year, that we have the right strategy and the right model to produce the right levels of profitability, keep our investment program that is strong, and also give a return to our shareholders in good and in bad years. That's what we are focusing on now. Obviously, capital discipline and capital allocation is an important components of that. We're hoping that when we talk with you again in February of next year, we could say that we're over the crisis and coming out of the crisis even stronger than we walked in.
That would obviously open new opportunities to us that we'll be exploring and hopefully sharing with you in next year.
Great. Thank you, everyone.
Your next question comes from the line of Jack Rubin from Bank of America. Your line is open.
Hello. On the Aer Lingus turnaround program, I was wondering if you could potentially quantify your financial expectations for the brand post-turnaround. Did I hear earlier that it was supposed to be group margins as the goal? How long do you think it will take to get there? Potentially an update on the demand environment for BA Holidays as well. Do you have any color on booking trends year-on-year, pricing, accommodation, inflation? Any details would be great. Thank you.
Yeah. As part of this group, if we want investment, we need to be at 12%-15% as well. Luis and Jay have got plenty of opportunities to allocate their assets. Aer Lingus absolutely wants that, too. We do believe we can get to the 12% operating margin. Some steps are quicker than others. We believe we can take cost action quickly. We believe that the impact from things like premium economy and the business investment will take a little longer to come through. We're starting that embodiment towards the end of the year, but we don't get the full revenue benefits straight away.
If we can demonstrate that we're getting our own house in order and can get very close to that investable margin, then I'd hope that new-gen aircraft would lift us over the hurdle rate, because there's certainly efficiencies from having new-gen aircraft. We do believe we can get there. We don't think it's an immediate solution, but there's certainly a pathway that we believe we can give confidence to the group so that Aer Lingus can be investable.
On the BA Holidays side, it's been, I think, along with a lot of the holiday providers, a tough H1. Dubai was our second biggest destination, so we have seen an impact. What I would say is that customers have booked elsewhere. The Caribbean has had a very strong H1. The Maldives has been our biggest destination in H1. You've seen Indian Ocean and Caribbean perform very well. As we come to the summer, short-haul beach has also been positive YOY. I would say certainly Greece, again, for us, has been very positive. We continue to see that. We also continue to see average booking go up. You've seen that in the presentation.
Part of that is the BA Club members realizing the benefits of booking with BA Holidays, the Tier Points that come from it, and we're certainly seeing that trend strengthen as more customers realize those benefits.
Thanks very much.
Your next question comes from the line of Andrew Lobbenberg from Barclays. The line is open.
Morning, guys. Yeah. Many congratulations on the football. Can you talk to us a little bit about Level? I thought that was an IAG brand that appeared to have disappeared from the presentation. What are the plans for it? What are you going to do with Level, and where is it going? Can I ask just around fleet? You're really enthusiastic about the XLRs, you're taking the last one. Why wouldn't you want some more? I'm a little bit surprised to see you grabbing Pratt & Whitney engines for BA. Can you talk a little bit about that as well, please? Thanks.
Thank you, Andrew. Talking about Level, usually we put in the presentation the four big airlines that we have in the group, and that's the reason that we don't talk about Level. Level they are adjusting the network, and they have canceled some of the routes to San Francisco, Boston, and Los Angeles. What they are doing is to give priority to capacity on routes where they have more established demand. It's true that they have less premium customers than others, for them it's-
More difficult, for example, the pass-through that we were talking before. The opportunity in Barcelona long haul is there. We are also the only player in the market that we have Vueling as a whole operation in Barcelona. We are sure that a long- haul operation from Barcelona, when we can have the feet from Vueling, is going to work. We need to understand that in this situation that is affecting the leisure market more, we need to do adjustment, but to be stronger later. Your second question was about the XLRs. Yes, it's true that we are going to receive the last one soon, and we have options to have more. We need to take a decision soon. We are still considering if we want to have more aircraft and where do we want to have more aircraft.
We are very happy with the performance of the aircraft; maybe, Marco, you want to comment?
It's an aircraft that is performing even better than originally planned in terms of the stage length. In fact, we are currently operating to the Caribbean, San Juan and Santo Domingo, where initially we were not thinking that the range could get over there. In terms of unit cost, is significantly lower than the A330. It's counterintuitive. Normally, a smaller aircraft has a higher unit cost, but this is not the case with the A321XLR. Of course, it allows us to open destinations where the demand is too thin to be served by larger wide-body aircraft. It is very effective for us, allowing to explore new destinations to cover our network more profoundly, both in Latin America, and North America, and South America.
We do expect that it's likely that we will expand that, but as Luis was saying, it's a decision that has not been taken yet.
The last part of your question was about the Pratt & Whitney engines for BA . You know, we have the issue with the GTF, and we have 34 aircraft affected. What we are taking is the engine that is going to fix this problem, and we are sure it's going to be reliable. You want to comment?
Yeah, look, I think we've got a big enough short-haul fleet to have a split engine structure. Actually, I think it does give us diversification away from some of the risks that we have seen in the last couple of years. The Pratt & Whitney engine deal is competitive, and very competitive.
Your next question comes from the line of Gerald Khoo of Panmure Liberum. Your line is open.
Morning, everyone. A couple from me, if I can. Firstly, on capacity, have you talked about this year? I know it's a little bit early potentially, but could you talk about what your thoughts are for capacity going into next year? Maybe if you assume that fuel prices remain at around sort of current levels. Secondly, I think it was on the balance sheets slide, there was some talk about aircraft lease extensions. I was just wondering, so which aircraft leases you extended, which airlines they're at, and why you did that, please? Thanks.
Morning. The capacity for next year, we are not giving guidance because, first of all, we need to see how this situation in Iran is going to evolve. We were talking before that we are going to be flat this year because we are reducing capacity, and part of the capacity we are reducing is in the winter season. We need to see how the situation continues, how the competitors are going to develop the capacity, because maybe some of them are going to cut capacity with this high fuel price. Still is too early to say what we are going to do next year. José Antonio, maybe.
Yeah. In the lease extensions, we're talking mainly about 787s in BA and A330s in Iberia. This was already guided in the results in February. We look at the extensions are very favorable, very positive. We decided to continue where we said in February we'll be doing.
Yes, thanks very much.
The final question comes from the line of Jarrod Castle from UBS. The line is open.
Thank you, everyone. I'll just limit it to one, just given we're already over time. I just wanted to get your views on TAP. Obviously, firm bids from Lufthansa and Air France. Of the two, strategically for IAG, who would be the better one to win, so to speak? Air France, they're very strong already in South America. Lufthansa, relative underperformer compared to you and Air France, but got its large network, the balance sheet, and potential to reinvigorate TAP. Just to get your views. Who would you want to win, strategically? Who is the weaker player in terms of impact?
Thank you for your question. The first part of the question, I fully agree. I think the best place for TAP is IAG. I think is the model that can develop the company more in the same way we have developed all the airlines that they have joined our group. We have a different model. It's true that we have the hurdles for investment that we were talking about before. We need good performance in order to invest in the business. In some way, it's a difficult club. Because of that, we need to be, or choose carefully who can join the group. In the case of TAP, it was interesting for us from the strategic point of view.
When we analyzed the conditions of the way they are privatizing the company, we thought it was not interesting for our shareholders, and that's the reason we didn't continue. To be honest, I don't mind if finally they go with Air France or Lufthansa. I will send the best for the future of the company and the employees, but we are going to have the focus in our group.
Thanks very much.
Thank you. I think we don't have any more.
I want to hand back to Luis Gallego for closing remarks.
Thank you, everyone. Before I close, just summarize the key points from today. We are proving that the model works. We are also proving that the strategy works. This means that we are very confident in the future of this business. We are also confident that we will continue to deliver operating margins within our 12%-15% target range, and significant free cash flow that we will allocate in a disciplined and shareholder-friendly way. On that note, I wish you a very good summer. Thank you very much. Bye-bye