Good day, thank you for standing by. Welcome to the Q1 2023 International Airlines Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Luis Gallego, CEO. Please go ahead.
Thank you very much. Good morning and welcome to the IAG Q1 results. I'm joined today by Nicholas Cadbury and the IAG Airline CEOs. Firstly, I'm very pleased to report the first profitable quarter one since 2019. Pre-pandemic, it was normal for IAG to be profitable in the first quarter, something which is not common for European airlines. Our return to profitability in quarter one this year is therefore another sign that we are returning to normal. Quarter one was ahead of our expectations due to strong demand trends, particularly for our Spanish airlines and in the leisure segment for all our airlines. Fuel prices were also lower than expected, giving us a cost win against our expectations this quarter. We also saw non-fuel unit costs benefit from the increase in capacity year-on-year.
We are focused on deploying capacity in our core markets. For example, Iberia continues to consolidate its market position in the South Atlantic, while British Airways is focusing on revealing its U.S. network, which will be at pre-pandemic levels of capacity by Q3 this year. Vueling continues to grow more in the winter to de-seasonalize its network. For example, to winter sun destinations such as Cairo, Amman, or the Canary Islands. Aer Lingus is focusing on long-haul destinations with high leisure components. As I mentioned, we saw good demand trends in Q1, and with 30% of revenue booked, we expect this to continue into the second quarter as well. Q3 is currently also looking encouraging, we have a lower level of visibility for the second half of the year compared to Q2.
As a result of the better-than-expected performance in Q1, in addition to the encouraging summer demand and lower fuel price compared to our previous expectations, we now expect our full-year operating profit before exceptional items to be higher than the top end of our previous guidance, which was EUR 1.2 billion-EUR 2.3 billion. However, we are mindful that we are still at a relatively early stage in the year. Whilst fuel prices have fallen in the past few months, they are subject to macroeconomic and geopolitical impact, so there is no certainty that they will stay at current levels. We are also mindful of any impact of potential demand disruption such as further air traffic control strikes in France. I hand over to Nicholas.
Thank you, Luis. Good morning, everyone. As we hopefully have left the pandemic behind us, like most other airlines, we've moved our reporting and metrics back to comparing with the previous year, 2022. On this slide, we've shown the key components of the significant change in profit. On the left, you can see the largest single driver of our growth in profitability was the change in passenger revenue. This is a combination of Q1 last year being heavily impacted by the Omicron and the strong leisure demand that we're seeing this year. Cargo revenue declined year-on-year due to the lower yields as a result of the continued increase in cargo capacity from additional passenger aircraft flying, particularly in Asia, and the continued normalization of supply chain.
However, whilst cargo revenue fell year-over-year, revenue was still up strongly on the pre-pandemic levels due to higher yields. Lastly, non-fuel and fuel costs increased as we added back capacity and due to the increase in fuel unit costs. On the right-hand side, we've shown you the bridge between this year and last year by our businesses. All of our businesses saw a strong recovery compared to last year, with the largest increases coming from British Airways and Iberia. I'm also pleased that our loyalty business has had a strong quarter, delivering EUR 81 million in operating profits and drove good cash flow. The team added 1.2 million newly enrolled customers during Q1, which is 50% more than in Q1 2019, and they launched new products that are designed to increase customer engagement, such as Avios-only flights.
This slide shows our key financial performance metrics. Starting at the top and working down, as we built back capacity, ASKs were up 46% and passenger revenue was up 90%. Most of this came from the stronger pricing on yields, it was also pleasing to see load factors above 81%, an improvement of over 9%. Turning to unit costs, fuel unit costs were up 31%, driven by an increase in the average price of physical fuel, up 20%, 20% per metric ton year-on-year, together with lower hedging gains and the impact of a stronger US dollar. Non-fuel costs reduced by over 13% as we added back capacity and partly offset inflation with our efficiency program.
I reiterate the non-fuel cost guidance I gave at the year-end of a reduction of 6%-8% for the full year compared to 2020-2022. These KPIs led to a profit of EUR 9 million. Not all the airlines make a profit in the first quarter, but Q1 profitability has been a hallmark of IAG's, so it is pleasing to see this trend returning. On the bottom row, you can see that our net debt was EUR 8.4 billion. The comparison is against December 2022, and you can see debt was EUR 2 billion lower, giving us a leverage of 2.1 times. The reduction in debt was driven by an improvement in cash that principally came from seasonal working capital inflows from passengers making bookings for later in the year.
Liquidity continues to be in a very good position at EUR 15 billion. This slide shows the profitability by business. We have included the detailed breakdown for each airline in the appendix. I want to first highlight Iberia's performance, a record Q1 profit of EUR 66 million and achieves an operating margin of 4.5%. British Airways was also profitable in Q1, and as I mentioned earlier, had the largest absolute increase in profit year on year of GBP 440 million. Aer Lingus and Vueling are more seasonal businesses, so losing money in Q1 was expected. However, it was also pleasing to see they reported a significant increase in profit year on year. In particular, I'd like to highlight Aer Lingus' strong unit revenue performance and Vueling's capacity growth, which has driven their profit improvements.
This chart shows our capacity growth and the unit revenue performance by region. You can see the impact of the Omicron variant last year on the strong growth rates and capacity in all regions, especially in North America, and the strong leisure demand driving PRASK growth year on year in all regions. I want to also highlight the performance of Latin America and the Caribbean. You can see from the relatively lower year on year growth rates and capacity that the region was less impacted than other regions by Omicron last year. However, the performance of unit revenue in this region was very good, similar to that of North America and AMESA, demonstrating the strength of trading across LatAm. For Iberia, the strength in unit revenue was seen on almost all the routes in the region.
In general, for all airlines, whilst we see strong demand everywhere, the routes that are the strongest are those with a higher mix of leisure passengers. This slide shows our net debt that improved over the last quarter by EUR 2 billion to EUR 8.4 billion. As I've mentioned, this reduction was mainly driven by the strength in forward bookings, which resulted in significant working capital inflows in the quarter. However, we would expect the majority of this inflow to unwind during the second half. We are maintaining our previous capital expenditure guidance at around EUR 4 billion this year. That is weighted to Q2 onwards. We're not immune to the delay issues that are impacting both OEMs.
Our latest delivery expectations are unchanged from the update we gave you at year-end of 29 aircraft this year, only three of which were delivered in Q1. On debt maturity this year, we have IAG senior unsecured bonds for EUR 500 million due in July and around EUR 250 million of other debt maturing throughout the year. With our cash deposits at over EUR 11 billion, we have the flexibility to pay these down from cash reserves. We previously gave guidance for net debt to be roughly flat year-on-year. We are more positive on the profit outlook, we expect this to flow through to reduce net debt by this corresponding outperformance. This slide shows our current fuel hedging position. We currently have around 62% of our expected consumption hedged for 2023.
The jet fuel forward curve has come down compared to what we were seeing last quarter from between 1,000 tons and $850 per ton to around $800 per ton-$750 per ton. While prices have fallen in the past few months, as you know, we have seen high volatility, and there is no certainty that they will stay at current levels. Rather than give you specific guidance, we've included a sensitivity in this slide for you so you can help you think about how to model the rest of the year. This sensitivity chart shows that if we assume that the spot prices are around $800 per ton for the rest of the year, our fuel bill for 2023 would be around about EUR 7.5 billion.
If the price returns to $1,000 per metric ton, the fuel bill would be around the previous guidance of EUR 8 billion. In our own internal forecasts, given the volatility and geographical uncertainties, we are conservative, and we do not account for the full upside from current prices, as we know how quickly these can unwind. In conclusion, for the financials, we are pleased to return to profitability in quarter 1 with Iberia reporting its best ever Q1 profit and good year-on-year progress in all the airlines and loyalty. We benefited from the lower fuel prices and demand was stronger than we had expected in Q1, and this trend continues to be encouraging, but with a long way to go until the end of the year.
I will now hand back to Luis, who will give you some more details on the quarter and the outlook.
Thank you, Nicholas. This slide gives you a flavor of leisure and business demand trends and which network areas are our airlines focusing on. Aer Lingus is seeing particularly strong leisure demand from the U.S. point of sale and also European leisure-focused destinations. Aer Lingus corporate business is particularly exposed to the technology sector, which has seen a slowdown since the end of last year. To satisfy the strong demand, Aer Lingus are focusing their capacity growth to destinations in the U.S. and key leisure destinations in Europe, while reinforcing the Dublin hub. British Airways is seeing a strong leisure demand from the U.S. point of sale. Demand to the Caribbean and Africa and Middle East are also showing a strength. BA has a more diversified mix of corporate customers than our other airlines, business demand is recovering slowly.
On the network side, BA will have revealed its US network by Q3, although will not have recovered its Asia Pacific network for a number of years. As I mentioned earlier, our airlines are operating in a challenging environment. British Airways first wave of flights arriving from Europe into Heathrow are being impacted by the French air traffic control strikes, which, because of the constrained capacity of Heathrow, have a knock-on impact on flights later on the day. Whilst we are doing all in our power to ensure our operational robustness, we do need all actors in the aviation ecosystem to play their part to deliver a robust operational performance as well. Iberia is seeing a strong leisure demand in all regions and is seeing business demand recovering faster. This might be due to less of a work from home culture in Spain and broader cultural reasons.
Iberia's network strategy is focusing on strengthening its position in Latin America, in addition to new US destinations, through aircraft utilization increases. I'm very pleased to say that, again, Iberia retains its global leadership in on time, sorry, performance. Finally, Vueling is also seeing a strong demand, particularly for winter sun destinations. The revenue performance is driven by very strong ancillary revenue, higher yields, but also a focus on driving load factors higher. Vueling's network strategy is focused on de-seasonalization during the winter season through increased utilization to destinations such as the Canary Islands and Cairo. Given Barcelona proximity to France, Vueling is also significantly disrupted by French air traffic control strikes, but despite this, has delivered robust on time performance.
We have fully restored capacity in all our airlines, apart from British Airways, which remains below pre-pandemic levels because of a smaller fleet as a result of the early retirement of the 747 fleet. The chart on the right shows contribution to IAG's year-on-year capacity growth. You can see clearly Vueling's de-seasonalization with its growth in Q1 compared to the summer season. For 2023 as a whole, you can see that all airlines will be above 2019 levels of capacity, again with the exception of British Airways, which remains below 2019 levels. This, in turn, averages down the IAG total, which is planned to be 97% of 2019 levels. Moving on to our outlook for 2023, we are positive about the remainder of the year. We see a strong customer demand at all of our airlines and in all regions.
Our capacity expectations are that we will fly 97% of 2019 capacity this year. However, at this point in time, we are mindful of a number of factors that might affect us. Firstly, this is a period of volatility in the geopolitical and macroeconomic environment, which can impact both the fuel price, our biggest cost, and customer confidence. Secondly, we are still only a quarter of the way through the year, while second quarter bookings are looking good, we have limited visibility of the second half. Thirdly, we are currently in an operating environment that has its challenges, such as strikes ongoing at French ATC and Heathrow Airport.
Taking the above into account, alongside our performance against our expectation in the first quarter, we now expect operating profits before exceptional items to be higher than the top end of our previous guidance of EUR 1.8 billion-EUR 2.3 billion. In turn, this means that we now expect our net debt to be better than our previous guidance of probably maintained year-on-year and be down in line with the profit of performance. To conclude, we continue to see a strong customer demand, particularly in the leisure segment. Business travel continues to recover slowly, although at a faster rate at Iberia. We have good visibility for Q2, and whilst the outlook for the rest of the summer looks encouraging, we have less visibility for second half.
We are focusing our capacity deployment into our core markets, particularly at British Airways, which is restoring its North Atlantic network first, and Iberia, into both the South Atlantic and North Atlantic. Finally, but importantly, we continue to be committed to generating long-term shareholder value and are confident in returning to pre-COVID-19 levels of operating profit within the next few years. Now we are very happy to take your questions.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. To ensure everyone has the opportunity to ask a question today, please limit yourselves to just two questions. Please also ensure that you are close to your microphone and not on loudspeaker. This will help with ensuring that your audio is clear and your question is understood. Thank you. We will now go to our first question. Your first question comes from the line of Jaime Rowbotham from Deutsche Bank. Please go ahead. Your line is open.
Morning, gentlemen. Two questions from me. First of all, perhaps for Luis. On the North Atlantic, a number of the American carriers have, I think, called out the fact that US GDP is running about 19% higher in 2022 than it was in 2019, and yet the airline capacity is pretty close to 2019 levels, meaning the potential for continued high fares, even if that GDP has to correct a bit. How are you feeling, please, about the outlook on the North Atlantic? Secondly, maybe for Nicholas. It was very good to see the Q1 non-fuel CASK down 13% year-on-year or up 14% versus pre-COVID. On the year-on-year basis, the comps get a lot tougher, which I think is why you're sticking to down 6% to w ith 8% or perhaps 10% for the full year? Perhaps you'd clarify.
On the pre-crisis basis, where I think you previously gave a range of up 10%-15%, presumably, Nicholas, the scope for the up 14% from Q1 to improve further as you bring back more capacity in the summer. Thanks.
Hello, good morning. The first question about North Atlantic. We look at the total market and the number of seats in the Q2 and Q3. We see that the UK capacity to US, including also Caribbean and Mexico, is like -4% the capacity that we have in 2019. A similar situation in Spain. We are going to have less capacity than we have in 2019. What we see is that we are going to have a strong second and third quarter in that region. The capacity in North Atlantic now is up 63% if we compare with last year, and we are up 2% comparing with 2019.
I think we have seen in the first quarter that the capacity, mainly, premium capacity, in our case, we have less seats than we had in the first quarter of 2019. Because of that, the route we are having is impacted. We see that for the second and third quarter, the demand is very strong, particularly for leisure and US customers.
Yeah, just on your second question in terms of non-fuel. Yes, you're right. In Q1 versus last year, we had a reduction in non-fuel costs of EUR 0.13. We've continued to give guidance of reduction of 6%-10% for the full year. The reason for that is actually just so you've got more capacity kind of coming back into the market overall. It's just, it's basically on the baseline overall. If you look at pre-crisis, we gave guidance of kind of price will be up about 10%-15% on a unit basis. We're still kind of sticking with that kind of guidance at the moment. Which over a four-year period is, you know, we think is pretty good.
Okay. Thank you.
Thank you. We will now go to our next question. Your next question comes from the line of Alex Irving from Bernstein. Please go ahead.
Hi. Good morning. Two from me, please. First, on corporate travel, could you please tell us how the recovery has evolved over the course of the quarter, both in terms of volumes and in terms of revenues relative to 2019? How also does that look in short haul versus long haul, and how do you think that will evolve as we go through 2023, please? Second one, probably for Sean Doyle. British Airways has been looking at capacity at 92% of 2019 levels this year, despite strong earnings in the first quarter and healthy transatlantic yields. Is this just not having enough planes, or otherwise why are we not bringing capacity higher? Thank you.
I guess the corporate travel. Just to reiterate, British Airways for revenue was 71% of 2019. In Iberia, as we said, mentioned, they were ahead, so they were closer to 80% overall. As in British Airways, you saw it growing through the from January through to March, every month, it grew. It's a little bit slower than we would've liked, but it grown. Actually, it's grown again through the last few weeks on top of that as well. We've always said that we don't think that corporate travel will get back to 100%. We've kind of given this kind of 80%-85%, and then probably at the lower end of that range for this, for this year in British Airways.
In relation to capacity, maybe it's probably best to describe the British Airways plan by looking at key geographic segments. On North Atlantic, we expect to be marginally ahead of 2019 levels by the time we get to peak summer, so between 2% and 3%. I think our short-haul network as well, will be above 2019 levels, as we head into summer. I think what we're seeing, which is kind of putting the APK numbers down, is a slowness in reinstating the Asia-Pacific network. Two reasons for that. One, we've only had China open up recently, so we will get back to, you know, daily services by summer in Shanghai and Beijing. Also with the kind of Russian overflying i t's kind of taking, you know, more aircraft utilization to reinstate traditional markets like Hong Kong and Tokyo.
The big pull on capacity, which pulls up to 92% is Asia-Pacific. The fact that we're not reinstating that network to the extent that we have in 2019. Most of our other core markets will get half to or above 2019 levels over the summer. That reflects, I think, the robust demand that we do see, and the outlook.
Excellent. Right. Thank you.
Thank you. We will now go to our next question. Your next question comes from a line of Jarrod Castle, UBS. Please go ahead.
Thank you and good morning, everyone. Just first one on the balance sheet. It's obviously a more favorable outlook. You've obviously got a big CapEx schedule, but, you know, just in relation to the balance sheet, any kind of views in terms of ability to de-gear from, you know, from the end of, I guess this year onwards, you know, given the CapEx schedule and kind of current trading. You know, related to that, you know, how you see getting back to investment grade. I don't know if that's one or two. You can decide. The other question was just really an update on Air Europa.
There are definitely three.
Okay. Scrap that one. Someone else can ask that. Scrap that, Nick.
That's all right. We'll answer all three as an exception. Just in terms of de-gearing, we reduced our debt by EUR 1.4 billion last year. This year, you can see that actually net debt has come down by EUR 2 billion. As kind of said in the script, a lot of that is due to the buildup of customer bookings who are gonna fly later in the year. You'd expect that to unwind as we get into the quieter Q4. You'd expect most of the EUR 2 billion of working capital to unwind overall. We gave guidance that net debt would be flat, you expect it to be EUR 10.4 billion.
We said that at year-end, but actually now we're giving more kind of positive guidance, in terms of profitability. You need to kind of flow that, what, you know, from where we gave guidance before to wherever you end up. That outperformance needs to flow through in your net debt, expectations. We do expect it to come down, for this year. I guess, you know what we're, we're continuously balancing, you know, looking at our, at our balance sheet. We want to get back to investment grade, but we know that it's a priority to make sure that we're really servicing our customers the best possible by getting the best new aircraft in, but also refurbishing our aircraft and also investing in sustainability.
We think with our level of liquidity that we've got at the moment of EUR 15 billion, we've got some time over a couple of years to get down to that sort of level over time and balance that CapEx and deleveraging in a kind of, you know, the best way with a pragmatic, the best way for the customer, but also for our shareholders.
Okay. About Air Europa, we are starting to talk with the European Commission and other authorities in the different jurisdictions in order to try to close the deal. As we said before, we expect that this process is going to take 18 months, but we remain confident that at the end, it's a good operation for Madrid hub, and also in order to have a strong hub to compete with the hubs in the north of Europe. It's going to provide significant benefits to customers, employees, and shareholders.
Great. Thanks very much.
Welcome.
Thank you. We will now go to our next question. Your next question comes from the line of Stephen Furlong from Davy. Please go ahead.
Hello. Morning. Two questions, maybe one for Sean. Just I know there's a comment made about, obviously BA corporate travel recovering slower, change in non-premium mix of seats in the long-haul fleet is also having a negative impact on unit revenue. Maybe you could just talk about maybe BA more in terms of premium and then non-premium and also within that World Traveller Plus, please. Maybe for Nicholas, I just note on the full year results and then again in this results, there was a call-out perhaps that we haven't seen before on IAG Loyalty and, you know, maybe just talk why that is. Is it something you think the market's not thinking about or talking about on that business? Thank you.
Should I start with loyalty one? Just, yeah, just in loyalty, you know, we've made good profitability this year, EUR 21 million. I guess it's just becoming a more substantial part of our profit. we want to make sure we've got full transparency. It's also, you know, an interesting business 'cause it's obviously capital light, good margins, good return on capital, and something really important for not only driving its own profitability, but for driving the profitability of all of our airlines as well. it just becomes a, you know, really kind of at the heart of our business as well. we just thought it's important to disclose that onwards.
Yeah.
Okay.
In terms of cabin mix changes across BA, what we do see is a growth in World Traveller and World Traveller Plus as we retire the 747s. What we have been doing as well across the North Atlantic is deploying more A380s, and we see a reduction in club seats. Club seats will be down our business class by about 6%, World Traveller Plus up about 18, and World Traveller up about eight. That mix effect, both, you know, play into the yields projections that we do have because obviously we have more passengers, but the average yield will reduce with that mix effect.
That would begin to kind of correct as we begin to reintroduce long-haul fleet over the next couple of years. I think we will have different craft capacity, you know, at or above 2019 levels by the time we get into the latter stage of 2024. Definitely transitioning. I think actually considering the demand in leisure and premium leisure and having a lot more World Traveller Plus seats is a great kind of segment to play in. I think it's a very important and profitable segment for the airline. Of course, what we do see as well as we instate club capacity, it comes with the new Club World suite, which is a significant upgrade to the product quality.
Okay. Thanks, Sean. Thanks, Nicholas.
Thanks, Stephen.
Thank you. We will now go to our next question. Your next question comes from the line of Muneeba Kayani from Bank of America. Please go ahead.
Good morning. Thanks for taking my questions. just wanted to get a bit more clarity on the yields that you're seeing. Nicholas, I heard you say strong in 2Q, but if you could help us quantify that. Your competitors have talked about yields accelerating in 2Q, so are you seeing that? I know it's early days on 3Q, but if you could help quantify that as well. Then on the guidance raise, if you can help us understand the moving parts, how much of this is simply the fuel benefit, or have yields also turned out to be so far better than what you were expecting when you had given guidance earlier this year? Thank you.
Just in terms of yields, we said in Q1 that our yields are up about 14% compared to Or PRAS was up about 14% compared to 2019, up about 30% versus last year. We're not, we're not giving kind of direction. We're not giving guidance through the year. What we're doing is we're seeing kind of those yields versus 2019 holding up quite well. You would expect kind of versus last year to not stay up 30% 'cause we had a very, very good summer. We were almost, you know, we had the Omicron effect this time last year, so you'd expect those to come down.
All I can say is yields are, you know, in terms of, you know, they're holding up well at the moment, so overall. Just in terms of guidance, we're not giving specific guidance. If I could just point you to Q1. Q1 versus our, sort of, guidance, we were about EUR 200 million ahead of guidance, and that was made up by about three-quarters of that came from kind of operating profit, kind of operating results, and that was in kind of yields, and a little bit of cost. About a quarter of that was from fuel overall. You know, as I said earlier in our guidance, you know, there's The fuels are very volatile. We've given you the sensitivities in there. We tend to be rather conservative, because we just know that can unwind quite quickly, overall.
Thank you. We will now go to your next question. Your next question comes from the line of Neil Glynn, AIR Control Tower. Please go ahead.
Good morning, everybody. If I can also follow up on Stephen's question on IAG Loyalty, the greater transparency is definitely appreciated. You mentioned EUR 81 million of operating profit in the first quarter of 2023, which obviously looks, I guess, high in a seasonally low quarter in this stage of recovery. Could you help us understand what the first quarter of 2022 and the first quarter of 2019 looked like, just for context to understand developments? The second question, I think the first time in quite a long time, manpower numbers weren't reported this quarter. Wondering, can you give us that exact number or help us understand how manpower progressed relative to the fourth quarter of 2019? I presume your crewing is fine for this summer per previous commentary, but the productivity is obviously important to understand if you recover capacity. Thank you.
Hi, Neil. How are you? Good to talk to you. I haven't got the loyalty numbers for 2019, but I can tell you just we had it on our slide, six was versus 2022, loyalty was up EUR 8 million. Yeah, year one, yeah. EUR 8 overall. Just in manpower numbers, we'll try and probably give that every kind of half actually, rather than every kind of quarter. We're just looking at it kind of becomes rather meaningless looking at every quarter we're looking. In terms of kind of employment, we've, we've recruited about 17,000 people, over the last year into the business. About 10, just over 10,000 of those come into British Airways, overall.
Mething to that, I think this summer, we don't see any problem with the number of people that we have enough people to fly all the capacity that we are explaining you today. In the first quarter, for example, in British Airways, another 2,500 people, they have joined the company. The risk that we can have this summer is that we are in an ecosystem. We need also airports, and we need air traffic controllers to do the part of the job. Still we are worried about the forecast of number of passengers in Heathrow because with the plan that we have, we are considering that we are going to have more passengers than they think.
Also, as I said before, the French ATC strikes can have an impact in our customers. That's something that we are trying to change, and with the rest of the industry, we are talking to the European Commission in order to have protection of our flights in France and even to have use of arbitration in case it's required to protect the rights of the passengers.
Neil, just go back to your earlier question about loyalty versus 2019. 2019 in Q1, we made around about, right about EUR 50 million. Up from 50 to EUR 81.
Great. Thank you all.
Thank you. We will now go to your next question. Your next question comes from the line of Harry Gowers, JP Morgan, please go ahead.
Morning, gents. Thanks for taking the time. The first one is just on, are you expecting corporate traffic to continuing recovering over the summer, and that could provide maybe an extra boost to yields given the strong leisure demand already? Or is that more of a Q4 and a 2024 story? The second one, just on, if you could quantify maybe how much slack or lower productivity have you actually built into the system for this year, given the threat of operational disruption, and then maybe that can provide a cost boost going into 2024 as well. Thanks.
Okay. I think on the corporate traffic, Nicholas said before, I mean, the last five weeks, we see a positive evolution. In BA, we are around 65% in volume and 75% by revenue. If we compare the situation that we had in 2019. Different situation in Iberia, where they are in 95% in volume and above 100% in revenue. Business travel is recovering, but it's recovering at different rates across the different airlines. We see a positive evolution. We have explained previously, small and medium enterprises are traveling more than large corporates. In the big corporates, we have different behavior in the different sectors. For example, financial services are recovering faster than other sectors, like technology.
What we see in general is corporate, sorry, customers are coming back to travel, and we expect to have more business passengers in the future. The second question was about productivity. Yes, I think as we are recovering the capacity, you see that we are improving our unit costs, and also, we are improving also the labor costs because we have the fixed costs we can dilute with more ASKs. It's something that is improving, although we are negotiating with the different unions in order to increase the productivity for the future.
Thank you. We will now go to your next question. Your next question comes from the line of Conor Dwyer from Morgan Stanley. Please go ahead.
Hey, thanks very much, guys. Just to come back quickly on fuel for the quick, for the first question. You were saying that you're not taking into account fully the prices that have come down so much. I was wondering what's stopping you from basically locking in the lower prices, even via options if you're expecting a bit more of a decline going forward. The second question is, we've seen a lot about the disruption in Q1, but the impact for you guys and the rest of the sector so far seems to be somewhat limited. I'm just thinking about going into the summer, think the risk is increasing as we head in there, as capacity obviously ramps up.
Do you think that, you know, particularly for you guys in Heathrow, the risk is a bit more calm than it would've been, certainly for last year, but versus the start of this year as well? Thanks.
Just on the fuel, I mean, we are 63% hedged for the rest of the year, which is, you know, we have our own internal policy, and we kind of work with the tramlines of that policy. I guess we don't hedge for two reasons. We don't know if it's gonna fall even further, and then you become uncompetitive. That's the kind of danger of that as well. Also, just in terms of in the markets at the moment, it's quite challenging to get hedging in the market at the moment, not just for us, but for everyone. It's quite expensive and You end up with caps and collars, which are, you know, not particularly effective. You know, you've just gotta be a bit careful with that at the moment, so.
Yes. About the disruption and the strikes that we had during the year, I think the HAL strikes that we had during Easter didn't have a big impact, although we needed to reduce or to cancel 5% of our so-called flights. Also grounding strikes that we had in January, I think we handled well that situation. As I explained before, the difficulty was the ATC strikes in France. Where we had 34 days of a strike between March and April. 30% of daily European flights were impacted according to the report from EUROCONTROL. Spain was the second most impacted country, and UK the third. This for sure has an impact in our passengers. If we look at the cost of disruption, BA, they are in the region of EUR 30 million in the first quarter. Maybe, Sean, you want to comment on that.
Yeah, I think that's a reduction versus the year before. As we said, about 60% of BA short-haul flights will be impacted by French airspace. I think we're number three in terms of exposure to it as well as Vueling, and that's what we're trying to work mitigations around at the minute. More broadly, I think just on Heathrow, looking ahead, as Luis said, the Heathrow strikes haven't had too much impact on the ones that are ongoing today. Again, we're navigating through that very well. I think our resourcing picture is in a much better place this year than it would have been last year. We do have air traffic control and the external ecosystem to cope with and mitigate against.
Great. Thanks.
Thank you. We will now take your next question. Your next question comes from the line of Sathish Sivakumar from Citi. Please go ahead.
Thank you. I got two questions. The first one is around Aer Lingus. Obviously, if I look at the load factor, it is underperforming as with the other airlines. It's still around 74, 75 mark. Just to want to understand, is it all, like, down to the lack of business travel coming in, or are you actually seeing even some weakness within the leisure segment there? Or the network itself has changed something where you need to, like, ramp up and build that load factor there. The second one, actually on the other revenues, could you actually give us color on the holiday bookings, how the curve is as you go into Q2 and Q3? That would be helpful. Also the trend in Q1, the trend between loyalty and holidays would be helpful too. Thank you.
Well, the question of Aer Lingus, I'm sure that Lynne can talk more about this. We have a very strong leisure demand from the U.S., but it's true also in the leisure-focused destinations in Europe. Corporate business, they are more exposed, the, to the technology sector, and you have seen that there is a slowdown in that sector. Maybe Lynne, you want to comment on that?
Yeah, let me comment. Overall, actually, our load factor for Q1 2023 is above our load factor for Q1 in 2019. Of course, we've been growing our long-haul business, and we've been filling our seats there well. The weakness, which really links back to what Nicholas and Luis have already talked about, is in that one-day trips, one-night stay business travel, particularly between Ireland and the near European markets like the UK. We have seen some positive signs in recent weeks that that's picking up again. I'm hopeful that we'll get bigger loads on our business traffic in the months ahead.
Just on the split of other revenue. Other revenue went from in the quarter, went from EUR 348 million to EUR 525 million. Up around 50%. We don't give the split in the quarter, but you can look at the year-end results to see how it kind of generally splits overall. Actually we have. It covers maintenance, MRO, it covers our holiday business from BA Holidays, and it also covers our loyalty business. We saw all three of those areas were strongly up year on year and on a three-year basis as well.
Yeah. Thank you.
Thank you. We'll now go to your next question. The question comes from the line of Andrew Lobbenberg from Barclays. Please go ahead.
Hi. Can I ask about labor? In the context of productivity, you just said your talks were ongoing with unions to try and improve, and obviously unions are very interested in mitigating inflation. Yeah. How are the relations across the businesses in the main work areas in terms of inflation talks and productivity? I think you've cut back the capacity a bit at Vueling. you know, are there issues there that remain unresolved? Second question would come around slots. Obviously you've got the slots back from Flybe at BA, and you just sent them out on loan to Loganair. Would you be expecting to take those back into the family and start flying them yourselves, and when?
Equally, you know, the slots that are out on lease to , are you expecting to take those in in the coming years, or do you expect to be selling them or keeping them out on lease? Thanks, sir.
Okay. About the different negotiations that we have. I think the situation is different in the different airlines and the different countries. If we start, for example, with Iberia, they close agreements with all the groups of employees, and they have agreements in place until the end of 2025. Iberia Express, for example, they have reached an agreement with the ground staff, and they are trying now to close an agreement with cabin crew and also with the pilots. Vueling, as you said, they are trying to reach an agreement in order to invest in the future because we want to have an agreement that reflects the situation of the company. We understand the pressure for inflation. We all suffer that.
We need to understand also that the, what we can give to our employees must relate it to the performance of the company and the performance of the group. They are right now in the middle of the negotiations, and it's true that we have adjusted the capacity for the summer. We need to be sure that we are going to have a CBA that allow the group to invest more in the company. In the case of British Airways and Aer Lingus, they are now in the middle of the negotiations. Again, we want a similar model. We want to reward our people, and we understand the pressure everybody is suffering.
We want also to link, the reward with the performance of the different airlines, with the productivity, with the customer experience, and with the results. That's what we are trying to do right now.
In relation to slots, let me start with Gatwick. The Gatwick situation is that we have launched Euroflyer. It's flying about 19 aircraft this summer. The AOC migration has gotten underway. That's very much on track according to our original plans. We will, over the next four years, you know, take back slots we have leased out to continue to grow that business. Of course, Vueling has expanded its base at Gatwick as well. I think over the next four years, you will see that slot portfolio come back into the IAG plans. The situation in relation to the Flybe slots. The slots team is a bit more dynamic. Those slots came back to British Airways very late in the day as a result of Flybe going into administration.
Those slot pairs are available for people to apply for, as a result of the original British Midland merger remedy. That situation is fluid. I think we'd have to understand two things first. One is, you know, what's the likelihood of somebody else coming in and applying for that remedy and taking up that slot portfolio? I think if that likelihood is low, then there is optionality to figure out what we do with those slots in the future. At the minute, the slot portfolio British Airways has, you know, excluding those remedy slots, is kind of more than sufficient to fulfill our expansion plans. We just have to wait to see what happens in relation to remedy uptick, before we have clarity on those slot pairs.
Lovely. Thanks.
Thank you. We will now go to our next question. Your next question comes from the line of Johannes Braun from Stifel. Please go ahead.
Yes, thanks for taking my question. I have also 2. The first one actually is going back to the outstanding CLAs for this year, especially for BA. Can you give us any indication when those talks will actually close, and what kind of labor cost inflation you have included in your unit cost guidance for this year? Not sure if the unions have voiced any concrete demands in terms of wages. Secondly, how do you see the industry's capacity developing this year, but also the next years? One of your main competitors talking about structural bottlenecks in the industry relating to airports, spare parts, engines, maintenance capacities and so on, which will obviously keep supply/demand in a positive position, not only hopefully for this year, but also for next. Just wondering if you have the same view.
Well.
I was gonna just talk about employment. Just in terms of employment, I think it would be. You know, we've given you guidance on where our non-fuel costs are as a group overall, so I think we're gonna leave it at that level at the moment. I think it wouldn't be kind of appropriate to talk about what we're expecting to negotiate with in a negotiation that we're under at the moment. It's early days in terms of where the negotiation is, so we'll keep you informed as we go through the quarters. About your second question. As I said, in the first question, the capacity in our main markets are still below the capacity that in the total markets that we had in 2019.
If we add to that the problems that the different OEMs they are having for delivering the aircraft, I think this situation is going to continue for several years. It's true that, for example, the latest delays announced in the 737s are not going to impact us. We expect to take delivery of 29 aircraft in total this year, so we are not going to be affected. The restrictions in the number of aircraft in the market, the problems with the supply chains, with supply chain, is affecting the capacity.
For example, we are suffering that in the engineering part of our business, where we are having some issues in order to have enough spare parts to maintain the fleet. That is impacting also in the utilization of the aircraft. Airport is going to be a challenge. Again, the summer, I think everybody is in a better situation than last year. As I said before, we hope that Heathrow is going to have enough resources for all the capacity that we plan to bring.
Thank you.
Welcome.
Thank you. As a reminder, if you would like to ask a question, please press star one and one on your telephone. We will now go to our next question. Your next question comes from the line of Achal Kumar from HSBC. Please go ahead.
Yeah. Hi. Morning, everybody. Two for me, please. Going back to your loyalty program, basically you added 1.2 million new customers. In terms of profitability, what kind of growth do you see, and what all you're planning to do there to sort of accelerate the profitability in that business? What kind of profitability do you see going ahead, given that you're adding so many new members? Secondly, about your EPS and SAF. It's if next year ETS allowances are cut, how do you see yourself as compared to your competitors? If you could also give us a bit of a color on your SAF offtake agreements, please. Thank you.
Just on the loyalty program, we're not giving long-term forecasts on our loyalty program. I think we just started to disclose the profitability last year, which was over EUR 200 million. As we just said, we've grown the profit from over the last three years from EUR 50 million to EUR 81 million. It's up again year-on-year this quarter as well. So good growth. You're seeing particularly strong growth. Obviously, the Avios points are generated by our airlines, but we're seeing particularly strong growth from some of our non-air partners, like Amex, Barclaycard as well. We're just starting to also launch other kind of new programs as well.
If you want to stock up on your wine, the best place to do that is from our Avios wine website as well. You'll see more of those kind of initiatives kinda coming online, which hopefully kind of drives longer term engagement, both for Avios points but also for our airlines as well.
Okay. Now the SAF question. I think there is good progress in Europe and also in UK about SAF mandate. Also in UK, I think there is good progress with the second mandate SAF consultation that we are having right now. What we need is clear policies in order to invest to have enough plants to produce the 10% SAF that we want to use in 2030. For that, we consider it's going to be needed like 14 plants in UK, and now the plan is to have under construction in 2025 five of them. That is not going to be enough.
We have now assured 25% of the SAF that we need for 2030. The investment that we have made is $865 million. Yes, we need more SAF, we need more affordable SAF. We consider it an opportunity also for U.K. and for Europe to try to lead the production in SAF that is going to be required to achieve the net zero emissions of the IATA for 2050.
Thank you. I will now hand the call back for closing remarks.
Okay. Thank you very much, everybody. I think, as I said, we are happy to present a profitable first quarter, after the first one after 2019. I am sure that we are going to continue giving good news in the rest of the year. Thank you very much.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.