Half Year 2021 Earnings
Friday, 30th July 2021
Half Year 2021 Earnings Friday, 30th July 2021
Luis Gallego Chief Executive Officer, International Airlines Group
Good morning, everyone, and thank you for joining us today for IAG's half year results. I am here today with Steve Gunning, our CFO, and the CEOs of our operating companies. We will shortly take you through our performance for the second quarter. But before Steve and I take you through the details, I thought that it would be useful to provide some context and set out how we have approached the past six months to ready the business in the short-term and also to reposition it for the future.
So, I am not going to tell you that the environment has been challenging, you know that very well. We have been faced with constantly changing restrictions in different parts of the world, with only some easing from the beginning of July. And this has led to a pre-exceptional loss of €1 billion for the quarter. On a positive note, we welcome the recent announcement that fully vaccinated travellers from Amber countries in the EU and the US will no longer have to quarantine upon arrival in the UK. We see this as an important first step in fully reopening the transatlantic travel corridor.
But despite the loss, our liquidity remains strong at €10.8 billion on a pro-forma basis, including last week's EETC of BA. Our operating cash flow in Q2 has significantly improved over the previous quarter as a result of better EBITDA and a strong forward-bookings. It is proof of what we already know; people do want to fly. There is a widespread pent-up demand which is evident where restrictions are lifted. For example, within a couple of hours, British Airways saw bookings from the US surging 95% compared to the previous week, following the UK government's announcement. Also, US point of sale saw an increase when EU countries, such as Spain, opened up travel to those who are fully vaccinated. Visiting families and friends and leisure travel, both shorthaul and longhaul, have shown the strongest evidence of pent-up demand.
So as a management team, we have devoted significant resources to ensuring our operational readiness so that when demand returns we are able to capitalise. I am pleased that all of our people across the Group have risen to that challenge. Our role is to work on both the short- term impact of the crisis, but building resilience and boosting liquidity while accelerating our plans to design our future for the longer term.
We recognise that the industry will be different. Flexibility is key in the new normal. We are preparing the business so that we can emerge a stronger and more competitive in a structural changed industry. All our airlines continue to take significant action to preserve their strength so they are well-placed for recovery. The requirement for each of them has been slightly different during this period.
Aer Lingus has been the most challenged as a result of the tougher restrictions in Ireland which, I am glad, were lifted on 19th July. After its initial restructuring last year, Aer Lingus has announced further restructuring measures. The airline has had constructive discussions with its pilot representatives. The agreements were to put the pilots in a ballot who approved them.
Half Year 2021 Earnings Friday, 30th July 2021
The airline will also open a new base in Manchester in September to serve US and Caribbean destinations.
Last year, British Airways worked closely with its unions to reach new agreements on how their people work. We are grateful to them for their engagement with is enabling BA to improve productivity, reduce its cost base, and increase the proportion of variable cost. This means when capacity is back to 2019 levels, employee unit costs will be as much as 10% lower than in 2019. This gives us the flexibility to respond quickly to customer demand in a fast-moving environment and the agility to make the most of the recovery. The airline has been quickly repositioning its network to capture more connecting traffic between North America and the EU, and beyond, such as Africa, where passenger flows are stronger.
As you will see, domestic demand in Spain is already near pre-COVID level, including some increases in corporate travel from our SME customers.
Both Iberia and Vueling were the best Group performers in Q2, reflecting a strong Latin American and domestic market driven by fewer travel restrictions. Both have implemented various cost reduction measures. As a result, Iberia's MRO and handling activities were close to breakeven, while Iberia Express made an operating profit in Q2, something from my point of view extraordinary.
Vueling achieved positive operating cash flow as a result of more capacity and a higher load factor than the rest of the Group and its good cost control during the quarter. IAG Cargo had a record quarter in terms of revenue, which continues to enable and support a more extensive longhaul passenger network. And finally, IAG Loyalty has been profitable and cash generative throughout the pandemic. Non-airline partners spending has been buoyant, and we have improved our customer proposition in terms of Avios redemption with both our airlines and new partners.
More broadly, we have been accelerating the digitalisation of our business, IAG is ahead of the game in developing user-friendly digital solutions to provide the tools and reassurance our passengers need to travel with confidence, despite complex travel restrictions currently. Moreover, we continue to lead the industry's effort to make flying sustainable. British Airways EETC to fund seven aircraft that will be delivered this year is linked to airline’s sustainability target and will remain resolute in our climate commitment. As you know, IAG has a unique usage business model which has been incredibly successful in the last ten years, and it is why we came into this crisis with such a strategic and financial spring. And now, we are presenting ourselves to connect people, businesses and countries better than ever. We do so with confidence. We expect to fly 45% of 2019 capacity in Q3, which would be double the developed capacity in the second quarter. We are operationally ready to fly as much as 75% of 2019 capacity in Q4. So, I am optimistic that we can succeed whatever shape the recovery takes.
Finally, for me, for now, a brief comment on Air Europa. Iberia submitted its phase I proposal to the European Commission at the end of May. And at the end of June, the Commission decided to investigate further, and went to phase II.
So now, let us look at the details of IAG's half year results with Steve.
Half Year 2021 Earnings Friday, 30th July 2021
Steve Gunning Chief Financial Officer, International Airlines Group
Thanks, Luis. Good morning, everybody. I will take you through the key points in relation to the Q2 results.
So, turning to slide eight.
This slide shows some of the key KPIs for the period. And if we look at the top-left, relative to 2019, we operated slightly more capacity in Q2 than Q1. In addition, the planes were 6% fuller. However, both load factor and capacity, were both well below the quarter two 2019 levels. This reflects the ongoing government restrictions, particularly in the UK and the Republic of Ireland. Bear in mind, that the non-essential travel bans were only relaxed in the UK on 17th May, and in the Republic of Ireland on 19th July.
If we look at the top-right, quarter two operating losses were €1.045 billion in Q2, which is €90 million better than Q1. Not surprising that the Q2 performance is broadly in line with previous quarters given the capacity remains constrained by government restrictions. As we discussed in previous quarters, the financial performance is not homogeneous amongst the IAG airlines, and we will touch more on this in subsequent slides.
Moving on to debt, on the bottom-left of the slide. Net debt has risen by €2.3 billion in the quarter to €12.1 billion in the first half. Gross debt has increased by €4.1 billion driven by our numerous liquidity actions, including an IAG unsecured bond, an IAG convertible bond, and BA's UK Export Finance loan. You can see on the bottom-right that these actions, plus the sustainability-linked EETC, which we completed in July, have seen our pro-forma liquidity reach €10.8 billion, which represents 42% of 2019 revenues.
Turning to slide nine, and looking at the Q2 operating performance versus prior years. Not intending to review every line, but a few significant points here. Passenger revenue was down 88.6% compared to 2019 due to the ongoing travel restrictions limiting the capacity we could operate. Cargo continues to perform well. Revenue was up 49% versus 2019. This is a larger increase than we saw in Q1, where it was up 27%. The €419 million revenues reported in Q2 was a record for any quarter for IAG Cargo. It was boosted by 1,371 cargo-only flights in the quarter. It's also worth noting that during the half the air cargo industry volumes have now exceeded pre-pandemic levels and this is due to very strong activity in Asia, North America, and Europe.
In terms of costs, they were down 60% versus 2019 compared with capacity down 78%. This equates to an expected and a healthy cost variability of 77%. Finally, as in Q1, we also saw in Q2 a fuel over-hedging gain of €78 million driven by the increase in fuel price since the end of Q1. This over-hedging gain has been treated as an exceptional item.
Turning now to slide ten.
We provided a similar slide to this in Q1. We thought it was worth repeating for Q2. This shows that the OPCO's performance is different given each of the airlines' circumstances. What's obvious and true is as restrictions are released demand and financial performance improves and can improve quickly. This can be seen clearly in the performance of our Spanish airlines compared to British Airways and Aer Lingus.
Half Year 2021 Earnings Friday, 30th July 2021
We turn first to Iberia.
Iberia's operating loss in Q2 was 25%, or €49 million smaller than in Q1. Domestic demand in Spain has progressively recovered, following the cancellation of the state of alarm on 9 May. Likewise, non-Spanish residents fully vaccinated US citizens have been allowed to enter since 21 May, following the relaxation of EU restrictions. Indeed, US point of sale is Iberias' strongest point of sale at this moment in time.
Vueling's operating loss in Q2 was 6% smaller than Q1. The operating loss margin improved from minus 226% to minus 66%, still a significant loss, but a big improvement. Vueling has also benefited from relaxation in restrictions in the Spanish domestic market. Indeed, if we consider July and September, Vueling is planning to operate about 75% of 2019 capacity. It’s also worth noting that Vueling's operating margin was significantly better than a number of the other European low-cost carriers.
Unfortunately, a different story at Aer Lingus and British Airways.
Aer Lingus has experienced the most restrictions of all our home markets. However, the ban on non-essential was lifted on 19th July. This did not obviously help Q2 performance, which was very similar to the Q1 performance.
For BA, Q2 performance was slightly improved with both passenger revenue and cargo revenue up approximately 20%. However, tight restrictions – and volatile restrictions – have deterred customers. Cargo performance was strong and continued to outstrip passenger revenue.
Our conclusion; there is pent-up demand, and when travel restrictions allow us to satisfy demand, our financial performance will improve quickly.
Turning on to slide 11.
This slide shows the bridge of our cash position from the end of last year to 30 June this year. In contrast to the operating profit performance, which saw a negative EBITDA of €1.26 billion and cash outflow, our overall cash balance was increased by €1.7 billion in the six-month period. I will limit myself to a few key observations here.
Deferred revenue on the balance sheet has increased €906 million. This movement has two components. Just under €250 million of this is an FX translation benefit. However, the remainder, approximately €615 million was driven by forward-bookings and represents cash inflow. Luis will take you through the positive booking momentum we are seeing at the moment later in this presentation. It was good to see that all four operating companies saw an increase in deferred revenue, i.e., sales in advance of carriage during the quarter.
Gross CAPEX was €300 million in H1, with two new shorthaul aircraft contributing to this figure. Proceeds from borrowings benefited from the UKEF loan being drawn, the IAG unsecured bond, and the IAG convertible bond. And in terms of repayment of borrowings, it includes the repayment of the CCFF commercial paper programme of £300 million during the period, too.
Turning now to liquidity on slide 12, which has been a principle focus for us in H1, due to the uncertainty around travel restrictions.
Half Year 2021 Earnings Friday, 30th July 2021
The list of successful transactions on the right-hand side demonstrates our continued access to capital markets. The two most recent transactions were the IAG convertible bond for €825 million with a very competitive coupon of 1.125%. And secondly, the BA sustainability- linked EETC bond to cover BA's H2 aircraft deliveries, which has an overall cost of funding below 3%. Both instruments were heavily oversubscribed.
Our pro-forma total liquidity at the end of June was €10.8 billion, which includes the three-year RCF which remains undrawn. While liquidity continues to be higher than before the pandemic in December 2019, it was €9.1 billion. It will continue to be a focus until the path to recovery is more certain.
Slide 13 provides an update on the Group's debt position.
Compared to the end of Q1, net debt has increased by €543 million. This reflects two items. Firstly, a €232 million increase in gross debt, which is due to three movements. The convertible bond being drawn, and then the repayment of CCFF commercial paper programme, and the reduction in asset-related liabilities through normal scheduled payments. And secondly, cash reduced €311 million in the quarter.
Moving on to slide 14, this shows a year-by-year analysis of when our financial debt is due for repayment. As a reminder, we have excluded finance and operating leases from this chart.
Key points I would make here, first, the chart reflects that we have pushed out to 2026 about €400 million of the ICO backed loans that Iberia and Vueling have taken out. Secondly, we have very little debt to pay for the rest of the year, having already repaid the CCFF. And thirdly, there is very – relatively little variability in the amounts due each year, with the exception of 2026, when the UK EF loan falls due for payment.
Moving on to my final slide, looking at the cash operating costs and to give some guidance for Q3.
Firstly, a reminder on definitions. As we appreciate airlines are defining cash burn in many different ways. We use gross operating cash costs. We think it's helpful in two ways. Firstly, it's not just P&L costs, but all operating cash costs; for example, it includes fuel over-hedging payments. And secondly, we exclude revenues and forward-bookings due to the significant uncertainty related to travel restrictions. Please note the detailed definition is provided in the footnote at the base of the slide.
Looking at quarter two, we guided previously that we would incur cash operating costs of €200 million per week. The actual outcome for quarter two was €190 million. For Q3, we are guiding to €270 million per week, which is an increase of about 40%, but this compares to a capacity increase of 115%, i.e., more than doubling ASKs to be flown in Q3 compared to Q2.
With that, I will now hand back to Luis.
Half Year 2021 Earnings Friday, 30th July 2021
Luis Gallego Chief Executive Officer, International Airlines Group
Thanks, Steve. In my introductory remarks, I said that all of our operating companies have been taking significant actions to address the individual challenges that they have been facing. And the next three slides show more details of these actions. I will just focus on a few examples. All of the OpCo CEO’s, as I said at the beginning, are on the call. So, you are free to ask them questions on specific initiatives in the Q&A session.
First of all, Aer Lingus. At the end of March, we announced Aer Lingus plan to start up a new base in Manchester with routes to New York, Orlando, Boston, and Barbados. As a result of continued travel restrictions between the UK and US, the New York and Orlando routes will now start at the end of September, rather than July.
Aer Lingus has received a UK AOC and plans are being put in place to code share with BA. Ireland, as you know, has the strictest travel restrictions in Europe. This has necessitated further restructuring, such as the announcement closure of its cabin crew base at Shannon and negotiations with various labour groups.
I am pleased that Aer Lingus reached agreement on various measures with its pilots after a ballot yesterday.
Next, British Airways.
Over the course of this year, it has repositioned its network away from serving point-to-point demand to more connecting demand. Point-to-point demand has been severely affected by UK government restrictions on travel. At the beginning of this year, some of the strongest point- to-point markets for BA were VFR passengers between the UK and India, Pakistan and West Africa. West Africa remains largely amber list, but both India and Pakistan were placed on the red list, so BA had to redeploy its network.
It has focussed on connecting passengers from North America to the rest of Europe when countries like Spain opened up to fully vaccinated tourists without the need for quarantine or testing since early June.
Iberia and Vueling have been operating at much higher levels of capacity than Aer Lingus and BA because of fewer travel restrictions and a large domestic market in Spain.
In the second quarter, Iberia operated at 44% of 2019 level of capacity, and Vueling at 32%. Iberia was the main driver of a better group financial performance in the second quarter, with Iberia Express making a profit in the quarter and Iberia handling and maintenance division operating close to breakeven.
Vueling repositioned its network in the quarter by emphasising domestic flying in peninsula Spain, as well as to the Balearic and the Canary Islands. Vueling now has more domestic capacity than summer 2019. Because of its employee agreement, Vueling has been able to adapt its employee cost to the capacity. It has also continued various cost reduction actions, such ascutting management positions by 25%, and making structural changes in its
Half Year 2021 Earnings Friday, 30th July 2021 maintenance and handling agreements as part a wider restructuring programme. Vueling is also focussed on initiatives to boost ancillary revenues.
If we talk about IAG Cargo – has had another strong quarter. Operating more cargo-only flights in the second quarter than in the first quarter and generating record revenue. As passenger demand starts to recover, cargo-only flying is likely to reduce as co-sponsored flights with passenger business are increasing.
IAG Loyalty has been profitable and cash generative throughout the pandemic because customers are still spending and earning Avios on non-airline partners. Indeed, customer spending on the UK co-branded credit card has been higher in June than in the same month of 2019, despite lower spending on air travel. We have improved our customer proposition by doubling the number of guaranteed Avios Reward Seats on all BA and Iberia flights and increasing Avios earning opportunities with additional partners.
And all of our operating companies have accelerated their digital initiatives to facilitate travel during the pandemic. We are leading the global airline industry with this development. BA is using the VeriFLY app to enable automatic verification of vaccination and testing data, and online passenger locator forms in order to minimise manual processing times when checking in at the airport. It's being used by 20,000 passengers each day on BA and American airline flights mainly on North American and Caribbean routes.
BA is also trialling a similar app that is called 'Right to Fly' being used by 5,000 passengers per day. This app was originally developed by Iberia, based on Salesforce CRM platform. Vueling uses IATA Travel Pass one 32 routes. IAG is one of the leading development contributors to the IATA Travel Pass. Both BA and Vueling have interactive heat maps on their website which enables customers to find out quarantine, testing and other travel requirements and restrictions by destination in order to help travel planning. And BA has also developed apps for ordering and buying on board its European flights and for ordering food and drink in its lounges in order to minimise physical contact with crew and staff.
And we continue to see more and more evidence of pent-up leisure and VFR demand when travel restrictions are lifted. We have shown this booking chart several times over the last year, this one being as of 25th July. They indicate significant and sustained increase in forward booking activities since we last presented this data as of 2nd May. As you can see, Spanish domestic bookings intakes which have been the strongest of all growth areas has been above 80% of 2019 levels since early June, and last week was over 100%. Both international shorthaul and longhaul recently peaked at over 50% in the week ending 30th June, which was the week when the UK announced a number of Green List countries in Europe and the Caribbean.
We continue to see demand recovering on longhaul routes, just as strongly as on international shorthaul routes. Overall intakes have been averaging around 50-60% since the end of May.
Here, you can see also some more evidence of strong pent-up demand, this time, point of sale demand US. All of our airlines have experienced an increasing trend in US point of sale demand, ever since Spain and several EU countries announced open borders for fully vaccinated travellers from the US. Since 21st May, the date of Spain's announcement, US bookings for Iberia rose from 50% of 2019 levels to over 70%. A better performance than for Iberia’s other point-of-sale regions.
Half Year 2021 Earnings Friday, 30th July 2021
BA has similarly benefited, despite the UK being closed to travellers from the US, reflecting increasing transfer connections to the rest of Europe and beyond. BA's point of sale US bookings intake recently peaked at 70% of 2019 levels in the last week of June, but tailed off to 50% in the week to 25th July. However, US intakes almost doubled in the afternoon of 28th July, compared to the average of the previous week, following the announcement that US fully vaccinated travellers can travel to the UK without a need to quarantine.
Then there’s also been a sharp increase in BA's bookings to amber list countries, including the US, when the UK government announced on 8th July that fully vaccinated UK residents returning from amber list countries would not have to self-isolate from 19th July.
This slide shows the volume of bookings by traffic light colour for BA in the first days, from 8th-11th July, which includes a weekend, on the left, and the distribution of these bookings by month for the rest of the year. 70% of all BA’s bookings during this period were to amber list countries, including the US, and mainly for travel in August. But demand is strong on some leisure routes that BA has increased capacity later this summer to more than 2019 levels.
This slide shows BA’s absolute available seat kilometre on its 29 most popular short-haul leisure routes between July and October on the left and the capacity of these routes as proportion of 2019 levels on the right. During July, BA has steadily increased capacity on these routes from 60% of 2019 levels to 100%. From mid-August until the end of September, BA has increased capacity on these routes to as much as 40% more than in 2019, reflecting the fact that we have said the summer leisure season this year to extend all the way into October. Overall capacity on these routes will more than double between July and August. Aer Lingus, Iberia and Vueling are also expecting an extended holiday season this year.
We currently plan to operate 45% of normal 2019 capacity in the current third quarter, which is twice the 22% that we operated in the second quarter. We are not providing capacity guidance for the fourth quarter because of the lack of visibility and much shorter booking curves than normal. But if pent-up demand is very strong, we could operate as much as 75% of 2019 capacity in the fourth quarter as of today. This level of readiness, however, will diminish over the time as we approach the start of the quarter. Aer Lingus could operate up to 69% of normal capacity, limited by both aircraft availability and pilot availability. British Airways could also operate up to 73% of normal capacity, driven by the fewer aircraft and crew currently compared to 2019. Long-haul is the most constrained, having retired 35 Boeing 747 and granted the 12 A380s. The main constraint for BA is aircraft, not pilots or cabin crew. Operational readiness is highest for the Spanish airlines. Iberia could operate as much as 86% of normal capacity in the fourth quarter. The number of aircraft is the main constraint, due to fewer aircraft currently than in 2019. Pilots and cabin crew are not an issue for Iberia, under the ERTE furlough programme, most pilots and cabin crew have been retained, and all of them are flying. Vueling has the highest operational readiness in the group at 100% of 2019 levels, although only in the seasonally weak fourth quarter. The pilot and cabin crew situations are similar to Iberia.
Talking about climate change, in our first quarter presentation in May, we said that we were the first airline worldwide to extend our net zero commitment by 2050 to the scope 3 emissions of our suppliers. We also said that we were the first European airline to commit to powering at least 10% of our flights with sustainable aviation fuel by 2030, and we have made further progress on our climate change commitments. First, Carbon Disclosure Project upgraded our
Half Year 2021 Earnings Friday, 30th July 2021 climate rating in June to A-minus, the only European airline that have been awarded this top grade. We hope to improve on this to a full A rating at some point. Second, BA has raised its first two sustainability-linked financings, the £2 billion UK export finance loan and the first ever sustainability-linked EETC financing last week. Third, Iberia and Repsol signed an agreement to develop sustainable aviation fuels, develop electric and hydrogen-power ground vehicles and develop more sustainable buildings and other facilities using artificial intelligence. And finally, British Airways and its partners have been shortlisted for government funding grants for four projects in development of sustainable aviation fuel and carbon capture as listed on the slide, including previously announced projects with Velocys and LanzaJet.
As I have already mentioned, we plan to fly 45% of normal capacity at the group level in the third quarter and could fly as much as 75% in the fourth quarter, should demand recover strongly. In the third quarter, we will expect the Spanish airlines to fly a much higher than average level of capacity, at around 70%. Since our last presentation in early May, there have been some positive relaxation of travel restrictions by our home-country governments, but there is still more that we consider they can do. The UK and Ireland governments have removed their legal ban on non-essential air travel. The EU is open for fully vaccinated travellers from the US and some other countries, and the UK announced on Wednesday that it is open to EU and US fully vaccinated travellers. The governments have also made good progress with digital health passes such as the EU digital COVID certificate. But further government actions are need in order to take advantage of rising vaccination rates and lower infection rates in some countries.
We need more travel corridors between lower-risk countries where vaccination has been successful. In particular, between the UK and EU and the US. The US needs to lift its ban on travellers from Europe, just as the EU and UK have done for fully vaccinated US travellers. We also need more consistency and harmonisation of travel restrictions and consistent criteria in determining the traffic-light colour of countries and regions. And we need Spain and the UK to extend the furlough schemes beyond September.
So, finally, the conclusions. The second quarter was much better than previous quarter, with operating cash flow significantly less negative due to strong forward bookings. Liquidity is also strong after better operating cash flow and several debt-raising initiatives this year. As a management team, we have devoted significant resources to ensuring that when demand returns, we are ready and able to capitalise. We have been accelerating the digitalisation of our business. We know that people do want to fly. There is widespread pent-up demand where restrictions are lifted. It is clear that the pandemic is far from behind us, but the science has demonstrated that it’s possible to open up our skies safely. We recognise that the industry will be different and we will need to do things differently. We are preparing the business so that we can emerge stronger and more competitive in a structurally changed industry. All the while, as we take these business decisions, we are taking into account our environmental commitments. We continue to lead the industry efforts to make flying sustainable so that we can create value for all our stakeholders long into the future. And now, we are ready for your Q&A.
Half Year 2021 Earnings Friday, 30th July 2021
Q&A Operator: Thank you. As a reminder, to ask a question you will need to press star and one on your telephone and wait for your name to be announced. To ensure everyone has the opportunity to ask a question today, please limit yourself to just two questions. Please also ensure that you’re close to your microphone and not on loudspeaker. This will help with ensuring that your audio is clear and your questions understood. Thank you. To withdraw your question, please press the pound or hash key. And once again, that is star and one if you wish to ask a question.
And your first question comes from Savi Syth from Raymond James. Please go ahead, your line is open.
Savi Syth (Raymond James): Hey, good morning, everyone. Could you remind me how many new aircraft you have taken delivery of so far in 2021 and your expectations for the remainder of 2022, just trying to figure out how the fleet and CAPEX gets built back up here.
And, for my second question, I wonder if you could provide a little bit more colour on what you’re seeing in domestic, saying business demand recovery. Really wondering if there’s a read-through from what you’re seeing there into other markets; and if this changes your view on, you know, how you’re seeing eventual business demand recovery once the various jurisdictions open up. Thank you.
Luis Gallego: Okay. You can start with fleet if you want.
Steve Gunning: So, good morning. In terms of the fleet, we’ve received five new aircraft in the first half of the year. We anticipate receiving a further ten in the second half of the year. Our CAPEX guidance is €1.7 billion. That’s not changed. Clearly, it’s back-weighted to the second half of the year, and clearly that’s not just fleet CAPEX but fleet-related CAPEX and non- fleet CAPEX as well.
Luis Gallego: Okay, and –
Savi Syth: Any early thoughts….
Luis Gallego: Sorry?
Savi Syth: Sorry. Just following up on that, Steve, just any early thoughts on 2022?
Steve Gunning: We haven’t guided to 2022. What we have said is the number of aircraft deliveries won’t be higher than 2020, where I think we took about 29 new aircraft. But we’ll look to give guidance for next year’s CAPEX either later in the year or the full-year results.
Luis Gallego: Okay, now your second question about business travel. Right now, we are still in very reduced levels – 5-10% of 2019 levels. The main sector travelling is government, but it’s true that for example in Spain, we see that the Spanish domestic routes are working better, and business travel is running at around 30% of 2019 levels on these routes. Mainly SMEs are travelling more than large corporates. So we consider that, when we don’t have restrictions, business traffic is going to come back, and we have that example in Spain.
Savi Syth: Appreciate it.
Operator: Thank you. Your next question comes from Jarrod Castle from UBS. Please go ahead, your line is open.
Half Year 2021 Earnings Friday, 30th July 2021
Jarrod Castle (UBS): Thank you and good morning. Just a question around, firstly, shareholder’s equity. It’s fallen below a billion. When you’re thinking about the balance sheet, does that have any impact in your thinking in terms of equity to net debt, or is it really, you know, net debt to EBITDA that you’re focused on going forward?
And then secondly, just coming back to CAPEX, you’ve transferred, I think, your final A350 orders from Aer Lingus to other airlines. Is that to British Airways and Iberia? So what’s happened with those A350s? Thanks.
Steve Gunning: Okay. In regards to the equity, at the group level, as you say, it’s gone below a billion. Interestingly enough, we got the question at the Q1 end as to whether it would go negative this half-year, and actually, it’s actually stayed positive during the course of it, primarily due to the pensions and also the re-translation of the financial instruments. So it’s just below a billion. That’s not a problem for us at a group level. The key item in terms of equity is what it does for the top company an ICAG level, and that’s still very positive as well, so that’s not an issue for us.
With regards to the A350 point, we basically wanted to have additional flexibility with those A350 orders, so we haven’t come out of those A350 orders, but we’re holding them centrally now and we’ll determine where we want to put those aircraft in the future.
Jarrod Castle: Thanks very much.
Operator: Thank you. Your next question comes from James Hollins from BNP. Please go ahead, your line is open.
James Hollins (BNP): All right. Many thanks. Couple from me, please. The first one on Air Europa, I suspect you’re not going to tell me much, but perhaps a bit more detail on not timing etc, but I think read somewhere you decided not to make any early concessions to get that through. I’m just wondering, (a), if that’s true, (b), why not, (c), what happens next. And the second one is, unless I’m going senile, you still operate an airline called Level. I’ve not seen any mention of it. I was just wondering if that’s still operational, whether it’s doing okay, which I assume it might be given, you know, Spanish long-haul is looking okay. Just some update on that’d be great, thanks.
Luis Gallego: Okay. About your first question about Air Europa, you know that we made a formal application for phase one on 25th May. And on 29th June the Commission decided to open the phase two investigation. On 20th July, we have extended, or they have extended, the investigation period by 20 days to 3rd December. So we continue seeing this deal as strategic for the group. We consider that this key for a sustained recovery after this crisis, and also to position Madrid as a hub that can compete with the strongest ones in Europe. Also to develop a 360 degrees hub and to fly to, for example, Asia. But because of the context that we currently have, the operation is difficult, and we are analysing what’s going to be the output. And we always take a decision based on rational analysis, and that’s what we are going to do with this operation, as soon as we have all the conditions on the table.
And the second one, sorry – Level. Level, you know that the only operation we are maintaining right now is Level long-haul from Barcelona. We think that as soon as we don’t have restrictions, we have an opportunity there. IAG have invested always in Barcelona airport. You know, Vueling is also an opportunity to feed the long-haul low-cost that we have there. We are
Half Year 2021 Earnings Friday, 30th July 2021 sure that we have room for around ten aircraft from Barcelona as soon as we can recover the demand. And Level in the meantime is doing also some cargo charters that are helping to the results of the company.
James Hollins: Okay. Thank you.
Operator: Thank you. Your next question comes from Muneeba Kayani from Bank of America. Please go ahead, your line is open.
Muneeba Kayani (Bank of America): Good morning. The first question, kind of near term. In your guidance of 45% of capacity for 3Q, can you talk a little bit about how you’re seeing that sequentially improve through July/August/September? And how are you thinking about loads and pricing for the quarter, and then at what load would you possibly look to add or reduce capacity?
And then secondly, more longer term, can you talk a little bit about how you’re thinking about the capital structure in the medium term? Say, what are your leverage targets in ’23, ’24? Thank you.
Luis Gallego: Okay. About your first question. We are raising the capacities within July, August and September, and the average that we are considering is 45%, but, for example, the plan is to increase,in the case of BA for example, from around 150 movements per day in early July to over 450 movements per day by late August. It’s also important what we said before: that the UK and Ireland have been two of the most restricted markets in Europe. But, for example, in Spain we are expecting that the Spanish airlines can fly around 30% of capacity compared with 2019 during this quarter. So the good thing is that we have the flexibility to increase the production, and we have said that in the fourth quarter we can reach up to 75% of the capacity that we were operating in 2019.
Steve Gunning: In terms of the capital structure longer term. As you know, pre pandemic we were investment grade and said in our capital markets day 2019 that we’d like to keep net debt to EBITDA below 1.8, which was a proxy for investment grade. Clearly we’d like to get back to investment grade, but we need to do that at a sensible pace. One of the things we can’t predict at the moment is the speed or intensity of the recovery and hence how quickly we can naturally de-lever the business. So it is our view ultimately to get back to investment grade. How quickly that needs to happen or will happen is yet to be seen, to be frank. So it’s something we continue to keep under review. Bear in mind there’s lots of very good airlines that aren’t investment grade, because most of the financing is asset-backed. And in fact IAG didn’t become investment grade until 2019, and BA didn’t until 2016. So, you know, it’s certainly something we’re keeping under review, and we have to match the balancing act between the credit rating and also, as we said in our prospectus last year, we are keen to get back to returning cash to shareholders.
Muneeba Kayani: Thank you.
Operator: Thank you. Your next question comes from Daniel Röska from Bernstein. Please go ahead, your line is open.
Daniel Röska (Bernstein): Morning, gentlemen. Could I get your thoughts on the EU Fit for 55 proposals and, probably most importantly, the discussion around fuel taxes in addition to sustainable aviation fuels and the EU ETS, and maybe also how – you know, your current view
Half Year 2021 Earnings Friday, 30th July 2021 as how this framework would differ from whatever you’re encountering in the UK? And then, secondly, you already talked about kind of bits and pieces for Aer Lingus. You commented on the 350, but it seems that there is kind of a new strategy – or at least a new network strategy for Aer Lingus. Could you expand on that a little bit? Thanks.
Luis Gallego: Okay. About your first question about the Fit for 55 policy package, I feel that the main concern that we have with the Fit for 55 package is the proposal to remove the tax exemption on jet fuel for intra-European flights, because we consider that, as you know that taxes do not reduce carbon emissions, and we consider that the proposal will lead to EU airlines paying multiple times for their carbon emissions. So also the proposal has an exemption for cargo carriers, and I think that will not help to have – it will create a competitive distortion. We also say that taxes will reduce ability that we have to invest in low-carbon technology. So I think there are some aspects that we are, even beyond what the package is considering. So, for example, in the SAF mandate, we believe that mandate should start for intra-European flights at the same time supporting the global emissions that we have ICAO for 10% SAF by 2030. And we also think that CORSIA must be adopted also for EU carriers for intra-European flights. But you know that all this is in a consultation phase. We hope we are going to have the opportunity to explain our point of view to the authorities.
Around the second question, maybe Lynne, you can…
Lynne Embleton: Yes, taking the Aer Lingus network strategy. Obviously in the short term our network strategy is centred on where we can fly and generate cash. If I take a slightly longer view, I wouldn’t describe it as being a change in our network strategy. We are, you know, looking to ensure that our short-haul operations feed the Dublin hub effectively. But on the long-haul side, whilst, yes, the 350s have come out of the Aer Lingus fleet plan, we still have 330s there to operate primarily North Atlantic long-haul, and the 321 narrow bodies we believe give us new opportunities to connect other points in North America. We have also got the Manchester AOC that Luis referenced earlier. We think that’s a good opportunity to connect up using Aer Lingus brand and a combination of the 330s and the 321s to test out some new markets for Aer Lingus.
Daniel Röska: Thanks. Lynne, if I could follow up on that last comment, you know, are we to expect a little bit more point-to-point flying into North Atlantic from Aer Lingus also beyond Ireland, then? Is it just one market you’re testing, or is this kind of something you’d be willing to also spread across Europe if it proved successful?
Lynne: You know, our focus does remain Dublin still, with the potential of long-haul flying out of Shannon next year still being a question for us. But then, if Manchester is successful, and there’s no reason why we couldn’t consider expanding that into other markets, but it’s one step at a time.
Daniel Röska: Perfect. Thanks.
Operator: Thank you. And your next question comes from Stephen Furlong from Davy. Please go ahead, your line is open.
Stephen Furlong (Davy): Yeah, good morning. Just what’s left. I just want to ask, just on the pension, Steve, first, is there any – going to be an actuarial review of – you know, I know you deferred the monthly contribution until September ’21, but are we going to hear an update
Half Year 2021 Earnings Friday, 30th July 2021 on that for BA? And can I just ask Luis, back on the Air Europa, I mightn’t have got it, but were you expecting it to go to phase two, given the Commission made the comment that it decided that IAG and Air Europa decided not to submit commitments when it first went, so I just read from that that, just based on the transaction – the plan – or the thought process with EU was always going to go to phase two, and we find out on 5th December. Thanks a lot. Bye.
Steve Gunning: Hi, Stephen. With regards to pensions – the actuarial valuation. So the valuation date will be 31st March this year. And so it’s still very early days for the actuarial valuation and then discussions on, you know, whatever the remaining deficit is and what the recovery plan will be. So I think – I’ve done two of these in the past, and they’ve taken something between 15 to 18 months to settle. So we’re sort of well within that period at the moment, but as soon as we’ve got a sensible position and update, we’ll certainly share it with you.
Luis Gallego: Okay. About Air Europa question, we knew from the beginning that this deal was going to be challenging. We always said that we expected to close the deal before the end of the year, and I think we are in the same situation. It’s true that the context has changed – the context for the complete industry, not only for this operation, and that’s the reason we need to consider everything before taking the final decision.
Stephen Furlong: Okay. Thanks a lot.
Operator: Thank you. Your next question comes from Mark Simpson from Goodbody. Please go ahead, your line is open.
Mark Simpson (Goodbody): Yeah, morning. Two questions. One, I just want to kind of try to reconcile the deferred revenue on ticket sales. You’re now standing with a balance of just over 6 billion. It was just over 5 billion at the end of 2020. Conversion rates in the sense of passenger revenues in the following six months is anywhere between 170 and 220% in a normalised period, but we obviously saw that conversion rate of only 22% in this first half. So, you know, I’m trying to get a feel, potentially, from you in a sense of where does the current balance on ticket sales deferred revenue – how do those fall into Q3, Q4? How much of that is still being rolled over into the next fiscal year? So guidance on that; it’d be extremely helpful. And then, just on the capacity forecasts for Q4 – up to 75% – how much of that is dependent on the US corridor opening? I would have thought those targets are substantially dependent on that occurring, so I wonder if you could just give us a feel for if the US remains reasonably closed, what your adjusted forecast might be.
Luis Gallego: Okay, I can – I start with the second one and maybe Steve, you can continue with the first one. The 75% is a maximum capacity that we consider we can operate. What we are assuming right now in our [inaudible] scenarios is that US market is going to be open in September. And with that – and the flexibility that we can have to operate up to 75% is going to be enough. So that’s the scenario that we are considering. And maybe –
Steve Gunning: Hi, Mark. I’m not sure I got all of the question, but let me make some comments about the deferred revenue. What we said at the full-year was the deferred revenue on the passenger side was about €2.4 billion, and about 50% of that was in regard to vouchers etc. What we’ve seen in the first six months of this year is some small reduction in the voucher balance, but not a significant unwind. What I’m pleased to see is, wherever people are
Half Year 2021 Earnings Friday, 30th July 2021 redeeming their vouchers, they’re getting a significant top-up, somewhere in the region of 26 to 28% top-up.
If I look more generally as to what we think advance bookings will do and sales in advance of carriage, clearly we’ve had some good, positive momentum in Q2 of this year. I would like to think that will continue into Q3 as well. But I think the key in your question was ‘in normal times’, and the reality is we’re not in normal times. So my expectation is we’ll continue to see a build-up in deferred revenue in Q3, but we’ll have to see how the government restrictions impact customer confidence, and hence the booking levels. Hopefully that somewhere answered your question.
Mark Simpson: Yeah. Just maybe in terms of where you have vouchers or visible bookings. Can you give us a feel for kind of how much of that relates to next year rather than this year?
Steve Gunning: No, I don’t think I can get into that detail. What we’re seeing on bookings at the moment, in particularly current bookings, and I think we might touch on this later. But the surge in bookings we’re seeing at the moment tends to be fairly near-term. So, certainly, what we saw with the easing of restrictions for EU and US, where we saw a big boost in BA’s booking profile. That was clearly short-term. That was very much focused in the next two or three months. So that’s what we’re seeing at the moment.
Mark Simpson: Okay. That’s great. Thank you.
Operator: Thank you. Your next question comes from Jaime Rowbotham from Deutsche Bank. Please go ahead. Your line is open.
Jaime Rowbotham (Deutsche Bank): Morning all. Two from me. So we’ve talked quite a bit about slide 28 and the potential for 4Q capacity. Just thinking about 2022 and assuming that by the 1st Jan the US is long since open to EU and UK travellers. What sort of capacity do you think it’s going to be sensible for the Group next year versus 2019? Maybe you could provide a range. For it’s worth, Ben Smith said earlier that for Air France-KLM that percentage would be 75% to 79%.
And secondly, also with EU Fit for 55 in mind, I recall IAG’s map to net zero emissions by 2050 from the full year results. I just wondered, are you considering any further aircraft orders, perhaps less of a growth and more to accelerate the improvement in the fuel efficiency of the fleet? Thanks guys.
Luis Gallego: Look, about the first question on the capacity for next year. I think we have the flexibility to improve the 75% that we set for the last quarter. And for example, on short-haul in the case of BA to put an example, we can put five aircrafts – five short-haul aircraft per week. They can be return to the operation as demand requires. And as I said at the beginning, we don’t have a bottleneck with pilots and cabin crew. For next year, we have enough time even in the case of Aer Lingus and BA where the furlough scheme is different to have enough resources.
We need to take into consideration that we have reduced the size of our fleet because we have reduced the 747. We need to take a decision about the 380s. And in the case of Iberia, we have stopped the 340. So we have less capacity that we have at the beginning of this pandemic, but if we have enough demand we can fly, I would say, 100% of our capacity with enough time.
Half Year 2021 Earnings Friday, 30th July 2021
Steve Gunning: And Jaime, in regards to would we take new fleet orders, potentially, but what I would add is all the way through 2020 we didn’t cancel any fleet orders. We deferred some but we took 29 new aircraft in 2020. We‘re taking 15 new aircraft this year and we’ll take a significant number of aircraft next year. So one of the reasons we haven’t cancelled orders but we’ve looked to take them as we can is because of our commitment to the environment and trying to improve our carbon efficiency.
So maybe we’ll take new orders but the key thing is we haven’t actually delayed or derailed our current order book. What we’re trying to do is continue with that because we see the imperative.
Operator: Thank you. Your next question comes from Sathish Sivakumar from Citigroup. Please go ahead. You line is open.
Sathish Babu Sivakumar (Citigroup): Hi. Thank you. Good morning everyone. I’ve got couple of questions here. Firstly, on the near-term, especially from the US point of sale booking. What are you actually seeing there in regards to premium and versus the non-premium segments? What has been the like, booking trend there?
And secondly on the aircraft, especially the ones that have the leases expiring in the next few years. Could you just clarify on the number of aircrafts that are likely to have the leases coming up for renewal? And how does it actually vary across the Group airlines? Thank you.
Luis Gallego: The first question, as we said that at the beginning, we see a lot of demand for VFR and leisure traffic. Point of sale US, we don’t see huge amount of business traffic there, but maybe Sean you can elaborate on that.
Sean Doyle: Yeah. I think a couple of things were notable. One is the point of traffic into the UK picked up significantly on the back of the announcement. And that was spread across our cabins. If you look at the mix of business, there is premium traffic coming through the VFR and leisure channels, which is actually very similar to the broader trends that we’re seeing in terms of intakes. The business channel is obviously lagging, but that is showing signs of the US point of sale of picking up as well both before the announcement and also on the back of the announcement.
Sathish Babu Sivakumar: So just a follow-up there. Just within the VFR or within the leisure segment, what are we actually seeing on the premium cabins versus say in 2019 levels?
Sean Doyle: Yeah. We’re seeing pretty robust demand of leisure segments for premium. Premium leisure continues to perform well. And as a proportion of the overall bookings, it’s holding up similarly to the trends that we would see historically. It’s the business segment in the premium cabins is obviously lagging the VFR and leisure front.
Sathish Babu Sivakumar: Okay. Thank you.
Steve Gunning: With regards to your second question on number of leases expiring, I don’t have that number to hand. What I would say is we’ve done a lot of negotiations with the lessors. We’ve done two big rounds with them over the last 12 months in the midst of that to get better terms and also to defer some of the payments.
Half Year 2021 Earnings Friday, 30th July 2021
What we tended to find out actually is there’s been economic beneficial to actually extend some of the leases because of the deals we’ve managed to get with the lessors. But if you want we can come back with that number but we don’t have to hand.
Sathish Babu Sivakumar: Okay. No, thank you.
Operator: Thank you. Your next question comes from Carolina Dores from Morgan Stanley. Please go ahead. Your line is open.
Carolina Dores (Morgan Stanley): Hi. Good morning. Just one left for me. If you could update your thoughts on hedging policy from both fuel and carbon, and especially carbon given the split of UK and the European markets?
Steve Gunning: So on the fuel hedging policy, we announced a new hedging policy at the end of the Q1. The thinking behind it was to reduce the maximum levels of hedging to go out no more than two years and to use more call options overall. So if there was a significant downward move, we would participate in that, particularly given the learnings from COVID-19.
In terms of carbon, we only go out two years with hedging and to a lesser degree. But that’s probably the update I would give on both of those items.
Carolina Dores: Okay. And can you disclose what levels are you hedged for second half of ’21 and ’22?
Steve Gunning: We’ve not given out all of those details. What I would say Q3 will be the last quarter where we’re significantly overhedged. So we’ve got significant overhedging positions. So the payments we’ve had to make out on the excess hedge book will largely come to an end in Q3. When we look at our new policy looking out, the only place where we’re having to put in a little bit more in terms of hedges from where we were is in the second half of H2 at the moment. So given the uncertainties, the situation at the moment, we’re staying within the new policy at the bottom end of that acceptable range because there’s still quite a bit of uncertainty.
Carolina Dores: Okay. Thank you.
Operator: Thank you. Your next question comes from Andrew Lobbenberg from HSBC. Please go ahead. Your line is open.
Andrew Lobbenberg (HSBC): Hi, there. Could you talk us for your views on the proposals for slot rules for the winter, both from the EU and from the UK? And how that would inform what you need to do with your Gatwick slots?
And then my second question would be around the outlook and trading on LATAM long-haul that we haven’t talked about a great deal today and it’s my ignorance I’m afraid. But if you could explain to us what the outlook is for how closed the markets are and what the prospects are for those markets opening up, because you spent a lot of time following the musings on the North Atlantic, but I think that’s important for you.
Luis Gallego: So first question about the slots. We’re happy with situations in different places. You know that in Europe now we have the 50-50 rule that it’s very disappointing for us because we consider that we have not able to fly as much as we want and to put that limit at the end is going to produce that we are going to need to fly almost empty flights in order to preserve the slots. But I think it’s not the best solution in a moment where everybody we are trying to combat the climate change and we are trying to reduce the CO2 emissions.
Half Year 2021 Earnings Friday, 30th July 2021
Question about Gatwick, Sean, maybe you can.
Sean Doyle: Yeah, I think just on slots, I think the UK has taken obviously a more pragmatic approach in adopting the WASB recommendation. I think that’s giving us the kind of flexibility, I think, which is appropriate for the winter. In terms of Gatwick, we’re looking at what are kind of options are for summer ’22 at Gatwick. We need to be competitive because the market will be very competitive coming out at the other end of the pandemic and we probably going to be communicating plans of relation to Gatwick dependent on discussions we’re having with our stakeholders.
But the ability to kind of hold the slot portfolio for the winter, I think, we have the flexibility to manage that both with the UK policy and the EU policy as it prevails. But I would agree with Luis completely. The EU policy is not very pragmatic in light of the uncertainty and the environmental impact it could have.
Luis Gallego: And about your second question, LatAm, Javier, you can explain better than me. But LatAm is not like US. You have a lot of countries there with different situation. It’s true that we have seen before that Iberia is doing very well, I would say, there and that part of the reason of a good result that they have shown today. But Javier, maybe you can elaborate on the situation there.
Javier Sanchez-Prieto: Yeah, sure. Thank you, Luis. Well, what we’re seeing, as you were saying, is different evolution of the different markets. We are seeing for instance for countries like República Dominicana, we are even flying more than in pre-pandemic. We are seeing other countries like Argentina and Chile where we have a lot of restrictions.
A common denominator I will say is what we have been saying about the different markets. So we see pent-up demand and we see that when the restrictions are lifted, the traffic flows.
To highlight maybe also the point that you were saying before, in particular, in Latin America with the ties with Spain and other European countries using Spain as a hub. We’re seeing the recovery of – of course, we have seen the VFR traffic relatively strong but we have seen also the recovery of some business traffic, in particular, SMEs. And I will say as it is an important market for us to state the obvious, and we have seen the recovery that is really linked to the opening of the borders and the lifting of the restrictions in those countries.
But as I said we have countries where the recovery is really a strong already and some of the countries like Argentina and Chile where we are still suffering that the restrictions imposed by the different governments.
Operator: Thank you. Your next question comes from Gerald Khoo from Liberum Capital. Please go ahead. Your line is open.
Gerald Khoo (Liberum Capital): Morning all. Couple of questions, both related to furlough schemes. Obviously, these schemes come to an end in the near future in the UK in particular. I was just wondering what your thoughts on what you do after those schemes come to an end, assuming they come to an end as currently scheduled. Do you downsize the development airlines or do you absorb the cost on the assumption that demand is going to be covered going into next year? And just sort of trying to scale the challenge. What sort of benefits from furlough schemes did you have on operating cash burn in Q2, please?
Half Year 2021 Earnings Friday, 30th July 2021
Luis Gallego: So I think that furlough schemes are helping a lot to protect jobs during this crisis. And we consider that must be extended. Ireland, the situation has changed now. We are going to have furlough scheme until the end of the year. But in the UK and Spain, now the situation is that they will end at September. We are asking for an extension because as I said it’s true that we have to protect the jobs.
After that, I think the situation is going to be different in different operators. For example, in the case of BA with the agreement that we reached last year, they are going to have a structural advantage for the future reducing around 10% the employee cost that I think it’s going to be very important in this environment where we need flexibility and where we need to come back to the profitability levels that we had before.
I think the agreement also that Aer Lingus has with the pilots is going to help also to try to recover the situation of the airlines. And in Spain, the furlough scheme, Javier and Marco, they are evaluating what they can do after the ERTE, that is the name of the furlough scheme, is ended. They are exploring certain options like to have another ERTE. Maybe Marco, you can expand on that?
Marco Sansavini: Yes. Certainly. Hi, everybody. Certainly, the ERTE is the most flexible and adaptable tool. So we are, as Luis mentioned, encouraging the government to extend that. Would that not be the case, the first alternative would be to find an agreement with our union representatives to have a similar scheme, let’s say expand in time. And at the same time look at structural measures to allow to issue that we have a more efficient cost base permanently after the COVID because we do know that the consequences of the COVID are going to be permanent as well.
Steve Gunning: Just in answer to your question what we’ve put in the IMR is the half year benefits of the furlough schemes, which is €344 million. That’s very broadly – you can split that roughly in half, Q1 versus Q2. I think it’s also worth noting for British Airways, given the restructuring that was done in the new contract provisions that were put in, there is flexibility also once the furlough schemes expire. I don’t know, Sean, whether you want to touch on that?
Sean Doyle: Yeah. The other thing is that BA heads into the winter this year with 25% less headcount than it did last year. So that gives us kind of a lower operating overhead as we head into the winter. But we have flexibility in our contracts and we’re also exploring other measures such as unpaid leave, part-time working with our trade union partners as we speak.
Gerald Khoo: Okay. Thanks.
Operator: Thank you. And your last question comes from James Goodall from Redburn. Please go ahead. Your line is open.
James Goodall (Redburn): Hi. Morning everyone. Apologies if this is already been asked, but I got disconnected through the call. So if we think back to your equity raise last year, from memory it was sized on the North Atlantic reopening in Q4 ’20. So I guess with the reopening significantly later than thought, I imagine actually reaching those balance sheet leverage targets under the original timeline of the raise isn't necessarily going to be possible given the cash that’s been burnt in the interim. So I guess, my question there is one here, is how you’re thinking about those balance sheet targets now? Are you willing to have less stringent leverage
Half Year 2021 Earnings Friday, 30th July 2021 targets in the medium term? Was there enough flexibility in those targets in the first place, so I guess considering further measures to strengthen the balance sheet? Thank you.
Steve Gunning: Thanks, James. Yeah, you’re right. It’s taken much longer to open up the North Atlantic and we’re still not there yet. So that’s absolutely true. When we were doing the equity raise, the way we sized it was in terms of restoring the liquidity to 20% of next 12 months’ revenues rather than for hit a specific leverage target. That’s the way we sized it. We did touch on this a little bit earlier, which sort of says we used to have a net debt to EBITDA target of 1.8, which was a proxy for investment grade. And our view is we’d like to get back to investment grade, but we need to do this at a balanced place. And we need to see the intensity and the speed of the recovery, and therefore, how quickly we can de-lever naturally.
So there’s no hard and fast measure. So we didn’t, at the time of the equity raise, set our targets on a particular leverage point in the future. What we said we wanted to do was restore the liquidity of the business and look to return to investment grade, and also start to return cash to shareholders as soon as it was operationally viable to do so.
James Goodall: Very clear. Thank you.
Operator: Thank you. We have no further questions at this time. I would now like to hand the call back to Mr Gallego for closing remarks.
Luis Gallego: Okay. So thank you very much everybody for being here today. As you can see, I think we are optimistic if we can achieve to open the corridors that we consider they have the conditions to be reopened. And I hope next time we talk we will have the North Atlantic corridor open, that will be a sign that the world is coming back to a normal situation. And for sure, we will have better results to show you. Thank you very much.
Steve Gunning: Thank you.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
[END OF TRANSCRIPT]