Luis Gallego: Good morning, and welcome to IAG's '20 results call. It's been a difficult year, so first of all, I hope that all of you and your families are well. I'm joined here today by Steve Gunning, Financial Officer; and we also have the OpCo here with us. We have Sean Doyle and Lynne Embleton in the office in London; Javier Sanchez, Marco Sansavini are on the line; Donal Moriarty in Dublin; Adam Daniels, London.

Steve Gunning: Thanks, Luis.

Good morning, everybody. Let me take you through the slides for the financial update. In this first slide, we just try and give you some of the headlines and the key KPIs for the year. If you look in the top left quadrant, as you can see, the year, we sort of split down into 2 pieces. The first 2 months of the year, January and February, which seem such a long time ago, we were performing well and ahead of plan.

We'd come into the year in good strength. And then it became clear at the end of February that the pandemic had moved to Italy and was then spreading through Europe. And so March to December, you saw significant capacity cuts, particularly in Q2 in that initial lockdown. We were only flying about 5% of our capacity compared to 2019. And then through the rest of the year, as the pandemic sort of went to and fro and the intensity went up and went down, the restrictions moved and our capacity moved accordingly.

So in Q3, we were flying at minus 78.6%, and in Q4, minus 73.4%.

Luis Gallego: Thanks, Steve. So as you have seen, our overall passenger capacity in the fourth quarter was only 27% of the 2019 level. For the first quarter of 2021, capacity is likely to be less than the fourth quarter at around 20% of the 2019 level. We have very low expectations for Easter which, as you know, is normally a peak period for travel.

The outlook beyond the first quarter remains highly uncertain. The vaccination programs in some of our main markets should lead to improving recovery in international air travel as the year continues, as long as they are joined by relaxation of border restrictions and quarantine requirements. However, the pace of reopening international travel is still unclear. Should the situation worsen, you can be sure that we will take further actions to reduce expenses and boost liquidity. This low capacity and demand has driven the bookings that you can see in this slide.

As you can see, bookings up to last week were depressed at around 20% of 2019 levels. In this chart, you can also see the 3 main U.K. lockdown periods over the last year between March and May, November and from January onwards. But when travel restrictions start to be relaxed, bookings recovered quite quickly. For example, as some lockdowns were relaxed in early December, bookings for domestic flights in Spain and long-haul flights briefly went up to around 40% of 2019 levels.

And contrary to what some people think, long-haul bookings have outperformed international short-haul for IAG since September. This chart covers bookings up to February 21st, the day before the U.K. government announcement of its 4-step plan to ease England's lockdown by end of June. In this slide, we can see that bookings at BA have surged since prime minister made known the U.K. government lockdown exit plans on February 22nd.

On the day itself, flight-only bookings increased by over 60% and BA Holidays by 200% compared to the same time period a week ago. There was an even stronger rate of bookings on February 23rd. For example, BA Holidays was up 560% compared to the previous week. Booking activity has also been strong during the rest of the week. It's important that the conventional wisdom seems to be that long-haul is the weakest segment currently.

But that has not been our experience. Since July, the proportion of long-haul of total passenger flown has increased steadily for both BA and Iberia. Clearly, North America, BA's largest long-haul market, has been weak due to strict border restrictions, although North American routes have been fairly constant, 15%, 20% of BA's total passenger revenues since July and approximately 10% for Iberia. But other long-haul routes have been stronger, in particular, Latin America, West Africa and the Indian subcontinent. Visiting friends and relatives traffic is a significant component of the traffic on these routes, and this traffic has supported connected traffic despite local travel restrictions, for example, between North America and India.

VFR is currently the strong customer segment, and it's more relevant to long-haul than to short-haul. Long-haul leisure demand has proved to be just as pent-up as short-haul leisure, especially this winter outside of lockdown. Caribbean, United Arab Emirates and India and Australian routes have been particularly strong for BA and the Caribbean for Iberia. Long-haul is also being strongly supported by cargo. We fully support governments' priorities to eradicate COVID-19 and protect our health and the health system, and therefore, the need for travel restrictions and quarantine requirements.

We are pleased that vaccination programs are proving successful in many of our markets by improving public health outcomes and reducing risk levels. Overall, we are asking governments for a coordinated road map to a reopening of international air travel, on which economic recovery depends. This road map should include the phased removal of travel restrictions based on common standards as risk levels fall, the use of predeparture testing instead of quarantine requirements until completion of the vaccination programs globally and the adoption of digital solutions to support verification and exchange of test and vaccination data. IAG and its airlines have been active in developing and testing digital health pass apps. We are working with IATA on the IATA Travel Pass.

And BA and Iberia, they are trialing the VeriFLY app on all inbound routes to the U.K. These are multiple sources of complexity in the current largely manual processes for checking compliance before travel. So we have different testing and quarantine requirements by country; different proofs that need to be shown by country like travel authorization forms, hotel bookings, et cetera; and different standards for test and vaccination certificates issued by medical labs and health authorities. All these differences make it very difficult for customers to understand. They also make it very difficult for airline staff to check for compliance to different requirements when these customers check in.

Digital solutions will therefore be vital to reduce this complexity and make the customer journey smoother. Inevitably, there will be multiple digital solutions being developed and tested in the short term. However, we are confident that there will be consolidation among these solutions in the medium term. IAG Cargo, as Steve showed you before, has had a good year in terms of revenue, which increased by 33%. Overall, cargo volume declined by 35%, reflecting the reduction of the passenger network which typically carried 95% of our cargo in bellyhold up to 2019.

We were already in a strong competitive position before the pandemic. We have a broad global network of more than 350 cargo destinations. We have an established product portfolio focused on higher-yielding products such as Constant Climate for pharmaceuticals, express and Secure. And we have a strong customer relationship. But during the pandemic, supply chains have been disrupted, which have created new business opportunities and new customers for IAG Cargo.

IAG Cargo has demonstrated, in this period, its stability and its response to these opportunities. Since the pandemic started, we have undertaken 4,000 cargo-only flights equivalent to more than 100 flights per week. Just for information, 35% of IAG's cargo in 2020 was carried on cargo-only flights and 65% in the bellyhold of passenger flights versus the 95% in a normal year that I told you before. Many long-haul passenger flights have been enabled because cargo has made them cash positive. We have established a dedicated charter team also and we have adapted passenger cabins to cover freight, including temporarily taking seats out of several wide-body aircraft.

One important thing, we have contributed to the transport of critical equipment and essential supplies, including vaccines during clinical trials and now supporting global vaccination programs. Our commitment to the environment is unchanged, I would say, is reinforced despite of COVID. Our medium and long-term targets are unchanged. We are on track to improve our carbon efficiency by 10% by 2025 compared to 2019; 20% decline in emissions by 2030; and net-zero emissions by 2050. We have created a Board committee focused on sustainability, and yesterday, we announced a new role at management committee level.

Carolina Martinoli will be chief of future talent and sustainability. Management initiatives are aligned to climate targets. The right-hand side of this slide shows our road map towards net zero in 2050. Gross emissions is the yellow line and net emissions, the lower dot line. Obviously, we look at 2020, it was an unusual year due to the capacity reduction.

But we have several levers to achieve this road map, including a more efficient fleet, sustainable aviation fuels, carbon offset and removals and disruptive innovation. And now for my concluding slides before we go to the Q&A session. First, a reminder that IAG had a strong position financially going into the pandemic. In the 3 years prior to the crisis, we made operating margins of 13%, 14% and returns on invested capital of over 15%. The balance sheet and cash liquidity were also very strong.

We also had and continue to have a proven business model and a strong strategic and competitive positions. And in addition to our financial and strategic strengths, the management team has taken control to mitigate the impacts of the crisis and secure our future. We have taken quick and decisive actions to minimize net cash outflows. We have been active raising capital, including a successful rights issue and UK Export Finance loan. Total liquidity of €10.3 billion currently is even higher than it was at the start of the pandemic.

We have successfully lowered our cost base and made it more variable. We have successfully renegotiated the purchase price of Air Europa and deferred payment by 6 years. And we will continue to lead the consolidation of the European airline sector. I am confident that IAG will emerge from the pandemic in a stronger competitive position. Our immediate priority is to navigate towards a meaningful return to service as soon as possible and to persuade governments to lay out road map for reopening air travel, relax border restrictions and adopt common testing regime until the completion of vaccination programs around the world.

And now we are ready for all your questions.

Operator: Our first question comes from the line of Savi Syth at Raymond James. Savi Syth : Cash burn is lower than 4Q but also 2Q and 3Q. So it's -- where you had maybe similar capacity production. So clearly, there's some better maybe cost execution here.

I was curious, as you kind of ramp up for summer flying, do you expect some elevated costs in 2Q? Or is that cost timing similar to when the capacity goes up? And somewhat tied to that, is the better kind of execution changing your thinking on when you get back to 2019 unit cost, which I think you said when you get to 2019 capacity? And then my second question is bookings have surged recently. Is it fair to say that your working capital and revenue development in 1Q is so far tracking better than 4Q?

Steve Gunning: In terms of -- sorry, the line is particularly bad. So I'm not sure I heard all of the questions. But in terms of -- if capacity ramps up during Q2 or Q3, yes, there will be some incremental costs. There'll probably be some incremental training costs, particularly for pilots, say at BA, and also some incremental maintenance costs.

But I don't think those will be a significant distortion in our numbers. So there will be some degree of ramp-up. And in terms of when will unit costs start to look similar to what we saw around 2019, if not a bit lower, I think that's when we get to sort of 90%-plus capacity compared to 2019. Difficult to know when that will be. We've talked about not getting back to that point until 2023, but as we know, this pandemic has been somewhat uncertain.

So it could happen quicker, it could take longer. I didn't hear the second question. Savi Syth : Sorry, second was on just the booking. Would bookings have inferred -- is your revenue and working capital development kind of tracking ahead of what you saw in 4Q '19, so -- sorry, 4Q '20? So all things equal, maybe a better all-in cash burn level in 1Q?

Steve Gunning: No, I would say the -- because we went in -- particularly the U.K., because we went into the third lockdown, I think we would have normally expect it to have had significant inflow of bookings in Q1, like we would normally do a very large January sale. Because of the third lockdown that was announced, that has probably dented consumer confidence in the very short term.

I think what's interesting, as Luis alluded to, when the prime minister of the U.K. made his announcement on Monday and people started to get some confidence that the summer might well be open, we have seen bookings spike. As a consequence of that, I think if customer confidence continues to grow and there continues to be positive news flow, I think we will see an acceleration of bookings and clearly, that will be working capital positive from that perspective. But as you know, there's many twists and turns. So that seems to be the direction of travel at the moment, but a lot is dependent on the news flow and customer confidence.

Operator: And your next question is from the line of Daniel Roeska at Bernstein Research.

Daniel Roeska: Two then, if I may. Maybe one, a little bit longer out. We're in the recovery, but going forward, what are you doing to limit the risk that your short-haul profitability in the upcoming years, kind of given the shift in consumer and connecting and business travel kind of preferences, that doesn't escalate and basically eats up what happens on long-haul? As you mentioned, long-haul is kind of the core of your business, but there's a high probability that short-haul will be a lot worse for you. So kind of how are you thinking about that? And then secondly, could you give us some color that once and when the Air Europa deal gets approved by the EC, kind of what are the next steps for your Spanish assets kind of Iberia after ERTE and then plus UX, kind of how does that look in a year's time in the Spanish market?

Luis Gallego: Thank you for the questions.

When we build scenarios, we consider 2 key factors, the willingness to travel and also the ability to travel. We have seen in 2020 that there is a strong willingness to travel once restrictions are lifted. That's what we have seen when we don't have lockdowns and even after the announcement of the prime minister this week. So the willingness of the people is present across the 3 broad reasons

for travel: visiting friends and relatives, leisure and business. But it's true that the peak -- that the demand returns within those segments is tied to the level of travel restrictions that we have in place.

We have seen that, for example, the people that they want to see friends and relatives, they can tolerate in some way, more easily, restrictions over their travel or freedom of movement at their destinations. But in the case, for example, of customers wanting a holiday or break, they can tolerate a part of that. But the inability to spend some time at the destination and to have some freedom limits the bookings that we have from that segment. And in the case of traveling for work, I think, first of all, the different companies and the individual both need to be accepting the risk to -- of traveling during the pandemic period. But we think that after these quarantines are removed, there are a lot of customers that are willing to travel, and we know that it's not the same, and we have learned during this year to do business with Teams or Zooms, and there are a lot of activities that require face-to-face meetings.

So in summary, I would say that as the VFR traffic is strong and some long-haul markets have a big part of this traffic long haul is working and it's working in some time better than in the short haul. About Air Europa, you know that we closed the deal November 2019. This year, we have reached a new agreement with a new price, with new conditions of payment. In this period of time, Air Europa had the support from the Spanish government, and that support has attached conditions. So first of all, we need to negotiate with the Spanish government these attached conditions because we need to have the freedom to manage the company.

And after that agreement that we hope we can reach, we will need competition approval. All this process is expected by the second half of this year. I think that it's going to be more close to the end of the year that -- to the beginning of the half.

Daniel Roeska: Okay. And did I understand you correctly that you're expecting the level and structure of business travel kind of postcrisis to revert essentially to precrisis levels as long as people are able to travel?

Luis Gallego: Yes, I think it's going to take time.

As we have always said, we consider that in 2023, 2024, we can come back to the levels that we have in 2019.

Operator: And your next question comes from the line of Jarrod Castle at UBS.

Jarrod Castle: Two, of course. Firstly, just in terms of the manner that people are going to travel, at the moment, obviously you're trying to do travel passports and digital options, but there's also the hurdle of testing in a number of markets. And it's pretty expensive in terms of PCR tests, €100-plus or GBP 100.

So do you think these tests will disappear over time or is it going to be an additional cost for the customer to bear? And will that impact future volumes for a number of years? Then the second question is just on fuel. I can't seem to find a fuel hedging ratio. I know you put the policy -- you've kept the policy, but you suspended your hedging. So where are you actually hedged, especially over summer, just given the recent increase in the fuel price? And when will you continue to hedge thinking beyond 2021?

Luis Gallego: The first question, we see that vaccination is in the future. It's true that vaccination is not going to be here for all the countries soon.

So we consider that in the meantime, a testing regime is necessary. And I agree that it has to be affordable. So I think we are advancing in that direction. Also, we consider that the health pass app that have been developed -- we are developing, are going to help the customers, as I said before, to know what they are required to travel and to show that they comply with all the regulations. So I think the future is vaccination, health pass, and in the meantime, we need testing regime to do the bridge.

And for sure, we need that testing regime to be affordable.

Steve Gunning: Just picking up on the fuel hedging position, just a couple of thoughts. One of the things we're not doing at the moment is taking out any more fuel hedging positions. We are reviewing our fuel hedging policy for the future. Clearly, given the level of overhedging that we have at the moment, we can take a bit of time to do that.

So we're not actually entering into more hedges. So probably the last guidance that you had is probably, to some degree, indicative of the hedge position that we had. You're right with regards to the increase in prices since the year-end. I think when we mark-to-market for the year-end purposes, the spot price for jet was about $440 at that time. I think today, it's probably at about $550.

So you're absolutely right, as that price goes up, the settlements on those hedging positions will reduce to some degree. So there should be some benefit in the cash flow numbers as a consequence of that.

Jarrod Castle: I guess do you think you've got the correct hedging for summer then depending how demand comes back?

Steve Gunning: Say it again, please.

Jarrod Castle: Do you think you've got the correct hedging for summer then depending if things open up, I guess? Are you too underhedged?

Steve Gunning: No, I think we've got an adequate level of hedging at the moment. But it would seem premature to be trying to take out more positions on a sort of speculative basis.

We don't know how the markets are going to open up. So we'd basically be taking a sort of speculative position, and that's not the purpose of our fuel hedging policy. It's very much to try and match our expected demand, and clearly, it's very difficult to know what demand is at the moment.

Operator: And your next question comes from the line of James Hollins at Exane BNP Paribas.

James Hollins: First one is for Sean, if he's on.

I was just wondering what BA's plans were at Gatwick this summer. Or are you going to leave Gatwick alone given you're -- I think you've got a slots waiver and then you don't have to use those slots. And maybe if Sean wants to tell us what he's looking forward to getting his teeth stuck into now he's head of BA. The second one is on restructuring. Just wondering if you could let us know whether BA and Aer Lingus are basically fully done on their, particularly, staff restructuring.

And then on Vueling and Iberia restructuring, I was wondering if, first of all, confirm they benefit from the ERTE until the end of May and what the plans on restructuring are after that.

Sean Doyle: Great. Thank you. Yes, in relation to Gatwick, I suppose it's a bit like the rest of our network. We're waiting to see what the summer holds, and we're going to work with the government over the next 6 weeks and making the most of the task force that's been set up.

So I think our network decisions will kind of follow that process, but we are operating long-haul operations out of Gatwick. We're operating long-haul and short-haul out of Heathrow, and we're just looking to optimize both those portfolios in the short term. And we'll make a call when we know more about the demand environment over the summer. In relation to restructuring, I think over the medium term, it's fair to say that BA has taken a lot of restructuring. We've got 9,500 less employees in the company today than we did a year ago.

So I think we are very much kind of rightsized for the kind of work that we have over the next number of years. When we look ahead over the summer, I think we have been using furlough quite flexibly and adapting our costs to be as variable as they can. And again, we will work hard to make sure that all of our costs are variable with capacity over the coming months. And we look at whatever levers we have in terms of voluntary measures if we need to kind of reduce our employee overheads as we navigate through the next 3 to 6 months. In terms of what I'm looking forward to having got over at the helm of BA, I think we've got a very exciting platform now to build from.

The company reacted very quickly to the crisis and took some very tough decisions. I think that leaves us in a position to recover and recover very effectively. I think we do see evidence of real pent-up demand, as we saw this week, when confidence comes back and when governments enable us to travel. And I do think that we want to be part of leading aviation and leading the U.K. economy out of the pandemic because if Britain wants to be global, Britain is open for business, I think aviation is a critical sector.

BA is well poised to do that, and we have some very exciting plans as to how to rebuild the airline coming in the next year or 2. But as I said, the platform is strong. And I think the opportunities to build on that are very exciting.

James Hollins: Yes, can you just follow-up on the Spanish ERTE and Vueling, Iberia benefits into the end of May and what plans are on restructuring after that, if I'm allowed?

Luis Gallego: Yes, as you said, the plan now is approved until the end of May. It's true that the Spanish government is considering to extend the ERTE.

And that's the consideration that we have right now. It's a very useful tool to adjust the cost to the variability of the demand that we are having. We hope we can continue with the ERTE scheme. In the case we don't have an ERTE scheme, we will need to take other actions to reduce the employee cost to try to continue reducing our cost base. That is so important in the circumstances.

Operator: And your next question comes from the line of Jaime Rowbotham at Deutsche Bank.

Jaime Rowbotham: Questions for Steve, I think. First topic is cash. Steve, are there any timing effects that might offset the benefit from new bookings through working capital in the first half? And staying on cash, in terms of that €2.2 billion undrawn committed aircraft facilities on Slide 11, is that finance that you could call upon tomorrow? Or is it intended to finance some of the €1.7 billion CapEx you mentioned on Slide 14? I just wanted to try and get some clarity on any refinanced CapEx to 2021. Second topic is equity.

Consensus seems to have about a €2 billion net loss for IAG in the first half of '21. Book value of equity at year-end was down at €1.3 billion. But would it matter if that figure went negative at the interims? And any thoughts around plans to deal with that if it would?

Steve Gunning: Thanks, Jaime. I think I heard the first and the third. The second one was a bit unclear.

In terms of cash timing effects, I think the only significant item that I think comes through in the first half is the repayment of the CCFF. I think that's in the first half of the year. So I would be factoring that into my cash flows. I think in terms of the negative equity from an accounting perspective, I don't think that is an issue as far as I can tell. Jaime, can you repeat the second question? The line has not been great this morning, I didn't quite get it all.

Jaime Rowbotham: Sure. I'll do my best, Steve. On Slide 11, you show €2.2 billion of undrawn committed aircraft facilities. I was trying to understand, is that finance that you could call upon now? Or is it intended to finance some of the 2021 CapEx, the €1.7 billion you mentioned on Slide 14? And linked to that, in 2020, you financed a lot of your CapEx. I was just trying to sort of understand what the plan is for how much CapEx could impact cash in 2021.

Steve Gunning: Yes. No, so in the €2.2 billion, there's a mixture of items. So there's some undrawn EETC funds to go against aircraft. There's also the Airbus backstock facility as well, which is against aircraft. So some of that is to set against aircraft rather than it's generally available.

So it's a mixture in that €2.2 billion figure. In terms of the €1.7 billion CapEx number that we've guided, €1.3 billion of that relates to fleet. Some of that's sort of embodiment-type work, some of it's for core assets. And clearly, the level of financing that we can do on that will partly depend on the strategy we take and partly depend on the -- how open markets are. So we've done quite a few sale and leaseback transactions, we've done a couple of EETC transactions in 2020.

So the ultimate loan-to-value that we'll get on those will depend on which strategy we go down. Clearly, we'll be looking to finance as much as possible of the fleet figure. What that number or what that percentage is will probably depend on our financing strategy and also how the markets are developing.

Operator: And your next question comes from the line of Muneeba Kayani at Bank of America.

Muneeba Kayani: In your press release, you mentioned the base case scenario of capacity ramp-up from the first quarter of this year until first quarter of next year.

Can you talk about what that scenario has for the third quarter? And what's the flexibility to ramp up capacity faster if there is demand? And then secondly, can you quantify the revenue and cost impact from the Amadeus NDS (sic) agreement that you just announced?

Steve Gunning: Well, maybe if I take the first 2, and maybe Marco or Luis will take the Amadeus one. In terms of the base case, when we're doing our going-concern assessments, we have to come up with a base case and a downside case scenario. And as you rightly say, in the IMR that we've sent out, I think the base case is showing minus 43% all the way out to March 2022. Clearly, to get into the details of what we're assuming in that, I think probably gives it more substance than there is. We are not giving guidance this year on capacity because we don't know how it's going to play out.

We don't know how the pandemic will develop, and we don't know how the restrictions related to the pandemic will develop. So we have to come up with a base case for the purposes of accounting, but I wouldn't want to get into details on that because we're really not certain enough as to what's possible. To the second point of your question, which is what's our ability to ramp up, which I think is a good question. We -- our view on that is we can ramp up pretty quickly. It varies by OpCo.

I think BA could ramp up to about 70% of 2019 by the summer. I think Vueling can ramp up much quicker than that and will probably get up to almost 100% of capacity. So our ability to ramp up, if there was demand and restrictions and regimes allowed, we could make the most of a strong summer period by putting a lot of capacity into the market.

Luis Gallego: Okay. I think the second question, we are not disclosing now the numbers about Amadeus.

Maybe, Marco, you can talk a little about the benefits of the agreement.

Marco Sansavini: Indeed, it's a higher value. This is Marco speaking. So indeed, we don't disclose, of course. The deal is subject to full confidentiality.

Nevertheless, there are both significant benefits, both from a revenue and a cost perspective. In terms of cost, the NDC will allow structural reduction in our distribution costs. This is not about a temporary discount. It's a new technology methodology that we use to distribute our content that brings with it the structural reduction in our distribution costs. But at the same time, there is a very, very significant revenue opportunity that goes with that because, as you know, the NDC technology, which is a communication standard to distribute our -- and to retail our products and services allows to have much richer content.

So elements like ancillaries will be able to be distributed in a much more effective manner. And also additional content, such as, for instance, now additional pricing points, so the possibility to distribute more pricing points beyond the fare structure that currently is the limitation of the legacy technology allows to increase our competitiveness and generates revenue opportunities.

Operator: And your next question comes from the line of Carolina Dores, Morgan Stanley.

Carolina Dores: I guess I wanted to get some more visibility on your success in achieving CapEx savings, which areas that went and on the negotiations with the lessors for reducing leasing payments. I mean how much of that is actually a haircut to OpEx and CapEx and how much of OpEx and how much is actually deferred payments? And if I may, a follow-up from Muneeba, your downside scenario pre-UK Export facility was 36% decline in capacity.

If you could have an update of what the downside scenario is now with the facility included, it would be helpful.

Steve Gunning: I'm going to disappoint you with these answers. In terms of the negotiations that we have with the OEMs and what relates to aircraft and what relates to payments, I think that's heavily commercially sensitive. So I wouldn't be disclosing those figures because they're commercially sensitive. The second question, I didn't quite catch, which was?

Carolina Dores: So the downside scenario at the time of you announced the rights issue for 2021 was assumed that 36% decline in capacity versus 2019.

But as you mentioned, Steve, that didn't include the UK Export facility. So what is your downside now? And I appreciate it's difficult, but what is the downside scenario that you're working now for 2021 so we can get a sense of when you're -- up to when your -- to what level your liquidity is covering your cash flow needs?

Steve Gunning: I understand, yes, it's a good question. I think maybe going back a step or 2, when we did the -- when we were doing the capital raise and we were sizing it, we came up with a commercial downside case, as you know, that had a lot of different assumptions in it, including capacity outlook, with a lot of other assumptions, the ability to finance aircraft, what we thought unit revenues would do, et cetera. And we looked out and we found the sort of trough point in our cash. And then we sort of solved that back to 20% of next 12 months' revenue, so that's how we came up with the initial sizing.

Since we did the capital raise, there's been a number of variances, unsurprisingly, as to what took place. So for example, when -- with the commercial downside case that we used, we didn't anticipate that there would be a third lockdown. We anticipated a second lockdown, but not a third one. Alternatively, there's been some positive developments which would be, as you rightly say, we got the UK Export financing, and that wasn't in our thinking at the time. Also, when we did the commercial downside case, we didn't assume that there would be vaccines, and that's a positive as well.

So there's a number of variances. Clearly looking out, it's still difficult to see how that's going to play out. The only piece of additional information I would give is compared to our commercial downside case, at the end of December, we were ahead of that from a cash perspective. So we were better than the commercial downside case at the end of December, despite the fact that we'd gone into a third lockdown of that situation. But I hope that gives you a bit of a feel for where we're coming out.

Operator: And your next question comes from the line of Neil Glynn at Credit Suisse.

Neil Glynn: So the first question, just on unencumbered assets. You mentioned within the presentation, asset finance and lease liabilities of €12.2 billion, and I see PP&E of €17.5 billion on the balance sheet. So I'm just wondering is something around €5 billion a decent way to think about unencumbered assets or is there some other hidden value to think about. And then a second question, if I could ask Lynne, if that's possible, it's great to see the move to sunny Dublin, but I'm just interested in your successor's opportunity for IAG Cargo, given the obvious uptick in e-commerce penetration and the growth prospects there.

Is this an opportunity to leverage that to expand IAG Cargo's presence possibly with partners like Qatar, given that you don't operate your own flights?

Steve Gunning: If I go first. Neil, I'd need to spend a bit more time -- unencumbered assets are not at €5 billion. They're considerably less than that. I think when we look forward as to what assets are available to maybe do further financings or securitizations, the obvious places we would look potentially are with regards to our slot portfolio, which is very strong, and other assets that we have in the business such as the loyalty business. I think -- I'm happy to take this one on a bilateral basis, but no, the unencumbered assets are not anywhere near €5 billion.

Lynne Embleton: Okay. Neil, if I pick up your cargo question. The first thing to say is in the reasonably medium term. I think we're feeling very positive about the cargo outlook. Clearly, as the passenger restrictions continue, the yield environment for cargo is good.

So our near-term focus is all about getting the group's aircraft up in the air and supporting the reestablishment of the passenger network, that kind of co-sponsors passenger and cargo flying. So that's about all of our near-term as its going. But you're right, there's some -- the general outlook for cargo and product development is strong. We are having some really positive dialogues with some airline partners to play where we can't play on our own. But also, we're kind of our attention back onto our strategic plan, where some of our investment in infrastructure, some of the digital investments we're making will support us, I think, coming through this pandemic really strongly in the end.

Operator: And your next question comes from the line of Stephen Furlong at Davy.

Stephen Furlong: Yes, can I just go back to the base case and this going-concern comments? I mean rightly, you make assumptions, revenue will be below 2019 levels. It seems to be more mix-related. Maybe just one for Sean. Could you talk about -- because I know BA, in the past, has been very successful in reconfiguration programs and how big that will play going forward in unit revenue with things like World Traveler Plus.

And the second question is just -- I know at the start, you answered the question, Steve, in terms of unit cost. Probably you have to look at when it comes back, when the volumes come back to 2019 levels. But I'm just wondering with all the restructuring, surely, if you do get back to 2019 volume levels, the unit costs have the potential to be below or even significantly below where they were in 2019. I know, for example, Air France gave a -- KLM gave a comment on that. I'm not looking for a number, but I would have thought with the restructuring that the plan may be to get back below 2019 levels.

Steve Gunning: Okay. I'll let Sean talk a little bit about cabin reconfiguration for British Airways, but before I do, picking up on your 2019 nonfuel unit costs or unit costs and how they will develop. My expectation is that when we do recover back to sort of 2019 levels, that our unit cost performance should be better. That's certainly -- some of the work we've already done is moving us in that direction. But as Luis said in his presentation, we're not done with costs.

We continue to look to take further costs out. So it would be our expectation to be below the 2019 levels, but we've still got more work to do to get there. Clearly, the restructurings that we've done in 2020 have given us good start into that position.

Sean Doyle: Yes, I think the cabin reconfiguration program is ongoing. And if you remember, the logic of it was to kind of basically optimize the footprint of our long-haul aircraft and we are going to do that in 3 ways.

One was to probably make sure we had the right alignment of first-class capacity. And we had implemented more cabins and reduced the footprint of first. But the load factors of the performance of that cabin was performing very well in 2019. And we were looking then obviously to upgrade the business class product, which we are midway through. We have about 28% of our fleet now has the new Club World Suite.

And the net promoter scores are very high with that product. I think the exciting development as well you mentioned is the World Traveler Plus. That's a very successful product, and we are increasing the number of seats that are available for sale in World Traveler Plus materially. And I think that plays well to the kind of development of the market over the next couple of years because we do anticipate that corporate travel will lag other segments like VFR and leisure and World Traveler Plus is a very strong leisure product, and it's very popular. So I think things like the retirement of the 747s have actually accelerated the development of that product mix.

And I think it actually works very well with the kind of trajectory of recovery that we anticipate. And the other thing I would just add to that is in terms of things like leisure, the BA Holidays business is a very strong franchise that we have. And that as well is a lever we can use commercially to kind of play in the demand space that we see coming back more strongly in the next 12 to 18 months.

Operator: And your next question comes from the line of Andrew Lobbenberg at HSBC.

Andrew Lobbenberg: Can I ask 2 questions? One, can I ask about fleet? A little bit curious to see where you are on the letter of interest, which is all a bit dated now for the MAX acquisition.

And obviously, Air Europa sits with some MAXs and MAX orders. So what are you thinking about short-haul fleet and MAXs? And then second question, I'd quite like to draw the attention to the South Atlantic, where we haven't had very much discussion. And obviously, the acquisition of Air Europa plays a big part in what your plans are. But if we look at the Latin American competitors, most of them are in Chapter 11, and the alliance configurations there are unstable or open. So how do you see your prospects for gaining share, gaining competitive positions, improving the competitive position on the South Atlantic? And where do you expect your partnerships to lie in that market?

Luis Gallego: Okay.

So in the first question, we continue having the option of the 737-MAX is something that we need to consider for the future. As we explained before, we are hoping that the demand is coming back from 2023, the demand that we have 2019. In the meantime, we need to adjust the size of our fleet to that demand, but we consider, as said before, that 737 MAX is a good aircraft, it's flying right now and is an alternative that we have for the future in our narrow-body fleet. And about Air Europa, I think that really is -- we explained before that it is very important from the strategic point for the group in order to maintain a proposal that we have for our customers between Europe and Latin America. It's true that we have some competition there that they are suffering in the same way that I think everybody, we are suffering this context, but some of them are in a worse situation.

So we consider that this deal is going to give us the possibility to be stronger in that market, to offer a better proposal in terms of network to our customers. So we continue to meet it with the deal. I think we will have more opportunities and that the math of the future of Latin America is not going to be the same math that we have in 2019.

Andrew Lobbenberg: Can I just build on that? But you don't have an alliance partner in Latin America at this time. And yet, we thought that alliance partnerships were important for this industry.

Would you aspire to have one in the future?

Luis Gallego: We have now still agreements with LATAM. For example, we have joint businesses in Peru and Ecuador. It is true that if the Air Europa operation happens as we hope, we need to reconsider the strategy in the region. But we have other alternatives apart from developing the relationship with LATAM.

Operator: And your next question comes from the line of Gerald Khoo at Liberum.

Gerald Khoo: Two questions from me, if I can. Firstly, on transfer traffic, do you think that recovers fast or slower than point-to-point? I can certainly see restrictions on certain origin and destination flows constraining that, but equally, opportunities to replace tin on long-haul routes. And secondly, could I just ask for some clarification on minimum or target liquidity as a percentage of revenue? Do you have a -- do you actually have a figure? I think there was a reference of 20% of 2019 revenue in some of the rights issue you carry. But is that actually your sort of threshold level, please?

Steve Gunning: Okay. On the liquidity target, as you rightly say, we've tended to use 20% of revenue.

But at the moment, our view in this -- over the course of the pandemic, given the uncertainty, is to bolster liquidity as much as possible and not to be too tied to a percentage. So that continues to be the case. With regards to your first question on transfer traffic, it's certainly the case during the course of Q4 that the transfer business has been helpful. But really, I don't think there's a general view that sort of says it's going to recover slower or quicker. I think it really just depends where the restrictions are and how your network fits for those restrictions.

So it's been a help in Q4. I don't know whether you can actually draw a conclusion that says, by definition, it's going to go quicker. I think it's where the restrictions are.

Operator: Your next question comes from the line of Alex Paterson at Peel Hunt. Alex Paterson : Just on the sort of the longer-term cost, you mentioned that they would be lower eventually after capacity returns and you mentioned lower distribution costs as part of that.

Can you say what other areas you think the savings will be made in? Is it, for instance, lower staffing ratios? Do you think supplier costs could be reduced, something like that? And then just on forward bookings, you've mentioned that long-haul bookings are running ahead of short haul. Is that because the bookings are for periods further ahead? So are they from sort of 9 or 12 months out rather than short haul being nearer term? What's the sort of difference there? And then finally, I'm just trying to understand the sort of magnitude of the uptick in bookings. Where you've seen this surge this week, are those bookings at a normal level or a normal level for the capacity that you're flying? Or are they actually better than that -- than this -- for the week that's just finishing now?

Luis Gallego: Yes, I think I can take the first one. The effort we are doing is an effort that is not only in the labor part of the business. It's true that, as we've said before, in 2020, we needed, first of all, to stop the bleeding.

So we have started a lot of actions inside the group and the different operating companies to diminish the outflow of cash. But we are now in the process to reduce all the costs in all the areas of the company because we understand that this crisis is not similar to previous ones, and we are going to have an aviation sector that is going to be different after all this. So we are attacking all the cost structure that we have, not only labor, the suppliers, ownership, and we are putting a special focus also to try to have an increased ratio of variable cost because this crisis has shown that we need to be flexible. And that exercise we are doing right now, and I think that we will arrive to 2023 in a better position if we compare with the situation that we have in 2019. Because as we said, there is uncertainty of how it's going to be, the demand at that point and how is going to be the behavior of the customer.

So the second question?

Steve Gunning: Yes, so in terms of long-haul bookings, the reason they've been so strong, particularly, I think, in Q4, has been the strong and resilient visiting friends and relatives demand and also some degree of premium leisure has come through, and that continues to be the case. Whether there's a distinction between short haul and long haul and whether long haul is booking further out, I don't think that is the case. What's happened since the prime minister's announcement on Monday is we've seen a surge in bookings, as Luis referred to, but that is short haul and long haul. In fact, I would say the short-haul bookings have been stronger than actually the long-haul bookings, and they're particularly strong in the Q3 period, unsurprisingly, because people are gaining confidence that they think there's going to be a summer. So I wouldn't say there's a sort of core distinction between long haul and short haul given this recent surge in the news and the improvement in consumer confidence.

Prior to that announcement, the reason long haul was pent up was because of the more resilient VFR demand and also because of the ability to use your network to transfer people over the hubs, which was also helpful from a demand perspective. Alex Paterson : Can you just say, sort of in relation to the capacity that you're flying, are the bookings that you've had in the last week back to a sort of a normal level? Or are they still lagging behind what you'd expect at this time of year?

Sean Doyle: Yes. Sean here from BA, I can take that. I think in the Q2, Q3 period, the bookings since the announcement were ahead of last year. So we saw that in the short-haul segment.

And if you look beyond, say, the May period, we saw an uptick versus the year before, and it was booking into the capacity that we published.

Operator: And your next question comes from the line of Francisco Rodríguez at Banco Sabadell.

Francisco Rodríguez: I have a couple of questions. The first one would be, again, related to costs. I don't know if you could give us any sense on how much of all these restructuring costs on the personnel side could be, let's say, sustainable or in, let's say, forward, and therefore could be retained.

And the second one would be more on the cash flow. And I would like to have a sense on what level of activity would you need to have to be breakeven cash flow. I don't know if it's fair to say that around 40% to 45% of activity compared to 2019 could give you this possibility of being cash flow breakeven.

Luis Gallego: Yes. About the first question, I think we have started this crisis in a different situation in the different operating companies of the group.

And for that reason, the solution we are giving to the labor restructuring is different, as I explained before. For example, in the case of Iberia, you know that we have a transformation program since 2013, and we reduced the employee in 35%. So when we arrive to this crisis, we have an issue about the number of people working in the company because of the demand that we had that it was much lower. So the imperative measure there was to try to adjust the size of the labor force to the number of flights that we were flying. And in that sense -- and the situation was similar in Vueling.

In that sense, the furlough scheme, the ERTE that we have been explaining is the right vehicle to do that because you can adjust the production -- the people to the production. In the case of BA, for example, we arrived in a different situation because we needed to adjust, in one side, the size of the labor force to the number of flights that we're going to fly. But also we have a situation that in some collectives of the company, the conditions were above the market. So we need this also to be more productive. So all those measures that we have improved are going to be structural and are going to be there in time because, as we said, we are now more efficient, we have more flexibility in the contract, and we can achieve more productivity.

I don't know, Sean, do you want to try in that?

Sean Doyle: No, I'd agree. I think we -- as well as adjusting the workforce to meet the new capacity outlook, we do have a more productive and efficient cost base in which to build forward and we have more flexibility in the business model as well. So I would echo what Luis was saying.

Steve Gunning: On the second question, with regards to sort of what percentage capacity would get you to sort of cash, maybe cash from net -- from operating activities positive, I wouldn't give a percentage because it depends on a number of different factors, what the pricing is, what the load factor is, what the mix of the business is. Well, what I would say is if we see consumer confidence come back, we will see pent-up demand and high bookings coming through would be our expectation.

There is pent-up demand, and people's savings levels and incomes are such that, that would generate further activity. I know BA did a survey recently, which sort of said, of its regular customers, over 1.8 million of them had missed out on at least 1 trip last year, if not several. We do think there's a lot of pent-up demand out there. So if there's consumer confidence, we'll start to see bookings coming through. That would be the first part of getting the cash flow positive.

The second part will be on the EBITDA, which would be when people then can start to actually fly those bookings, which if the summer opens up, which is our hope and expectation, then you would expect to see there the cash generation improve significantly. Will that go positive then? We'll have to wait and see because there's too many variables. But I think those are the dynamics that are going to drive us to cash-positive generation.

Operator: And your next question comes from the line of Guilherme Macedo at CaixaBank. Guilherme Macedo : Just one, if I may.

In terms of your net CO2 emission targets, was there any change in your path to get there, maybe in terms of relevance of offsets and market-based measures?

Luis Gallego: I didn't hear very well your question. Can you repeat, please?
Guilherme Macedo : Yes, in terms of your net CO2 emission targets, was there any change in your path to get there to the net-zero CO2 emissions by 2050? Namely, what's relevant in terms of relevance of offsets and market-based measures?

Luis Gallego: I said that -- at the beginning that I think this crisis -- after this crisis, our commitment with the sustainability and with the objective of net-zero emissions in 2050 is even deeper than the one that we've had before. So now what -- the target that we have is further improvement to 80 grams CO2 per passenger kilometer by 2025, which is an improvement on our previous target of carbon-neutral growth from 2020. By 2030, we target a 20% net reduction in emissions compared to 2019, and by 2050, we target a reduction of 50% CO2 gross emissions versus 2005. And I said before that with the 4 measures that we are working on it, we will achieve the target of net-zero CO2 emissions in 2050.

Operator: And your final question comes from the line of Johannes Braun at Stifel Europe.

Johannes Braun: Just one left, basically. I think when you announced the Air Europa deal, I think you mentioned that one of the rationales for the deal is to develop the Madrid hub as a real competitor to the likes of Paris, Frankfurt and Amsterdam. And I was wondering whether you could elaborate a little bit how big that opportunity really is and what your competitive advantage is against Lufthansa, KLM-Air France to take away transfer traffic from them.

Luis Gallego: So okay.

I think the rationale that we explained at that time that is the rationale that we maintain is that if Madrid wants to compete with the big hubs in Europe, we need volume. And if we have the long-haul fleet of Air Europa and the long-haul fleet of Iberia, we reach an amount of long-haul aircraft similar, for example, to the number of KLM in Amsterdam. So I think if we want to have 360 degrees hub in Madrid to fly to some destinations that now are not possible because we don't have the scale, this operation is key, key for Madrid hub, is key for Spain, it's key for the customers because they are going to have a better network, they are going to have more competitive prices, they're going to have access to a wider loyalty program. So all those are the benefits of this operation that, as I said, I think is fundamental for the Madrid hub.

Operator: Thank you.

And there are no further questions. Please continue.

Luis Gallego: Okay. So if we don't have any more questions, thank you very much everybody for being here today. I hope next time, we can do the meeting face-to-face.

Take care in the meantime. Okay. See you next time. Thank you very much.