Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your conference call operator. Welcome, and thank you for joining the Aegean Airlines conference call to present and discuss a briefing on current developments. All participants will be in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question and answer session. Should anyone during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Eftichios Vassilakis, Chairman. Mr. Vassilakis, you may now proceed.
Good afternoon, everybody. Thank you for being on our call. First of all, I'd like to let you know that our CEO, Mr. Gerogiannis, Dimitrios Gerogiannis is here with us, our CFO, Michalis Kouveliotis, and Stella Dimaraki, our treasurer. We're all here in case you need us to provide you some more light in view of the current situation, which is certainly the most challenging three-month period we've ever experienced in our 20, 21-year aviation life. I think this is not unique to us. It is probably quite common in aviation and indeed other travel related businesses around the world. I think it's fair to say we've never seen a crisis with equivalent reach, with equivalent uniqueness in terms of global disruption and an unprecedented shutdown in nations across Europe and around the world, including, of course, our own.
If there is one piece of good news that's important to deliver, I believe that would be that Greece has very successfully dealt with this initial attack of the COVID-19 to our country in a very effective way, showing, I think, excellent reflexes, some decent implementation skills, and achieving one of the lowest death counts around Europe. Even proportional to the population, I might add. I would at least like to say, and probably it's going to be one of the few good news of this conference, is that the brand of Greece which is a key item of business, a key metric for our ability to work in the future, has been safeguarded and possibly strengthened by this positive experience for the country. Now going back to aviation, it's clear that this crisis poses some unique challenges.
The intensity of the disruption with revenues being drawn down very close to zero around Europe in the last two months is unique. The situation with regards to visibility forward being essentially very limited, very obscure, very vague, is also unique. The burden sharing that's required by all constituents in aviation companies whether those are management employees, shareholders, but also suppliers, particularly suppliers, the whole ecosystem of aviation, which is all to some degree being affected, must find a way to adjust within this new environment to address its relationships with each other and to recreate this ecosystem in a more COVID relevant form, not only in terms of its operations, but also in terms of its let's say, financial characteristics. Of course, this will require sacrifices by all. The role of the states is also very important in this current predicament.
It's about controlling the disease, of course. It's also about supporting the economy or particular enterprises in terms of recovering from the damage sustained from COVID. It's about coordinating the restart, getting out of the shutdowns, out of COVID. We really need them to do better than the very little coordination they had when they were winding down operations due to COVID. Of course, we need them to ensure a reasonably level playing field for all market participants. Now, airline teams, airlines internally also have to come together in a much more effective way than ever in the past, despite the difficulty, the losses, the sacrifices, and to provide the flexibility and the tenacity to adjust in a way for each company and in specific, in particular at Aegean, to become once again relevant, competitive and ultimately performing.
Adjusting to ensure the safety of our customers, the safety of our crews, ultimately once again, a successful renewed business model, business structure that can drive the company forward once the fog and disruption of this crisis, hopefully at some point gradually subsides. If we want to look back at what happened, I'm not going to bore you with details you've heard all around Europe. We all know how here in Europe, the crisis became relevant late in February by the outbreak in Italy. We immediately started having a significant loss of incoming reservations, which over the next few weeks grew from a normal 100% to next to nothing.
COVID was recognized as a pandemic by the World Health Organization on March 12th, and following that and preceding that, gradually all countries throughout Europe imposed restrictions to travel, restrictions to even local movements, and frankly, the whole continent, and aviation in particular, came to a standstill. Indeed, it is estimated that around about 85%-90% of European aircraft became grounded by the end of March. We ourselves in Aegean actually did ground the great majority of our fleet by March 26th. Continuing post March 26th, only a skeleton domestic schedule, covering with minimal frequencies, all domestic destinations, responding to a request of the government that we continue to do that despite the restriction that existed on people's travel. This is what drove the developments in March down to the level, as I said, very near to zero.
Today I'm going to try to put some context on what the numbers will look like for the first quarter. A quarter of the year where we started extremely strong after a successful year in 2019, where we were one of the few airlines in Europe that indeed increased our revenues and increased our bottom line as well. We started very strong in January and February with an 11% and 7% respective increase of passenger numbers. Then came COVID with a complete reversal, creating a completely disastrous March where we had 66% loss of passengers. Our flights were down by 30% vis-à-vis the previous year. Of course, we couldn't cut flights fast enough, and our load factor dropped from 82% in February to just 57% in March, a number that has never been encountered in Aegean, oh, I don't know, for the last probably 15 years.
We've just found out a new definition of crisis. We've gone through crisis in the past, particularly here in Greece, between 2010 and 2015, 2016. However, this one is unparalleled in its effect. Our revenues for the first quarter are going to be down to EUR 145 million, 15% lower than last year. This is, of course, driven by March, which was 59% lower than last year, while January and February were indeed 14% better than last year. It's an irony of fate that actually the last quarter of 2019 and the first two months of 2020 were probably the best last quarter and the best first couple of months we've had in the year. As you know, that's typically the lowest part of the year. We were doing very well until COVID came.
Therefore, again, to reiterate, not to confuse you with numbers, revenue will be down 15% for the quarter because of the 59% drop in revenues of March and the 57% load factor, which was "achieved" during this month due to the COVID effect. Due to the fact that we flew planes that had roughly 35% less customers than normal, obviously March was significantly burdened in our financial results. March will be about €43 million-€44 million negative as a month, resulting in an overall quarter of EBT of round about €80 million negative, relative to €48.7 million last year. I repeat that these numbers are preliminary, the €80 million EBT we feel is pretty close to what reality will be when we close our books.
That's an €80 million result for the first three months of the year with a March that's worth about 55% of it, whereas normally March is the first month of the year that's close to being breakeven. Beyond the operating results, the earnings before tax result of €80 million, as you know, there is another effect that comes with grounding aircraft. Grounding aircraft for Q2 means that a lot of the hedged oil that was pre-purchased to safeguard our operations, which stood at round about 65% of our estimated needs, becomes ineffective. As a result, because we're not going to use it in the second quarter, and as a result, about €30 million of negative valuation of those hedges will also affect the first quarter because it will not be used during the second quarter due to the inactivity.
While the EUR 30 million refers to a loss coming out of the second quarter, because the fuel hedging is becoming ineffective as we will not be flying our aircraft substantially in Q2, it becomes part of the first quarter result, and therefore the total loss will be somewhere between EUR 100 million-EUR 110 million pre-tax for the first quarter. Liquidity, which is of course in this situation important, was stood at EUR 465 million at the end of Q1, starting the year at EUR 510 million, I believe. We have during that period, circa EUR 50 million drop in cash reserves. I think it's also important to give you a little bit of color how we think Q2 will be shaped. Q2 is going to be a pretty simple quarter to forecast simply because we will not be flying very much.
Essentially, in April and May, we have more than 90% reduction in flights and more than 98% reduction in passengers. The residual flights refer to those that we were requested to fly by the Greek state domestically to cover the skeleton network, for which we will receive a small EUR 2 million compensation, which will essentially cover our variable costs. What will be left, since there is no revenue on these flights, what will be left is effectively our fixed costs without being burdened by any operational costs, but also without receiving any benefit of any contribution margin or any revenues. Pretty much Q2 will be three months of inactivity. There might be very little flying in June, but it's not going to be significant enough to change the fact that essentially we'll be dealing with our fixed cost structure without revenues.
There is a marginal improvement in our cost structure for the next three months, coming out of efforts to address and reduce various contract values and various suppliers that are providing services to us. There is also a suspension program for part of our labor force, where roughly 70% of our people have entered for April and May. These two items together serve to reduce our fixed cost structure for April, May, and June to an average that's going to be between EUR 26 million-EUR 28 million per month because, of course, what I mentioned earlier. The hedging loss has been already moved into Q1, so it will no longer burden Q2 in terms of financial results.
Of course, because the actual hedging settlements will be taking place in Q2, the cash flow shortfall in Q2 per month will be much closer to EUR 40 million. Q2 is going to look like EUR 26 million-EUR 28 million of fixed costs without any revenues per month, and around about EUR 40 million of cash burn per month in the essentially zero activity, forgive me, scenario. Beyond that, it's true that we have seen some efforts within the EC in the last 15 days to put together guidelines to reopen internal borders in Europe. As you know, effectively, while there's supposed to be no borders in Europe, the disease, the pandemic, and the travel restrictions imposed by individual states have created an effective restriction of travel, even within Europe, let alone between Europe and non-EU places.
Therefore, we saw on May 13th an effort from the European Commission to put forth guidelines for reopening Europe, travel, tourism, transport in general. We, of course, very much welcome this effort. They also went ahead to assign the ECDC and EASA to work on creating common protocols for travel that could form a framework of recommendations or rules for the individual states to follow in terms of how to adjust traveling within Europe by different means, including, of course, by aircraft. This is encouraging. However, we must say that it is very difficult to evaluate when individual states, based on their own individual cycle of the COVID crisis, will take decisions as to effectively apply those principles and those guidelines and effectively allow their own citizens to travel to other countries, and of course, the citizens of other countries to visit them.
While we have an initial effort by the Commission that is welcome, it is certainly very difficult at this stage to say what exactly will happen in terms of timing, even assuming we don't have some kind of relapse of the disease in countries where it is gradually subsiding. Because we have to have a scenario, we are assuming that as of July, we will cautiously reinitiate international operations at some magnitude. We expect between July and September to gradually develop our overall operations, domestic and international, from a level of 25% in July to possibly a maximum of around 45%-50% in September.
We don't think exceeding 50% of regular schedule is actually going to be feasible vis-à-vis a consumer base that, of course, has sustained significant fear, significant loss of life in different countries. Also, of course, from companies in aviation and airports, the whole ecosystem that have to adhere to completely different protocols about operation that make some of the operations significantly more cumbersome. Therefore, this is what we expect, gradually building our operation from 25% in early July to up to 50% of normal in September.
I think this is truly a best case scenario given the starting point, but I think we also have to caution that it has been the experience in similar situations, mostly in Asia, that have been faced in the past, less gravity, but similar to this one, that it typically takes 2-3 months from the time that operations are initiated until you get to a point where the actual flight revenues exceed the flight variable costs, so that the flight variable revenues minus the flight variable costs leave some small margin to start offsetting your fixed costs. We do not expect our financial performance in terms of P&L to improve in July and August.
As a matter of fact, there is a possibility and a risk that it might deteriorate depending on the level of revenues, but there is no other way to re-initiate operations rather than taking the risk of actually starting and seeing what you get from customers in terms of revenue and adjusting as you go. You will hear us saying many times today that flexibility is a must when you have to deal with something so hard to read and so hard to forecast as a crisis such as this one. In Q3, we expect the P&L not to improve until September. However, what we do expect is that cash flows, because of pre-sales, will be marginally better than they will be in Q2.
In short, let's say, if you can call that rational prediction, no improvement in P&L in Q3, but a decent first improvement of cash flows from the loss level we are forecasting for Q2. Conclusion of all that, of course, is that you know the significance of Q3 for Aegean. Typically, Q3 P&L is higher than the total of the whole year. It's the quarter that makes a difference in our financial results. The fact that it is lost and it will be loss-making can very quickly establish that this is going to be very, very clearly the worst year in our history, and it is indeed a year where our own viability and our ability to adjust to this very difficult environment will be challenged in a very, very efficient and effective way.
I think before handing over to Dimitris so he can tell you some of our concerns and some of our actions with regards to our fleet and our suppliers as well as our personnel, I would like to say at this stage that, yes, this is a very heavy crisis. This is a crisis that can cost any airline in the world its viability, its profitability, possibly its own existence. We are a company that has dealt with crisis in the past. We are a company that has started this crisis in very, very strong footing, but the challenges are so great that nobody can speak with certitude either about their performance or exactly the steps that one has to take in order to adjust. With that, I hand over to our CEO, Dimitrios Gerogiannis, to give you some more color on some more issues.
Good afternoon. We start with the fleet. Given the extreme degree of underutilization of our aircraft in the coming months and the uncertainty surrounding the degree of utilization, plus the lasting effects of demand on demand expected for the next two years, it is clear that adjustments must be made on the fleet, both on entry and exit of aircraft in our fleet. Currently, we're engaged with all the relevant parties, lessors of existing aircraft, lessors we have contracted in the pre-COVID world for new capacity, and obviously with Airbus itself. The purpose, of course, of this engagement is to make the necessary adjustments, which are obviously necessitated by the unprecedented event and the reactions of the states with the measures they have taken in order to combat the pandemic.
As Eftichios has said earlier, it is absolutely necessary that the ecosystem and our suppliers overall in this business recognize the uniqueness of the situation and are willing to understand and share the burden. It is a unique situation, and no side alone can single-handedly deal with it or solve it. Everybody has to contribute. The uncertainty going forward is very high, and visibility is very low, obviously. We believe we are following a very responsible attitude in this direction. Going on into our people, our employees. Our staff, and we have repeatedly said that our employees at all levels are, of course, the core of the company, are the people who deliver the service every day. The people that have contributed to make Aegean what it is today and create the level of service that we have established.
We are naturally very eager to support them as much as it is possible within obviously the very dire context that this crisis has created. We have done that in April and May. Those are the first two months that practically our aircraft has been grounded. As Eftichios already mentioned, 70% of our employees have been put into the suspension program that was created by the Greek government. It is a program that every employee who is part of this suspension program receives a flat EUR 530 net receipt per month, plus the program covers the social security contributions.
Obviously, and that must be noted, for the suspended staff, which is staff that did not work for Aegean during this time, we have procured some additional benefits in kind for this period in order to try to mitigate part of the effects that the situation, the crisis has created for our people. The coming months of very low utilization of our aircraft, partial work will have to be applied, driven every month by the level of activity of our aircraft. As we said, the level of activity is a big uncertainty depending on the evolution of the parameters of the pandemic in different countries. We can only decide the direction of the employment and compensation structure once an employment support scheme will become available that will succeed the current suspension scheme supported by the government.
We expect that in the next seven to 10 days, we will have a clear idea, once the government announces about the parameters of such a scheme. Then we will decide how the combination of suspension and partial work will be applied. Regarding now our headcount. As you know, in the past years, due to the seasonality of our business model, we had always a significant part of temporary seasonal contracts within our staff. This has given us the possibility to adjust quickly our size. In late February, we stopped the hiring of temporary employees that we would need for the summer. That helped us to adjust our size. That's why currently we are 300 people lower than our maximum size of summer 2019.
This gave us the flexibility to adjust our size, and we still have another 550 employees that are in seasonal contracts in various departments. Obviously, maintaining high quality in our staff is a decisive factor for the next day in terms of maintaining the competitiveness and the level of service that we want to offer to our customers. Apart from the seasonal contracts on our pilot corps, due to the growth that we experienced in the past, we had in the past six to seven years, and despite the efforts to develop our permanent pilot corps every year, we never managed to get enough Greek pilots to fly our aircraft.
We had to employ a number of contractor pilots, which were pilots from other different nationalities that came and were employed by Aegean for the summer season, and some of them also in order to cover our permanent needs also during the winter. Unfortunately, the first thing we had to do when the crisis emerged was to terminate this temporary contract that we had employed which reduced our pilot corps by about 20% versus what it was in February. This also gave an adjustment of our pilot corps that allow us now to fly a fleet of jet aircraft in the range of 40 to 42 aircraft with our current pilot corps.
There is a number of plausible recovery scenarios, assuming a size of about 75% of plan to 2020 for 2021 , through the measures that I just mentioned our frontline personnel is more or less sized for this kind of activity. As of May, in terms of our measures for our payroll, for our employees, as of May, we introduced a 20%-30% salary reduction in the fixed part of their salary for the management, obviously there's not going to be, given the situation this year, any variable pay for 2020. Overall, these are the measures that have been taken so far in terms of adjusting our headcount and our payroll structure. We do expect to see the program similar to the Greek version of the Kurzarbeit program, we support partial work and suspension.
We do expect to see the parameters before we go into deciding how we will deal with the partial employment and suspension in the next few months.
Thank you, Dimitri. I think what you can understand already is that basically we're looking at everything with a new light. We're looking at our supplier relationships in a new light. We are looking at our valued employees in the same light, but trying to adjust in a different circumstance. We are still waiting to see the exact frame that the Greek government will produce to support partial employment, as in other countries. Of course, we will be working also with the local authorities.
We have already worked quite a bit with them and also with the other to develop the necessary in-flight, pre-flight, post-flight protocols for ourselves so as to ensure that our even few customers in our current few flights are as safe as they can be within an aviation environment, because that is always will and will always be our number one priority, the safety of our passengers and the safety of our crews. I think by everything you've heard until now with regards to financial results, with regards to the near grounding of the activity and our efforts to bring together efforts with suppliers and with personnel, you understand that we are trying everything we can to deal with this unprecedented crisis.
This crisis, which has actually hit aviation, I would say, first and more than practically any other sector in the world, due to the long-term nature of its investments to people, but also to capital goods, and of course, to the absolute link between aviation and travel, which has been disrupted. Within this very unique and unprecedented environment, the EU has deemed it necessary to establish a special framework, a specific framework to complement other preexisting rules to deal with the ability and provide the ability to individual states to support enterprises within the current crisis. This adjusted framework was first introduced on the 19th of March of this year and has been amended twice since that time and until mid-May.
The framework is supposed to provide tools and rules for individual states to be able to help enterprises either horizontally in their countries or indeed vertically or specifically due to specific needs. Under this broad framework, the states have been able to establish multiple loan guarantee schemes for governments to provide companies with the ability to borrow from their banks under the benefit of a state guarantee. The terms for these horizontal programs are defined broadly by the EU in terms of possible duration, value of state guarantee, and relative size of loan that can be claimed with regard to the activity levels of this company, in particular, the revenue and the cost of the personnel.
Then the same rules are actually re-specified on a local level, and indeed, they have been in our country and are already in function for several hundreds and thousands of businesses to access. That's one tool, the ability of the state to back loans provided to different enterprises who need additional liquidity. The second very important tool, and of course, I'm not going to reiterate the whole temporary framework to you. I am only referring to parts of the framework that may be pertinent to Aegean. The second part that is pertinent to us is the possibility to receive or support horizontal but also specific wage and payroll support systems.
Of course, the one thing that governments need to support more than anything else in the beginning of a crisis and during a crisis is the employment levels or the effects of this crisis to employees and to companies being able to retain employees. The third tool that is possibly available is the ability to require or to provide loss recovery calculations for enterprises that have been affected and where transport is specifically named. I've just named some of the tools that are available under the framework. There are many others. These particular three are quite relevant to Aegean, there's one more very important caveat to all that. The provisions of the special temporary network are supposed to be applied to enterprises that were not under financial distress prior to the beginning of the crisis, that is, at the end of 2019.
Of course, I think all of you will agree that Aegean qualifies in flying colors. We were very healthy. We were well-financed. We were very low in debt. We were profitable for a significant number of years in a row, therefore, nobody can contest that we were not under financial distress. In fact, this cannot be said for all the airlines in Europe. Therefore, we have initiated that effort as well. Despite having, at the onset of the crisis, one of the least burdened balance sheets in Europe, and also despite the fact that we had such a strong starting base, recognizing that the intensity of the crisis together with the nature of our industry, makes it impossible for us not to request also the support of the state.
Not asking the state, of course, to bear the full cost, but putting the state in place together with all the other efforts that all the other constituencies are undertaking towards the resolution or the partial addressing of the effects of this crisis. What I feel I have to say is that there was and there is, or there would have been in theory, a possibility that a company as unburdened and as healthy as Aegean could have indeed sustained at least its initial effects of this crisis without resorting to the aid of the state. With one caveat, that other airlines in Europe also did not have the ability to address the aid of their states, and that indeed, so many other airlines in Europe did not already address, have not already addressed their states and received or are about to receive very significant amounts.
Amounts that in some cases are very impressive and which in all cases change the ability of these airlines to compete. Therefore, even if one could essentially consider not going for state aid as possibly to rely on their own resources, here you're essentially forced to do that by the fact that so many others have done it in such an impressive way that you would be truly burdened and that your ability to serve the needs of your employees, of your customers, of your shareholders, would be indeed unfairly served if you didn't try to exercise also this direction of effort. Again, not solely this direction of effort, but introduce it as part of an overall effort to try to mitigate the effects of the crisis from different sides. Therefore, in conclusion, I would like to say we're proud of the condition we had prior to the crisis.
We're proud to our contribution to all our constituencies, and we will of course, do our utmost to retain the significance of our operation to the degree we can. As Dimitri said, 75%-80% of what we did before could be achievable if we have a balanced approach to all sides and from all sides. Of course, this is an objective or something to try to reach next year, not the level of operation we can even hope for this year. The level we can probably try to sustain going forward and a level that will be significant enough to allow us to compete well in Europe and significant enough to allow us to support our own country in a significant way. Therefore, it is certain that we all need internally and externally of the company to align and to adjust to this new environment.
Our agreements with our suppliers to reflect the needs and the levels of revenues that can be achieved in this new reality. I would certainly believe again, that this is a universal requirement for aviation. We also need to reenergize our team internally. We have to talk to our employees and get them all committed to the direction of creating and supporting an even more efficient, but more importantly, even more flexible organization that has the ability to adjust literally in a moment's notice to the changing circumstances we will all have to deal with in the next few months. Nobody knows exactly what's coming next. We have to create the space and the reflexes to be able to deal with different outcomes. This lack of ability to forecast and creating the ability to adjust as a remedy is the key.
Yes, of course, the state is also a part of the equation. It has become a part of the equation also because of the effect of the crisis. Also once again, because you cannot afford to be the only or one of the very, very few airlines in Europe that has not been helped and has become a shadow of itself when others have had the resources fully or close to fully or over fully replenished. Finally, we have, as always, to address successfully and find a way to convince our customers that our needs can be served by our new protocols, by a new way of operation in the face of this much more difficult environment.
Again, besides cost-cutting, cost adjustments, discussions with the state, energizing employees, in the end, we do all that to serve our customers, and it's only their choice that will again validate our model and allow us to go forward whenever we create the space and the visibility to move beyond this crisis. Thank you for your attention, and we're glad to take a few questions. We will not take too many questions, but we will try to be as specific as we can in this very, very difficult to forecast environment.
At this time, we'll begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your headset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question is from the line of Stamatis Draziotis with Eurobank Equities. Please go ahead.
Hi there, thank you very much for taking my questions. I appreciate these are unprecedented circumstances for you, and you have plenty of issues to deal with. My first question is with regards to your liquidity position. You talked before about a monthly cash burn, let's say, of close to EUR 40 million in Q2, which will be a bit smaller in the third quarter. I'm just wondering, are you in any sort of discussion to secure additional credit lines so as not to exhaust your cash balance until the end of the year? That's the first question. Secondly, just a question on the external support and options that you have. Firstly, if you could tell us to what extent you've taken advantage of the relief measures implemented by the Greek government. If you've taken full advantage of those.
Also, you talked about the state options that are on the table. Could we actually see the state providing support and in return getting a stake in Aegean? Thank you.
No is the answer to the last question. Two, the second question on relief, yes, of course, we are using any horizontal measure provided by the Greek state, which means yes, both Ioannis and I both said that we have used the suspension measure for around about 70% of our staff, even while complementing their minimal salaries received from the state with benefits from the company to mitigate the loss. Yes, we have used the tax and deferral options they give to all Greek companies. With regard to your initial question about liquidity, let me remind you exactly what I said. I said yes, around about EUR 40 million per month for the second quarter.
We expect a significant improvement in the liquidity drain in the third quarter, because we will have pre-sales of tickets, even though we don't expect our P&L to improve in the third quarter because we don't expect our initial flights to exceed the revenues, the variable costs. The cash flow outlook will improve as of July. It will not continue the same exact burn. It will be somewhat better. How much better? Somebody up in the sky probably knows, but it's not really visible to us here yet. With regard to actions with banks and liquidity, yes, we have secured from the four systemic Greek banks, EUR 30 million of credit lines from each without the backing of the state. This is working capital lines. This is EUR 120 million that you can add to our Q1 and cash liquidity.
If you consider that as well, then our total cash available would go up potentially to EUR 580-EUR 585. I will caution you to remember that practically roundabout EUR 120 million to EUR 150 million of our cash needs to be blocked for different needs referring to hedging, referring to issuance of loan guarantees abroad, referring to different elements like that. I hope I have answered your question sufficiently.
Thank you. That was a thorough response.
I'm sorry, I can't hear you.
Mr. Draziotis, can you hear us? Moving on to the next question. The next question is from the line of Achal Kumar with HSBC. Please go ahead.
Yeah. Hi. I had couple of questions, actually. I wanted to understand now the policy on your fuel hedging. You have fuel hedges which are sort of all underwater. Are you sort of planning to increase your hedging given the low oil price? What sort of policy are you adopting there? I wanted to understand about the opportunity in the cargo space, given that many airlines are sort of trying to use the fleet for the cargo or transportation of cargo and that is given the demand is solid. What sort of opportunity or business you have there where you can deploy your fleet? The other thing I wanted to understand about, of course, the uncertainty is high, and as you said, you've been in discussion with the different vendors, including the lessor and also.
Would appreciate if you could please talk a little bit more about the sort of fleet plan. Are you in discussion with the lessors in regards to lease holidays? Are you in discussion with aircraft manufacturer OEM and then lessors to delay the [deliveries]? Are you planning to return or lease their aircraft earlier than expected? What sort of fleet plan can we expect? Similarly, what sort of capacity growth do you expect next year? Of course, this year, nobody knows what is going to happen and how many, when the capacity will come and all. What is it that you're thinking you're expecting that next year, how you expect your capacity to be?
Let me start from the end. It's not about expectations right now, it's about wishful thinking. Wishful thinking for next year, which we're planning to manage so as to make it from wishful thinking into an executable plan. This refers not only to the success of our efforts, but also to the evolution of the disease in a rather, let's say, a normal deflationary matter, is that we would aim to be, as Dimitris and I both said in initial statement, somewhere between 75%-80% at peak of what we were in 2019, which is roughly 30%-35% smaller than what we were planning to be in summer 2020.
We are fully recognizing that with regards to what our plans for 2020 were, we will have to be around about 30%-35% smaller. That translates to 25%-20% smaller than 2019. This is our planning objective. However, this has to be validated by exactly the kind of answers to the questions that you asked before. Will we be able to successfully renegotiate fleet entries, fleet exits, the terms in terms of financial conditions of various leases, the terms in terms of financial of conditions in terms of other contracts that are not leases? We have many contracts that create obligations and costs, unit costs to the company.
We are absolutely necessitated to reduce our cost per unit of production because we know we will be smaller, and being smaller, unless you reduce your unit costs, makes you less efficient, and I don't think any airline in Europe, and certainly not us, can afford to be less efficient in the face of what is happening here. In answer to your question about hedging, I think you know, because I've also seen your reports, that we were 65% hedged. We have not bought any additional financial instruments to hedge with, but we are in active negotiations to acquire physical oil and store it. We think this is a more efficient way to take a relatively more efficient position in terms of the market because of the significant contango that we see.
It's the first time we attempt to do that, and obviously, the right space is not so easy to come about. We are now at the completion stage of our first effort with some of our suppliers, for which and to which we're very thankful for trying to provide this facility to us. I'm sorry that I'm not too specific about the numbers of exits or entry on the fleet, you would be very correct to assume that we will be trying to stretch out deliveries. We will certainly not accelerate the arrival of any aircraft. It will be quite the reverse. After all, Airbus is reducing its production as well. I think nobody is in a hurry in the market to actually take aircraft.
Equally, we have to say that one of the reasons we feel quite demanding towards Airbus is because we have been absolutely compliant with our obligations to them to date, and we have not created any problems with accepting aircraft that were already built and will be indeed delivered, either were delivered a couple of months back or will be delivered next month or two months from now. That's why we think that it is also important for suppliers, like Airbus, to recognize the value of the cooperation and the ability to respond in different ways of different customers. That's why we think they have to be more responsive to our needs to secure the changes we need in the contracts to contribute to our viability and to contribute to hopefully retaining the relationship with them intact. I hope I have answered some of your questions.
Yeah. Now the cargo piece.
We did do quite a bit of cargo, but I'm afraid we didn't charge for it. It was a donation to the Greek government together with ELPE, a local oil supplier. We jointly got together and offered a significant number of flights to China, to the Greek government, and the Cypriot government. Since the fuel was being supplied by Hellenic, we had plenty of aircraft available. We did that as a service, as a grant. Beyond that, we have done very little, and we haven't really looked into converting aircraft into cargo. We are limited by the size of our passenger entry doors, which are not very conducive to changing the nature of the use of the aircraft.
Right. Sorry, on the oil, you said you are sort of acquiring physical oil and trying to store it, and you've been able to do some kind of agreement with someone who has agreed to offer you this. Do you have sort of a target in mind as to you want to acquire, so say, 40% of your fuel requirement for 2020 or 2021, or is just?
I apologize, I won't be able to answer that because that will depend on the ability of financial resources also. It is not only about our view in the current situation, it is about how we ration what is obviously becoming more scarce financial resources. I doubt we will be able to make significant actions in this direction.
Right. Also, Sorry, two more questions, actually. Sorry for a bit of a long list. One thing which I want to understand about the recovery. Basically, of course, given that Greek economy is a tourism-based economy, and in case if we look at the series in terms of what possible recovery, how possible recovery could look like, of course, the corporate travel might come first, and then if you need to go and see your family, then you'll travel. If it's a leisure travel, probably you may go last. Especially the Greek economy is the leisure-based travel. How do you see recovery, and do you think recovery could be much slower than the other part of Europe?
How do you expect in your views? Of course, I know and I appreciate that it is very difficult to answer this question because you really do not know what will happen, but looking at the leisure travel, and if we sort of segment the travel, looks like leisure travel is going to be the last one for the recovery. That is where I want to know your thoughts on this. Second, I want you to understand. Because whenever I speak to the clients, these days one question has become very common. I understand that see the crisis there, so many, 80%, 90% fleet is grounded. Do you think if airlines have the capacity and liquidity, do you think airlines can go and actually take this opportunity to buy more aircraft because they will get a cheaper aircraft? Do airlines have the capacity to renegotiate the prices?
I know it's a bit odd, but in this current time, and everybody wants to preserve the cash, they may not want to buy or do that kind of thing. Do you think is any possibility of renegotiating the prices or airlines might want to go and do more shopping? Thank you so much.
Yeah. Okay. Quick answers. I do not agree with your assessment that leisure will recover last. Leisure will recover first. It is the first thing people want to do, or those people that don't feel afraid when they get outside of their restricted houses or restricted offices, they would like to go somewhere for leisure. I think leisure will recover before business. I believe business is the one that will be hit more out of two things, the practice of Zooming and the Teams and the Webexing, which has dominated business life. At the same time, of course, the economic restrictions that businesses will be facing around Europe, which will be initially, I believe, more intense than consumers themselves. I think leisure will recover first.
I think Greece has proved itself to be a very safe country, has strengthened its brand, and I think this is not a bad starting point either for the country or in this direction for Aegean. Greek consumers, unfortunately, will be again in a crisis after another crisis. None of us like that. It will be a recession again, there is no way to avoid it, and we can only all try to mitigate how much it is by jointly trying to work together to reconstitute all the possible business activities in the country that can be safely executed in this environment. With regards to, well, investing money in aircraft, again, I would have to take you back to my previous response. We have to ration our financial responses, financial resources.
Of course, I understand that this is a good time to make such investments, but first we have to deal with what we have in excess, and then we have to look at opportunities. This is, I am afraid, even potentially not on the table.
Perfect. Thank you so much.
The next question is from the line of Jakub Caithaml with Wood & Co. Please go ahead.
Hello, everybody. Thanks for the presentation. It's Jakub from Wood. Two questions, please. One on ticket refunds. If you could shed some light on how much, what amount is potentially at stake there, how much you may be required to return to customers. Is that kind of partly included already in the first quarter number, or kind of how much should we budget may come in second quarter? Second question, you were mentioning and talking about the fleet development plan. On one hand, you were talking about the kind of unit cost management and its importance going forward. On the other hand, kind of trying to delay the deliveries.
explain how do you see the priorities? Would you be looking to get the more efficient aircraft and perhaps accelerate the sale of the older ones, or do you see the cash preservation as more important? How do we square this? How do you think about this, please?
Yeah, thank you. First of all, I would like to say that certainly, the cash flow forecast that we have given to you takes into account all the elements, including the one that you mentioned. I think this EUR 40 million number per month has all the elements that we forecast to have. I would like to say that I would like to hope that the majority of flight cancellations is behind us because we have already canceled May and June effectively from what used to be there, so the majority of the customer claims should be behind us. Assuming that we do indeed start some measure of operation in July internationally and August, that will give the customer the ability to actually fly with the flights they had booked partially, and partially for other people to buy tickets.
I think I don't have much more to add on the cash flow other than to say, yes, it takes into account all the elements. The other question was? Sorry. The fleet. The what? The fleet. The fleet, yes. Unit cost per cash flow. Unit cost per cash flow. Okay. Yeah. Quite frankly, oil price hasn't been, well, we've had the reverse interest of oil price in the last few months, meaning for the first time because we use less than we already own, we were kind of hoping it would recover a little bit so that we would lose less from the hedging. Our minds have been more in this direction, I have to say. Obviously, we are not going to have a situation where we will not have a substantial portion of our fleet to be A320neo.
We have already taken delivery of four. There is two more coming in the summer, we will be up to six. The delivery program for this year, while it will be partially compromised towards the end of the year, it is not at all discontinued. We expect at slower pace in the next years, assuming all our agreements will come online, that we will continue to receive these aircraft either from the source where we have contracted new capacity, or possibly as well from Airbus itself. We have not changed our need to introduce new aircraft, but we have changed the total expectation of size in the fleet. Are we looking to actually effect faster exit? Yes, we actually did already achieve the early exit of two previous generation or Airbus A320s with a lessor during the last 30 days.
Already we have taken an action in this direction. As I said earlier on, we will explore all different ways of cooperation and renegotiation with current and future lessors to find ways to best meet their needs and ours. We are willing to be very, very open-minded and very creative, so long as we feel the basic element of burden sharing is actually applied. The only thing we do not respond well to is people that think that life can continue exactly as previous when it's actually changed for everybody, at least in aviation and possibly in many other things. I don't know if there's some other question that I missed.
No, this is it. Thank you very much. Just to perhaps follow up on your last answer. With respect to the pre-delivery payments and the guidance thereof, which has been in place pre-COVID, that will be postponed at the very least.
The timing of the aircraft affects the pre-delivery payments. The size of the pre-delivery payments, just like many other conditions, is one of the conditions that we will, of course, be discussing with Airbus. I cannot tell you what the conclusion of that discussion can be because I don't have it yet. As I said, once again, what's important is to have both sides on the table understanding what they need. However, it's very clear to say that either because of the stretching or for any other change, there will be significantly lower PDP requirements, at least for second half 2020 and 2021. This much we already know. How much, exactly when, to what degree, and exactly what other conditions, I cannot tell you.
Thank you very much.
The next question is on the line of Athanasios Tsoupalas, Sector Analyst with NBG Securities. Please go ahead.
Hello. Thank you very much for your call. My first question is regarding the agreement with Airbus for the acquisition of the 42 new aircraft. In an adverse event, what are the liabilities, both financial and legal, for both Aegean and Airbus in the event of any breach of the agreement by each party? My second question, it is regarding the MoU, which Aegean signed in October 2018 with International Aero Engines for the acquisition and maintenance of the engines. Does Aegean intend to renegotiate any of the terms of the MoU? In the event that there is any negotiated change of the terms of the aircraft purchase agreement with Airbus, as well with the lease agreement? Thank you very much.
I think what I should tell you, first of all, is following the MoU with Pratt, we also had an agreement with Pratt. We have a final agreement with Pratt, just as well as with Airbus, which is why we're actually flying aircraft with Pratt engines today. I am not going to get into a technical discussion about the nature of this contract. I will just say that there are many commercial ways that have been used many times in the past, including by Aegean in previous circumstances, not as dire as these ones, but have been used in the past to be able to address various items, various issues with regards to the timing and the nature and the exact conditions of the delivery of the aircraft.
Therefore, I think one has to recognize that many things will have to be adjusted when a crisis like this one appears. I believe I don't have to tell you that you may have noticed some other more vocal negotiations between other airlines and Airbus that have reached the press, including the Greek press, because some of them include even Greek people in origin, or Cypriot perhaps people in origin. I think you might see there is a lot of excitement in a lot of these discussions. We are not discussing in such a way, but we are also not passive, and we will not accept any of our suppliers treating this crisis like it does not exist. This is the only thing I can tell you that can be really useful.
Of course, we will expect all of our suppliers to have difficult or easy conversations with them and eventually to settle down to a new level of agreement, which reflects the current circumstances in a more appropriate way. This is always a compromise. This is always a compromise to both sides. This is always burden sharing to both sides. It can never be a win only of one side. We have to be very respectful of these processes. They will be very important, and it is very important we don't try to agitate them by saying too much, but we should also not try to appease them by saying that we don't recognize there has been a very material change.
Thank you very much.
The next question is from the line of Violeta with Alpha Asset Management. Please go ahead.
Yes. Hello. Thank you very much for the detailed analysis provided. I would like to ask one question, please. The other question was answered about the business travel. My question is, when do you believe that the aviation industry will come to a normalization? Specifically for Aegean, when actually the 2019 figures will be revisited again? Thank you very much.
Thank you. I mean, if you could answer that question to me, I would give you a lot of money.
That's your estimate.
I think many people in the aviation industry and all industries would give you a lot of money. I think what everybody says in the industry is that it will take 2-3 years to recover to previous year levels. I cannot tell you something different. I would like to believe that eventually, after adjusting, after reclaiming the flexibility that we're quite famous for, after using the fact that we are a company that has survived very successfully the previous crisis and came out of it two times the size it was before the crisis, we will be able also eventually to navigate this one. At the same time, I cannot avoid but to repeat that this is a different animal because it does not allow you to work properly. It does not allow you to function properly.
You have to be reliant on many other things happening that you do not control. I am quite confident that what we do control, we will eventually do very well, and we will find a way to get ourselves back to what we were last year eventually, and hopefully even beyond that, as we have in the past. Two, three years is what everybody says. I cannot say something different. I hope and pray more for Greece than for ourselves that the brand of Greece, the strengthening of the brand of Greece that we have managed to secure for our country will help both our country and Aegean in this recovery effort as well. In this time, at least the rate or the mark that Greece got was completely different than the previous one in the previous crisis.
The mark, the rating, the score of Greece vis-à-vis its other, let's say, fellow members of the European Union was much more positive. Hopefully that should mean something for tourism and leisure recovery in the not so distant future, even though it will certainly not mean very much for this coming year.
Okay. Thank you very much.
Yeah.
The next question is from the line of Phyllis Lillian with IR Consultants. Please go ahead.
Hi. Yes, hello. I would like to ask a question about your network. Do you see major adjustments in your network going forward?
Well, first, I would like to say the following. I explained earlier on that depending on the outcome of our discussions with the state, and the availability of a reasonable amount of state aid to the company, that's going to be a hell of a lot smaller, even adjusted for our size and our capitalization than others have received. With that, we will be able to retain hopefully 75%-80% of our size next year. If we have that, we will make certain network choices which will not be particularly different than what we do today. Possibly, we will just reduce frequency in most of the places we fly for the first year next year.
If the state aid is not forthcoming and we have to become an airline, as I said, that flies 25 or 28 aircraft and go back 14 years, I am afraid our network, our staff, our overall revenue, nothing will look like what we had last year, or we're intending to have this year for a very long period of time. Hopefully, this will not be the outcome, because if this is the outcome, the tourism of Greece and the revenues of Greece overall will be affected beyond the effect to ourselves. I think it's too early to talk about specific changes in network. What we first have to do is determine how, what kind of size can be supported in different scenarios with state aid, or in the very negative and very risky scenario for us of no state aid.
Okay. Thank you very much.
The next question is from the line of Stamatios Adonis with Alpha Trust. Please go ahead.
Hello. Thank you for taking my question and for providing all of this info. I would like to ask you whether you work on plans to contain your variable costs, I mean, as a percentage of your revenue. If so, to what extent versus the previous year is at a decrease achievable? Thank you.
When you say variable costs, I hope you don't mean flight variable costs.
Yes.
Obviously, since we're not flying very much, our flight variable costs are being contained. We're not flying, but we also don't have revenues. What I said earlier counts for everything. We will try to address our unit costs, unit costs that become part of fixed costs, and unit costs that become part of flight variable costs or of passenger variable costs. I think there's only one category of cost that we cannot afford to decrease, because this category of cost did not exist before. This category of cost is the cost of the protocols we will have to apply in order to fly in the given environment.
For example, the current protocol as applied by the Greek state and as EASA has decreed and the way we will apply it in our aircraft, we will keep three rows at the end of the aircraft empty, vacant, in case we need to move in there a passenger that is identified to be symptomatic in something that could potentially be something like COVID or indeed just the flu. How can the crew tell? They have to have a space to isolate the customer. This costs three rows of seats. Three rows of seats are 18 seats. 18 seats are around about 10% of the capacity of the aircraft. That means even that the theoretical capacity of the aircraft is lower, that actually creates a unit cost increase for long as it lasts.
You will have costs like this, cost of materials that we need to procure for our customers and for ourselves that are COVID related and for our crews, for the safety of our crews. Other than these specific to COVID costs, everything else that is a unit cost, whether it is the lease of a plane, whether it is the cost of a particular part, whether it is the distribution cost that we have, whether it is anything else, we will try to address, and we are already trying to address. After all, since we are not flying, we have plenty of time to try to at least take care of our costs. We have quite a few people trying to fight this fight, and hopefully we will have a decent outcome.
Okay. Thank you very much.
The next question is a follow-up question from the line of Georgios Samaris with Eurobank. Please go ahead.
Hi again. Sorry, I got cut off before due to a power cut. Just a very quick follow-up regarding state aid, please. What are the preconditions for you to receive state aid or alternatively, limitations, if I may say, for example, with respect to your cost base, retaining personnel, future dividend distributions and all that?
I think I have to give you a qualified answer to that. First of all, you are very welcome to try to access the document of the European Union on temporary state aid rules to see what the whole rule book is, because that would actually possibly help you, not only for this company, but for many other companies. Number one. Number two, earlier on you asked a question about possible participation of the state, and I said no, and the reason is very simple. It's the amount of aid that we need relative to our pre-COVID capitalization, relative to the needs we hear others receiving, relative to the performance of the company in the past, and relative to the generation of revenues for the Greek state by the company.
Because of all these factors, because we're such a big contributor to the state revenues, and because we will be asking for what I think is a very limited amount relative to others, we don't expect to have too many mitigating rules. However, it is very clear that the state can request to have mitigating rules. It is very clear, for instance, that we did not wait for the state to ask for the rule for Mr. Gerogiannis and myself to accept that we're not going to get any pay for this year. We did not wait for the state to ask to say it is actually obviously normal that we will not pay dividends in 2020, and we certainly will not pay dividends in 2021, and if possibly even for one year more.
These are natural restrictions caused by such conditions, but they're not really caused so much by the state aid only, but also by the current predicament of the crisis. Can there be other rules? Yes. Do we have a conclusive agreement with the state? No. When do we expect to have it? I cannot tell you, but I can tell you that it must be in a short timeframe so we can make the appropriate decisions about the size and direction of this company. This is very important because all the negotiations we are having, all the discussions we're having, we need to know what size of company we are trying to sustain, and therefore, this is very important. Of course, all of our competitors are concluding these discussions in very short notice.
In many countries, these discussions have been concluded, and we hear that they will be concluded practically everywhere in the next 15 days or so. This is the timeframe that we in Greece have to observe. Again, to be clear, things depend on the rule book. Things depend also on what you request. We are not going to be a company receiving or requesting several times our capitalization in aid. We will not be asking for such amounts that will create a situation that there will be, by necessity, many restrictions applied by the state. Equally, we fully expect to have a behavioral agreement in some elements, like I mentioned, possibly some others that might come there. One thing is clear, we will never want to compromise our flexibility.
We will never want to compromise our ability to run our people, our company, in the way that is most productive also for the Greek state, which is the way we have been doing it for so many years.
That's very clear. Thank you.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Vassilakis for any closing comments. Thank you.
Thank you, ladies and gentlemen, for attending the call. Thank you for the patience. It has taken about two or three times more than normal, considering it wasn't even a result call, this must speak to something. It is definitely a very difficult time for all of us, we promise to do our best for all constituencies. We promise to spare no effort to try to recreate the ability of this company to go forward. We hope that if every side that is involved internally and externally to this company contributes, we will be gradually able to navigate our way out of this fog, out of this disruption, out of this destruction that COVID and the restrictions for travel have created.
Visibility will never be very good for the next several months, and please do not expect that everything we say is accurate in terms of numbers and forecasts, because we will be forced to change our direction and adjust depending on how this whole crisis unfolds. This is the main thing you have to remember. This is a very different circumstance than previously, and therefore you have to take everything we say as intentions and as directions, and not to consider numbers or estimates in a very precise way. Even direction and the plan can actually change if the cause and the nature of the crisis cause you to change it. Thank you very much for your patience and have a good afternoon.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephones. Thank you for calling and have a pleasant evening.