Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ENAV first quarter 2020 results conference call. As a reminder, all participants are in a listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing Star and Zero on their telephone. At this time, I would like to turn the conference over to Mr. Stefano Songini, Head of Communication and Investor Relations. Please go ahead, sir.
Thank you, operator. Good afternoon, ladies and gentlemen, and good morning for those of you connecting from the U.S., and welcome to ENAV's first quarter 2020 results call. I'm joined here in Rome by Roberta Neri, our Chief Executive Officer, and Luca Coleman, our Chief Financial Officer. As always, we will walk you through a formal presentation, after which we will be happy to take any questions you should have. With that, I will hand the call over to Roberta.
Thank you, Stefano. Good afternoon, ladies and gentlemen, and welcome to ENAV's first quarter 2020 results call. As you certainly know, the aviation sector has suffered from the severe impact of COVID-19, visible starting March 2020, with the route service units down 12.3% in the first quarter of the year, and a negative trend expected to continue into the second quarter. Despite the challenging environment, we have maintained the full business continuity while also protecting our employees in terms of health and physical safety while maintaining their full salary. More in general, we are supporting the national emergency force with all ACC and control towers operational, providing air traffic control services to cargo, medical supply, and repatriation flights, as well as with donation by the company to hospitals and the so-called Protezione Civile.
On top of that, we have decided to donate 50% of our 2020 short-term management incentives to scientific research to combat the COVID-19 virus. Let's take a closer look at our first quarter financial performance. Net revenue decreased by 3.8% year-on-year to EUR 171.6 million, with traffic revenue decline largely offset by a positive balance. EBITDA was also down by 6.7% year-on-year to EUR 28.9 million, with cost efficiency measure offsetting most of the decline in revenue. Similarly, EBITDA margin was down 0.5 percentage points year-on-year to 16.8%. The first quarter of the year is seasonally the weakest, as you know, due to the very low traffic coupled with linear costs. This effect has been further amplified by the COVID-19 issues.
We expect to experience a decrease also on the bottom line, with a net loss of EUR 6.2 million compared with the net loss of EUR 3.6 million recorded in the previous year, with the difference mainly due to a higher taxable income in the first quarter of 2020. CapEx in the first three months of the year was EUR 15.3 million, in line with the first quarter of 2019. In spite of the critical situation created by the coronavirus, we are well equipped to weather the storms, relying on a strong liquidity profile and a solid balance sheet that provide resilience over 2020. Given our financial solidity, we are able to confirm the dividend payment per share of EUR 0.2094, provided in the 2019 financial year's results, which is an increase of 4.8% over previous year.
The dividend, as you know, will be paid on May 27, 2020, with an ex-dividend date on May 25, and the record date on May 26. Moving on to slide two of our presentation, let's have a closer look at the traffic trends recorded in the first three months of 2020. As I previously mentioned, the route traffic performance already shows some effect of the lockdown that started in the end of February, with a total decrease of 12.3% in service units year-on-year. This decline is the combined effect of a very strong growth in traffic experienced in January and in February, when service units growth was 8.5% in January and 11.2% in February, and a sharp slide in March, when traffic decreased by 51.8% year-on-year. In terms of route segments, it's important to notice that the decline in service units mainly characterized national and international segments.
Overflights continue to grow at a slightly positive rate of 3.2% over the first quarter of the year. In the cases of overflights, this positive performance is mainly explained by a double-digit growth in the first two months of the year, and growth in the first two weeks in March, after which the effect of the COVID-19 has become visible, unfortunately. For the sake of comparison, it's useful to know that the decrease in traffic registered in Italy in the first three months of the year is in line with the performance of the other major countries in Europe, mainly U.K. suffering the least with a decline of 10.8%, and France suffering the most with a decline of 14.8%.
Terminal traffic growth in the first quarter of 2020 is also hit by the virus emergency, with a 22.4% decrease in service units, determined by an overall negative performance in both national and international traffic segments, and in all three charging zones, 1, 2, and 3. In percentage terms, terminal zone 1 is the most severely hit, followed by terminal zone 2 and terminal zone 3. This higher impact on terminal zone 1 is also due to the fact that terminal zone 1 traffic was decelerating already in January and in February, also due to the ban on flights to and from China, while zone 2 and zone 3 were performing very well in those months. The business mix of the Italian market, with overflights representing more than 40% of the route traffic, has assured a partial mitigation of the COVID-19 emergency impact until mid-March.
Looking at revenues in more detail, I'm looking at slide three. Net revenue decreased by 3.8% year-on-year due to a decline in revenues from operations, down 23.5% at EUR 154.9 million, largely offset by a positive balance of EUR 28.4 million. We saw a material decrease in both route and terminal revenues, down 24% and 26.8%, respectively, mainly as a result of the lockdown following the COVID-19 outbreak, combined with lower than 2020 tariffs versus 2019. Thanks to the traffic protection mechanism in place, this revenue decrease was mitigated by a positive balance, in contrast to the negative balance recorded in the first quarter of 2019. The positive balance amounting to EUR 28.5 million in the first three months of the year, it was mainly driven by a route and terminal traffic materially lower than forecast.
More specifically, a route traffic balance accounted for EUR 12.6 million, while terminal traffic balance was EUR 14 million. On top of that, we also recorded a slight positive balance reversal applied in 2020 tariff of EUR 1.7 million. A further positive contribution came from the non-regulated business, with revenue at EUR 5.8 million, more than double the revenues in the same period of 2019. It is mainly due to the revenues from IDS AirNav that was not consolidated in the first quarter of 2019 due to the acquisition in July 2019. Finally, other operating income was at EUR 8.3 million, marginally lower by EUR 0.5 million over the first quarter of last year, mainly due to the lower level of EU project financing. Moving on the cost, on slide four.
In the first quarter of 2020, we continued to deliver on our OPEX efficiency plan. More in detail, we streamlined personal costs given also the sharp decline in traffic from end of February onwards. In general terms, total cost declined by 3.2% year-on-year, reaching EUR 142.8 million in the first quarter of 2020. On a comparable basis, excluding IDS Air NAV, total costs were reduced by 6% year-on-year. More in detail, as you can see on the top graph, we recorded external cost savings of EUR 0.6 million, a 1.8% reduction year-on-year. We were able to significantly reduce the costs of several services, such as utilities and telecommunications costs, declining by 17%, also due to the lower consumption driven by most employees working from home in March, as well as due to lower costs related to our full IP digital network.
We also saw the reduction of some expenses related to the activities performed by our subsidiary, Techno Sky. It is down 12%, given the slowdown of many activities due to the health emergency. These significant reductions were partially counterbalanced by higher costs for external services linked to COVID-19 specific initiatives undertaken by the company, including extraordinary sanitization of our facilities, and by higher expenses related to international activities performed by IDS AirNav, and by ENAV Asia Pacific. Personnel costs in the first three months of the year decreased to EUR 117 million, down 3.5% year-on-year, including IDS labor cost. These results is the combination of several factors. First of all, a material decrease in variable pay and social security costs as a consequence of reduced overtime, combined with use of outstanding vacation balances, given the material slowdown in traffic starting end of February, as I told before.
Secondly, we experienced an increase in fixed pay of EUR 1.9 million as effect of 2018 labor cost renewal, and more importantly, the inclusion of IDS AirNav employees. These effects were partially offset by headcount reduction of 70 employees on average, excluding the effect of IDS AirNav acquisition, as I mentioned before. Indeed, when including also IDS AirNav at the end of the first quarter of 2020, our organization reached a headcount of 4,258 people. Lastly, capitalized internal work was almost stable year-over-year at about EUR 6.6 million. Let me now give you our view on the main developments we are seeing in 2020.
In light of the significant impact of COVID-19 on air traffic over the last three months, ENAV, by its own and in collaboration with other players in the aviation sector, is currently undertaking several measures to deal with the implication of the traffic performance for 2020 and beyond. As you may know, EUROCONTROL, as the vast majority of its member states, agreed to postpone the payment of traffic charges due by airlines to air navigation service provider related to the period February, May 2020. This will allow airlines to tackle the liquidity issues that they are facing currently and be able to pay those charges starting from November 2020 onwards. To understand the impact of these measures, I invite you to look at the timeline in the slide. We prepared a slide to explain better.
As you can see, February 2020 traffic will be paid within the current year in November, next November, while March, April, May payments will be postponed to 2021, with the last cash in due in August 2021. Now, to better understand the impact on our financials, first consider that in the normal pre-COVID-19 scenario, revenues from our core business, en route and terminal charges, amount to about EUR 60 million-EUR 70 million per month, with higher volumes in the summer season and lower volumes in the winter seasons, usually. Starting from this fact, we tried to provide some assumptions of traffic development in the coming months. As already mentioned, we estimated April and May traffic down by 90%, and a gradual recovery starting from the summer.
In terms of revenues, this also means lower revenues recorded fully compensated by positive balance created in the period, with leads to less severe impact on the net revenues. Turning back to the cash flow effect, the revenues for the period March, May will be much lower than usual, between -50%--90% versus a normal year, which will greatly reduce the cash flow impact on the delayed payments. On the other hand, the payments for February 2020 in last month with traffic volume effect at pre-COVID-19 level, will be cashed in November of this year with a positive impact on the liquidity by the year end. Starting from traffic flows from June 2020 onwards, we expect the system to return to the standard two-month billing and settlement cycle. With regard to regulation and RP3 developments, the RP3 regulatory framework was approved in February 2019.
The country specific performance plan negotiation process is still underway. Based on the formal submission by our country, by Italy, the applied 2020 tariffs are the following. The tariff that we are applying, starting from last January, EUR 66.02 per service unit for Enroute, EUR 67.33 per Terminal 1, EUR 167.56 for Terminal 2, and EUR 298.93 for Terminal 3. With that, I will hand to call over to Luca.
Thank you. We switch to inaudible. Okay.
Just.
Just to be clear. Yeah. Okay. Thank you, Roberta. As you can see on slide seven, our net revenue in the first quarter of the year decreased by 3.8% year-on-year, driven by a negative performance in our revenue from operations, both in Enroute and the Terminal business, which was largely offset by a positive balance. The main contribution to the year-on-year decline in revenue from operations came from Enroute activities, which saw a revenue decrease of EUR 29.8 million. We have Terminal activities that also posted a negative performance with revenue down EUR 14.4 million over last year. It is worth noting that both results were impacted by the effect of COVID-19 emergency, combined with lower tariffs applied in 2020 on Enroute and Terminal. Indeed, Enroute applied tariff was reduced by 15.3% to EUR 66.02 in 2020. Similarly, Terminal Zone 1 tariff was reduced by 12.3% to EUR 167.33.
Terminal Zone 2 tariff to EUR 167.56, down 15.2%. Finally, Terminal Zone 3 tariff shrunk to EUR 298.93, down 6.3%. As mentioned above, the negative contribution of revenue from operations was, however, largely offset by a positive balance of EUR 28.4 million in the first three months of 2020, compared with a negative balance of EUR 6.7 million in the same period in 2019. More in detail, the difference between actual and planned Enroute traffic has inverted from +2.4% in the first quarter in 2019 to -15.5% currently. Despite the material reduction in top line, thanks to our continued focus on personal and external cost discipline, we managed to contain the impact on EBITDA to a decrease of 6.7%, reaching EUR 28.9 million. As a result, EBITDA margin decreased by 0.5 percentage point to 16.8%.
As Roberta mentioned before, the first quarter margin is seasonally the weakest and is also affected by impacts of the COVID-19 outbreak. Looking at the P&L on slide eight, as you can see, the decrease in net income was mainly driven by the negative contribution of the top line, partially compensated by cost efficiencies and a lower D&A. Moreover, a high tax item further contributed to net income decline. With regard to the below EBITDA items, D&A decreased by EUR 0.5 million, mainly due to the lower depreciation and slightly higher CapEx contributions. Provision and write-downs remained quite stable in absolute terms. We have witnessed a marginal increase in net financial expenses as a net result of lower interest income from VAT receivables and lower gains on foreign exchange transactions, more than offsetting lower interest expenses in the period.
You can also see a marginal increase in income taxes in the first quarter, also explained by higher taxable income from our subsidiaries, Techno Sky and ENAV System. As a result, we had recorded a net loss of EUR 6.2 million compared to a net loss of EUR 3.6 million last year. Moving on slide seven, let's have a look at our cash flow and financial position. ENAV's liquidity and financial position remain very solid. Sorry, slide was slide nine, not seven. ENAV's liquidity and financial position remain very solid, enabling a smooth management of the COVID-19 emergency in the coming months. Our cash balance as of March 31st increased to EUR 477 million, up by EUR 27 million versus end 2019 full year, mainly as a result of the cash-in of traffic revenue related to the period November 2019, January 2020, as well as of VAT receivables.
These elements more than compensate the cash absorption of about EUR 29 million from investment activities performed at the end of 2019 and from other current payables. In a nutshell, our net financial position reflects a solid net cash of EUR 153 million at end March 2020. Moreover, in order to ensure the financial stability of the company, we are currently working on many initiatives. As previously mentioned by Roberta, we have agreed with EUROCONTROL to defer en route and terminal charges for February to be cashed in November 2020, while charges related to March, April, and May to be cashed in 2021. En route and terminal charges from June onwards are expected to be cashed in regularly, which means within the normal two months billing and settlement cycle.
On the cost side, we have reduced our average cost run rate from approximately EUR 50 million per month to EUR 45 million per month, thanks to further cost-cutting initiatives. We also have an additional liquidity buffer by postponing part of the 2020 CapEx, which has been reduced from approximately EUR 120 million to about EUR 80 million. It is important to point out that the remaining CapEx of EUR 40 million are only postponed, also due to the difficulties in deploying investments due to the lockdown. Finally, I would like to highlight that we have no material debt maturities until 2022. Moreover, we have additional liquidity available, including EUR 70 million EIB financing and approximately EUR 150 million of other credit lines. We are also in the process of negotiating committed credit lines of approximately EUR 160 million in total.
As a result of our solid liquidity position, we can confirm our dividend on 2019 full year results, amounting to a total of EUR 113 million to be paid at the end of May 2020. I will now hand the call back to Roberta.
Okay, before opening the floor to your questions, let me give you an outlook on 2020. Given the information on the COVID-19 situation available currently, traffic could reach an inflection point in late June and gradually recover over the second half of the year. Also in this complicated and uncertain situation, we are committed in maintaining full operational continuity in the light lockdown phase while ensuring maximum protection, obviously, for our employees. Moreover, in addition to the reduction of costs we witnessed in our first quarter results, we have put in place further cost efficiency measures in order to defend margins. In this moment, the situation is highly uncertain, and we are not able to provide a detailed and reliable guidance for the full year 2020. However, thanks to the flexibility afforded by our regulatory framework, we can provide an indication of revenues declining mid-single digits.
Thanks to the additional cost initiatives we have put in place, our net income should decline high single digits over last year. Last but not least, we decided to postpone a portion of our 2020 planned CapEx. We expect CapEx to be around EUR 80 million in 2020, rather than the previous target of EUR 120 million. Finally, I would like to remind you that our AGM will be held next week, on May 21st. The AGM will elect the new board of directors, including the new CEO and Chairman. As you may know, this is my last results conference call as CEO of ENAV. I would like to thank all of you and wish ENAV and its employees all the best, and to continue delivering on a success story. With that, we are now ready to answer any questions.
Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and One on their touch-tone telephone. To remove yourself from the question queue, please press Star and Two. Please pick up the receiver when asking questions. Anyone who has a question may press Star and One at this time. The first question is from Nicolò Pessina with Mediobanca. Please go ahead.
Yes, good afternoon, everybody. First question is on the regulatory review. I am wondering if you could give us an update. I am not really asking for any number. I just want to understand if you perceive any risk given the current situation, what you would expect as the outcome of this regulatory review, if extending RP2 is an option or what we should expect going forward. Second question on the balance generation. Would you expect the balance generation of this year that is likely to be very relevant to be deployed into the tariffs during RP3? Is it feasible? Do you perceive a risk of having very high tariffs at the treatment of traffic volumes? Final question on the outlook. I would like to ask if you could explain the traffic assumption underlying the indication you provided, and if you could add a comment maybe on EBITDA, also. Thank you.
Okay, I think Luca will answer the first question on regulation.
Balance, if you want to. The regulation. As we told you last time, the last update was that the commission was going to have a Single Sky Committee on end of April, beginning of May, to decide what to do with the performance plan of the different countries. The point was that the Single Sky Committee was supposed to be held on May 6. The commission decided to postpone this meeting because still, the commission didn't have a right idea how to approach this situation. Didn't define yet how to discuss, how to approach the performance plan. On the table, you can imagine there are different talk. What they decided to do was to postpone this meeting. They decided not to have anymore just a couple of days ago.
Just a couple of days before, they decided to not to have it, and to postpone in a couple of weeks. We are waiting for this meeting to have some indication about what the commission is going to do. We believe that something that could be done or would be done for 2020, to partially offset this very in term of grant. Probably. We really don't know anything, but we just know that there could be some. They'll try to find some grants for everybody. Maybe they find something also for us. In this case, the regulation at the moment is not a issue from what we know. We still have to wait a couple more weeks to understand better what could be the future situation. With that, we'll answer also your second question about the balance.
For sure, the balance we are going to generate this year is going to be very high. Let me say that much will depend on what will happen in the summer, above all in September, October, November in term of traffic volume. Still, the balance will be very high. The first discussion that we had with the counterparty, EUROCONTROL and the commission was at least to postpone this balance in more than one, two or three years, probably. It depends on the amount. At the end of 2020, we will decide. For what concern ENAV, as long as we don't have pressure on liquidity, probably we will be able to postpone a little bit more the receivable of the balance. That's our point. About the traffic, I don't know if Roberta want to-
About the outlook regarding traffic, what we assume are the forecast of EUROCONTROL in the, I can say worst scenario, in the cases of no coordinated measure, and considering that the forecast, effectively, the lower level of traffic could be around June, and starting from that data, traffic will hopefully rebound. In particular, considering the assumption of EUROCONTROL, the hypothesis is that around December, the level of traffic compared with the previous year is around minus 25%.
Thank you.
I would like just, Nicolò, I would like just add to what Luca said about the balance. We have also to consider the measure that some countries are considering to support the airlines company in order to contribute to the sustainability of the system of air traffic. In the medium and long term, the possibility to recover the balance, obviously not in one year, considering the extraordinary level of balance, but in more than one year is something that could be.
Sure. If I may still ask on the outlook on EBITDA, if you are willing to provide any indication on this.
We prefer to indicate the level of the outlook about net income, so it's not difficult to understand what is our view about EBITDA, considering that the relevant impact coming from COVID-19 is on revenues side, and obviously on cost side, considering the efficiency and the action that we already put in place in order to mitigate the reduction of revenues on our EBITDA.
Okay. Many thanks.
Okay.
The next question is from Yuri Zanieri with Kempen. Please go ahead.
Hi. Thanks for taking my question. Two on my side. Before asking them, I just would like to say that I'm sorry to see Ms. Neri leaving. I'm sure she can say that her days at ENAV were a success. First question is maybe if you could spend some additional words on the non-regulated business, what you can expect in the next few quarters. Also, how Aireon, for instance, is performing and how it can evolve its performance. Second question is mainly on having a bit of visibility on the CapEx, if you can elaborate which type of CapEx are not going to take place. Thanks.
Okay. Regarding our non-regulated business, our outlook is to consider a growth in non-regulated revenues compared with 2019. It is obviously mainly due to the IDS consolidation. Although the critical situation coming from COVID-19, IDS is continuing to deliver our contract also from a remote side. It is a good factor considering. Considering that, we expect to increase the level of revenues from non-regulated business compared with 2019. Regarding Aireon is not consolidated. In terms of non-regulated revenues coming, Aireon has not impact. What we expect about Aireon is to start to receive dividend starting from 2022. It is confirmed also considering the last update of the Aireon business plan. About CapEx, what is important to underline is that the reduction of level of CapEx of the current year is mainly a postponement of some activities and of some payments regarding CapEx.
It is to contribute to support the cash flow of the year, but also considering the capability to effectively deliver some program of investment due to the restriction coming from COVID-19. What we expect is that in the medium long-term, so in the CapEx investment plan of the five years, not impacted we believe. The reduction of about EUR 40 million is a remodulation of some program, such as 4-Flight or other E-NET for the last, maybe the final part of the implementation and some others.
Some other.
Some other small projects, small investments.
It's not easy to wrap it at this point.
Yeah. No, I get it. Maybe if I can just follow up on Aireon. The guidance so far, all this had been very limited. I think you just indicated roughly 10% IRR on the investment you made. Can you at least confirm that this is going to be the case for the years to come, or maybe you are continuing to revise this type of guidance?
No, for now, we can confirm the previous outlook about the IRR, in terms of timing of dividend payment.
Okay, perfect. Thanks.
The next question is from Luigi De Bellis with Equita SIM. Please go ahead.
Yes, good afternoon. Some questions from me. The first one is on balance. Putting in another way, the question of my colleague. Looking at the speed of recovery of balance, what is the level of en route tariff that do you think is acceptable for the carriers to avoid less traffic on Italy? An acceptable level also from a commercial point of view. The second question is on the net debt. Based on your assumption and guidance, can you provide us an indication of net debt level expected by year-end or an indication of working capital change expected in your scenario? The third question on provisions. Based on your experience, do you expect a relevant level of write-downs by the year-end, making a comparison with the past crisis in your sector? Last question, do you think the bonus-malus mechanism will remain in place in 2020? Thank you.
Bonus-malus. Okay. Talking about the balance. Right now it's very difficult to define what could be the right level of tariff applied in 2022, 2023, and 2024. It will depend on the general discussion that we are having now with all the counterparty. At the moment, we cannot give any more information because actually, we really don't know it.
It's just a problem.
Net debt, even if we have some simulation, at the point now, the real point, Roberta said at the beginning, there is no real traffic scenario for Alitalia, for the country for 2020. The point is, it's very difficult to give a disclosure of our net debt, without taking consideration what could be the very good scenario that is in some way defined by the feature STATFOR the unit that is the one that was supposed to do it. We have some internal one. At the moment, we stress this scenario, this internal scenario. We are not, in general term, worried in this moment, we don't disclose it because actually, there's no traffic forecast available at the moment. Official forecast available for Italy at the moment. Provision. Still with the provision.
At the moment, actually, let me say, it's not a problem because there's no flight going. As long as the airline are not paying this moment, because Roberta said before, as we said before, the cash-in that we are supposed to have in April, May, June, and July are postponed. The airline, they don't have cash out in this sense. When they will come back to fly and will regenerate a new cash revenue and cash-in related, I'm talking about August to September, October, probably in the next year, we don't see why they shouldn't pay us. On top of that, still remember that we still have our system that cannot protect us because if they don't pay, then they cannot run their business. They could be stopped and still not pay this bill. Then the last one was on bonus-malus.
In general terms, the regulation says the bonus-malus is on at the moment. We believe, we think that at the level of traffic that is now, and it's probably by the end of 2020, we don't believe that there will be any bonus-malus on capacity performance because the capacity will be so low. Actually, it's no problem. Actually, this year, I'm talking about 2020. Probably will be back in 2021, 2022. Even if we don't still have the certainty, but we don't think that the bonus-malus will be applied in 2020.
Thank you, Luca.
The next question is from Rishika Savjani with Barclays. Please go ahead.
Hi, good afternoon. I wanted to ask two questions. The first one is, in the context of you reaffirming your dividend for 2019 to be paid at the end of the month, and also the strong liquidity position, can I ask you to talk about how the board is thinking about protecting the dividend going forward? Do you intend to still protect that in 2020, or do you think that the dividend may potentially have to reflect the environment being very challenging at the moment? My second question is on the five-year business plan. With the argument that the air travel industry will be smaller in the years to come, with airlines restructuring and shrinking their businesses, do you think that the business plan needs to be accelerated, more aggressive, bigger changes need to be made, in order to make your business adaptable to the new environment?
Thank you.
Okay. Talk about dividend. As you can imagine, there would be an issue of the next Board of Directors. As Roberta said, it's changing in this moment. We cannot actually say something about it without having this discussion with them. Other than the joke. Let's say that it will depend on the cash we generate 2020, and how the traffic will go and how the business will go. We will have a general talk and a complete talk with our board at the end of the year, and we will define it.
Rishika, about your second question. First of all, it is up to the new CEO. What I can say is that the industrial plan and the industrial program of the company remain very solid, in my opinion. I have to say that could be this critical situation, and the next step of the critical situation could be the right trigger to also try to anticipate some program. I mean, remote tower or transfer of the approach activities.
The next question is from Arthur Truslove with Credit Suisse. Please go ahead.
Good afternoon. Arthur Truslove from Credit Suisse. Just a few from me. Firstly, in terms of OPEX reduction, how should we really think about them in respect of how they move with traffic? Clearly your variable personnel costs were down materially in the first quarter. Can you just give us some color on how your OPEX is influenced by traffic performance? Secondly, from a personnel cost perspective, again, clearly they were down in the first quarter. If you strip out IDS AirNav, what was the trend that you saw there? I guess finally, on cost savings as well. You've obviously put forward previously a plan to reduce the number of employees. You've obviously got people's holiday balances at this time. Are there any other sort of serious measures that you've been taking since the outbreak of the COVID-19 crisis to cut costs? Thank you.
The link between the level of traffic and our cost, in particular for labor cost, is that there is a strong component that is fixed, I can say. There are also some components on labor cost that are variable, linked to the dynamics of traffic. Mainly, I refer to overtime that in a situation of high level of traffic during the summer season are very high, normally. It is a variable component on which is possible to leverage. The transfer cost of people that move from a site to another site, in particular during summer, when we need, for example, in some airports, to reinforce the number of controllers to support a very seasonable dynamics of traffic. Obviously, when traffic is so low, mission costs are in place.
The outstanding vacation is another important leverage that we are using, that we used over last initial first quarter of the year, but the effect of this leverage will continue also during the coming years, considering the high level of outstanding vacation. Training activities, because also due to the critical situation of COVID in terms of distance between the people and the other one, also the social distancing, also some activities of training are going to be postponed when traffic will rebound. Sorry, not when the traffic will rebound, but when the situation of COVID-19 will hopefully become better.
The costs.
What I would like to underline is that the level of total costs in the first quarter of the year compared with the previous one, without considering, excluding in the perimeter, IDS, is 6% of reduction. 60% is a huge amount considering the fact that labor cost represent about 80% of our total cost. It's important to consider that in the first quarter of the year, normally due to the seasonable dynamics of our business, some variable components are normally lower than in summer. It means that the effect coming from the reduction of overtime, for example, will be huge in summer compared with the previous quarter of the year.
As a reminder, if you wish to register for a question, please press star and one on your telephone. For any further questions, you may press star and one. The next question is a follow-up from Nicolò Pessina with Mediobanca. Please go ahead.
Yeah, just a very quick follow-up. Maybe an update on the auction for the control towers in Spain. Thank you.
Yeah, we know that the process is in place. There are no changes about the initial program, and the expectation is that around summer, could we receive the outcome of the offers. More or less in July, we expect.
Thank you.
A final reminder at this time. If you would like to join the question queue, please dial star and then one now. There is a follow-up question from Arthur Truslove with Credit Suisse. Please go ahead.
Hi there. Just a quick follow-up. Within your regulatory framework, you obviously have the balance mechanism, which compensates you for some of the traffic loss that you may incur. If your variable costs are lower than what is laid out in the performance plan, is that a benefit that you are likely to retain, or is there some measure laid out within the regulation, that would mean that you would lose some of that benefit? Thank you.
At the moment, the regulations say no. Actually, we don't have any other indication at the moment. The answer would be, we will treat the cost and the traffic in the same way we have done till now, till somebody say that something's changed. At the moment, we don't have this information. Did I answer your question?
Yeah, that was perfect. Thank you very much.
Okay. You're welcome.
Ms. Neri, there are no more questions registered at this time.
All right, well, thank you. Thank you, operator. Thank you, ladies and gentlemen, for joining us on this call. My personal thank you to Roberta Neri for these last five years. I think she's done an incredible performance for the company, and we will surely miss her. With that, thank you very much, and if you have any follow-up questions, please reach out to me and Alexandra. Thank you. Bye-bye.
Bye. Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.