Earnings Call: Q1 2021

Feb 9, 2021

Good morning, everybody. This is a very special day because it's snowing in Germany and I think in a lot of other places in Europe. And it's the first time that actually we don't sit at all together. I sit in Dusseldorf and Sebastian and Braunschleig and the investor relations team, with Nicolas Matthias and sit in in Hannover and partly in London. So so you have a team sitting everywhere, around. And, hopefully, you know, we still can do a good presentation. And, therefore, you know, we are now, I have to announce a little bit the slides I'm focusing on in my presentation. And maybe I could go to Page number four of my presentation and my opening comments. The quarter has been a successful quarter in one respect. We secured a support package of €1,800,000,000 and I will focus on that in a moment. 1,500,000,000.0 you see now in our liquidity, which is 2.1 and €300,000,000 we used to pay back our €300,000,000 senior bonds note. And therefore, we extend the maturity until July 22. So, when you focus on the third package, you will see it's more equity related than it's, debt related. And I think that's very important because it doesn't only provide equity but also starts to focus on on the balance sheet structure. Now when I look onto the market, we now brought the 2,500,000 customers to their vacations. And what you can see is that safe travel is possible when you look and when you put emphasis on the rules. Our seven day incidence rate averaged to 0.5, 1,200,000 guests. So not 50, not 100.5. So virtually nothing. I think it was a 300 whatever incidents, on 2,500,000 guests. So so it is safe to do holidays, and customers like it. So good holidays and safe holidays are possible. On top of that, we see right now the vaccination, ready to start, particularly in The UK, extremely successful. Maybe there are not so many advantages. You know, that's at least sentiment taking a row after Brexit, but but I think vaccination is one of it. And the vaccination program in The UK is extremely ambitious. And fortunately, that is also the country with our biggest booking profile today. More than half of our bookings actually are in The UK. And, you know, two half, more than half of 2,800,000 summer bookings, are in The U. K, and therefore, it's a good coincidence for us that the vaccination program is so successful there. Capacity will be maintained at 80%, some flexibility to go up and down. I'll come to that in a minute. U. K. Summer twenty one load factor is already 42%. Again, it's our strongest market and also the market with best vaccination program. That's all good. Global realignment program update is tracking to deliver the savings of more than 400,000,000 PA. Yeah. You know, I will talk focus on that in a minute as well. More than half of the program is already, you know, executed, and and the savings, small half of these savings, will actually already hit, this year. And it's also part of the better cash burn than than expected is actually that we are still hedged on cost. So we believe that liquidity is bridged to summer twenty one. We are strongly positioned to actually take advantage of of the market situation once actually the restrictions are lifted. So now talk, you know, on Page number five briefly on the support package. The third package has three major components: WSF components, silent participation, one ends two. One is convertible. One is non convertible. Both actually qualify for equity. Therefore, it's largely equity. But we also have an additional component, RCF, with fresh bank money in. So, you know, 20% fresh bank money that shows confidence of the banks. I think that's good. But even more important on the equity raise, which we had thought was not possible just November, but then through the news of vaccination, the share price rose, and we could do a €500,000,000 equity raise. Rights issue, 98% plus actually have executed their rights. 2,000,000 shares percent, so 8,300,000.0 shares, were actually in the ramp and have been oversubscribed. And therefore, we achieved a very good price of €385 which was close on the trading price at that time. But even more, I think, also important that Uniform actually increased the shareholding from 24.9 to €30 We've got one strong commitment to the company, strong belief domestic markets is about to come back. And as I say, I mean, the subscription, right stake up, the oversubscribe of the ramp, the KFW cash banking money, as well as Uniform, everything indicates that actually that's for tourism will be coming back soon, and the company will be strongly positioned. We used 300,000,000 to repay early the the senior notes bond, and it would have been due in in '21, but therefore we saved some money. And and the good thing is that now the the including the the the extension of the RCF to '22, now the first maturity is actually now July '2, and that gives us time to restructure our balance sheet, to take care of the different measures available to manage maturity and balance sheet until that point in time. So liquidity is €2,100,000,000 I mean, this is plenty to bridge into summer twenty one, and and I think that's that's good. That actually, you know, it's it it gives us that certainty. Now I have some anecdotes anecdotal press coverage on vaccines. You have got it all. You know, it's not only BioNTech, Pfizer, AstraZeneca, and Moderna. And, you know, now, I mean, Johnson and Johnson, I mean, think about, you know, is single shot vaccine an enormous giant, you know, with with strong production facilities. I mean, now The UK has been strong anyway, but also the, the scarcity of supply in the other countries, I think, is a matter of time until managed a strong focus plus a strong supply coming up. So I think that's good. And particularly, when you look on the next slide, slide number eight, more than 11 people eleven million people have been vaccinated in The UK, close to twenty percent, 12,000,000 jobs, so some have been receiving a second one. Until March, I I I recall everybody above 60. Until May, everybody above 50 will be potentially vaccinated. I think this is very important because the main objective of vaccination was not to eliminate the virus that will be not possible, but, you know, to hinder the overload in in in the national health systems. And and I think when you have vaccinated the vulnerable, when you have vaccinated the the the the doctors and and and nurses and so on and so on, you know, particularly in The UK, that will happen fast. And we are just, I think, potentially seeing maybe mid March, April, and so on. You know, that actually having taken place. And then because we have more than half of the bookings in The UK, that is definitely very helpful. So in the summer, it was not only, the vaccines, but also the antigen tests which are around, which are more and more, the the method of choice in our countries. So, because you see after ten minutes the results, so no latency. In the countries that's recognized the the advantages, I think this these are two components, the vaccination as well as the antigen test. These have been things not being around last year but now around. And therefore, I believe that is a strong indication that this year, the summer holidays will happen. Now looking at the bookings, for a moment, that's page number nine. Bookings have been risen, after the vaccination news. A factor of two or up 70%. It should have been a factor, of four, so even double the the volume you see here. But, of course, you see in light of, the closed borders still some short term booking patterns. And, I mean, it's it's promising that that we, that we saw this rise, and these are the daily bookings you see here. But, of course, it's still some way to go. And when you look on the next slide, you see that the bookings are €2,800,000 This, slight bar on the top compares to 4,900,000.0 bookings in 2019, so it's down 44%. But prices are up 20%, and this is, all about half of the effect is a trading up of people. So they book higher quality holidays or more package, and the other one is actually, is actually a mix. So so so therefore, you know, I think both effects are good because high average sale prices guarantee good margins. And then now the short term booking estimate to monetary report suggests that actually, you will see a lot of short term bookings, but other reports as well. Therefore, I believe, you know, we will see a good summer. Now let's look at our model and how will we do in the summer. And this is actually page number page number 11. And here, you see on on our flying capacity, we have been proving that as soon as flying was possible, we had a lot of flexibility to fly, and we flew very fast, making integrated decisions so we could make marketing initiatives immediately, fly open our hotels and so on. In the summer last year, that has been helping a lot. We have also still some flexibility on the 80% because we are using third party capacity as well. So we can flex down, but we can also flex up if the demand is higher. So I think that's good. We have a guaranteed flying plus flexibility. On the hotel capacity, we have been proving that safety protocols have been in place. We have been proving that we we over indexed a lot for our own hotels, we can generally monitor to our own hotels. And and that, I think, is is very important. And with our diversified portfolio across Mediterranean, Caribbean, North Africa, Asia. Wherever it opens, we can actually fly and and bring customers into our hotels. Cruise capacity. Cruise has been, we have been still selling in in in the winter. We were the the only European cruise operator doing so. We have had a strong distribution direct distribution to operator integration. That means high margins on on on on on the holiday sold, rigorous hygiene safety concepts. And we believe that midterm, you know, we will have we will see even a more reduced global supply because there has been a lot of scrapping of old tonnage and also new tonnage have not been ordered. We believe the market will come back very strongly. Operational highlights and anecdotes, which I just wanted to as last time, you see the demand is very strong, winter poker. I mean, when you look at the on the slides here, You know, being at own hotels in in Fort Ventura, San Dimamolidis, you know, all very good in occupancies. When you look at the Fort Ventura hotels over over New Year, every everything was booked three times as many bookings in January to the even to the Monarchies. I mean so the Monarchies seem to be safe. I mean, you have a lot of good underpinning evidence that actually demand is strong. And in airlines, I mean, we we we actually focused, you know, also on different business. I mean, you know, we did more than 160 cargo flights. Of course, it's not a long term business, but it's we generated double digit good double digit revenue, and and why not? I mean, contribution margins in mid single digit. I mean, it's it's not so bad. And preparation, of course, for the MAX returns on the way, we have now the the pilots on training. So the MAX will come back and will be very safe, hopefully, I think. So now talk about the global realignment program. That's, of course, what we announced. More than half of the realignment program is now executed. So you should expect this year something €250,000,000 of 400,000,000 The 400,000,000 were actually at least 400 pa was something from 'twenty three onwards. And now we are more than, let's say, this year will be $2.50 plus. You know, half of more than half of the program is executed, 5,000 FTE produced newsmen fully digital right now. I come to that in a minute, how that looks. To imply a restructuring, particularly in Germany, halving the airline retail down in in in The UK, particularly in The UK, but also in Germany. More than half of the program is executed. Headquarter and and and staff savings are realized. So as I said, you know, you should expect $250,000,000 of the 400 above 400,000,000 let's say, already this year. So, good companies look through the crisis. We talked about, we don't only want to save cost on on the on on the on the program, but also thinking digital first, digital acceleration, innovation. And here, one example is actually the integration of TUI amusement into the TUI app. So you book a journey. You have your documents in your app. And when you open the app, you know, you see, you know, you know, the the new load of software every six weeks. Things are new, and you see now, you know, in the app integrated since March, not only holiday countdown, but also personalized planner, you know, destination content, which is one click away. I mean, we know that customers come to Spain or or or Greece, for example, and therefore, we can actually already sell start selling, activities in destination live transfer information. You see on the right the of the screenshots, you see, actually, you know, you know, it's all integrated with with maps and chat functions for our live chat functions for our reps and so on. So so that is something. Even hotel check-in for our own hotels as possible for new for the third party hotels is there to come. And and and, you know, here, you know, on the next slide, particularly, when I think that the the amusement, the tourist activity segment is actually, one of the most promising segments we have now, more than 170,000 exposures active in more than 100, 40 countries. We have a full recommendation engine of CRM enabled, app exclusive discount, dynamic merchandising. So, you know, everybody sees one to one, you know, what we believe they are interested in delivering and so on and so on. You know? And here, you know, what what's next in the pipeline is is, you know, sharing content with with your communities, rating reviews, and and so on and so on. So so, not only we reduce, you know, businessmen, the staff in destination, but also the increased quality, and we believe that we are in a strong position to take advantage once the travel business actually will be revitalized. With that, I would like to pause for a moment. By the way, all of these are live screenshots. You know? So I just, you know, took some screenshots, you know, of our app. So it's it's it it is already live since January and the latest software drop in March. So with that, I would like to pause for a moment and actually, Sebastian, to bounce back to give you the opportunity to talk about our numbers. Thank you, Fritz, and a very warm welcome also from my side. Looking out the window, half a meter snow in Northern Germany is very unusual. Let me guide you on the following pages through the Q1 results of the financial year 2021. I'm starting with our revenue development during the first quarter. We generated around €05,000,000,000 of revenue with October being the strongest month. This is roughly 12% of what we achieved last year due to the ongoing travel restrictions, forcing the cancellation of the majority of our winter program. Underlying EBITDA stood at minus four eighty, while underlying EBITDA came in at minus €699,000,000 demonstrating the strong discipline on cost while using every operational opportunity to offer holidays to those customers wanted to travel. Overall, in all these measures helped to reduce our average monthly EBITDA loss to €160,000,000 and to €230,000,000 on EBITDA level. Coming to the adjustment line with a total of minus €22,000,000 these are mainly related to the global realignment program, so our cost cutting program, as well as the normal purchase price allocation. Last but not least, the interest development. As you all know, the increase by €57,000,000 to €109,000,000 minus is predominantly driven by the greater revolver credit drawings and the higher interest rate on the senior notes compared to the previous year. Let me remind you that the overall assumptions for the interest result are unchanged for financial year 'twenty one of between minus 400,000,000 and €450,000,000 I would now like to come to our underlying EBITDA bridge. The deviation of the segment demonstrates limited operations possible due to the COVID-nineteen government and tolls travel restrictions. We continued to focus on cost discipline as we successfully do since the beginning of the crisis, trying to capture margins wherever possible. Therefore, we managed to limit the average monthly EBITDA loss to $230,000,000 in the quarter. Looking now at the development of the single segments. The hotel and results decreased by €132,000,000 with 116 hotels opened at end of the quarter versus two twenty nine hotels opened in Q1 last year. Reflecting the usual winter seasonality and limited operations from travel restrictions. The most popular destinations for our winter program were The Caribbean, The Canaries, Eastern Mediterranean, Maldives, Zandiba, and North Africa. Occupancy rate declined 34% to 43% across our operating portfolio, and average daily rates declined by 12% to €60 Our Greek hotels, which ran an extended program into October, delivered occupancy rates of 67%, demonstrating the strength of our integrated business. Our Caribbean hotels saw occupancy rates of 57, largely driven by an increase in our third party distribution as well as reduced travel restriction from our North American markets. Cruises is €149,000,000 below last year's level with Tui Cruises and Hapag Lloyd Cruises operating five ships, offering itineraries to the Baltic Sea and Canary Islands. Hapag Lloyd is, as you know, now a part of Tui Cruises. Average daily rate of the operated fleet was €180 €18, down 18% versus prior reflecting the shorter average duration and more local routes at offgloo cruises. Occupancy of our operated fleet were 35%, reflecting a more subdued environment for departures as a result of travel restrictions as well as adherence to COVID-nineteen government safety advice, capping the numbers of passengers on board. Barella cruises remained suspended throughout the first quarter in line with the UK government travel advice. Zui Cruises was the only cruise operating operator to continuously sail throughout the winter, and we are pretty proud of this that we were able to offer this and that we had safe cruise itineraries. Tour amusement is down €24,000,000 on prior year with 75,000 excursions and activities sold, down 95% versus prior year, reflecting the limited operations during the quarter. Underlying loss in Markets and Airline increased by €255,000,000 reflecting the limited capacity operates over the period. This includes €10,000,000 net cost impact from hedging ineffectiveness, partly offset by the non repeat of Boeing seven thirty seven MAX costs of €45,000,000 in the prior year and strict cost discipline across all markets. All markets experienced a strong increase in direct online distribution as retail shops remained closed, an effect which we expect to stay also post crisis to a certain extent, which is also interesting that the share of nonpaid traffic also increased significantly, which let us believe that cost of distribution, which in future could be significantly lost lower. To give you two examples, online sales in Northern Region amounted to 76%, up 11 percentage points year over year, and also Central Region increased online sales by 16% to 37%, and as said, a very high share of nonpaid traffic. I would now like to move into the cash flow chart. And there, I would like to come right away to the working capital movement, the Q1 outflow of around €400,000,000 which mainly reflects the settlement of outstanding supplier payments, in particular to agreed deferral schemes as well as customer refunds arising from canceled holidays. And as I mentioned before, and just as a reminder for fiscal year 'twenty one, we assume the working capital position to recover in line with operational booking normalization. Moving on to net investments, which is an inflow of €47,000,000 As announced at our full year 2020 results, we are looking at all kind of financing initiatives to support our liquidity, net CapEx for our ongoing IT and digitalization initiatives as well as some maintenance for aircraft and hotels was more than offset by the sale and leaseback of spare parts and aircraft and divestment proceeds. Also here, our assumptions for net investments for financial year 2021 are unchanged compared to what we stated in December. Here, we expect an inflow of up to €250,000,000 including divestments and PDPs. Finally, I would like to draw your attention on the free cash flow after dividends, which stood at minus $798,000,000 This is certainly better than expectations as it was supported by our self help measures like the sale of receivable settings and other cash items as well as by the already mentioned measures above. Excluding the positive effect from these executed initiatives, the cash outflow in Q1 would have matched the €400,000,000 $350,000,000 to €400,000,000 assumed cash flow for Q3 communicated early December, being the lower end of the range. Moving now on to the balance sheet. The financial position increased by roughly 800,000,000 from year end and stood at €7,200,000,000 at December 2020. The increase mainly reflects the negative cash flow, which we have discussed on the previous page. The increase in net debt reflects the drawings under the second stabilization package from the German government, which you can see in the liabilities to banks and the bond with warrant lines. This was slightly offset by a reduction in these liabilities. Around €400,000,000 being undrawn under KFW package one and two. Coming to the liquidity management during the quarter and beyond, pro form a cash and available facilities as at 02/04/2021, including third support package, amount to €2,100,000,000 Please keep in mind that this number already assumes the redemption of the €300,000,000 senior notes. The monthly cash outflow in the first quarter was with €300,000,000 per month slightly better than expected due to the already mentioned financing initiatives we successfully executed in December. Looking ahead, our assumption for Q2 is for the working capital development to correlate with vaccine program rollout and lifting of travel restrictions with the significant upside anticipated should travel restriction be lifted ahead of Easter, which this year is early April. We still anticipate net cash fixed cost outflow to be in the range of €250,000,000 per month, the range you are already familiar with. Our assumption for Q3 is for working capital to recover in line with operational restart and booking normalization. In the case of lifted restriction, net cost and net cost could potentially move towards operational breakeven. I would like to finalize my section highlighting again my priorities, driving the recovery and returning to a healthy balance sheet. First, most important to manage liquidity. The execution of the third support package was of utmost importance to bridge liquidity to summer. We will continue with a very disciplined CapEx management, and we will work on further divestment opportunities for sale and managed bank possibilities. Since we had initiated this program, it moves on very well. Second, driving revenues and earnings. The most important thing is, of course, that we are returning to profitability. That's why we also think that we are in a head start position as we never stopped operating. I think that will help us whenever the demand and the opportunities are there. We will optimize capacity in line with demand, operate our business with less fixed capacity and will further execute on our global realignment cost cutting program. And of course, we will continue with our strict cost management. For us at Tuohy, that means reducing costs while improving quality through digitalization. Our big advantage is that this goes hand in hand. We can further reduce costs while improving the service to the customer. At the same time, here we have made a big step forward. And last but not least, we need to optimize the financing. Our focus will be on an asset right strategy for airlines for hotels and also for cruise, manage the COVID incurred debt and the related interest costs. Furthermore, we will evaluate continuously our capital markets options in the best interest of our company. This will allow us reinstalling solid and healthy balance sheet structures and returning to a gross leverage ratio target of less than 3x. With this, I would like to hand back to Fritz, and thank you very much for your attention. Sebastian, thanks a lot. Page number 36, very short short conclusion. Remind everybody, our position, I believe, is strong. We will be a beneficiary when we launch the crisis. Integrated business model, so big tickets of customers, 21,000,000 customers spending close to €900 each, strong brand position in our markets and also strengthened position from further consolidation. We have not even seen the Thomas Cook consolidation in our numbers, so we believe that is still to come. Other two operators, other participants in the market already leaving or significantly weakened. And on the other hand, we believe tourism is, contrary to business travel, something which will be coming back very fast, unchanged, that we have strong see strong demand. And two, then there'll be leaner and more agile, more digital, less cost. And therefore, we believe the Transform two will be a key beneficiary driving to profitable growth result of the crisis. Now Slide 37 says know, '21 will be a year of transition. I mean, that's very clear. Fortunately, we see the high vaccination in in The UK where we have the biggest booking position. We will use the year to look through the crisis, to drive digitalization, to deliver the realignment program, at least the commitments of 400,000,000 and maybe even a little bit more and drive digital acceleration that's an integrated structure taking full advantage of our scale. And therefore, we believe in 'twenty two, demand will be there again, very healthy again. And with the new competitive positioning, leaner cost lower cost leaner structure, more digital, we will actually take the advantage of profitable growth with less capital and more digital as we have been before. That said, I would like to close it here or stop here. And now Sebastian and also Matthias and Nicolas Hazel, the investor team in Hannover and, of course, myself, we are here to answer your questions. And I would like to open the floor. The first question is coming from the line of Jamie Rollo from Morgan Stanley. Please go ahead. Hi, Jamie. Hi there. Thanks. Good morning, everyone. Thanks for taking my questions. First one is, could you please quantify the financing initiatives to help the liquidity in December and January? I mean I can see there's about £120,000,000 of disposal proceeds in Q1. But could you talk about whether there's anything also in January? And also talk a bit more about the receivables or the factoring, both again for January and December, please? Secondly, just on working capital for the current quarter. I appreciate your bookings are up 70% from December. But could you talk a bit about what the Q2 working capital movement is to date year on year rather than versus December? And also, could you break out the £1,700,000,000 customer deposits by quarter? I think you've only canceled holidays up to early March. So I'm wondering what the risk is if Easter doesn't happen. And then finally, Fritz, just on liquidity, you're saying the company is bridged to the summer. What what what does that mean? Does that mean you're confident in the liquidity position? But did you need Easter to go ahead and you need summer to be at 80% of normal levels? And what happens if those if those don't happen? What's the fallback option? Yes. Thank you, Jamie. I will try to set the scene a little bit and then maybe ask, particularly on your first questions, a little bit more detail, you know, the Sebastian or or the and Matthias and and the investor team in in Hannover. I mean, as you know, we we we have right now early February, we have a liquidity position of 2.1. Right? And as you know, our fixed cost or our cash cost on the cost side is $2.50, maybe a little above, but, you know, we don't have cash ineffectiveness. So this time, because the prices for for fuel has come up, so it is, let's say, $2.50. And then, of course, the remainder on the cash burn is either working capital inflow or outflow. And for Q1, you saw an outflow, I think, of around about 400,000,000 Now the question is now not so much, you know, of course, you can generate the inflow now with summer bookings. And and and at a certain point in time, you know, there will be more inflow than than there will be more inflow. And then at a certain point in time, you will be having enough inflow to cover your fixed costs, and then you become cash positive. And, of course, you know, it's important to get prepayments in, but it's, of course, also important to deliver holidays. Now when you deliver holidays, first of all, you get the remaining payment. And secondly, you don't need to pay all to customers anymore, you know, because you cancel holidays. And, of course, in in February and March, the volumes are very small, and the likelihood that we actually get, a good prepayment is is not so bad. Then you have a somehow a season Easter. It's not that big, but it is bigger than, of course, in February. But I think the big point is actually coming in in, let's say, June onwards. Yeah? And here, my view is, as long as the big markets, U. K, is fine because of our huge booking position, It's very fine. And of course, in Germany, this is also important, but the booking position is only one such. So therefore, I think it's important now to see how that works. And of course, then it's also the question on summer. With the 20% ASP up, it's important that we get the cost equation right. And here, we still plan at 80%, but, we have also significant scope to scale down, if we want so. But I believe we will not have to because, I believe, you know, potentially in in March and April, you see a lot of removal of restrictions because of the vaccination program and the rapid testing. And I believe then, you know, the bookings will come in strongly. Saving rate of households are up on record levels. We have just in Germany, up from 11 to 17, I think, percent. I mean, this is record level. People want to go on vacation. No reason to assume that's different. Right? So this is this is the situation, how I see it. But maybe on the other questions, can I ask Sebastian, maybe you or Matthias to take that question? Yes. Thank you very much. On the customer deposits, the €1,900,000 the majority is by far, the majority is in the second half of our fiscal year. So it's a very small portion for Q2. And there, in the second half, the majority is in Q4, which supports our working capital position. We do not expect a significant impact, therefore, in quarter two. We are executing the program, which we had initiated to optimize our asset structure. We do expect that we will see first successes rather soon. Of course, it's always depending that we get the right prices that we don't pay under stress. So it's not so easy to predict if it's March or April, but we will see the first positive impacts here. Last question, the cash in for Q1, it was around €250,000,000 which we were able to cash in receivable and one aircraft engine. Thank you. So you saw $250,000,000 in Q1. So there's nothing in January. It was all in the December month, Okay. Is Okay. That's great. Thank you very much. Thank you, Jamie. The next question is coming from the line of James Roland Clark from Barclays. Please go ahead. Hi, Good morning. Just on the cash burn, you're guiding to GBP $250,000,000 to 300,000,000 of net fixed costs in Q2, breakeven in Q3, but that all excludes working capital. You just talked there about selling leasebacks helping your cash in December. Could you help us to sort of quantify what that might mean in this quarter and in Q3? So sort of any guidance around the sale and leaseback cash inflow potential? Secondly, on price increases or sorry, the price is up 20% here on the ASPs. You said earlier that that's a mix of holidays, the mix, but also just the way that customers are booking at the moment. Are you seeing any pricing power versus your peers? And is the competitive environment helping you to push price at the moment? And as a follow-up as well would be, as bookings come in from other regions like Germany and Nordics, should we expect pricing to normalize in the summer? And actually, those are my two questions. Okay. So, James, I I take the the second one. And on the cash burn, I I will ask Sebastian. So on on on the pricing, as you said, you know, half of it is mix and half of it is up trading. You know? And none of it is pricing power. Right? I mean, it's not like the increased prices and and and and these things. That that's not the case right now. What I would expect anyhow, you know, that for differentiated products, there will be some scarcity in the summer because, and therefore, I would expect that that the that that, you know, we don't need to have a lot of discount. Actually, I have to say that some, for example, of the Robinson club, we just removed the early booking discounts because we see that these products are already fitting up for the summer. So it's, usually, we have quite some discounts, but, you know, here, we don't. And and the reason for this is that somehow people think that some of the Hobbinsong clubs might not be bookable. Therefore, some of the other Hobbinsong clubs, you know, when you look at Greece and so on, we just removed all discounts. So so I would say, know, for differentiated products, I would assume that there will be some scarcity. And if we then have some pricing power, it remains to be seen. But for the time being, that's not the case. For the time being, it's So more package and and and and but also, uptrading of customers to higher quality products, after a year of no vacation or a little vacation, demand is actually in that respect. Sebastian, do you want to take the cash burn? And that was also the working capital, I think, and No, no, Thank you. Unfortunately, we keep no guidance on quarterly sales of leaseback proceeds because it's very difficult to judge when we have the exact date of finalization. What we can confirm that is our expectations for net investment and to say it on these are part of this, that we keep our expectations of up to $250,000,000 Okay. Thank you very much. The next question is coming from the line of James Amelie from Citi. Please go ahead. Good morning, everybody. Thank you for taking my questions. Three questions, please. Just coming back on the question about summer capacity. I think you said 50% of your hotel capacity is fixed. What's the equivalent number for your flying capacity, please? And, you know, at what point are you gonna have to commit to additional capacity as we move towards the summer? Second, FDA article today is pointing to a contraction in the Spanish tourist hotel base. Just interested to hear what, to what extent, you've seen any contraction in your supply base and distress amongst your hotel partners. Some qualitative comments would be helpful there. And then the third question is, you obviously talked about rebuilding the balance sheet, but how should we think about the time frame for that recap? Do you think that the KFW and the relationship banks might be open to extending their facilities beyond July 2022? Or do you think it needs to be done prior to that? Okay. I'll I'll try and maybe so start, and maybe, Sebastian, you kick in. On the summer capacity, when we talk about you know, the the good thing is, you know, as we always said, for our own hotel, you know, we, of course, have the obligations for third party hotels. We have been avoiding obligations as much as possible. And and that was also successful because at the end of the day, you know, everybody will be open when we win customers. And we will be the first in line to win customers because we can commit flying early, and we can make integrated decisions, right? That has been proving to be quite successful when we restarted the business also last year. The flying capacity is actually or is, you know, of the 80%, let's say, of the capacity which we communicated for summer, I would say twothree around are somehow fixed. Yeah? Now that means, we can reduce it, but also we can increase for that for and how can we increase? We either prolong lease contracts for our, NGs or we actually purchase in the market. We assume that particularly because the business of the market will come late, there will be a lot of, there will be a lot of scarce capacity if we then need capacity. But but if the summer would be 80%, it would be already very good. I mean, we we as I said, we have some flex downwards anyway, and and and you talked about the hotel. Hotel partner contraction, I I have not noticed. Yeah. I mean, it's it it you know, the partners seem to be in the market, yeah, largely. That that there is not a huge insolvency base and and and these things. Quite to the contrary, you know, I think when I look into the market, many of the hotel investors are looking through the crisis. Right? So even the the prices for hotels are almost stable. They are all, let's say, not 100% stable, but let's say, not so much discounts. Yeah. And and then, of course, on on '22, it's difficult to comment. I mean, Sebastian has talked about, I think, the factor three is, I think, 23 is Sebastian, right? But what's your view on that? Yes. Maybe if I just can add on hotel side. So the especially the Greek and the Spanish auto, yes, expect a strong summer. Therefore, prices are stable for summer. And what we also see that the asset prices, as we are looking to dispose, are very strong. So expectations are high. On the refinancing, yes, if you look at our maturity, summer twenty two, this is very important for us. And therefore, we have started to find a good way forward. It's one of the main efforts we have at the moment, and we are very confident that we will get good solutions with all partners. Also there, we see very strong support from our banking partners from, yes, from the banking partners, but also from the state. Okay. So the intention is to do it sooner rather than later? I think there are always windows of opportunities. And I think it's our obligation to be prepared for the first attractive window of opportunity and especially when the business will restart, there will be a lot of good options. You have seen what Whitbread has done. You have seen what Lufthansa has done. So there will be good opportunities. Okay. Very good. Thank you. The next question is coming from the line of Christian Nedelcu from UBS. Please go ahead. Hi. Thank you very much for taking my questions. Three, if I may. First of all, on your Q3 guidance, you're talking about net cost. I think it's now gone, right? Christian, we cannot hear you. I think it would be best for Christian to dial in again. Okay. We'll move on to the next question for now. Christian, please try and dial in again and press star one. The next question is coming from the line of Stuart Gordon. Please go ahead. Yeah. Good morning. Thanks for taking my questions. First one, just just, between the receivables financing that you've talked about, it looks as if there's much lower payments on account and also there's a considerable number of the current bookings or legacy vouchers. Whilst you're confident of the liquidity through the summer, how confident are you of that liquidity through year end as the working capital unwinds in the fourth quarter? Secondly, can you talk a bit about your philosophy towards the summer and your 80% assumption? Obviously, you've talked a lot with the vaccination programs, but it would appear as if you're making an assumption that travel restrictions are largely going to be fully removed before vaccinations are fully rolled out at the end of the summer months. And and and just to pick up on on the point you made about scaling down, obviously, you're 80%. You're way above what Ryan and EasyJet are talking about. Is it is it fair to say that that on that scaling down, you're kind of gearing yourselves up for maybe what they're talking about, 50% to 70%, but have you, for one of the better word, your fingers crossed that it's closer to the 80%? Thank you very much. Okay. I'll try to the second one and the receivers and the vouchers. I I it help need need some help. I I mean, on the you know, when you look at, you know, our philosophy, the first one is actually the stated intent of vaccination program is not to eliminate, the the COVID incidents. Right? And and it's not to to eliminate the virus. The stated intent of vaccination program is to help with the load in the national health systems, the hospitals, and the and the strong ill. I mean, and for young people, there's no reasons, to reduce their freedom and restrict their freedom of travel, even if they are not vaccinated. I mean, that's very clear. So so therefore, it's not that we need hundred percent vaccination or seventy five percent vaccination, which you even the European Union has set for the end of third quarter. But the the so the third quarter meaning September. But the intent is to protect the vulnerable and to protect the hospital staff and so on. And that is something which I think will happen in The U. K. In March. So so therefore, you know, we expect a strong summer. Right? The philosophy is 80%, and we but we can still make choices. So we we would be able to also scale down, but we also would be able to scale up, yeah, definitely to leverage 50 to 70%, which you quoted from Ryan and EasyJet. But here, I think please keep in mind that Ryanair and EasyJet are not just packaged tour operators. But, I mean, you know, they are also having a significant part of their business which is not leisure, And and that part of the business will be much later. Yeah. We we we know that, you know, teleconferencing and and Teams meetings and and Zoom meetings and so on are efficient. You save a lot of commuting times. At least, you know, in business travel, I would assume that that actually will let the business travel, hit the business travel much harder than leisure, and their mix is very different to ours. Yeah. So so so and and, therefore, I believe that, you know, the numbers of of of the communicated numbers of Verizon and VisaJet are not comparable to ours. Sebastian or Bruno, can you Yes. Yes. Yes. Maybe if I may add to the 80%, this is 80% of a consolidated market. You know that Thomas Cook is out, which had 20% to 10% market share depending for market. A lot of small tour operators in Germany have vanished. Retail with own offers have vanished. So probably, if you look at the overall market capacity, we increased significantly. That's what we do see a market share, and it would mean market 6570%. On the vouchers and working capital, I mean, what is quite interesting, if I look at customer deposits at the moment, less than €2,000,000,000 at the high end in 'nineteen, we had up to €5,000,000,000 So that shows how much the positive impact there could be. Out of that €400,000,000 are the vouchers. The vouchers are normally vouchers for customer prepayments, so 20%, 30% of the overall bill size. So that means that there is not the first €400,000,000 are without cash. It will be a constant flow. And what we do see now is that the people who ask for a voucher when they rebook is getting a very small portion. So that's why that this is a number which will be distributed month by month and will be reasonably low. Okay. Thank you very much. The next question is coming from the line of Mark Fortescue from Stifel. Please go ahead. Hello. Morning, everyone. Just two things left for me, please. One on vouchers as well and one on asset ownership. Just on the vouchers, could I come back to what you you just said about vouchers and credit notes? Maybe if the 2,800,000 of passengers booked for summer, can you give a feel for how many of those are booked on new bookings and how many are with vouchers, credit notes? And maybe just help us give a feel for how the cash inflows associated with those bookings might lag given the voucher mix. And then on asset ownership, your asset rights strategy, maybe not a detailed response to the Q1 stage, but would it be fair to say you're sort of prioritizing those assets, cruise, Marella first, hotel second, and aircraft third in terms of potential changes to asset ownership? And just on that subject, do you think there's any sort of compromise to the benefits you've talked about today of being integrated, having your own aircraft seats, your own hotel beds and your own cruise? Okay. So so on the on the asset structures, I mean, there's not a lot of change because of the crisis now. I mean, we always, you know, we always said, you know, in some areas, you need the asset ownership and and to have control, and others, you don't. You know? And and when you look right now, for example, cruises, it's very efficient to organize it in joint ventures. You know, we saw that before the crisis with Zappac was not a good reason to have Magalha on the balance sheet, for example. Or on the hotels, you know, some of the some of the hotels, you know, if you if you put them, for example, in hotel firms, you know, you don't need, the full investment on your balance sheet. And when you wanna scale, even if you were not in need of of liquidity, yeah, when you wanna scale, you can have the full control of of of the brand, of distribution, of you can you, of course, have the risk of of filling the hotel. But at the at the end, the the real estate business has so much money out right now doing good real estate businesses with the terminal value and so on and so on that, you know, in these cases, you know, not taking advantage of it, you know, would be would be potentially a right. And maybe last, you know, on aircraft, here we always have seen an oversupply in the last years, and and a reduction would have been very advisable, yeah, already last year or the year before. But a reduction of an airline size, particularly in Germany, which is where where you have a strong oversupply since Air Berlin more or less didn't exit when it was when it's when when insolvent. I mean, a reduction of supply is incredibly difficult and very expensive because you have, you know, all kinds of of labor action, and you have you have discussions and so on. Now and we don't have any business right now, and we have the opportunity to discuss this growing our order book, you know, we have taken the advantage of just reducing it to what we call the strategic capacity. And the strategic capacity or the winter capacity is capacity which we can fill because at the end of the day, it is not so important. I mean, you know, and and and when when you go to Cabrera and you have you know, you are the only one connecting Cabrera because the it's it's an infrastructure you need for the hotel that you have on Capriotti's. That is something you want to do. But when you have an oversupply in Mallorca, nobody wants to go to Mallorca if you can avoid it, right, because it's so much oversupply, and you have €19 per ticket, which everybody knows is marginal costing and and marginal cost pricing, and that is, of course, something you don't want to do. So the reduction in capacity and the cost saving in that respect is something which is good. And by the way, last but not least, you know, I think it's important on the hotel front that we don't, sell and lease back. You know, this would be a pure financing, but, you know, then you still have it on the balance sheet and all, a not good effect. It's mainly sale and manage sale and manage back or actually even more it's a vehicle to grow, and we are talking here about strong growth but with limited limited equity contribution in that respect. Okay. So so on the vouchers, and maybe I I know that Sebastian, you know, and Sebastian has a strong view that as well. Sebastian? Yes. You. As said, the customer prepayments are more than 90% for the second half of the year, which is giving us a positive impact for our cash flow. And the €400,000,000 vouchers are related to these bookings. So that means that the impact will be in the second half of our half year and will be limited also because these vouchers came from prepayments of our customers. So of the 30%, 25%, 20%, 25%, 30%. So even a customer who has now a voucher normally has to pay 70% or 75% of his remaining bill for his summer booking. And therefore, it's a very manageable process from the working capital point of view. Thank you. Could you maybe just give a feel for the quantum of outstanding vouchers that haven't been rebooked then? Maybe we we should come back with a with a with with with the best answer. I I would say it's a very, very, very small number. Okay. Thank you. I we have to come back, but I think it was between 100,000,000 and 200,000,000 but I'm equally not sure. Maybe, Matthias, do you know from the top of your head? Yes. It's roughly 200,000,000 which are immediately due and then another $250,000,000 which are kind of long term vouchers over the guarantee scheme in place. So it's come down versus year end already. Okay. We now have Christian Nadelcu from UBS Bank. Christian, please go ahead. Hi. Thank you very much. Apologies. My line dropped earlier. Could I kindly ask you in terms of your indications for Q3 that you may be moving towards cash breakeven? Could you give us a color what revenue do you need to be cash breakeven in Q3 and Q4? Is it as simple as taking a 15% gross margin and offsetting that against the $250,000,300 million euros cost per month you're saying? Or any color you could give us there? And secondly, touristic prepayments, I think in December, these are at around $650,000,000 It's roughly half of what they were a year ago. How do you see this line evolving going forward? Do you think it will further go down? Or do you think as bookings restart, you will have to make more prepayments to to the hotels? So more cash also is there. Any any color you could you could help us, please. I mean, Christian, listen. You know, you have two major sources of of, of the cash inflow. Yeah? One is the prepayment, and one is the final payments when customers really go. Right? And, therefore, it's not that easy. I mean, the big booking usually, the big cash inflow you'll find, working capital inflow, yeah, the biggest one is actually January, February in the normal year. Yeah. Because then this is the high season end of January, February month. This is the high season for actually the booking of the summer months. Now as soon as it's clear that summer will be happening, you know, the cash inflow will be happening. And that is actually when you see you know, today, we still we still have on on balance, you know, I I would say or last year, had a huge outflow of working capital, and that will come into the system again. And we are talking not little money. We are talking about big money, let's say, billion or so. Right? So so that actually is what we have left in the system right now. And in a normal course of business, this flows in. And that also answers a little bit your second question where you say the prepayments are now half, and it actually, of course, will not be half as soon as the business starts. I mean, as soon as the business starts, the the prepayments flow in. And and and and therefore, you know, it's it's it is something which will happen. But, of course, you know, the certainty that, you know, it will be possible, you know, will have to increase. And that is something we believe, you know, will happen as soon as clear, you know, when the when the borders open. Sentiment can change very fast as we all know. And I think the question was on hotel use per PM prepayment. Now we have checked there, we have changed our philosophy completely. We are not in a position anymore to offer prepayments to hotelier, and it's also not necessary at the moment. That may change in one or two years again when demand is very high. Today, we can convince the hotelier to work with us because we are the best choice of filling a hotel with a decent occupancy. And that helps us at the moment a lot to get good contracts by the assurance that we will fill the hotel if there is a customer demand. Okay. Then I misunderstood your question. Okay? No. Thank you. And on the revenue needed to breakeven on your cost side, excluding working capital, Any color you could give us there for Q3? I think that's what I said. I mean, you cannot exclude working capital because that's the first thing that flows in. But but there's there's no that as as soon I mean, the the difference between the short term cost and short term when you look on the liquidity it's the difference with actually working capital. Thank you very much. The next question is coming from the line of Alex Bergmell from Redburn. Please go ahead. Good morning. Thanks so much for taking the questions. I just have two. The the first one is on airline capacity. You alluded to the spreads earlier a little bit, but a lot of tour operator airline capacity is very specific by route. So you had a huge amount of competition with Thomas Cook before they exited. It's very early in the year to know exactly the plans of the operators on specific routes. But if there's anything that you can tell us about what route specific, city pair specific competition is looking like And people's answer to some of that would be fantastic. The second question is on package. You talked about the package impact on pricing. Clearly, there's two components. One is better packages, and one is more packages than previously. It seems from the data, particularly in The UK, that the mix of people taking package holidays is going up, which kind of compounds what most a lot of people have been saying. Could you just talk about how COVID has affected people's demand for package holidays specifically? Yes. I think when you look at the demand changes, yeah, the most indifferent as I see it right now is the the destination. Because as long as something in the Mediterranean opens, people want to go into the sun. Yeah. You have anyhow a change of demand, and one is around safety and security. Yeah. So so does somebody believe that we take safety serious? And and, of course, you know, then when you say it's our hotels and we make sure that, you know, the the the policies are are left up to and so on, you know, that is something which people like. By the way, on the cruising, we also seen that people like that we did very strong procedures. I mean, we we measure temperature. I mean, when you look at the the customer feedbacks, you know, that that was something last year, which was very positive seen. And and the second thing is flexibility. Yeah. So when I book something right now, travel is should not be possible. Yeah. Have do I do I have complexities, or is it something too easy to deal with? And both of these actually indicate that packages become more popular. Yeah. Because it's easier to to understand hygiene concept. It's easier to understand, you know, who do I have an obligation with and how do how did I book. The airline, you know, I I think, you know, it's a little bit of of a scattered approach. I would say, in in UK, there, you don't have a charter market and so on and so on. You just have Thomas Cook disappear. The margins would be good. Last year, in 'twenty, we would have hired a lot of wet lease capacity because of the shortage of supply at that season because Thomas Cook disappeared. We would have said you know, a lot of shortage of supply. Max had not been available and so on and so on. Now we reduced the order book. So we we will see, I think, some shortage if the normal summer happens. In Germany, it was very different. I mean, you had obvious oversupply and so on and so on. So here, we reduced dramatically, and that will be effective already this summer. Yeah? We will we will have half the airline. And that's and that is actually, you know, I think the first time, at least I'm in the company, that we will have potentially less capacity than we potentially could fly, hopefully, you know, in the summer. But that also says we put ourselves just on the strategic capacity because, you know, we don't want to run into the risk of oversupply. And and that actually will generate good margins. And if we generate more, you know, we believe together that lease and the market will not be a problem. To be to prolong a couple of and re lease contracts will not be a problem. So so therefore, you know, it's it's a bit little bit of a mixed bag, if you like. Okay. Thank you very much. We have now run out of time for further questions. I will now hand you back to your host to conclude today's conference. Thank you. Thank you very much. And everybody, thank you very much for staying tuned. I think the good thing is we have seen less cash burn in Q1 than expected. The vaccination program is running well, particularly in our most important market in The U. K, where we have more than half of the pre bookings for summer. Now we are waiting. I think the ambitions also in the European countries to vaccinate faster, will be high. And and and with that, you know, and the national health system being protected, I believe we will see opening of borders and and potentially a good summer. The demand is there. And also, we have achieved, as I said, more than 50% of our program already today, more digital, more. Maybe then I would like also to thank you. You see that we are confident for the summer that we have brought TUI into a good position on the cost side, but also for further revenue increases, and we are looking forward to the future. Thank you.