Good morning, ladies and gentlemen. Welcome to the TUI AG conference call regarding Q1 results for 2020. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your hosts, Mr. Friedrich Joussen and Ms. Birgit Conix.
Thank you very much, operator. Good morning, everybody from Hannover, where we have our annual general meeting in due course. I am very happy to update you on the latest quarter results. Before I do that, a very short recap of last week's development, where we actually sold our 100% share on the Hapag-Lloyd Cruises into the JV with TUI Cruises. That has been, I think, a very strong and good transaction for us. It has been part of the Holiday Experiences asset-right expansion strategy piece. It is the question of how to grow our businesses with the right input of capital. When you look at the acquisition, we sold Hapag-Lloyd for an enterprise value of $1.2 billion, which is, when you compare it to our EBIT, a very strong multiple. I would say we had to restructure the business.
We now, on top of the $1.2 billion, we keep a net present value of around EUR 300, EUR 350+ for the 50% profit pool, including the synergies. The transaction is largely debt-financed and will be closing in June or around summer 2020. When you look at the strategic benefits and financial benefits, on the strategic front, we had two businesses which were more or less not growing anymore, or not growing fast enough. TUI Cruises, because of the yard capacity for big ships. Hapag-Lloyd, because of the internationalization, which was not really possible with the German brand, and also the financing of new ships. We put these two together and suddenly TUI Cruises can grow via Hapag-Lloyd, and Hapag-Lloyd can grow because it's part of an international group, including the debt facilities of that company. It's a win-win situation.
At the same time, we keep control of the brand, of the product, of the marketing and sales. RCL is contributing the international global footprint. That is also from that point of view, great. We keep our power drive for digital expansion, which we'll come to later. Strategically, it's good, but also financially it's good. As I said, the value crystallization of $1.2 billion plus the retained profit pool. That's something good. TUI Cruises could finance the transaction largely through debt. A little bit of $75 million of equity had to be injected. Think about it, $75 million equity, $1.2 billion of enterprise value + $300 million plus additional benefits. It's a no-brainer of a very good transaction.
Now, also in our numbers, you will see that, but it's not part of our numbers today because, as usual, we only put this into our numbers when the closing has happened. Just the offloading of debt will generate a cost leverage decrease by 0.1 - 0.2. The net cash proceeds, of course, we said we would largely use for deleveraging the company. I believe it's a great transaction. That actually as a pre-phase for today's results announcement. Let's talk about the Q1 for a moment. We had an exceptional start in Q1. You can see that in the winter trading, and you can see that in the summer trading. In the winter trading, we are now 83% sold. At the same time, you see the PAX growth on average is 3%. The sales price is actually up 6%.
What that really says is, by the way, revenue develops to 10. That's also clear as a combination of PAX and average sales price. When Thomas Cook went insolvent, the capacity of our winter was largely fixed, and therefore we had a little bit of wiggle room. That is 3%. The big benefit came on price. That's how the winter went. Interestingly enough, you see all regions a little bit similar. In the summer trading, we have more room and had more room for actually extending capacity. That's why you see the capacity growth of 14%. We still kept an eye on profitability, also the sales price up 3%. You can see that also that we actually have been Model it with our capacity growth. We are now on the load factor, which is important as well, at 36%.
The question, of course, is how are we doing with that? My view is twofold on this. The 1st one is, I think in the big markets, after the insolvency of Thomas Cook, I think what I see today is a shrinking of the market. We will have taken an overproportionate number of customers from the market because we secured the Thomas Cook hotels, particularly in Turkey, where Thomas Cook was very big. Others will have taken capacity, but altogether it will be smaller than Thomas Cook has been before the insolvency. I have been asked also, do I believe that is long term? Maybe it is and maybe it isn't. If it wasn't, I would say it's even a better message because we have seen not the full effect yet, because the full effect would come in late trading.
That would be very good as well. If the market has shrunk, I would say then you have seen the effect. If it has not, at least we don't have not seen it yet, because today the market has been smaller. Let's see how it works. We don't know, we are prepared. Let's talk very briefly. Trading is very good. By the way, when we come to guidance, we will say, we had EUR 950 million-EUR 1 billion 50 million. That was the range where we said the original guidance range, we said that excluded the additional Boeing cost and so on. Yes, it's true. We are now saying upper end of it, yeah. We are saying high single digit growth in revenue. Of course, when you see those numbers here, you would argue by high single digit.
At the end of the day, we are preferring cautious approaches because we have seen hot summers and so on and so on, and we don't know how the next summer will be. At the end of the day, I can say we never had a stronger January in our company history. The January was very good and let's see how it will go on. On the downside a little bit is of course 737 MAX. You have been all seeing that the new announcement is middle of the year, whatever that means. We have decided that we take on board a more cautious approach and say it will not be available this year. It might either 1st of September or 1st of October. We will be including a little bit less cost than we had said.
Originally, we had said EUR 220-EUR 270 additional cost. Now we talk about EUR 220-EUR 245. At the end of the day, we don't know 100%. The only thing we know is this time of the year, actually, the market shares are distributed. Thomas Cook went insolvent. We are more or less extending our program with 21 aircraft. We are extending the program with 21 aircraft because we believe it will stick. Otherwise we wouldn't do it. Right? We believe it's a long-term sustainable growth, what we are talking about. Now the market shares are distributed. We have actually got the hotels of Thomas Cook. We believe we will be a long-term beneficiary of the development, even if it costs a little bit more with 737 MAX being at wet leases or dry leases.
That's a little bit how I see it and also how I see is it's not nice, it's big numbers. We might also see first compensation this year. At least the negotiations are shaping up. At the end of the day, it doesn't hinder us to take the market share. It doesn't hinder us to do the strategic transformation. The strong trading, I think, will be more visible also in the bottom line numbers as soon as the MAX effect will be off our shoulders. We hope it will be not too far in the future. A very brief word on sustainability because also in the annual general meeting today that will be a big subject.
We always been working very hard on sustainability and over the years you can see a couple of examples being the number 1 or number 4 airline in terms of efficiency or having 83% of our hotels and resorts with certifications. We take this very serious. We are working on our new sustainability strategy for 2020-2030 in line with the UN goals. That means not only ecological, but also social and economic. We believe everything needs to come together. We are driving very hard. By the way, many people talk about purpose of business. What is the purpose of the business? I think one thing is very clear. Without tourism, inequality in the world would be bigger. In most of the countries, we are the biggest investors, sometimes the only source of value. Our customers bring benefits to destinations.
By the way, if you are interested, you can see in my annual general meeting speech, which will be published, and we can also send to you a comparison between Haiti and Dominican Republic two states on the same island. The only difference is 10x the tourism in the Dominican Republic, and you see what it does. Anyway, t hat's a small excursion in terms of our strategy in sustainability. Let's look very briefly on the numbers. In the first quarter, we were almost 7% turnover up. As I said, for the full winter, it will be more around 10. It started first quarter a little bit slower, then it became stronger. For summer, we are up 17, as you could see. We believe that's very strong. That also resulted in underlying EBIT decrease.
Of course, because of the MAX, if you like for like excluding MAX, it's a little bit up. This little bit only is little bit because we have so much more program right now in Turkey that actually is additional capacity, which of course, doesn't generate any results in the winter. It's a very strong trend. Reported EBIT up 25%. This includes a one-off effect of a disposal of Berge & Meer, one of the businesses we have, and we had a book gain. The guidance, we will be talking later. It's a composition of upper end of trading shaping up to the EUR 1 billion, EUR 50 and more control, less uncertainty on Boeing. Unfortunately, a higher number of cost. Maybe even also some mitigating factors, also maybe a little bit of payment as well.
We are very certain that including everything, we will not be below EUR 850. If you compare that, we still can achieve the upper end. We will not be below EUR 850. Just to give you an idea, when we started the year, the lower end of trading would have been EUR 950. The upper end of the Boeing additional cost would have been EUR 270. If you had added these two, we would have started at EUR 680. We are now talking we are not below EUR 850. It's shaping up nicely to the upper end of what we believe, and the basis is particularly the strong trading, which is there to stay even after the Boeing grounding will be actually ended. On the Holiday Experiences, you see a couple of trends, the quarter is small.
I think the most important trend you see is the average revenue per bed. It's up EUR 3. That is something which shows capacity is scarce. Now, that said, of course, we have a bigger program. Of course, we have more in Turkey and so on. We have a couple of underlying negative effects because of the seasonality of the whole program. We believe that actually will be shaping up nicely over the year. On the cruising, very strong. Maybe the only caveat we have here, so very strong capacity growth, stable average daily rates, and so on. One slight caveat is Marella. You see an increase in the per diems from 137 - 143. Unfortunately, still a negative development in EBIT.
There's a couple of one-off effects, but there's also a sustainable one-off effect, and that is our recurring effect, and that is actually fueled cost development and regulation. Here we need to watch out a little bit. That said, it's not worrying. It's still on a high level. Compared to the super strong last years, it's a little bit of a deterioration. On Holiday Experiences, Destination Experiences. We had last year, as you remember, an EBIT increase of like for like, excluding one, of course, for integration of around about 40%+, even if you include the integration was 20%+. This year will be also good, but profit-wise, not that good because we always have said, here the market is consolidated as we speak or consolidating as we speak. We will invest into growth and put priority onto growth for the time being.
You see that here, total turnover is 35% up, volume of 70% up, even in a very small quarter. I think that's also good. On the Markets and Airlines. You have a couple of effects which you see on the bottom right. The previous year hedging, which we had actually disclosed the max impact, which last year was not happening. Both are negative, positive, is actually the start of the increase of the trading, which is 2024. That is more to come in the next quarters. We believe that's good. You see also here on the customer front, you see the 3%. At the end of the day, it's a starting consolidation, and we believe that we will be a beneficiary of that environment. The only thing which is maybe a little bit astonishing that online distribution isn't growing on the top left.
This is despite the fact that in all countries, the online penetration is growing. The issue is that Germany is growing in number of customer faster than the Nordics. Actually, Nordics is more or less flat, and Nordics has a very high online penetration. Germany has a very low online penetration. Therefore, the mix is actually pulled down a little bit. All markets, I think in Germany, we are more or less online. Something always between 30% and 50% up right now.
Also Germany is now catching up in terms of online. Outlook, all good. The only gray arrow we have is actually cruises because of the fuel price development. Maybe on the top right you'll see 36% of summer sold, which is up 2%, 40% booking, up 3% price up. I have actually not seen a January like this since I'm here. January, as you know, is the strongest trading month we have. I'm quite bullish for the year. With that, I would like to hand over to Birgit.
Thanks, Fritz, a warm welcome to everyone to our full year 2020 first quarter results presentation. For our Markets and Airlines business, I'm pleased to report that the first quarter has started well with exceptional bookings for our summer 2020 program. Some of the challenges we saw in 2019 in the travel industry remain. We continue to see, in particular, the Boeing MAX grounded, which has cost us EUR 45 million in this first quarter. As covered by Fritz, we now expect a full year impact of the Boeing MAX grounding. While I will comment on implications for the full year 2020 guidance later on, I would like to reiterate our continuous strong focus on our financial priorities, which are cost efficiencies, improvement of our operating cash flow, and our focus on our capital allocation with a disciplined investment approach.
We focus on growth with an asset-right strategy. This is further evidenced by the announced Hapag-Lloyd Cruises transaction, which apart from its strategic intent, also enables us to strengthen our balance sheet. Before I start with the slides, one comment on IFRS 16. This is the first quarter that we have adopted the IFRS 16 standards, and in order to make the year-on-year comparisons more meaningful and present the numbers in line with our guidance, the following slides also show the Q1 financials on a pro forma calculation according to IAS 17. Moving to slide 21. As in the previous quarters, I kick off my financial update with our Q1 underlying EBIT bridge, where I will focus on the most significant items.
As you can see from this slide, whereas the fundamentals of our Holiday Experiences business remains strong with top line growth in each segment, we have seen some minor headwinds in Q1 with our hotel segment. For instance, this is due to higher winter costs from portfolio expansion, some adverse foreign exchange effects from the Turkish lira, and reduced capacity at Riu against strong prior year comparables. Additionally, as expected, there was accelerated investment in our Musement platform, which led to a negative contribution year-on-year for Holiday Experiences. You can see the next block. Our Markets and Airlines businesses show a solid underlying trading up EUR 26 million at constant currency versus prior year, and excluding MAX cost and prior year hedging gain, this results in a growth like for like versus previous year.
This is a clear uplift in the bookings following the insolvency of one of our key competitors. The positive in all other segments is driven by the non-inclusion of Corsair winter losses. This leaves us with an operational EBIT performance of EUR 104 million, which year-on-year grows when we exclude, as I said earlier, the one-off hedging gain in Q1 and the cost of the MAX grounding. We incurred EUR 45 million of operational 737 MAX costs during this first winter quarter, which is in line with our expectations. Including the MAX grounding cost, we delivered underlying EBIT of -EUR 148 million at actual rates and -EUR 149 million at constant currency. About a third lower versus previous year on a like-for-like basis and entirely attributable to the Boeing 737 MAX impact. Let me now comment this one position, the EUR 1 million that you see there.
I would like to highlight that this impact of EUR 1 million from IFRS 16 in the first quarter is lower than expected and is due to adverse foreign exchange effects as well as saving, which we expect to at least partly reverse over the remainder of the financial year. Moving on to the next page, the income statement. As indicated earlier or already, I will focus on the year-on-year comparison with pro forma IAS 17 figures, which is the second column. Given our customer growth and strong trading in Markets and Airlines, we achieved a turnover of almost EUR 3.9 billion in the first quarter of full year 2020, which was up 8% compared to the same period of last year and up 7% on a constant currency basis. Here I would like to highlight the following.
While our underlying EBIT is down by EUR 65 million versus last year, it is up +8% excluding the EUR 45 million MAX grounding costs and EUR 29 million prior year hedging gain, despite an increase in depreciation, which reflects our transformational investment strategy. The adjustments are significantly better year-on-year due to a EUR 91 million gain on disposal of our German specialist business. This was Berge & Meer and Boomerang Reisen, as you know from previous communications, which closed in October 2019. Our full year guidance of EUR 70 million-EUR 90 million adjustments remains unchanged. As a result of the positive adjustments, reported EBIT is up +25% compares to last year. There were no significant year-on-year movements for interest expenses, income taxes, and minority interest, and our guidance for underlying ETR remains at 18%.
Given that the positive adjustments over compensate the adverse effects of the MAX grounding and prior year hedging gain, our group results after minorities and basic EPS is up 20% year-on-year. Referring to the reported figures under IFRS 16, both depreciation and interest charges are higher as a result of IFRS 16. As already mentioned, the underlying impact on EBIT is lower than expected in the first quarter, but is likely to reverse during the remainder of the year. Moving over to our free cash flow statement on slide 23, I'm pleased to let you know that we were able to realize an operating cash flow broadly in line with last year, despite the Boeing 737 MAX impact.
As anticipated during our full year 2019 results presentation, the typical and seasonal working capital outflow saw a minor increase due to our capacity growth and related working capital commitments. I would also like to highlight that the free cash flow of - EUR 1.6 billion is more than EUR 250 million higher than in the previous year. This is driven by a lower level of investment for full year 2020 as per our guidance, some phasing, and also the disposal proceeds from the German specialist businesses. Please note that cash from financing has increased because we have drawn EUR 530 million from our RCF and received another EUR 200 million from both commercial paper and bilateral financing arrangements to fund our seasonal working capital requirements.
As you can see from the IFRS 16 column of the cash flow statement, the higher operating cash flow is offset by a lower cash flow from financing due to increased payments for finance lease liabilities. As you can also see, total cash flow is the same under IFRS 16 and as it is under pro forma IAS 17. Again, I would like to highlight and reiterate here our continuous focus on cash flow generation, and I will keep you updated during the upcoming quarters. If we move to the next slide, which is the slide on net debt. Starting off with an opening net debt position of EUR 910 million, the Q1 closing net debt based on pro forma IAS 17 numbers increased to around EUR 2.8 billion.
This is the last dark blue bucket on the right, and this is in line with the usual seasonal swing and driven by the discussed development of free cash flow in the first quarter. Referring to the last bar in orange on the right-hand side. There you can see, compared to the previous year, our seasonal swing in net debt has slightly improved to a -EUR 1.9 billion on a pro forma IAS 17 basis. You can see on the right-hand side, on the lower part, you see the position in the first quarter of full year 2019. Regarding the other elements of the movement in net debt, apart from free cash flow, asset financing increased according to plan, with roughly two-thirds relating to committed aircraft refleeting of new Dreamliners and the remainder relating to cruise ship financing of around EUR 120 million.
You see this other bucket. It mainly includes foreign exchange translation effects on financial liabilities. As expected, and due to the first-time adoption of IFRS 16 and associated lease liabilities, net debt is higher as expressed in reported IFRS 16 figures. You see that is the bigger block with -EUR 5.1 billion under IFRS 16. Moving to the last slide, which is slide 25, our guidance for the full year 2020. As already indicated by Fritz, we updated our guidance and therefore show our updated full year 2020 guidance in the left column, next to our previous guidance as of December 2019. We expect our current strong trading trends for our Markets and Airlines business to continue, and therefore expect a high single-digit percentage turnover growth.
If we translate this strong revenue growth to our original EBIT guidance from our full year 2019 results communication, which still assumed, as you know, a Boeing MAX return as of April this year. This would have corresponded to the upper end of our EBIT guidance. Our previous guidance included a EUR 130 million cost impact from Boeing until April 2020. In light of the recent official release from Boeing, we now face a prolongation of the Boeing MAX return to service. This leads to additional costs versus our previous EBIT guidance, but which we narrowed to EUR 220 million-EUR 245 million compared to our earlier estimate. We will equally include mitigating factors to partly offset these additional Boeing MAX expenses, such as cost measures and a certain level of compensation from Boeing.
Therefore, we widened our EBIT range and opened the bottom end with a maximum of EUR 100 million while keeping the top end of our guidance. Based on this, we updated our guidance range and now expect an underlying EBIT range of approximately EUR 850 million-EUR 1,050 million. As a result of the updated underlying EBIT range, there are corresponding changes to some other elements of our full year 2020 guidance, including a lower level of assets and debt financing, as well as net debt as a result of the now delayed aircraft delivery schedule. Finally, I would like to highlight that all guidance is provided at constant currency on a pro forma IAS 17 basis and pre TUI Cruises acquisition of Hapag-Lloyd Cruises. With that, thank you. I will now hand over to the operator for Q&A.
The 1st question is from Jamie Rollo of Morgan Stanley.
Morning, everyone. Three questions please. 1st, just trying to get a better handle on the actual change in the underlying guidance. It looks like it's up by about EUR 180 million in total if we strip out all the MAX costs. It's fair to say, I think about EUR 50 million is the better operating performance. Is it fair to say that Boeing compensation is sort of EUR 100 million, EUR 130 million? What do we assume for that compensation next year? We're trying to get a feeling for the underlying base figure to work off. 2nd, on the hotel side. You rather skirted over the bottom line performance. I think it has quite a few one-offs mentioned in the detailed report.
I mean, perhaps the basic question to ask is, do you expect hotel profits to be up or down this year on a full year basis? Finally, if I understand correctly, the EUR 450 million reduction in asset financing, that will just come back next year. Is that right? It's just delayed with the aircraft deliveries? Also the year-end net debt guidance, post the Hapag-Lloyd disposal will be EUR 1.1 billion lower, net of the equity investment. Is that correct? Thank you.
Thanks, Jamie. These were a lot of questions. I need to think of it. The last part, I will check here with the colleagues what that was. On asset financing, let me start with that. Yes, indeed, it is a delay. It depends upon the return of the Boeing MAX into service, and this is why we see a reduction now in fiscal year 2020 as we will not have any aircraft. Also, we did not include any numbers on Hapag-Lloyd. On the guidance. I am not going to decompose it, of course, but there are various factors that are important. Three elements in total. 1st of all, this very strong trading, and not to go into detail of what we exactly expect, it would be upper end of the guidance or even in a very positive case, it could even go over. That is early to say.
2nd, obviously, we would have cost measures in place, mitigating actions versus this fairly high additional cost of EUR 220 million-EUR 245 million, and then a certain level of compensation. This may also be the regular contractual compensation, but it may also be other compensation measures that we discuss with Boeing. That is to be seen throughout the year. That is early to comment on because of the positions, and that they could swing in a fairly big way. This is why we said, okay, the bottom would be EUR 830 million given what we see on trading, et cetera, and also these other mitigating factors. We still keep the upper end of the guidance, and this is due to the fact that it is all still moving a bit. Maybe Fritz, you would like to comment as well.
Jamie, I mean, your first quarter was up seven. Winter is up 10. Summer is up 17. I mean, so you see it shaping up nicely. It's not only volume, it's also price. That's the reason why I say, the top end of the EUR 1,050 underlying is very trading related. When you see the high single digit now on revenues. We are cautious people. We have seen the summers happening and these things you never know exactly. I personally, as I said, have never seen the summer trading in January like this. It's very strong.
You asked a little bit of sustainability or the questions can we keep more or less. There's all reasons to assume that we can, otherwise we would not have increased our fleet by 21 aircraft. That's also clear. That said, the future is uncertain and nobody knows exactly. There's good reasons to assume that the market is consolidating, and we see positive effects, which we also had assumed.
Yes. You also asked a question around the hotel profits, there we still keep our full year guidance. As I said, there were some additional costs due to additional capacity, we still expect a single-digit growth in EBITDA for the full year. That remains unchanged.
Thanks. The question on net debt was simply that the guidance at the moment excludes the Hapag-Lloyd proceeds and removing the debt within Hapag-Lloyd. You're at $1.2 billion EV, I think 75% of that's going to go back in. Is it fair to assume the year-end net debt guidance will be more like EUR 300 million -EUR 600 million when that completes?
Yeah. Broadly, let me talk about it in terms of leverage. It's around a 0.2% impact for 2020. Yes, let's say 0.4%- 0.7%. That's a number that you can assume.
Okay. Sorry, if I could have one more. The EUR 50 million underlying increase, Fritz, you mentioned there, that's obviously more than a 2% margin on the extra revenue. It looks more like 5% or 6%. Is that correct, that you're now looking for a much higher conversion margin than your previous guidance?
The average is the death of actually management. The average of average of average. At the end of the day, we have said that we would do capacity upgrades of, let's say, double digit. We achieve a growth of 14 and a price increase of three. Of course, for this kind of top-end trading, it's very, very good. The question is, of course, is it sustainable? We all know that the late trading is somehow critical sometimes.
The big trading is, of course, January late trading is critical. That is also something which you see in our numbers. We are on the load factor, 2% up as well. Therefore, I would assume that it will be in healthy environment, and that's also the reason why we said we go to the top end. That is also the reason why we do all these wet leases and extend our programs, because we believe at the end of the day, the sustainable thing is the underlying business, which has become quite strong.
Okay. Thank you very much.
The next question is from James Rowland Clark of Barclays.
Hi there. Thank you. I've got three questions, please. Can you, 1st of all, comment on the nature of the compensation you're expecting from Boeing? I know in the past you referred to better financing and potentially cash back, but if you are any further knowing what that might look like, that'd be helpful. On the 2nd one, in terms of cost savings, could you just elaborate on exactly what they are? Looking forward to 2021, would you expect to roll out more of these, or do you really think that would just hold your costs flat? Finally, internally, what are you working towards for the 737 MAX returning to service? Have you started to plan for the winter 2020-2021 season, either way, returning or potentially needing to find any other aircraft? Thank you.
Thank you. Let me first take that 1st question. On the compensation, as I said earlier, it can vary. It can be just the contractual agreement, but it can also be that we have further in our discussions with Boeing, and it depends on what that compensation would look like. It's really too early to say. In many cases, this has a cash component and then discounts on future deliveries. That is a possibility, but it's really early to comment on that. As to cost, we just continue to focus on cost, and it depends, because as I said, there's a lot of moving parts. We commit to at least the bottom end will not be down further versus the EUR 850 million. It depends on the other moving parts.
If we then would need to, then we can also think of cost reductions that are of a one-off nature. It all depends on the rest of the moving parts. It's just a further focus on cost like we already have, and especially in the Markets and Airlines, where we also have the Markets and Airlines transformation initiative. And as we start seeing the 1st results of those, it's still, let's say, the beginning phase of that journey. Maybe, Fritz, you would like to comment further on that?
Yeah, sure. As Birgit said, we don't comment, in the best interest of our company, on negotiations this point. It's very serious, and I think it will be good. On the return to service, we have actually said we are fleeting or we are putting our capacity in place to return on the 1st of September. That said, we have a little bit of wiggle room. That's the reason why we have the 220-245 for the September itself.
If September we would come back, then it would be at the lower end, definitely, and we would actually not employ all wet leases in that period. It is the last big month, then we might also keep them flying. It depends a little bit. That said, it's not a big uncertainty right now anymore. It is now certain that, I think pretty certain, that we will have these additional costs. Even with that uncertainty, I think we have been tidying up because we have mitigating measures. That's how you should read it. Yeah.
Thank you. Can I just ask one follow-up on the costs? You've left your investment in the GDN OTA unchanged. Does this, given the cost mitigation measures you're putting through this year very effectively, does this give you the opportunity to invest further in the GDN OTA near the top end of the range?
No, no. I think one thing we said very clearly, we have two strategic digital platform businesses and th hey will be prioritized.
Yes.
We have the plans. It was part of the budget. It will not be changed. Also we have a clear plan of guidance, particularly at GDN OTA, to achieve the 1 million customers earlier than we had said. We'll update you on that. Also that, for example, I think William said on Friday, particularly when it comes to now the free cash we will have or we will get from the transaction with Hapag-Lloyd, that will be focused on deleveraging.
Because we had prioritized the investments, we feel fine. We do the right things. It was not limited by funds. It was limited by sensible steps to do at that point in time. We are not limiting available money for or available investment for these two strategic transformation pillars of our business going forward. Therefore, it's not tactical. We are not saying, obviously, no more money before money added. That actually is a disciplined approach.
Yes. Also to add to that, we will also not reduce our investments into our GDN OTA platform as a mitigating item. That remains untouched.
Thank you.
The next question is from Jaafar Mestari of Exane BNP Paribas.
Hi, good morning. Two questions for me, please. Very related. The 1st one is on your scenarios for how much volumes you expect to win and the economics of this year. It'd be great if you could go through the estimates that you've given us in December and update those. You said at the time you expect to capture between 1.4 and 1.5 million extra customers. You expect pricing to be around 800 GBP, and you expect the margins to be between 2% and 3%. It would look like maybe volumes are lower end of that, but then pricing is supportive and, as already discussed, margins are much better. Is that correct?
Then separately, if you could maybe talk a little bit about the market share wins or the customer growth by region, because if I look at your Q1 customer development, obviously the Nordics is very much business as usual there in terms of competition, not much has changed. What surprises me is how much volume growth you get in the central region, where obviously Thomas Cook commercial retail is gone, but Condor still exists and trades pretty much as before. How is it that you're winning so much in the central region, basically in line with what you're winning in the western region, which would seem a bit more obvious that you can win there?
Okay. That's a good point. How I see it, I don't see how 14% can be at the lower end. Maybe this is something different. It's dangerous to say. We now said we'll go in line with our plans. We actually, we are exceeding a little bit our plans. That's the reason why the load factor is higher. Now it's not 100% sure how the late trading will stack up, and therefore it's only 35% of the big season now booked. Load factors up, too. It's a little bit ahead of our capacity planning, and that's also the reason why the prices are exceeding. On the question of Germany and U.K. and so on.
It's a very good question because in all fairness, in the winter, particularly after the insolvency, we have seen not that much movement, and we had seen a lot of Condor bookings that the airline was still booking. I think what I believe or what I see now is it was rebookings from Thomas Cook, which actually has been because Thomas Cook was gone, they had to rebook with Condor. They had the vacation, rebookings there was high. It seems to be that now customers make a more free decision that, at least in Germany, we are taking market share. I think that is something I see everywhere except the Nordics. In the Nordics, that's a very different thing. Everywhere, I think I see that we are getting market share, and actually the market itself is reducing.
Now the question is how much it will be reducing or if we have a late trading and we'll be catching up. That is something which is not 100% clear. Yesterday, I also saw that also the airline movements in Germany are going backward or have been going backwards lately. It's all a little bit up in the air. The only thing I see is double-digit volume growth for summer in all of our markets, and as long as I see that, I'm less fussed about what the market does.
Thank you. Then maybe just a follow-up on the two countries where we're not quite clear how the Thomas Cook insolvency will end up, Belgium and France. Any color on what's happening there in terms of your market shares?
France is a different animal. As you know, we are restructuring France, and we are progressing in line with our plans. Less so important is Thomas Cook in Belgium. We have said because Belgium and Netherlands both are very slot restricted, so we have actually not added capacities, but we are now qualifying seat only into package. That's the reason why you will be seeing, particularly in Belgium and the Netherlands, you see with very good margins. By the way, we have the package, interestingly, the margin is higher. Because we have restricted seat only now, even on seat only the margins are okay-ish. I think I would say I keep fingers crossed that the next weeks are good. Let's see. As I said, the start is very strong, and I cannot recall a strong start like that for the summer season in the last seven years.
Thank you very much.
The next question is from Adrian Pehl of Commerzbank.
Yes. Hi, everybody. Two questions left from my side. 1st of all, sorry to bother on Boeing compensation again. Given that you've taken accumulated hit of somewhere in the region of EUR 650 million for the two years, I was just a little bit wondering. It seems that the cash compensation you are planning in for this year's guidance is not necessarily high versus that amount. You were already referring to potential discounts.
Technically, how should we think of it? Are you basically trying to negotiate this year, let's say, in equivalent compensation for the total hit? Is it just an initial step that we see in the negotiations with Boeing? The 2nd question is more accounting related, as obviously Q1 had a very small effect from IFRS 16. I was wondering how we should think of the distribution over the upcoming quarters and the overall effect for 2020? Thank you.
Sorry. On the Boeing negotiation, allow me not to elaborate too much. I think whatever we say right now and whatever we do will not improve our position. That said, every combination of cash equivalents as well as discounts, and it's not only the absolute amount, but it's also the maturity of payments, which is very important, and the maturity of actually P&L impacts, which is very important. Therefore, we will be balancing that these things are not only show up in the far, far future. They should be also today because we see the effects today as well.
That said, it is so early. That's also the reason why it's not so early, let's say. It is too early to determine exactly what it will be. We also believe is to be too hard on trying to achieve something soon. Actually, we mitigate also the total value of which will be possible to achieve. With that said, leave it with us. We are pretty sure that we will be talking about it at due course. Of course, the materiality of the damage is in a way that's very clear we are taking the negotiation very serious. That said, on the IFRS 16.
Yes, on the IFRS 16. If you refer to the call that we had in, when was it? In December. Yeah, in December. The IFRS 16 changes, there is a slide on that. You can find it on our webpage. We said that we would expect a plus of EUR 75 million, more or less, on underlying EBIT. Now, what we see is that foreign exchange is relatively unpredictable. If it stays as of now, there is a further deterioration to that number, and that's just a translation from IAS 17 into IFRS 16. Maybe not the full amount of the EUR 75 million because of that FX, we can detail that later. We can also take it offline. Throughout the course of the year, we will give further updates on what it exactly translates to.
All right. Thank you.
The next question is from Richard Clarke of Bernstein.
Good morning. Three questions, if I may. Just to clarify the situation on the 737 MAX for this year. You said the current message from Boeing is the middle of the year, whatever that means. Obviously, your guidance implies that you won't fly it at all this year. You won't take any delivery of any Boeing 737s this year. Is that fully committed, or could it possibly be better than that? Could you actually get some planes before the end of the year? Have you got full control over whether asset finance comes in or not? 2nd question, sorry, again, on compensation, is that the reason why the guidance range is now EUR 200 million rather than EUR 100 million before?
Is that because there's uncertainty around the size of the compensation? The 3rd question, your working capital movement for Q1 is pretty flat compared to Q1 2019, despite the fact that you've had this big increase in summer volumes, winter volumes. Maybe you could just explain, is that because you're financing the holidays slightly differently? What might that make us think for Q4 working capital inflows, given that we're flat at this stage?
I'll first comment on the first quarter working capital. There, we always deal with prepayments, and as we are increasing our capacity, of course, that has an impact. There we see some shifts. There's also a shift from seat-only to package holidays, with differences in advance payments. We see all in all, our working capital for the first quarter was in line with what we internally expected. From that angle, everything is progressing as planned. Then?
On the 737.
Yeah.
On the 737, we need to have operational stability, therefore we need to secure a mix of dry lease and wet lease. We have now secured wet lease and dry lease to the 1st of September. Do we expect additional delivery? No, we don't, because even if they came up, the production would be up, we don't expect deliveries, we have grounded own aircraft, which actually we have been one of the guys who received it too early or very early in the early stage. That would be the relief, that actually says in September. If in September it would be flying, we would be actually able to put out a little bit of the wet leases. That's largely the difference between EUR 220 and EUR 245, which you see. That is the December rigor room, if you like.
If it was August, maybe it would be even a little bit better, for stability of our flight plans, we are not assuming it right now. On the compensation, yes, it is exactly as you say. It is not known, that's the reason why it might be at the lower end, it might be at the upper end, it might be whatever, it might be also several years, or it might be only one year. The damage is known. We have some mitigating factors. The other factors are not known. That's the reason why we have kept it a little bit more broad, in spite of the effect that our trading is firming up at the higher end. Right? We have broadened the range a little bit, the cost is less uncertain. The trading is less uncertain. That's what it is. Correct?
It needs to be reiterated that it's on the back of our strong trading that we see this better guidance and that the other factors are still unknown, and it's really early to comment. As you can understand, we will not be able to comment on potential conversations and even on a start of a discussion of anything.
Just to follow up there, given this inability to comment on this, why have you included the compensation in your guidance now? You didn't include it in December, why now have you decided to include it?
You can argue whether you think it included or not, but what we see is there is just a minimum level of compensation is included because we have a contractual agreement with Boeing for aircraft. It's really early to say, but it's on the back of our strong trading that we think, okay, And also on the back of the, we reduced the MAX grounding prolongation cost somewhat. We believe, and with other factors which are a bit unknown at time being, we believe we can commit to at least to the lower end of the guidance.
That should be the positive message I believe that you should remember. That is what we commit to, and we really do see strong trading. That's the main factor, actually. Of course, as we are prudent in our guidance, we just wanted to highlight the bottom end that fits, and it's due to these mitigating factors.
Great. All right. Thank you very much.
The next question is from Stuart Gordon of Berenberg.
Yeah, good morning. Just a couple of questions from me. Thanks. Could you give us some color on how much of the double-digit millions in the digital transformation budget was spent in the first quarter? Secondly, what was your gross debt leverage at the end of December if we use the last 12 months rolling EBITDA? Thirdly, just on your guidance page, I think at full year you stipulated that all numbers were pre IFRS 16, but I don't see pre IFRS 16 on the new guidance. Is it now post IFRS 16, so it's now including the improved EBIT from IFRS 16 changes? Thanks.
On your last question, I can already say no. We keep our guidance comparable. We'll do that throughout the full year. It will all be based on IAS 17. That is definitely the case. Then on the costs related to digitalization, we do not detail them separately by quarter, but they are according to plan. What I can tell you is that by the end of this year, we will still have spent this double-digit million investment, and we are just well on track. I think we have a very clear timeline, which Fritz discussed already earlier in terms of digitalization, and we are spending accordingly. Then the other question was what again?
Leverage.
Yes. The leverage. The full year 2019 leverage ratio, that's what you asked, that was 3x . If you would have excluded the Boeing MAX effect, we would have been at 2.7x . This is our gross leverage ratio, as we always communicated also in the past. It's gross debt, not net debt.
Sorry. It's actually what was gross debt leverage at the end of December, not at the end of the year? Not the end of the financial year, the end of the calendar year.
At the end of the calendar year, it would be 3.3x. That is, of course, before the Twist transaction and everything. That's normal. The first quarter, we always have a higher. What is that? Yeah, we never. Okay. Yeah, 3.3x would be for the first quarter. Obviously, we go down. We expect it to be well within our guidance for the full year, even before Twist. After the Hapag-Lloyd transaction, that will be significantly lower. You could say around, as I said earlier, the leverage would go down by 0.2x. Let's expect 2.8 more or less.
Okay. Just one quick follow-up. Can you just confirm how much of the one-off costs in 2020 will be cash?
No. How you mean? No, we don't.
Of course. One-off, thank you.
We don't comment on one-offs.
Okay. Thank you very much.
Ladies and gentlemen, the question and answer round has now come to an end. Let me turn over to your hosts, Mr. Joussen and Ms. Conix.
Thank you very much for dialing in. It was a pleasure. Talk to you soon.