Earnings Call: H2 2018

Mar 13, 2019

Good afternoon, everybody. My name is Martin Murray, CFO of Cathy Pacific. Today, I've got Rupert, CEO, and Paul, Chief commercial customer commercial officer. Usual format, we'll go through a a quick presentation and then we'll take questions. So, on February 20th, you obviously, issued our profit alert with the group attributable profit of 2,300,000,000 against the prior year numbers of a loss of 1,300,000,000 And then more importantly, the airline back in the black, 241,000,000 profit after tax against the the loss last year of 4,300,000,000. Performance on the revenue side from both passenger and cargo. We saw a little bit of tail off towards the the end of the year. The operating increased due to the higher fuel costs, but overall our underlying costs, as we'll show, were pretty much kept relative stable satisfactory performance from the subsidiaries, a weaker performance from associates due to the weaker revenue B, and obviously stronger cash flow and our gearing coming down. This trend, this here shows the the half year trends. So the attributable profit of 1,100,000,000 for the second half of twenty eighteen compared to a attributable loss of 904,000,000 for the first half and a attributable loss of 1,500,000 17. So again, this is the sort of slide you'll see from the first half there, second half twenty seventeen, twenty eighteen. The trend of where we're heading with our transformation and where we're trending, as we say, on track with our transformation goals. Our statistics ASK growing at 3.5%. As we've said all along, this is a a different type of transformation in that, throughout the 3 year plan, we're we're we're transformed through growth. You'll see there the passenger yield up 6.7 percent, cargo yield up 14 percent under our underlying cost per ATK without fuel at 1.9%. I guess We'll go through that in a little bit more detail. This is the sort of the the trend from the the airline level the 4,200,000,000 losses to the 695,000,000, we have to strip out some new IFRS 15 and FX to make sort of meaningful comparisons. But you'll see strong growth in the passenger and cargo revenue, other revenue increasing fuel costs. And then as you know, as we've said in the past, some of our cost base naturally increased landing in charges going up or in the assets, charges going up and other items there, we'll go into a little bit more detail later in the presentation. In terms of data breach, not too much to update here, we're still under a number of regulatory, inquire Ares, no report yet to be issued, and, no, material claims. So no provision in the accounts for the data breach incident. So despite intense competition on the passenger side, we've had strong growth, 10 new destinations, load factors relatively flat, yield, strong premium and especially in the premium end, strong yield management, and obviously with the increase in fuel price, some cost through in terms of fuel surcharge. In terms of lounges, we opened the deck and closed the cabin. So again, very much investing heavily in the customer side there. Year and you'll see there in terms of revenue efficiency, that trend that we've been seeing since 2014, on the since the beginning of 2017 revenue efficiency increasing. And New destinations, 10 new destinations, a record for us, including Brussels, Dublin, Washington. We stopped flying to Cota Kinabalu and Dusseldorf. Again, part of the strategy and the transformation, the new aircraft lets us fly to new destined that aren't served by other airlines from Hong Kong. So those are highlighted in green on this slide there. So 6.7 percent increase in yield, if we adjust for IFRS 15, which is a new revenue recognition, the overall increase in yield adjusting for that is 5.7%. These numbers have taken out that adjustment for and pups is too. So you'll see a strong growth craft. Also, the introduction of Brussels, Copenhagen, Dublin, and Barcelona. We did in the year start having the denser configuration on the 770seven-300s, Southwest Pacific deployed larger aircraft, and the in terms of yield, we had strong premium front end yield to North America and Europe. Strong demand from Japan, and that's meant focusing more on individuals rather than groups. 2019 our ASK growth is forecast slightly higher at 6.8 percent as we get the the impact of the 10 new routes, new frequencies, new routes in 2019, plus the impact of the, the seat configuration as well is that the transformation, you know, we are seeing the trends in the in the financial performance. It has got financial targets, but it's very much a brand led focused transformation, investing heavily in the customer, on the planes, the ground. So on the ground, we've, we've improved our Asian miles award program significantly with what's hard in terms of communication. In the air, we've got the the new in flight entertainment systems, bigger, bigger screens, better choices, etcetera. And we've ruled out the Alacarte menu choice and business class, which should be completed by the of 2019. Again, on the, on the, and then, Wi Fi has rolled out in the 777 starting in July 2018. It will be an all our long haul fleet by the end of 2020. We've started introducing more self-service backdrop, backtracking facilities, the ability to upgrade, to hold fares for 72 hours, etcetera. So much customer focused transformation. Cargoes had a had a great year throughout. It started to tail off, towards the end of the year, November, December, which will show in one of the graphs as a second, but overall cargo revenue up 20% good good metrics throughout here, cargo mirror carried up 4.7% yield up 14.7%. That's the same whether you adjust for if it is 15 or not. Again, very strong revenue efficiency in the cargo side. Transshipment is strong in India, Europe, Southeast Asia, Japan, e commerce picked up, machinery and food from Europe and America. And, again, higher, higher value, temperature controlled pharmaceutical trade improved the yield in that. This is the slide here where you can see terms of the load factors, for the, so the first there is 2013. And if you will, those of you who have been on a while, this was a sort of step change graph as as cargo built, in load factor over that period. It continued to build 1718. And then you can see the last months with the geopolitical and the sort of trade, problems, the slowdown there a little bit in November and December in terms of cargo. In terms off, costs, total operating costs were up 8.1%. But we need to strip out the impact of FX and, the accounting standard, cost per ATK without fuel up 5.1%. But when we strip out those factors, it's up 1.9%. Again, we'll that in a bit more detail in a second. Fuel remains our biggest cost at 31%, gross fuel increased by 1% net fuel up 9% on that stage too. So you'll see fuel throughout 2018 for the 10 months, slowly increasing. And then again, at the end of the year, a bit more of volatility introduced with the oil price coming down in November December. And obviously, we have the benefit of the lower hedging losses. 1,400,000,000 of hedging losses. As I said, net fuel up 9% gross fuel up 1%. Our hedging book, the last of the old hedges are coming out in the in the 1st and second quarter of 2019 So we are averaging our hedging book at 30 percent at around $65, but 30% for the whole year in 2019. And then in 2020, around 20% at the $66.67. Again, more, alluded to the front of the year in terms of coverage. So here in terms of the cost, we have stripped out, on on the underlying basis, here, we strip out the exceptionals, exceptionals are all included there. The net impact of exception of exceptionals is about 150 8,000,000, but you can you can get the detail of that underneath in terms of the exceptionals. Big thing in terms of, our cost base in terms of this is, is, is FX. We had, we have benefited year on year from a slightly weaker U. S. Dollar, but as you'll see, you know, as I said, we're short U. S. Dollar, so we like the U. S. Dollar to weaken. And so in terms of headwinds with the oil price rising, the geopolitical tensions and this increasing U. S. Dollar are all bad macro forces for us in that sense in terms what we're facing from where we were back in the beginning of January 20 team. So if we strip out, so IFRS 15 is more a revenue recognition So we've had to reallocate it some of our passenger and services revenue from the catering and recovery side, and also you sort of gross up for its, you know, principle over agency, theories in terms of cargo trucking, etcetera, we've had to readjust that. So if we strip out the impact of IFRS 15, no real impact on the bottom line. We take out the exceptionals and then you'll see the impact of FX on the business there, net benefit of a slightly weaker U. S. There, but again, in increases the cost base. So when we strip out that, that's how we get to the 1.9% increase in our cost per unit So again, on that front, just going through there, our staff costs, our staff costs have come down. We did the reorganization in 2017, has come down and we have paid, we have started to we paid that discretionary bonus in 2018, which we didn't do in 2017. That's why it hasn't come down as much. The in flight services and passenger side, as we've said in the customer side, we've heavily invested on our in flight services. That's been a decision of choice. Landing and parking, we've maintained despite lots of overflying and landing and parking, government increases there. Aircraft maintenance. We've seen the benefit of productivity improvement and the new fleet. Spawning the asset, owning the asset, we've had a reduction in our fuel consumption in pet RTK by 1.9%. So you've got the investment and new fleet that comes in your cost ex fuel, but the benefit comes in the fuel in that piece there. In terms of other other costs there we've invested in Asia else that comes on, obviously, through the top line there, digital and marketing, again, through choice. So if way, of what I've tried to do in the next slide is look at our underlying costs of the of that and look at the pieces that actually impact the cost ex fuel, we we have, as we said, through the transformation and strategically invested in the business. So the new aircraft, if we make that adjustment, to the fuel efficient that comes through. Obviously, when we launch new ports, we spend on marketing, so I've taken that out. Atlas, we've with wet lease aircraft to Atlas on the cargo side there. So that comes through in the revenue side, but the costs, obviously, increase your cost base. So we've taken that to do, likes of like. And similarly, the investment in Asia Mills, we've stripped out. And when you do that, you'll see that the underlying call it pro form a underlying costs compared to 2016 are relatively flat. The 2017 number is was 2211.78 there, but we've added back, the, what would have been the, the discretionary bonus just to to show what would happen if we'd compare on a like with like basis there. So again, once we analyze our cost base, we think we've done a pretty job on the transformation side in terms of looking after our our cost that we want to control. 10 of the shrubs situation, they've all performed and satisfactory in 2018. Again, we take 100% control of Hong Kong at the end of we did at the end of the year. Again, continue to invest in Asia Miles. In terms of the associates, our weaker from Air China, we report that those results 3 months in arrears. So again, that's softening off the remnant b. Cash flow, a big increase in the net cash inflow from operating activities. And again, the trend at the bottom the gearing, starting to reverse for the first time we've seen in a while, which is best shown in this in this graph here, that that gray line shows the turnaround in gearing as we we turn the business around 2018 return on capital employed of 4%. So our fleet, 202 aircraft act in 2019 is that the IFRS 16 will put those operating leases onto the balance sheet So again, that'll that'll change some of the the numbers that we show throughout the year, on that, but but we still have one of the youngest, our average long haul fleet is about five years old, which is one of the youngest in the world. New deliveries, 10 new deliveries in 2018, 8,851,000 and 2 Boeing, 77,300s. 1 Bcf freighter was returned to Lesors and, 1 777 was returned and 3 A bus 330s returned to Lesors. And the free, forward booking profile as reported before. On the transformation itself, Again, it's it's it's one of these ones that we've been talking about for 2 years now. We have over 800 initiatives, about 50% of those the revenue side, around 50% on the cost side. We have we organized change the head office in 2017, 2018. We are looking at the we've been restructuring the outports. We've had investments in what we call the building blocks in terms of digital lean GBS, our digital capabilities are stronger than they were back in 2017, a lot better data visibility coming across through the whole the business. And then again, in terms of the customers, we mentioned advanced seat reservations, better investment in Asian allows, improved disruption information and alternatives, etcetera, coming through there. We've mentioned the slides in terms of investing in customer, in terms of operational excellence, new crew management rostering systems, and again, these are these that these are all trends that we've talked about in the past, and having much a big focus on our high performance pillar, our people, and our internal feedback from how we can constantly improve. And then the fundamental building blocks of end to end process. We are transforming 9 core end to end processes, using digital lean. We've created 900 lean practitioners trained so far. The beauty of lean practitioners is they have to come up with a measurable target and they could only get the certificate once approved those targets are performing. So it's a very good discipline in terms of of managing, measures, and changing the culture, of of that side, too. A lot automatic processes going through our new global business service center. In terms of the overall outlook, as I said, you saw that in cargo the last the last 2 months of the year, slowed down down the the U. S. Dollar, the macro part of the business that the U. S. Dollar is strengthening. Oil price is increasing. So are there are some, tensions, out there, macro forces that are are headwinds that are working against us at the moment, but, transformation program remains on track. We are delivering, we believe, both on the revenue side and the cost front. So we're that the positive at the moment that the transformation program is on track. And of course, long term, our, our goal is for sustained profits. And so it won't end at the end of 2019. We will continue our relentless push for productivity efficiency improvement. We are we will be growing the business continuously through to 2024. You've seen our fleet plans in terms of growing regional and a long haul fleet. The focus very much comes on the Greater Bay area and our presence and penetration in there and make Hong Kong International Airport, a multimodal connectivity and seamless access throughout. Again, we want to position ourselves to take advantage of the 3rd run lease opening in 2024. And with that, we had our announcement, on 5th March, that we are in active discussions, with Hong Kong Express. No agreement has been entered into. And so we can't talk anymore about that at this stage. And with that, we will open the floor to your questions. Hi, good afternoon. I'm Eric Lynn from UBS. Firstly, congrats on the progress on transformation. If I may, ask you to elaborate a bit more on outlook. Let me split it into passenger and cargo. Firstly, on passenger, what are you seeing year to date in terms of loads and yields. And forward booking wise, what are you can you share with us? Like, you're you're booking up what we're seeing in terms of yield and loss, especially I think you are going to grow 6.8% capacity, like gradually. We couldn't assume that strong yield momentum last year is gradually fade away as a result of, your accelerated capacity growth. You momentum. So, that's my question on passenger. And then on the toggle, I I would say apart from macro is a bit complicated because you've got, fuel surcharge being more in line with, oil price. So I think on on a cargo yield perspective, are we going expect that field surcharge component is going to be down year on year affecting your plan that calculate that's my first question on that and and secondly, you also have, Air Hong Kong coming in as a 100% consolidated. And correct me if I'm wrong, if Air Hong Kong is more like a contract business will be small, stable. So what was what's gonna be the landed cargo yield look like in 2019 on the back of these two factors. Eric. Eric always asks a very elaborate question that, by the it, I forget what were you asking. I think when we look at passenger view and performance of 'eighteen, obviously, it was a a strong driver behind the results. And, as usual, this is early in the year, then are a lot of uncertainty. What we have seen so far this year, peak continue to be peak, similar to what I said in the past, but it's more polarizes. Leg is a 1st leg. So, it's absolutely important to get revenue management right, and you want to make sure that, you can capture the best core revenue during the peak and, open up the flight during the slack. We have a reasonable Chinese New Year. We back to have a reasonable Easter in between peak season, is quite slack. So if you compare with last year, we came from, relatively high base in terms of you. So it will be challenging. But in terms of low, there are, in general, in line with, what we expected, with some specific sale relatively weaker. I would say, mainly driven by, weak in currency, Southeast Asia Countries, Minland China. These are the market that is a point of sale relatively weak. You have places like Taiwan during the elections, quite quiet, people were not traveling, but as soon as the politics is over, we see Bang in, number of passengers. You want to talk about cargo? Or Yeah. Why don't why don't I talk a little bit about cargo? And I think you were asking we see the sort of future looking forward? Well, I mean, as the backdrop, there's no doubt that, you know, trade uncertainty is not good for for cargo volumes, and we have seen a bit of a tail off on volumes on the issue of fuel surcharge, of course, collected fuel surcharges throughout the period, both in Hong Kong and overseas. So that's just a straight reflection of of the price of fuel. And whilst there's, you know, some pressure on the cargo market at the moment, some of the underlying fundamentals, are positive. The first of those is that the growth in ecommerce and particularly cross border ecommerce news, and it's much less seasonal than previous trends. The second, is that the imbalance traditional imbalances, the largest cargo hub in the world of outbound has been better matched with inbound. And the third is that we're up increasingly, what we call high value cargo, cargo that needs to be handled, with care and where people are discerning about who they are do that. So long term fundamentals are good for us in cargo, but there's no doubt there's a a weakness at the moment. There's one other point I would add. And it's relevant to our expansion of destinations and frequencies in that notwithstanding the fact we've got 20 freighters. We're now carrying higher volume of cargo on our bellies. So all of those things in combination, they don't take away the packs, but they protect us against the impacts. Air Hong Kong? Air Hong Kong. Yeah. I can't remember what the question Air Hong Kong. Here in Hong Kong, we take 100 percent off it the way that it's structured. We're not expecting any significant big, big deal, over the next 2 to 3 years. Thank you. This is Kevin from Daiwa. I've got 2 questions. One is regarding a previous announcement on, acquisition of, or talking about stake, taking stake in the Hong Kong Express. I want to ask that what's makes management that thinking about, if you compare previously, you probably are not very favorable on LCC. What factors have been changed, in the past that makes you, oh, maybe it's the time for rethinking about that. This first question. Second question is that for the cargo, you mentioned do you see some slowdown? Is it, kind of, result for the maybe of the Chinese trade talk that people might? You see might defer on the, shipment or you see it's actually the whole week macro or consumer, sentiment is for a week. Maybe more color on that. Yeah. Let me I'm sorry to disappoint you, but, the announcement that we made Hong Kong Express is pretty much the totality of all we're going to say at this, at this moment. I mean, if a deal gets concluded, then obviously we'll talk much more extensively to you stock market at that stage, but we're really not going to elaborate on any of the wider factors around, around that at the moment. On the of cargo and and what's driving it. Are that Paul? Yep. On the issue of cargo, just like what we talk about, we met back in November, definitely there were quite a bit of front loading back in October or starting from mid September last year. The peak last year was super peak, and, it takes time to digest the inventory level. Also, the current trade talk between US and China, have certain effect on people delaying to, place extra order etcetera. So if the fundamental, economy continues to be strong, the dispute is over, we we might see some rebound later on, this year, but more importantly, even if, China Pacific root volume is not, growing as the speed as before, it is important for us to have the network to be able to be agile enough to redeploy our capacity so that we can serve, the different trailing, whether it's, within Asia or between this part of the world and Europe. Thank you. My name is Edward here from Morgan Danny. So first of all, regarding your AASK guidance for this year, right, we see about the 6.8%. So it's a significant and higher than the last 2 years. I just want to this is due to your free to plan or due to you see better demand outlook. And what's your expectation on a load factor, for this year. And the second, could you regarding the cargo business, could you just give us a sense of, how much profit does, did you make last year contributed to your bottom line. Thank you. Alright. I'll take on ASK. The 6 point 8% is our plan for this year. Remember, every year, we put out our plan and for operational reason and other reasons, we may or may be able to operate you, what we plan. So far, year to date, we are. And, among the 6.8% a substantial amount was driven by full year effect of extra flight we launched last year, whether it's new designations or extra frequency. The reconfiguration of our 7, both the yaw on non haul and the triple 7 dash 300 serving the region. I also have an impact on the growth rate. Unlike last year, We we launched 10 new destinations. We are still having some new destination, but not not to that extent. That also contributed to part of the growth in ASK. And, we don't expect a low factor to be very different from previous year. The low factor of 18 was marginally down from 17, and, the the trend has continued to be around, similar therefore. The only thing I'd add to that is that you can see ASK growth is driven by long haul, but you do seek count instead of of ASK, we're still confident that network is well balanced and the feed will be balanced across there. On the issue of cargo, we don't separate cargoid as a profit center. So I can't really answer that question. We don't look at it in that way, but it's a very, very important contributor not just for the freighter fleet in its own right, but to the viability of many of the routes that we fly passenger aircraft on. Worth remembering that our fleet is about 80 I think it's 85% wide bodied. So our belly capacity and our passenger fleet is is very high. Hi. It's Andrew from Jefferies. Could you comment a little about the cost outlook. Because like last year, you mentioned like landing costs, depreciation, finance costs would increase on a year on year basis. Whatever for this year. Any one off big costs? Yeah. There's no, I mean, other than what see in terms of the, depreciation and our investment in our, in our fleet in that sense, we've got, 9 aircraft going on in this year. So it's a similar new aircraft coming on board. And we still have the, that sort of underlying pressure in a similar course, but I would say that the focus that we have on measures, metrics, lean, dashboards, etcetera, is coming through. We're starting to see that that trend, you do have to strip out a lot as we've tried to demonstrate there in terms of how FX and new accounting standards can can impact on that. But, you know, I'm I'm when I sit today, I'm just really confident that underlying cost trend, as we said, sort of flat to to to reducing in in 2019. Add to that, Andrew, we've always said that there's no one silver bullet here, and on the productivity side, the work that we've done are getting people better data and the ability to analyze data better is just making for better decisions, so we're stripping out a lot of based. So we have nearly 800 initiatives, I think, at its peak, all of which are being tracked as business cases, all of which are either driving more revenue or productivity or driving higher asset utilization or some combination of those things. And as we cement that business and people get better at it and the tools get better and our data infrastructure gets better, we hope to be able to become more productive on year and then start investing back into the customer experience so a virtuous circle. Hi. This is Ajit from UOP. Perhaps, you could some light in terms of the outlook for corporate travel. Do you see any deterioration, especially to North America or to improve from North America. And also could you, share in terms of whether you see any pickup in leisure, premium travel? On front end corporate travel, we see year to date pretty solid demand. We haven't seen any softening and, with the new route that we are going to launch, Seattle back from end of March. Another new destination that, we expect good support from COVID travel in the front end another IT hub that we like Hong Kong with. When it comes to, leisure travel, we have been introducing our premium economy class, Kevin, for a number of years. We have seen year on year growth in revenue, and we have also seen the end of a passenger are getting used to it, and they like the product. They enjoy the surface, and they are willing to pay a bit more to have to extra, comfort as well as, differentiation in surface. So this will be continue to be our direction moving forward. Hi. This is, Ben Hartright from Goldman Sachs. I have a couple of questions. One is, on the transformation program, I think in the, announcement you mentioned, obviously, that it's starting to contribute already and your expectations for that to increase in 2019. Is there anything you can give us in terms of quantifying the contribution in 2018 and then sort of guidance in terms of what we should expect in terms of either revenue or cost, this year. So that's on transformation program The second question, just on the date of reach, wonder whether there's, anything, you can tell in terms of, you know, where the regulators are? Is there any risks or, I mean, are they looking into it still particularly around, you know, the, GDP are in Europe. And, you know, is there any, anything you can tell us there? Thank you. The there's nothing specific we've talked about this at length in terms of there's no when you when you're transforming through growth and and you can't sort of cut significant costs or or or, or, so as I said, there's over 800 measures that were were implementing on that piece. We've given you our overall target for the year is to try and get our return on capital employed up about our weighted average cost of capital and we've given that target of 7.5 percent, at the end of 2019. We're very much you know, it's a big turnaround for the for the airline in that piece. When we started the the the program back in 2016, we were seeing our net yields declining with the oversupply in the market in that point in time. And in that knowledge, we we knew that in order to achieve those that the the overall target, we were gonna have to keep our cost space, flat to, to, to, to reducing ex fuel. Things change, as you go and we are well managing a business. And so we have seen yield improve in that sense, which makes you able to adjust sort of transformational initiatives that you want to that you and so we are seeing the benefits of investing heavily in marketing in new routes, being clever on that front in terms of yield management, too. So again, it's it's a moving feast in terms of, you know, the, you know, aviation impacted by a number of different factors. So what we now is we have, we have tools where we have all those initiatives ready. And so we have different initiatives that we can start executing on as different factors impact us. So you know, as I say, we are confident in the overall strategic direction, the structure that we've built, the platforms we've built, the dashboards that we've been to measure trends. And so it's overall looking at trends and adjusting the business to that to to get back to the ultimate goal of of, you know, getting returns that are satisfactory to to investors, staff, everybody, etcetera. Question was on the, the data breach. And the answer is that, obviously, we're working with the authorities, and we as Martin said earlier, have had inquiries from a number of authorities, but nothing further of that, at this stage. Any other questions? Hi. James from JP Morgan. Can you give any guidance on cargo capacity growth for 2019? That's the first question. And second, could you talk a bit more about Greater Bay Area Initiative? Is that, you know, positive, negative, or how how do you see it, in for Kathy. And, lastly, any, any updates on the, the negotiations with the the pilots at all? Thank you And you heard the first question, so I'll let Paul answer it, which was That that low cargo capacity growth this year, is projected to be around 3%. Just want to correct, on, freighter numbers. We actually are operating 21 freighters, 14 of them, dash 8, 6, we had 1 Bcf return from lease. So now we are operating 21. And, we are about to finish our contract Atlas. So that is not going to continue. So altogether, 3% growth in WATK. Yes. On the, let me answer both Greater Bay Area and pilots. I mean, first thing I'd say is that, you know, our pilot community is a very and part of our team, and clearly we value that relationship a lot. And what we're, you know, our key objective objective here is that, like everywhere else in the airline, we become more productive, but we do that in a way with new, patent deployment and roster tools that allows the pilots to have greater control over their lifestyle as well. So there should be a win win in that. In terms of, how we with our pilot community. It's difficult because, of course, you know, by the very nature of their work, they're not here the whole time, but they have a union. We engage with the union as you the union has a, a committee and then they have a negotiating committee who negotiates on their So this is the second time in 4 years actually that we've come to an agreement with the committee and the negotiating committee, and the pilots of have said no to that. So it's really a process challenge for us, but we're committed, I think, to engaging with our pilots going forward. And to achieving those first goals that I talked about. So that's where we are with the pilots at the moment. On the Greater Bay Area, I mean, in sum, we see this as a big opportunity, not just for us, but for Hong Kong International Airport, and indeed Hong Kong with respect to aviation. What are we doing about that? Well, we have code shares as if, for instance, on the ferries, both the ferries going to Macau and the is going up to the Pearl of a Delta so that people booking in Los Angeles or London can effectively use honk Tong airport as a multimodal hub and their bags will go right the way through to final point of, destination in both directions. We're also, of course, growing our network, every time we grow our network, we, grow the attractiveness as Hong Kong of Hong Kong Airport as a big international gateway to and from the Greater Bay Area, and and find I think, you know, the the overall thrust will be to make Hong Kong Airport and therefore the Pacific network, as accessible as possible going forward. So that will include land transportation and things right back going forward. But with a population of 70,000,000 and a, and a, you know, economy, the size of Australia and growing at rate that it is, we see it as a huge opportunity for both us as a big premium network carrier and Hong Kong. Yeah. Paraasjain from HSBC. My question is more with regard to the competitiveness in the medium term with China Southern pulling out from Sky team. The verdict is yet to be out, but they're increasing culture with other one world members in in the foreseeable future, or they being part of the one world, does it in any manner change the competitive landscape for your one part of the business, which is transiting or taking the passengers all the to North America? Thank you. Well, look, there's a whole raft of things in that. I mean, I often think that particularly, you know, a lot of commentators see aviation and air travel as a 0 sum game in look at IATA at the moment, I mean, I think it's 1,700,000,000 people in Asia Pacific. By 2037, they see that as being 3,900,000,000 people. So that is a massive growth market. If you look at alliances in particular, the 3 big groups have become relatively well delineated over the last 10 years. It's a very obvious and attractive customer proposition where people can be treated well they go beyond their airline of choice and beyond, beyond its network. I don't see that fundamentally changing. However, I think everyone in Alliance acknowledges, and I think one world is more flexible than that, that traffic flows and markets do change. And so in one world, we have quite clear agreements that people will be able to do bilateral arrangements out some of one world, and one world will still exist, I guess, Qantas Emirates is a very good example of that. So turning to China southern. Yes, there are lots of people who have, co chairs with China Southern in one world. JAL and Qantas have very big co chairs with China reason. So the coexistence is fine. The market's developing. It's gonna be a growing market, and it's just who you choose as your non alliance partners as well as your science partners that that makes for the best customer, you know, product at the end of the day. This is a question for Paul Barrett. Actually, it's more like a housekeeping question for Martin, I believe. Well, actually looking at the 2018, of revenues. We we've seen a big jump, you know, on that line. I just want to understand, putting also the transformation of how about this, you know, revenue driven, how much of that transformation, you know, revenue has actually fallen on these lines, other revenue, catering, recoveries, mitigation miles, you know, so and happy to gauge how should we look at line in 2019? So a big part of that jump is the is due to the revenue recognition piece there, the the the grossing up of the the the cargo handling and the, intermodal trucking goes goes to that. So it takes about half of it in terms of that. So percentage wise, though, on revenue, piece of this growing, particularly in Asian miles, and so, you know, I'd say going forward, you're, you're, you know, taking out the impact of, of, IFRS 15, on, which is, which taken out in terms of that, you can strip that out in terms of the percentage change. You'll see a continued improvement on the other revenue line, but it's not a big number in the in the in the whole I saw it's gone up, like, keep the 5,000,000,000, year on year. And you just mentioned the half of doors is, sorry. I think it's like the one, isn't it? So, yeah, so if you on the if you on the IFRS 15 line there, or the 1.6 1,000,000,000 in cargo handling revenue grossed up and the freighter revenue goes in there and there's reallocation a mother to to passenger on the on the bottom there. So net those 2 off, and then you'll get your you'll get your underline. Purely accounting, whereas, you know, organic robot transformation is is insignificant on that line, right? It makes up a half the percentage change. So percentage wise, it's growing significantly, but as you say, it's on suite numbers. It's got you. Hi, there. Just a couple of small questions for me as a follow-up. One is on, cost side maintenance costs, fell last year. Just wondering how sustainable that is and how should think about that. Second one is Air Hong Kong, just the, again, follow-up to Eric's question. Is, I mean, how big the minority, well, the profitability of that business, you know, I guess we should expect some lower minority expense to come out of that. Thank you. I say the the first question was sorry. The main maintenance The maintenance cost. Sorry. Maintenance maintenance cost, on that side, we've we've that that's been quite volatile over the over that last few, period but that's sort of we've moved to, you know, powered by our contracts on that side. We we amortize the sort of at least return conditions through that site. So you'd see you'll see the maintenance cost side growing, but but, but, sort of, lower, low steady pace going forward out, hope. Yeah. I'm sorry. Yeah. Yeah. Again, the the the the the we've restructured the the deal as we've mentioned in the past. We have a new 15 year agreement, for with the DHL contract. We basically, at the end of the day, the profitability from, Air Hong Kong at the moment will be much the same, under the under the terms of of that contract. So we're not expecting a significant jump in the bottom line because of the increased shareholding in that sense, but it does us ability to to grow that business beyond that that one contract. Okay. Good. Any other questions for anyone? Okay. Thanks very much for coming.