Good morning, and thank you for joining us for the presentation, now in the middle of July, of Icelandair's Q2 results. I'm Bogi Bogason, the CEO for Icelandair, and here with me is Ívar S. Kristinsson, our Chief Financial Officer. As usual, first of all, we go through a presentation, and following that, we will have a Q&A session, and we encourage you to send us questions to the email address ir@icelandair.is. Then to the information we published yesterday afternoon.
In recent months, we have seen a bit of a drop in demand to Iceland compared to last year, and our team did use the flexibility of our route network to shift the focus a bit more to the transatlantic market, and that resulted in an acceptable load factor.
However, the average yields are lower on the via market than on the market to Iceland, and therefore, unit revenues decreased between years. Our focus is on efficiency, and it's great to see 2.4% lower unit cost than last year in a high inflation environment. During the quarter, we continued to see positive turnaround of our cargo operations, but due to the lower unit revenues, EBIT decreased by $18 million between years and was $3 million. Our balance sheet continues to be strong, with liquidity of $465 million at the end of the second quarter.
The weaker demand to Iceland resulted in 15% fewer passengers to Iceland than last year. We also saw 9% decrease from passenger numbers between years.
The demand on that market is, however, strong, and we are seeing a strong preference to travel with Icelandair for all segments. However, the most price-sensitive travelers might choose other options, as we are not competing with the unsustainable airfares that we are seeing in the market. And as I said, our team has done a great job in utilizing the flexibility of our network to adjust to the changes in the market dynamics, and that resulted in 25% increase of via passengers between years.
The on-time performance between years is 11 percentage points higher than last year, which is a great achievement, that I will talk a little bit more about later on during the presentation.
To the cargo, freight ton kilometers decreased by 35%, as we continue to adjust capacity to demand, but we saw considerable increase in sold block hours within our leasing business. Our focus is on efficiency and operational excellence, and that focus, this focus has been materializing in our operations. An example of that is the outstanding on-time performance. In the second quarter, it was 86%, or, as I said, 11 percentage points higher than last year. In June, Icelandair was the most punctual airline in Europe, according to the Cirium ratings, which is a leading company in the aviation analytics.
Improved on-time performance lowered costs, as is reflected in our unit cost in the second quarter, and it also improves customer experience, and therefore positively impact revenue generation.
Now, this achievement is the result of the dedication and hard work of the Icelandair team. Big thanks to the whole team, and we are dedicated to keep this momentum and continue to improve all aspects of our operations. We also have other important indicators that are trending in a positive way. For example, the Customer Net Promoter Score, which measures the customer satisfaction and how likely our passengers are to recommend Icelandair to others, is now at a very strong level and increasing.
The same goes with the first choice carrier metric, which we measure on a regular basis. In the first half of the year, 44% of Icelandair's say that Icelandair is their carrier of choice, and if we have the right product at a fair price, they will choose Icelandair and not look elsewhere.
We also have a constant focus on the wellbeing and satisfaction of our employees, and despite the difficult actions in the second quarter, our employee NPS score still remains very strong, and we have ambitions to increase it even further. Now to the financials. Ívar, please.
Thank you, Bogi, and good morning, all. For the second quarter, as Bogi mentioned, EBIT was $3.3 million and $18 million lower than last year. Within the quarter, then April was negatively impacted by the early Easter this year, but the June performance was stronger than last year due to the good operational performance in the month. On the numbers then, the passenger revenue was $353 million and was flat year-on-year. Cargo revenue was $17 million, down by $5 million due to fewer cargo flights than last year.
As we have mentioned in the last few meetings, then we have taken various measures to improve the results of cargo, which are now paying off.
Those actions included one of the two 767 freighters being leased out for the long term. The turnaround in the cargo operation was $3.4 million in the quarter. Leasing revenue was $21 million , up by 6% between years. And overall, the leasing business is performing well, and the EBIT margin was 15% in the quarter. Other income was $19 million, and total income amounted to $409 million and was at similar levels as last year. Operating expenses, excluding depreciation, were $ 371 million and were up 3%, while at the same time, for example, the production in the route network grew 8%.
In general, the operational robustness that we have achieved this quarter led to lower costs, such as for passenger compensation and also short-term aircraft leases that, you know. These items kind of favorably contributed to the reduction in the unit cost. Salary and related cost was $107 million, compared to $106 million last year. There's an increase of 1%. Full-time equivalence positions were around 3,700 and were down 2% between years, and that was impacted by the outsourcing of the catering operation in Keflavík that we did in March.
The changes that we did in May in the non-production headcount impacted 82 employees, and it resulted in a one-time cost of $1.5 million that was expensed in the quarter. Aviation expenses, including handling, landing, navigation, and maintenance costs, were at $74 million, up by $3 million year-on-year. Other operating expenses were $92 million, up by $5 million year-on-year. The increase, as I said before, is largely driven by the larger flight schedule in the passenger network. Depreciation and amortization was at $37 million.
Same there, increasing in line with more production in our business segments. Finance costs, $2.1 million, compared to $7.3 million last year.
The improvement is due to better financial income, which is both driven by higher interest rates and in general, better-yielding financial investments. Finance costs, on the other hand, was $11 million and was at similar level as last year, but the net finance cost was $2.1 million. The profit for the quarter was slightly positive, of approximately $600,000, after tax. Taking a bit deeper look at the revenue, the passenger revenue, then the unit revenue or the RASK was $0.079 and decreased 7% year-on-year.
The shift in the focus to the via market, as demand for travel to Iceland has been weaker than last year, had a negative impact on the yields, which largely explains the lower unit revenue.
The average yield was $0.087, 5% lower. Revenue generation, for example, in Saga Premium, was continued to be strong as it has been recently, and the partnership revenue contributed favorably to the overall revenue generation. Cost side, as we have mentioned in this presentation, it is very positive to see the development there and the results that have been achieved, which are reflected in the unit cost reduction, despite significant inflationary pressures still in many parts of the value chain. For example, here in Iceland, we still see inflation loom around 6%, annually.
The unit cost was 8 point...
to 8 cents, decreasing 2.4% year-on-year, on the kind of much improved and robust operational performance that we've been experiencing, tighter cost control, and continued introduction of a more cost-efficient fleet, and those factors all positively affected the unit cost in the quarter. And as an example of our success that we have had in the operation this year, then the last winter, it was very large on the heavy maintenance on the 757 fleet.
But we still managed to have the fleet coming back into service, well within the timeframe that we had planned, and that resulted in high operational readiness, and that is very visible in the good OTP and the lower costs related to irregular operations.
Fuel expense was $97 million, up by 1% year-on-year, despite the 8% capacity increase and 9% increase in the fuel market price in the quarter. There are a few factors that explain this. More fuel-efficient fleet, the 737 MAX. We added 3 MAXes in the quarter to the fleet. Continuous improvement within our fuel efficiency program, achieving good results there. And then we had positive outcome of fuel hedges in the quarter and lower carbon credit cost. The weighted average fuel price was $937 per ton, 3% higher than last year.
Looking forward, we have hedged approximately 40% of the fuel consumption or the expected consumption for the next 12 months, at the average price of $821 per ton. Turning to liquidity, then cash and marketable securities were at $413 million at the end of June and increased by $143 million from the start of the year. Cash flow from operation was strong, $257 million, $257 million year to date. CapEx and investing activities, $62 million, mainly due to maintenance of aircraft and overhaul of engines. In addition to the investment in the new headquarters in Hafnarfjörður, which will be finalized by the end of the year.
Financing activities totaled ISK 53 million, and those are repayment of of loans and repayment of operational lease liabilities. The company had undrawn credit facilities amounting to ISK 52 million, and as Bogi mentioned, that takes the total liquid funds to ISK 465 million at the end of the quarter. Shortly on the balance sheet, total assets 1.8 billion, increasing by 272 million from the beginning of the year. We have the increase there due to the continued fleet investment both for the passenger route network as well as in the leasing business.
Those kind of investments, including the 3 MAXes I mentioned before, and in addition to this, we have the seasonal build-up of bookings for the summer season.
Cash and marketable securities, strong on the good booking inflow, and that is also reflected in the liabilities on the deferred income, which grew by $203 million in the first half. Equity, total equity amounted to $233 million, 13% equity ratio, lower than... That is lower than at the beginning of the year, due to the seasonality of the business, and the equity ratio will go up in the second half of the year, as it always does. Now over to you, Bogi, for the outlook.
Thank you, Ívar. Yeah, for the outlook and the business update. I'm gonna start on the partnership network that we have been expanding. In June, we signed a codeshare agreement with Emirates, which improves our connections a lot into Asia and the Middle East. And having both Emirates and Turkish Airlines as our codeshare partners strengthens our revenue generation from those high-growth markets and will create great opportunities in the near future for Icelandair.
Not the least, when we take delivery of the Airbus A321LR and A321XLR, and our future ambitions is definitely to fly directly to both Istanbul and Dubai, and thereby grow the connectivity and reach of our network considerably, and allow for smoother journey of our passengers all over the world.
At the same time, we announced Lisbon as a new destination recently. We signed a MOU with TAP Air Portugal in Portugal, and thereby we will connect into strong markets in Africa and South America via Lisbon. Currently, we have eight codeshare partners, and the partnership expansion has increased our network reach, providing our customers with more travel options than ever before. Our customers can now enjoy a wider range of destinations, streamlined booking processes, and more coordinated service between us and the other airlines that we are partnering with.
Last year, over 10% of total revenues came from partnership agreements, and our plan is to further strengthen our partnership portfolio, and we have a strong pipeline of new cooperation agreements in the works.
And now, looking at the passenger network, for the rest of the year, the capacity growth will be around 9% in the third quarter and around 7% in the fourth quarter. That will result in a total growth of approximately 10% for the full year. We are forecasting to transport 4.7 billion passengers this year, compared to 4.3 last year. In total, we have 57 destinations in the network, which creates 790 connecting possibilities, and in addition to the countless other connection opportunities that we have with all the partners I mentioned before.
And, as Ivar went through, the turnaround of Icelandair Cargo is on track. We have been adjusting the fleet and capacity to the underlying demand.
And on top of that, we have been streamlining the organization and simplifying the organization. In the autumn, we are expecting a positive development in the export market, for both whitefish and salmon. And our plans are for that Icelandair Cargo will return positive EBIT for the full year, after $17 million EBIT loss last year. Our leasing business at Loftleiðir continues to perform very well, and that company delivered over $3 million in EBIT in the second quarter, with a 50% EBIT margin.
There, we have 5 aircraft on a whole year operation, with long-term agreements with our largest customer, and the VIP World Tours are going well, and we have now added the third aircraft to the specialized fleet in that business segment.
The Loftleiðir team is currently preparing for the South Pole winter project. Overall, Loftleiðir's team, the team at Loftleiðir has a strong focus on projects for the winter to even out the seasonality for the Icelandair business in general. To sum up the outlook for the full year, on the cost side, we are expecting that the unit cost will be slightly lower in the second half of the year compared to last year, as we saw in the second quarter. In a high inflation environment, that demonstrates well that our focus on cost and operational excellence is materializing in the P&L.
On the revenue side, the demand on the transatlantic market remains robust, but there is pressure on yields and therefore unit revenues.
We see signs that the capacity to and from Iceland is stabilizing over the winter season, which should positively impact the unit revenue. There are positive signs in the market to Iceland following lower hotel prices now than earlier this year. However, although recent volcanic activities have not impacted Icelandair's flight schedule at all, and Iceland remains completely safe to visit, further seismic activity in Southwest Iceland might impact the demand, as we have seen in the last few months.
So the situation is quite fluid, and it's hard to predict in an accurate way how the market dynamics will develop in the coming months, and therefore, a financial guidance for the full year is not provided at this point of time. On to the more long-term focus and prospects.
Last year, 2023, we completed our post-pandemic wrap-up, and following that rapid growth phase, we are now focusing on optimizing our operations by driving efficiencies and increasing our competitiveness. This effort is crucial to respond to the current market dynamics, such as increased competition, high inflation, and increased cost, as well as just to ensure profitable growth and long-term success of Icelandair. It's great to see that this focus has already had a positive impact on our unit cost.
In line with this, we launched a transformation journey in the second quarter of this year. One of our executive team members, Rakel Óttarsdóttir, has taken on increased responsibilities, and in addition to her current role as the Chief Digital Officer, she will also serve as the Chief Transformation Officer.
The main goal is to increase operational efficiency, mainly by lowering cost, but also by strengthening revenue generation. We expect this journey to yield a significant impact, and it will also support our goal of becoming best-in-class in terms of efficiency. We at the company, we at Icelandair, we are confident that this will put Icelandair in a prime position to capture emerging opportunities and create long-term value for shareholders and the Icelandic society.
At the same time, we are, of course, committed to offering a best-in-class customer experience, working towards more sustainable operations, and building a top-tier workplace. We continue to renew our fleet. This summer, we are operating 21 MAX aircraft, and they are performing very well as our fuel bill shows. Before summer 2025, next summer, we will take delivery of 4 Airbus 321LR aircraft.
In a few years' time, our narrow-body fleet will only consist of new-generation aircraft, which are more fuel-efficient than the previous generation. As a part of our fleet transition, we recently invested in a, in an Airbus simulator that will be up and running here in Iceland next year. All in all, we see great opportunities ahead. The sustainable expansion of our network with new, longer-range, narrow-body aircraft will form the foundation of Icelandair's and I celand's further development as a tourist destination and as a connecting hub between Europe and North America.
Despite the fluctuations from year to year, I have full confidence in the future of Icelandic tourism, not the least the connecting model we have built up over the decades.
The market to Iceland is already showing positive signs, as I mentioned earlier, and we'll get back on track with the right actions. The current emphasis in our operations will increase productivity and efficiency. This, all of this, coupled with our strong liquidity position, makes us well-equipped for the journey ahead. So this concludes the presentation, and we hope that we have some questions now from the audience.
Good morning. We have a few questions already. First of all, is the seasonality on the North Atlantic market getting more extreme, or are you able to balance this out?
In general, in our environment and in our markets, the seasonality is a little bit more extreme now than pre-COVID, and that is definitely a challenge. But we are focusing a lot on that to even out the seasonality in our whole business. And as I mentioned, our leasing arm at Loftleiðir is focusing a lot on winter projects, and they are doing quite well there. Having the MAX aircraft, now we have 21 MAX aircraft with much lower trip cost than the 757, create opportunities during the wintertime, and the new destination, Lisbon, is an example of that.
So we have tools to mitigate the seasonality, that's for sure, but the seasonality is a little bit more extreme now than pre-COVID.
Regarding the 737 MAX, can you give an update on deliveries?
On the MAX?
Yeah.
Okay. So, at the moment, we don't have any additional MAXes that are expected to come into the fleet. So as Bogi mentioned, the focus now is the introduction of the 321LR that will come into the fleet, starting at the end of the year, and we will have four of those operating for next summer. But there are no MAXes in the pipeline. It's just the three that we implemented this spring.
Could you give a more update on the entry into service of the Airbus aircraft? And also, can you mention some of the new opportunities which the A321neo Future Fleet will offer to Iceland there?
Yeah, we have the plan is that the first Airbus will we will take delivery of that before end of the year, and we will have 4 Airbuses before next summer 2025. And the opportunities that we see are for example California, Texas, I mentioned, Dubai. So we just see a lot of opportunities to further develop our network with the LR and, not the least, the XLR, when the XLR comes into the fleet. Fly into, like, Dubai, into our partners up there, as I mentioned earlier.
Mm.
That is it for further questions?
No further questions.
Okay.
Thank you very much for joining us here, and now just enjoy the summer. Thank you, all.
Thank you.