Earnings Call: H1 2020

Jun 24, 2020

Hello, and welcome to today's EasyJet Analyst Call. My name is Dan, and I will be your coordinator for today's event. Please note this conference is being recorded. And for the duration of the call, your lines will be on listen only. However, there will be an opportunity submit questions towards the end of to be connected with an operator. I will now hand you over to your host, Johan Lundgren, to begin today's conference. Thank you. Thank you very much for that, and good afternoon, everyone, and thanks for joining us to discuss ECG's H1 2020 results. With me on the call are Andrew Findlay, our CFO, as well as Michael and Holly from our IR team. We should have been sent to slides, along with the statements which are also available on our corporate website. We will talk you through the presentation and then follow-up with plenty of time for your questions. So starting on Slide 3, Easyjet has been decisive in meeting the challenges of the coronavirus through driving down costs, delivering vastly reduced CapEx while retaining excellent fleet flexibility and through having secured around 1,000,000,000 in additional debt funding. We have also announced today that we are boosting our liquidity further through an equity placement, which will also strengthen our balance sheet and solidify our credit rating credentials. ECS business model means that we are well positioned for the recovery from COVID-nineteen. We have delivered strong first half results with underlying trading ahead of expectations and history has shown that during downturns, ECGES has outperformed the market through the recovery period and weak expect that we will be leading the recovery again through the coming period. This outperformance is built on Easyjet's brand, driving confidence into European travelers, who are focused on trust, sustainability and value for money. And Easyjet's industry leading network, serving primary air force provides a customer offering that cannot be matched by any other airline. We're also undertaking a cost out program which will deliver a stable cost savings in all areas of the business. But before we go into these items in more detail, let me hand you over to Andrew. You, Johan. Good afternoon, everyone. So starting on Slide 5, our number of one focus over the past few months has been to maximize liquidity. We've done this through reducing our operating cash burn during grounding by around 70% and negotiating payment term extensions with many of our major suppliers. If the first 24 aircraft deliveries will be on 2025, pre delivery payments have been re profiled accordingly. And we have secured 1,700,000,000 of additional funding since the pandemic began. This 1,700,000,000 includes 1,400,000,000 through the CCFS, our RCF and term loans, plus circa GBP 300,000,000 from the sale of leaseback transactions completed so far. Final proceeds are expected to be towards the top end of the GBP 500,000,000 to GBP 600,000,000 range. Our cash position at 22nd June was 1,000,000,000, and that's before the proceeds from the remaining plan set in leaseback transactions and the proceeds of the equity placing announced today. Adding additional funding would leave our cash position at around GBP 3,000,000,000. Moving on to Slide 6. We have updated the scenario planning charts, which we published on 16th April. Compared to those earlier forecasts under the 3 month grounding scenario, our cash burn forecast has been reduced from 1000000000 to 1000000000. Under a 6 month grounding scenario, our prudent cash burn forecast has reduced slightly from 1,000,000,000 to 1,000,000,000. And under the unlikely 9 month grounding scenario, we've left the expected cash burn forecast unchanged at 1,000,000,000. The key takeaways Cash burn is slightly better than our April forecast, and this is principally driven by the proportion of customers choosing to rebook or take a voucher rather than requesting a cash refund. We have resumed our flying program up to 11 weeks of full grounding, somewhat ahead of the base case scenario over 3 months grounding. We will continue to explore additional sources of funds in order to underpin an already strong liquidity position. We've also initiated a business wide cost out program in order to improve future free cash flow generation. Moving on to Slide 7. We announced this afternoon that we have launched the Nextiva Placing. The painting will be conducted by way of single accelerated book build, ordinary shares. This book build covers both affirmed placing for up to 9.99% of our issued share Dodge will settle T +2 and a further up to 5% of issued share capital, which is conditional upon shareholder approval under an ordinary resolution. This approval will be sought at the general meeting to be held on 14th July with settlement T plus 14. Gross proceeds of the equity placing based on today's share price are expected to be around GBP 400,000,000 to GBP 450,000,000. The proceeds will further strengthen each debt's liquidity position and credit metrics, further underpinning one of the strongest balance sheets in European Aviation. Moving on to the key performance indicators on Slide 8. In the first half, our capacity decreased by 7.6% reflecting the cancellations in March due to the coronavirus. Passenger numbers of 38,600,000 were down 7.4% Our load factor was 90.3 percent, up 0.2 percentage points. On a reported basis, first half revenue per seat was up 9.6% Whilst constant currency RPS increased by 10.2 percent outperforming our guidance. Our headline cost per seat increased by 5.5% in the half while increasing by 7.2% at constant currency. Our constant currency headline cost to proceed ex fuel was up 9.5% for the half. Moving on to the income statement on Slide 9. Total reported revenue increased by 1,000,000 to the half. Total headline costs excluding fuel increased by 1,000,000, which was mainly driven by the cancellations due to coronavirus. I'll provide more details on our cost per seat drive in a moment. Fuel costs decreased by GBP 58,000,000 in the half, which reflects the impact of the lower jet fuel price. As a result, Asia delivered a headline loss before tax of 1,000,000, which is comfortably in line with our guidance of an improvement year on year compared to 1,000,000 loss in half 1, 2019. On a constant currency basis, the headline loss before tax of 1,000,000 is also significantly improved year on year. The non headline items are driven principally by fair value adjustment of 1 1,000,000 in relation to east jet, significantly over hedge position from both the jet fuel and FX perspective, following the full grounding of the fleet and the lower capacity expected to several months thereafter. Moving on to the detail of our revenue per seat performance slide on Slide 10. Total revenue per seat increased by 10.2 percent to constant currency outperforming the guidance, which we gave at the Q1 stage for mid to high single digit improvement. Is very strong performance, which was driven by a bankruptcy of Thomas Cook in September, which boosted RPS by 56p or 1.1% on a per seat basis. Continued strength in ancillary revenue, predominantly driven by the first bag as well as strong performance of allocated seating initiatives. These delivered a GBP 1.01 or 2 percent positive impact in RPS in the half. We were particularly pleased with 4.4 points of GBP4.20 or 8.3 percent impacts on RPS and strong underlying trading driven by self help measures such as our late year initiative, network optimization notably in Germany, market consolidation and route maturity. During March, we canceled around 18,000 flights due to coronavirus. And in the context of the first half, this decreased RPS by 61p per seat. Or 1.2%. And finally, when including a 27% negative impact from Forex, ESET reported revenue proceeds to half, increased by 9.6%. Moving on to cost per seat on Slide 11, headline cost per seat increased by 7.2% at constant currency, headline cost proceeds excluding fuel, at constant currency increased by 9.5%. The various buckets of the costs which are heavily influenced by the impact of the reduced flying due to coronavirus. We have therefore broken out the overall impact of coronavirus and the underlying performance, the underlying increase in headline cost per seat, ex fuel at constant currency of circa 5% was in line with our guidance, and was driven by ongoing regulatory and inflationary cost pressures and increased ownership costs and higher accrued costs, reflecting previously increased pay as well as higher retention levels. The increase in headline cost per seat ex fuel at constant currency of circa 4.5% due to coronavirus, which is driven by the disruption costs relating to the circa 8 1000 flights, which we had to cancel in March. It should be noted that further arrangements for government wage support only started at the beginning of April, and we were running full pilot and crew rosters through the end of the first half. There was a net benefit in the first half from FX movements of GBP 1 per seat. Now for more detail on the impact of fuel prices, currency hedging on Slide 12, The average market price for jet fuel for the half was $5.61 per metric ton. After taking into account our commodity and currency hedging the sterling cost of fuel per metric ton, was GBP 476, which is a GBP 17 increase compared to half 1, 2019. Moving on to foreign exchange. The euro rate fluctuated by between 1 euro 20 and 1 euro 20 1 euro 7 during the half. Net net, there was a headline 1,000,000 positive impact currency movements, which includes those within the revenue fuel and other cost lines. Moving on to cash flows on Slide 13. Asia continues to generate strong sustainable cash flows in the first half. The operating loss of GBP 173,000,000 is adjusted depreciation and the positive net working capital reflecting our usual seasonality. £174,000,000 was returned to shareholders through the payment 2019 ordinary dividend, which was declared in November and approved at the beginning of February well before coronavirus outbreak. Our investing and financing activities, including the generation of GBP 114,000,000 by the sale and leaseback of 10 to A319s, This party funded the GBP452 million of capital investment in the half, primarily on new aircraft. Net debt as of 31st March of 1,000,000. On Slide 14, we can see that Echeck continues to have one of the strongest balance sheets in aviation at 31st March, we had net debt, as said, of £467,000,000, which comprised cash and money market deposits of £1,400,000,000 and borrowings of 1,000,000,000, including 1,000,000,000 of lease liabilities. Earned revenue is usually significantly higher at 31st March each year compared to 30th September due to the seasonal nature of our booking profiles. However, unearned revenues decreased by GBP 95,000,000 since September and by GBP 752,000,000 since last March. This decrease is explained by the significant increase in trade and other payables, which as of March, including the amounts due to customers whose flights departing in April of May were canceled due to coronavirus and travel restrictions. Since March, these balances have been refunded, a waste of refund were converted into vouchers via customers. Trade and other payables have also increased, reflecting extended payment terms for suppliers. Moving on to our fleet on Slide 15. As we announced in April, we have deferred 24 aircraft deliveries from Airbus to delivery dates beyond 2025. This means that for the first time in Egypt history, there'll be no new aircraft deliveries next year. It also drives the repro it also drives the repro filing of pre delivery payments. We also have flexibility due to the 24 operating leases are due to renewal over the next coming year or so, that to reflect the short term reduction in cost expected customer demand, we expect not to renew these leaders and reduce the fleet size at 302 aircraft next year, which compared to our base case of 353 just 6 months ago. So just to explain the graph, the top dotted line on this chart illustrates our current max arrangements, the maximum arrangements for Airbus as well as current vessels. The middle orange line, dotted line, of middle orange line represents our future contractual maximum once we have reduced to 302 in FY21. Note that charters not reflect any future potential opportunistic lease additions to the fleet. Following the closing of our plan sale and leaseback transactions, we expect around 50% of the fleet to be unencumbered. The charts on Slide 16 summarizes our revised expectations for gross capital expenditures to share the remaining of FY 2020 and in the coming 3 years. As a result of the cuts, we have made to CapEx, including the re profiling of our fleet, gross CapEx has been reduced to around SEK400 1,000,000 for the second half of the financial year. FY 2021, we expect to spend just GBP 600,000,000, with only a very small fraction of that to be spent on new aircraft as represented by the orange sliver in the second bar. Maintenance expenditure includes amounts expected to be incurred on lease returns. The lease payments include the capital elements of the lease rentals related previous selling leaseback transactions. Gross CapEx for the financial year 2022 is expected to be in the range of GBP 600,000,000 to GBP 900,000,000, and speed in the range of GBP 600,000,000 to GBP 1,400,000,000 in financial year 'twenty three. The broad range of CapEx outcomes reflects our aircraft all affectability and rates of lease returns. Slide 17 summarizes our forward Jets and currency hedge positions, Prior to COVID-nineteen, our jet fuel exposure was 71 percent hedged at $6.54 per metric ton per FY20 and 51% hedged at $638 per metric ton for FY21. In the first half of FY20, there was million Fairfield Adjustment due to easyJet's significant overhead position from both the jet fuel and FX perspective. Following the full grounding of the fleet and the lower capacity expected for several months thereafter. There'll be a further impact in half 2 FY 2020 an over hedged amount are likely to cause a degree of volatility in the income statement until these instruments mature. This was included as part of our scenario planning and our cash flow scenarios. To mitigate the impact of the effect of over hedging, a number of actions have been taken to include putting putting jet fuel hedging on hold for time period from April 2020 to be talked over 21. Jet fuel hedging continues to relate the time period in order to take advance a low price environment. Our expected FY 'twenty two jet fuel requirement is currently around 35% hedged of $5.13 per metric ton. With that, I'll now hand you back to Johan. Thank you, Andrew. I am on Slide 19. And very pleased to say that on 15th June, and after 11 weeks, of full grounding EC Jets has returned to the skies. There has been enormous amount of work going on behind the scenes, what many of our people have been on furlough. So I'm extremely proud of what we have achieved. And as you can see on the slide, ECS has been one of the first airlines to commit to AR's observation in this charter for COVID-nineteen which provides a framework for safe air travel are new biosecurity procedures, which rolled out on 15th June. These biosecurity measures, form the first part of the European Confidence pledge which we launched in June. And this pledge aims to reinforce some of our core brand values and encourage customers to fly again Sustainability forms the 2nd part of our Europe with confidence pledge, even though the way we operate will look different for a while, we will not be on the promise that we have made around the environment, and this will become more important in the future. And the 3rd and the final part of our Europe with conference pledge is around value. We all remind our customers that we are proud to offer great value for it, particularly when booking early. The initial schedule for our restart on 15th June involves just 10 lines of flying and a mostly domestic schedule in the UK, France and Italy. And as you can see in the chart on Slide 19, we expect this to ramp up through December. And by the end of August, we expect serve around 75% of our previous route network, albeit on reduced frequencies. Moving on to Slide 20. I must say it was fantastic to be at Gatwick for our first restart flight and to see the excitement, not only from from the customers who were flying, but also from the crew who were absolutely delighted to be back flying again. And this excitement didn't end at Gatwick either the support and And the feedback we have had from loyal Easy Debt customers from all parts of Europe as well as our people from right across the business has been absolutely fantastic. It was also great to see all the very positive press coverage which we received on the day with over 800 pieces of coverage across Europe, more than 70 UK Ranger slots and 40 UK national pieces in all major publications. Moving on to Slide 21. And as you know, safety is always the number one priority, and I'm proud of the work that has gone into ensuring we were well prepared for our restart. And as I said earlier, the guidance from me also IKEA and all of the public health authorities has driven our new biosecurity procedures, which were rolled out on 15th June. These procedures include additional deep cleaning and disinfection of our aircraft every day. All of our customers crew and ground staff wear masks all the time. And temporary suspension of our on board be served service. You may know that all of aircrafts were already equipped with HIPAA Air Friltration system, which filters 99.97 percent of airborne contaminants in the cabin, including viruses and bacteria. These systems are the same as those used in hospital but also through them, the cabin air gets replaced every 3 to 4 minutes. We also know that traveling may feel different than perhaps daunting for younger travelers at time, which is why we teamed up with a superhero illustrated to great comic book inspired face mask covers to help these experience from both kids and parents. And these slots will be available for free to children to travel with us over this summer from next month. These measures will remain under review in place for as long as it's needed to ensure customers and crew are able to fly safely as the world continues to recover from the impact of the coronavirus pandemic. Moving on to Slide 22. Easyjet is well positioned to lead the European Airlines recovery through our focused low cost leisure and European short haul focus. We expect government restrictions around short haul flights to be lifted much sooner than there was a long haul intercontinental travel. And we're finding that customers are far more relaxed about booking short haul trips, which are perceived to be less risky than long haul trips. We also see a solid demand for leisure travel as lockdowns are lifted. We also expect our low cost business model driver faster return to travel. And as we saw in 20,082,009, easyJet tends to outperform in tougher economic conditions when customers are seeking to maximize the value they receive when they spend. Ethernet offers a unique combination of low fares and leading value for money, which position us well in a weaker economy. And our recent research showed that customers' concerns are primarily focused on economic outlook. And all of these trends are positive for Easyjet. So moving on to Slide 23. We have a clear plan that provides strong foundation to drive profitable growth and long term shareholder returns. We are delivering a strategy through the strategic framework announced in 2018, Whilst in lockdown, many European airlines have been re examined their priorities. We have also, at least yet, to reassess the strategic priorities and we found that our IMcore priorities are more relevant today than ever, with the current focus being on our network, winning our customer's loyalty and value by efficiency. Is 7, number 1, the number 2 positions in airports across Europe, the airports which our customers actually want to fly to. And these are big markets. We're number 1 or number 2 across London, Paris, Berlin, Milan, Amsterdam, Geneva, Manchester, Leone, Barcelona, Basel, Etcetera. And this network provides a competitive advantage that is not easily replicated. And what is sometimes not appreciated is the scale of our operation in these cities. The leadership position we have in our key For example, we have more than 30 planes touching Milan, 20 touching pairs, 15 in Geneva and more than 100 in London. We do expect changes in the competitive landscape in these markets in the wake of the coronavirus, but we have the positions and market leadership to compete vigorously. And we're also looking at these and other markets and we'll be ready to move and capture opportunities as they arise. Moving on to Slide 25. The network we have built up over time also enables us to be efficient with its network choices with an app absolute emphasis on maximizing returns. And as you can see in this bar chart, a number of our less profitable bases are now under consideration for rationalization or closure as part of our plan in our most profitable airports and leverage the flexibility in our network to align capacity to demand. And as you would have seen with news across the industry, recent the competitive landscape across Europe is likely to shift in the wake of coronavirus presented as our competitors reduce their capacity. The scale and flexibility of our network also provides us with the opportunity to realign capacity to take advantages of these changes in the competitive landscape. In addition, and as Andrew highlighted earlier, we also have the flexibility in our fleet that allows us to take advantages of opportunities in the future. Moving on to Slide 26. Easyjet continues to have a leading brand in customer offer. And in H1, Easyjet saw improving scores on 1st choice brand scores across all our core markets. And as an example in the UK, we've achieved our highest score ever to date. But in this challenging environment, our research shows that in addition to value and price brand trust is more important than ever to win, with more than 60% of our customers say the trust and price are the 2 most important factors in making their airline choice. Based on the recent trust serving, we see that customers across Europe trust e suggests more than any other low cost carrier across all of our major markets. And the gap is quite considerable. 21 points percentage points in the UK 17 percentage points in France and 32 percentage points in Switzerland. And these are our 3 biggest markets, and we have a significant double digit gap between us and the nearest low cost competitors. Combined with our focus on value, this Brown Trust position will help us deliver an unmatched proposition in this environment. Moving on to Slide 27 and ECGEST holidays. Ethernet holidays was successfully launched late last year. Bookings were strong before the outbreak of the COVID-nineteen and were by over 100% compared to our previous turn of year with increased selling prices and over 50% of our customers choosing our directly contracted hotels. Clearly cost reductions within the airline and price discount from our hotel partner gives us the opportunity to further build on the Easyjet value session within our holiday business going forward. In March, we launched both our winter 20 and summer 21 seasons, in order to offer disrupted customers a range of flexible options when amending their holidays to future seasons. We recently added holidays to Egypt, particularly for Windter Sun. And early sales for December 21 bookings are very positive. Our customers also love the great value, which Easyjet holidays offers. During this unprecedented period, we're delighted that 65% of bookings has been retained for future travel. E suggest holidays is well positioned for the current environment given a flexible business model with very low fixed costs. And remember also that we do not have any fixed commitments to hotels. It is a significant competitive advantage that you see that Holland has been created on an innovative and dynamic digital platform. This has enabled us to be nimble throughout the coronavirus pandemic, quickly reorientating towards segments such as self catering and then capitalizing renewed customer interest in destinations such as Turkey. We've also seen a significant shift in the number of account partners wanting to work with ECS driven by the desire to have more control over the distribution, moving away from the traditional exclusive models with 1 tour operator partners. And we can continue to keep our holiday business model lean due to the unique relationship between the airline and easy that holidays through our highly competitive cost base access to our existing usage of customer base and our trusted brand. Moving on to Slide 28. In response to the COVID-nineteen ECTS has launched a major restructuring program, which aims to drive cash generation in order to pay down debt and to ensure that ECGES emerges from the pandemic in a more competitive position. The program includes rightsizing the organization, and also proposed that reducing staff numbers by up to 30%. Easy Debt is launching an employee consultation process on these proposals to reduce staff numbers as well as optimizing our network and basis, improving productivity and promoting very efficient and more efficient ways of working. In addition to the 30% reduction in headcount, which we are consulting on, we are taking a number of steps also to improve productivity. Other cost restructuring activities include seeking lower cost airport deals through simpler handling, bringing some maintenance in house at lower costs, accelerating lease returns and introducing a fuel efficiency program. Our operations team is also increasing its focus on our base at Loma Gatwick in order to make our product, they are more differentiated. As part of our cost out program, we have set the stress charger for full year 2021 cost per seat ex fuel to be in line with the cost per seat ex fuel that we delivered in 2019. As I'm sure you will understand, this target is a large stretch considering the likely significant decrease in the numbers being flown in 2021. Moving on to Slide 29. Even though the way we operate will look different for a while, we will not be compromising on the promises we have made around the environment, Important sustainability has increased following the COVID-nineteen pandemic with 98% of people thinking about sustainability the same or more before. We were the world's 1st major airline to operate net 0 carbon flights across our entire network by offsetting the carbon emissions from the fuel used for all our flights. And we are continuing to work to minimize the carbon impact of our flying. Investing in a modern fuel efficient fleet is an important part of this. And waiting to operate our aircraft as efficiently as possible, achieving high load factors, but also optimizing flight plans, climate, descent profiles and taxi. Ethernet will also continue to support the development of new carbon innovation technologies, including hybrid and electric planes in order to help reinvent the aviation over the longer term so that the European aviation can become net 0 from carbon emissions. EZF is also looking for more ways to take action beyond carbon, including rapidly reducing our waste and seeing abused plastic usage. Our actions in these areas means that we will further establish our position as the airline of choice for those seeking to fly with less impact on the environment. Looking forward and on Slide 30, it is early days as we have only just restarted flying on 15th June, However, our expectations are that we will ramp up our flying program as we go into the summer. Regarding capacity, we plan to fly around 30% of our usual Q4 flying program. ECS holiday is seeing encouraging booking numbers and ECS cost out program is expected to deliver flat cost per seat next few performance in 2021 versus 2019 levels. At this stage, given the continued level of uncertainty, it is not possible to provide financial guidance for the remainder of the full year 2019 financial year. So in summary and on Slide 31, we've taken decisive action to address the impacts of the coronavirus pandemic having minimized cash burn, maximize liquidity through reduction fleet defers and additional funding and launch an equity issue as we announced today. And the measures we have taken further in our investment grade balance sheet, which remains one of the strongest in the industry. Easyjet business model and actions we are taking means that we are well positioned for leading the recovery from COVID-nineteen. We delivered a strong first half results with underlying trading ahead of expectations, the Easyjet's Boundrise confidence in European travelers who are focused on trust, sustainability, and value for money. Easyjet's industry leading serving primary effort providing a customer offering that cannot be matched by any other airline in the house and allows for efficient approach to delivering profitable flying. And finally, we are undertaking a cost out program, which will deliver sustainable cost saving in all areas of the business. And this is why we are confident that ECIGIT will be at the front end of the recovery from COVID-nineteen. And thank you for listening, and we will now take questions So ladies and gentlemen, if you wish to submit a question, you can press star 1 on your telephone keypad now to answer the question queue. And we do have several callers on the line so far. We will go to the first caller in the queue The first question will come from, Steven Furlong of Davy. Steven, when you are ready, please go ahead with your question. Hi guys. Thanks for the questions. Can I just talk about capital structure in terms of the equity rates why that number, why not a smaller one, why not a higher one? I mean, and related to that, the capital structure post the raise would you be just commenting on how your would be happening with that type of capital structure? And and just related then, sale and leasebacks and always use that out and review at the top end, 650. Yeah. But you're 50% of the fleet on encumbered. So just give me a comment on the sale and leaseback, Mark, because we hear from others, both types. It's not so good, but you've managed to be able to do deals. Thank you. I like off with the first part on the number in itself. So basically at the current moment, we have a cash position at SEK 2,400,000,000 And that's before the proceeds, from the equity placing and then also conclusion of, some remainder of the sale and leaseback transaction that we're doing. So we're looking to be in a position to be just in excess of about 1,000,000,000. We think that this is, the right level for us to be at this moment in time. And when we are looking through where we stand today, where we are coming off from being grounded for this 11 weeks and starting up with albeit a small program. And then the plans we have to to fly about 30% of the planned capacity for Q4. We believe that this puts us in a good set where we can underpin the balance sheet strengthen the liquidity to take us through this period, which in all fairness still consists of a number of uncertainties that is out there But fundamentally also what this does, it's improving the credit metrics that we're having. So it's very important for us to continue to have the the credit rating of being investment grade. And that's what this placing is doing. Yes, I think I see. So from a point of view of the capital structure, as Johan said, we've modeled a number of scenarios. We've been looking at the investment grade. We from our perspective, maintain that is very important. And as you know, S and P and Moody's have downgraded the market pretty much across the market and we are one of the few that has retained an investment grade credit rating. It's very important. And that's one of the reasons why we've managed to access the sale leaseback market when when that when COVID kicks off, we're pretty much one of the first in the queue for CTFF and we landed extremely quickly. We drew down the RCF and got the term loan laid up. And what that did, that gave us breathing space to ensure that we could run proper RFP processes for sale and leasebacks. And obviously from a point of view of, our assets, our assets are very attractive. The lessors know us well because we've been having a, you know, we've been running, as you know, we've been doing things that are linked back pretty much every year for the last few years as a managing our residual values. And one of the other things that's quite attractive is the fact that our aircraft runs CFM56 engines. And as you know, Airbus announced that they're terminating the production of those. And that's a valuable asset to have in the aftermarket. So from a point of view of price hedging has been good. Interest has been strong. And we're confident that we'll get the rest of the, the target away in the next few weeks months, as, as indicated. Okay. That that's great. Thanks. Y'all have time, Sandra. And so our next caller on the line is, Jared Castle. Jared, when you are ready, please go ahead with your question. Thank you, and, good good evening, gentlemen. 3 as well then, you're starting to ramp up with about 30% of your capacity and, you're obviously making the comment that you're going to kind of lead, the pack in terms of airlines, but there are some other airlines which obviously ramping up quicker than you, out there. So just to get some, you know, color why why why the number 30%. And then you know, related to that, you know, what what kind of load factors, you know, would you be targeting? Then just just the second thing, you know, you you talking about 2023 kind of getting back to, you know, I guess, recent, level of traffic, I. E, September 19. And again, you know, this mother's talking up potentially, you know, summer next year could be similar to summer 19. So again, just just your thinking on on that ramp up. And then, just lastly, just kind of coming back to cost control, which, as you said, it's, it's an aggressive target given you probably fly lower capacity. So just getting an idea about even how are you thinking about next year if it's more than normal year relative to, you know, 19 levels? Thanks. Yes. Thank you for that. Yes. So in terms of the flying program. And we obviously started with a very small program here in the middle of June. It's only worth about 10 aircraft flying, but the big ramp, but is then coming into July, August, September. And like you said, I mean, we're estimating to do about 30% of what was planned. In terms of capacity. Clearly, that's going to be a lower number in July, and then it ramps up as we then, you know, coming forward into the season. First of all, the key principle here is to do profitable lines of flying. That's absolutely clear for ourselves. We've done a fantastic job in bringing down the operational cash burn in here. And what we want to make sure is that we don't lose sight of that in our enthusiasm just to put aircraft up there and then lose of that momentum that we have. So we've been working, you know, in the commercial team and data team to work out, you know, where we can see that those profitable lines of flying will be see that we have a strong demand of leisure routes and the holiday routes. That's an example. And we are happy with the demand that we see on new bookings outside the UK. I think it's fair to say that UK is lagging behind and we can link that back into the, to the quarantine. Now in all fairness, we also have flexibility to ramp up the flying if we see that there's more demand. It's, we have a 2 weeks window where we can add on additional life of flying if we believe that that is the right thing to do. So I wouldn't be hung up on the fact that you're hearing people, you know, starting and throwing around different numbers out there. This will be important for ourselves to look at the profitability of the lines of flying that we do. We think we're going to be able to meet the demand that is out there. We're not giving any specific guidance on the load factors specifically. But we were pleased with the demand that we've seen, which we described as solid for the program that we now have in place and we started to to go into as we then ramp up in July, obviously, September. Question on 2023, I think we are in line with actually most airlines in the world. We're looking at 2023 being the year where you come back to the 2019 levels of demand. Now I would like also to stress to say that if demand comes back earlier than that, we clearly will have the flexibility and make sure that we capture that demand. I think it is a conservative and it's a prudent way of looking at the demand. But having said that, that's where most airlines and Yacht as an example are looking for demand to come back to that, but make no mistake. We will be able to capture and make sure that we can capture if we see that demand comes back earlier than that. And then on the cost program, it is the biggest cost program that the company has embarked upon. And for us, it's about, first of all, rightsizing the organization to a new level of demand and the new levels of flying. And that's something that we are now starting consultations on in the UK and also across the network. It is, you know, a target that is there because what it will allow us to do is to be able to also compete with a different cost base also successfully going forward, as we look to to evolve through this process. We want to make sure that not only as we have talked about earlier, it's just about survival, but also that we can compete more and better as we manage our way through this process and rightsizing ourselves towards the new level of demand, it's a very important part of that. But we're going to look across everything we do, you know, whether that is at the head offices, at the basis, to look to see how we can be more effective and how we can be more productive, as you would expect that we would do. Okay. Thanks very much. And our next caller will be Jamie Robotham from Deutsche Bank. Jamie, when you are ready, please go ahead with your question. Hi, guys. 2 from me. 1 for Andrew, 1 for Johan. Andrew, we're a week away from the end of your Q3. And on slide 6, you know, I think you're effectively telling us that you'll have burnt somewhere up to around a 1,000,000,000 pounds of cash in that quarter, presumably, pre financing. If we try to envisage a cash flow statement to q 3, would that start with an operating loss of around 250,000,000 in line with the gray part of the by chart and and with the other sections. So refunds CapEx working cap, then getting us to a Q3 free cash outflow of around a 1,000,000,000. Is is that the right way to think of it? Perhaps you could say as well, is depreciation in or out of of that credit? And then secondly, Johan, the the French market, you know, a a key maturing market for Easyjet, yet there's been some unhelpful pieces of rhetoric coming out, from the French government around banning domestic flying around refunding taxes only to to French airlines. Are you, a bit concerned about these developments in in France and how is that affecting the way you're managing your return to flying? Thanks. Okay. So hi, Jamie. So with respect to the the results for Q3, we haven't split those out, but it's essentially, we are a couple of days away from the period end. At this point in time, I think we'll come in slightly lower than the 1,000,000,000. It's roughly 1,000,000,000, but I think we'll come in slightly lower. In that gray box, you the depreciation isn't a cash item. So you won't be seeing that come through as we said. In April 16, we've been spending our operating cost cash burn for between $35,000,000 to 40,000,000 per week, we're at the lower end of that. As you know, that that 3 months grounding cash number was expected to be about CHF 1,200,000,000 is coming, obviously, a lot less. The things that have driven that have been, as I said, lower end of the operating cost burn, We're also, the level of refunds has been left because, but since then we've introduced the voucher, proposition and customers have taken up vouchers rather than taking refunds. We've also didn't assume that we did, obviously, take in many much sales during this period of time. And we've seen sales trickle along, albeit low. And that's helped us. So a lot of those things have helped us, but clearly, during this period of time, it's, we've had a net loss. We've had no revenue haven't disclosed exactly what that loss is in the quarter. I think it's fair to say all the things we've done from a cost perspective taking maximum furlough as we can, you know, putting us using as much opportunity from a point of view of extending payment terms, using all of the facilities that HMRC on tax and deferrals around that, all of that has been undertaken you'll see that as you roll forward in the 6 month round, we've also got a reduction in cash burn there from 2.2to2.1. We've left the 9 months grounding snow in there for prudence. And these are the three scenarios that we used to assess the kind of level of liquidity we needed to ensure we maintain that investment grade that we're targeting. Yes. So on France in particularly. I mean, the key thing for us is to make sure that there's a level playing field in the markets and the territories in which we operate, which is something that we are constantly keeping an eye out for. I mean, in the markets, and France is no exception on that. We have local terms and conditions. We pay our social security taxes and we employ people locally as well. And, you know, we sometimes need to remind those governments that that is what we do. So I think it's more on the fact that, you know, to make sure that that is not being lost in some of the enthusiasm that some governments across Europe have to support their flagship inefficient airline that is out there. And that's something that we're keeping a very close eye on and also engaging with the European Commission on, on to make sure that that level playing field exists. I think it's also worthwhile to note that whilst these billions and billions of euros are being poured into, Now some of Europe's most inefficient airlines, it's also fair to say that these billions doesn't come completely free. You can see that there are indications of restrictions for those companies on how they can operate and how they can fly. And some of them would be, touching up on what routes they can fly and not fly. I think in this particular case, there's nothing about the the French ban on the routes that affect ourselves in terms of what we're doing there on country, I think that we can possibly see that we having, you know, opportunities as some of these airlines are not being able to perhaps manage the sales that would be in the completely best interest of the companies because of these restrictions that are being, you know, you know, being put on them, And that's something that we are keeping a very close eye on. I do think that, you know, level playing field is the most important thing that we got to look out for and fight for, but I have no doubt that actually what's going on there right now is something that will provide opportunities for us from a competitive point of view, and we will look to capitalize on that. Just Jamie, it's very obviously Q2, not Q3. Q3 is obviously the next quarter. And the next question is going to come from Savi Seath of Raymond James. Savi, when you are ready, please go ahead with your question. All right. Thank you. Good morning. Good afternoon. Just on my three questions for me. Just on the cash burn. I'm curious what the, you know, current level of cash burn is now that you have kind of revenue coming in. Just trying to think of fiscal 3Q and what level of cash frame we should think about for that. If your projections on the capacity level is is reasonable. 2nd question is just, I realize this is really early, but how are you thinking about the winter? I'm just curious from a year over year capacity decline, should that kind of continue to moderate as we head to the rest of the year? Or do you think kind of that it is more kind of demand recovery in the summer and we might maybe not so much in the winter And then lastly, just on your CapEx in for fiscal year 'twenty two and 'twenty three, just how much of that is maintenance versus kind of aircraft other current type of CapEx? Thanks. I guess, talk a little bit the second question on the winter. I think it's fair to say that this is a period where we have very little if any visibility going in the winter. Our focus now is to make sure that we start up flying. We do it in a safe way with health and safety being at the the primary priority of what we do. And at the same time that we make sure that the lines of flying that we are adding on to the program is profitable. That's where the focus is. And I think it's also fair to say that the amounts of new bookings that we had throughout the period when we were grounded were hardly any. So I think that, with that in mind, you know, we will look to continue to to make sure that we are as efficient as we possibly can with our flying going into the winter. And the winter is, as you know, normally a loss making season. So that's why it's so important also to to address the costs now because one thing is that, you know, while we're looking for profitable lines of flying, I mean, we estimated only to be percent of the program overall. But then again, you're coming into a loss making winter, and that's why it's important that we continue to focus on the cost as we then get into the next summer, which there are, you know, early and good indications of a demand, particularly on Easyjet holidays, but it's way too early to talk about what the overall demand will be there. So that's how we're going to see it. Start up to 5 right now. Manage ourselves conservative through the winter, make sure that our costs are in a good place as we hopefully then see recovery coming forward. On the cash burn, as you said, it's very, very early days. So the the economics around flying is too far. You've got customers that would have already booked onto those aircraft back in April, when the COVID environment started, which we've already had the cash in and reflected in our own revenue, And then you have the incremental sales that we would have made once we really released that schedule and the combination of those two We know that covers the incremental cost associated with. So we've got the avoidance of having to pay refunds for the customers that have already booked. And we've got the incremental cash inflow of the sales. So that's the mechanism you need to look at. And fundamentally, the working capital movements in Q3 will be will be dominated not so much by the flying as such. It will be around the booking levels. So I think from our perspective, obviously, the working capital side is such that you can obviously get you build a balance of our own revenue, get cash inflow, and that will be the main driver as to what where our working capital lands over the coming months now that Now as you said, 30 days, and we're keeping it very close on that. We're modeling some of those things through. And one of the reasons why we've been so So, focused on really making a big deal out of the fact that we started flying when we did in June 15th, we got all the marketing PR because we really want to drive that demand out in the customer demand to drive that booking bookings up and therefore drive incremental cash business and improve that working capital position. But it's early days to give you any kind of color around that, but we'll keep you posted as that progresses. With respect to CapEx, we obviously we've given a split in FY 2021 of what we think that maintenance and lease payments and new aircraft spend will be in FY222023. Look, given the amount of moving parts, we've got a a pretty good idea of what the range is that we're looking into for 22 2023 and that's given on the chart. What the exact splits will be between maintenance lease payments and new aircraft, we haven't provided clearly the flexibility between the base of 600 and the top end ranges will be reflective of the variability of where if we decide to make new aircraft and the level of deferrals that we take on with the exact split between maintenance and lease between maintenance and lease. It's going to come from Renewba Kayai of Bank of America Maniva, when you're ready, please go ahead. Sorry. I think we were, continue to answer a question here. Hello? Can you hear us? Sorry. We haven't finished. So so so we we, so in that in that split, there might be movements between the lease payments and the maintenance because, when you return leases, you've got a maintenance cost associated with that. And there might be fluctuations between the 2. So when we get near to the time, obviously we'll give we'll provide more color, for you. Now we're ready for the next question. Hi, can you hear me? If we have Niva on the line, please go ahead. Hi. So a few questions from me. You mentioned the flat cost per seat targets for 2021 versus 2019. So what is the capacity plan embedded in that for 2021? That's my first question. Secondly, on you mentioned profitable flying. How do you define that exactly? Like, what what costs do you are you are you including in that? And what level of loads would would you reach when you would start adding more capacity versus the 30% that you have currently planned for 4Q? And lastly, I don't know if you can answer this, but if is Mister Stelios planning, Stelios indicated he will participate in this offering? Right. So start with the cost proceed. So like I said, it's an aggressive and the biggest cost program that the the company has ever done. We had 331 aircraft in 2019. And as you would see on the chart on Slide 15, in 2021. The plan is to go to 302 aircraft. And this is really a cost program that touches every part of the the company as you would expect, in order to make sure that we are putting ourselves in the position to be able to compete in a new level of demand. So and then at the same time, as you then are putting these measures in place to also make sure that as the recovery starts and that we we can grow from there that these savings are also sustainable. So we, going forward, will be in a relative to competitors in a better place when it comes to cost. So it's a big focus that sits around that. And that involves all the things that I touched upon and no stone will go unturned in the company in order to make sure we can do that's absolutely the best guarantee to be able to successfully come out of this in the better shape than others and therefore continue on the winning journey easy guest has been on. In terms of the profitable flying, it's basically making sure that the costs that are attached into adding on the line of flying is being covered with the revenues that we're putting into that line of flying. And we are very mindful to make sure that that is the case. And so far, we're very pleased with what we're seeing and we're taking a huge number of parameters in there to make sure that that is the case. We're watching this on a daily basis. And as we're also then reviewing the program going forward, we still have also the flexibility to to move up if we see that the demand is there. So that's important for ourselves. We don't give out specific load factor numbers and targets for for where we stand right now and in the remainder of the financial year, it's too early to do that. But clearly, it's a mix of the metrics in order to make sure that we are seeing that the flying on the on what we're doing is adding positive contribution. And on Stellios, the question was on the yes, so we have Stellios has been treated like all the other top shareholders being approached, you know, ahead of the public announcement that we've had and And there's no difference, like I said, in how we constructively want to work with him compared to all our other important to large shareholders. So let's see. Next question. Absolutely. The next caller is Andrew Lavenberg of HSBC. Andrew, when you are ready, please go ahead with your question. Can you talk to me about the strategic implications of the Fortress strategy? Because if we've got, you know, the whole world aviation, you know, shrinking, and expected only to get back to 2019 levels by 23. How do you make fortresses work with, you know, capacity melting melting out of places like like Gatwick. And I I I guess related to that is how important is it for you that the use it or lose it, rules get get set aside for the coming winter as well. And then the other question I'd be curious to understand is, is on labor. I mean, obviously, you're you're in talks with unions, so you're gonna be constrained on what you can say. But, how hard is it to to drive productivity changes when, you know, you've got a business which has has differentiated itself from its major competitor with its strong and stable industrial relations? Yes. Thanks, Andrew. I mean, the important thing when you're looking at the strategy from a, from a network point of view, we are absolutely going to optimize the the network. And that means that we're not excluding base closures. So we're looking at, you know, party the basis in terms of what they're delivering on the contribution per block hour, but also the absolute number given the scale that it has. So So clearly, as for now, our inter discussions with Air Force, as we know that the fleet will go down to lower levels and be smaller, we get choices to make and that means that we will allocate the aircraft we have where we're getting the best returns. And there's no secret of course that, you know, it will matter to us. What the Air Force can deliver to us in terms of great deals. And of course, that's something that we're now having intense discussions with. And I think also to that point, I mean, it's no doubt that, you know, the strategy we've had that been successful in the past will continue to be successful to have leading positions at the primary airport. We'll make sure we can continue with that strategy. And I think you would have also seen that some airlines have put a lot of question marks about some of these airports, whether they're going to be there or not be there. And we are watching and looking at the competitive environment at these basis, but we will be pretty ruthless when it comes to how we're allocating the the assets in the aircraft to not only defend our position, but also to be proactively be offensive and take also the opportunities that comes and then we can capitalize on. Slot extension, you're right. I mean, that's something that we are we are considering to see that we can get a further relief on that that ends in October. And that's discussions that, we want to take place to make sure that we can see if they can go into the winter. And in terms of the productivity, I think that we have room to increase productivity without changing terms and conditions necessarily. I think that's down to the fact that we are smarter in the way we crew. And how we roster. And at the same time, we got to make sure that clearly that the size of the organization is at that to the level of demand. And we believe that we have rules for improvement, to basically be more productive without going into other examples than changing terms and conditions necessarily. But these are things that we are as you would expect, we want to discuss with our unions on and consult with them upon. Lovely. Thanks very much, Johan. Thank you. The next question comes from Caroline Doris of Morgan Stanley. Caroline, when you're ready, please go ahead. Hi. Good evening, everyone. I have just one, your comments on bookings are encouraging. Can you make can you comment, I know, 30 days, but what is pricing look like? Thank you. So I mean, clearly, it is early on. I mean, the flying we've been doing here for the 1st couple of weeks and the, you know, new bookings intake we're seeing is promising SEC and the pricing is you know, quite positive. You know, clearly there are some very attractive leading prices but the curves on the pricing isn't necessarily that different for what you would normally see apart from the fact that the booking window clearly is closer to departures. But we are, you know, as I said earlier, we are pleased and we are quite positive about both the pricing levels we're seeing. And one should also be mindful of fact that, look, this is a peak season that we're coming into, July August. And, there is, definitely less capacity out there as you would expect. And I think that there has been a pent up demand, for people who want to go on holiday in particularly. And seeing a good demand on the leisure routes. And now we just want to make sure that we also can get the quarantine remove and lift it and replace with something else here in the UK. And if that is the case, and we are optimistic that something will happen along that if I hear the mood music from the government correctly. And that means that we will have an even a better and more positive impact from what we had originally planned here in July as an example. And mind you, it's a, like I said earlier, it's a 2 weeks window we have from where we can add online for flying, which means that we got flexibility to scale up if we see that that is needed. Okay. Next question please. The next question will come from multi Schultz of Commerce Bank. Multi, when you are ready, please go ahead with your question. Hi, good evening, and thanks for taking my question. Mostly also, you said you wanted to even strengthen your Haps away of your biggest basis. Do you also plan, I mean, with BA maybe leaving Gatwick it all together or at least to large degree to reconsolidate all your operations in London and Gatwick? And do you also see in other places some more opportunities? And how should we take on that? I mean, going forward particularly if we're looking at 'twenty one, 'twenty two or so? Yeah. I think in alluding to what I said earlier as well, we're going to have an absolute focus to optimize the, the, the network to maximize the returns of what we're doing. And in that process, we don't exclude base closures as an example. And the input we're getting from the airports in terms of, you know, the conditions regularly plays a big role into that. So and that is something that we are looking at very carefully you know, and focused on at this moment in time. And I think that there will be a combination of capitalizing on opportunities where we potentially can see that the competitors are leaving or reduce capacity, particularly where we go head to head with them on. But at the same time, you know, our our focus is on maximizing our own returns But the strategy we've had success today about having leading positions at the primary airport, that hasn't changed. But clearly the situation we are in means that with the now less of assets available to allocate from an aircraft point of view, that means that that is a dimension and the leverage into the negotiations that we're having with the airports currently. It does kind of matter. Do you also look to, grab new markets in the recovery or, to make a move into a country where you are not yet as present? So like I said, we're not ruling out anything at this moment in time, but the key thing is to maximize the return and optimize what we are doing. And that's the focus. And I can't really comment anything more on that for the time being. Okay. Any more questions? Yes, we have one more question. This question is going to come from Alex Patterson of Earl Hunt. Alex, when you're ready, please go ahead with your question. Hi. It's it's Pearland, actually, but there we are. Evening, everybody. Could I just ask 3 quick questions, please? Firstly, and so you may have commented, but I didn't catch it if you did. Can you just say how you're simplifying your airport handling technically, slightly falling out for the last question. You know, you're looking at hubs and and protect the base closures potentially, but you know, should we see airport cost savings as an upside opportunity? You've you've not mentioned it on on slide 28. And if you sort of look ahead from FY21, if you were to show fleet growth, would you expect a cost per seat to show a declining trend? Thank you. Yes. Hi, there. So a point of view of ground handling, What, what we've, what we've done, we've used this as an opportunity to really look at this, the product from a handling perspective is there's been some, you know, CPG around, add on products that some of our ground handling providers provide to us. And we've been really robust and ruthless in looking at the product we've got, the efficiency around it. We're taking out activity by ground handlers. We've managed to to negotiate better terms and better better working practices, which is reflected in their cost base. So Peter, Bella has been instrumental in leading that and we're in the process of finalizing that position. And I think on the airport costs, absolutely, you know, that is one of the things that is, you know, plays a big part for us from from our input costs. And those are discussions that we are doing now together with the airport. And clearly, we want to make sure that the the offers that we're getting are also, you know, sustainable and we can keep coming for longer period of time. So those ones we can do that and offers good deal for us going forward, clearly has an advantage in the discussions that we're currently having. You're absolutely right. I mean, we have flexibility within the fleet. And I also would like to point out that if we see that demand is coming back earlier, then we anticipate pace on Slide 15, when you look at the fleet numbers, You know, we still have the opportunities to add on additions to the fleet and operating leases if we choose to do so. But that's not where we are at this moment in time. But clearly, if that happens, we would look for that cost per seat to go down because the program we're doing it now is also looking to address that we get sustainable cost savings that we will carry with us as we go forward. Then also benefit from if we are then increasing the size of the fleet more from 21 and onwards. So just to put that another way, do you think you can get to a declining cost per seat trend beyond FY21 if you were to grow your fleet slightly in absolute terms from FY 2021? Well, the target we're talking about now and what we come out to is to be flat on '21 versus 'nineteen. But of course, you know, cost will have been and will be incredibly important for us going forward because it allows us to to compete successfully in everything we do. And you know, we come out with the targets from where we stand today, and that work continues all the time. And that's not something that we're giving up, but we also want to make sure that we have as attractive cost proceeds as possible, and that's what we're going to continue to focus on. Thank you. Thank you. Anything else? Yeah, I think we could draw a line there. I think, Dan, I think Yeah. No further callers. I'll return the call to you. Brilliant. Thank you. Okay. Listen. Thank you all very much for joining with the short notice and have a continued great afternoon evening. Thank you. Thank you all for joining today's conference. You may now disconnect your lines.