Good morning. Welcome to the easyJet Q1 analyst call. My name is Rosie, and I will be your coordinator for today's conference. For the duration of the call, you will be on listen only. At the end of the presentation, you will have the opportunity to ask questions. If you need assistance at any time, please press star zero on your telephone keypad and you will be connected to an operator. I will now hand you over to Johan Lundgren to begin today's conference. Thank you.
Thank you for that. Good morning, everyone. Thank you for joining us to discuss our Q1 2019 update. Joining me here in the room is Andrew Findlay, our CFO, as well as Stuart and Michael from our IR team. You should have been sent the slides along with the statement, which are also available on our corporate website. As usual, we will review the Q1 results and then follow up with plenty of time for any questions that you may have. Diving into the presentation on the overview. Overall, easyJet has delivered a good performance in Q1. Our growth plans are disciplined and see easyJet building and strengthening market positions in key airports and cities across Europe. A robust demand environment has seen easyJet deliver a positive underlying revenue trend with ancillary revenue continuing to perform strongly and growing by 20%.
Cost control continues to be a key focus at easyJet, and we have delivered an underlying Q1 performance in line with our full-year guidance. Unfortunately, in December, we experienced a GBP 16 million impact from the drone issues at Gatwick as we looked after our customers during this event. GBP 10 million of this impacted the cost line and GBP 5 million impacted the revenue. This affected around 82,000 customers and led to over 400 flights being canceled. It is always fair to say that I think that our people did a great job in dealing with the issue, something that I am very proud of. Today, I will focus on the trading statement. I just wanted to highlight that we continue to make good progress on the strategic initiatives announced last year. We look forward to updating you on their progress later this year.
Our customer perception is also improving, particularly in the U.K. and Germany. You will have seen the results of the recent Which? service, which position us well ahead of British Airways and a number of other airlines. Let me just run you through the key financial information. Passengers increased by 15.1% to 21.6 million in the quarter, driven by an increase in capacity of 18.2%. As expected, load factors decreased by 2.4 percentage points to 89.7%. This was driven by last year's high comparables from Monarch and Ryanair late demand, as well as the inclusion of Tegel Flying at Q1 schedule for the first time. Revenue per seat at constant currency decreased by 4.2% for the quarter, which is in line with what we expected. I will give you further details on this in the next slide. Cost control remains strong.
Cost per seat excluding fuel at constant currency increased by 1%, but that includes the impact of the drone issue at London Gatwick, which represents around one percentage point of cost in the quarter. Headline cost per seat at constant currency, including fuel, increased by 2.2%, reflecting the higher price of fuel. Moving on to revenue. Firstly, I'd like to emphasize that we continue to benefit from our winning market positions, a leading network and schedule, and our award-winning customer service. Total revenue per seat decreased by 4.2% at constant currency in line with expectations. This overall outcome is built up as follows. The move to IFRS 15 negatively impacted Q1 RPS by 0.6%. This will be a bigger negative impact in Q2, but reverses in the second half of the year as booking fees are now accounted for when flown and not when the booking is made.
As you would expect, our high capacity growth in the first quarter for Berlin Tegel has been diluted. Particularly as we completed the first 12 months of flying in Q1, where the schedule is still in the early stages of optimization. This has had a negative 2.9% impact on the RPS for the quarter and will improve as we go through the year, especially in the summer period. Demand of benefits experienced in 2018 from the bankruptcies of Air Berlin and Monarch, as well as Ryanair winter schedule cancellations, combined to have a 2.2% negative impact on RPS this year. Underlying revenue per seat increased by 1.5% due to robust underlying and follow demand, as well as the continued growth in ancillary revenue per seat through better bag and allocated seating sales. Costs.
Focusing on costs continues to be a key strategic objective for easyJet to ensure we maintain our competitive advantage. Headline cost per seat increased by 2.2% at constant currency, while headline cost per seat excluding fuel at constant currency increased by 1%. This is a good performance considering the drone issue experienced at London Gatwick, which had a GBP 10 million impact on cost for the quarter. As I mentioned earlier, adjusting for this cost would have been flat in the quarter. Our underlying cost performance was driven by the annualization of crew pay deals, better-than-expected crew retention levels, an increasing ownership cost reflecting new aircraft, some additional leasing cost resulting from late Airbus aircraft deliveries, and the impact of IFRS 16 accounting.
It is also worth noting that we have seen incremental cost increases due to the setting up of a Brexit compliance corporate and operational structure and the significant amount of management time that this has involved. easyJet's cost program has continued to deliver substantial savings, particularly in volume-driven contracts with airports, maintenance price benefits, and the benefits from fleet upgauging, with our average seat gauging Q1 this year increasing from 170 to 173 seats per aircraft. Cost will continue to be an area of relentless focus for myself and the organization. We will continue to invest in initiatives such as disruption to deliver improved cost performance. Brexit. easyJet is very well prepared for Brexit.
We now have 130 aircraft registered in Austria, the process of distributing our spare parts pool in the EU 27 and transferring crew licenses to the EU is going well and will be completed by March 29. Both the EU and the U.K. have committed to ensure that flights continue in the event of a no-deal Brexit. On ownership, easyJet has increased its ownership by qualifying EEA nationals at 49%. As a reminder, we have a number of options available to us on controlling ownership if required, principally those currently existing in articles of association, so we are well prepared. As we'll come to later, demand in the second half continues to be robust. Fuel and hedging.
This slide summarizes our forward jet and currency hedge positions, as you can see, we remain well hedged and have been increasing our positions for the year and next year at good prices. Although increases in fuel price impact us in the short term, our strong hedge position sets us in good stead over the medium term versus the number of our competitors. Now turning to forward bookings. H1 is broadly in line with the same time last year, with around 74% of the seats booked for the half, 58% of the seats are booked for Q2. Looking into the second half of the year, we can see that forward bookings are slightly in front of the same time last year, highlighting the continuous robust and solid demand we are seeing across the network, including strong demand in the U.K. post March. On capacity.
Next slide shows the expected capacity growth across the European short-haul network through the winter. As you can see, short-haul capacity in an easyJet market is expected to grow by 7.1% in the half, with easyJet reaching just under 15% growth, mainly due to the impact of Tegel flying, which represents the majority of our growth in the first half. In terms of competitors on our routes, we're expecting an increase in capacity of circa 3.9%, a decrease from the previous estate of 4.3%, with last year's figures reflecting the demise of Monarch and Air Berlin and the reduction of U.K. domestic routes by Ryanair. Moving on to the outlook. We plan to grow full year 2019 capacity by circa 10%, with H1 growth being around 16% at normal levels of disruption.
We expect revenue proceeds at constant currency to decrease by mid to high single digits, which is a small change to our previous guidance on mid-single digits. We continue to see positive underlying trading, including solid demand from the U.K. consumer. However, there is a larger than anticipated negative impact from both IFRS 15 and Easter in the first half, which will reverse in the second half of the year. In Berlin, we are experiencing a more aggressive competitor environment than expected, as well as experiencing constraints on our ability to deliver network optimization. As a result, whilst we will make a big improvement on last year, we now expect to make a loss in Berlin market in full year 2019. Despite this, we continue to believe Berlin is a very attractive market and summer bookings and yield development look robust.
Headline cost proceeds excluding fuel and at constant currency expected to be broadly flat for the full year, which reflects the impact from the drone incident at Gatwick Airport. Our EBIT guidance is not changing. Taking into account market updates since our full year results announcement in November, unit fuel will have a negative impact of GBP 10 million and GBP 60 million, with a total fuel bill expected to be circa GBP 1.46 billion. Despite the uncertainty created by Brexit for both consumers and the broader economic environment, forward bookings and consumer demand remain strong into the second half of the year. We are comfortably delivering a full-year PBT that is broadly in line with current consensus. Thank you for listening. We will now take your questions.
If you would like to ask a question, please press star one on your telephone keypad. If you change your mind and wish to withdraw your question, please press star two. You will be advised when to go ahead. Again, that's star one on your keypads now. Thank you. The first question comes from the line of Savanthi Syth from Raymond James. Please go ahead.
Hey, good morning. Just was wondering if the only area of weakness you're seeing versus previous expectations is Berlin, and also in France, if you've seen any impact related to kind of the gilets jaunes protests that you saw in December. Thanks.
No, I think you're right. The one that we mentioned specifically is Berlin, and that is due to the two factors that have to do with competitive environment in there. Also the constraints we've seen in optimizing the schedule at the two airports. For instance, we would have wanted to get more domestic flying in the peak summer out of Berlin and do more of the beach and leisure flying as an example. We would also wanted to see more through the slot application process that we can get more flying in from Tegel into places like Geneva and Amsterdam as an example. Apart from that, we feel that down the line, the demand for what we're doing is solid, it's robust. France, domestically, continues to perform well for us. We're very pleased about that.
If I might just follow up real quick on the capacity growth. Just could you remind me of the timing of your aircraft deliveries this year and where that growth will be focused?
Hi. It's Andrew here. Our aircraft are delivered throughout the year, so we have a schedule that we've agreed with Airbus. Obviously, as we've mentioned, the state is a number of delays. In the first half of the year, we've talked about a growth of 15%. 7% of that is clearly at Tegel. We've got about 1% in Manchester. We've got some upgauging is around 2% and the underlying is around 4%, and a lot of that is going into regional France as per our long-term strategy. We'll see some growth within France, but with the second half of the year is more general across the rest of the network. The big focus in half one is around France.
All right. Thank you. The next question comes from the line of Jarrod Castle from UBS London. Please go ahead.
Good morning, gentlemen. Three if I may, please. Just firstly on Tegel. Obviously, you're kind of saying it's going to be loss-making, but if you could give some color of scale. Are we talking tens of millions? Secondly, just coming to the holiday business, how that is progressing in terms of plans. Then obviously Ryanair seems to have closed theirs down. Does that suggest anything in terms of the market opportunity? Then just lastly, on the balance sheet, anything that you can say at this stage about IFRS 16, the scale and how the balance sheet will progress during the year? Thanks.
Thank you. I'll do the two first and then Andrew will do the third one. In terms of Tegel, as you said, we don't believe we're going to achieve a break even or a proper position there this year. We would call it a moderate loss, and it still represents a huge improvement from last year results, operation results in there. In terms of the things that comes with optimizing the schedule, it's not that we can't get where we want to get, it's just that it will take slightly longer for us to do. The competitive environment there has been more tougher than anticipated. It's been a lot of pressure on the yield and aggressive pricing from Ryanair and also from Lufthansa, and that has had an effect. We're absolutely convinced that this will deliver great value for us going forward.
On the holidays, no, I don't read anything into what you just mentioned in terms of Ryanair closing down what they've been doing in there. I feel very strongly that this is a great opportunity for us. Garry Wilson has joined the company now, and we are getting the team in place. We are looking through a number of things in here that we believe is going to present a lot of opportunities for the company going forward. We'll update you more on that in our H1 results in May. Andrew?
Hi, Jarrod. We said that the full year, that approximately GBP 545 million lease liabilities and GBP 510 of assets will come off the balance sheet as a result of the new accounting standard, IFRS 16. That's absolutely, nothing's changed there. From a point of view of balance sheet, there's nothing of any surprise that we're seeing coming through apart from we've guided on. Cash is in a good place. We haven't disclosed exactly where the cash is, but it's where we want it to be in its healthy position. The only thing that's bouncing around slightly is our derivative position. As you'd expect, our jet position, as you expect, has been bouncing around from being an asset to a liability back to an asset again. That's the only thing that's really moving around. Relationship with the rating agents is very good.
We had recent meetings with both of them, and they're very supportive of our current rating as it stands, so nothing of any surprise.
Thanks very much.
Thank you.
The next question comes from the line of Neil Glynn from Credit Suisse. Please go ahead.
Good morning, everybody. If I could ask firstly just a quick question on Easter. Is it possible to elaborate to what extent the change in expectations on Easter timing was prompted by U.K. experience or estimates versus Europe? Is there any differential there? Just a couple on Tegel. First of all, if I'm correct, I think you lost GBP 86 million in the second half of last year at Tegel. Is it fair to think, given the extent of that loss in the summer, that the second half of this year should actually be a tailwind in Berlin after a difficult winter? Just finally, again on Tegel, given the capacity constraints at Tegel that you touched on, is it fair to think that this could actually end up being a multi-year effort now to optimize the schedule by the time you're through?
Yep. You're absolutely right, it is a tailwind in the second half. You're absolutely right on the multi-year effort. We always said it would take a number of years. It's just taking slightly longer than we hoped in the first instance to get that optimization in the first period. We have optimized. We've shifted flights from between Tegel and Schönefeld, and we've reconnected some of our network points, but we wanted to do more, and we have been able to, but it will take slightly longer. With respect to Easter, now Easter is always very difficult. As you know, we found it very difficult back in 2017 and then 2018 and back into shifting around. Fundamentally, a lot of that is U.K. driven, the impact of school holidays and the closeness to the May Bank holiday, et cetera.
A lot of that is out of the U.K.
Sorry, just to add to the Tegel as well. I think that we've been doing a lot of focus to be sure that we operationally get this in a good place as well, and the brand presence that we have is increasing also month by month in there. We think that we're setting ourselves up also to get this in a very good place. As Andrew said, it just takes slightly longer than we anticipated.
Understood. Just to follow up on the Tegel second half comment. I guess given it's summer, would it be fair to think it would be quite surprising if you actually lost money in Tegel in the summer?
We haven't given specific guidance on the split between half one and half two, but I think it's fair to say that we hope we'd be in a much better position than we were last year, which we clearly expect to be. I think from our perspective, the contribution for [Blocao], which we measure, which you know is doing very well, it's just the fact that we need to cover those fixed costs associated with the depreciation of the assets associated with us building our base there. That's the key for us. From a contribution point, contribution for [Blocao] is positive and growing. That's the key focus of the network and the scheduling team, to maximize that to cover that cost base.
Great. Thank you both.
Thank you.
The next question comes from the line of Stephen Furlong from Davy. Please go ahead.
Hi, guys. Sorry to come back on Easter and Berlin. Just for myself, I'm a bit slightly confused. Could you just talk about why is the GBP 50 million shift from winter to summer just kind of slightly unusual? Does the fact that Easter is later, does that make a big impact from the summer perspective? Because I know last year it being at the start of April, it kind of straddled winter and summer schedule. Just a general question on Berlin. A big, obviously, theme in the U.S. and then following in Europe is consolidation. It's believed, obviously, consolidation is going to help the stronger surviving players. Do you think like what we've seen out of Berlin, Air Berlin going and then Lufthansa, easyJet and Ryanair coming in, is that true?
It's just a timing thing as the market, somebody goes out of the market, it just has to kind of consolidate. Thank you.
Okay. I'll answer the Easter question first. I think, at the beginning of the year, when we do our budget, we do our budget back at the tail end of the summer, because obviously our year starts at the beginning of October. We have to make an estimation of what we believe the impact of the shift of Easter from half one into half two is. Along with that, what overlaid that was also the IFRS impact, the accounting change, where the booking fees are recognized when flown. As you'd expect, as our bookings increase for that Q2 and Q3 period, we get a much better sense of what that phasing impact is. Fundamentally, we've adjusted those estimates based on the bookings that we've seen. You see the booking numbers that you've got for Q2, we've got the booking numbers for Q3.
We've got a good feel on what that's looking like, and we re-estimate what those numbers are. IFRS 15, the adjustment that we've made there is small given the scale of the revenue that we've got in this business. It was a relatively small movement, and that obviously is definitely a phasing thing that will come back in the second half of the year, and Easter the same. It's always the way. We had the same challenge back in 2018 when Easter shifted into the first half. We looked to estimate what that would be. The analogy is actually 2017, but there are subtleties around school holidays and the timing of that Easter weekend. At this point in time is our best estimate and that's reflected in the revised guidance we've got for Q2.
That's fair. Thanks, Andrew.
Yeah. Just think on the consolidation piece, I don't think the consolidation is necessarily linked into certain specific countries. We've seen the trend on consolidation taking place really across Europe. It's a European phenomenon. Just back in 2005, there were about 25 airlines that accounted for just about 80% of the overall flights in Europe. That number in 2015 is just about, I think it was 11 to get to the same 80%. Strong airlines, and we include ourselves in there, will become stronger and will grow and then outperform. If you are weak and you are struggling, you will disappear, or there will be restructures taking place. Just in 2018, as an example, you saw a number of airlines facing difficulties, both big and smaller ones. We delivered one of the best results we ever had.
I think that this consolidation will take place, not only specific market, but really across Europe. Germany is no exception from that.
Got it. Thank you.
Thank you.
The next question comes from the line of James Hollins from Exane. Please go ahead.
Hi. Good morning. Two from me, please. Firstly, on your competitor capacity, you've talked about up, I think, 3.9% in this half. I know it's way too early to talk about H2 with any real certainty. No one knows what Norwegian's doing and the rest of it. I was wondering if you could just give us a flavor of how your internal systems are looking at competitor capacity for H2 or maybe just Q3. The second one is just running through some of the maths on your Q2 implicit RPS guidance. If we assume it's sort of down 8%-10% from your guidance, with Easter at GBP 50 million, I think you're implying that IFRS has cost you about GBP 42 million in Q2 alone.
If that's close to 10% year-on-year impact, if we take out Tegel as well, would it be best to assume you're guiding to around about the same as your Q1 on underlying RPS of up 1.5%? Any thoughts on both would be lovely. Thank you.
I'll start off with the first one in terms of the capacity. You would have seen that if you're looking at the. What we believe now for H1, you will see that the competitive capacity on the routes that we're flying on our markets actually come down from previously 4.3% to 3.9%. Whilst we got some limited visibility now for H2, from what we can see is that that will come down even further. We're looking at an increase in competitive capacity on our routes about around 2%. Like I said, we don't have the full picture yet, but that's where we are today on that. We are watching the competitive capacity quite closely. We're looking at also the pricing.
Yeah, James, on your revenue, your fundamental question, do you expect the underlying performance that we've seen in Q1 to continue to Q2? Yes. I think it's fair to say that's a good estimation. That is one of the main focuses within ourselves from a competitive point of view and how we are monitoring that. Andrew?
Yeah, James, on your revenue, your fundamental question, do you expect the underlying performance that we've seen in Q1 to continue to Q2? Yes. I think it's fair to say that's a good estimation. We've got quite a few moving parts that you'd expect. I think you've probably captured most of those moving parts that we've got in that Q2 period. As you say, IFRS 15, you're about right, given the guides we give for Q1 and Q2. Easter, we've given the number pretty much for what that impact is. You've still got a few underlying movements with respect to Monarch into the summer. Fundamentally, the underlying number that we expect to see going into the second quarter is around what we see in the first quarter.
If I could just follow up on Johan with that 2% you're seeing. Again, without getting too much into detail, we know it can change. Are there any particular territories where you're seeing, I guess, an even better number, whether it's flat or down or something? Any more detail would be useful. Thanks.
No. It's a dynamic thing. We are watching this and looking at this clearly on a route per route basis as well. I wouldn't want to go into specifics around that. We're seeing, for instance, Tegel has become more competitive in terms of the aggressive pricing that exists there. We have likewise other areas where we're doing better. It's just a constant dynamic movement out of the 152 airports that we're operating in. I didn't want to go and be more specific than that on that. Sorry for that.
No, that's good detail. Sorry, you were going to say?
I was going to say, to be fair, James, that's very early IAG stats, which you've liked it, too, as well. You know how early it is in those stats.
Yeah. Lovely. Thanks, guys.
Thank you.
The next question comes from the line of Andrew Lobbenberg from HSBC. Please go ahead.
Oh, hi there. If I dare maybe change the subject, can I ask a little bit about the Airbus delays? I thought that back at the full year results, you were sounding fairly confident and thinking that any delays would be manageable and not of a major consequence. Yet we're seeing in the announcement here some impact on cost and leasing needs. How do you see that playing out for the balance of the year? Are you going to need to keep on leasing? Indeed, are the new Neos as they come in, are they behaving as you hope? The second theme I'd be interesting to discuss is how are you thinking strategically about Gatwick at the moment?
We went through the Monarch failure, and you were outbid by IAG for those slots, and then the Flybe slots were available, and heavens above, IAG bought those, too. Are you guys not feeling like buyers of Gatwick slots at the moment, or are you just seeing that they're so aggressive at bidding that you don't want to fight with them?
Yeah, on the Gatwick slot, we're clearly following and seeing opportunities are there. We won't buy anything if we don't think it's worth buying it for the cost that is out there. If somebody else wants to pay over and above what we think it's worth, that's what's going to happen. Andrew, on your point, it's not like we're taking any principle questions that we're not looking to buy things if we think that they would make sense for us to do. Our strategy is to maintain and have number one and number two positions at the primary airports, and if those opportunities arise, then we'll do that. As you know, Gatwick, we're very big in at the moment. There's no principle decision of not looking for and exercising opportunities that we see.
Yeah. On Airbus, the A320neo, yes, they are behaving as we'd expect. On Airbus, we are still seeing delays. You're absolutely right. We commented on it last Q1. We may see some incremental lease costs coming through in the second quarter as we prepare for the summer. Now, for us, we're working very closely with them to manage that through. For us, we want to make sure that we can fly our schedules. We are looking at various options of making sure that we're covered. At the same time, we're looking at incremental standby as well. You may see some of that come through into the line of lease costs as well for particularly in the Q2 period as we're preparing for summer as part of our focus on ensuring the summer is much better placed from a disruption perspective.
It's fluid at this point in time, and we're working closely with them to manage that through. At the same time, we're keeping our options open as to in the lease market, just in case.
Obviously, you have a real tight relationship with Airbus. You're very important for one another. Do you get compensated for these disruptions or incremental costs?
Yeah, we do. We have an arrangement with them. As part of the deal that we did at the end of last financial year, we enhanced that. To a certain extent we do, but clearly we'd rather have the revenue and the contribution of flying passengers around our network than a belated check from Airbus, contribution towards that impact.
Okay, thanks.
The next question comes from the line of James Goodall from Redburn. Please go ahead.
Morning, everyone. Just a couple of quick ones. Firstly, following up on Mr. Hollins' question. How does a positive underlying RPS performance in both Q1 and Q2 compare to your original expectations? Am I right in saying that you were originally expecting a flat underlying yield environment for the winter? Secondly, if you could just clarify what your expected organic capacity growth is in H2. Thanks.
Okay. The guidance we gave, we guided to mid-single-digit for half one, and we're now guiding to mid-to-high negative single-digit RPS for half one and we've talked about those, the factors around that, which is IFRS shift, Easter shift, and some softening in Tegel. I would expect to, there's a number of moving parts you'd expect given what happened last year, but pretty much Q1 is in line with what we expect internally. Our revenue perceived number that we've delivered on is pretty much in line with what our internal projections were for the first quarter. From that perspective, we've got, there's that underlying confidence that we have going through to the rest of the year. We expect organic growth into half two.
As I said to James earlier, really we are looking to, as you know, we look to OAG, and that settles down nearer as we approach half two. Early indications are that the growth in the second half is lower than, from our competitors on our network, is lower than we've seen in the first half of the year. Clearly that could change and as James referred to that plans at Norwegian are changing as we speak.
No, sorry on that second question, I was just wanting you to clarify what your, what easyJet's organic growth is in H2, i.e., splitting out the Tegel growth.
Oh, I see.
I'm thinking that's around 3.5%.
Okay. Yeah. I think we give the guidance for the full year as around 10%. We know what our first half guidance is. I think we haven't disclosed exactly what the Tegel number is, but effectively it annualizes out over time because of the growth that we saw in Tegel last year. It's fair to say it's still a fair proportion of that growth, that full-year growth, is Tegel-related. We can come back to you on exactly what that second half is. I think the math, you've got enough math out there based on what we flew last year and the guides we've given this year to work it through.
Yeah. Okay, cool. Thank you.
The next question comes from the line of Damian Brewer from Royal Bank of Canada. Please go ahead.
Good morning, everybody. Two questions, please. Just coming back to Tegel, could you elaborate a little bit more on what exactly is delaying the optimization? I assume you would've already taken into account the slot coordination committees and the other issues. Can you say a little bit more on what has incrementally caused the delay there? How fixable do you think that is? Secondly, just sort of, I guess, a sort of derivative of the last question. Looking at H1, where clearly you don't start to lap the Tegel startup till January this year at the beginning of Q2, could you talk a little bit more about the relative route maturity within the business in H1 versus H2 this year? In particular, as growth slows down, you lap some of the Berlin startups.
Does the route portfolio significantly mature versus H1, or is what you're doing in regional France and the uptick in Tegel seats offsetting that? Thank you.
On the Tegel end, what we've been trying to do there and what the plan was and is, and that, just give you a little bit of context, is that as we go through the, as you mentioned, the slot application process, we've been trying to do a number of things. One is to actually just coordinate the best available program between Schönefeld and Tegel. We've been looking for more routes to be flown from Tegel into areas like Amsterdam, Geneva, and Basel, and so on. At the same time also for the summer, and I think we talked about that actually last year, that we're having basically too many domestic flying in the peak schedule that was originally there for Air Berlin as it was supporting its long-haul operation.
Clearly, this is something that we would like to shift out to do more of a leisure destinations in the summer. We got some of that coming in, but I think that as a result of that, the result of the slot application process and what came back from that and how, and we're working quite hard on it, we didn't get really where we wanted it to be. We didn't get into the efficiency of the program that we were hoping for. That doesn't mean that we won't get there. It's just that it's a delay in what we've been doing.
Fair to say also that it's been a huge focus for us in Tegel to land it operationally, now it's full focus to continue with that, but also make sure that commercially we get this back into very good shape, which we think it will be because it had all the parameters to do that. It's the second largest city in Europe, the largest city in Germany. We also get very strong preference scores in that marketplace from the Berliners. We are going to get into a good place there. It's taken longer time than we thought, just to be upfront about that. The other question was.
Yeah. On route maturity, obviously, as we optimize Tegel, that will become more mature as normal. You're absolutely right, our expansion into France will be a bit of investment as we establish ourselves. Just to put it in context, I'll just give you some figures. At the start of this financial year, we had about 980 routes. New routes in Q1 were about 53, we terminated about 20 routes. That gives you the kind of upscale of the continued churn that we operate and optimize our route portfolio. That gives you an indication of where we are. There is going to be a continued expansion into France as we talked about, we put two extra aircraft in Manchester, but typically they'll be onto the routes that we've already got and we already operate.
Just to add to that as well, clearly when we're allocating growth, we are aiming to get ourselves into that number 1 and number 2 position and get the scale and efficiencies. Certainly, there are a couple of bases also where we haven't reached that yet. That's also something that we see opportunity to come at. I think out of the 30 bases we're going to have this year, we're going to have number 1 and number 2 leadership positions in 24 of those at the moment. That's where we're going to allocate the growth coming forward to. Out of the 166 airports that I think we're operating from as well, that gives us the opportunity to get more number 1 and number 2 positions, and that's how we're allocating the growth. Okay. Thank you very much. Thank you.
The next question comes from the line of Daniel Roeska from Bernstein. Please go ahead.
Hi, good morning. Two questions, please. First one is, how satisfied are you with the performance of your revenue management system in Q1? Is it performing well enough to support the pivot towards business passengers? How are you thinking about fine-tuning it or developing the system? Second question is, given a potential slowdown in the economy, how are you preparing for that? What changes or measures are you putting in place? How would you plan to react if demand grew slower than you're expecting? Thank you.
Yeah. On the first question, it's really interesting. We're spending a lot of time on the revenue system as well, and the whole areas and the focus and actions around yield. The system is very good. It works very well as a demand-driven system. We are definitely need to do a lot of intervention when it comes into granularity, looking at the dynamics that exist in a marketplace where, if you compare to the last year, where demand was just picking up. Now, we need to go in and adjust the system also to make sure that when it gets tougher, as you would have seen from the RPS in the Q1, that takes more manual intervention to do.
I think the other thing which we're investing quite a lot in is that we want also the system to start taking into account competitor capacity, which it doesn't do at the moment, because that is data that is available out there, and we want to be able to, through data, basically give that as an input to make sure that we're maximizing our yield and load factors, as well as also competitive pricing. The initiative that we announced last year about doing a lot more investment into data and data scientists and data analytics, I would say that probably one third of all that effort is going in to make sure that we will improve our revenue management system. The system is good.
I just think that there's an endless opportunity when it comes to what one can do within yield, in terms of how we can also start yielding ancillaries, as an example, at a much more granular level than we do today is another great opportunity for us. I think the other question was about business traveler. I'm happy to say that actually, as of last night, we won the Business Traveller Awards of Best Business Airline for the first time. We're exceptionally pleased about that, apart from also being the best short-haul airline, and that was from the business travel communities and the TMC. Sorry, I was so excited about that, I forgot actually what the question was.
Sorry. The other question was around, if the economy slows down, what are you doing to kind of prepare for that, and how would you react if demand grew slower over summer than you're expecting?
Yeah. We have the flexibility to make sure that we will adapt ourselves in our fleet plan going forward on the longer-term basis, I think that's one of the good things with our fleet plan, that not only have we exceptionally good prices on that, but also its flexibility within the fleet plan. The other point is to say that, when the environment gets tough, this airline tends to outperform. That's something that's been historically true, I think it comes back to the fantastic positions that we have. We have tremendous a lot of assets in the slots that we have, We know that we can outperform. We have a competitive cost advantage, We also have still a lot of revenue opportunities that haven't fully been exploited.
The good years and the good times are there to set yourself up for the tough times to come. I think that we are going to be in a good place and continue to outperform also when it gets tougher, probably even more so, because that's what we've done in the past the record we can do in the future as well.
That's great. Thanks very much.
Thank you.
The next question comes from the line of Alex Paterson from Investec. Please go ahead.
Morning, everybody. Can I just very briefly go back to Tegel and ask, if you haven't managed to get the slots that you were hoping for during this period, what gives you confidence that you're going to be able to get them in the future, please?
It's basically just a matter of ongoing improvements that we're getting, basically in all the markets we're operating through these processes as well. I have no doubts in my mind that we are going to be able to get there. As you know, it's a big operation for us there, and there were a lot of changes that needed to be done. I think, in hindsight, we perhaps were a little bit optimistic that we should have got it in place as quick as we wanted to. There's no doubt in my mind that we're going to be able to do that, because it's not rocket science, and it's not constrained in order to the level that you're going to say that you're never going to get there. These are self-help measures that we can continue to do and get better results. Simple as that.
Thank you.
Thank you.
The next question comes from the line of Malte Schulz from Commerzbank. Please go ahead.
Hi, Malte speaking. Good morning. Two questions left from my side. First of all, maybe we haven't spoken about it. Maybe you can give us your current stand on Alitalia and your interest, and if you can, is there any changes to your plans, and how do you think now that there were rumors that Air France-KLM is joining Delta in a bit? The second question would be also on fares and a little bit more, I think Ryanair is particularly aggressive at the moment in lowering fares to squeeze out also a little bit the competition. Is it also something which comes to your mind, especially if you look that Norwegian is quite weak at the moment, that you would then on competitive routes maybe enhance the pressure a little bit to maybe force them to go out of market?
I think on the Alitalia, there's nothing else to add to what we've stated previously. We are still engaged in discussions with the commissioners around this as well, but there's no specifics around that that I would like to comment on at this moment in time. In terms of the pricing and some of our competitors, yes, I think that there is more aggressive pricing that is out there. We have a relatively little overlap with Ryanair, and we have proven that we can fare well and do well in competing with any airline. Partly because of the positions we have, partly because of the structural cost advantage we have, and also because of the preference we have in our brand.
We are consistently being voted as the number one when it comes to value for money across Europe in our network, and that's something that we know is going to make us successful. To your point, the marketplace is very dynamic when it comes to pricing. I think it's fair to say that it's become definitely more competitive this winter compared to last winter, which was also very benign, as you know.
If you allow me to follow up, is it something you plan also to do a little bit more in the future to maybe force a competitor out of business? It's not just direct towards Ryanair, but also to copy the strategy, to be more aggressive.
We are looking to maximize profit in what we do. We know that we are more efficient than almost any other airline that is out there, and particularly on the routes that we are flying on. I think that that is enough to make competitors have a difficult time. I think that if you take Monarch as an example, that was one of the competitors that we were competing on head to head. We had a much more efficient model there, but we were competing and trading as we think was the right thing to do. In the end, they ran into problems on that. Anything to add?
No. I think as you say, our aim is to maximize that profit, and we will have those competitive battles, and we'll treat them independently and individually as we see fit, as we do at any other time over the period we've traded.
I think we'll take one more question.
Yeah. Now, if that's okay.
Of course. The final question comes from the line of Kathryn Lynn from Numis. Please go ahead.
Morning, everyone, and thank you. Just a couple, if I may, if that's okay. Just in terms of the Easter and the phasing and the underlying yield expectations. Reiterating the point, are you able to just say what components are underlying versus your prior expectations? Just thinking about, I know we've gone through it already, the Easter contribution, I think you previously said about GBP 45 million, and the interim, sorry, the prelim guidance on IFRS was about 2.5 percentage points contribution as well, which you guided to. On that basis, it doesn't look like there has been a big jump in terms of the phasing impact on that. I just wondered, could you break out what's underlying versus just phasing in terms of that subtle deterioration from mid to high single-digit deterioration from mid?
The second question was just on levels of disruption and the cost guidance. You've clearly seen some increased disruption in Q1 already, again, there's been some subtle deterioration in the cost per seat guidance for the full year from slight improvement, including IFRS, to flat or circa unchanged. Given that that's just from Q1 disruption that's abnormal, can you just clarify or give any more color on what you now assume is normalized disruption and how that might then trend through the year? You've got some easy comps for Q1, but obviously summer being a tougher period. How much inflation should we expect from that? Thirdly, you mentioned your progress on reducing the levels of delays and cancellations in the first quarter, despite the London Gatwick drone incident.
Are you able just to say by how much improvement you see now, I know it's a key target, and just what claim rates are doing on EU261? Thanks.
Let me start with the last questions then. We've launched a big program internally about disruption to make sure we're increasing our resilience, it's partly in adjusting the schedule to avoid the three-hour delays. It's partly in increasing the standby aircraft availability to cope with the congestions and disruption that sits outside our control. Also it is about our own processes and procedures. We're going through every single line of detail. For instance, with First Wave, we think that's going to have an improvement going forward on disruption. You would see that the cancellations were less in Q1, of course, you had the drone incident as well that had a big impact from what we were doing. In terms of the disruption for the year, we anticipated to be in line with last year, excluding also the effect of the beast from the East.
We got a huge focus on reducing the impact of disruption both for our customers, and actually it's a big cost-saving opportunity that we actively reflect on.
Kathryn, on the phase, by far the majority of the revised guidance of Q2 relates to the fact that our original estimates for IFRS 15 and IFRS 16 weren't 100% right. I think it's fair to say that the majority of that, and then you've got a small element of the softening within Tegel, which we've talked about. There are the three main factors of that revised guidance into the half one guidance.
That's helpful. Thank you.
Thank you all very much, and have a great day, and thank you for joining in on the call.
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