Are we ready to go, Stuart?
Yeah.
Very good. Well, listen, thank you so much for coming here, good morning, everybody, as well. We have a very exciting agenda for you today. As you've already seen in today's announcement, we have delivered a fantastic performance in the first half, which Andrew will cover shortly. I've been at easyJet for six months. After we've gone through the H1 numbers, I will also share my reflections on easyJet, and will also highlight some areas where I think we can take this excellent business from strength to strength in the future. With that, I'm going to hand over to Andrew to take you through the results.
Thank you, Johan, and good morning, everyone. Before I start, I just wanted to highlight a slight adjustment to our slide presentation with the addition of our Tegel operation. As we run through, I'll ensure to keep you updated on exactly what is being presented. Starting off with some key stats. On the right are the total stats, including Tegel. Highlighted in the middle are our underlying stats, excluding Tegel. To help you, there are a couple of circled numbers that refer to the measures that we have previously guided to. In the first six months of the year, our total capacity, including Tegel flying, grew by 7.8%, with passenger numbers reaching 36.8 million, an increase of 8.8%. Excluding Tegel, capacity grew by 4.6%, with passengers up 6.6%.
Overall loads have increased in the half, with total load factor up 0.9 percentage points, despite the lower average loads in Tegel reflecting the rapid startup of operations. Excluding Tegel, there has been a 1.7 percentage point increase to 91.9%, strong for the winter season. On a total reported basis, revenue per seat was up 10.9% and up 8.3% at constant currency. When excluding Tegel, these were 12% and 9.5% respectively, a result that has positioned us at the high end of our guidance range. Our total reported headline cost per seat was broadly flat in the half, whilst at constant currency it decreased by 1.5%, highlighting our continued delivery of cost-cutting initiatives offsetting inflationary pressures and the benefit of our fuel hedging position.
Excluding Tegel flying, our headline cost per seat, excluding fuel at constant currency, was up 1.3% for the half, which is slightly higher than expected, mainly due to severe weather driving de-icing, disruption, and crew productivity in the period, plus investments in resilience. I'll give you more detail on revenue and cost later in the presentation. Moving on to the income statement. As with the previous slide, the Tegel operation is included in the total numbers on the right, with our underlying numbers excluding Tegel highlighted in the middle. Total revenue increased by GBP 356 million for the half, which reflects a combination of our capacity growth, a strengthening EUR, as well as a strong trading performance. Tegel generated GBP 42 million of revenue in the period.
Total headline costs, excluding fuel, increased by GBP 160 million, which was mainly driven by increased capacity, a strengthening EUR, inflation-linked crew pay deals, which we highlighted at Q1, plus the tough weather conditions and disruption. This was partially offset by cost initiatives, including the continued leverage of our scale at airports and the benefits of our organizational review. Fuel costs increased by only GBP 2 million in the half, which reflects an effective posted fuel price of $547 per metric ton, which represents a reduction of 17%. As a result, including the headline loss associated with our Tegel operation, easyJet has delivered a headline loss before tax of GBP 18 million, which is a GBP 194 million improvement on last year. When excluding Tegel flying, we delivered a headline profit before tax of GBP 8 million for the first half, highlighting the underlying strength of the business model.
In terms of non-headline costs, there was a GBP 50 million impact in the half, the largest elements being GBP 24 million of Tegel integration costs and the accounting entries associated with the sale and leaseback of 10 A319 aircraft in the period. Moving on to some detail of our Tegel operation. As a reminder, our first flight from the airport was on January 5th, so these results reflect less than a quarter of trading. They also reflect a schedule that is currently under-optimized and being operated primarily by wet-leased aircraft. That said, I'm happy to say that it's been a good start with our capacity and operational performance being in line with our plans. Since launch, we have flown over 700,000 passengers from Tegel, delivering a load factor of 63.4%, which reflects the rapid ramp-up of the operations, with tickets not going on sale until December 2017.
Load factor levels are increasing as expected, with April hitting almost 80%. We made a headline loss before tax of GBP 26 million for the period, which is a solid performance given the factors already mentioned. In terms of operational measures, our performance is excellent. On-time performance of 91% for the period has been strong and would have been higher if it wasn't for the poor weather in March. We are progressing in line with our fleet transition plan, and our recruitment and training pipeline is also on track. As at March 31st, we already had 233 Tegel-based pilots and cabin crew. The smooth launch of such a large base is testament to the fantastic operational capabilities we have within this business. Everyone involved has done a great job. Tegel. Moving on to our per seat performance, excluding Tegel.
Revenue per seat at constant currency was up 13.1% in Q2 and 9.5% in the half, was driven by three main factors. Seasonality shifts, mainly the partial movement of Easter into Q2, which delivered GBP 0.78 per seat or 1.6 percentage points. We estimate the combination of Monarch and Air Berlin bankruptcies, plus the issues experienced at Ryanair, that the capacity reduction is delivering a GBP 1.96 impact for the half, being circa four percentage points. Finally, underlying trading, which includes a strong ancillary performance, delivered a further GBP 1.91 improvement in the half, i.e., 3.9 percentage points. We have seen good performance across all parts of the network, driven by our network, brand, customer service, and attractive fares.
Ancillary revenue seat drove a 1.8 percentage points improvement and was delivered through the ongoing benefits of last year's improvement to our bag and seat offering, as well as our new bag proposition offering 15 and 23 kilogram bags and the increase in load factor for the period. Finally, when including the impact of Forex, easyJet's reported revenue per seat for the half, excluding Tegel, increased by 12%. Moving on to cost per seat, again excluding Tegel. In summary, headline cost per seat decreased by 1.6% at constant currency, reflecting our hedged fuel position, while headline cost per seat excluding fuel at constant currency increased by 1.3%, slightly higher than previously guided. Focusing on cost continues to be a strategic objective for easyJet to ensure we maintain our competitive advantage. Our cost program has delivered GBP 66 million of benefits in the period.
At constant currency and excluding fuel, this has not been sufficient to fully offset cost per seat pressures in the half. One of these pressures includes the increase in load factor, which although has a positive impact on profitability, has partially offset the cost per seat benefit of increased aircraft gauge in the period. That said, during the half, we have continued to deliver considerable success in leveraging our scale at airports, offsetting underlying inflationary pressures, the impact of high de-icing costs up by over GBP 6 million in the half, and our investment in resilience, particularly in ground handling at Gatwick. There'll be a greater impact from regulatory price increases towards the end of the year, but on a half-year basis, we have performed well to more than offset these increases.
The two areas of significant cost increase were in crew costs and disruption and welfare costs, the latter two included within overheads. The increase in crew costs reflects inflation-linked crew pay deals we highlighted in Q1, some one-off costs and the impact of canceled flights, and a significantly better crew retention rate than expected, impacting productivity, but which did help resilience. Within overhead, the impact from disruption has offset a lot of the benefits from our organizational review savings, which we have completed. The severe adverse weather experienced during the half, which included over 1,200 cancellations for the month of March alone, drove disruption-related costs. The Beast from the East alone drove a cost impact of around GBP 8 million in the half, this excludes the cost of de-icing. I'll discuss disruption in more detail in the next slide.
Navigation costs continued to fall. Maintenance and ownership costs were up as anticipated, reflecting the maintenance work relating to return of nine leased A319 aircraft and the purchase of new A320s. Taking into account the unforeseen weather and disruption cost drivers in the half of the year, as well as the expected payment of higher staff incentives due to our strong profit and operational performance, I'm updating our full-year headline cost per seat ex-fuel guidance to an increase of 2%. Were it not for the factors just highlighted, we would still be expecting an increase of around 1%, if not lower. Costs will continue to be an area of relentless focus for us to ensure we continue to be a low-cost leader in the markets that we operate. I've spoken about disruption before. I thought it'd be worth giving you some context.
As highlighted in the graph in this slide, disruption has been the single largest driver of cost increases at easyJet in the last four years. This industry problem has been driven by increasingly congested airspace and airports right across Europe, changes to the legal interpretation of EU261 passenger compensation events, increasing customer awareness, as well as rising welfare costs such as hotels. It's an area we've been investing in for some time to reduce the events within our control. Investment in resilience of the operation has included predictive maintenance with Airbus and increased spare parts inventory. DHL introduced as ground handlers at Gatwick, investment in schedule resilience, increased crew and aircraft standby levels, and many others.
It's helped drive improvements in both on-time performance and avoided even higher disruption costs with our on-time performance improving by 6 percentage points at Gatwick in the last 12 months. Our cost per seat trajectory staying in check despite the industry-wide factors previously mentioned. We need to do more. Johan will touch upon this later in the presentation. This slide summarizes the impact of fuel prices, currency, and hedging. The average market price for jet fuel for the half was GBP 620 per ton. After taking into account our commodity and currency hedging, the sterling cost of fuel per metric ton was GBP 393, which is a GBP 56 or 12.5% decrease compared to half 1, 2017. Excluding the US dollar FX impact, the unit cost reduction benefited our cost base by some GBP 57 million, despite the increasing market fuel price experienced through the period.
We expect need to be advantaged compared to a lot of our competitors over the next 12 to 18 months based on the increasing fuel price and our current hedge position, which now also reflects our Tegel requirements. Moving on to foreign exchange, the euro rate fluctuated between EUR 1.11 and EUR 1.15 during the half. There was a headline GBP 14 million positive impact from currency movements, which includes those within the revenue, fuel, and other cost lines. easyJet continues to generate strong, sustainable cash flows, with operating cash flow reaching GBP 766 million in the half, which funded a return of GBP 162 million to shareholders through the payment of the 2017 ordinary dividend. Our working capital benefited from a combination of our higher revenue per seat, changes to ticket sale timings, plus an improvement in supplier payment terms.
Our investing and financing activities included the generation of GBP 106 million by the sale and leaseback of 10 A319s. This contributes towards GBP 387 million of capital investment, primarily on new aircraft. The capital expenditure also includes engineering and maintenance investment, plus investments in systems with a particular focus on our future commercial platform, as well as the EUR 4 million invested in the Air Berlin Tegel assets. We continue to have one of the strongest balance sheets in aviation, which provides resilience, flexibility, and access to cheaper unsecured debt. During the six-month period, intangible assets grew by GBP 45 million, reflecting investment in IT software and developments in the Tegel assets. Fixed assets increased by GBP 123 million, principally representing the investment in new aircraft, offset by the sale and leaseback of 10 A319 aircraft.
At the end of the period, 69% of our aircraft were on balance sheet, with 98% of those being unencumbered. Looking at our cash position, easyJet ended the period with GBP 1.6 billion in cash and money market deposits and borrowings of GBP 959 million, resulting in GBP 665 million of net cash. Our liquidity is supported by the $500 million revolving credit facility, which, as we have previously highlighted, has been extended to February 2022 and has no covenants nor draw stops. Also, as a reminder, an innovative policy has been written with Munich Re to provide business interruption insurance of GBP 150 million to cover large short-term shock events, which also supports our liquidity buffer. Pricing is competitive with other sources of funding and frees up cash for use in the business.
As at 31st of March, our liquidity position was GBP 4.1 million per 100 seats versus our minimum liquidity target of GBP 2.6 million per 100 seats. Moving on to forward bookings for the remainder of 2018, 57% of our seats have been booked. Of our H2 seats have been booked, which is two percentage points in front of the same time last year. Although this is a positive position to be in, it includes the benefit of an earlier summer schedule release than last year. This slide shows the expected capacity growth across European short-haul networks through the summer. Please note this information is sourced from OAG and includes easyJet flying from Tegel Airport.
As you can see, short-haul capacity is expected to grow by around 5% in the half, with easyJet reaching double-figure percentage growth, mainly due to the impact of Tegel flying, which represents circa 80% of our growth in the second half. In terms of competitors on our routes, we are expecting a decrease in capacity of circa 2%. This decrease in growth is mainly down to the lower backfill compared to last year of Monarch and Air Berlin capacity. Moving on to the more detailed line-by-line outlook slide, the first section of which excludes Tegel. 2018 capacity is expected to increase by circa 5%. This is a slight change from previous guidance and reflects the higher number of cancellations experienced in the half. Based on current trading, H2 revenue per seat is currently expected to be slightly positive despite the shift of Easter out of Q3.
Full-year headline cost per seat, excluding fuel in the constant currency, is expected to increase by circa 2%, subject to normal levels of summer disruption, and full-year headline cost per seat at constant currency is expected to be circa flat, assuming normal levels of disruption. As a reminder, the increase in guidance was driven by the abnormal levels of disruption experienced in the half, as well as the expected payment of employee incentives due to our strong operational and financial performance expectations. Based on exchange rates highlighted, we expect a headline GBP 25 million year-on-year positive impact for the full year, of which we saw GBP 13 million benefits in H1. Full-year unit costs are expected to be GBP 60 million-GBP 70 million year-on-year favorable, with an expected total fuel cost of GBP 1.12 billion.
Moving on to the Tegel operation, we continue to be on track in the ramp-up of our Tegel operations and are now confident of delivering a total reported loss before tax in our original guidance of GBP 160 million. Regarding our headline loss expectation from operations, we are expecting a slight cost increase of circa GBP 15 million, which reflects the unhedged fuel price increase in the period, the recent increase in security charges across German airports, as well as the lower average gauge than planned on some of our wet-leased aircraft. Regarding summer revenue, there is uncertainty whilst we file the sub-optimal Air Berlin schedule, especially within the German domestic market. We have already commenced our planning for optimization of the future schedule to give our customers a more desirable offering, and we will invest in building our brands to continue to be very confident in its future.
This is reflected in significantly improved trading benefits at Berlin Schönefeld Airport, which has benefited from the improved Berlin customer proposition. Additional cost and revenue risk, we are increasing the range of our full-year headline impact related to Tegel to circa GBP 75 million-GBP 95 million loss. This increase in headline loss has been fully offset by savings in non-headline costs, which are now planned to be circa GBP 60 million for Tegel. This saving reflects how effectively we have established the Tegel base. Moving on to total headline profit. We expect the FY 2018 headline PBT results, including Tegel operations, to be between GBP 530 million and GBP 580 million. Finally, moving on to CapEx for FY 2018, including Tegel. Total CapEx in FY 2018, including the acquisition of Air Berlin assets, will still amount to circa GBP 1.2 billion in line with previous guidance. With that, I'll now hand you back to Johan.
Firstly, let me just say that it's clear to me that we have outperformed the market in the half because of the strength and the competitive position that the company has built up over the years. As you may remember, during my Q1 results that me and Andrew presented, I talked about how my ambition was really to take the company from strength to strength, and this remains my view. My approach will be, as I said earlier as well, it will be evolution, and it will not be revolution. This evolution will build on the foundations that we have and capitalize on the opportunities that so clearly exist, and that we have not fully explored in our business to date.
I'll go into more detail on what those opportunities are in a moment. First, I want to share my reflections on easyJet as we stand today. When I started in December, I was very clear that I wanted to take the time to meet and listen to people both inside and outside the company. Since then, I've spent a huge amount of time with our stakeholders. This has included investors, suppliers, partners, regulators, customers, and also, of course, our own people. I also spend a lot of time reviewing our current strategic framework with the team and the Board to really understand where we come from, perhaps more importantly, also where we're going and how we are going to get there. All this has confirmed my early observation that we are a business with many unique strengths and with many opportunities.
There are also some challenges that we want to address, which, as we do so, will lead to further operational and performance improvements. Let me just recap on some of those findings. Firstly, our network. We have Europe's leading point-to-point network between the continent's primary airport, which appeals equally to both business and leisure travelers. The destinations, the slots, the frequencies, gives us an unparalleled customer proposition, provide barriers to entry, and as a whole, are extraordinarily difficult, if not impossible, to replicate in its whole. Our strategy remains that we will continue to strengthening our number 1 and number 2 airport positions. Second is our cost base.
We have a cost advantage where we operate. I spend a lot of time with Andrew and with the team to understand our costs, and it's very clear that there is a structural cost advantage in the primary network locations we fly to and from. We can do better, and we must do so. As mentioned earlier by Andrew, disruption is the single biggest driver of cost increase and cost pressure that we and the industry face, and we have already taken action around resilience, but we need to do more in this area. Radically attacking this issue will address two big priorities, driving down costs and at the same time also improve the customer experience. Moving on to scale. We have almost 300 aircrafts, and we are set to carry 90 million customers this year.
As well as being a large airline, we are also a relatively simple one with 1 aircraft type, one brand, one main distribution channel, which means we can lever scale across the company and with the partners that we work with. We're also very mindful that as we go forward, we need to drive up complexity and keep our focus on simplicity and efficiency. Our recent organizational review helps us to take a step forward on this. Our people, easyJet has some of the best people in this industry, and I'm not just referring to a handful of individuals, but really across the whole of the operations and where we operate.
To build on this, as you will have seen from the announcement today, I am really pleased also to welcome several new top quality members to the AMB with a mix of both external and internal recruitment. A further unique asset is our brand. Our brand position is extraordinary in our main markets. In the U.K., our largest market, we are now the most considered airline brand, moving ahead of British Airways for the first time and reaching our highest score to date. We are also ranked number 1 in terms of value for money perceptions, 14 points ahead of British Airways and 19 points ahead of Ryanair. In Switzerland, 4 in 10 consumers consider easyJet their first choice airline, whilst in France and Italy, more than 1 in 5 say the same. This is absolutely quite incredible.
In Germany, our brand perception is now improving rapidly, achieving our best preference score ever in Berlin. We were also recognized just two weeks ago when easyJet was rated Europe's best value airline for short haul by Skyscanner. This brand strength gives us the unique competition for our growth plans and that we can build upon. Finally, data. We have billions of data points in our company, and our focus on data began earlier, some years ago. In many respects, I think that we are ahead of our competitors. However, we are still just at the beginning of this journey. We still have only seen fragments of what this will do for us when it comes to reducing cost, increasing revenue, and also how we are engaging with our customers. Data will also be a key enabler to stay efficient and drive complexity out of the business.
The winner in the industry in the future will be the one who takes care and delivers or maximizes the potential of what data brings. In summary, it is therefore clear to me that easyJet has a number of strengths, which in combination, no other airline can match and which together has laid the platform for the airline's growth and success. I plan to build on these strengths. Earlier I said my approach will be evolutionary. However, this does not mean that we will not be bold. We will. In some areas I will take you through, we will radically accelerate what we do, particularly in the less capital-intensive areas. This will enable us to take big leaps to create a competitive advantage over others and also greater returns.
As a team, we have looked closely at the value chain and the strengths we have, and we have identified three significant areas of opportunity which we haven't yet fully capitalized on. That is holidays, business customers, and loyalty. All three will be unlocked by supercharging our data capability, and all will be delivered successfully by our people, both existing and new top-quality talent who fundamentally are our greatest assets. Taken together with a focus on cost and disruption, these initiatives will drive what I believe needs to be our most important financial measure, profit per seat, as well as increase our return on capital employed and increase the reward to shareholders. Going forward, our focus on profit per seat will drive better decision-making for the benefit of easyJet. It will also encourage us to make the right sort of investments which will deliver long-term sustainable returns.
We will give more details in November, I will now outline the exciting opportunity we see for each of these areas. The first one of these is holidays. Based on my previous experience, I know that easyJet has a huge opportunity in this area that we just haven't leveraged. easyJet entered the holiday markets some years ago, but its approach to date has been limited. We now have all the necessary ingredients to successfully do more in this area. These ingredients include a pan-European network with the best destinations, frequencies many times of the day, every day of the week, a well-loved, trusted, and powerful brand, a cost advantage over the leading competitors, a customer base with high spending power, and the scale to capture a significant share of this market.
To illustrate this, on the biggest and most attractive flows into the most popular beach and ski and city destinations in Europe, easyJet has a market share, a frequency, and most importantly, a cost position that no one else can match. To many of the biggest holiday destination, we are market leaders when it comes to capacity, we simply do not convert enough customers to book hotel with us. We don't need to even go out to get new customers. We already have them. Today they just don't book their accommodation to us to the extent that we would like to do, that is something that we will change. easyJet's strong brand in its core European market attracts a wide breadth of passengers to these destinations from couples, families, and those traveling for a short weekend trip or a longer break.
easyJet has a cost advantage of at least 20% over the leading operators, which allows us to offer great value when we sell flights also with hotels. Despite all these ingredients, only around half a million of our customers book hotel with us today. That is from an addressable market we estimate to be around 20 million passengers. We now believe the time is right to invest more in this area. Combined with our existing easyJet offer, we can significantly increase the number of people we take on easyJet holidays. To do this, we are going to establish closer relationships with selected partners, including hotels and destination services. By combining a quality, great value hotel offer with the flexibility and the multiple of frequencies to major European destinations, we will deliver a better value proposition for our customers.
Just to be clear, our focus is not to take on hotel inventory risk. It's just increasing the revenue and the profit per seat opportunity. To drive this initiative forward, I'm really pleased today to announce that Garry Wilson from TUI Group will be joining the business and will head up this new unit. He is currently Managing Director of TUI Group Product and Purchasing. I've known Garry for over 12 years, he's one of the most experienced holiday industry professionals in the world. He will report directly to me and also take place of the airline's AMB. His pedigree is well known to everybody in the industry. This is a clear signal that we are accelerating our efforts in this area. Next, we move from leisure to business travelers. You heard more about attracting more passengers traveling on business.
With Europe's leading network linking the biggest airports, easyJet offers a strong platform to attract and retain these travelers. We have made great progress in driving this area of the opportunity over the last few years. Again, we can really do more. As a reminder, business passengers are attractive to airlines for a number of reasons. They travel at times of day, days of the week, and months of the year that complement our large leisure flows. They value a primary airport network. The passengers tend to book late and therefore pay a higher fare and provide to us a higher return, and they also travel with us for leisure. This is great. We have seen the number of passengers traveling on business rise from 10 million a year in 2012 to over 13 million a year today, despite our growth in leisure routes.
We will continue to develop our network to bring more business travelers to easyJet. For example, with our expansion in Tegel, we have started flying German domestic routes for the first time, linking Berlin with Frankfurt, Düsseldorf, Stuttgart, Cologne, and Munich. As expected, we are seeing high numbers of business passengers on these routes at around 60% penetration. Despite this growth in business flying, our overall business penetration has remained relatively flat. There's a lot of simple things we can do to make it easier for businesses and business passengers to work with easyJet and for us to attract more of those passengers. What are we going to do? Well, there's four things for starters. We need to make sure that we have a schedule that is better tuned to business demand, with peak time flight options to all major business centers.
We will develop a business class targeted fare bundle. We will automate all invoicing processes which have previously been a barrier for some corporates. We will also build a new online portal to allow small and medium-sized businesses to book more easily with us. We also believe there's more we can do to ensure the business community is aware of the great value that we offer. We offer a similar product for the average business passenger in comparison to the so-called full service carriers, but for many times less than half of the price. We offer similar seat pitch and leg room, one carry-on bag. They do give you a snack, but unless you actually have part of the loyalty status program, you'll be way back at the plane.
Add on easyJet Plus, which many of our corporates have. You can sit in the first row and be out first. For example, we even have a better terminal location in Berlin, Tegel, so you're quicker out to the taxi rank. With legacy carriers, you can earn loyalty, but that's something that I'm going to come on to in a moment. Educating the business community, both travelers and the corporate procurement team, is critical for us to deliver this program. Once our business customers try easyJet, they want to come back again. In fact, 92% of our customers who fly with us say they would consider flying easyJet next time they travel. This is the prize we need to go after.
With the new initiatives I have outlined here and others we are developing, we will build on our share of business and capture more of the yield premium these passengers provide to us. Finally, to fully deliver on the opportunities we see within holidays and business, we will create an easyJet loyalty program that truly rewards and recognizes our loyal easyJet customers. In summary, loyal, regular flying customers create the most value. Returning customers book twice as many flights a year as new passengers do. We also know from our data that they spend more with us on other products and services, whether that is on hold bags or our in-flight bistro. That said, 46% of our customers only fly with us once a year. This presents a great opportunity to drive loyalty further and in ways which would complement the new initiatives in holidays and business.
We already have our Flight Club program for our most loyal and frequent travelers and easyJet Plus, which is a great product for those who travel regularly with us. We want to build on these great programs, but in a much more ambitious way. When I look around the industry, I see all of our rivals offering loyalty programs. However, legacy airlines and their loyalty schemes are increasingly less compelling as the flexibility and attractiveness is devalued, and passenger dissatisfaction with them is not insignificant. The world has changed and the ways of rewarding and recognizing customer loyalty are also evolving. It's hard to go out to even buy a cup of coffee without being encouraged to join one of the loyalty schemes. At the other end of the spectrum, we have Amazon Prime, which has completely rewritten the expectations about the power of loyalty scheme memberships.
Amazon Prime members, as an example, spend more than non-members, about $1,100 a year compared to $600 for shoppers who don't join. Amazon retains approximately 95% of them after one year. When you're looking at the airline industry, you see similar trends. American Airlines program drove 3.9% revenue growth in other revenue, while overall revenue fell 2%. It is estimated that the top four airlines in the U.S. generated $9.5 billion in loyalty revenue last year. Qantas estimates revenues from its loyalty ancillary to double by 2022, despite modest growth in the airline and little increased penetration. Every second household in Australia participates already. The program is estimated to be worth some AUD 4 billion. We are still in the very early stages of assessing how to best develop our own unique easyJet proposition that really reflects our value: simple, efficient, convenient, and value for money.
In 2010, 37 million of our 50 million annual passengers were returning to easyJet. This year, over 60 of our 90 million are doing so. If each returning customer books one additional flight and buys one additional product, the revenue and the profit per seat opportunity is huge. We'll come back later in the year with our plans in this area. We have three very exciting opportunities, holidays, business, and loyalty. Underpinning the delivery of these will be a significant investment in our data capability. I see data as an absolute game changer for this industry that will deliver customer benefits for ourselves, additional revenue, and lower cost. As I said earlier, easyJet is a large airline built on a simple business model. We fly 300 aircraft over 1,500 sectors every day and will carry 90 million passengers this year. This generates billions of data points.
We're already using machine learning. We're using AI, but only on a limited basis and with a small team of data scientists. We're only just beginning to scratch the surface of what truly can be achieved. As I told you at our Q1 results, I'm creating a new role as Chief Data Officer, whose key role will be to commercially and operationally capitalize on the airline's extensive and rich sources of data. I'm really pleased to announce that this role has been filled, and I have appointed Luca Zuccoli from Experian to supercharge this opportunity. Luca is currently heading up Experian's data lab and Head of Analytics in the Asia Pacific region and is based in Singapore. We will focus on three main areas. The first is revenue.
We are already well advanced in this area compared to most other airlines, there is so much more we can do. Using the billion+ searches each year on easyjet.com added to the history of our customers' journey with us, we will be better to understand and leverage the future customer demand trends. For example, telling us which destinations and timings are in demand that we can optimize both our schedules and prices for. The second one is improving cost and improving operational efficiency. With our recent announcement that we did about our Skywise partnership with Airbus, we are investing to take predictive maintenance much further. The move is part of our aim of eliminating delays caused by technical events, which will benefit passengers who will experience fewer delays and fewer cancellations.
These technical events have come down from 10 per 1,000 flights in 2010 to just over three per 1,000 flights today on our newest aircraft, and our aim is to get to zero. The third area is improving our customer proposition and their satisfaction when flying with us. For example, predicting the sort of demand for certain items of food and drink on each flight so that supplies match customer demand. Tailoring offerings on board so we know what you want to buy from us before you knew what you wanted to buy. This is such an exciting area for the business and one I know will drive value across the whole of the airline. Investing in this area, combined with the opportunities I mentioned earlier, will be the driving force behind easyJet's profitability in the future.
As a result of this, I'm setting a challenge to ourselves to make easyJet the most data-driven airline in the world. I would now also like to say a few words about our people, without whom none of this would be delivered. I've worked in the travel industry now for more than 30 years, I can honestly say that I have never come across a group of such talented and dedicated people. In particular, our crew are amazing. Sometimes, people tell me that short-haul European flying, that's a commodity. You can't differentiate yourself by doing that. I think that's completely wrong, I think we've proven people wrong, and I completely disagree with that statement. Any business which views its passengers as commodities rather than recognizing them as individuals will be found out by them.
The proof of this is delivered every day by easyJet's crew who prove that you can offer a differentiated service on short-haul flights. This is done by a business that engages with our people, who then cares about our passengers and customers. Our crew are highly engaged and committed to easyJet. With only 6% turnover, our customers feel this as well, as is demonstrated by the satisfaction score with the friendliness and approachability of our crew at 86%. This is 15% higher than customers' overall satisfaction with their end-to-end journey, which includes time at the airport security and border control, both areas that are not in our control. The attraction of the easyJet brand and culture is fantastic, and it is the competitive strength that we can build on to secure people engagement, loyalty, and a true customer focus. Finally, moving on to costs.
As I mentioned right at the start, cost is core to our DNA. easyJet has a strong underlying cost advantage on the network we operate using the scale and the growth plans to drive significant competitive advantage in major areas such as airports, ground handling, and aircraft cost. However, as Andrew said earlier, the biggest cost challenge we face is disruption. Without disruption, our cost per seat ex-fuel has been coming down, and we plan on continuing that trajectory. We've already taken action, and our investment in resilience last year has delivered improvements in our on-time performance as well as increases in our customer satisfaction. That is still not enough. Chris Browne is up there, and her team are developing a plan that will take out further cost all the way from schedule inception to the on-day disruption management as well as ensure higher productivity.
In short, cost and disruption will be a huge focus to myself and to everyone in this airline. To summarize, I will update you more in detail about these exciting new plans as we go through the year, but it's very clear to me that we have a fantastic opportunity to unlock significant value. This will require investment. We're working through the specific details, and we will obviously need further input from Garry, Luca, and the rest of the team, we'll come back to you in November with a clear guidance on this. The majority of this investment will occur in financial year 2019 and start to deliver increasing profit per seat by full year 2020. That investment will be relatively risk-free, and we will deliver increased return on capital and higher profit per seat, which in turn will give shareholders sustainable long-term returns.
We are building this company on a successful business model. We're building this company on a strategy that works and that provides a great foundation, and that gives us the confidence that we can invest in the future for the company. We're seeing great momentum also for the summer, and this is reflected in our increased headline profit before tax target this year of GBP 530 million-GBP 580 million. By focusing on business, holidays, and loyalty while leveraging data, investing in the people, and driving down costs, we will take this business from strength to strength. Thank you very much for listening, and we will now open up the floor for questions.
Rocky? Yes.
Yes.
Penelope Butcher from Morgan Stanley. Three questions on my side. The first, in relation to Tegel, given the updates that you've announced now for the operating cost profile in FY 2018, is it fair to say that still on an FY 2019 basis, you're expecting at least to break even outturn for the operation overall and beyond that profitability?
Yes.
On the ancillary side, you've made mention of a couple of these new initiatives, particularly on the hotel side. Can you help us with any color about maybe a sort of amount per seat uplift that these initiatives are designed to give on the ancillary side just to maybe scale the opportunity?
Yeah.
Finally, on the PBT per seat plan, appreciate that you probably don't want to give a number until you're ready to give a number, maybe just to connect that to sort of management compensation and plans going forward, once you maybe introduce such a target, do we assume that that is then going to be connected to management compensation?
I'll do the second question for the first one. You can do the PBT. On the holidays, as I mentioned earlier, I just think it's a great opportunity and the timing is right. We today convert half a million customers that we sell hotels to, but we're realizing that we have people on board the planes, about 20 million that doesn't book hotels with us. One of the great things is here that we don't need to go out and target lots of new customers. We already have them in there.
I think with the scale that we have and with the brand that we have, it will be a very interesting discussion to come and join up with hotel partners, selected hotel partners, but also other parts of the whole value chain around the holidays, like destination services as well, that would just be able to provide a lot better value. When you take the cost advantage that we have compared to some of the leading operators in this field, by bundling that together with the hotel, I think that's going to give us a tremendous opportunity to deliver also value in this chain. It's too early to come back on some of the profit per seat number in this as well, but I see great opportunity in this area. Penny, on Tegel, yes, absolutely.
It's going to take some time to optimize. We're running a very inefficient schedule at the moment. Roberto is indirectly in front of me, he's on the case to make sure that we can get that optimized. It will take a number of seasons to get us there, but I think by the time we get to 2020, we should be in an optimized position. Currently it's very much inbound. It was serving the long haul for Air Berlin. Slightly too many domestic frequencies, and also it doesn't connect well to the rest of our network. We've got to do some optimization around that, so the gang are on it already. With respect to PBT per seat, if you think about it, PBT per seat is actually a good linkage to ROCE because your seat is your CapEx and your PBT is your return.
To a certain extent, you've got a better linkage. It's more visible for our colleagues internally to look at that rather than ROCE. It's more complex to calculate. With PBT per seat, you can actually tangibly touch that. Whether it's going to be linked to us as a target is something for the Remco and the board to decide, but it has already a strong linkage to ROCE anyway. It's a much more meaningful measure for our colleagues within the business.
Thanks. Good morning. Daniel Roeska from Sanford Bernstein. Maybe first one, Johan, you'll appreciate the subtle distinction, but when you talk about easyJet holidays, are you talking about selling hotels or tour packages? How does that possibly compare to other offers in the market that competitors also have out there? Second question on the whole business strategy, what organizational setup and capabilities are you putting in place to address the corporate sales items you talked about? What will happen in that regard within easyJet? Third, also on business, if you're planning on selling more short-term, how are you actually changing the revenue management system? What do you have to do on the revenue management system side to free up those seats in the short term? Is there any risk associated to that as you not sell the long-term seat? Thanks.
Right. I'll kick this off. In terms of the opportunities within easyJet holidays, I think we'll do both. I think we'll be able to do both sell hotels in its own right and also part of a bundle and part of a package. I think tour operating has definitely changed over the years. Tour operator used to be somebody who chartered a full plane and then went on to take on the whole hotel. That has definitely changed. We already have the most constrained part of that value chain through the network that we operate in. From the primary destinations and to primary airports. We already have that, which so many leading operators are struggling with at this point in time. This is about bringing out the scale into the selected number of hotels out there to provide that extra value.
I think we'll be in both the hotel sector and also as a bundle. Andy, do you want to do?
Yes. I think it's fair to say that on business, there's a number of short-term things we could do and a number of long-term things to do. I think for us, on business, really, we are taking a look at some of our schedules and timings around where we can swap things out and make it more attractive for our business passengers. I think the interfaces that we have with our business partners is suboptimal. As we make it very difficult for our business partners to reclaim VAT on some of their flights. Some of our flights aren't available on some of the OTA websites and interfaces there.
I think the opportunities that we have into the primary airports, we could do a lot better. A lot of short-term things we can do, again, over time, once we get the HIPER system in place, we can see there's a lot more opportunity beyond that. I think for us, the impetus is there, and we're looking at the infrastructure to focus on that from a people perspective as we speak as part of the review of the AMB.
Just to say that, we've had now a record of 30 million business passengers in the year gone by as well. We have signed up DAX 40 companies. We got 34 of the FTSE 100 companies that we have corporate arrangement with agreement with. We don't make it as easy for them as we should do in terms of making these bookings. We're developing a portal for small-sized, mid-size companies as well to be able to offer both a good product, both for the big corporations, but also for the small family-run companies that sit in there. It will be really, as with all these initiatives, whether that is loyalty or holiday, it will be about value for money.
It will be about the convenience and the user-friendliness of this that will go through like a red thread on everything we do, also when it comes to business. On the yield, Robert, do you want to say anything about the yield? Our Yield Strategy Director.
Sure. I think to answer your question on the short-
With that carried, by the way.
Yeah. Pointed towards the mouth. Okay, got it. Thanks. Early start. No. The question about yield, I think short answer is no. Our revenue management system can handle that capability already, and we've been testing some upgrades to it for this summer that will allow us to really go after that short-term yield as well.
Hi, Neil Jones from Credit Suisse. If I could ask three. The first on the hotel side. The low level of conversion today, would you attribute that more to awareness, customers worried that they're going to get ripped off or competition in the market? Second question, you've obviously mentioned a lot of initiatives and there's a lot going on. I don't think I heard Worldwide by easyJet mentioned, just interested in terms of where you would rank that relative to the other initiatives you're pursuing. The third question, back to Berlin. Obviously, you're developing the presence at Tegel. You've got a bigger position in the city now. Is that bigger position actually helping performance at Schönefeld this summer?
On the what's the reason why we're not converting as much as we do? Look, we have today 0.5 of a full-time employee that works with this, the holidays. I think that we can do by adding some more resources in this as well and really looking at selected number of hotels that is out there. Given also my background and the knowledge and the network that I have within my previous experience as well, I do think I have a pretty good idea where to look. I just think that we just need to put more focus on it. It's important to understand that this lies within the strategy of easyJet, if you think about it.
This is about going from the right airports to the right destinations, having a cost structural advantage that we have against some of these players, using the brand to leverage the attraction, both from partners who want to join us and also from customers who want to travel with us. We know it is a trusted brand. I think it's more about coming out and being able to offer that in a much more way. I think the company has done well with the resources that we have put into it. I just see that there's bigger opportunities, and that's what we've been discussing with the team, that now is the right time to do that. I think on the Worldwide is doing good for us.
It's an excellent way for us to participate in the sales of long-haul without taking on the risk of buying expensive long-haul planes. We have now seven airports that are connected to the Worldwide program. We are currently negotiating with other airline long-haul partners who want to join this. It's proven to be quite a good success. Look, it's not astronomical numbers of where we are today. It's our way of dipping the toe into the water, and we want to focus on this going forward. For our customers, once again, we are now with the network that we have, that is a big advantage to what we do. That's what we're noticing when we're now speaking to other long-haul carriers. They see this as a fantastic feeder into themselves.
To be able to do that and offer that to the customers where they can take advantage of the network and the cost, I think it's a great way. On the other one was on Berlin, yeah?
Yes. Schönefeld, absolutely. We're seeing a big upside from the point of view of the brand presence and activity that we've undertaken in Berlin generally. It will be part of the optimizations there. There are flights at Schönefeld that we'd like to move to Tegel and vice versa. That'll be part of the work that Robert and the team will be doing over the coming year to re-optimize between the two airports. Yes, Schönefeld, we're definitely seeing an upside.
Damian Brewer, RBC. Three questions again, I guess. First of all, you talked about the business market. There are some obvious routes where you're missing the first flight out. London, Edinburgh comes to mind many days of the week. When you look across your schedules, do you have a feel for how many seats are in unoptimized business routes at the moment? To give us an idea of the scale of the opportunity there, if you could just optimize your schedule, your first out, your last out facts. Secondly, I noticed no mention of the 2019 cost per seat target, but I think I get it. Can you just confirm that the focus now very much is on PBT per seat rather than just cost in isolation?
Are you doing things that are NPV positive long term rather than just focusing on cost? If so, can you talk a little bit more about the thought process behind that?
Very finally, CapEx. GBP 1.2 billion for the year. That implies an awfully large amount of CapEx for the summer. Given delays with Airbus elsewhere, is that now still a highly probable event, or could there be some slippage in that? Thank you.
I'll do the first, and you do the two and three. It's difficult to give specific numbers on how many seats that are not optimized for this. We do see that there's an opportunity by adapting the leisure flows to the business flows. We do have examples where we are flying out on leisure destinations, beach destinations in the first wave, early in the morning. Suddenly when you're coming into the second wave, we actually lost the first wave where normally business travelers go to, where at the same time, we have families with children who's been staying over at a hotel and getting ready to travel somewhere. Those are the obvious things that we would look to. Robert and Chris is doing a lot of work to make sure that is corrected.
We will get the effect on that from 2019, I guess, from the summer program of 2019, primarily. I don't want to give a specific target on that is, there's an opportunity that lies within the area.
On cost per seat, in the RNS, there's a comment there about FY 2019. We see that to now be flat to marginally up on FY 2018, that reflects the investments that we expect to make. We'll give more guidance on that when we come to the prelims in November. I think it's fair to say that our decision-making around investments has somewhat been a little bit constrained by our absolute focus on cost. Holidays is a very good example. The investment that we've done on Holidays in the past reflects itself in the profits we generate from Holidays. I think it's clear to see that if we look at it slightly differently, we could generate a whole load more money on the back of that investment. That's going to be the thought process around how we move forward.
Needless to say, we're absolutely going to focus on cost, particularly disruption. We're going to make sure that we identify and single out those areas of investments very carefully and track them very carefully. With respect to CapEx, yeah, GBP 1.2 is in line with what we expected. We've still got the six A321s coming in this year. We are looking forward to accepting our first at Farnborough. That's on track. Our guidance reflects where we are with Airbus. We're having discussions with Airbus about some of the engine delays there. Fundamentally, we're in good shape for this financial year, and it's reflected in our numbers and our capacity numbers guidance this year as well.
James Hollins from Exane. A few from me, please. The first on the cost per seat moving from 1%-2%. Could you just give a bit more breakdown on how that splits between, I guess, additional bonuses that maybe weren't there in the previous guidance? How much of it is in this staffing up for investments, et cetera? I know you've given some detail on disruption. The second one is, should we expect more sale and lease backs this year? Finally, your use of wet leases in Berlin, are you feeling just maybe a sort of qualitative detail on fleet market availability across Europe? I know certain people in this room have talked about BA may be struggling to fill those Monarch slots.
Are you seeing some sort of constraints there which you think, A, might help this summer and B, might last longer term to give generally positive market conditions or is that wishful thinking?
I'll do the first one.
Cost per seat. The main driver, the fundamental driver is the incentive payments to our colleagues, and it's well deserved given the performance that we expect to deliver this financial year. There's an element in there of disruption, which increases the we gave the original guidance around 1%, now going to 2%, some of that will be disruption that we've seen in the first half of the year, particularly in March. That's the main two drivers of that uplift. Do we expect to sell and lease back this financial year? No, we don't expect to do any. We said that we set out to do a number per year, but we don't expect to do any more this financial year. Wet leases? Shall I talk about wet leases?
Wet lease, I think it's fair to say that to ramp up Tegel, we have to go and find quite a few wet leases very quickly. Hence, the reason why we're operating in some of our routes on BAe 146s, which reflects the fact that our numbers are slightly different to what we expected. I think it's fair to say that it's a seller's market at the moment on wet leases, given the capacity that's come out of the market and the fact that we're currently taking on a lot of the dry lease aircraft from Aer Lingus and currently converting them into ours. I think it's fair to say that we acted quickly. We got into the market, got what we needed.
It's fair to say that with all the Monarch demise and other demises in the market, grabbing hold of those wet leases has been proven difficult by other airlines, as you've seen by the comments from BA on Qatar.
I think on the third point, in terms of capacity back into market, clearly capacity had gone out in the winter, as you've seen as well. In terms of the capacity coming back in, again, which it usually does pretty quickly in this market. I think that somewhere between 20%-30% on Gatwick and Luton are now those former Monarch slots that's been filled by Wizz in Luton and then also IAG in Gatwick. Then we just need to remain to see what happens with the pricing of those.
Hi, it's Andrew Lobbenberg from HSBC. Can I ask one on the holidays? If you're going into the holiday business more aggressively, I guess, how confident are you of sorting prime time accommodation? Because you said that you have the most scarce resource, but prime time accommodation in August is extremely scarce. Previously, if you were a bit part player in this game, then people were perhaps happy to sell you accommodation. If you're going in there more seriously, are you more of a threat to the people who are providing hotels? Does that make it more of a constraint? On the flip side, at the moment, you collaborate, I think with Thomas Cook and a bit with TUI, with them taking block spaces with you.
To what extent do you see a risk that if you're going into their territory big time, that that will constrain that collaboration? Then if that's two, which maybe it is, let's just talk about Italy and how are we trading in Milan as Air Italy, Qatar-backed has all sorts of ambitions, and all things have gone mighty quiet about Alitalia, which I think I can imagine why. What's the status from your perspective there?
I'll do the first two in regards to the holidays. Look, first of all, as you said, we're already in the holidays business. We do already sell hotels there. I think that the difference is that we have the scale. We have the scale and we have the brand, and that is really what the hoteliers are interested in doing. I must say that I think it's a great opportunity for TUI and for Thomas Cook and other operators to sell luxury hotels to us. In terms that they actually own hotels themselves, we are Europe's largest leisure carriers into these destinations. We are providing huge amount of passengers to these destinations. Anybody who has a hotel, whether that is somebody who would be like TUI or Thomas Cook or just hotel chains or individual hotel itself, would be interested in wanting to work with ourselves.
I think that that is one of the great attraction that we have as business partners. I'm not concerned about that.
On Alitalia, as you know, we've put a statement out that we've put in an expression of interest, followed the process, engaged in the process so far. That expression of interest with our consortium partners sits with the commissioners for consideration and clearly with the political situation in Italy, we're waiting for that process to recontinue. That's all I can say. Milan very well. Milan is doing very well. I'm very pleased with Milan. I think it's fair to say across our whole network, we've seen strong trading. Our brand is doing very well in Italy generally. That's all I can say.
Hi there. Good morning. Ashika from Barclays. I just wanted to come back to cost. You made it pretty clear that you're frustrated with disruption, it's using your own words, you want to tackle it radically. I guess, this is not necessarily fully in your control. It's an industry-wide problem. What exactly is radical, but what can you do? Can you maybe elaborate a little bit more?
Yeah. You're right. A lot of this is not within our control, but what is in our control is actually how we mitigate it and how we deal with the consequences on that. I think data will be absolutely the key enabler on how to do this. Data in itself on cost, it touches disruption in many ways. I think partly in terms of utilization, in terms of the productivity we can do, fuel efficiency, and then the fourth thing, the resilience that we have. I give you an example. There's a number of things that happens out there that whilst they're not in our control, when they happen, there is a predictable pattern that happens. For instance, if there is announced that there's going to be a strike every weekend for the foreseeable future in Marseille, which I think has been the case as well.
We kind of know from history what will happen, what happens to our flows, what happens to the congestions in the airspace. I think picking up exactly the movements from previous historical events will allow us to much more through machine learning and AI and through algorithms to say, "Look, this is the way we're going to go about this. This is the optimal way on how we're now scheduling." Rostering, crewing our aircraft, and how we are informing our passengers in advance in case we need to pre-cancel, as an example. That's just a way where we're actually taking the history of the events through the self-learning that AI gives to ourselves, and therefore can mitigate that. The same thing comes with disruptions when it comes to weather, as an example.
I think that there's a number of cases where we see that actually going from a more previously, I think the industry had been doing that ad hoc way. Now we have a strike there. We have a congestion over there. We're going to deal with it in that way. To actually look at the historical issues, what actually happens in the airspace and what happens in terms of how we best can optimize that is a great opportunity for us.
Hi, Joe Spooner from Liberum. Three questions if I can. You talked about CapEx for this year. Could you maybe give us some guidance for later years and in particular update us where you are in terms of currency hedging? Secondly, you talked a bit about employee incentives. Could you maybe give us a hint as to where the sort of thresholds sit, and how you go about structuring that scheme? Finally, I think there was something in the statements about a new U.K. AOC. Could you perhaps elaborate about what the purpose there is, please?
You first.
CapEx, we haven't given specific guidance beyond FY 2018, but we'll give more color in the prelims. Our fleet plan is as was, so I don't think there's anything you should read. There's no ulterior motive around those. Our fleet plan is as was. Do you want to take the others?
No, that's all right.
On the second one, I didn't quite get your question there. Sorry, Joe.
The employee incentives.
I think it's fair to say that we set the incentives when we set the budget. We have various targets on PBT, cost per seat, customer satisfaction, on-time performance, depending on the group you're in. They're set at the beginning of the year and agreed with our consultation with our Board. That's something we set at the time of the year.
One variable target-
Yeah
in terms of the performance and what results it can give.
Effectively, a number of years ago, obviously with 2016 and 2017 performance, with some of the events there, a lot of colleagues didn't get a very little form of bonus. Clearly this year, based on our expectation, it's approved for us to accrue appropriately. U.K. AOC, should I cover that off?
Yeah.
U.K. AOC, effectively the whole structure, we've got our Austrian AOC set up. The aircraft are transferring as we speak across that. That's been very successful. The setting up of the U.K. AOC is to almost have a kind of mirror set up that we've got in Austria. Effectively what we'll have is a central group operating structure that will effectively provide services to both of those AOCs. Effectively, we've got agreement from the Austrian regulator and the CAA that this operation effectively can be provided with services from that central entity. Effectively, Luton will be the hub. We'll have a U.K. AOC that will face off the CAA and make sure that the U.K. element is safely operated. You've got the AOC in Austria ensuring that that's safely operated for the Austrian regulator.
Effectively, the services will be provided almost like a shared service function to both those entities. That's the structure that we're sitting in.
It is really part of the future-proofing of the situation post-Brexit.
Daniel from Bernstein again. May I just follow up on one question? Does that remove ownership restrictions on the easyJet plc shares? Or is there a pathway towards removing ownership restrictions if you're kind of delegating the AOC and the regulatory issues one level down? Are you considering putting infrastructures to make that happen?
No. You're aware that to operate in Europe, you have to be majority EU-owned. Obviously when the U.K. exits the EU, that will require increased 50% ownership by EU-27. As we speak, we're spending a lot of time in Europe, and we're very close to that percentage already. As you know, we changed our articles to ensure and to enforce that going forward. In the U.K., to operate, you need to be a U.K. airline, and we have agreement from the Secretary of State that we are a U.K. airline as well, even though we may be EU-owned. We've got all bases covered. That's the plan.
Yeah.
We can come off offline. It is complex, but we've covered every angle.
No, the question is, setting up the AOC structure below the core holding, opens up the possibility of you kind of moving the whole ownership question for the operating airline one level down.
Why we've done the AOC is more regulatory and safety. It's all about making sure that we operate a safe airline, and we have a structure in place that satisfies the safety regulators in each of the entities, both Europe and U.K. This works, and effectively, it's the most efficient way of doing it and make sure that we can operate safely within Europe. That bit below is more of an operational aspect. The things that I talked about before, more the ownership aspects.
Hi, it's Catherine O'Neill from Numis Securities. I just had three really quick ones, if that's okay. Sorry to go back and labor the point, but on the hotels ambitions, I'm just struggling to understand. I know that you might detail this further again in November, but what you're doing differently. I know that you've talked about the personnel and the changes there, but obviously this is an ambition that the group has had whilst perhaps not executed fully for some time. Just trying to understand logistically, what we change in the business, what as a passenger I might be seeing differently. Sort of connected to that, you talk in a statement directly about direct supply.
Just interested on your decision-making on that and why you've chosen not perhaps to go through the route of partnering up with a Hotels.com or a Booking.com and also, sorry, the length of time that then takes to execute, given that clearly, sourcing in the industry is known as one of the struggling factors that others have. Just a very quick one, just in terms of cost and disruption and your opportunities there. Is there opportunity to expand the DHL services agreement that you have at Gatwick? I know that that's been very successful and has obviously improved your on time performance very much so. Just really quickly again, thirdly, on capacity. Do correct me if I'm wrong, but am I right in thinking that your capacity plans for the second half have reduced by about 100 basis points?
You talked about 5%-6% for the full year, and that was about just under 6% for the second half, and now guiding to 5%. Just wondering if there's any particular reason for that. Is it fuel? Is it reallocation to Tegel? Thank you.
In terms what are we going to do differently, we're going to contract directly, which we don't do today. Today, we go through intermediaries. We give away some of that value, which I think would be better used to giving away to the customer to provide a better value and therefore driving better demands. We will definitely do setting up the contracting and create direct relationship with the hotels. It's also about the experience of knowing what hotel to contract. Hotels are different depending on what they stand for. We're going to focus much more also making sure that we have this right on the customer segmentations.
One of the fantastic opportunities we have with easyJet is that when I look through a lot of the customer data and the customer segmentations, we really have everything from customers who are really only there for the low price. We also have a lot of people who spend a lot of money on their holidays. You're buying a flight ticket for us for EUR 50. Then you go down to Marbella in Majorca and spend EUR 15,000 on a week. We have those customers already sitting on our plane, which means that we have also the ability to take part of that if we can offer better arrangements and well-known hotels. That's what we are going to do. Another point also that I think I probably forgot to mention, it had to do with the scarcity, which you mentioned in August as an example.
We do something that others don't in this area. We fly with many frequencies many times through the week. That means for hoteliers, that means that we will be able to provide extraordinary value, what sits outside August. We will not do just 7 and 10 and 14 nights. That value will also give us an opportunity to take better part of also the peak flying. We can do 2 days, 3 days, 4 nights, 5-day stay, which others can't do, and that's because the way our schedule works. That's a great opportunity for us to also get into some of the peak flying that exists there. Hope that answers your question on that.
I'll talk about capacity first. The range of 5 to 6 is always pre-disruption. You have an impact of disruption in those numbers. It'll always be an impact on there. There is a small amount of Tegel overlap that's impacted that. Fundamentally also it's around finalizing our schedule. At the beginning of the year, we give a range and that's for operational purposes because we know that we'll have to finalize our schedule anyway. With respect to DHL. DHL, we've got a fantastic partnership with them in Gatwick. They're doing a great job. We have invested. It's cost us slightly more from a point of view of their expense. We've got a partnership with them to take costs out, which is great, and it's a slightly different contract than the normal ground handling contract that's much more symbiotic.
We would love to have that model elsewhere, across our network. Again, it's a cost balance. I think it's fair to say, and if DHL are listening, they've got to sharpen their pencil to make sure that we can get them in elsewhere, and we'd always have to balance that off with the return. That's always the way. We know of other providers who would love to partner with us on similar models, which we're in discussions with as well. Fundamentally, we see DHL as a great partner and a great solution for Gatwick.
Morning. It's Alex Paterson from Investec. Just two questions from me, please. Firstly, when you were talking about aircraft reliability, that has improved now to three problems per 1,000 sectors, or something like that. To improve from here, I think you were highlighting the replacement or the new aircraft. Are there other things you can do in terms of self-help, and how quickly can you bring those in? The other question was simply putting all of these initiatives together, is that enough to get you back to peak margin if they all sort of fire at once, or do you need other things as well to move up to sort of 14% or so?
On the first one, we have a number of initiatives that lies within improving the technical capability of the aircraft. Really, the goal should be that an aircraft in an airline such as ours, it doesn't fly overnight, should never be delayed for technical reasons. There is absolutely no reason why we should have a technical that is particularly while they're not flying also during the nighttime. The predictive maintenance is part of doing that, and that will enhance what we're already doing. We have that out now to some 85 of our aircraft as well, and depending on the age of the aircraft, it will depend on how much we roll that out also to other aircraft. There's a number of things and activities that we're doing in that Chris, you're leading. Is it something you want to mention more in that area? Okay.
We'll come back to you more later on that, there's a floor to things. I think also when you're looking at disruption as a whole, it really touches every part of the company. Chris is leading the work, but we'll do it together with Robert as well, who's setting up the schedule. Everything from how you plan your program, how you set your schedule, the resilience you build in there to take a look at not only the utilization and the productivity of the plane, but also take a look at overall profit that you get in there in terms of how you operate and actually how you fly that.
How you crew it, how you make sure that you have the right amount of people, let them know when they're going to fly in the planes, and if you get disruptions, what are you doing in that case? That can all be driven by data to get a better insight in decision-making, in a number of cases, also do the work for you. It's extraordinarily exciting, that whole area.
I think predictability is the key.
Yeah.
I think with the Skywise partnership we've got with Airbus, they're loading up the systems as we speak, all about getting a dashboard for predictions. We've done wave analysis on a statistical analysis on what parts we need and which are likely to go, which we've stocked up around the network. That's only on the technical side of things. As Johan said, predicting where your crew need to be, predicting based on patterns where you think your parts need to be, that's all about machine learning and really getting data underneath the decision-making where we put our assets.
Another example on that predictability as well. We've done a trial in April where we looked at creating an algorithm for what supply we should stock on board the trolleys and in-flight sales. Basically, by doing that, matching it up, because you realize that there are clearly different demands if you go to Ibiza on a Friday night than if you go into Edinburgh at six o'clock in the morning in terms of what's being bought from the trolley. By doing that, we managed to reduce the amount of waste of fresh food items, were three fresh food items that we would have thrown away after each flight. If you take that, multiple the amount of flights we do per day, that was 2,250 fresh food items per day that we didn't throw away from that. If you take that considering about the year, that's 800,000.
We haven't done it yet because we only did it in April, just to give you the opportunity, that's 800,000 less fresh food items that would just go wasted. Apart from the obvious cost savings in here, that also means that we can stock the trolley with the things that actually is in demand in much better shape. The key word, as Andrew rightly pointed out, is that predictability and how you can use that further, and that's what data will unlock. To say that you become a data-driven airline, that really sounds dull, that is where the enablers rise to take down the cost even further, revenue-enhancing initiatives, and also engaging with the customers in a different way than we do today.
Did you come up? Yeah, Chris.
Sorry, just to add, we will have the entire fleet fully equipped by the end of 2019, which is a massive data capability for us.
Yeah. The point on margin, I think, the three initiatives we talked about is all about focusing, driving margin.
One last short question. Damian Brewer again, RBC. Can I just come back to this summer, given going back two years, it was something that caught the airline slightly off foot. When you look at capacity this summer of what you're operating, and particularly on the beach routes, how much of that capacity is into the Iberian Peninsula versus into the Eastern Med? I'm particularly thinking there looks like sizable seat count reductions into Spain. We've already seen in Q1 at Athens, and it looks like those gather pace this summer, particularly out of the U.K. It's just a feeling, just very broadly, what's in summer beach towards Iberia versus Eastern Med. Thank you.
Yeah. Robert, do you want to say a couple words on fill-in? In general, there has been a slight shift on it, but we can easily adapt to any changes that we see on the flows on that. It's not significant that I think you've seen from some of the tour operators out there. Spain and the Western Mediterranean remains really strong for us continuously, which is all reflected in the numbers as well. We're in that position that we can easily adapt to the demand that is out there. There is a small shift, yeah.
Thanks very much.
Thank you.
We got our AMB and our country directors with us. Anybody else?