Earnings Call: Q1 2021

Jul 29, 2020

Hello, and welcome to the Wizz Air Q1 Results Call. Throughout the call, all participants will be in a listen only mode. And afterwards, there will be a question and answer session. And just to remind you, this conference call is being recorded. Today, I'm pleased to present Youssef Veradi, CEO. Please go ahead with your meeting. Good morning, everyone. Thank you for joining this call. To start with the report of Q1 COVID-twenty one. Let me just highlight a few key points upfront. Clearly, we have been very focused on preserving liquidity And, revamping operations, during this, this period, I mean, you can see that, this quarter was pretty much dire state quarter not only for reserve, but also for the award industry. Nevertheless, we remained operational, every day, the operated flights but switched some of our capacity to our repatriation flights and medical cargo services. We ended up the quarter with a strong liquidity position of 1,000,000,000. You recall that the took advantage of the Bank of Egland loan facility. So that helped our short term liquidity position. But overall, I think our cash burn has come in, in the end, better than expected. And as a result, we have been able to preserve our quite well. We're much focused on cost initiatives and liquidity initiatives. We have been, basically updating all of our commercial contracts. We have been taking advantage of the situation that we are an airline that continues take new aircraft deliveries and quantities to grow the business on a structural basis. And obviously, given the situation about the industries that gives quite a vintage advantage and we are trying to benefit from that. The much focused on the network design of the airline, obviously, despite the fact that we're seeing that is a significant underlying demand there, and we can tap into that underlying demand quite strongly. Of course, the demand level is not the same as it was last year. And, as a result, we treamed our, existing network by around 20%, 25% and we reallocated that capacity to a new network, but we have created by opening a new basis and launching 200 more than 200 new routes So it is not just, trying to recover the existing business, but we are also building a new business and we're seeing that, COVID-nineteen and the resulting recession, this for the winners and losers structure in the industry And we believe that we are a structured inner of the situation, and we're going to start taking advantage of that, by, taking new market opportunities for the business. If you look at where we are standing today with regard to operational recovery, now we are operating more than 70% of the 2019 level of capacity in July. And that compares to around 40% of the the industry. So we've done much better than the industry. Nevertheless, I think whatever we are doing remains subject to to the COVID-nineteen situation. And clearly, what we are seeing is that it is more of a rollercoaster, what we should be expecting. So, the situation may may get better or worse country by country and may result in different restrictions or easing those restrictions. So it's going to be a bumpy road, going up and down, so quite significant, on predictability and uncertainty in front of us. Moving to the next slide. This is giving you an overview on the on our operations and what we delivered in in Q1. So, we were only operating 7% of our capacity in the quarter, if it was the worst month on 3% of the capacity was operated. As said, we are engaged with other forms of operations during the period especially flying medical cargo between China and Hungary. We perform 130 services flights, to China And we also did quite a number of repatriation flights and we were picking, European citizens in various countries and we brought them back home to their homes. Our fleet continue to grow. We are continuing to take new aircraft deliveries. We think a new aircraft is a source of competitive advantage, structurally in the future, especially in context of the industry pretty much deferring aircraft deliveries and cancelling aircraft orders. So unit cost production of those airlines will creep considerably while we will benefit from new aircraft deliveries and we're going to take advantage of the situation to build a structure of competitive advantage as a result. As you can see, we actually opened quite a number of new bases and launched a lot of new routes in new countries. So even in this difficult period, we were growing the business and we were creating a stronger, more diversified network, for the future. So moving on to the next slide, you can see that March April were very difficult in Europe, basically in each of our home markets. COVID-nineteen basically shut down these countries in the form of, travel bans, flight bans, and very severe imposed by governments on movements of people. The situation started easing in certain countries, in May as you can see now, Europe is a fairly reasonable place for airline operations. Obviously, it is not perfect. So, we are still having restrictions in place, but not as severe as, like, like 2 months ago or 3 months ago. I would also know that clearly we are seeing a change with regard to, to the EU stepping up and trying to coordinate and orchestrate some of the actions at the beginning in March, April, especially if it was all down to countries to, to take a view and to take measures, I mean, it's all understood that it is a country's sovereign ride to us to deal with health matters, but now we are seeing more coordination coming to play it from the European Union's institutional system, which I think is creating a better operating environment for the airline sector. We have also observed that, quite a lot of state aid has flown into the industry, which feels a bit like moving backwards 15, 20 years, that the governments are not only actors of regulating the markets, but they are actually the prayers of the market by having an equity increase with a strong financially interest in certain airlines. So I think unfortunately that we lead to distorting the market it will distort lever playing field. And, this is a new phenomenon in the industry, and we will have to, to deal with. Having said that, I also think that because of, a lot of taxpayers' money is flowing into the industry that airlines will have to be more responsible. And as a result, over the airline capacity becomes date and we think it should give us a ground for, for step changing our presence in the marketplace. And with that note, I would hand it over to Jari to is through the financial numbers. Good morning to all. Just a few key financial highlights on the quarter. On the first slide, you'll see that the revenue for the quarter was down 87% reflected on the very low capacity that we flew in April, May a lesser extent in June. We booked a reported loss for the quarter of 1,000,000 and an underlying loss of EUR 57,000,000. The difference between those two numbers is the loss, which is related to the continued few hedges. These discontinued hedges relate mostly to the month of June, but also to July August. You'll recall that nearly all of the discontinued hedge losses that we booked in the year end last year were also related to April and May that's consistent with what we have done there. Despite the context of coronavirus pandemic, we had a very strong performance on RASK, which was up almost 14%. Our cost initiatives are driving the bottom line. And as Joe highlighted, we maintain a very strong cash position which together with our strong balance sheet continues to support our investment grade rating. And I will cover a little bit more on these points in detail later on. Our load factor was down 38 points from 94% to 55.5. However, we had smart pricing and an performance on ancillary revenue that allows to offset this impact. Moving on to the next slide. We had highlighted in June that ancillary revenue continued to develop very, very positively. You may have read in the results release that the reported ancillary revenue was Eur 86.8 per passenger. And this is one of the metrics that unfortunately this quarter is quite hard to look at given the low amount of passengers. So if you strip out the cargo business, the risk discount club, we'll have a much cleaner number to look at, which is the EUR 47.3 per passenger here reflected. And even this number has some level of distortion So in the end, I mean, what we really want to say, if you look into the details of this, we see continued strength on our key pillars and salary baggage priority boarding and allocated seating. We had good uptake in flexibility products, and we continue to be on track for mid to long term targets over half a year to euro ancillary revenue increase for this year and that's for every single year onwards. So I guess this is the most important message takeaway from this slide. Moving on to the next slide, looking at our cost, we reduced our cost 7 4% versus an 88.5% capacity decrease. We're obviously obsessed with variableizing our cost structure And all of the actions include the pre CNL interventions for the intervention of compensation on reducing the results in the company and our renegotiation efforts with suppliers on every single line item in the P and L. Is reflected in the next slide. So you see the 74% headline reduction. You'll see fuel to be down 66%. If you were to take out the ineffective hedges fuel would be down more than 90%. Staff costs were reduced by half think you mentioned pay and roll reductions. Maintenance was reduced quite well. We will not get this fully variable. Obviously, we need to keep our fleet, airworthy despite it being grounded in some areas or in some extent. This said we will continue obviously to work with those suppliers continuing to improve in that area. Just a side note in the other line, maybe of interest, this also includes overhead costs. We had strong cost reductions also on the overhead, line, which includes the headquarter costs, where we zero based all the spend, we have raw reductions compensation reductions, again, in all levels of the organization in the headquarter. And we had a tailwind from some asset sales and compensation payments. Of Airbus related mostly to later deliveries. On the next slide, to a little bit more detail on the cash position. So as Joe mentioned, it is 1,500,000,000 to 1,000,000,000, increasing 1000000 to 1000000. If you strip out the Bank of England, drawdown the 1,000,000, we burned on average 78,000,000 cash per month in the first quarter. This is consistent actually slightly better than what we had mentioned before. Where we have said it's 1,000,000 in a case where we don't fly a single flight. And obviously, we did operate, in the quarter reflective of the work that we've done on maintaining, some level of operations work we've done on cargo. And the work we've done also on the cost side, on the payment terms, and in general, on client contribution positive, as mentioned. So with that, the onslowing revenue was, still at a modest level, so significantly lower than what we had in March. So that was a cash outflow, given the short booking window. And this gives us ground in the next couple of months, maybe not, but maybe in next couple of quarters as the context will normalize by, let's say, next year, to have a driver of cash in for the future. All in all, our cash and investment grade balance sheet is not only a key focus for us, but it's also a real strength to easily winter through COVID-nineteen whilst preserving, and sometimes maybe even accelerating our strong mid long term strategic agenda. Joe, back to you. Yes. So moving on to the next slide, we have been much focused on ramping of the business and we modelled out that actually for us, the worst case scenario is when we keep the fleet on the ground, we can do better than we fly. Obviously, we are much focused on cash debuting, flying, but given that we are the lowest cost producer in the industry, I think we should be in best position to achieve it, ahead of anyone else we are competing with. So that's been due to the focus of the business, identifying, cash contributing, flying and ramping op capacity around that, principally as said, we've been able to, to revamp more than 70% of our capacity relative to last year versus the industry's recovery of only 40%. We've done it by streaming the existing network, and reallocating capacity to a new network as well. To the creation of new basis and launching over two hundred roads. If you move on to the next slide, you can actually see how the strategy has been thing with regard to the geographical footprint of the airline. So we opened up quite a number of bases in both Western Europe and centuries, even including Russia, taking advantage of the, of the regulatory development of the country and also the, the overall capacity consideration of the industry. So we moved around 22 aircraft into new territories, for establishing new basis and providing capacity for the new routes, we launched over 2 the new routes. We're seeing that, we have to take note of the pandemic and the and the lasting impact of the pandemic, and consumer demand, we have come under pressure. So clearly, we're gonna seeing less demand, going forward, but by redeploying excess capacity to new markets actually that enables us to maintain the operational activity and the size and scale of the business of the company. And we are now much focused on rolling overall business model into new markets and scaling the business. If you move on to the next slide, this is just a note on Abu Dhabi as Kalpudabi is a major initiative for a reserve. We actually launched the airline commercially a couple of weeks ago. And, now we have 11 roads flown to our database. Some of them are performed by, obviously, at Hungary, by the first six new growth of, viscerobu Dhabi, are also on the map. Now we are entering some very exciting share rep is where we're seeing we are going to tap into significant traffic flows. And are very excited about the opportunities with Abu Dhabi brings to the airline, especially in light of the consolidation into country and the whole GCC area. The next slide is, is sort of giving you some insights of a very unique program. I think it's only down to this despite all the issues the industry is facing, maybe launched a strategic initiative, and this is a program called cabin crew to captain, program encouraging cabin crew to develop their carriers at this, by moving people from one line of the business to another. And the company is stepping up with a financial program to aid, people's training program to become, pilots and to become captains over time. I mean, this is really, an initiative of 2 forward one is obviously sourcing the pilot requirements of the when we are growing the scaling of the company, but also it takes note of the diversity effort the company is trying to make it to create opportunities for female employees in the company to diversify their career opportunities in the future. So moving on to the next slide, this is summarizing the outlook of the business. We are not giving guidance at this stage for fiscal 2021, given the significant level of uncertainties in front of us, we think it would be in collectibles. So we would be giving you insights and hints as we see the business. But given that we are managing the business on a day by day or week by week basis, we don't think we should be speculating at this stage of the game. But I hope you take note of the fact that if you look back the last 4 to 5 months, how the industry has been dealing with the situation and how desired has been kind of standing out, you should be expecting that agile approach and attitude from the company going forward as well. So So we should be more progressive. We should be more upbeat, probably we could take a bit more risk, given the liquidity position, but we have and also the strong cost performance being the lowest producer in the industry. So we should be able to be at our competitive event going forward. As said, we are now at 70 plus percent of last year's capacity. We're seeing that this is a capacity level. We should be able to hold on to, for the balance of the financial year. But again, I think this is big time subject to the circumstances and restrictions and measures put out by governments, and we really need to see how accessible the markets are. And how that rollercoaster kind of effect is going to make an impact on capacity decisions. We are very much focused on cash. We are managing this business for cash. Obviously, we are also very focused on balance sheet to make sure that we stay an investment grade proposition to the market. And this is the basis how we are managing the business. As said, we are not flying for the sake of flying. We are flying for cash contribution, and again, being the loss of producing the industry, we should be able to continue to deliver on this going forward. The revenue performance is very strong, especially the performance of ancillary revenues clearly, we are seeing that people are prepared to, to buy and products that create flexibility for that level, given the situation out there. So if they have to add to their level plans, or they have to modify their tickets, they, they will not take advantage of services and products that we are offering to them. And clearly, there is a significant increased uptake for such products. We have actually improved our delivery schedule for, next year. So it's not only that we, are not deferring gap of deliveries, but actually we are sourcing more aircraft into summer 2021, partly because of the consolidation opportunities we are seeing for the business. And partially because Airbus is now able to step up and deliver act of orders earlier, what I would say as originally designed before, given that the pressure on their production is falling away, resulting from the cancellation area. So I think Airbus is improving its capacity and production capability and as a result, we're going to be benefiting from more new aircraft deliveries going into summer 2021. Just to close it off on the loss side, so we are much focused on managing the business short term, but we are also very focused on managing the business from a long term perspective. With regard to the short term aspects of the business, as said, we are running to company for cash. We are, very liquidity focused, and also we want to take advantage of the situation that we are an airline that has been able to revamp capacity fairly quickly and we are looking at growth opportunities that that comes with cost saving And we can't structurally set some of our cost lines as a result of that situation. And we are very responsible with adding capacity back to the market, it has to contribute to cash. And that is the basis of running this business At the same time, we are also looking at SFA of sorting the winners from losers in the industry, clearly, we're seeing that we are one of the structural winners of the situation and we're gonna take advantage of that situation. And, we are scaling ourselves in certain markets. We are entering new markets and certainly, we want to make sure that our financial capacity goes in line with that ambition. So maintaining investment grade, balance sheet is a very important priority for the business, given that our growth require significant financing efforts of aircraft and being an investment grade is essential to, to achieve the best we can with that regard. So interesting times, I think we are affected. We are not immune. The industry is in deep crisis. And we are not different from that. So certainly, we suffered a short campaign. We're seeing that we we are very resilient in terms of our financial backbone and we are able to cope with the situation probably better than many of our competitors. But at the same time, we are not only, managing the business on a short term basis, but we are looking at the business through the glass of what happens post COVID-nineteen and how that situation translates into a sustainable competitive advantage for us And we are looking at not only recapturing our existing markets, but also taking new market opportunities on board. So that concludes our presentation. So I guess that opens up the session. Our first question comes from the line of Neil Glenn from Credit Suisse. Please go ahead. Good morning, everybody. If I could ask three quick ones, please. The first one, Joe, you talked about obviously the aircraft, plans for next summer, and, obviously, your plan to to grow negotiate with suppliers, but just interested how important are the next few months as you negotiate with airports? And when do you expect to have as best clarity as possible in terms of what the post pandemic ex fuel unit cost base actually looks like, for example, in FY 'twenty two. And then to more the first of all, on advanced aircraft payments, through FY21. Is it possible to provide some level of guidance, what that line in the cash flow statement might look like? Like at this point in the context of the new aircraft plans? And then finally, the other gain of 10,700,000 in the first quarter. You referenced that some of that was compensation for delivery delays, some of it was asset sales. Is it possible to provide some color as to how big each of those components were within the 10,700,000 gain? Thank you. So maybe I would start with the first question. So look at our growth profile going forward. So by the end of fiscal 2022, so let's say now 2 years, we are going to have a total of 39 incremental aircraft to the fleet. So quite a significant step up from the 121 we closed the fiscal year a bit. So of course, we are looking at, market opportunities and airport opportunities regard to delivering growth. And we are topping it up with the allocation of excess capacity from the existing network. So we're going to be deploying quite a lot of new capacity new aircraft across a number of a number of new markets. I mean, as I can see it right now, I mean, almost every airport Europe is now in discussions with us. They are seeing us as one of the very few airlines that actually is capable and not only recovering capacity, but also bringing new capacity to the market. And as far as they are able, and they want to discount their capacity to make that attractive to us. So I think that's the exercise we are going through right now. We are assessing each of these, market approach is we look at the cost of operations, coming through possibly, these, these arrangements. And we are kind of breaking up these opportunities and take the best available to us. I think we have more opportunities than what we will be able to do or we want to do. I mean, we want to control growth. We want to control the situation. We don't explode on growth here. So it's going to be a very well managed process. I don't want to speculate which market we are going to enter. But overall, I think, we're going to able to take advantage of the situation and we can actually get some savings so without the system Now you also have to, to take note of the fact that, we are building an increased level of diversification through the network design. And I think we are learning clearly, given the current times, how important it is. I mean, some markets, which did very, very, which did very well for us, a couple of months ago. Now our problematic course of the pandemic situation or vice versa markets which were shut down 2 months ago and now are the rising stars. So things start moving and as it will be for some time, and diversification. I think it's just a very important strategy. So we try to be a diversification through this period. So we are focused on Central East Europe. We are looking at opportunities further east. Also looking at opportunities in investing in Europe. So certain cost lines may go one direction or certain cost lines may go to another direction. But overall, I'm quite confident that we're going to be able to build a structural cost advantage versus our competitors going going forward. Elon, your second and third question. So on the pre delivery payments, we will see a cash outflow mainly in Q3 and a little bit more and also a little bit in Q4. It will be far less pronounced than it was last year. So we've been working, on that activity. On the game that you mentioned in the other field, so basically, it's a swing of around from 1 year to the other, a little bit more than a third. So it's really driven behind cost reduction. So, and that's mentioned, really this is headquarter costs going line by line. The reductions in headcount reductions in payroll have delivered that. And then the other 2 thirds are splits between the, airbrush payment and the case. Sales. And the next question comes from the line of Mark Simpson from Goodbody. Please go ahead. Just want to pick up first off on the aircraft fleet plan. I mean, clearly, the big shift is fewer A320neos, more A321neos coming in, quite significant shift for the next fiscal year. That obviously, as you said, probably reflects the production line for Airbus, but also does that reflect say, confidence in allocating additional A321 neos to Abu Dhabi. Are there certain markets where those larger aircraft to go be specifically allocated. So I wonder if you could give us a bit more around that change, the thinking behind the change of the fleet mix over the next year and a bit. And then longer term, you have growth in your previous forecast of fleet for the next 3 years, but actually you go out to the end of your order book, so 26, 27, you have 20 fewer aircraft on the current schedule. I'm just wondering if you could comment on that. And then on the route network development, obviously you opening a whole lot of new bases, new routes, Normally, they take some years to mature and contribute. But I'm wondering if you're choosing these opportunities because they actually offer profit in the shorter term, because it's obviously an ambitious program that you're laying out over the next couple of years. So fleet and then route network development. So thinking behind those. Okay. Thank you, Mark. But if you think after the AC, it's been a new think this is the right act of what we saw over the long run. And I think we should be taking decisions on the basis of the long term view on the business despite the short term issues we are dealing with the AC21 is an unbeatable act of with regard to delivering the economics to the business, delivering growth production in the industry, but also, delivering the, lowest environment of footprint of any, single act up. So we're seeing it is a strategic asset on hand we have, and we should be, exploiting it to, to the maximum, we can. So you're going to be seeing us increasingly, transitioning from ACPAN operation to ACP 21, especially the new technology. And this is a totally strategic derived from the long term view of the business. And, well, with regard to the long term fleet, and I think it is just a, a contemplation of of assumptions with regard to the re delivery of existing aircraft. I mean, we have not changed the the order book, that is a little bit of, kind of ironing out the order book, given the improvements of Airbus on the delivery schedule. So some minor adjustments are flowing through it, but we have, retained the same number of aircraft as before in the plan. So we didn't change it at all. But we are making different assumptions for delivering existing aircraft I would also know that, very likely, during the period of this order book, we're going to be contemplating the aircraft order. So new course, we would be going back to the manufacturers to, to look at the market. So I think that will change. So when you look at the next few years, I think next few years give you a better picture of what actually is going to happen than the years, 7, 8 years out. With regard to the new road developments and new base development, again, I think we are making long term decisions here. Some of these opportunities, had been serviced before, but we just couldn't accommodate them from a commercial standpoint as into circumstances have changed. And commercial terms have changed and those opportunities became more effective and palatable to us this time around, but each of these decisions has been made on the way a long term view, but obviously, we try to, maximize the short term benefits of those as well, whether or not we're going to be delivering profit a short term. I don't know. I think we might be lucky, and we may do it in certain places, but really the objective here is to structurally take advantage of the of the pandemic situation and be it long term competitive advantages through the network development of the airline. I mean, bottom line, you're taking a very aggressive view about the opportunities that the crisis represents, willing to, in a sense, take maybe some dilution to open new markets. I mean, that I presume reflects the confidence in your ability to manage cash through the crisis and still have a very strong cash position as you go into the end of this fiscal year. Yes, Mark, I mean, look, I mean, I would say that, I mean, being that this is, I don't need it, but we have been waiting for this moment for 10 years. I mean, Last time around, when there was the economic crisis hitting the industry in 2000 and 8, 2000 and 2000 and 9, I mean, simply, we just didn't have the capacity. We didn't have scared to fully benefit from those circumstances. But here we are now, we are the lowest cost producer in the industry with a significant balance sheet, with a very significant pile of cash available to the air to the business. I mean, this is over time. I mean, this is the time that sorts winners from losers and we need to maximize our advantage, coming out of this situation. And yes, some of it is investing into the future that some risks with market. But in a commodity, for so long as you are the lowest cost producer, you should do fine. And we're seeing that we have the resources to to, to deal with the situation appropriately. And I don't think we are running, incalculated risks, the any of these investments. And as I said, we are seeing a much more effective commercial proposition coming across, even the times the industry is in than what we would have seen even a few months ago. So I think we are very confident make this work and the BBU structure benefit from this movement. And the next question comes from the line of Jerry Castle from UBS. Please go ahead. Thank you and good morning. If you could just give an update, where are you in terms of staff rationalization, across the network in terms of numbers? Secondly, you've done incredibly well on cash burn. Just some color in terms of how we should be thinking about winter cash burn going forward. And also around the winter, how we should be thinking about capacity? Is it still roughly 80%? And then lastly, any color in terms of, how you're seeing load factors develop as things progress? Okay. So on the start, we're on track to have reduced the stuff that we have set out to reduce, which was the 19% roll. So that is fully reflected in our the average of the quarter was just below 4000 FT Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Es. So that's well on track and obviously also the compensation reductions have come since the end of March. On the cash burn, I mean, maybe 2 parts of that question. So first on the current quarter, quarter 2. We're targeting to be cash neutral for the quarter but there's still a big color around that because obviously there's still uncertainty on both of the months of August September. So you need to bear with us. And that's also kind of the storyline for winter. So previously, whereas we have set for quarter 2, we would be 60% capacity. And today, we're probably doing a little bit better than that for half to, probably it's more realistic for the time being to that will be more in line with the 70 percent of quarter 2 capacities, which versus the 80% that we have previously guided. But again, it is really hard to tell what will happen in a couple of months from now because we barely know what restrictions may be out there in a couple of from now. From a load factor point of view, I mean, last week's load factor was 65%. So we're somewhere between 60% 70%. For the quarter. And obviously, this is key to our business model, so we keep managing that quite actively. Okay. Thanks very much. And the next question comes from the line of Jamie Robon from Deutsche Bank. Please go ahead. Good morning, gentlemen. 2 from me, please. Just following on from the comments there, Yuri, about being cash neutral in 2Q, but lots of uncertainties. One of those uncertainties is must be pricing the current fares environment given, the extent to which people are booking last minute as well. So could we get a comment on how fares and pricing is developing in 2Q? And then secondly, It's always interesting to hear a bit about the extent to which you might be benefiting from competitors struggling in Eastern Europe, I think blue air in Romania have run into some difficulties now. Just if you gave us some good anecdotes, I think, at the full year, I just wondered whether there were any updates you might like to provide on where you're seeing opportunities to benefit such as perhaps that one? Thank you. Yes. I mean, if you look at the, the fair environment, I mean, it is somewhat volatile because, the fair environment is not driven by underlying I think it's big time affected by, COVID-nineteen measures imposed by governments, creating significant uncertainties. But as a result, we are seeing as the revenue, revenues outperforming, versus expectations. And that's much driven by the fact that people are going to have more flexibility and they are prepared to pay for the services and products, giving them flexibility. We are seeing some improvement of the booking curve. I mean, 2 months ago, basically, we got percent of the revenue in the last 7 days. Now it is more like 2 to 3 weeks. So I think it is getting back towards the normal, far from being normalized. But, as is directionally we are getting back to that. But certainly, there are uncertainties around the pricing environment, but mainly because of changing, restrictions or changing regulatory conditions, to operate the, the airline. But I think we are fairly, fairly confident based on what we have seen and what we put in the book that we're going to be able to, control to cash performance of the business, to expectations and to be in line with guidance, we were just giving you that we should be at least a cash neutral period this summer. When it comes to competition, especially in the context of Sentinel. Think you are seeing basically, 2 kinds of developments, monies, which is not dissimilar to what's happening in 0 that national carriers are getting saved by governments one way or another. Nevertheless, we are seeing a significant capacity contraction by, by those carriers. So even if, these airlines are cleared out by their governments, we will certainly benefit from the much reduced capacity of those, of those airlines. And you have a few airlines that are struggling, you mentioned Blueair and a few others, but they are a fairly small little a way. I mean, if you look at blue early, you know, that Herna used to operate many aircrafts on their asset today, they are 5 aircrafts. So they've already diminished themselves. So the upside is fairly limited and we are not really focused on those upsides. But overall, I would be expecting a quite significantly a lower level of capacity provided by our competitors in San Francisco. But this is more organic than then radically changing, airline bankruptcy driven market conditions. So, but in any event, we're seeing that we will be facing a better market, with regard to capacity discipline, not only in Central this year, but also in Western Europe. That is the underlying reason why we are getting reflected by some of the Western European capacity, opportunities. And we have acted on a few of them, and it'll be just put capacity into Milan. We put capacity into, into dormant by opening a new base and us and these are exciting investments, exciting market opportunities. But we will stay very balanced with that regard because at the same time, we also the basis in Tirana or San Pietro's group, and we're pointing you to, to look for, capacity opportunities in our core markets in 00. So you should be expecting us to deliver a balanced portfolio by the diversified market approach with that regard. Thank you. And the next question comes from the line of James Holland from Exane. Please go ahead. Hi, good morning. Just a couple for me. Unless I missed it, you've talked a little bit about where you're growing, but not very much detail on where you've trimmed that capacity. I think you're talking about moving 22 aircrafts. Maybe provide us with a bit of detail if there's any way in particular where you trimmed back or closed basis? And secondly, probably just from our amusement, I was just wondering, whether you think of any success in challenging the buzz brand? You very much. Okay. I will start with the first question. I'm not sure I fully understood your second question, but with regard to your first I think we have been fairly, consistent with regard to trimming the we are trimming around 20%, 25% of our existing network capacity across the board. I mean, not different approaches by country. We haven't closed a single base. We are maintaining our network footprint, certainly from a base perspective, but also I would say that we are maintaining most of the other root network footprint as well. So as opposed to cut basis for cutting routes, we have been trimming frequencies on the existing network pretty much consistently across the board. I didn't get your second question. Sorry. Yes. So I just read somewhere that Wizz were undertaking a legal challenge against Ryanair's introduction of the Buzz brand. I was wondering if you thought that would actually be successful in challenging the brand. Maybe I'm wrong, but Oh, I mean, the court via TELUS, I just want to make sure that, there is no misperception created demands of consumers. So it is a legal proceeding. We will see what the court has to say. And the next question comes from the line of Michael Kuhn from Societe Generale. Please go ahead. Good morning. One follow-up again on unit costs and cost savings. Looking at the staff cost savings and supplier renegotiations, can you quantify what savings you have achieved so far? And let's say, looking 1 to 2 years into the future, do you have an idea whether you can sustainably reduce your unit costs versus the pre crisis levels? That's what we are helpful. Thank you. Maybe I would just start with the stop cost and I hand it over to the early part on suppliers. I think cost of what we are trying to do is to adjust our stuff cost to any extent possible to to the capacity of the airline, that's actually, is flown by the, by the airline. So we halved stuff cost and, kind of half of it is by reducing headcount, half of it is by reducing pay. An office speaking. I don't think you should look at these measures as long term sustainable measures as we are ramping operations back up. And we are, growing the business, we will have to go back on headcount, and also we will have to go back on, salary labor mostly. I mean, obviously, the ARGUS are seeing the market to labor market. And if we are seeing structural moves on the labor market, to be reflect on those, but I don't think that, stuff cost is necessarily a source of long term structural cost saving. There is some upside, of that to the end of the company. But we are already very efficient, because staff cost is not only the matter of pay, but it is mostly a matter of activities from our standpoint. And our stuff was this sub-ten percent of our total cost, I think they are doing significantly better than any other airline. So I don't think it a huge saving opportunity. But obviously, we have to go with the market and if the market changes, whichever direction we have to reflect on that. If you look at the past few years, we've been under pressure, especially on the pilot side of the stuff to go with the market and the market really inflate pilot salaries now. Obviously, some of it is now going to be taken back and we will reflect on that. But we are already a very defined business with regard to productivity and I don't think that much more can be delivered on that side. Similar to, the staff side. So the reductions that we're looking for with suppliers were similar. So there's 2 components to that one. It was also in certain areas of inflationary environment, so that Geely has turned now, as it looks for, that's a very kind of 20% reduction. On certain supplier spends. Now we have not always been successful. It depends on the buckets. So some of it will stick and some of it, we didn't manage, to schedule, but on average, I mean, we made very good progress. The other component, which is there to stay for us is the payment term extensions, in the industry, in general, and Wizz Air had continued opportunity on payment terms comparing to some of the other industries, and we're just making sure that we're becoming best in class from our side. So this will be a gift that will keep giving, I think, for the future. Right. And on, let's say, longer term CASK outlooks, I understand stuff is not a source, but let's say on the supplier side, it sounds like you can achieve some efficiency improvements? I think for modeling purposes, I mean, if you really the history of our cost evolution. I mean, our cost has been fairly stable for pretty much like 10 years, and maybe slight decline recently benefiting from the NeoF of deliveries, especially the conversion from AC10 to AC21, asking that before take place in the coming years. But I don't think you should be expecting a revolutionary change on cost performance because Yes, I mean, as we are seeing, opportunities for the business to benefit from certain cost initiatives, we are also seeing inflationary pressure. I mean, mean, with all due respect to the current situation on labor, but we know that labor cost is more directional and also we might be able to negotiate better airport deals given the times, but we also know that on a structural basis, much of the aviation infrastructure in Europe is monopolized and state going through it. So it's also one direction. It goes to only go one way. So I would be cautioned to overreact on, on course opportunities, I think we're going to take quite a bit of return from the current situation. But if you look at it longer term structurally, I think our cost performance is fairly, fairly stable on a unit cost basis, because you have upsides, but you also have downsides you need to, you need to live in. I mean, certainly, I think the AC21 Neo conversion is, is a game changer, in a way. And I think that gives us the ability to better, of course, than most of the industry. Understood. And so one more maybe on the on the network side, you spoke about a balanced approach on aircraft allocation. Still, I would say there was a relatively high number going into Western Europe as of late. So is it fair to assume that a modestly higher share of aircraft will be based in invest in Europe going forward compared with the past? Compared with the past, yes. I mean, I would say that we will have a higher share in Western Europe, but I mean, it's not mean, it's not going to be more than 20%, 25% of the total fleet. And I think that, that is fine with regard to the the approach of a balanced portfolio for purposes of diversification and resilience of the business And if you look at best, you know, the cost of best, I mean, you have certain issues that I mean, obviously, best, you know, with a higher labor cost environment, it might be higher airport cost environment, but at the same time, it might be a lower cost environment in terms of buying certain products like fuel, like a fewer premium has to be lower cost because it's a more market. So it's not all upon directional, but we are very measured on this and, and clearly, we control our cost performance and we don't get tempted by the consumer opportunity. I mean, the consumer opportunity must come hand in hand with the cost opportunity and our ability to control the cost base So we are not going to put this business through, what you have experienced with some other analysts, even our most important competitor that I believe was, has been creating 20%, 30% in the a few years, we are not going to do that. I think we are, firmly controlling over our own destiny with regard to cost. So, we don't go overboard under consumer reports demand opportunity. It needs to come with cost control. Otherwise, we want to simply just don't do it. And the next question comes from the line of Ross Harvey from Davy. Please go ahead. Hi, good morning. Three questions for me, please. First one is on flexibility. If the COVID issues and flight restrictions continue into the new year, I'm wondering, do you have flexibility on those aircraft deliveries or on lease returns. On the cost side, the D and A line was down $30,000,000 year on year. Can I just check, is this just down to the lower utilization or does it also include lease deferrals with the lessors and would those costs flow through later in the year? And finally, in terms of the asset sales and the Airbus compensation payments, can you comment on what proportion of those might recur over Q2 to Q4 and what included in the base from FY 2020? Thanks. On the second, I mean, you may just repeat the first question on the flexibility, but on the second and the third one, so the depreciation line, Basically, the driver of this is depreciation is in part dependent on the flight cycles and the flight hours. Portion of the capacity that were not flying, in the out quarters, you could assume a similar level of variability to that part. On the asset sales, we will have some more in the next quarters. So, yeah, choose to a certain level of asset sales for the quarters to come. I think on the free flexibilities, mean, the single biggest flexibility we have short term is that we have a bunch of aircraft due for, return to a, to less horse. I mean, we have around 15 act of the intercoming year or so, which we are supposed returning to our, to lessors. And, some of which we have contemplated for renewal, but, you know, if, if it's a tougher situation, over connect on the, on the deliveries and, and we use our fleet accordingly or looking at it from the perspective of the upside if we are seeing a significant market opportunities, especially with regard to the new markets, actually, we can expand more aircraft, which are supposed to be delivered at this point in time and take advantage of the capacity planning levy. So I think we have quite different, flexibilities in the coming, coming period depending on how the situation unfolds and how we are seeing issues affecting the business or is arising for us. Okay. Thanks very much. And the next question comes from the line of Carolina Doris from Morgan Stanley. Please go ahead. Hi, good morning. I have three questions, if I may. 1, if you could comment on seed outlook. I think last quarter you're guiding to 9% increase for this year, but now you're getting 6 more aircraft. So is it fair to assume a 15% increase year on year. 2nd question is, has all the leasing arrangements have been agreed to the new aircraft that you are receiving? And if you can give us some color on how cost and conditions have been changing. And my final question is on the other negotiations, I guess that you get more A21 sooner, but then you have the annual cap on deliveries. Has there been any other modifications agreement in terms of calls and NPDPs that you can shed some light on? Thank you very much. Hi, Carolina. This is Zurich. So on the seat capacity, I mean, the physical infrastructure capacity, so last time we said we increasing 9% because most of the advancements come at the tail end of the fiscal year. That actually only increases to 10%. So it doesn't really have a big impact to the current, to the current year. The agreements with Airbus have been concluded. I think you were also potentially referring to the agreement with lessors. So we, as Joe mentioned, we have to redeliveries. We have solid agreements to redeliver think we will have a lot of excitement if you would want to extend some flexibility that we'll have. And then, 321s sooner. Again, this is all part of, a bigger agreement, as you say, which includes, the order book not only for the current year, but also for the out years. It's taken into account what was, I was thinking of a weird wind situation not only for us, but also for them. We've included some of the discussions on the pre delivery payments and some other commercial discussions. So It's a whole package, discussion that we have with everything. And the next question comes from the line of Andrew Lobbenberg from HSBC. Please go ahead. Hello. Good morning, guys. Can I ask a little bit about what happened in Italy, where I think the government is is playing around with some rules that look to potentially help Alitalia about putting in some minimum costs for cabin crew? And then equally in Italy, how are you coping with the rules they're putting in about trying to ban the use of over bins and and, prevent people charging for, for, for checked bags, how does that play out? On the airport deals that you're signing now, you spoke about trying to build a long term network, how long are these airport deals that you're signing and are the airport charges flat or does they sort of taper up over time? And then just the final one, as you're talking about the fleet, with Airbus and potentially, looking for more orders, Is there a world where you would look to perhaps grab more of the existing Indigo order from some of your sibling carriers or would it make more sense to go for a straight, clean, fresh order given the balance of power with OEMs at the moment? All right. Maybe starting with the BDC. I think we are, you know, complying with the effective laws and regulation of the country, whatever they are. And so when it comes to, you know, to pay, with regard to the cabin suicidal thing that is that is a substantive issue here. With regard to various other approaches of the country, on products and service and how those are provided to our customers, in in Italy. I think Italy has a bit of a history now on on legal disputes, that, certain organizations are taking initiatives, but they are not necessarily right. And, think the legal system has been going back and forth on some of the measures. So I think this is one of them, and that might be, that might be boring. Clearly, you know, the government and government associated agencies are, are very supportive of Oletalia, but a good Oletalia, I mean, at a given day. And I think they are trying to take an orchestrated approach against our competition to protect our Italian and, possible, but, much of it ends up, in the legal system and, and if you share, I see how that's going to go. Now with regard to, to capacity to open airport days and the longevity of those days, I mean, obviously, we are moving, on these initiatives on the basis of long term sustainable cost arrangements and competitive we believe we can be at India in the market. So, via the current situation might be giving us the momentum to act, but we are doing it on a long term, consideration. And that certainly concerns, at quarter and airport deals. But with regard to the, to the act of order, I don't want to create a perception. That Viza is heavily negotiating on an aircraft order of individuals because this is not true. And, with regard to the Indigo order, I think each of these airlines is taking a view on life. I mean, with that regard, we are not related to each other. That order stream, has the flexibility of moving air from Iran to within the Indigo portfolio system, but each of the airlines is an independent party to the contract with with Airbus, and they need to determine what they want to have. We don't have an orchestrated approach as we speak. Again, what we are looking at, is, reaching our own supply of capacity based on the existing orders in the Airbus and the redelivery program we have with lessors and we're seeing that, we are in good position to, to source the capacity we need for the business, but also to, to have sufficient flexibility, in that, in that stream. And, if you have to adjust the, the extra free top or down, because we can do it. So we are not relying on third parties and some other coordinated matters. And the next question comes from the line of David Lee from Vision Investors. Please go ahead. Guys, really appreciate you taking this call. Maybe just a couple of questions for me. Can you maybe talk a little bit about your thoughts on sort of the long term maybe not this year, but next couple of years in terms of traffic and industry capacity. Does he touch on the sort of acceleration consolidation given the environment, right? Just talk a little bit about that. How is this different from the prior, cycle? And then second, and how you guys are competing differently, versus Ryanair now? Or do you guys feel like what are the things that you guys need to put in place so that this environment will enable you to really kind of jump start and leap ahead against them very significantly. Thanks. Okay. With regard to the long term view of the industry, I think the industry's recovery is one issue and reserves recovery is another. If you look at it, you know, the whole situation from an industry perspective, I think the single biggest issue, what we are seeing is the on the one hand, the on predictability of the regulatory system, I. E. Restrictions on flights, restrictions on travel, restrictions of movements of people, I think that, makes quite an impact on demand. The other issue, obviously, is the resulting with this session, which obviously will put people under pressure with regard to, to dispose of income and this spending. So you have this overall demand issue affecting the industry. And I think depending on the business model you are into, in the industry, your ability to recover will be very different. If you look at it from a business standpoint, we are a point to point short haul carrier I think that's the perfect role that which we assume first relative to other traffic was certainly relative to intercontinental travel. And point to point Trevor is going to come back much earlier than connecting Trevor. So I think by design, we are better positioned for a quicker recovery than than some of our competitors. Then when you look at the consumer profiles of various airlines, we are flying the youngest passenger in the industry. Our, passengers average age is sort of some years, which is, Younggood than any of the other airlines in Europe. I mean, we know it for the fact that the younger generations will come back to the franchise early in India, certainly than the elderly generation, I mean simply because they are less affected by the pandemic. They are more adventurous and they are more disc makers able to take benefit of the, of the economic situation, especially that you can travel much cheaper, you can get accommodated much cheaper than before. Secondly, we are more relying on, migration driven people traveling for work, traveling for studies. I mean, we are seeing those traffic flows resuming, quite strongly. And I think business traffic is the 1, which is, which is struggling and I think corporate travel will be on the for quite some time, but our business is hardly exposed to that traffic flow. So if you look at the business model and if you look at the consumer fire of airlines. I think they are probably best place to recover, in the industry. So with that regard, it is not surprising that we have recovered already more than 70% of our capacity versus last year and the whole industry has just been able to get up to 40% level. I think this is structured. I don't think this is just driven to the ambition of management. I it is, coming from the business model, and it's coming from the consumer profile of the business. And that combined with our financial liability and our financial capacity, from a liquidity perspective and from a cost perspective, we're seeing PR in poor position to take advantage of this situation. So what I would be expecting longer term and this is going to 3 years down the line is that you're going to be seeing less players in the marketplace. We're going to be growing this business, by around, 40%, 50% in, in the next 3 years. And if you take the assumption that the industry overall, we resume, it's 2019 capacity, 3 years down the line. Basically, we have a free run to gain a 50% bigger scale against the same industry, what we competed with, in 2019. So I mean, this is a structure of movement from our perspective. We're going to be much more formidable, much more important and much more impactful in the industry. And we are taking advantage of kind of the slowdown of the industry and the recovery of the industry. And we are building our scale and our franchise during this period. So that's why I'm saying that I believe that we are coming out of business and structure, you know, in the industry. How we are competing differently from others, I think we are very focused on cost and new aircraft deliveries are not only important, for growing the business, but I think new aircraft deliveries are extremely important for building a cost competitive advantage in the market. If you stop taking new aircraft deliveries, what you're going to be ending of it is an aging fleet. And we know that when a fleet is aging, your maintenance cost and operating cost will go through the roof. So unit cost is going to shoot up significantly. And we are going to benefit at the same the better economics of the new aircraft deliveries. It's not only that we are building a scale benefit for the business, but we are also building a unit cost advantage arising from new technology. So this is strategically important to us. And I think that makes us quite different from many of the other airlines. And, and the other difference I would say is the way we are moving to network design, we are not just focused on the existing network most of the airlines are, are focused on right now. But we are looking at ways of creating a new network and can in new markets, new consumers, creating the franchise to make the business more diversified, a bigger scale and more resilient in the end. And I think those two factors are making us quite different from the rest of the industry. Our next question comes from the line of Alex Patterson from Peel Hunt. Please go ahead. Good morning, everybody. Just one question from me. Please, could you, you were talking earlier about the PDP payments and cash outflows in Q2 to 4 from that. Could you repeat what you said there? And if you didn't quantify what that is, would you be able to be? Yes. So I think that the initial question had been What do you expect in terms of GDP outflows for the year? The answer was, let me see some of the outflows coming in Q3 mainly, to a lesser extent, some of it in Q4. But at totality, they will be less pronounced, far less pronounced than what we had as PGP outflows last year. Great. Thank you. And the last question comes from the line of Najik Al Kashear from Bank of America. Please go ahead. Good morning, everyone. Just a quick one for me in terms of how much of ticket response were done in the quarter? And what is the balance the balance of sold ticket, please, at the end of the quarter? Yes. So year to date, fiscal year to date, we have refunded EUR 80,000,000 worth of refunds. Around EUR 50,000,000 of that were at Q1, around 30,000,000 were done year to date, July, up until yesterday. And then we have around 15,000,005,000,000 to go. The refunds will continue to be a reality for us because we continue to, obviously, adjust our network depending on the restriction. So the million actually was the same amount that was outstanding last quarter, if you would call. So I hope that helps. Thank you very much. And just a second one in terms of the AGM vote to, of against the Director Pay, if you can touch on that and how we should think about it going forward? Well, I think first of all, I think it's unfortunate I don't think that the market fully understood our remuneration committee, our remuneration policy and that's the learning for us that we need to do a better job. With regard to communicating it. I mean, the remuneration policy reported, relates back to to the previous financial year. We delivered very strong set of results, and, and you can see, you know, to stand obviously, today. I mean, we had built a very significant financial resilience to, to take us through even the most difficult times without, you know, government bailout. So, you know, taking new equity measures and those sorts of, those sorts of issues. So, I think we will have to go back to our shareholders, with the policy possibly demand, some elements of the policy and and, and to make sure that they buy into it and they fully understand what, what they are doing. And this is what we will be doing for the next, financial year when our remuneration policy is due be renewed in an event. Please hold as we get the information from the last participant. And the last question comes from the line of Peter Luego from P. K. O. Please go ahead. Hello. Congratulations on a very nice results given the environment. Just one quick question. Could you provide some small update on the potential updates in CO2 trading skins? It seems that that this issue is again appearing on the agendas. What can we expect and when? Sorry, what was an update with regards to which scheme please? CO2 trading schemes any updates, something can change in near future? But I think in principle, the significant driver of our CO2 footprint is the wherever we represent, as a matter of fact, we are enhancing the delivery program, the business, we depend from that from a ESG standpoint, for sure. I mean, we're going to be excellent, versus the industry when you look at the, that the relative footprint of this, to the greenhouse. I mean, we are already the green star line of oil in Europe and I think they are just going to grow that advantage. I think the issue with CO2 is going to be, not only airline specific and are related to also industry related. So when are we going to do, with that 4 issue when it comes to the overall performance of the industry? Within the industry, I think we're going to be doing very well, better than our competitors because of the continuous commitment to our to new technology and innovation. But still, I see the industry as a whole, we'll have to address it. And I think that's still to be seen to what extent this is going to be a technology driven coming from the OEMs to what extent this is going to be a fuel driven, possibly altering the use of fuel and to what end. This is going to be, you know, the replacement of existing order aircraft by some of the wells. I think that's something we we will need to see and we will also need to see how the legacy environment is going to react to that issue. But as far as you know, what we can do as a business as an airline, I think we are doing much better than our competitors, and we'll continue to do it that way going forward. Okay. But any idea when some regulatory changes can be implemented to the current current solutions? No. I don't think we can give you much of a guidance at the moment. As there are no further questions, I'll hand it back to the speakers. Ladies and gentlemen, thank you for your interest. I hope you took some comfort from us that the business is solid. We are managing the business for cash, which we think is the most important issue given the times we are in So far so good. And nevertheless, we are up against a lot of uncertainties and very unpredictable, circumstances of the business, but we have been agile and we will stay agile and we will deal with the situation as much and as good as we can. I think you can count on that, but it comes to, to this, and we will see what what it really means. I think they are very confident in our ability to, to win structurally over the long run, but short term is challenged and we are much focused on this business to, to get everything pretty much micromanaged on a day by day basis. To make sure that we get the best out of this, given the changing circumstances on a constant this. Thank you for your interest. Thank you for your attention. Bye bye. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.