Hello, welcome to Wizz Air 2020 Q1 results call. For the first part of today's call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Please note that today's conference call is being recorded. I would now like to hand over to József Váradi, CEO of Wizz Air. Please begin.
Good morning, everyone. Thank you for attending this conference call. We are reporting Q1 fiscal 2020 for Wizz Air. As you can see, the presentation, we are reporting very strong set of financial numbers and KPIs for Q1. We are very encouraged also by the summer trading, what we are seeing in front of us with regard to the expected performance on Q2. As a result, we decided to up our capacity plan for the balance of the financial year from previously guided 16% to 20% now. Essentially what we are doing, we are investing incremental profitability into further growth in the business, which I think is beneficial for the company strategically, especially in light of the overall industrial capacity situation and the aircraft supply situation.
We are simply taking a strategic advantage of the situation and obviously whatever investments we are going to make in the second half of the financial year will mature for the next financial year, for next summer. Financially, we are going to benefit from that. Back to the current quarter, we delivered EUR 72.4 million of net profit on the back of 20% passenger growth, which recorded an aircraft of 10.4 million. This is record-high profitability, record-high passenger numbers. As we announced earlier, we signed an MOU for 20 additional aircraft, A321XLR aircraft, which will come into play in 2023, throughout a period of 2 to 3 years, which will enable us to connect more airports, longer flights within our geographies. We have explained this, at the moment, we are able to fly our fleet up to six hours.
The XLR gives us two more hours, so we can fly up to eight hours. We are not necessarily searching for new markets, but we are looking at doing more in our existing geographical footprint. We also started reporting our carbon footprint. As you might have noticed, we are the lowest level emitter in the industry with 57.3 grams per passenger kilometer. That's significantly lower than any of the airlines, certainly much lower than what the legacy carriers are emitting. Very importantly, we are reconfirming our profit guidance for the whole financial year. Again, what we are doing here is that on the back of the very strong first quarter results and the continuing strength in the second quarter, we actually decided to invest into growth without affecting the profit guidance of the financial year. Moving on to page three. This is our geographical footprint.
This is largely unchanged versus what you have seen previously. Obviously, with the growth of the business, we have also grown the aircraft count. Now we are operating a fleet of 114 aircraft, of which four are A321neo aircraft. Obviously, we keep growing the number of airports, the number of employees, and we keep expanding the reach of the airline in our geographies. Moving on to page four. This is showing you what announcements we have made already for deploying new aircraft in fiscal 2020. Let me just make a few comments here. We are moving quite aggressively in Kraków. This is a new market in Poland, what we just opened up. Very quickly, we are ramping it to three aircraft. That's quite a significant size relatively to the scale of the market.
We are very pleased with the early reaction of consumers to our services and our network. We are very encouraged by those results. As a result, you will see us doing more in Kraków, and very likely, we are going to be deploying further capacity in the marketplace. London Luton is an interesting case. Obviously, the whole industry in the U.K. is sort of complaining about Brexit and overcapacity and the weak yield environment. I think this is relative to the performance of the many airlines. As far as we are concerned, you may want to take note of the fact that throughout the last two, three years, our unit cost operated on our Luton network has changed fairly dramatically, dropped significantly as a result of aging A320s to A321s, and also nowadays introducing the A321neo aircraft on the Luton routes.
I think we have become much more formidable as a competing force in the U.K. On top of that, obviously, we have a more balanced customer mix in the U.K., a better balance between inbound and outbound traffic that makes us more resilient from all sorts of Brexit issues. As a result, we have grown our London business by 50% since the Brexit vote, and we remain upbeat about the prospect of the U.K. market. With regard to Vienna, another significant growth market for Wizz. As you know, there is a bloodbath going on in Vienna, it is also a matter of perspective who is suffering the pain in the marketplace. We are one of the growing airlines in Vienna, we are the only airline which actually delivers financial sense in Vienna at this point in time.
We have made commentaries on this that in our first year, we are breaking even in Vienna while all others are losing a lot of money. Also recently we started observing significant capacity contractions by airlines, including Eurowings, easyJet, and LEVEL. The Balkan markets remain a very strong source of growth for the company. As you can see, we continue to allocate new aircraft capacity in that region. This time around, we are building our network in Skopje, Varna, and Chișinău in Moldova. Georgia, Kutaisi, has been maturing very nicely. We are very encouraged by the results, what we've been able to deliver. As a result, we are making a significant investment into the marketplace by essentially doubling the size of our business there. It's been a busy period.
We've already launched 60 new routes for the fiscal year. We are just yet at the start of the financial year. More to come in the coming period. Moving on to the next slide. You can see that the way we are delivering growth is very safe. We are deploying 87% of our capacity in the form of increasing frequencies on existing routes or joining existing airports. At the same time, it remains important to the business to continue to carry the flag of low-cost and pioneer new route openings, new market openings. We want to make sure that we also deploy capacity for that purposes. Page six is showing our environmental footprint, which we started reporting. Well, clearly, Wizz Air is the greenest airline in the whole of Europe.
Our ecological footprint is far more favorable than any of the other airlines, especially when you compare the Wizz Air performance to legacy carriers. Legacy carriers emit 50% more than us on a per-passenger kilometer basis. It's not only that we are the green airline, but actually we are getting greener and greener every month. You can see that our footprint has been much reduced over the periods. It will continue to reduce going forward, given the introduction of the neo aircraft, which is an environmentally even friendlier aircraft variant than the existing aircraft fleet out there. We continue to report on this, and I think you will see that Wizz Air is standing out in the European context.
We have a very clear target of actually reducing our footprint by a third by 2030, which is a far more ambitious target of any of the other airlines that are putting out. Moving on to page seven. This is showing you the operational performance of the business. You may recall that this time last year, we were hit hard by all sorts of issues in the operating environment, be it ATC, airport congestions, weather issues. Clearly, this year, our operating model has become far more resilient, delivering a much improved set of KPIs, operational KPIs across the board, especially our flight regularity improved significantly. In the period last year, we canceled 145 flights. This year, we only canceled 50 flights, and it is 100% more production. We also improved aircraft utilization quite a bit. We significantly improved our load factor performance.
You can see that somewhat we've been able to improve our on-time performance as well. The operating environment in Europe remains very challenging. ATC is not improving. As a matter of fact, I think it has further deteriorated. If you look at our operating performance, actually, it has much improved because of the measures we put in place to make sure that we become more resilient against all these issues affecting us. We have a much better quality of operations today than what we had a year ago. With that note, I will turn it over to Ian, who will take you through the numbers.
Morning, everyone. Moving on to page eight. In the first quarter, Wizz Air had a record Q1. Record numbers of passengers, record revenues, record profitability. We continue to lower our ex-fuel CASK even lower. In terms of the capacity and the passenger traffic, seat growth was up 18.1%. Load factor, as József highlighted, was up 1.7%, which leads to passenger growth of up 20.1%. We flew slightly further with stage length up 1.5%. ASK growth was 19.9%, 20% ASK growth, which is fairly punchy. When you combine this growth with RASK, which was up 4.6%, we delivered 25.4% higher revenues at EUR 691.2 million. If you look at the building blocks at the foot of the page, what you can see is that unit revenue growth outstrips total CASK.
Unit revenue growth is up 4.6%, outstrips total CASK growth of 2%, which is driven by the fuel price, which gives us margin expansion. What you can see is in terms of the net profit margin, focusing on the one without foreign currency, is up 1.8 percentage points. What's very favorable is when you look at the free cash flows, it's important that profitability drives cash. Our cash position year on year is up EUR 347 million in total. When you take into account restricted cash, we have EUR 1.64 billion of free cash, and we continue to finance our deposits on our aircraft and have over $300 million of deposits with Airbus. IFRS 16, the following slide. If we move on to page nine. IFRS 16 is the new accounting standard for leasing. I think it has been in the pipeline for 15 years.
Many people have been trying to get their heads around this. This is related to leases, and given that the company's fleet is fully leased, in terms of the reporting, it has a significant impact in the way we present our numbers. As we've highlighted, the net impact, the direct net impact of IFRS 16, I've indicated in the past, doesn't really move the needle. If you look at the foot of the first table, the net impact on the first quarter was around about EUR 2.8 million negative in terms of the restatements of prior year. What IFRS 16 does, maybe I'll draw your attention to essentially four numbers in the middle column. The first number is aircraft rentals. There are no longer aircraft rentals, so that disappears. That's been replaced by two items, depreciation of 56.6 in financial expense.
Essentially, the net of those three really is essentially where we're getting to, but they're on different line items. The fourth item I would point you to is on the bottom table in terms of the balance sheet. With IFRS 16, we're bringing €1.7 billion worth of dollar-denominated liabilities onto the balance sheet. This is what's driving the restated foreign currency number. IFRS 16, we have adopted a full retrospective method, which means that we have to apply the transition method as if we've always been applying IFRS 16. With that €1.7 billion liability as at the beginning of the last financial year, where the FX rate was 123, if you compare that to the FX rate at the end of the quarter of 117, that's what's driving this theoretical unrealized loss of EUR 80.7 million. We didn't hedge that because the liability didn't exist.
That's why you have this volatility. Going forward, we've highlighted we have changed our treasury strategy, our risk management policy. That exposure has been eliminated from our risk management strategy. You won't see volatility coming through in Q2, Q3, Q4, and beyond. One item to highlight in Q1, which is specific. There was a EUR 5 million FX loss. A large proportion of that was a function of us moving our leases from Wizz Air Hungary to Wizz Air UK. 10 leases are being moved over there. That happened during the month of May, and that essentially takes those leases from a EUR entity into a GBP entity. That was a point in time where GBP weakened by about 4%, and there was an unrealized FX loss on that. As of today, that's fully hedged.
When you're looking at the clean number and trying to model Q2, Q3, Q4, we're assuming a neutral FX result for the numbers. Q1, there was a loss there which should not be repeated. Moving on to page 10. This slide, I think is a great slide that demonstrates the ULCC business model working at its best. What you can see is that the ticket revenue is lower at 4%, but this is really driving passenger growth. Passenger growth, the high load factors is driving the volume, and then we're making it up on the ancillary. Ancillary versus Q1 last year, as a percentage of total revenue, was 40%, is now 45%. The higher proportion we can get on the ancillary, the better it is for us because it means we can get lower base fares into the market. We can stimulate more traffic.
Our average ticket price now is €36.50, or it was in the first quarter. One thing to highlight in terms of the 4.6% in RASK, around about 3% of that related to Easter. We always say around about EUR 20 million relates to the Easter effect. That's about 3%. The remainder really is around about robust markets. The FX environment was fairly flat, so there's no constant currency volumes going through. The strong demand coming through really is driving the other 1.7%. Moving on to 11. We're sort of coming to the end of the story of changing our cabin bag policy. Ancillary revenue was 17.7% up year-on-year. A very strong performance. Pleasing is that the bags is starting to improve, so the checked-in bags is starting to add on the bags. We've been seeing a decline on the bag revenues for a number of years now.
What's driving that ancillary? Essentially now, 34% of our customers are taking bag-related products, whether it's a priority boarding related product, and 30% of our passengers are taking seat-related products or allocated seat-related products. We believe there's further room to push those. Looking at the chart in terms of development, what should you expect? There are two, I would say, moments in time that affect this number. In July of last year, well, maybe in November of the prior year, that's when we changed the policy. That's when you started to see the deterioration from fiscal 2018. We introduced a priority product in July of last year. That was around about EUR 0.65. Therefore, you'll start to see this real step up sort of starting to normalize as of July. The anniversary of the cabin bag policy was November the 7th.
Going beyond that, what I would model is we're back on track to trying to deliver the plus EUR 1 per pax per year. Essentially, what we can see is that the ancillary is working very well. We're very pleased with the product. I think the new cabin bag policy has also played a very good big part in improving the operational performance as well. Last year, we had a lot of challenges with bags, getting them actually on the aircraft, struggling during the very busy summer period. Moving on to page 12, as you know, my favorite slide. Disciplined ultra-low cost, actually, I would say very structural cost savings continue to come through. Business as usual, I would say, for the first quarter. Maybe three items to draw to your attention. Fuel prices was up 39% year-on-year.
Of that, 6.7% was the pure liquid, so the pure fuel price. The dollar strengthened 2.5% year-on-year. That's driving the large fuel piece. Staff costs up marginally in the first quarter. This is the tail end, essentially, of a 16% pay rise that we gave pilots right at the beginning of the last financial year. We raised the salaries in April. All of the pilots that came on the books were signed up to that pay rise in May. Looking forward, we would expect to see with the A321 effect, i.e., 50 extra seats or 59 extra seats with the two pilots, we should start seeing a negative. For the full year, we're expecting CASK to be negative, albeit slightly up in the first quarter. We have also highlighted maintenance.
Utilization was slightly lower in the first quarter because we slowed the growth down to protect yield. Certain maintenance events jumped from Q4 into Q1. There was a big maintenance program getting those aircraft back into condition just in time for the busy summer period. That's why we saw Q1 maintenance numbers increase. I would flag that some of our aircraft are getting a bit older. We're getting those aircraft back into condition to the lessors. The one item for the year that I would highlight, where there'll be a bit of inflationary effect, is coming on the maintenance. It'll be absorbed by structural cost savings of A321 and cost savings elsewhere in the P&L.
In terms of the net financing charge, I think what's important is with IFRS 16, we're stripping out essentially a third, a quarter of the cost of the leases and that putting them to financial expense. That's why we believe if you want to look at the cost of actually producing seats, the cost of producing ASKs, it's important to take the actual cash cost. Hence, that's why we're now including the financing of those aircraft, the net finance of those aircraft in our CASK calculations. On slide 13, as of yesterday, we have four A321neos in the fleet. We're very happy with these aircraft. As mentioned, these are driving and delivering 60% less fuel burn, which in turn delivers 15% less CO2, certainly playing into our green footprint.
The interesting one as well is that the sound or the noise pollution coming out of these engines is significantly lower, so airports are getting more favorable to taking delivery of these aircraft onto their airports, and we're getting a lot of demand and a lot of requests from airports to take the neos. Flying further, so clearly, with less fuel burn, you can essentially get a slightly extra stage length. As we said before, the difference between an A321neo versus an A320ceo is a 20% lower unit cost producing assets. When flying to an airport like Vienna, where airlines are losing 10%, 20% margins when you're flying an A321neo, that's how Wizz Air is able to break even in year one. Moving on to slide 14. I would draw your attention to 2020 to 2021.
There has been a lot of publicity about the Airbus and the ability to deliver A321neos in particular. We mentioned in October last year that we confirmed our fiscal 2020 schedule. We're not seeing any material delays on our fiscal 2020 schedule, so fiscal 2020 is looking good. Fiscal 2021, a little bit of shuffling around has taken place. The A321neo, there are some slight delays coming off, but we've secured that by essentially swapping some of our positions, delivery positions, and we've swapped four A321neos with six A320neos. In terms of securing and maintaining the capacity growth in terms of fleet, we have that secure. Looking ahead for the next fiscal 2020 and 2021, also, we're looking pretty good. With that, moving on to page 15.
Not a huge amount has changed, certainly in terms of the macro environment, it's fairly similar to when we came to the market back at the end of May. The only two items to change is the capacity growth. As József highlighted, stepping up the capacity growth predominantly in the second half to 20%. When you look at the capacity for the full year, Q1, we're delivering 20% ASK growth, Q2 it's 18%, and then H2 will be looking more like 22.3%. On a full year, we're going to be delivering 20% growth. That's coming at a cost of yield. When we move down to the RASK line item, we were guiding up low single digits, you could say 2%-3%, but now we're doing slightly positive, so that's more like in the 1%. This is purely a decision that we've taken.
Wizz Air is adding 40% of the incremental fleet into the CEE in the winter period. This is purely driven by Wizz Air. Other than that, no real change to any of the other line items and the net profit guidance range, as Joseph highlighted, remains unchanged at EUR 320 million-EUR 350 million for the full year ended 31st March 2020. With that, we'll open up for Q&A, please.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from the line of Jarrod Castle from UBS. Please go ahead.
Thanks. Clear, if I may. Just in terms of ex-fuel CASK guidance broadly flat. You've increased the capacity guidance. A lot of the ex-fuel CASK performance is related to, I guess, financial income expense. It doesn't seem like there's any kind of operating leverage by increasing CASK from 16%-20%. If you can just give some
Color on why there isn't. Secondly, just to make clear, it's not like guidance for lower pricing is all linked to increased capacity, but is there any pricing weakness you're seeing in any of your markets? In terms of expectations going forward, how some of the pricing is looking. Then you rightly so point out carbon and how efficient you are on that front. Can you give us an idea of your net carbon cost and how that has evolved in the last year or two, and how we should think about it going forward? Because obviously the strong growth will partly offset the free allowances that you currently get. Thanks.
Okay. Thank you. With regard to ex-fuel cost, yeah, we might be getting some benefit from the increased scale, obviously. We shall see, but at the same time, there might also be negative issues in the marketplace. That's why we are somewhat reserved. Obviously scaling of the business should be giving us a leverage for lower operating cost. With regard to the pricing question, we don't really see pricing weakness in any of our markets. That's why we took the decision to up capacity. That's pretty much across the board. This is not like we are focused on one or two markets, but we are focused on a few markets with regard to competing properly on affordable basis. In terms of revenue strengths and demand out there we see very positive trends overall.
Let's not forget that the focus of our business is Central and Eastern Europe. Central and Eastern Europe is simply a better quality market with regard to growth than Western Europe. You see GDPs of the larger countries, Hungary, Poland, Romania, they are all in the neighborhood of 3.5%-4.5%. Pretty significant GDP growth guidance going into 2020. That's incomparably higher than what Western Europe is producing. Obviously all the GDP growth is translating into disposable income and discretionary spending of consumers. We have a lot of underlying demand, and that is coincided by our improving relative cost position to the industry. We have been updating from A320 to A321. We are now rolling out the A321, A320neo program, taking our unit cost down relative to the industry. Simply, we are just more competitive than what we used to be.
As a result, I think our average is going to continue to stimulate the market. It's just increasing. This is what we are reacting to.
Maybe on the third question on carbon. We were guiding, I guided about EUR 50 million of carbon cost for the full year. The price today is something like EUR 29. That's increased to about EUR 65 million. That's sort of offset by probably slightly softer fuel prices. We're probably making or saving about EUR 15 million on the fuel price, but we're giving it back on the carbon. Net, when you look at overall fuel CASK, it's unchanged.
Thanks very much.
The next question comes from the line of Jaime Rowbotham from Deutsche Bank. Please go ahead.
Morning, gentlemen. Yeah, three from me. Two on capacity, one on cost. On capacity, to what extent is your high capacity growth trying to capitalize on the 737 MAX issues? What happens when the MAX comes back in at a later date? Secondly, if we put 737 MAX operators to one side, your competitors in some of your key markets and routes are also being ambitious on capacity growth. How much of today's decision is driven by reaction to that versus actual demand improvements, if there are any of those? I hear your point about strong demand, that it was ever thus really from Central and Eastern Europe so far. Are you actually seeing any demand improvements? Finally, you mentioned the fewer flight cancellations in the quarter. Is it possible to quantify the benefit you got from that?
I just wondered to what extent the ex-fuel CASK progression, what it would have looked like without that benefit? Thanks.
Okay. Maybe I will start it reversely. With regard to the OPS-KPIs and where they represent to the business, I think the best way to really manifest this issue is to look at the Regulation 261 exposure. Because obviously EU, U.S. and airline are obliged to compensate passengers for long delays and cancellations. When we improve the state of KPIs and operations, regulatory especially, and improving long delays, then we reduce the exposure on Regulation 261. There is a clear financial benefit. We are seeing some benefits. Obviously the business is growing, absolute terms, you probably look at the magnitude of around a couple of millions EUR per quarter. Maybe on an annualized basis, you are talking about EUR 5 million-EUR 7 million of improvement. I think that is significant.
It's not changing the profitability of the business, but I think it's an important figure. Back to your capacity questions with regard to the MAX issue. I don't think that we are particularly reacting to the MAX issue. I think we are reacting to the performance of the industry. Partly it is affected by the MAX issue and the supply chain matter. You are seeing European airlines somewhat wobbling with regard to financial results. I think that in that context, we outperform the industry, and we think that creates an opportunity for us to move strategically on that opportunity. We shall see when the MAX comes back and how actually this is going to be taken back. It's a bit like the Brexit issue. It's looming out there. We don't know exactly what's going to happen, when it's going to happen, and how it's going to happen.
Once we see, I think we can have a better answer to your question, how we would be reacting to it. I don't think we are overly focused on this. I think we are just focused on our own business and taking the opportunities for ourselves to step change our competitive positions. Whether we are reacting to competition or demand, I think demand is a matter of perspective. To be honest, I still think that Vienna is probably the best marketplace for that. A lot of airlines competing in Vienna are complaining about overcapacity and weak yield environment. It is from their perspective, because relative to the cost what they are bringing to the market, they cannot make financial sense out of what they are doing. That's not the case for us.
We scaled our business from nothing to five aircraft over a year, and we are breaking even financially. It is because we are a very focused business, very low cost, and as a result, our ability to stimulate demand is much greater than theirs. Actually, we are so low cost that whatever yield we are getting from the market actually makes financial sense to us. That's not the case for them. It is a demand issue. It is a low-yielding environment for our competitors because they don't have the cost base to compete in a commodity business. That's not the case for us.
Great. Thank you very much.
The next question comes from the line of Mark Simpson from Goodbody. Please go ahead.
Good morning. Three questions. First one just on where capacity is growing. Obviously, you've identified 13% coming from new airports. Given that those are assumed to be RASK dilutive in that start-up phase, can you indicate what the RASK performance is ex those new airports? Second question, Vienna, break even now, I'm just wondering what the perceived path is to attaining company average margins, how you see that developing over the next sort of 12 to 18 months. Finally, you've talked about filling the vacuum as weaker airlines withdraw capacity. Ex Vienna, what airlines or markets would you identify within that trend?
In terms of RASK, I can take the RASK one. I think we've said in previous times that actually, if you look at that slide, the increasing frequency tends to be where you add your yield dilutive. These are markets where we're actually making more money than we should be, and as a result, we self-dilute by adding frequencies. In terms of the RASK, new airports themselves doesn't necessarily bring down the RASK in terms of the contribution margins. We haven't previously split out the margins we make on all these, so I can't give you the number for that.
Okay. With regard to the situation in Vienna, I think you have to recognize that there is a process here. Everyone jumped on Vienna, but nothing was happening in Vienna for decades, and all of a sudden, everyone joined the party. Now we are seeing kind of 6-12 months down the line that actually a number of airlines are contracting capacity. Eurowings is contracting, Wizz Air is contracting, LEVEL is contracting. Obviously this is a process, it takes time. As far as we are concerned, we are looking at Vienna over the horizon of around 3 years to continue to invest. Our objective is not to maximize profitability in Vienna, but to build our presence to a scale that makes strategic sense over the longer term.
I think this is going to take around three years to get there. Once we are there, we will start focusing on maturing our margin performance. I would guess that you'll be start seeing a significant margin improvement in year three, but really you're going to see probably year four, year five, the margins what would match up with corporate performance. With regard to the weaker airlines, that's a difficult question because we all know that there is a significant degree of irrationality going into the airline industry, even from private investors, but certainly from state actors. We are seeing essentially all the incumbent national carriers in Central and Eastern Europe are struggling big way, but they are still hanging in. I look at the Alitalia case. I think two years ago, everyone thought that finally Alitalia has gone well.
These guys are still hanging in, and the creativity is unlimited how to keep funding that business, and clearly the EU is assisting to that. It is very hard to predict what exactly is going to happen. What we are clearly seeing is that LOT Polish Airlines is now becoming rational. They are reducing capacity. TAROM Romanian Airlines is reducing capacity. Ukraine International is reducing capacity. I think as the macro environment is hardening up on the airline industry, you see some degree of rational behavior coming in and some market forces to affect the airline industry. It's very hard to predict what exactly is going to happen. Again, I think as far as we are concerned, we stand ready to fill the vacuum. I think we demonstrated a few times that whenever something happens in the marketplace, we act very quickly.
That's how we did it in the U.K. We acted on the collapse of Monarch. That's how we did it in Vienna. We acted on Air Berlin and flyNiki. We would be acting on situations similar to these whenever they happen. We are focused on building our own business. Our business is not chasing market share. Our business is not necessarily trying to eat into the cakes of others. Our business is to continue to stimulate the marketplace. We have a lot of markets to stimulate penetration. Airline penetration is still very low in Central and Eastern Europe, and that's why we are so keen at Wizz Air to keep taking the fare levels down, to be able to reduce the anti-barrier for consumers to come into the franchise, and just stimulate the marketplace on that basis.
I think airline failures are almost like sort of side benefits to the business we could react on. This is not core to our business model. This is not core to our ability to deliver growth in the future.
That's great. Very comprehensive. Just circling back on one, you talked about the three-year build-out program in Vienna. Can you just give us an idea of what kind of target fleet you have? You have five now. Where do you think that will go?
Yeah, I think we should be landing on around 15 to 20 aircraft in the next three to five years.
That's great. Appreciate that.
The next question comes from the line of Andrew Lobbenberg from HSBC. Please go ahead.
Oh, hi there. Can I ask about the change in fleet composition in 2021? Just wondering whether there is any compensation from Airbus, because obviously when we looked at the Q4 at the end of last financial year, there were a few funnies mucking around in the other cost lines. Anything to come from Airbus or indeed anything else that would be peculiar to distort the cash line as we go forward? Can I ask on ancillaries, as the turbocharging drops out into the winter, what measures do you expect to deliver that run rate of up EUR 1 per passenger per year? What levers have you got at all to keep that pushing along? Final question on the order of the A321XLRs, what are you going to do with them?
Maybe I would prefer the fleet matters and at the end here answer your question. I think what we try to accomplish for next year, 2020, was first of all to recognize the industry supply issues. Obviously, we don't like it. We are very disappointed with what's going on in the industry. Clearly, there is an issue with the OEMs, with their ability to supply aircraft as contracted, and this is across the board. This affects aircraft manufacturers, engine manufacturers, parts suppliers, basically the entire supply chain of the industry. I think we have a situation here, and we try to react to the situation. When you look at it from an Airbus perspective, there is a distinct difference between the Airbus A321neo assembly line and A320 assembly line.
The A320 assembly line is much safer for the purposes of delivering aircraft as contracted than the A321 delivery line. The A321 delivery line has become volatile. There are dragging delays affecting the entire industry. I think many airlines have commented on that. They are now seeing six-month delays, et cetera. Simply, we just decided that we don't want to take the risk with the capacity. It is strategically important for the business to secure capacity, to secure aircraft units to be able to grow the business. That's why we decided to convert four A321 for six A320neo aircraft because we have the confidence, and we've got assured by Airbus that those A320 aircraft will be delivered on time as contracted. I think they sufficiently demonstrated their ability and capacity to do so.
We got really motivated by our objective of bringing the supply of aircraft units into the system we need to deliver the growth plan of the business. Next to it, we have also made decisions on extending existing leases, again, to secure supply of capacity. Also we are looking at further leases, which we might be extending, and those would be confirmed in the near future. We are very keen on making sure that we have the supplier capacity what we need to meet demand and to meet the needs of the business. I think with all these measures we put in place, we feel comfortable with our ability to deliver growth. It was more of a securing the growth trajectory, securing the supply of capacity to grow as opposed to chasing compensation.
With regard to the A321XLR, I think maybe the best way to put the A321XLR is that if you look at sort of the two-extremes of our geographical footprints. We are flying the UAE and we are flying the Canary Islands of Spain. We are reaching the Canary Islands from Budapest, for example, but we are not reaching the Canary Islands from Bucharest because that's further east. We are reaching Dubai from Budapest, but we are not reaching it from Vienna because that's further west. The A321XLR will give us the opportunity to add an additional two hours of range to the fleet. I know it's kind of exciting to think that, well, is it long-haul low cost, or is it transatlantic? That's not the purpose of the A321XLR. The purpose of the A321XLR is to connect the dots within our existing geographies, primarily.
Of course, we would be looking at new market opportunities as we continue to look at new market opportunities in any event. The prime objective of the A321XLR is to do more of what we are doing within our existing geographies.
Onto the ancillary, maybe the best way to demonstrate this, if you look on page 11. If you look at the fourth quarter of fiscal 2018, where we were EUR 2.9 short, that was a full quarter where we didn't have a policy. If you compare that to the fourth quarter of fiscal 2019, which was plus whole company, you're seeing a delta of over EUR 1.3. What that says is that we were able to compensate for the change in the policy, but we also delivered more than EUR 1 on everything else, whether it's conversion, whether it's new products. I think, in terms of how we'll be delivering that additional EUR 1, the team's just working on those other 35 streams and making them better, implementing new beta testing to make them more effective and improve conversion.
Within the turbocharging, as you've described it, there's already €1 that's being brought through on other revenue streams.
Okay. That's good. Thank you. Can I just come back because, Joe made it clear that you weren't making the fleet change to chase compensation. It's your capacity that's completely crystal clear. As we assess your unit costs and stuff, with the history of that last Q4 having a very big, unusual item in it, are we expecting, will there be compensation impacts in your accounts this year?
Compensation tends to happen if an aircraft is not delivered on time. When you're looking 18 months out or even 12 months out, compensation doesn't figure. For example, there was a 20-day delay on one aircraft, and I think someone mentioned on one of my calls earlier, in Kiev. 20 days, there will be some small amount of compensation, but not the multi-millions that you're thinking about. In answer to your question, will there be compensation? We don't know because so far, so good. Our aircraft are being delivered on time, and we want those aircraft. In terms of the forecast, the answer is no, there is no meaningful compensation expected in our P&L this year.
Okay, thanks.
If the aircraft aren't delivered, which we don't expect, then maybe there's EUR one or two million that would pop up.
Okay.
So far, so good.
The next question comes from the line of Ross Harvey from Davy. Please go ahead.
Hi, morning. I have two questions for me. Firstly, in relation to ancillary, just wondering to what degree have you gone to price manage some of your products, the likes of the priority boarding? Secondly, in relation to capacity growth, your winter capacity growth, if I heard correct, is looking around 22%-23%. Do you think it will continue at that level into summer 2020, or will it be closer towards that 15% longer-term guide that you've given?
I'll just take the capacity guidance. I'm afraid, although maybe we would love to do 20% given the strength of the business and the market conditions going into summer of 2020. We won't be able to do that because we won't have the capacity to support it. I think you're going to be seeing us more like the 15% to be delivered in that period.
On the ancillary, I think we do a pretty good job on the ticket in terms of dynamically managing the fares. A little bit more work to do on the ancillary. I think there are a number of streams that we are dynamically pricing, and that's working quite well, but there's certainly a little bit more room. In terms of how we're going to continue to improve our ancillary performance, definitely a little bit more dynamic pricing will come into the fore over the next year or two.
Great. Thank you.
The next question comes from the line of Michael Kuhn from Société Générale. Please go ahead.
Good morning, guys. Also two or maybe three from me. Firstly, on load factor versus yield. You were more, let's say, yield driven in the winter. Now it looks like we are more load factor driven. Is that kind of a more short-term driven approach or have you changed your thinking there? Listening to your comments on growth and on yield, it sounds a bit like you will generate most or even all of your projected net income growth in the first half of the year. Is that correct? Lastly, another follow-up on ancillaries maybe. With the tough comps in the second half to come now, do you still think you are able to grow at your EUR 1 run rate, or might it be a bit slower in the second half then? Thank you.
Maybe I would take the ancillary and load factor yield matter. I think with regard to the ancillaries, yes, indeed. The comps will change going into the second half. I think what we have always said consistently is that we are targeting EUR 1, but we may end up with something between half a EUR to EUR 1. We try it hard. If you see the numbers now, we are above EUR 30 per passenger. We are 45% on ancillaries of the total revenue. I think we've done fairly well to push ancillaries. I mean, obviously, it's getting harder and harder. I don't think that is a ceiling, but certainly you may expect something half EUR to EUR 1. Although I would caution you, and please don't take ancillaries like this is revenue coming into the bottom line because a significant portion of ancillary revenues cannibalize ticket revenues.
As Ian said, strategically, our interest is actually to try to forward everything into ancillaries at the expense of fares. Seeing lowering fares is a good thing for the business because that improves our ability to stimulate the marketplace. Obviously, you need to compensate that with increase of ancillary revenues. This is the model we are in. Our strategic interest is to see lower ticket fares with more ancillary revenue production. I think that's the model we're going to continue to drive in the future. With regard to load factor, I think we've always been more load factor active and yield thirsty. I don't think we are as bad as some of our competitors, like Ryanair. I think we've been overall focused on optimizing total revenues, but we are certainly skewed towards getting the act of yield.
We've seen that the most expensive seat is the empty seat. We are very actively driving load factors. If you look at it, our load factor performance in the winter period is not significantly inferior to the load factor performance of summer. Obviously, given the seasonality of the European airline business, you see significantly greater demand in summertime than in wintertime. What we do need to focus on filling the planes and achieving high load factors in wintertime as well, and yield is the outcome of the process. I don't think that the approach has changed fundamentally. We will continue to push load factor, but at the same time, I think we are pretty sophisticated on yield managing capacity. Probably one of the better airlines globally with that regard.
We have a proprietary system to do that and a lot of human and artificial intelligence going into this. We are not taking it lightly. Primarily, we are driving load factors.
On the net income, is it right to assume it's going to grow mostly in the first half and second half should be pretty much neutral year-on-year?
Yeah. Fairly consistent with the prior years. We make all our money in the summer, and we invest it in the winter, and so try not to lose in the winter. Yeah, no change to that profile.
The next question comes from the line of Kathryn Leonard from Numis. Please go ahead.
Hi. Morning, everyone. Three very brief ones, I think, if that's okay, please. Firstly, could you just talk a little bit more just about the FY 2021 expectations? I know you just mentioned that obviously you would like to grow faster than 15%, but you see summer 2020 as being a sort of 15% growth. Just trying to tally that with the fleet guidance you've given this morning, which shows aircraft growth of sort of more like 18%. Obviously within that mix, you are skewing towards the larger aircraft even though you've changed the mix from the A321s into the A320 slightly. Just wonder if you could talk about that a little bit more and clearly what's going on with the MAX. As previously mentioned, I can see the strategic rationale for growing faster than that 15% next year.
Secondly, could you just comment on forward bookings and progression you're seeing for Q2 and maybe Q3? I know it's early days, but just what the forward booking profile is doing year on year. Obviously, some of your capacities, particularly Western European-focused ones, are suffering a bit on that. Then just finally, briefly on unionization. I know it's something that gets asked every call. Just whether you've seen any changes to that. Clearly, there's a few headlines on some of your competitors as we enter the summer months across Western Europe. Thanks.
Okay. Well, thank you. With regard to the growth profile going into fiscal 2021, well, we certainly update the fleet program. As said, we are now looking at extending existing leases to make sure that we protect our capacity plan for that period, taking the industry through into account. I think within a month or so, we should be able to give you a proper update. For the purposes of modeling, we are looking at 15%-17% capacity growth in fiscal 2021. With regard to forward bookings, so far so good. This is why we are making the decision of upping capacity for the balance of the financial year because we are confident of what we have delivered in the current financial year and what we are seeing in front of us as far as visibility permits us to conclude anything. So far so good.
We are ahead of last year. This is why we reacted with capacity adjustment. With regard to your union matter, no change. I would just want to emphasize the point that I think we are a significantly different company culture than any of the other airlines. I think we have been always walking the talk internally. We have not tried to alienate certain workforces inside the company. We have been building the spirit of being a team, and we are all together into this. We laugh together and we cry together kind of spirit. We are very active to engage with the crew, with pilots and cabin crew. We visit them on a very frequent basis. We have a People Council.
That's a fairly newly institutionalized form of having the dialogue to understand issues and opportunities and to make sure that there is sufficient focus on all sides to get things done and act on matters. It is a very different culture versus what the others have. As a result, this is not a question in the company. I think the question in the company is how to create a proposition of winning for all parties. How to create more shareholder value, how to become more competitive, which I think is strategically important for the long run. We are rapidly growing business. We create a lot of opportunities. I think that's important for people's career, that they see the prospect of growth, and they see the prospect of their individual rise in the company.
I think we've been doing a fairly good job with regard to delivering this, and we remain very focused on the organization, on the culture, and the dialogue with the people. We invest a lot into our people, and we do it proactively, so we are not forced to do that, but we do it proactively. Let's not be naive. We are not immune from the market. If the market moves, for example, on pay, we move on pay. Ian said that a good year ago, we decided to go with the market and significantly increase the pay of pilots. Should we see the market moving, of course, we would be pretty much in the forefront of implementing certain actions.
It's just a very different, a very proactive culture what we have, and we want to stay like that, and we want to continue to build the company on that basis.
That's great. Thank you. Just a quick follow-up. I think you mentioned just this last time, People Council, and I just wondered, has that brought about any surprises? The comments or the issues coming out, are they addressable?
This is an institution that is trying to bring various parties to the same table. The People Council functions as such that people from different countries are represented there, people from different functions, office, crew, pilots, cabin crew, et cetera, are represented there. Management is deeply involved in that. That's an open forum, this is not framed for certain issues. People can bring in whatever they want to bring in, we discuss, we try to narrow down matters that actually make a real difference to people, we try to act on those. It's a frequently run process, we meet very frequently on this matter. I think it is a well-working function. Obviously, we want to make sure that everyone is satisfied with the outcomes of the process.
I think we are on good track, and we continue to enhance the process and also the productivity of the outcomes.
I think we have one second. We're running out of time. Maybe one more question. If there are any.
There are no further questions.
That's good. Great. That draws us to close. Thanks, everyone, for your interest, and thanks for calling in your questions. Have a good summer.
Thank you. Bye-bye.
Just have a close of conference call. Thank you all for attending. You may now disconnect your lines.