Earnings Call: Q3 2019

Jan 30, 2019

Hello, and welcome to the Wizz Air 2019 Third Quarter Results. Throughout this, all participants will be in a scenario mode and our It's still be a question and answer session. And please note that this call is being recorded. So today, I'm pleased to present Joseph Varedi, CEO and Ian Weatherall, CFO. Gentlemen, please begin. Okay. Thank you very much. Bye. Good morning, everyone. Thank you for joining this this call. So we are reporting the October, December 2018 period. And let me just take you through the highlights and then we will start deep diving into, into some of the matters. In the period, we delivered 15% passenger growth, and 6% higher unit revenue and that helped us offset some of the cost groups in the business mostly fuel. So the 15% passenger growth came with 21% revenue growth and increased load factors increased load factor 2 points, in this period. As said, the revenue performance was very strong revenue per ASK went up 6%. If you measure it on a revenue per seat basis, it went up 8% I mean clearly with that, we outperformed the marketplace. In this period, we saw fully introduced the new cabin bag policy. You recall that we were reporting it to the market that we were unhappy with performance of the previous cabin back policy and we changed it and it works out very well, even I would say probably beyond expectations. We continue to develop our network, and system. We opened up 53 new routes in the period. And importantly, we opened up a base in crop of in, in Poland, or rather we're not at the base in crop of in Poland. Also very important from a UK perspective that we received, a UK route license from the from the government team enabled with the UK to operate a Sabrina share line under any circumstances, or Brexit And with that, I think we are clearly secured our access to markets from a UK standpoint. And this is relevant when it comes to flying from the UK to 3rd countries. And we continue to develop the business and we announced further to aircraft to join the Wizz UK network. And by summer 2019, we will have 11 aircraft in operation here. And also importantly, with that capacity, with that we will become the largest airline in Luton Airport. And you know whose homeland Luton airport is, we remain disciplined on managing costs and managing profitability during the period. Clearly, we had a number of cost issues to encounter. If you look at the fuel, we return up over 40%. If you look at labor, mostly pent up over 40%. I mean, since you already all understand, we are subject to the market with regard to labor cost it was twofold. One is that salary inflated in the period. You can imagine that I had increases paid to the pilots and workforce by 2025. We don't remain immune to that, and we had to follow through the market forces And secondly, we had a number of events, requiring us to, to invest into labor in the form of auto based flying or incremental training capacity. And that was related to the VCK set up and also some the suffered capacity in the network. These are one offs. So these cost lines will disappear going forward. And also we reacted to the cost by taking capacity down. I think we have been very vocal about this and we've always said that we will be managing this business for profitability and we're starting, started constraining supply of capacity in order to make sure that demand reacts with and as a result to see the revenue performance of the business. But on the cost side, obviously utilization came down and unit cost increased. Again, this was a measure for the period of this winter. And we expect that that is true to move away going forward and utilization to go back to our to normal in the next financial year. So with that regard, this is a one off item as well. And with that, we are confident in delivering the previously announced net profit guidance, which is a range of 270 to 300 1,000,000. I'm sure you will ask that in that range exactly we're going to be landing. I don't know. I think that is one significant uncertainty, and this is how Brexit is going to play out and how it will affect consumer confidence and the booking profile of the market. We are certain that we will be landing inside the range, but depending how Brexit plays out, we see which part of the range we will actually be at. Going to the next slide, this is giving you an overview of the business. We carried 8,100,000 passengers. In the period. As we speak, we have 106 aircraft flying. Actually, that fleet is going to be up 212x or by the financial year and 100 and 22 aircraft, by the end of fiscal 2020, we operate from 100 and 44 airports from 25 basis crock of being the latest announcements in the system. And obviously with the growth of the business, we continue to grow our organization as well. 4400 people as we speak. As said, we launched a number of new routes, 53, precisely and we made sure that we continue to develop our business across the board across our base markets and destination markets. Moving on, we became very focused on improving the operational metrics. You recorded In the previous quarter, the European operating environment collapsed pretty much affecting airlines operating performance. Every 2 actions on that and we make sure that we have a more robust, more resilient operating model, to benefit the traveling public with that. And you can see that we can't stood much less light than than in the previous year, much less than in the previous quarters and on time performance also improves. So I think OID is a trust match to the operating model are now bearing fruits and we are seeing clear improvement. And it is not only because of the lower utilization, but it is because of the structural changes we made to the operating model. Looking at the next slide, it's showing the the growth of the network going into summer 2019, it will be a very busy period. We are launching 104 new routes, 85 of them in markets outside the United Kingdom and we continue to develop the UK business despite the Brexit issues and we are launching 19 new routes in the in the UK. And as you can see that almost 90% of the, of the growth capacity is put in place for increasing frequencies of existing services or joining existing airports, but we continue to pioneer new markets, new airports and 12% of the capacity we allocated for that purposes. Next slide is showing some of the other achievements, but we have delivered in the business. Very importantly, we opened up our new a cleaning center for our pilots and cabin crew in Budapest. This is the state of the art facility. It's an investment of around 30,000,000 0s. And that will enable us to, to efficiently and effectively train our crews, to make sure that we adhere to our, to standards and also to execute at lower cost than previously when we had to buy training capacity in different places. For the first time, this error got rated with 7 stars by airline ratings. I think this is a recognition of of our safety culture, our safety standards in the company. So we are very pleased with that one. As already said, in the period, we received a UK route license from the, from the UK government enabling us to continue to have access to markets under any circumstances of Brexit. And that's an important development step for the business. And also I said that we introduced a new back policy which seems to be a very effective way of managing ancillary revenues. And as a result, ancillary revenues are nicely back on track already and we are expecting further upsides to manifest going forward. With this, I would just hand over to Ian, who will take you through the numbers. Good morning, everybody. So yes, let's dive a little bit more into some of the details. Q3, so this is a 3 months for the year, so that the calendar year ended 31st December. So, October, November, December. We delivered record revenues. So revenues were up 21.2%. Unit revenues were up, Joseph Highlighted, up 6%. And I can't think of any other airline in Europe that delivered such superior growth and also some revenue performance. But as we've highlighted, we don't grow this business for the sake of growth. If we want to look at Q3 and maybe the context of the previous year, in Q3 to fiscal fiscal 2018, Fuel CASK was up 1%, which enabled us to grow 23% ASKs. Fuel CASK was up 22% in the third quarter, which means that the level of growth, which we can put to the market, couldn't be 23%. But I think a 15% growth in ASKs and passenger growth was a very healthy performance. One of the compromises of slowing that growth down is an impact on CASTA. Whilst we're very pleased with the performance on the revenue unit revenues, we slightly underperformed on the CASK And as Joseph highlighted, that came in the form of 2 things. 1, the E lower utilization, simply by flying less, those fixed costs, it takes a while for you to get out of the system. But going forward, with our adjusted growth rate going into the fourth quarter and also to fiscal 2020, those fixed costs will be able to remove and we'll be able to get our ex fuel CASK. Back to normal and our utilization levels back to normal. Moving on to Page 8. And again, this highlights, I think, the strong performance that we've been able to deliver on our revenue. What's pleasing, particularly pleasing is the strong performance on ancillary we're very happy for the ancillary to get higher and higher if the base fare can get lower and lower. So ancillary is now again, represents 43% of the overall revenue environment. And as you can see, the ticket prices were strong. That's a function of the discipline capacity. That we put forward in the 3rd quarter. But also the recovery, I think the 7th on 7th November, we reintroduced our paid for Gavin Bag policy in a slightly different form. And we saw a strong recovery from that. And again, that's from 7th November. So you won't just see the full impact of the the recovery of the ancillaries. We come on to a slide later that shows that we're looking in Q4 to be tracking around about plus per PAX on the ancillary, which which is a very strong performance. And we should have that tailwind going into November next year. So again, another positive sign for a strong 2000 fiscal 2020. Moving on to Slide 9 in terms of the cost. And again, if we reflect on what actually happened. Fuel CASK was up 22%. So drilling into the numbers, total CASK was up 21 of that or 21 euro cents, so over 75% of it is actually coming from the fuel. The rest of it, 0.06 of it, the majority is coming from your crew costs. And as Joe highlighted, half of that comes from the fact that we raised the average salaries of our pilots from the 1st April. By around about 14% across the network. The other half of it was a combination of 2 things: 1, the utilization and the investments that Joseph highlighted in places like loosen. The year on year effect of the salary pay rise from the 1st April will disappear as we enter fiscal 2020. And the one off investments as we're looking today, there is there aren't any of those such large investments going into fiscal 2020. So as we look into fiscal 2020, crew CASK certainly should be starting to see the negative number that we expect from this business A321s themselves. You only need an extra cabin crew. Should be seeing a 17% lower unit costs from the crew costs. So we should start seeing that benefiting certainly on fiscal 2020. So I would expect to see a dramatic recovery of the crew cost performance for the next financial year. When we look at down all the other line items, utilization tends to be the bigger driver. Aircraft rentals, you'd be aircraft, all of our aircraft, at least. So when you drop utilization, 6%, 6.5%. Your aircraft rentals will be up, accordingly. I think one thing to flag before the questions start coming, crew, the ex fuel CASK in Q1, Q2, Q3, all slightly positive. We are maintaining a minus 1% on our ex fuel CASK. For the full year, which means that we need to deliver a very strong performance in that fourth quarter. We know what we need to do. We have the list of items that we will be delivering. To give you a flavor, we always tend to do to do very well and, at the end of fourth quarter in terms of airport costs. That's when a lot of our our contracts get renegotiated. We're expecting a strong performance on our airport in CASK. When you're looking at the staff costs, the summer has been particularly challenging for our crew. A lot of lot of disruptions, a lot of out of base flying. So vacation for the summer has been very challenging, lowering the utilization in Q3 and Q4 enables us to manage that better. So our cabin crew and a more relaxed roster for them enables them to get off and take their vacation. That'll get rid of a couple of million maintenance. Again, while you lower your utilization, certain maintenance events that we were planning in February, March will be ending up in April. So some of the maintenance events and the heavy maintenance events will be pushed for into fiscal 2020. And again, I think that's generally a flavor of how we're going to be delivering on a performance for the fourth quarter. It's not a scenario of going to the church and praying. We know exactly what we need to do on every item, and we are committed to executing all of those in the fourth quarter. So moving on to Page 10, again, a slide that's very close to my heart. I think it's very important as a ULCC business. We are completely committed to the lowest cost in the industry. If you take your eyes off the cost base, then the business model is compromised. We've done a very good job. Q3, you can see, we always tend to utilization always comes down in the third quarter because of the seasonality. That's when you tend to do more of the maintenance. So you always expect to see a slightly higher cash performance in the, in the third quarter, but that number needs to be coming down. So we'll be delivering on the minus 1% for the full year. What you can see is there has been quite a sharp jump on the fuel, so from 0.94to1.15. Moving on to the next slide. I think we've been talking, talking up the A321 neos for a couple of years now. There are four things to highlight here. It's a bigger aircraft. The price that we've secured on this aircraft is industry leading. We were part of the $50,000,000,000 deal, 18 months or so ago. The engine is the most fuel efficient engine on the market and has the potential to deliver even better fuel performance than other engines on the market. And we have an investment grade financing. So all these four things, we're going to start seeing the benefit from this quarter. So it was very pleasing we can finally say that the neos are going to be entering the fleet in the fourth quarter. Going into next year, so this this calendar year will be taking 10. Those are already very well advanced on the financing side. We can talk about ownership costs and financing maybe in Q And A, but this is a very exciting aircraft. Next year, we'll be giving back 3320 COs. The difference between an A320 CO and an A321neo is a 20% lower unit cost aircraft. I mean, it's unbeatable on the market for narrow bodies and short haul in Europe. Jumping on to page 12, just to give you a trend set on the ancillaries, as highlighted in Q3, we were up EUR 1.7 per PAX. The answer, the cabin bag policy change took place on 7th November. So we saw a very strong performance from then. Q4 will be the 1st quarter where you'll see the full impact of that. And we're seeing a very strong performance. Joseph highlighted probably slightly higher than we anticipated. I wouldn't get too carried away. That tends to be cannibalization. So whilst we are seeing a very strong performance in the fourth quarter on ancillaries, it just means that we can lower our fares a little bit more and stimulate even more traffic. So I think the ancillaries certainly for the next 9 months is looking very, very promising. What I would also flag when you drill into where that performance is coming from The product mix is changing slightly. So but we are seeing, more than per Pax coming from the Wizzgo, so the bundle packages. We are seeing more than €1 coming from the priority boarding. Again, there is a baggage related element to that. But we're also seeing strong performance in the allocated seating, the onboard sales, commissions as our route mix changes with a little bit more leisure you're seeing us benefiting from that. So again, I think a very strong performance from ancillary And hopefully for the next three quarters or so, we'll be reporting very similar to the story. Page 13, we're nearly coming to the ANNOVERA when we got our investment grade, it's set it's put us in a very good stead for when we're financing aircraft. We have a very strong balance sheet. We have nearly 1,300,000,000 of cash and the cash generation is looking very strong and very robust. As we as I mentioned, the aircraft financing for the calendar 2019, is pretty much done and dusted. Coming April, we're starting to look at calendar 2020. And again, we're very excited on the opportunities and what we're seeing in the market. Mean, the depth and the breadth of the aircraft financing market today, is probably one of the best that we've seen. So we're very encouraged going into calendar 2020 for those. Maybe on to the last slide, highlighting some of the small tweaks. So again, as we highlighted in November, fuel CASK we were pointing to around about plus 22%. So we have seen a nice pullback in fuel prices, which will certainly benefit from going into the first half. But on the fourth quarter, we are starting to see some of the benefits coming through. So that's why we're able to drop that down to 19%. But there's inevitably a fuel pass through effect and the nervousness that we have around Brexit on the yields or the caution, I should say, it gives us a little bit of caution in terms of the RASK. That's also dropped accordingly. But as we've always said, fuel prices always tend to flow through the revenue environment. We've talked about the ex fuel CASK and how we're going to be delivering that, and that really summarizes up to the unchanged guidance. Of between 1,000,000 and 1,000,000 for the full year ended 31st March. And with that, maybe we'll open up for Q and Thank you. 0 and then one on your phone keypad now in order to enter the queue. And then after I announce you, just ask that question. And if you find that question, has been answered. Before it's your turn to speak, just press 0 and then 2 to cancel. And as we have a lot of questions today, can I please ask you to limit yourself to one question? And then you can always go back into the queue. And our first question is over to the line of Jared Castle at UBS. Please go ahead. Your line is now Thanks. Good morning, gentlemen. If you could, could you just give a bit of color in terms of some of your main markets in terms of performance and any early indications of how the summer bookings are looking? Okay. Maybe I should do that. So I think first of all, we need to differentiate between Central East Europe and Western Europe Central East Europe is still high GDP growth. I mean, some of the countries reported 4%, 5% GDP growth and expectations of of similarly high rates going forward into 2019. Obviously, that GDP performance creates significant underlying consumer demand in the marketplace for discretionary spending like, like Trevor. So we are, I think, enjoying the benefits of very robust consumer markets in sentiments. Secondly, we are seeing a capacity airline capacity growth moderating in Central Eastern compared to previous years. In previous years, we saw airline capacity rising double digit certainly and now we are more, into mid single digit territory what we are seeing at the moment. Now I would caution you to jump in to be conclusions on that because airlines may may just be launching a further capacity in the region. But clearly, I think, I think that is a trend of more capacity discipline, playing into the markets now across the board. I think that does the same for Central Eastern Europe and Western Europe too, but clearly, we would be benefiting from more, more benign, competitive environment in Central Eastern Europe with Des regard. Also, let's not forget that, Easter this time around falls into the new financial year. It will be at the end of April. So it will always a booster of of demand, for flying. The one uncertainty we are seeing is it on Brexit? I mean, simply we don't, we can't predict at the moment how consumers will behave, how they will book, I mean, there has been a lot of buzz in the media, whether airlines will be able to fly or not and how Brexit is going to play out soft or hard, much or not much or ever or never. So all these uncertainties, I think, are affecting the behaviors of customers But once certain is created, whatever it is, but it becomes certain, I think people will start measuring themselves against the the new terms and we'll start acting. The good news is that people's memory tends to be pretty short. So, issues can be recovered very, very quickly. That's why we are a little hesitant on the guidance, you know, very exactly to, to guide the market with regard to where we would be landing because of this uncertainty. But other than that, I think we are the markets are robust. We, you know, we are upbeat about the opportunities, as you can see, we'll continue to grow the business. We are planning on 15% capacity growth in, in fiscal 2020. And we are certainly seeing a number of factors positively affecting the cost performance of the business. And we're seeing that the demand side of the business is robust too. And when I look at forward bookings, obviously, we have very limited visibility yet, but so far so good. Okay. Thanks very much. We are now over to Mark Simpson at Goodbody. Please go ahead. Your line is now open. Yeah. Morning. Just want to, ask about the utilization rates. Obviously, that was a 6.6% decline seen in the Q3. I'm just wondering how do you think that will work through in Q4? And following on from that, if that's not gonna be improved substantially, how are you gonna actually deliver that 11% Exville unit cost decline, which is implied by your FY19 guidance. Morning, Mark. I would think it's fair to say that the utilization is going to be at a similar level going into 4th quarter. And again, if you think about airlines tend to lose money in November 1st 2 weeks of December, January and February tend to be loss making. So again, in a higher fuel price environment, it makes no sense to just grow faster. What we tend to see is that if you make a lot of money in the third quarter, you can invest that in the fourth quarter. So the traditional pattern tends to be profit Q3 last Q4. What you're seeing now is breakeven issue in Q3. And again, that's the sort of level we're going to be looking for into Q4. So the utilization to your question will be of a similar sort of magnitude. Getting it back up, I think, is fairly straightforward. We have adjusted the capacity schedule. Easter, clearly, we're going to be looking to be flying as much as we possibly can in April. And because that schedule is more normalized, and again, if you think back to this time last year, we were saying we're going to take 17 aircraft in 17 weeks. That's a lot of pressure on the business and also that can impact on utilization. So having a more normalized schedule of a couple of months means that you're not putting that pressure. So we're absolutely convinced that we'll be able to get our utilization back up to the normal levels certainly from April onwards. But for Q4, it'll be the same thing. Onto your question, I can just repeat what we were talking about earlier. I mean, yes, there is a lot of things we need to do. We have a strong track record of delivering a strong ex fuel CASK performance. A number of initiatives that were being planned for the third quarter will now materialize in the 4th quarter. So there does tend to be always a fairly heavy back loaded effort. These are initiatives that we've been doing throughout the entire year. They do tend to happen in the fourth quarter. So as I've highlighted, there's the business as usual. These are all pretty much business as usual, whether it's improvement on the crew side of the equation, the airports, I mean, these are contractually linked and recently, we announced a deal to Scorpio. So there was some support for that. So you can see that there's a lot in the pipeline and we're convinced that we're certainly going to be able to deliver definitely a negative performance. But the challenge is minus 1 and that's what we're we're setting ourselves out to do. And just following on from that, can you give us the phasing of the A321neo delivers in the FY Twenty? So we're taking 2 in March and then there'll be there's 10 for the full year, exactly. So there's 10 for the full year. In terms of the phasing you're seeing, I think it's 3 at the beginning of summer and then a couple of the back end. Well, I mean, that's the other thing, which which is changing significantly versus fiscal 2019 that fiscal 2019, we were loading all the new capacity and aircraft delivery program prior summer. So we had this scheme of 17 aircraft over 17 weeks. We won't have that going into fiscal 2020. It's going to be a more spread a spread over, act of induction, which obviously will ease the, the labor side of the, of the equation. And, you know, we're going to be able to trim costs in the system substantially compared to what we had to go through in fiscal 2019. But you know, the program is now settled with AirBoss. You record that this is a renegotiated delivery platform. Recognizing the industry issues of OEMs, including Airbus. And we believe that we got Airbus's skin in the game sufficiently that, they will better deliver or if they fail to deliver, if you come with, with significant financial penalty, on them. So I think from our perspective, we're going to be covered, but obviously we have an interest to get the aircraft and deploy the capacity as opposed to get the money but financially speaking, I think we are pretty well covered with this in fiscal 2020. I mean, in terms of specific numbers, Q4, we're taking 6 units. So we've got 106, and we're going to be ending up 100 and 12. So another 6 units in Q4, of which Tuniu's And in Q1, we're taking 5 additional units. So to Joseph Point, I think we've allowed ourselves a lot more capacity to be able to take those aircraft. So certainly, And I think the key thing there is in terms of the crew and the recruitment process as well. We used to be training and recruiting with about 3 to 4 months lead time. When you're taking so many aircraft, that's being pushed up to 8 months. So one of the reasons why we've seen inflation on the crew, which will not happen going into fiscal 2020 is that we have a much more normalized delivery schedule. That's great. Very helpful. Thanks. Societe Generale and Michael Kuhn. Please go ahead. Your line is now open. Good morning. One question also keep in mind that the neos are now more and more coming. You mentioned you're encouraged by the current state of the Finance financing market, what is your latest view on buying versus leasing and what do you have in mind for fiscal 2020 in that context? Thank you. Hi, Michael. I think It's important to reflect that IFRS 16 treats them both the same. So whether you lease or whether you buy essentially you're treating them the same on your balance sheet. So it's sort of a little bit of an academic question. The question then is, is which who's charging you more, a bank or the capital markets or the lessor. So when we look at financing, it's essentially now we can look at an apples and apples and say, right, which which, financier is charging as the lowest possible rate. As we look today, when you and also the benefit when you look at leasing is that you're essentially locking your leases in for between 9 11 years. So with a, with a sort of a risk management hat on, the ability to lock in 11 year money at rates that are historic lows and pretty close to what you could issue for 5 year bond money, the leasing market is incredibly compelling. So if you were to ask me a year ago when we got investment grade and we say, right, where's the last piece of the jigsaw where we really need to lower our unit cost its ownership? So if you were to ask me a year ago, I would have said the bond market would have been a fairly compelling proposition. But when you compare that to a lot of money that's still available in the leasing market, it's incredibly compelling. I think what's also very important is when you when you look out for our delivery schedule, there will be a couple of years where once you take into account the lease returns, we're going to be taking per year. So I think it's very important to maintain. For us, we want to maintain and we will maintain an investment grade balance sheet. So if we're seeing today really compelling pricing from the leasing market, then that's what we're going to be continuing to do. But that said, we'll have to decide when we come to the decision, so we're now pretty much financed for this calendar year going into next calendar year, we'll look at all the options and we'll make the decision pretty much on the day. To finance. Okay, great. And just one quick follow-up. And just as a reminder, what did you guide last year on the profit contribution of Easter? It depends where there's always a couple of days. So we have a couple of Easter, the Orthodox and the sort of the normal Easter. And there could be a couple of days on that. $15,000,000 tends to be around about full Easter. Okay, great. Thank you. We are now over to Damien Brewer at RBC Capital Markets. Please go ahead. Your line is now open. Yeah, good morning. And thank you for taking the question. Could I follow or return back to your previous team? I'm still just a little bit mystified by your ex fuel CAS guidance. And in particular, if one kept the staff marketing lease D and A costs flat, quarter on quarter, the maintenance costs fell to a level about 2 years ago. That implies the airport and route charge costs have to fall something 26% year on year in Q4. So clearly there's something in there I'm still missing, but could you maybe elaborate a little bit more on what some of the moving parts are more pleased? Yes, we have a number of transactions, falling into Q3 for, with regard to, to heads up, and entry transactions, and the business will benefit from those transactions and they happen to happen in Q4. It is just by accident. I mean, it's simply because of the the delivery program what we have. But this is normal course of business. So we've had that before and, we'll have it in the future as well. But this time around, it seems that it's just concentrating in 1 quarter. Okay. So how sizeable are those? A third the way through Q4. So I assume you've got relative good visibility on this. I mean, we don't we don't guide to that. I mean, there are a number of mean, the focus should be on the business. The focus is all about the airport CASK is going to be a very strong performance. I mean, on route charges, we can certainly say that the euro control charges are down significantly. From January. So I would see a significant reduction on the en route charge and navigation charges. That's on top of, as I highlighted the airport charge. But in terms of the just to give you a flavor, we with the CO technology, we have we've sold 1 or 2 engines in previous years. So you'll have seen that last year. You'll have seen it the year before. They tend to happen around about July and this time they're going to be happening around about, in, in Q4. So if you want to go back and have a look at sort of maybe on the cash flow statement for the second quarter, that's something, something you might want to look I think on the whole, you know, this is just business as usual. Okay. Thank you. Maybe I'll have to revert to it offline. Thank you. Okay. So we're now over to Newman Securities and Catherine Leonard. Please go ahead. Hi, good morning guys. I'm just following up on the financing point on the aircraft. Just I'm just wondering if you were able to a bit more guidance on what you expect the CASK on aircraft rentals to do given that favorable leasing terms that you're getting. And then following on from that, same question, but, what are you gonna do with the cash that you've accrued given that, you know, previously you were looking at ownership? That's now not the case. What might you do with that? Well, I think let's start with the last question. I mean, it's not a good use of Shell funds to use all of that cash to buy aircraft. So if you buy aircraft, yes, you would put probably 20, 25 percent of the company's cash and the shareholders' cash. Into it. And the rest of it would be off on balance sheet debt, whether it's a biological debt or whether it's, you know, capital market debt So I think the important thing is that we need to maintain a very strong balance sheet, in order to maintain that investment grade and the investment grade itself essentially drive significant cost savings, not only through the aircraft financing, but through other line items, when you go and speak to a supplier with an investment grade, rating, you can considerably improve your terms. Financial terms, but also maybe some restricted terms, you know, holdback terms, you don't have those of terms, you don't have those. So I think maintaining, maintaining an investment grade balance sheet is absolutely critical. And again, I think let's reflect on it in 2 years from now, you can see after the fleet delivery schedule in 2022, we're going to be delivering quite a number of aircraft back to we're going to be taking an incremental unit of 33 units. So, we need to make sure that we maintain a very strong balance sheet to be able to finance those. And therefore, when you go to a financier with investment grade balance sheet that you can essentially get the best possible pricing. So today, the leasing market certainly helps from that perspective. In terms of we're not guiding on the CASK performance for fiscal 2020, the aircraft and that's something we'll we'll keep keep until May. Okay. Thank you. Okay. So we're now over HSBC and Andrew Lobbenberg. Please go ahead. Can I ask in in the past, you've said that, you don't wanna go buy any airlines, but you'd be interested perhaps in buying assets, I think? That might come available as the industry restructures. So, how do you see opportunities lying there at the moment. And then slightly in slightly related to that, indigo are in talk to, invest into Wow. Do you see opportunities to collaborate with those guys? Is there any relevance Indigo considers having a second broadly defined European low cost business? Let me start it while But I mean, Indigo is a private equity investment firm with their own objectives and own strategies. They happen to be an investor in in bizarre, but what we are not related to, through discussions between Indigo and Wau, and I don't think actually that, transaction has been confirmed yet. But this is a business of indigo. This is not a business of this. We are not involved. We are not looking at it. With regard to consolidation, I continue to believe that the European market will have to consolidate and we'll continue to consolidate and we're going to be kind of open minded to look at the opportunities arising from that consolidation process. Nevertheless, our core strategy is to continue to grow the business organically. We have become the lowest of producer in the industry. Reoperate from markets in Central Eastern Europe and Central Eastern Europe gives us the growth opportunities we need organically. I mean clearly we are seeing that you know, we can deploy 15% even 20% certain times capacity, to continue to stimulate in Centricio. So we remain on that on that solid rate. As we have said previously, we are not This is very interested in buying businesses. We are not necessarily interested in getting involved into M And A activities, but we are certainly interested in capturing market opportunities arising from a consolidation airline traders like we did in the UK when Monarch went down, we acquired some assets from Monarch and we translated those assets on our operating platform and we operated it under the Wizz operations and Wizz brand. But these matters tend to be opportunistic. We are not planning on it, but if they happen, we would we would look at them and we will form a view whether or not we want to do anything that, but please don't expect us to start chasing M and A opportunities going forward, we remain a very focused business focused on organic growth, focused on further expanding our operating platform under this franchise. Okay. So now we go to Avi and Ross Harvey. Please go ahead. Your line is now open. Hi there. Thanks for taking my question. I'm just wondering about ex fuel CASK for FY Twenty. I mean, clearly, you won't go into, guidance, but when we look at a couple of the drivers, there's a lot of encouragement from higher utilization, strong capacity growth, the A320 mix of the fleets, even the comps are benefit from the Wiz UK startup costs, salaries, disruptions, etcetera. Is there anything for us to consider from the perspective of major maintenance events, or anything else flag the way you should consider when we're beginning to lock that FY2020 figure? Thanks. No, I think you've pretty much nailed it on there. I mean, looking at ex fuel CASK going into next year, I think we should be able to deliver a pretty good performance. There's 3 aircraft going back to lessors. When you get an aircraft back into condition, you can be talking to the tune of $750,000 a $1000 to get the aircraft back into condition. So that's something that you'll start to see creeping through. But in the grand scheme of things, the A321neo has an extra nine seats. You should be seeing an improvement coming through on that. So we're not giving guidance, but there's nothing out there that, that I think we should be signaling now that I can think of. I mean, one thing is worth flagging and this is, I think, to the whole community IFRS 16 will have a significant change to our balance sheet and P and L. And what we'll need to do is we'll once we've pretty much buttoned up fiscal 2019, will come out to the investment community and sort of go walk you through the impact of that. But in terms of the CASK performance per se, there's nothing that I can think of maybe just where in the P and L those line items fall. So leases disappear, as an example, 100% of our aircraft, at least So by definition, you'll see a different depreciation number and interest will come on the face of the P and L. So that's something that I'll need to come out. So we'll have some some teachings with you guys further down the line. Yeah. But if you look at the page 10 of the presentation, I think it's sort of gives you a strong suggestion, what you could or you should expect from this business to deliver with regard to cost per share. So if you look at the fiscal 'thirteen, fiscal 'eighteen period, essentially cost ex fuel, was contained within the range of 2.25 to 2.30, let's say. And I think this is the range you should expect to happen going forward. And A321 rollout and the neo induction will certainly help us create, a tailwind with that regard but we need the tailwind to offset some of the headwinds, like, you know, inflationary pressure here or there, like, like labor, maybe infrastructure cost, but you should expect this business to remain on track be disregard. And it's been consistent over the last 6, 7 years. Okay. We now go to the line of Jacob Syed Syed Hammel at Wood And Company. Please go ahead. Your line is now open. Hi, thanks. Could you please help me understand what options are on the table for the UK shareholders you can eventually exit the the EU in face of the EA ownership rules. And, also, could you, update us on how many shares are held currently by non shareholders and how many shares are held by U. K. Shareholders, please? So in terms of the shareholders, 53% of our ordinary shares are owned by Europeans and of that 53%, 28% so 28% of our issued share capital are UK. In terms of the Brexit question, I think what we've been saying all along is that we have a contingency plan that's in place been robust. And actually, it's the plan that we've had in place since IPO. Our articles allow us to disenfranchise UK shareholders. But in terms of how it's going to play out, I think we have to, we'll just have to see what happens. Yes, I mean, I think we have to be careful here because I'm not sure who in this country is in a position to, to say how Brexit is going to play out exactly. It looks like it's changing, you know, it will be the wind every day So we are not trying to predict the outcome of our Brexit, but what's important from our perspective is that, to have the contingencies in place, to be activated if needed to make sure that we continue to fly the passengers between the EU and and the UK and also certain countries and the UK and make sure that we remain compliant with whatever requirements and ownership and control may come into play and asking people those plans on hand, but we don't know what to activate at this point in time because we just don't know how Brexit is going to play out. So once we learn how Brexit is going to play out, you know, we can we can provide certainty of our actions, how we are going to address that. But I think there is a signal of actions here. So, 1st, the UK has to make up its mind, what to do, align it with the EU or not. And then be left on that. I think one thing you could be rest assured is that we are fully engaged with all the relevant authorities, whether it's the UK CIA whether it's the Hungarian CAA, CAAs of, of the countries that we fly and also the European Commission. So I think to to Joseph's point, we have a contingency plan, but that is in very, very, daily, almost daily dialogue with the relevant authorities. So we'll be able to confirm when Brexit is confirmed. Okay. So before taking a follow-up question from Damien Brewer, RBC Capital Markets, if anyone else has any further questions, Yes, good morning. I just want to follow-up on actually the theme is the last question about Brexit. Given you don't have any visibility in your peers, no one in the UK does. Could you talk a little bit more about, in particular, UK operations, how quickly you can cancel or combine or reject the UK services of Wizz outside the Wizz Air UK operation, in the event of maybe a hard Brexit and a consumer slowdown, Or indeed, if there was some kind of bounce in demand, how quickly you can go back in and layer back in capacity? Okay. Well, first of all, I think we are legally, settled for being able to operate between the UK and other markets for Brexit under any Brexit scenario by having BCPA licensed as a U. K airline and also busy pay, having obtained the route license from the UK government. So operationally speaking, I think we are prepared to, to deal with Brexit in in an event. Now if we have to correct capacity for whatever reasons, it only takes probably 5 seconds to directly split an aircraft in the in the UK and probably takes 2 days to re register the same act of the for visa hungry. So ultimately, the beauty of the airline industry is that you fly aircraft and actually aircraft can depart from one place and land another place whereas you can move capacity very, very quickly. And it is always a capacity discipline, you know, what we tend to play here we look at demand, we look at expected profitability of the marketplace and we adjust capacity accordingly. Do we expect a major shook at this point in time? No, we don't we actually seen the 2 corporation of the airline will remain smooth, post Brexit. And personally, I wouldn't expect a huge market collection on the demand side of the equation following Brexit. I mean, in our UK, has been a very resilient market for reserve. Through 15 years, even if you just look at our recent history in the UK post the Brexit road forward, we are the only airline that has been growing the business 25%, 30% just over the last, 2 years. So, and obviously we do it because the market opportunities you know, give us the profitability about what the business requires. So we remain very, very positive and we remain very upbeat. But of course, we are a national player we're going to be making assessments on the market, but it doesn't take long, to be honest, to adjust capacity. And we went through this exercise in Ukraine when geopolitics affected the business there. Within days, we removed 4 aircraft from the market and reallocated that capacity. Across the balance of the market. So I think that's something what we have done we can do. But personally, I don't expect that to happen here. Okay. Thank you. And can I just check, what's your legal advice that you're receiving in terms of, if there is a demand shock and you had to cancel rights, would you still be on the hook for EU261 if it was done with less than 2 week notice, or or is your legal advice that EU261 wouldn't apply if the UK is not in the Do you have any comments you can add on that? I don't think we can. I mean, Tobias, at the moment, it's CU-two sixty five. That applies. I mean, I have no idea whether EU261 would remain enforced, I mean, we are dealing with the situation as the legislation requires us to to deal with it, but I can't make any further comment on this at this stage. We're now over to Charles Cartlidge at Sloane Robinson. Please go ahead. Your line is now open. Good morning and thanks for the call. Perhaps everyone knows this already, but I'll ask it. Could you give some guidance on your tax rate, Ian, going forward? Thank you. Certainly, I think the tax rates we're guiding is 3% for this year. The normal run rate is around about 6%. One thing I would flag is that as our UK business gets bigger, the tax rate in the UK is more around the 18%. So in terms of guiding, what I would be looking to do is probably add 1% per year as the Wizz UK grows. And where would that sort of level off, do you think? I mean, because again, as you suggest, it depends on your capacity in the UK. The UK is not gonna be the growing to a 100% of capacity. So it will level off before it gets to 18. Well, if you think about we'll have by the end of the year, we'll have 11 aircraft based in Wizz UK on a fleet of 100 and 22. So, you know, do them. So that's essentially 10%. So if the business grows at the same pace, if we grow the Wizz UK business faster, it suggests that we're making more money in the UK, but I would grow the Wizz UK think we've now got sort of the right sort of level. I mean, there are there is no more capacity in Luton, which is one of the reasons why we've been so aggressive in the growth there. So in terms of the UK, I would assume that the UK grows at the same pace as was that hungry. So just very roughly sounds like you might level off the 6. If if, about, you know, 9, 8, 9 standard of your capacity to 18%, and that's all sort of incremental, if you like. That might add sort of 10 to add 2 points, 3 points of your So 6% is an all the run rate. And I think I highlighted in the last results of those So I would add 1% as you go up and that'll you can model the growth rate on what your assumption is on the UK. But in many way, by definition, it won't get up to 18%. Exactly. But it might be, I'm just guessing 8 or 9 because the UK might add two points through points. Yes, I think that's a fair assumption. We'll have to see how the UK performs. Thanks very much. Okay. So now we go back to Jared UBS. Please go ahead again. Your line is open. Thank you. I'm just looking a little bit at, the fuel hedge going into 2020, it's obviously gone up from 35 to 53%. So, just wanna get any views in terms of, any changes the hedging policy and how you're thinking about fuel costs for 2020? Thanks. No, no change to policy. I mean, I think it's proven to be a fairly robust policy. I mean, it works and it's an insurance policy. So there's no change to that. I think we are I would say looking today at fuel prices of $600 per metric done fairly well positioned compared to competitors that may have hedged slightly higher rates, but fuel prices can move quite quickly. So it's the we don't want to throw stones. I think we're fairly well positioned as we're looking into the first half of next year. I think one thing I would flag is carbon is a very unpredictable commodity, when the carbon, the EU ETS scheme was introduced 2013, we were paying around about 1,000,000 on that scheme today. It's the close of 25. So that's pure inflation coming through from the carbon scheme. And the carbon scheme is a bit up in the air, a little bit of the Brexit question as well. The UK came out with a white paper saying that The UK Airlines post Brexit, the price will be fixed at GBP 16 the European Union came out and said that they'll be they won't be issuing any credits to UK Airlines from January as a temporary measure. So, risk managing carbon which is unpredictable at the best of times is a bit challenging. So in terms of fuel, I think that's something that we'll need to keep a close eye on. And if we have any change to policy, we'll communicate it to you all. Okay. We now go back to Maxim Goodbody. Please go ahead. Your line is now open. Yeah, thanks. Couple of things. Just want to, have your thought on, obviously, the 2 big, expansion bases Vienna and Luton in terms of, how the market's responding. To your increased footprint and how you feel the summer marketing campaign is going. And then just on routes, I think you mentioned sort of 55, 60 routes were closed in the Q3. It looks on the day, so you're closer to about 90 routes. Plus in the q 4. Again, I'm just wondering if you could comment around that fact. Okay. So with regard to the performance of Vienna and Luton, let me start with Luton. I think Luton is a slightly different story from from Vienna. So in Luton, we have been building this UK on the basis of the strength of Greece, that has been built up over a decade or more than a decade. If you look at our luton operation, this UK provides probably around 25%, 30% of the total capacity the balance is flown by Visal Hungary. So this UK comps has thought of a logical addition to the, Visal Hungary capacity in Luton it seems to me that Luton is getting maxed out in terms of infrastructure. So, it's been very important for us to try to grab all opportunities we can have from an infrastructure perspective and ramp up your business very, very quickly. Obviously, that required us to, to make investments, but I think those investments work out very well. So we are very pleased with what we have experienced in Luton. So we are spot on totally in line with expectations. And should we have further opportunities to to continue the growth of the business in Luton, I think we would, we would contemplate them for sure, but it looks like the output is becoming congested I think Vienna is a slightly different story. Vienna became, very popular, basically for every single airline in Europe, Vienna used to be a closed market. The airport was protecting the roofline's house and allies monopoly. But they were unable to grow the business in line with European peers. As a result, they changed their commercial strategy and started accommodating new generation airlines like ours on other local carriers. As a result, the market became overheated, but already we are seeing some of the to settle down. I mean, we are seeing some routes, food, capacity caught by other carriers. And I'm pretty sure that further consolidation of capacity will take place throughout the year in 2019. And probably towards the end of the year, you're going to see a more rational capacity game being played in Vienna than what it is today. Now with regard to our position in Vienna, I would make 2 points, one is Vienna comps as a natural extension of our market reach in Central Eastern Europe, the halo effect is certainly benefiting our business in Vienna. I mean, for many of the Czechoslovakian and Hungarian people actually, it's a more logical market than the capital cities. So I think we have a starting brand strength going into Vienna if you try to build on and further exploit. Secondly, with the AC21 operation in Vienna, we are the lowest cost producer in the marketplace. And clearly, the market opening in Vienna is commoditizing the industry, in the market similarly to what has been happening in other places in the whole of Europe. And in commodities, lowest cost will be there and lowest cost will always win. And we are the lowest of producers. So we're seeing that we are well, very strategically to be in the marketplace. But yeah, at the moment, I think it's an overheated market. It's a bit of about a bloodbath, but given that we are the lowest cost producer and we benefit from the, the neighboring markets, I think you are very well positioned to, to emerge as a structural winner in Vienna, and that's what we are speaking to. That's great. And any comment, in terms of what looks to be an accelerated program of route cuts in the Q4 versus Q3? Oh, I think this is totally business as usual, but you know, we look at profitability on the base of actual profitability. So unlike other airlines, who tend to strip out everything and they look at things on the basis of constant life. We think life is dynamic and you need to measure yourself against the life what it is at that point in time. And clearly, the changing cost environment has affected our views on the route profitability. So, obviously, when you have higher fuel cost to deal with your higher labor cost to deal with, the threshold is moving up. And as a result, you know, we have, become, maybe a bit more critical on some of the other routes, how they perform and what expectations we could, we could have but I don't think there is a trend change or anything like that. I think this is business as usual. We just manage the business against different standards, in a higher cost environment. Hey, Mark, I mean, one thing I would always flag maybe on the page 5, it gives you a flavor of the summer. Increasing frequencies really fuels that the demand that we see, traditionally that number is around about 60%, but now it's around about 36%. So I'm joining existing airports is 52%. That sort of gives you a flavor of dynamically how we're changing the network, with the changing fuel environment. I would imagine as time goes by, that will probably normalize back to to the normal sort of levels. Great. Okay. I appreciate that. Okay. We've got a follow-up question from Catherine Leonard at Numis. Please go ahead. Your line is open again. Hi. I'm sorry, just on the Airbus deliveries and the fleet plan you guys are disclosed, that's in line with the fleet plan. You just closed the half ones. It's unchanged, but I just wondered whether you could update whether you are seeing any incremental delays from It's something that's being flagged to us, obviously, recently by one of your peers. And, obviously, it's strong. It's encouraging to you that it's unchanged, but can you just comment on that, please? Okay. But again, we have a renegotiated delivery platform, for aircraft deliveries in 2019. By and large, Airbus is sticking to the new platform. They've got to do this because of the financial penalties involved. But I would say so far so good. I mean, I don't know who you are referring to exactly, but we took a delivery decision to be proactive on the issues and get a new delivery program in place as opposed to just being, a victim of industry issues, by the, by the OEMs. And I think so far so good and no major delays we are suffering as a result. Great. Thank you. Okay. We have a final sorry, it's about to say we've got a final question, which is a follow-up from Andrew Lobbenberg at HSBC. So Andrew, please go ahead with the final question. Oh, hi. I'm just super simple. Are the legal challenges to the bag policy change all set? And then, also, how come are you on, the reliability improvement that you saw in, in the last quarter? Being sustained into the summer as you build the utilization backup, how scared are you about the operational in the summer ahead, because obviously it was a big problem last summer. Yes, I mean, I am not trying to be naive to believe that the European systems ATC will dramatically improve going into fiscal 2019. So my incoming assumption is that I think it's going to be as bad as last year. The difference I think we're going to have is that we will be prepared for that. And we will have contingencies in place in the operating model to deal with the problems. And to recover from the disfunctioning of European ADC that quicker and stronger than last year. You know, we made systemic changes to the, to the operating model. So we are putting up a standby cruise for recovery. We are putting up, firebreaks in the in the schedule. Obviously, that's stretching us a bit because we don't want to compromise that utilization. We want to make sure that we fly the same, same hour. So we are in a very extending the flying program, but with more a recovery slacks in the in the motor. We will have an additional spare aircraft So we'll go from 2 to 3 spare aircraft in summer. So we think internally we are better prepared to deal with the situation, but to be honest, I don't expect the external circumstances to improve dramatically, going into summer 2019. Andrew, maybe just a flag. So in terms of utilization, these 5 breaks, these additional spare aircraft, you're talking around about 1%, 1%, 2% in terms of utilization. And the cost savings associated with the last E261, so if you look at all the E261, the compensation cost it more than benefits by losing around about 0.1.2 hours on utilization in the summer. The other thing I would say this slightly, we haven't talked about is that, again, we, we ramped up with UK and there are a lot of challenges on the whole the ramping up of that, the aircraft registration, the training of those pilots, the outer base flying. So we said that the summer disruptions, probably half of it was the environment and half of it was the challenge we put on ourselves, 17 aircraft and 17 weeks, and with UK. So the self induced issues will not be there. But to Joe's point, we certainly expect the summer to be probably the same, for fiscal summer 2019. So with that, Thanks everybody for spending the time with us and, we'll be back on the line in May with our full year numbers. Thank you. This now concludes today's call. So thank you all very much for attending, and you can now disconnect.