Earnings Call: Q2 2019

Nov 7, 2018

Thanks for coming to this, to this meeting. Believe it or not, we are actually reporting a record quarter record half year in H1. And we believe importantly, that remains a structure winner in the industry. We are operating mostly from Central Eastern Europe, Central Eastern Europe, gives us a disproportional growth opportunity given the GDP growth, and the market stimulus what our business model can can apply in that market context. We are becoming the undisputed cost leader in the industry and we're going to start seeing a significant economic benefits flowing through the new act of delivery program. But we are going to start, in a couple of months. I mean, clearly, we have been encountering increasing fuel cost in the business. And as you can see, we actually have reacted to that by trimming capacity. And also, we have made certain changes to our revenue production and lower dose have implied in an increasing yield for the business going into the second quarter into the second half of the financial year. We went through, I don't think this is only down to this. This is industrial events through a very difficult summer, from an operational standpoint. But now we are seeing operations being normalized and we are certainly back on track to an extent that in October early November, our operational KPIs are now exceeding those of 2017. Our strong balance sheet with investment grade give us success to lower cost capital and we certainly can arrive those benefits, when it comes to aircraft financing and is especially beneficial, going into fiscal 2020, when we will start taking a bunch of A321neo aircraft. But passenger, passenger number is up 20%. Revenue is up 20%. Load factor, up 1%. Actually net profit for the reporting period is up over 1%. I mean, obviously, we are seeing another phase of consolidation in the marketplace resulting from a high fuel prices, which I think is a good thing, especially from a desired perspective. Because all that consolidation in the European airline space is benefiting beside directly or indirectly certainly, it sanctions the USCC business model, and it gives further opportunities for expanding our reach in the market. Nevertheless taking all sectors into account, we are regarding the market, from a previous $310,000,000 to $340,000,000 to $270,000,000 to $300,000,000, maybe a little bit of color to the numbers If we see everything actually manifesting in a way as we are seeing them today, we think we're going to be landing at the upper end of the range. If a perfect storm develops, we maybe push lower than that, but I think the upcoming with a guidance, which we don't want to explain twice to the market. So looking at, the first half, Besai is the number 1 local carrier in San Francisco. We carried close to 19,000,000 passengers, as I said, 20% more than a year before. Our fleet was grown to 100 and 4 aircraft. And we nearly opened 100 new routes in this industry. So we remain very active in the marketplace. We keep innovating the market and we keep bringing new routes, new opportunities to customers to enjoy low fares. Of Biza. Operationally, we delivered a lot of growth in this you may recall that we had a scheme of 17.5 to over 17 weeks. On the one hand, that was a stretchy from an implementation standpoint, but at the same time, that gave a lot of ground, to deliver more capacity to the marketplace. Well, all in all, if you look at the major KPIs, actually the business was very, very intact, very high utilization, increasing load factor, and we maintained, regulatory of flight The one KPI where we suffered severely was punctuality and that was resulting from the difficult operating environment in the summer period. And talking about that, operating environment, you can see that on time performance, dropped significantly, in the summer months, lots of ATC issues, ATC strikes, ATC slot constraints, a lot of congestions and airports. Those were the external factors, but also internally think we were stretching our sales to the 70 9 or 17 weeks concept and also that coincided with the a ramp up of Visa UK, especially from a training product perspective. So that creates an additional layer of distress on the system. And you can look at the cancellation side of the equation. I mean, clearly, the summer was very disrupted And as a result, we suffered long delays and kind of new heights on cancellations. We have been putting a number of actions in place to make sure that we are not falling into the same trap as far as we are concerned or what we can control going into next summer. So we are looking at the schedule design, we are looking at spare capacity to be more capable of recovering from operational disruptions. And certainly, we are aiding this whole development by lowering our gross profile, of the business. Maybe a little color to it. For the second half, we were guiding 18% growth. Now we're going to be taking it down to 14%. And for fiscal 2020, we are looking at a capacity growth of around 15% those who have been following us for a long time, must remember that we have been always guiding the market that we believe that visa is a structural 15% business annually. In better times, we may stretch it to a bigger number, maybe 20% even more. But in worst times, we may take it down to 10% or even lower and we have examples of both in our history. And an underlying principle to growth is that we never grow this business for growth sake we grow this business for financial performance and growth is an output of that process. So I think this is what you are seeing as the environment is getting a little tougher because of higher fuel prices, we are just moderating our growth essentially to fall in line with the structural model and the structural assumptions of the of the model. So with that note, I would hand it over to Trienne who's going to take you through the numbers and the financial performance. So I'll spend a little bit of time just giving you some of the building blocks of our first half numbers. So for the 1st 6 months of the year ended 30th September 2018, and also some of the flavor going forward into the second half. So on Slide 6, as James have highlighted, we actually had a record first half. There's that many airlines, certainly in Europe that can boast a record first half. 20% passenger growth, 20% revenue growth, profits were actually up 1.2% again, I don't think there are many airlines that can boast profits were up in the first half. And in the second quarter, profits were actually up 5%. So we delivered a net profit of 1,000,000. And in terms of the building blocks, so the margin, I'll come onto that in a few later slides. So revenue growth, again, delivering 20 percent passenger growth and maintaining a flattish RASK, I think, is a very good performance at the best of times. You can see the 20% in terms of the revenue. Now that's made up essentially of two pieces. The ancillary, I think we've been signaling for a while. Last year, we changed our bag policy. October last year. So we have been seeing a deterioration of the bags. Actually, we've been seeing a deterioration in the bag revenues for a number of years now for the past 5 years. We've been calling the bottom, but unfortunately, we didn't call it quite, quite low enough. So we changed that bag policy last year, but as you've seen from Preston, we've reintroduced that. So going into the second half, there are going to be 2 positive impacts. Number 1, 1st, the year on year effect will kick in in October because that was when it was changed last year. But secondly, we've reintroduced a similar policy, and for the past 4 weeks of sold, revenue, we've been seeing a very, very positive reaction on the ancillary numbers. Looking at the revenue piece, so the first half, we've seen strong passenger growth. We've seen a stable RASK environment that takes into account increasing load factors by point 8, nearly one percentage point. So we can see that the stimulating model is continuing to work, and we're getting even more people on our seats. Passenger numbers are $18,800,000, up $3,200,000 from the previous year. One thing, and in terms of the negatives, often forgotten is that there's no Easter. So we had a bit of a drag in the first quarter of having no Easter. Going into next year, we'll certainly have the tailwind of the Easter sales currencies, I mean, we never like to look at our numbers on a constant currency basis, but we did have around about a 1 percentage headwind on terms of the sales currencies. Again, we absorb that in our RASK. Moving on to arguably the most important slide, I mean, the structural winner when especially when stimulating a market has to be that airline that delivers seats at the lowest possible costs. And we can claim that we can deliver seats at the industry lowest cost. And what you can see on the blue bar, I think the important message here is Wizz Air has consistently been able to absorb the cost pressures that the business throws at us, whether it's a stronger dollar. If we look back at 2013, the dollar was something around about 1.40 2011 was 150. Today, it's 114. Cruise salary inflation, you're seeing shortage of pilots that's creating inflationary pressures disruption costs, E261 is now going to be around about a 1,000,000 cost for the business. I think what's very important when you look at that blue line with that consistently delivers the lowest unit costs possible on our capacity. And when you layer on the competition, Certainly 5 years ago, we would be saying other European LCCs are delivering costs 35% higher than us. Now they're nearly double and in some cases, nearly treble. So I think from a structural winter basis, our cost base remains very much intact. In terms of the first half negative, high fuel prices, maybe some numbers. In terms of the liquid, what we're seeing on the hedge level is up 22%. We're seeing carbon up 3% However, there is a slightly slightly improved dollar. So you're seeing a little bit of a tailwind on dollar for about 2%. And we take more and more A321s sharp fitter aircraft. So you're seeing a 1% fuel consumption improvement. So when you look at our CASK for the full year, we're saying around about 22% In terms of the disruption costs, those have highlighted the operational challenges faced by all businesses, we incurred 1,000,000. This is double the previous year. Essentially, you're seeing around about another SEK 8,000,000 of incremental costs through disruptions. And cruise salary, I'll come on to the cruise salary, reality is that there was a pilot shortage last year. All airlines had to step up and increase pilot salaries. That was effective from the 1st January. But the challenges and maybe we bid a little bit more than we with the 17 aircraft in 17 weeks. And the opportunity for Wizz UK accelerated when bankrupt last year, we picked up some stands. Was a fantastic opportunity, but of course, that requires crewing and training. So I think when we were hit when I was here in May, we were guiding around about a 7% to 9% CASK increase on the crew as a result of increased training requirements, slightly more expensive pilots in places like Vienna and in the UK, you're seeing probably that number is going to be more towards around about 13%, 14% on a full year number. The positives, we are seeing a slightly weaker dollar, albeit marginally, and we can come onto the aircraft gauge type in the future. Slipping on to Page 9, Really, I think there's only 1 or 2 messages to come out here. If you look at the bottom total CASK essentially is up EUR 0.20 and you look at the fuel, it's up EUR 0.18 We always there's always going to be cost pressures coming from various line items. 1 year we'll invest in airports and other year we'll invest in maintenance. So we always manage our we manage our cost base. So you can see that we've been doing a pretty good job on depreciation. We knew that number was coming down and therefore, we can invest more in airports such as the Viennaes of this world. Aircraft rentals, the dollar has helped that 1. So I think the two pieces coming out of that number of fuel costs, which we've talked about, And then the disruption costs, there's additional disruption costs coming through on the other expenses, but other than that, our cost base remains very much intact. On to Page 10, this is more of what we have coming, a very exciting chart. If you look at, I'm sure you've got your models, you can plugin, we've actually, we toned down our growth rates over the next 1 or 2 years, and you can see that the numbers are actually trading down a little bit. So at the end of, 20, we're 122 aircraft previously would have been 130. So you can run those through your models to see how we are being very disciplined, very active, and that has all been negotiated with, with the manufacturer. I think it's very important when we look at the future. So when we talk about the costs, we have a phenomenally priced aircraft order. That's going to be flowing through the cost base. We have the largest aircraft, 2 thirty nine seat neos coming on board. Essentially, that's, two thirty nine seats, there's around about 32% more seat capacity than A320. And you only need one extra cabin crew. So again, the gauge of the aircraft is going to be delivering significant cost savings. The neo engine, well reported to be burning at least 16% less fuel, hopefully a little bit more once it's fine tuned. With 10 aircraft, 10 neos coming next year, you'll be seeing between 1% to 1.5% lower fuel burn coming through our lines. So in an environment of very high fuel prices, the airlines that are going to succeed, the structural winners of those that are operating the most efficient technology and we have one of the most efficient aircraft orders coming through. And the last piece is the on balance sheet financing. When he drill into our cost base, the one area where we've always been lagging, the competition, basically because we've been on a young company start with cash, is on our ownership costs. And with our investment grade that we got at the beginning of the year, we are seeing some significant improvements on deals If you were to ask me a few months ago, I would have said going to the bond market would have probably been the cheapest form of financing, that's not the case. We've secured or we've got letters in 10 for 10 aircraft coming next year at phenomenal prices. So maybe a bit of flavor on the outlook. I think if you there are two pieces to this, maybe if you look at the top right, the starting point is high fuel prices, how airlines should be reacting in a disciplined way. So you can see that we are slowing the growth down in terms of the ASKs. How does that really look? I mean, the months of the November's and the January's and the February's, you'll be seeing sort of the high single digits, but December, clearly, you have the Christmas period, so you'll be looking to grow as fast as you can. So that's sort of how that's flowing through there. And how does that translate into the yield environment? I've got gross RPS. That doesn't take into account the stage length, so arguably the fare environment. So you're seeing a very strong performance on the fare environment, but with a stage length up about 1.1%, that's how that's flowing through onto the RASK piece. And fundamentally, our market is incredibly robust. We now operate in 44 countries. We are seeing strong GDP growth across CEE, and that is the fundamental driver of our business. We are seeing a recovery that bag revenues, we changed our policy We announced and put on sale, our policy in October, and as of 1st November, those sales, and we've been very pleased with the recovery of those. And that sort of gives us the optimism going forward. Joseph highlights a slower growth. If you slow down your growth, your routes mature faster, and that also flows through. Some of the negatives, again, as I mentioned, there's no Easter traffic in the 4th quarter and the sales currency, a little bit of headwind, but nothing to talk about. So ancillaries has been a hot topic for us. It remains an absolutely critical piece of our business model. I mean, the way you get the low fares into the market, the way you stimulate your tracker is to have the through a traffic is to have the lowest possible base fare. So ancillary for us is absolutely critical. We have been struggling on the bags revenue. I mean, it's a combination of changing consumer behaviors. Also, changing in the type of customers, we're taking more leisure passengers tend to take smaller bags. So over the past 5 years, we have been seeing a gradual reduction on our bags. And as a result, we changed our policy last year, essentially try and stem that flow, and it was a bad decision. Ultimately, what you could see certainly on the right hand side of the chart is that we've been seeing ancillary per passenger, certainly in fourth quarter of last year, Q1 and Q2, really deteriorating. And as a result of changing that policy, essentially announced in October, we're starting to see a dramatic recovery. The good news, I think there's 2 good news. One is the outlook because we have now changed that policy. The year on year effects of the change in policy growth rate. But I would also stress that there is a number of initiatives and a lot of efforts have always been put on the value add. So in the first half, you'll see value adds up EUR 2.7 per pack, which clearly was not enough to absorb the minus EUR 4.6. What does that mean in practice? Essentially, what was happening is we were getting around about EUR 2 per Pax on cabin bags for the previous policy. When we removed that, everybody turned up to the gate with their bags. So we were suffering significantly on the checks in bags, and that was essentially the area that we underestimated. Now that has all changed. And looking forward, you know, the sold revenue since October and certainly the flown revenues from last week are very encouraging. On to the balance sheet, in terms of these numbers, we remain we have an investment grade balance sheet. You can see that our cash remains very healthy at SEK 1,336,000,000. We will in terms of using that cash, we want to maintain an investment grade balance sheet. And I think if you start jeopardizing your investment grade balance sheet, you'll then start jeopardizing your potential cost base. So as a result of the strong balance sheet, we seen significant cost savings already coming through on our aircraft ownership, and that's something we will maintain. So in terms of where we look forward, definitely want to be maintaining or lowering our leverage. And with that, I'll pass over to Joe for some closing comments. Thanks, Ian. Let me just a little bit on the markets. We remain the number of airline, the leading local scheduling center in of we have around 39% of the market there. And in most of the countries we operate from VR, number 1 or number 2, As I mentioned, Central East Europe is a market that continues to deliver significantly higher GDP growth than than best Europe. If you look at it from the standpoint of market penetration, while around half of the population fly in best Europe, it is only 15%, 16% in San Antonio. So that is a long, long way to go in terms of penetrating the other market base. So our business model remains focused on stimulating the marketplace as opposed to trying to get into doc files with other other carriers. And we believe that by being the lowest cost producer in the industry, This is the best way to position yourself for those growth opportunities in the future. In terms of delivering growth, the profile has not really changed. It's been fairly resistant over the last few years. Most of the incremental capacity is deployed and either increasing frequencies on existing routes or joining existing airports in the network. But at the same time, it remains important to the to the company to carry the flag of locals and continue to open up new airports, new countries in the business. We deployed around 7% of our capacity, that way. Maybe just a few words on Wizz Air UK. I think Wizz Air UK is a for Wizz. Wizz Air UK is a new British airline. It just received its operating license from the British government, which is essentially recognizing Visa and UK as a British airline for the purposes of designations. Visa UK is ramping up very quickly. At the moment, it operates a fleet of 7 aircraft, but within a few months, the fleet will grow to 10 aircraft. And as you can see, obviously, with that, employment is also ramping up a few weeks, a couple of weeks ago, we started operating with the UK under its own commercial code, W9 And we continue to believe that the UK is a unique Western European opportunity for this and we want to use this UK as an operating platform for expanding our reach in the marketplace. On the one hand, this is a Brexit contingency, but on the other hand, we think, this UK actually can be a cost relating platform in the UK. And that might be more turbulence coming and we want to make sure that we have a position here in the UK to further expand our business that doesn't mean buying airlines for other business. We are not going to buy any airlines, but we might be acquiring assets, what we can forward into our operating platform. We continue to innovate our operating platform. We had been making a lot of investments. I think we have been talking about this, we have been making a lot of investments into training, crew training, pilot training, cabin crew training, We just started our 5th pilot academic program in Hungary, following Bulgaria, Poland, and Romania. And just a few days ago, we opened up our new simulator standard, center in Budapest. Which gives us training capacity for the next 5 years by placing up to 5 simulators over time. Essentially, enabling us to technically train our entire crew of, obviously, This is a state of the art facility probably the most modern of its kind across the whole of Europe. That Ian was talking about ancillary revenues, ancillary revenues indeed remain crucial to the business. It is well over 40% of our revenue production, and we believe it will keep rising. Bag related revenues, have been in focus in the period. But also, I think we've done pretty well on some of the other revenue streams. Non bank related revenues grew around per passenger. So really the new, coming back policy is giving us the opportunity to close the gap, what we had arising from the previous policy we remain very upbeat about ancillary revenues and this is certainly a strategy we will continue to pursue going forward. At the same time, we remain very, very consumer focused. We are highly technologically driven I think we have been presenting these numbers, broadly speaking, but we continue to innovate our app. We continue to even innovate our website. We continue to innovate our interactions with the consumers. Again, I would just like to remind you that the average age of EBITDA customer is 27. So we are seeing what's coming much more in advance than possibly the other airlines. And as you can see, the new generations of customers are very technology savvy and we need to deal with this population accordingly. And I think that gives us an angle to innovate more and more efficiently, than probably most of our, drivers who are dealing with Cypriot's different profile of customers. So with regard to the guidance, so overall capacity growth is is 17%. This is somewhat down, and that comes on the back of moderating capacity growth in the second half. Of the financial year, taking it down from previously guided 18% to 14%. Load factor continues to enhance. We are expecting around 1 point tries on a load factor. We are obviously seeing fewer cost arising. We are expecting a rise of around 22% ex fuel cost coming down 1%. Again, we will start taking deliveries of the Neo AC21 aircraft in the last quarter of the of the financial year, but we will see more of that benefit flowing through the numbers in fiscal 2020. But again, it would be great to have the net benefit of such initiatives, but also we have inflationary pressure on some of the cost items. So they are certainly good at offsetting those. And at the same time, we've seen that linear access is such a step change in terms of, economic stack of economics that we will see net benefits, across the cost side of the company. Where positively and I think somewhat uniquely, we are seeing rough, going up significantly in the second half reacting to on the one hand, the asset revenue initiatives, but also the capacity discipline we are expecting, 2nd half ROTH going up 7%. So it would give us 3.5% increase over the financial year. So with all that, we have come around on net profit guidance in the range of EUR 270,000,000 to EUR 300,000,000, as I said, 300,000,000 is more what we are seeing, at this point in time, 270 is a disastrous scenario, which we hope won't happen. But I would just reinforce our view that, yes, you are seeing headwind slowing through the numbers here, but I think most of it Most of those headwinds are behind us and we are seeing a set of developing tailwinds going forward on the back of the improved, years prospect of the business, on the back of cost advantages, gained from the AC31 DDV program. And as far as fiscal 2020 is concerned, obviously, we will benefit from the fall of Easter in that period. I think with that, I will turn it over to Okay. Damian Burrow from RBC. Can I ask three questions? First of all, in terms of sort of fuel cost input, what that does to margins and capacity. Western Europe, most airlines do seem to be rational or forced to be rational. Do you think that actually holds for Eastern Europe? There's still a lot of state or quasi state owned or somewhat opaque financed players? Do you think fuel actually makes much different to their aspirations? Or do you think they keep going regardless? And if that is the case, How does that translate into capacity changes and sort of rational pricing to recover fuel? Secondly, Could you talk a little bit more about what you mentioned in the prepared remarks about summer 2019 in particular spare capacity and being more prepared for ATC and other disruption. Can you just talk a little bit more about exactly what you're planning there? And then very finally, because it's a question that keeps popping up with investors. Can you talk a little bit more about the accounting on gains you make on C and C and leaseback in particular? The capitalization of the gains into deferred income and then the release over the lease term of the aircraft. And what impact that made on the H1 numbers, please? Thank you. Maybe I will just start with the first question. How, increasing fuel cost effects the San Antonio sphere of the airline space, taking into account that many of the airlines are state owned and somebody additional I mean, as far as we are concerned, I mean, we don't really care about they are doing. 1st of all, Centrany is usually fragmented, airline space, especially from the perspective of national carriers. So a bunch of small countries, small national carriers. And as said, our focus is not really the market share gain as stealing sort of passengers from them, but it is to stimulate the new market and get people into the franchise of flying. So I think they are fairly unaffected, I would say, by these airlines, probably they are less rational than the private airlines in Western Europe, simply just a different pressure applied on them. But I don't think it largely affects our business, our principal competitor in Central New Zealand with Ryanair. I mean, we have the most capacity overlap with Ryanair. Ryan tends to be a fairly rational airline when it comes to, to managing their profitability and applying capacity likewise, I think we are a restaurant airline and as said, we are reacting to the high fuel price environment by loading our gross and trimming capacity. So I don't think we are greatly reflected by the irrational nature of the, of the incumbents in San Antonio. In terms of some 2019, I think there are a couple of key things. Firstly, with 17 aircrafts in 17 weeks, you're putting a lot of pressure on the organization operation, with Wizz UK and the ramping up of that and training everybody to UK CA requirements, there was a lot of pressure for the team on that. You then add those 2 pressures on top of, slot constrained airports, highly congested airports, and ATC strikes, you sort of had 3 big headwinds. As we look into next year, I think the first thing you can do is that the WIG UK thing is now up and running and going very well. We're not going to be taking 17 aircraft in 17 weeks. We learned that lesson. I think it was great for summer sales. Our commercial team loved it, but our operations team weren't that keen on it. So we'll be looking to say more like 1, 2 aircraft per month. So that certainly adds as a lot less pressure on the organization. ATC, you don't quite know. Now what we have done is we've had a few little firebreaks. So the cost to that is utilization will come down much. But obviously we are a high utilization organization, and we need to make sure that we maintain as high as possible. So there are 5 rigs, so certain, you know, maybe you'll have an hour should break in the, in the day on certain days to make sure that you catch up if there is a strike that's happened. I think it's an assumption we have to go into next year that there will be the same problem. I mean, where people decide they want to strike is where it hurts consumers the most, and that's when it's the same holiday. So the working assumption is that, that will continue next year. But those things that we can do internally that we have done the operationally where we're set up for that, in terms of the spare aircraft capability, there'll probably be another spare aircraft around as well. To be able to absorb any sort of AOGs per strike, so that sort of thing. In terms of the accounting, the gains I think there's 2 answers to this. 1 is going with IFRS 16, everything comes on balance sheet, again, traditionally, is amortized over that aircraft. I can't tell you the number because it's confidential. So if I tell you what gains have been made and divide that by 12, then you can do your math. So we can't tell you that. But the reality that what happens is that you, you know, if you do a very large aircraft order, you get very, very well priced aircraft, you can sell that for a different price. And traditionally that gets amortized over the life, of, of the lease. And that's exactly the same, under IFRS 16 when it comes on. I think there may have been opportunities to date gains in previous years, but with IFRS 16, that's not the case. I think that's all I can answer on that question. Good morning. It's Alex Patterson from Investec. My 3, please. On roosters, could you just say what went wrong or didn't go right, what has caused you to decide to shut that down? Secondly, can you just talk a little bit more about the sort of flexing of the fleet delivery and the spare capacity? Can you give any numbers around that? What what's going to form your decision on that? And then finally, just on ATC, could we be optimistic that we could have over fly over France next summer? Or is there? It's not only the French. I mean, we have equally issues with the Germans. So I think as a system, ATC is not a cintact as it used to be. Mean, certainly, I think European traffic has just grown to an extent that, ATC was unprepared to deal with that, with the traffic. And I also think that they need to implement systemic changes in terms of separation, that's rooting and all those sort of things. To make sure that they actually can accommodate the growth of the industry. I know that they are working on it. Actually, they are in touch with ATC and they are recognizing high level meetings with ATC to try to put pressure on them on the one hand, but also to try to have them in a way, you know, how to move the direction of that business development. But I don't think that is a guarantee that next year there's going to be any better than the than the previous one. But I think at least now they are recognizing that systemic changes are required to cope with the challenges. Back to these stores. Well, I would say that in a way, I'm actually quite happy to fare on on these tools because I think it kind of signals that we have entrepreneur spirit in the company and we are prepared to keep stretching our own boundaries and we are prepared to to take risks on certain business propositions. I think what it comes with is that some ideas work out and some ideas don't work out. And we set up these tools as a very low risk proposition essentially just bundling up, airline fares with with hotel rooms. Simply we just couldn't push it to the margin, but we are able to achieve on the airline. And certainly structurally we don't want to destroy shareholder value. And we realized that in order to try to achieve the margin level, what the airline can deliver, we would need to change the risk profile of the business fundamentally, I. E, we would need to acquire inventory ourselves and manage that inventory ourselves. And simply, they are just not in that business. And, you know, we lost a few millions. I mean, we didn't lose a lot of money and we probably lost now 4,000,000 You know us on this, I mean, in the magnitude of the vaccines, I mean, this is pretty much nothing. And simply, we are just refocusing our sales on the core business and look at the next idea. So I think that's the stores. With regard to the, to the flexibility surrounding the fleet, We have signed 5 purchase agreements with Airbus, so far, and we have amended those agreements, I think fifty times, at least. I think it just shows sort of the relationship between the manufacturer and the operator that you know, there is inherent flexibility in the relationship to adjust free deliveries according to demand, according to our industrial issues, I mean, clearly what you are seeing is that both Boeing and Airbus have, sold more aircraft than what actually they can deliver in 2019, 2020. They need to go back to the, to the operating industry and renegotiate the deliveries. I think we did that And the new delivery stream, what we have is, is pretty firm. Certainly, it gets, more skin available in the game. So they better deliver. And we feel that, that that's better for us having somewhat less capacity on the one hand, but it's more certain capacity than running the risk of better or not, we're going to get delivered Also, when we were ordering the aircraft, actually that was not a well ironed, well aligned delivery stream versus our demand. So it peaked up and dropped down. So basically, what we are doing is that we are ironing out the delivery stream So we are getting around 15% growth each year, from that deliveries team. So actually, we feel quite good about the outcome of that process. One final comment with Wizz tools. Essentially, we were looking for Wizz tools to make about a 1,000,000 this year. And I think the additional 4 is going to come essentially from closing that business down, writing off some IT systems. Now we could have let it online support until April, are not booked it, but that's not the right thing for the business. So when you look at the numbers of forecast, our forecast assuming there will be a plus 1, but actually we're delivering a minus 5. So that should another another factor when you look at the numbers and the building blocks of this year and going into next year, we won't have that, that drag on our profitability. Hi, good morning. It's Ashik Kumar please. Just a couple more questions around the capacity growth and the decisions you made with Airbus around the delivery schedule. If you're taking 8 less aircraft next year, you maybe just help us think about what that means for the unit cost trajectory next year? Because obviously a lot of those aircraft or maybe all of those aircraftware neos and therefore more efficient on fuel and on gauge. Is there a scenario also whereby you cut the total order book? Is there any scenario in which that happens or is it simply just a case of moving things around if the environment changes over the next few years? And then just a final question on growth, it looks like in the presentation, you skewed the mix a little bit more towards the kind of existing airports, existing routes in the first half. As you think about the 15% growth next year, can we assume this sort of stays around that 90% mark on kind of the material part of the network and where the new growth comes from if there is new growth? Let me, I'll take the cost question. I mean, I think if you so this year, we're going to be taking 2 neos, so this is fiscal 19, that represents 0.1% of our capacity. So there's no real it doesn't move the needle for this year. I mean going into next year, I think the important thing with the neos is that there it's a 20% lower unit cost versus, versus the CEOs. And when you take into account the ownership costs on top of it's fairly significant. Certainly next year, we will be looking to be having a negative, somewhere there's minus 1 or minus 2 in terms of our ex fuel CASK. The fuel casket itself will be lower fuel burn. You'll be losing, burning about 1.5% less. We're not giving guidance yet, but I think the reality is that we put in a phenomenally priced aircraft order. We're going to refinance them already or the letters of intent have been signed for for normally financed aircraft. You have the seat count. So you can certainly expecting to see a negative number. The magnitude of that obviously will be firming up on communicating. But 8 extra aircraft, yes, it would have been a slightly better number, but Also, I think some of those aircraft were skewed towards the back end of the year. So the summer performance isn't really going to be affected that much. I think I would just want to put that in perspective. I mean, I don't know how much you are into this, but, when you look at the new engines, both as a platinum VPN engine and the end of the deep engine, they are not matured technology yet they bring a lot of childhood diseases to the market and giving a lot of headache and the disruptions to the to the operating airlines. So I think there is a bit of a trade here as well. So on the one hand, you know, the underlying gas of the economics are usually attractive. Especially from our standpoint that we actually have very attractive acquisition cost and financing cost on the aircraft and the and the underlying, whatever, you know, 10%, 15% improved unit cost. But that comes with a lot of operational disruptions and loss of incremental cost to deal with those childhood diseases. So I think there is a bit of a trade and we said that, on the one hand, we are lowering our overall capacity for the reasons we were just explaining that, we are applying capacity simply not rising fuel price, but at the same time, also I think we are to some extent hedging all these operational disruptions. And again, we learned quite a few lessons going through this summer that we better be aware of these disruptions and we better be prepared to deal with them. So I don't think this is necessarily our best thing, what's what's happening to the business. And as I said, I think they're actually quite pleased with the outcome, but no way we are cutting orders. We are not cutting orders here. We're seeing that the, this order book or these order books are very precious, assets of the business and we shall continue, right, on this on these arrangements. With regard to, to the airport mix, I think it's just the way it comes around. Should we be seeing new airport opportunities at attractive, commercial terms. I think we would be certainly considering those. So I don't think that we have an objective of I don't know, deploying 90 percent of our capacity across existing airports and the only 10% new airports. I think that was the way it works out, but certainly as in the way it works out is is very safe from the perspective of delivering growth. But at the same time, we remain totally open minded to to keep carrying the flag of locals and bring capacity to the new airports, should those airport opportunities arise But recently, we don't see a lot of them. I mean, we have a lot of discussions, but we don't see a lot of them actually happening. I think it's fair to say that the vast majority of our group will be continue to be in our existing network. So I think if you look at this chart that we presented for many years, it's around about 90% on the existing network. The new destination country, that's pretty much Austria, Austria, and, Estonia. So new destination countries given that there are very few white spot on the mat. That tends to come and go, but the reality is the vast majority of it will be in box number 1, number 2. Hi. It's Sandra Lobbenberg from HSBC. Can I just state on the aircraft story and the change in the order book? To what extent is this you trying to display capacity discipline in Gunku Airport asking for fewer planes and to what extent is it them not being able to build them and coming to you? And to that end, the planes that you have got scheduled to come, this and more particularly next financial year, are you have them, are you, that they will actually come? And then can I ask about the Western Europe to Western Europe flying out of Vienna, but also out of Luton? How profitable is that proving? If your network average is 100, how as well as this Western Europe, Western Europe flying and where are you going with that strategically? And then my final question would return to my my evergreen hobby of a Brexit. Where are you on your ownership structure of EU? Excluding the UK? And what are your contingency plans if it proves necessary to maintain that above 50%. Thanks. Okay. With regard to aircraft, yeah, I mean, essentially Airbus has to deal with, their own problems of, overselling their order book and not being able to deal with that order book but at the same time, we also have an interest in making sure that we only take adequate capacity but the business can profitably deploy. So I think that's in a very true interest. And, you might have missed that part of the presentation, but actually, what we made sure is that Air Force's skin is in the game heavily, to deliver the, the new delivery agreement for calendar year 2019 early 2020. So I think they have a vested interest in delivering, but they are committed to, if not, this is going to cost them a lot of money. So I think this is fairly fixed. I mean, Hopefully, I mean, we are not the derivative of the aircraft. I mean, they deliver the aircraft, but I think they will get that delivered. Western Europe to Western Europe, I think it's pretty much the same as, you know, flying Central Eastern Europe otherwise we wouldn't be doing it. I mean, why would we be eroding our profitability in Bastilo just just for the sake of flying Western Europe. So you can assume that we are applying the same discipline and the same retail expectations on Western European flying. The strategy remains on Central East Europe. I think we have said that fairly clearly that Western Europe is more of an opportunistic way of building the business for Visa as opposed to having a strategic plan, how to concur best in a row. So we don't have that strategic plan. But at the same time, if you look at it, let's say, Luton, I mean, we are in the UK, we felt that, that the monarch failure, actually put an opportunity on the table, which we should be considering and we consider that opportunity to acquire certain assets from Monarch and before the those assets from our operating platform. And as a result, we were expanding our in in Luton. And that manifested in the end in the establishment and the gross up is that, okay, is this the right thing for the company? What we can do, it is absolutely, it is delivering the profitability, it is delivering the profitability, but the corporate average is dividend. Yes, it does. So I think so far so good, but we are not going to blow our mind on on Western Europe. So we will remain very measured on Western Europe, and the core focus will remain on Sanfontein Europe. With regard to Brexit, I mean, we are not different from Easyjet, Ryanair, and IAG. I mean, we are looking at the same things where those guys are looking at. They are looking at the same issues with regard to market access. They are looking at the same ownership and control matters. About what they are looking at. So I don't think there is anything unique to this, with this regard, Again, I mean, I don't think Brexit is yet something you can really act on. You can certainly plan on contingencies, and we have been planning contingencies, and we have been looking at ownership and control. I think this is going to be the key point. I mean, we are more comfortable with market access. I think we are seeing, measures falling in place, and rights we are obtaining that, that will secure our our ability to, to operate between the UK and Europe and even between the UK and certain countries on the running scenarios of Brexit. So the real question remains on ownership and control. And I can tell you that we are looking at the very same things, what the other guys are. Are looking at Can I just quickly follow-up on tax? Because obviously for this financial year, the effective tax rate 3% is a helpful development. As we look into next year and we're going to have I don't know, 10% of the operation with UK or a bit less than that. And you just told us it's going to operate at network profitability. So what does that mean for the corporate tax rate, which in the UK is well above 3% or 6? Yes. So the UK business is taxed in the UK, the rest of the business is taxed in in Switzerland. So the UK would be taxed on the UK corporate tax rate. I think on the on the Q1 call, I think I highlighted Andrew that the tax rate will be trending towards 10% as a result of that. If it's higher, then it means we're making more money in the UK. Is a good thing. It's Catherine Nanard from Numis Securities. Just a couple if that's okay. Are you just able to say how much what your percentage sold is for Q3 and Q4 just thinking about those trends on RAS that you've reported this morning? And are you able to quantify what the impact of Easter is that you're obviously exceeding? And then just on the leasing costs and, ownership. Obviously, you've alluded to, well, you said in the statement this morning that the 10 A321s coming through a 30% discount on leasing rates. And you're talking about the great deal you guys have there by you just give us some kind of feel on where that leasing cost will trend over time in terms of aircraft rentals as an extra 5 years as the A321s ramp up and the neos? And then lastly, can you guys just confirm the portion of your leases that are currently on floating rate and where that might trend to as well? So I'll start with the last one. So we have around about 10% of our operating leases are floating. I think that was a question you're asking. I think when we look at the lease, lease, basically what I would the way I would look at it is in terms of the embedded financing IFRS 16 sort of distorts all of this lease rates or the lease line disappears from the face of the P and L. So if you're looking to try a model going forward, I would look at the embedded financing charge because that's the best way to look at it. As we've said, the older leases that we've got on our books are around about 6%. The more recent ones, 2.5% to 3%. If we issued a bond today, we'd be getting for 5 year money around about 1.5%. Yield, maybe $70,000,000 of money around about 1.9%, maybe a touch better. The LOIs that we've secured for the 10 aircraft are not with bonds and that tells you that we've been given pricing, which is even better than that. If someone wants to pay us offer us financing that we don't quite understand, then I'm quite happy to take that. So in terms of, I would look at it in that perspective. So when you're trying to model it, just compare the 2.5% of the existing or the older CO leases versus something considerably better than that, that sort of gives you the magnitude of the number I think you were referring to. I'm sorry, what were the other questions? The Q3, Q4 sales. Essentially, I would say we're just slightly ahead in terms of load factor. So the loads are, and this is what we're guiding. The loads are probably a 1% ahead, but we're generally traditionally done with about 6 weeks of forward bookings. So essentially November, you're looking at 75%, December, you're looking around about 35%, and then you're probably, you know, tripling into about 15%. And then what I would flag is the growth rates that we're seeing in the January February, you can pretty much derive how that trend is going to continue. Are there any questions Thank you. And our first question comes from the line of Mark Simpson. I just wanted to touch on the network effect? Because if you look at the winter season and I'm talking November to March, 60% of your ASK growth, is accounted for by that Western Europe to Western Europe and Western Europe to Middle East. So What I'm wondering on the RASK front, how much of your proposed RASK increases mix and how much is like for like price increase. And then the same thing with that exposure, increased exposure to Western Europe, you've guided minus 1% for ex fuel CASK for the year, that implies you're going to have to hit 3.3% CASK ex fuel CASK decline in the second half. I'm just wondering how you're achieving that. What are the key lines we should be looking at for what's a significant improvement in what is obviously a quarter period in a at a time when you're kind of more exposed, you would have thought a higher cost market. So I wonder if you could square that those 2 circles? And then finally, lease rates, as you've highlighted, are extremely attractive does that change your thinking in terms of, obviously, timing of acquisition of the neos, which was very much, I think, part of the perceived plan that you removed from at least to a purchase policy as the neos became available? Let me start with the, the network effect. I don't think Western Europe moves the diary with that regard. So when you are looking at the, the unit revenue increase, it comes from 2 angles. 1 is, is essentially the bank revenue, what we are earning and enhancement of that revenue stream. And the other is the overall fare increase on tickets. And asking that correlates and corresponds with the, with the capacity TRIM, what we have put in place. I mean, as I say, the share of Western Europe is fairly marginal in India, in the total and to be honest, I wouldn't say the 1st is particularly higher yielding business than our central Eastern European business. Now, so it is not down to the network mix if it is shifted down to the capacity receipt in one hand and the ancillary enhancement on the, on the other. I think you're right. I mean, traditionally, if you look back, Q4 always tends to be the quarter where we turn the screws. In terms of specifics, the delivery schedule that Joseph referred to, there'll be 2 aircraft that when we're dialing down the capacity in the fourth quarter, it doesn't mean the aircraft is sitting on the Tarmac. There are a couple of aircraft that will enter the fleet towards the back end of Q4. So in terms of the lease line, you're seeing a little bit of upside on that. Dollar is still a little bit favorable, so that's going to be coming coming through. If you look at and sort of dial down again on the fleet and maybe the redeliveries, then the maintenance line is also benefiting. So a little bit coming through on the maintenance line. And, I would say fingers crossed on disruptions when we have seen a significant improvement as a result of these actions, you have more capacity coming through. So the other cost items, one would hope that that number is going to be also significantly better. So I think if you sort of add all of those together, your fingers crossed a little bit for de icing. Let's see what happens there. But generally speaking, Q4 traditionally, we've got a pretty good track record of turning the screws and making sure we deliver those numbers. Onto the lease rates, a combination of 2 things. 1, I mean, yes, we have a phenomenally priced aircraft, So that will flow through to the lease rate factors, but the investment grade balance sheet, I think, is actually also the biggest driver and it's great to go to less awards and their credit. And I say, well, we don't really need to too much work because the work's already been done by the rating agencies. So the investment grade, the combination of the investment grade balance sheet, again, which is why it's very important to keep that fortress actually, but also, the, you know, the very well priced aircraft. And if you think about the industry, there's a lot of lessors out there, a lot of finance out there. Chasing pretty good aircraft. And we've just talked about the availability of aircraft on the manufacturers, and so therefore, those that have the aircraft, are in demand. So a combination of all of those mark is why we're seeing very good rates. And in terms of to say your previous assumption about ownership that gets pushed out by kind of 12 to 24 months given the rates that you enjoy? Under IFRS 16, in theory, everything comes on balance sheet. So you're sort of it's sort of apples and apples in terms of which form of financing we keep all our avenues whether it's German financing, French financing, JOLCO Financing, sale and leaseback financing. Today, the sale and leaseback market is incredibly hot in which case, we'll be foolish not to take advantage of that. You don't know what's going to happen next year. So it's keeping our gunpowder dry in terms of actual, you know, bilateral or bond financing is, it's nice to have that in the back pocket. And the next question comes from the line of Ross Harvey. Please go ahead. Your line is now open. Hi, good morning guys. Two questions for me. The first is, I'm just wondering how you think about your mid to long term utilization rates, block our utilization rates, just given the operational considerations of a higher gauge aircraft, maybe different airport mix and potentially some infrastructure issues in Europe, which have been mentioned recently, Builders Airline. And secondly, I'm just wondering how we should think about the underlying labor cost per head inflation in the coming years, assuming some easing disruption. Okay. With regard to utilization, I think we are still looking at the kind of mid 12, regions, so around 2 a half hours. I mean, it can be a little more due to less, but it shouldn't be much less than should be much more. I think if it's much more and we have been learning it. I think if you are pushing it beyond 13, 13 a half hours, even on a on a seasonal basis, you create an avenue for disruptions. And if you take it too much, lower then you will have an issue with unit cost and you will not be able to, put your fixed cost over a proper capacity measure. I think you should be expecting a fairly stable around 5.5 hours a day of this utilization coming through the system. With and I think that absorbs the, the best thing to open at, what mix and also the the gauging method. The good news from our perspective is that actually our cellular can be incredibly flexible. So we are not chasing a particular customer type, that cannot wake up before 6 o'clock. And the first flight cannot go out before 7:30. We tend to start the schedule at 6 or even before 6 like 5:30 and we can tie down the fleet anytime we want, I mean, our customer base is much more price sensitive, as opposed to being a schedule sensitive. So with regard to the labor cost environment, I think labor cost is a cyclical matter. And depending on where you are in the cycle, I think that determine the professional labor cost in the business, as you are seeing at the moment, we are still in the off cycle with high growth obviously, that socks up employment, and that creates a tight market in certain disciplines like pilots. So it is a type pilot situation. So obviously, that puts pressure on airlines with regard to pay, but also with regard to the airlines' ability to pass some of the infrastructure costs on to the employees like training. I mean, I mean, you can see that when it's when it's a high supply of pilots in the markets, airlines tend to put the training cost on the pilots, when it's a low supply of pilots, airlines tend to observe that cost. So this is exactly what you are seeing. So I think for so long as there is a high demand for pilots and less supply, of pilots, you will see continuous pressure on cost. But once the tide turns, and we are going into another phase of the cycle, that can change very quickly, very dramatically. So I think from a European perspective, probably it would only take a significant airline to go down, to significantly affect the pilot situation. At the moment, it is really the pilot tightness that is influencing the industry. But again, this is cyclical and we are in just in a situation when supply and demand are not in balance, but that can change. And the final question comes from the line of James Hall. Please go ahead. Your line is now open. Hi. Just a few quick ones. Firstly, can you just let us know what the carbon offset costs were as a proportion of your 1,000,000 in one, secondly, I don't think you answered Loba's question about Vienna performance. I was wondering if Vienna is as much carnage as I think we think it maybe if you've changed your capacity plan there? And then finally, are you seeing any sort of hint of staff or unionization issues in any of your I think a lot had a strike in Poland. I was wondering if you were seeing any signs of a bit of unrest? Maybe on the carbon, airlines tend to get their free carbon units in the second half the way we book it is essentially on the average. Carbon back in 2013 was a cost of GBP 1,500,000 for us. This year, it'll be around about GBP 27,000,000. So yes, it's it's an annoying cost that comes through. I mean, when the business grows, it doubles in size, yet carbon costs are up 20x, it's a pressure that you have to take. Okay, with regard to Vienna, I mean, certainly there's a big party going on there. I mean, everyone joined. I don't think everyone is going to stay. But we are one of the airlines which will stay. And let me just reinforce the basic premises why we are in Vienna. And what we are doing in Vienna. Actually, from our perspective, Vienna is more of an extension of Santa Nisiro, a third of Hungary is better off, going to Vienna to take that airport. Half of Slovakia is better off taking Vienna assert of the Czech Republic is better off taking Vienna. So from our perspective, I mean Vienna is kind of part of Sentinel, we The reason, why we only showed up in BNL recently is that because the airport was simply not commercial before and just didn't refer to commercial terms, which would have been acceptable to us. And what we are doing in Vienna, we are delivering the lowest cost of any airlines in Vienna, and we have a fleet of AC 20 months, to make sure that we stay the lowest cost in Vienna. So we think that we bring in an angle to the market which makes us very competitive, very formidable. And given that this is an extension of our San Antonio European strategy, you can expect us to stay in Vienna and grow in Vienna. Obviously, we're going to be rational, but at the moment, I think the market is overdone, and I don't think that you're going to be seeing the same players with the same capacity in a year from now. So the dust will settle down, and you're going to see us staying and you might see some of the others certainly reducing if not going completely. And then we had the last question on. Oh, unionization. No, we don't have unions in the into company. And we don't think that unionization is the way to run the company. I think we are making a lot of efforts in the company to recognize, employees shoes and, and enhance the dialogue with our basis, with our remote employees in the company. And I think we have a culture, which is much more collaborative and and team based, as opposed to kind of aggression or, or conflict based, and we are not seeing any signs of unionization and we want to make sure that the culture, what we have, remains intact. And we have that open dialogue inside the company as opposed to trying to create kind of a war lines in side the business. So, I don't think we are seeing anything developing at this moment. Just one final comment, James, on Vienna. I mean, if you again, it's actually one of my comments on the presentation is if you look at our cost base with an A320 A321, NEEO is 20 percent lower unit costs compared to our current fleet. And if you look at the cask of, I would say, the largest in terms of seats applied to that market. Their CAS base is three times higher than ours. So when the music stops Joe described, you know, guarantee that we'll be sitting firmly on our chair and other airlines will be departing. I'm now handing back to Youssef for concluding remarks. Ladies and gentlemen, thank you for your interest and Have a good day.