Earnings Call: Q1 2019

Jul 25, 2018

Welcome to the Wizz Air 2019 First Quarter Results. For the 1st Quarter today's call, all participants will be in listen only mode. And afterwards, there will be a Q And A session. Please note that today's conference call is being recorded. And I would now like to hand over to Joseph Berardi, CEO of Wizz Air. Please begin your meeting. Good morning, everyone. Thank you for joining this conference. So let me just start by recapping the, the announcements that we are making today. We are reporting on the, the first quarter of our fiscal 2019 year, in which we deliver the lack of into numbers with record revenue. We delivered 20% growth, which is quite, quite high, compared to the, the balance of the industry. Net profit came in at 1,000,000, a significant stake into account the Easter impact when you compare the other 2 years as well as the, the operational disruptions and related costs, and we believe that, this $50,000,000 net profit performance is a solid performance and in line with management's expectations. We continue to be very disciplined on managing our costs, probably the urban of the very few airlines still seeing, exterior cost decline in our business. So we clearly believe that that our cost is under control, and again, unlike some of the, the other carriers, we started operating visa at UK, in, in May, as you know, the airline was licensed by the UK or strategist, and we received the AOC and we started operations in May, very quickly. We have scared of operations to, to 7 aircraft we've already announced an ATAC of operations. So one more to come, and you might be expecting more news coming out of the pipeline in the coming days. And we also, we, started the Vienna base which is the 1st step of a major expansion in Vienna, Vienna. I think clearly you see that it is becoming an overheated market Nevertheless, we are very confident in our strategic ability to, to compete and win given that we are bringing the lowest cost production to the market. In significant scale. So we believe that after the dust settles down, you will see a few structural winners and we will develop them. We reached the 100 hours of milestone in the in the reporting period. At the moment, we are planning on 4 hours of flying via the fleet. I think it's a good, a good milestone to, to pass that, obviously, the domain is very focused on delivering further growth in the business. And based on this performance and the visibility, what we have on, on the current trading environment, we are reconfirming our previous guidance. Moving on to the second slide, you see, the deal pricing metrics So so see if it was a growth, obviously, that that was followed, by, stop growth as well. We have a 1000 more people, 25% more people today than what we had a we had a year ago. The ramped up load factor, with an additional point to, to, to 90, 9%. Clearly where this offer, the pain is, is punctuality. And and this is, simply resulting from a much tougher operating environment than ever ever before. Mainly driven by AEC issues, strikes, closures, concessions, airport issues. I mean, it has not, done any favor to the, to the industry. If you move on to the next slide, just to, dimensionalize the, the issues about what we are suffering, but I think this is pretty much in line with what other airlines are seeing, the cancellation rate, for drop yield in the, in the period. We have to cancel 145 flights after result of some external forces. I said, functionalities down 7 points to, to 7 to 74%, and loan delays doubled in the in the period. If you think about it, of the 8,600,000 passengers we carried in the period, 20, 26% of of them, were not, delivered to the destination on time within 15 minutes. So essentially all these disruption have been affecting over 2,000,000 passengers. So this is very significant and and and very fundamental, and this is clearly triggering the industry, what we put forward with other allies, to, to raise our noise on the, on the matter because this is undermining, not only annualized performance, but, the poor performance of the industry vis a vis the customer This is not what customers expect. This is not what people want, and the industry needs to change and needs to adopt. And when you look at the cost side of of the problem from our perspective, our discussion related compensation, cost tripled to 9,000,000 in this period versus a year ago. Moving on to the next slide, just a few words on the network design of growth. The pattern has not changed, fundamentally. You see that, almost 90%, 88% of the growth capacity has been deployed on increasing frequencies on existing services, or joining existing app was joining the dots. So we don't 11 new, new airport pairs of existing airports. We were increasing frequencies on 79 lose. But at the same time, we kept cutting the, the local swag for new airports and new countries. We opened up, 5 new airports in the, in the network, and we also entered into new countries, namely Austria and Estonia in the, in the reporting, period. You can also see the, the geographical split of the, the new capacity allocation, obviously, the remain very intact on, on building connections between San Luis, New York and Bastero, but at the same time, we have been developing some other links inside Central East Europe and, from sea or Western Europe to, to to further east to, to other markets. And, with that, I would just pass over to Ian who is going to take us through the the financial insights. Good morning, everyone. I don't want to downplay sort of the operational challenges, but essentially the world hasn't really changed. Since we last came to the market about 8 weeks ago. Our business is in great shape. So yes, we are seeing a little bit of cost headwind on disruption costs. To the tune of 1, 1,500,000 per month. This is probably gonna be more one without a a seasonal effect. So, clearly, this guy that can gesture during the summer, but as you go into winter, hopefully that pressuring leads. So in that context, the world hasn't really changed. Our business is in great shape. We were able to deliver 20% passenger growth were able to get more passengers on airplanes. So we could be solo capture to 92%. So we knew there was gonna be no Easter effect to the Easter effect. We've always sort of highlighted around about 15 to 20%. 15 to 20,000,000 per per Easter. And we've also it's signaling that we have been having some headwinds on our ancillaries. I think we underestimated this to some extent, but we've made the actions accordingly and we'll start. We're starting to see that coming through certainly the sole revenue, but obviously with the more that gets flowing, we'll start seeing the reversal of that. So putting that in context and maybe a little bit of a profit bridge. Last year, we made 1,000,000. If you if you apply growth rate of 20%, you're looking at 1,000,000 of net profit. Not off the Easter effect, 17,000,000 or so, and a couple of 1,000,000 on on the disruption. That gets you to 49, 50,000,000, which is pretty much bang online. So to reinforce Joe's point, but actually Q1 came pretty much in line. And and and all of our businesses are performing very, very well. Moving on to the revenue slide, the slide 7. Again, I think in the context of what we've achieved, so so we were pointing to around about flat ish RASK for the first quarter, and we delivered minus 1.4%. That's a really good result given there's no Easter. We are growing at 20%. We're growing much faster than than the competition. Load factors are higher. We're taking larger across. So this year, we've got 31 A321 versus last year, 19. So an extra 10% box seats are supplied by these much larger aircrafts. We took 19. So year on year, we had 19 additional aircraft versus Q1 last year. We're flying further. So additional 1% or over sixteen kilometers, which, again, is 25, 30% longer than the competition as well. So in the backdrop of all of these, these, presses of the business, you're seeing the demand and to be able to deliver a flattish route, I think, is a very strong performance. On top of that, you are seeing the disruptions. The disruption themselves in terms of the the revenue environment, where it really starts to impact the delayed book of markets. So by simply having to rebook passengers onto another 145 flights. Essentially, you're losing that last minute high yield traffic. So that's, that's just a bit of an annoyance. And as we've been flagging that the unit revenue back has been declining because we changed our cabin bag policy last October. The annual effect will start to reverse come October we've also taken some new initiatives back in June. We introduced a new policy with our priority boarding. So you're starting to see certainly starting to see some improvement on that one coming forward. So on the whole, I think in terms of the revenue environment, it remains very robust, and we were very pleased with what we saw in Q1. Looking ahead, There's no reason to say that we had seen other things otherwise. Moving on to the next slide. My favorite slide is on the cost side of the equation. I think again, a very strong performance, I don't think there's many airlines out there that can say that we can continue to drive our costs lower. And this is even before we started to look at Neo aircraft, which we take into delivery in Q4 of this year, those engines burst 16% less or at least 16% less fuel. And on the on the ex fuel CASK, the ownership side of the equation still looks incredibly compelling. So So more to come on that further further in the year. The only item I would highlight is on staff costs. Again, we've signaled that taking 17 aircraft at 17 weeks required significant ramp up in the organization and at the same time creating a brand new airline in terms of with UK, you know, requires additional training and recruitment for that UK So we always expected a slight increase on staff costs. That should start to normalize as our delivery schedule, I would say, smoothens out and our UK business starts to to, to operate normally. The only item to flag them is on the other expenses, which is why you're seeing that incremental or that traveling of disruption costs. So on the whole, a very strong performance on the cost side of the equation. I'll just wait on slide 9 on the answer think it's fair to say we slightly underestimated the impact on the checked in bag. We knew that by removing the charged cabin bag of what the impact would be, essentially, what was happening is everybody was turning up to the gate with their bags, and given that we want faster turnaround time, essentially that checked in bags and suffering. We have changed the policy. We are seeing the impact. Will it be sufficient to fully compensate for the bag unlikely? But I think starting from October of this year, we'll start to see positive tariffs on our on our net ancillary. What is also important to highlight is that 80% of our ancillary essentially what people wanna pay for. People never really like paying for the bags. They consider it punitive. So again, another strong performance on the on the value add. Moving on to slide 10. I think this is something more for the future in terms of our the strength of our balance sheet and what we can do with that and the firepower in terms of potentially owning aircraft. As I said, in calendar year next year, we'll be taking 13 neos, 20 the following year. So there's certainly a lot of benefit coming through from that. It's still undecided in terms of how to how to purchase those aircraft or to lease those aircraft. What I would say is that the investment grade that, that we were awarded at the beginning of the year is having a significant impact on the financial community, but now seeing the increased strength of the business. So cash generation remains very strong. It's a very cash the business. Take on to the last slide in terms of the guidance. One thing to flag is we have seen, we have seen fuel prices grind higher. Into Q1. And as a result, we've decided that we would trim our capacity into the 4th quarter a little bit so in the 3rd quarter as well. We don't grow for the sake of growth, and I think we've always said that 15% is probably the longer term structural growth rate. That's what's reflecting our delivery schedule. Clearly, we'll be looking to grow as fast as we can to maintain margin. We are seeing a little bit of margin pressure purely driven from the fuel cap as a result, we're trimming a little bit of capacity in fourth quarter. So I think you should take that as a positive signal that we are showing some financial discipline And we've always said that if you have a phenomenal summer, then we'll always tread a little bit faster in the winter. If you see a few pressures on the horizon, then we'll actually trim that to touch. So I think still delivering an 18% year on year growth. I think it's a fantastic, fantastic targets to achieve. With that, operator, maybe I'll hand over to Q session. The first question is from Mark Simpson. Yes. Good morning, guys. Goodbody. In terms of just a couple of questions, on the unit sort of cost improvements, obviously, stuck with the minus 1 for the year. Labor, we saw 14% unit cost inflation in the Q1, but I think previously in you talked about 8% to 9% for the year. And on the depreciation, a 5% unit cost improvement for the year. I wonder if you could just, take us through some of the line items in terms of expectations behind that overall minus 1% improvement. And on the ancillary side, you've obviously changed the bag policy. I'm wondering if you can it tells on the ground what's happening in terms of your premium ticket sales, penetration rates, and what you think may happen on that front? Sure, okay. Thanks a lot, good morning. On the unit cost side, I mean, labor, no change. We always knew we had the 17 aircraft coming. We always knew that the trading period has been extended because since it's an awful lot of pressure on the operations. We always knew that we had with UK, and the UK CAA has slightly different training requirements that we knew that there'll be additional training on that. So I think in terms of modeling unchanged from that guidance, that we gave, a couple of couple of weeks ago. Yeah, I think it's important to know that when you look at labor, because I mean, it is inflated, in a way because, it is not structural able to increase, but you are seeing some of it is sure because we have to increase pay to pilots and that sort of stuff, but a significant part of it is, it's related to the BCPA ramp up. And we recall we had this program of severance NAC for 17 weeks, and we had to hire a significant number of pilots and cabin crew for that program in advance of the deliveries, obviously in freight labor post India, in the reporting period. But once we are, kind of facing that program out and, as we will have, completed the deliveries of those I mean, you will see the issue moving away from us. A lot of depreciation is fairly finely calculation. I think we're trimming a little bit of capacity. You may see a little bit off, but I would just stick with exactly what we guided 8 weeks ago. And on the ground in terms of penetration rates in the premium? I think very positive. I mean, certainly, essentially, just below the the note, essentially, if you take it far up before you have, if you want to take your bank with you through the entire journey, you have to take priority boarding hours implemented on 20th June, if I remember, I would say we've seen a more than doubling of that product, so a very positive effect. I think there will there's still gonna be some finance in terms of ensuring that there's less checked in bags or specs that are coming to the gate. So we're having, you know, conversations with the ground analysts to make sure that policy is enforced. That should also start to improve on the, the checks in bag. But generally speaking, there are more than doubling of that product. To a penetration rate of 26%. 26%. Great. And then final question is coming up on just the labor side. Stuff retention rates or churn rates on the pilots. On the, not the expansion of the network, but in terms of, where you're at on that, so you're kind of close to the 5% that you'd like to be? This is both that. We are expecting to, to be around 6 a half. It's a little better than what we used to have, but you could go with them, but they are targeting. The next question is from Damian Burrow. If you could also announce your company, please. Your line is now open. Damian Burrow Bank of Canada three questions, please. First of all, just coming back to labor question, could you give us some idea of if you like what the steady state labor unit cost growth is, please? Secondly, you highlighted disruption costs, your aircraft or your sectors for aircraft. Look like they were down slightly in Q1. Could you talk a little bit about the way the board or the management think about the sort of the trade off between increased crewing and decreased utilization versus the sort of EU261 costs you can incur And then how do you strike that balance? And then the very final question, if we look at the calendar first half of the year, you grew ASK's 21 percent net profit's 27 percent year on year. So it seems like your incremental net profit per ASK was up something like 6%. Your guidance for fiscal 20 eighteen-twenty 19 at mid range has about 18% growth and 18% net profit growth. Apart from fuel, is there anything else in there that we need to be aware of in terms of sort of, seasonal cost effects that could affect the remaining 3 quarters of the year? Hey, Terry. Maybe I'll I'll take the last one on a button. I can just pass the second one. So in terms of the the last one, I think I think your observation is correct. Obviously, in effect, not really. I think there's nothing fueled is probably the big big headwinds that will or rather the question mark, I should say. Last year, we did actually have fairly significant disruption costs in terms of the icing, the cancellation of the, etcetera, because the weather if we have a slight milder winter, then maybe you can see a little bit of upside on that. But to reality is no, there's nothing on horizon. On the labor costs, I suppose, labor's starting point is the A321, you still need 2 pilots, just one extra cabin crew for that aircraft. So you're seeing a 17.8% unit cost improvement because of the A321. Do we expect to see some inflation continue? Probably, but we believe that the after, and as we've seen more of the A321s, and the A321 of EMEA has another 9 seats again. So again, you'll start seeing some improvements on that front. From a from a from a crew boss perspective, we believe we can absorb any inflation pressures coming from the industry with the UZP aircraft. Okay. Maybe I'll take this discussion calculated, matter and hope to try to balance vis a vis regulation to postpone, by the the problem here is that obviously asset utilization, asset utilization is inherent to the business model, and this is very core to our strategic approach to the, to the business. So definitely, we want to maintain the model about the, we have been deploying today. But I think we need to, stride balances is, is Ron, creating reserves in the, in the system. You can do it in different ways, but, you know, and this is exactly what we are doing to see you know, how to create a greater degree of ability to, to recover from, discussions because the more, you know, this is a very defined model it's a highly optimized model, which works very well on the normal circumstances, but once the circumstances change, and they become suboptimal, obviously, that could break down the the model. So I think that's what we need to, what we need to, to figure out here. But certainly, we are not trying to ease the utilization, but I think it's very important that we stay in fact on on that. But but then a small part of the issue, which I think, has been affecting us recently, and this is the, air bus delivery, performance, we, we, we have suffered some delivery delays, versus the, the contracting program and as a result, that, made quite a significant impact on our, ability to, to, to operate. So we did not want to change the schedule last minute So we upgraded the schedule, but essentially, because we didn't get the active deliveries. We didn't have any spare capacity to recover from operational disruptions. Creating further issues. But as we are assuming, more of a normal delivery schedule now, that issue should be going away. The next question is from James Hollins of Exane. It's James for Maxanne as noted. 3 for me, please. On Q2 RASK, because we're only, I don't know if I missed it. You could give some guidance. So you hopefully gave q 1 a full year, particularly if you could maybe split out July or west September in terms of how you're seeing trends. Secondly, any particular area you'll be reducing your growth 20% down to 18%. Is it maybe from Vienna or any particular area where that's coming out. And then thirdly, a sort of more generic question, you're the first guys and girls I've spoken to since the legal action was pitted against or to the EC using a sort of legal precedent of Spanish farmers, I believe. I was wondering if you could sort of let us know maybe not qualitatively, but some chances of success of that. Have you as a group European Airlines had a warm feeling that using this legal precedent, etcetera, would actually potentially give any grounds for success in actually getting the European Union to do something about the ATC strikes? Think Q2, I mean, back, we we guide around about up 3% on the rest environment in Q2. I think that's fairly, fairly safe assumption. In terms of breakdown, do you like a slightly softer now? I don't think we can really play the World Cup car because probably the Romanian Bulgaria, Ukraine was in the World Cup. Probably got knocked out quite quickly. So I wouldn't say that there's a particular World Cup effect. But I think, you know, when you look at it on a quarterly basis, I think there'll be no change to that. And again, H2, we were guiding around about 4% increase in RASK. If you trim capacity in touch, maybe there's a little bit of upside on that one. So that's how I'd look at the RASK environment. But again, the world hasn't significantly changed since we last spoke to you. With regard to the growth question, how we are feeling capacity, but we are not part of the targeting the market. I mean, certainly not Vienna. I mean, when when we compete, you know, we we compete hard and, formatively. So actually, we are quite excited about the other Vienna market. We are bringing in the most efficient aircraft at the lowest operating cost compared to the, to our competitors and, you know, we are very confident that we have our position strategically and structurally for, for bringing that, that marketplace. Yes, it is overcapacity at the moment, but our team developed is gonna at one point and we will promote stronger from that. So we are very committed to the end and we will continue to push that. So certainly, we are not going to take any capacity out of that, that market. So this is just a genuine trimming of, sort of vehicle capacity. To make sure that we protect the profitability of the business, what we are not targeting for the market. With regard to the commission then or the EU then. But I mean, I think, I think the starting point is that, the believe that we have a system, operating the aviation infrastructure in Europe, which is, very unfair if you think about it, ATCs, which are state monopolies, and many of the airports, which are also controlled by the state, can do whatever they they they do, without really taking responsibility for, for that. And the entire financial burden is put on the, on the airline operators and and they they suffer the consequences, with really consumers, and essentially, the airlines have no ability to, to, to kind of, recall the cake, in a significant way to to deliver this this issue. And and it is, I think, just right to, to raise the boys and raise the game, from the airline standpoint, that, this issue has to be that bit, not for the benefit of the airlines, thoroughly for the benefit of the, of the consumers, the many, you know, hundreds of millions of consumers. I mean, as such in the reporting period, you know, 2,200,000 of Visa customers got affected. If you look at it, it's industry wide, I mean, you know, the current situation effect, probably around better over 100,000,000 people. And those people are also voters of, of countries and voters of of European Parliament. So I think there is a city to the stakeholder, which, which needs to be recognized by the various various stakeholders. Likelihood of success, I don't know. I mean, this is totally not gonna be an easy process. But it is it is a way of starting building pressure on the system to, to really address the, the structural deficit of the, of the way our European Aviation Infrastructure is operated. That's very useful. Thanks very much. Appreciate it. Thanks. Next question is from Andrew Lobbenberg. Oh, hi there. It's it's Andrew from HSBC. Can I ask something about the the decision to pull back the capacity? I mean, I I see the logic in it, but, I I I think in in your prepared remarks, you mentioned about fuel grinding higher. And yet compared to where fuel was at the time of the full year results, it's it's in the same place or or or marginally down. So just what's motivating the pullback in that context. Can I ask a question about the Brexit? What are you thinking about in terms of managing the ownership to control risks? Ryan are talking about disenfranchising non EU, shareholders. How do you think you will go about managing the EU ownership and control requirements post Brexit. And then a third question on Ryan S. Son, would you know, is got 5 incremental aircraft in Switzerland this summer and is is now gonna have 10 incremental aircraft for the coming winter. I appreciate you're not a charter airline, but you you are flying on on some competing routes down to the beaches. So are you seeing any any competitive tension from from the growth of Ryan, in in that Polish market? Maybe I'll say I'll say the first campaign, Andrew, morning. I mean, the fallback in capacity, I mean, the way I would look at it, we want to grow this business as fast as we can but maintain margins. And, essentially, that's what we said. If we see we have a great summer, then we'll grow fast winter. And I think if you go back and reflect your fuel price, I think, Ryan, that was in Q1, but bearing in line with all that, I think fuel prices in in liquid terms was up 20%. So I think if we were looking, if we go back, let's say, 3, 4 months ago, it was around about 6:15. So when we came out with guidance, we were 685 in terms of our numbers. So I think you chatted us on that, but the market price is 7:30. It sort of persisted around that yesterday. It's dipped down again, but the reality is that there's a decision during Q1 to pull back capacity as such. And again, I mean, let's put in context, I mean, 18% growth is still a phenomenal growth rate, and we want to grow this business profitably and maintain margins. So, I think trimming the 4th quarter growth to a more than 16%. I think it's still a pretty good result. With regard to Brexit ownership and control, I think it is still a process which is unknown to, to to anyone. Certainly, it's unknown how, the terms and conditions of activity will get defined and everyone is now forming a view and, and opinionating the the board for people. So I don't wanna fall into into that. But nevertheless, the most important action, but we have taken so far, goes to, to, to set up this area where you may ask us then and to make sure that actually we have and and operating more than both sides of the, of the equation, to make sure that we can, allocate capacity recording to possible regulatory changes, video objective of continuing to operate between the United Kingdom and, and other countries being European Union Countries or non European Union countries. We are obviously, working on contingencies. We're looking at, issues like, like, ownership and and and control. But I just want to go ahead of this, decision whenever whenever we have a firm, action, but what what we are taking, we we make announcement. But I can tell you now that we are we are looking at input, but as far as we are concerned, we made a big step forward with the establishment of, obviously, with regards to Ryan Ascon, I mean, we have been competing with Ryan as for, for about 10 years in in Poland now and not only Poland, but also as per in our market, what's really important as far as I'm concerned is if you look at the the cost performance of the 2 airlines, in reporting period. Now we are, taking the, the contingency position in Europe, we have the lowest cost measured on cost, airline in the whole of Europe and believe that our costs are still under control by the airlines are creeping quite significantly. So we are very confident in our overall ability to, to compete with, with with whichever brand and including, including Ryanair. As you know, Hydranair started targeting a different market segments. You need to know is that Poland did quite a, a unique country in Central, you still have to dig up the charter market. It is huge. Certainly in certain airports, actually, charter capacity is more than cellular, cellular capacity. So I'm not surprised that, someone gets attracted to that market from that perspective. We remain very focused on our business models and, we want to be a scheduled brand. We are not offering charter capacity, to to do repairs. And we we are going to speak to that model, and we will continue to enhance our, competitive competitive positions on cost and brand. And that will be the the the folks going forward as well. And that, Ian, Aditi, too, Aditi too, we haven't even deployed access of, of the new delivery program and oversee once, that happens, we believe that it's going to be even even more competitive in India in the marketplace. So I don't think that triggers any strategic change in our mind, how we should go about the market or how we should go about, Poland in particular. Thanks, Judith. Thanks, Ian. Can I just come back on the ownership of Control? Cause I unless I'm going even different, and I thought I didn't hear an answer to my question. I mean, are you telling me you've got a plan for ownership control and you're not gonna tell us or or is it still being formulated? No, it is being formulated and when we have to plan this value. So what I mean, what I think you already know, Andrew, is that we've actually been slightly ahead of the curve. Already allowed for what other airlines are running around visually trying to get in place. So yes, we have the UK Airline. In terms of our articles, we also have all those actually already in place. So I think it's fair to say we've been slightly ahead of the curve, but again, there's a lot of unknowns, and we're kicking off those as we speak. All right. Thanks now. The next question is from shigarh Sajani of Barclays. Your line is now open. Please go ahead. Hi there, good morning. It's Ashita from Barclays. Just a couple of questions on the capacity trims. Now that you're growing Q4 capacity, by about 15%. Is there any more downside risk on that if, you know, fuel rises any further? I mean, what's the lowest rate of capacity growth that you would be willing to consider? In the winter period? And secondly, could you also comment on the competitive capacity environment? Are you seeing any indications of capacity trimming into the winter from other carriers in your key markets? Or is that a little bit too early still? That would be very helpful. Thank you. Yes. I think after the first question, the winter capacity, essentially, that that trimming really reflects the environment we see today. So if you're seeing slightly slight higher fuel prices and maybe slightly stronger dollar, the financial performance of some of those routes. I mean, rather than flying 5 week, maybe you'll fly 4 a week in terms of a frequency, just as an example. So think if there are any fundamental changes, then obviously we need to adjust our business more accordingly, and maybe trim. The flip side is, a lot of that is already on schedule. So if we start see, things reversed and actually, you know, maybe we're in a position to actually accelerate growth. So I think we remain nimble. Obviously, we need to be able to react, as the market dictates. Yeah, exactly. I think we are the active market as we understand the market today. And coming to your second question, how we are seeing the capacity environment I don't think we have full visibility on that yet. And typically what you see is that, airlines spot is their interest schedule, and then they start adjusting the vintage schedule than actually, they are approaching the, the period. So I think we'll have a much stronger visibility on that, you know, on September time. I mean, obviously, we are hearing some news of some underperforming businesses not being not being able to pay, these to, to the suppliers. So if anything, we may see some upsides for our business coming out of this, but we have not been, planning for that. And, you know, we have not included anything of that in, you know, forecast. So if something happens, this could represent, an opportunity for us, that we have promised on our side. Great. Thank you. The next question is from Mark Block. If you could please on to your company as well. Your line is now open. Perhaps you put yourself on mute. We can't hear you at the moment. Your line is now open. I will go on to the next question. So the next question is from Ross Harvey. Your line is now open. Hi, there. Rat Tyler from David. Just two questions from me. One has been slightly answered in the prior question. On the increase in terms of value added services within the ancillary to can you just remark on how much of that related to priority boarding given that you changed the cabin baggage policy. And into winter then, I guess, how much of the RASK improvement is dependent on, you know, ancillaries, maybe it's an inflection point and maybe turning positive. And how much of it's on basic fare, I understand that H1 is clearly where the basic third is a lot of the heavy lifting while the ancillaries are still, on a downward curve. And secondly, just to clarify on a question that was asked before, terms of the RASK improvement through winter, if we're looking at a figure, which is slightly higher than a 3% overall for the year. How much of that depends on, competitors pulling out more capacity, I think you implied from the prior answer you know, as you look at the at the market now, you don't really need any, competitive reaction into this winter to achieve that 4%. And it's it's all really upside if you begin to see some some people rolling back on their capacity. Hi, last morning. Jump in if I missed some of your questions. So in terms of the priority boarding, that was introduced back in on the 20th June. So you won't see any of that. In, or hardly any of that in Q1. What you're starting to see as I highlighted is that that's more than doubled in terms of our product. So in terms of the number, you can probably model about 0.7 of an increase coming through from that. Okay. But this is, yeah, a maturing initiative. So is not the full potential. So we are expecting significantly more than that, but this is where they are at right now. Your last question in terms of winter ask, I think we've been highlighting around about 4% is what you should be expecting about H2. Yes. I think you I think what you'll be seeing is you should start to see that the ancillary will start contributing to that. I wouldn't specifically say what what blender is because sometimes you get cannibalization between products. So for net now, I think modeling 4% RASK for H2, I think, is a is a reasonable assumption. As we mentioned, cutting a bit of capacity, maybe there's a little bit of upside, but I think 4% is a fairly safe place to go today. And your second question? I actually have covered off the tourism, really, it was just on a priority boarding just in terms of that point on cannibalization, do you think that you've recovered some basic fares in the first quarter, given change in baggage policy, given the mix between those 2, do you think there was an increase in basic fare, which might necessarily replicate itself once you annualize that change in baggage policy? Yes, I think I think the first day, but again, to be able to deliver virtually a flattish rack and still give back over 2 years back on, on the bags, yes, it's fair to say that we've probably been able to capture some of that. That's fair. Thanks very much. The next question is from Charles Cartridge of Flowin Robinson. Your line is now open. Please go ahead. Hi. Thanks for taking my questions. In your annual report, you talked about your option with Megawatt next 12 months, and you said the higher prices have finance. High fuel prices are falling stronger fare environment. And you have said that for normally ticket prices might follow fuel prices for an 8 to 12 to 18 month lag. Could you tell us sort of on the ground whether you're seeing your competitors raise at the prices of content, higher fuel prices, and lack of hedging. And, that if not, why not, or or when when do you expect that impact stop kicking in? Thank you. Yes, hi Tom. Thanks for the question. I mean, the reality is that you do see fuel prices or input prices as dollar bills are an important input cost. They do flow through to the fare environment. And a good example, at least, is Q1. So as I mentioned, there's no Easter effect yet. We were still able to deliver a flattish rats, which means, yes, definitely year on year, you are starting to see fuel prices flow through. I wouldn't say there's the sort of the mechanism of of adjusting prices, that's that's market driven. What you are seeing is you're seeing, I would say, moderate moderating of capacity or roughly growth. Coming through from from airlines. I mean, less so from us, but but this year rather than growing 23, 24% and growing. Now when we look into growing 18% as a result, essentially there's that sort of less seats supplying that additional demand. So, you know, it's certainly flowing through. The timing of that, it's like a $1,000,000 question. Think it tends to be slightly harder during the summer because everybody wants to fly. I would say there's probably less elasticity in the summer, certainly as you go into the 2nd half, I think you probably would see that. But it's ultimately capacity and how airlines adjust capacity and maybe reflect you on one of the questions earlier. What are we seeing in terms of the competitive environment? You're not seeing waves of capacity and you're seeing more discipline, but simply because other airlines can't profitably grow. Whereas with our cost base, we can. And I think that's hopefully something you'll continue to see. And I think it'll be starting to get a little bit exciting as we go to the end of the summer. Where airlines start to lose a lot of money, or rather the weaker airlines, I should say, start to lose a lot of money, and, and Joe highlighted that maybe there's some opportunities for us. So, so yes, you are starting to see, you know, fuel prices flow through ticket prices. And that's why we're saying 3% for the full year. And with a bit more on the backend with slightly less growth. Next question is from Alex Paterson. If you could please announce your company as well. Your line is now open. Good morning. It's Investec sorry, two questions, please. And the first one, you've you've talked quite a lot around and I didn't quite catch the bit that you said in prepared remarks, but on the ancillary revenues, were you saying that you expected growth, from the second half of this year? Or was it another period? And then the second question is just on the, slide 10, you were talking about multiple aircraft financing options. Just wondered if there was any preference you had for any particular type of financing or whether you'd expect to use a mixture of different financing. I might do a corporate bond and also aircraft leases or sale and leasebacks or something like that. Let's take the act of the financing question and Ian takes the answer to it. So with regards to finance, I mean, I think what we have been communicating before that we are speaking to, that we are exploring various options, including bond financing, sale and leaseback, you know, even purchasing aircraft or drop or whatever. And then we're gonna compare notes and we decide what the best place for, taking advantage of the of the market situation quite likely given the the scale of the delivery program, we will be ending up in the midst of financing vehicles, but I think it will be premature to kind of commit ourselves to, to a particular one. But as I said, I mean, we are we are looking at basically all available options to try to understand how they work and how they affect the financials, on the, on asset ownership and how that affects the business. Short and longer term, but we haven't made decisions yet. I mean, let's not forget that we made a principle position or made a physical decision, but I think, a position that, for so long as we continue to take deliveries of the current COX of technology. We would not be, financing those aircraft on balance sheet. For the moment, we start taking deliveries of the the new aircraft that we will be exploring those options as well. And, we have the 1st new act of scheduled delivery in January. So as time is approaching, we are going to get into it and, and, and, and, obviously, that was we conclude a, b, b, b, b, we don't ask it, but at the moment, we are just exploring options. Yes, good morning, Alex. And I think just to add that, I think we're very well positioned. I think it was 1,300,000,000 of cash on the balance sheet and investment grade credit rating. We're keeping all these institutions very honest. So I think we're certainly going to be well positioned as we go into next year. Your first question So, yes, on the ancillary, I think maybe a couple of points. We've always been guiding per pack per year increase. Are we going to achieve that this year? I think it's going to be challenging. You know, we're certainly starting to to disappear. The anniversary of that change in bank policy kicks in and off over. So mathematically, one would expect to see the value as continue to increase. But if you then start to see all the incremental on the priority boarding kick in as well, you should start to see the recovery coming through in Q3. So it's fair to say in Q2 that there'll be headwinds. So we won't be having the same comment, at at a half year results. But, certainly, what we're looking at today is that the second half is when you should start to see the recovery of that, and and we would hope, earlier in, in in Q3. Great. Thank you. The next question is from Michael Kuhn of Societe Generale. Your line is now open. Yes, good morning. Essentially follow ups and one more, sorry, on ancillaries. Would you think that at this 5 Euro passenger level, you free the bottom on the baggage side or would you see that further coming down? And on your one year increase per annum target, do you think you will be back on that run rate in the second half of the year or could that be still below that level and you're only back on the run rate, let's say, next year. And then on capacity, you sometimes comment on your capacity growth versus competition. How does that look in the current summer and what are the current indications for winter? Obviously knowing that there are still some uncertainties for the upcoming winter. And then last, not least, on the neo deliveries, you mentioned the first one scheduled for January. Are you confident you've at your news on time or is there a risk of delays? Thank you. Thanks a lot. Let me ask, I'll take the first one. And I think, you know, I've been calling the bottom of our unit bag rent revenue declined for a couple of years now. I think it's I'm fairly confident that removing the last cabin bag, hopefully we'll start seeing the bottom of that. So I think in that respect, yes, we should start to see coming through. In terms of the run rate, yes. So net net, we should start to see the positive effect kicking in October. You know, we delivered over to Euro the value add to one that hopes we'll start to see, you know, north of 1 in the second half. But will that compensate for the full year? Given near the importance of the summer, I think it's I think it's unlikely. So, you know, flattish for the full year, I think it's probably a safe assumption. In terms of next year, yes, we'll certainly start to be looking to try and achieve that 1 year per bank per year. But in terms of capacity, vulnerability capacity, I think it's fairly benign, to be honest in mishap miss Tito. I mean, if I if I look at a competitive overlap, compared to any any other airlines, not lost exchange, I mean, you are seeing some notable changes, look forward to airlines growing like crazy. And then you see, you know, kind of a better fear developing in Indiana. But other than that, I think this is pretty much as, as, as, as usual, and we are not seeing a significant change going into the inter, either again, I said, You know, we are seeing some airline weakness which puts us up into capacity costs, school benefits, or business, but we have not been provisioning for that. With regards to renewal deliveries, but we have a contract in place with the with Airbus. Our understanding is that, actually, Airbus will do reasonably well in the in the first half of calendar nineteen, that may be, some delay, but more light weeks than than months. But we have not been notified of any of those. So we are still holding the lines as per the contract, but of course, we are also planning on contingencies. It should be of any, any, any, any, any, any delays. You may have captured it, that actually the extent that you releases of existing aircraft just to make sure that, we have an insurance policy in place. So if we don't get it either, that we still have the capacity needed to, to deploy the commercial program. So, yes, we have some concerns that I think we've worked over the past to, to cover up those, concerns. And again, our understanding is that the first half of twenty nineteen should be reasonably okay from the perspective of Airbus's ever to deliver the access contact list or with a slide today. Thank you. Our next question is from Peter Testa. Hi. Thank you, Peter Testo from One Investment. Just the last thing on ancillary, you made a comment of 0.7 benefit on the bag. I wasn't sure whether that was what you were seeing in the current quarter, the current picture. And then you talked about being able to improve that going forward with action. And maybe if you could talk a bit about that, please. The second question is just on costs overall. I mean, you've done quite a good job in other lines, the cost to offset the disruption costs. And I was wondering whether there any timing factors on that or what opportunities you had to do similar as the disruption carries on going forward? Maybe also as the Airbus stress and delivery becomes a bit less and the bag stress, at the gate becomes a bit less. And then the last question, sorry, is just looking at, the overall associated disruption costs, when trying to understand how your comment that you felt it would be a bit less disruptive in the less stressed period of H2 what that really means in terms of cost per car motor? Thank you. Okay. Maybe I'll sort of go 3 then 2 then 1. In terms of the overall, I mean, the run rate I was flagging, you're talking about €11,500,000 per month. And that's essentially what we've been seeing in the past few months, including July. So so that's the run rate. If you see a less stressful environment, then you can, of course, you tend to see, strengthen issues happening when it really hurts the passengers the most. So one would one would think that actually is going to be the summer that they they get their biggest bangs above. So going into the winter period, there's less congested skies, and we'll hope that that starts to moderate back to normalize levels. But in terms of a run rate, I would say you can have 1, 1, half 1000000 per month, for the remainder of the summer. In terms of the cost, I think what's important is that every year had a slightly different story. We model everything. Last year, we saw an increase in depreciation and the depreciation also has increased the year before that. As a result, you need to move the leads in your business. And and essentially, I think last year, we did a very good job on the air force mix to to essentially compensate for that. This year. It's almost gone the other way. So we're actually seeing some relief on depreciation because of the timing of some of our maintenance events. And therefore, you can invest a little bit more in some of those airports. So that's why at the end of the loosened, the Frankfurt, the Berlin of those sorts of airports, you can actually put into your portfolio. So we don't look at it sort of quarter by quarter. You sort of model, you know, what's coming down the line over the next couple of years, where you can where you can invest and where you can't save it. So I wouldn't look at and say which line can you squeeze the most? The reality is I think it's all part of one. Big initiative too. We wanna constantly drive our ex fuel CASK, whatever, where we can, we will. But, obviously, we wanna make sure that we're driving our business as well. I mean, clearly, I'm just doing it from a structure standpoint. I mean, you know, we have a few headwinds and I think those headwinds, 3 points, you need to affect the, the business, I mean, labor late inflation pressure is that disruption, costs are there. And, you know, they make at least to some extent, but I think they they are just looming over the whole industry, and obviously, we are not immune to, to that. But I think that we badly come in, in terms of mitigating those headwinds, I mean, clearly, we have the AC 21 program. I mean, you know, very quickly towards the end of this year towards the end of, calendar year 2019, we will have, every second seat flown an AC 21. I mean, I mean, that's huge. I mean, to think about it. I mean, we are converting the business from a 180 seater business to a 230 seater business. That gives us a very significant, efficiency and cost advantage And then as, we were discussing the aircraft financing options, I mean, we are clearly going to benefit from, you know, our credit spending and and and and the broadly available or the broader available, you know, set of options for that for act of finance to, materially affect ownership cost in the business. And and since when you look at our cost base compared to our competitors, This is the ball line that we are beaten by our competitors. On every other line, essentially, we are, we are outperforming the, the industry we're gonna be able to close the gap on that. Obviously, that's a slow slow motion because, you know, it it it has to feed through the, the process delivery by, by by delivery. But after it kind of beats up to a, a reasonable size, I mean, this is gonna become, meaningful. But the AC 21 program is already very meaningful as I've said, you know, half of the fleet, half of the speeds, maybe we've flown an AC twenty one towards the end of the year. I mean, just just elaborating that. I mean, I'm not sure of any other airline essentially can almost repeat, from an A320neo technology to A321neo technology. So structurally, you've got the larger aircraft coming. You've got even another 9 seats on the Neo, which is a 2 thirty nine seats. So you've got the financing, which is, again, is a significant drop. And then you've got Neo which are burning 16% at least 16% as fuel. So if you think about structures, you know, the runway ahead, you know, it's it's very exciting proposition. Okay. And then the last question was around just the 0.7 on bag and how that works without a quarter versus the balance of the year. And opportunities to improve that with better management of the opportunity. So that policy was changed on the 20th June, I think, from memory. So you won't see any of that or very little of that in June. And essentially that'll start kicking in from from from from then on. So you'll start seeing that coming through we'll need to do there a couple of air force that resisted it. So it's in terms of actually improving the the operational side of it and making sure that we get full penetration. But also improving that. And I think the awareness is getting more as well. So as I mentioned, I think it was 26% as the conversion makers, we should certainly be seeing more than that coming through. So I think you should start to expect to see some of that in Q2. Maybe the full impact of that coming through in Q3 and hopefully maybe a little bit more upside. Okay. So but the 0.7 comp number was for what? Sorry. The incremental is that the incremental what we're seeing today versus somebody. So before the policy, what we receive people pay for and after the policy, what we're announcing people pay for. So that's an agreement. Okay. And maybe overall, and then Or do you think on the balance of the last 9 months of the year that can get back to plan? Yes, I think the team are going to be challenged with that. I think the challenge you have is sum up where, you know, which is an important part of the business. But I think, achieving the 1 year of thanks for year on year, I think we'll be unlikely, but flattish, you know, essentially that's what we'll be targeting. Great. Thank you very much. The next question is from Jared Castle. If you could please announce your company as well. Your line is now open. Thanks. It's Jared Castle from UBS. Just a couple of questions. 1, can you just kind of come back to ATC? I mean, what is your understanding of what they actually want. And, what would that mean in terms of navigation charges if they get what they want? And secondly, just kind of coming back to Q4 capacity, what is your thinking in 2019 at the moment regarding the UK, given, you know, the the Brexit is some of capacity reduction related to to the UK. And then just lastly, I know it does sound like you're ever that serious about it, but, just any thoughts on current consolidation and M and A, it seems like it's more We'll have a look rather than anything that you take seriously in terms of actually doing something. That that that with regard to ATC, I mean, I I don't know what it really means. I mean, I'm I'm not in charge of calculating their charges, but, you know, AT and T is protected by law that, on a post office basis, you know, whatever the report they have, they can it to cost and, and charge it on the, on the industry. But this is a growing, industry. So, I I don't know what it would, it would ring me. But I'm almost certain that even if there is a bit of an ADC charging fees, arising from full stopping and, you know, fixing orders disruption and operational issues, you know, we would be a net beneficiary of of that because it would be saving a lot on disruption cost and compensation cost. So I think ATC needs to be fixed. We don't we don't fully understand, but of course, it it it brings to the, to to to the system. But I think the overall cost in the system would come down as a result of fixing the AT Cities. With regards to to the UK. I think they remain very upbeat on the UK. We think the market is very robust. It we have been we have been growing. I mean, we have been, growing double digit in, or more double digit in, in, in London. We have been growing, of course, across the whole of the UK this year compared to last year. This is, again, it's a backdrop of a very big phone. I mean, the the phone's still an engineer, but, very close prior to the, the back support. So, you know, we have a lot of you know, across in the, in the market and as a result, we continue to develop our business that we understand that the market itself is not really growing. I mean, it's it's fairly flattish in terms of of capacity, but we are probably one of the few players, if not the old amount, who continues to, to push for more capacity. And obviously, this is a sign of success and the sign of, of of of solid financial performance that with regard to consolidation, I think it's interesting. It's difficult, but, as far as we are concerned, we are not involved in, in any anything concrete, but obviously, we keep an eye on, on what's going on. But as we have said before, you know, we don't really have an interest in buying, or acquiring fair businesses, or fair deadlines. They would have more interest in, you know, firing, you know, markets or getting into, markets backfitting fare businesses or fare Airlines. Okay. Thank you. Okay. I think, can we have maybe one last question, or if there are no more questions, I think we'll we'll talk for question from Catherine Lalard of Numis. Your line is now open. Hi. I'm sorry, it's just 2 very brief follow ups. I was just wondering, just on the financing options for the new aircraft and that you've mentioned through the call. Just wondering whether you could give us any flavor on directionally what pricing is doing in those markets for financing and what is it? You know, you clearly have a lot of options there and you've spoken historically about maybe sort of 200, 300 bps, improvement there. I just wanted you're still seeing that or you're seeing the direction of improvement. And then just on disruption, and the commentary and the statement and the commentary on the call about at, you know, looking like it will continue into the autumn. Just wondering whether you could update us at all on what you're seeing in the in the second quarter thus far. You talked about that run rate statistics. So Is it fair to assume the run rate in the increase in the 3 hour plus disruptions continuing for July August? Hi, Kevin. On the financing, I would say the direction is going in the right direction. I think that I'm getting our investment grade is certainly made and sharpen their pencils, whichever institutions we're talking to. So, I would say the, I think in the past, what we've said, there's a bit of financing charge off leases, you compare that to a bond. You're seeing a good 2, 2.5% increase in pickup for on the bond. I think, the direction is probably getting even better. So on that, I'm very excited about sort of the side of the equation, but I think it's a bit too early. Yeah. We are testing the market. What's important, I think it's on a Jada's comment is that we're taking quite a few aircraft. So long as we make sure we have every avenue of financing open to us and we get the best possible pricing, then we'll be taking opportunities at the right time. In terms of disruption, yes, I would say Q1 was actually particularly fierce in terms of severe, I should say. We are still seeing the issues so we're not seeing untouchable performance improve as of yet. Terms of cancellations, I think it's probably a little bit less so far in July, but that's certainly happening. But I think the run rate certainly going into Q2 for the similar to that. So Q1, you know, is probably a good good assumption. Okay, great. I'm sorry. Just one follow-up to the financing question. I know it's a bit early, but you've taken a lot on the call about the structural drivers, in addition to ownership, in terms of the cost base and task in the next sort of 3 to 5 years. How should we be thinking about that sort of, for next year? I mean, obviously you're welcome to say it's too early for that, but, you know, what sort of air is including or excluding, ownership costs, what magnitude should we perhaps be thinking about? The the size of the aircraft is mathematics. So essentially, you know, you need to pilot supply an A321 versus an A320. So that's an extra of 28% capacity, uni 180 cabin crew. So by definition, on the crew side, we're seeing 17.8% unit cost improvement on the crew alone. So that's enough to absorb. So I think on the structural, these are things that we're saying. So that's why that's why it's exciting to copy the, these are coming through just because of the map. So what you can do is you can go down all those line items. I mean, essentially we're saying 8320 was an a321 is a is a 10 or a 9.8% unit cost improving aircraft, both on the fuel and also on the, you know, all in costs. There are some costs like on root costs where you wouldn't see the full impact because it's it's slightly heavy aircraft, but there are areas like the crew where you'll see a slightly higher structural cost. So what you can do is you can go down every line item and see some general benefits. But on the on the whole, the A321 is a 10% lower unit cost, in half the aircraft, you then add the neo, another 9 extra seats, a 3 extra 3% extra capacity versus VA320. And then you add the fuel element, which is a a higher much more efficient engine, you'll then see another 10¢. So an a321neo versus maybe 20 c or you're looking at 20% lower unit costs. That's before you even start talking about ownership costs. So again, I think structurally it's a it's it's very exciting looking forward. Great. That's really helpful. Thank you. Great. Well, thanks, everybody. And, we'll be back online, with our half year results in November. This now concludes our conference call. Thank you all for attending. 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