Earnings Call: Q4 2018

May 24, 2018

First of all, let me just give you a highlight on, on the period of what we are reporting today. We delivered 1,000,000 of net profit, which is a 22% increase, versus the underlying profit of last financial year, fiscal 2017. And delivered EBITDA margin of 34 percent, which is one of the highest in the industry. It was heavy growth in terms of capacity and passenger volume. Our passenger growth was 25%. And we delivered 30,000,000 passengers in this in this financial year. Very importantly, we had been increasing our cost advantage versus the market. We delivered flat ex fuel unit cost. And when you put that in contest, you see that the airlines who have been reporting the results actually have been creeping unit cost. So we believe that, we are having a better position from a cost perspective compared to the market. Our market share in Central Eastern Europe increased quite a bit 3 points to 42%. When it's related to the SEC sphere. And I would note that our largest markets like Hungary Poland, Romania and Bulgaria, you know, it can't, more than 50% of their capacity on local carriers. So SCC expansion has been a significant phenomenon in India, core Centric European markets. We have been gaining ground on the AC 21. Now the AC 21 is rolled over the network and delivering 35% total seats of the airline, Unicore AC21 is a 10% lower unit cost production than the AC20, and actually we are very pleased with seeing that, that act of economics flowing through the system and obviously that helps us offset the headwinds we are seeing in the in the market, such as fuel, price increase, labor, inflation, and some more disruption costs, which we will elaborate on later. In the period, we received the investment grade rating from 2, credit rating agencies. Obviously, we are very happy with that, the development. This is just underpinning the the structure strengths of the business and the liquidity and financial strengths of the company. We are guiding the market with regard to fiscal 2019 net profit of 1000000 to 1000000 So we are pretty much seeing the trends, profit trends, continuing going into next financial year. It's a big year, for us, you know, passengers are up 25% to 30,000,000 we inducted a significant number of aircraft, 14 aircraft moving the fleet to a total of 93 AC20s and AC21. We opened up a few new airports and now we are covering 141 airports We operate from 27 basis in Europe in 16 countries, mostly in Central East, Europe, partly also in Western Europe now. Obviously, the growth of the business requires the growth of the organization, recruited quite a lot of people. Now we have a 3600 people working for the company. And we keep expanding our footprint across the whole of Europe and now we are operationally in 44 countries. Actually, that's more than any other local carriers in, in Europe. Significant volume of operations. I would just highlight utilization, 5.7 hours on average is one of the best in the entire industry. We time to time look at Airbus's report when they track aircraft utilization, airline by an airline, we tend to score, significant ahead of the game compared to other airlines and very importantly, actually, be operate the fleet. So technicality, special liability and regulatory regular easy are one of the highest in the industry as well. We delivered close to 80% on time performance. This is slightly less. That's what we would have hoped. This is mainly resulting from the disruptive environment, we have been seeing many more, ATC Sykes airport closures, value related issues as well, resulting in longer delays and more cancellations than in previous years. Load factor moved up 1.3% from 90% to 91.3%. Obviously, we are pleased with that development. So a very neat and tight operation but delivering a very strong, metrics. If you look at our market positions in our core markets, you can see that, we are mostly number 1 or number 2, in our markets when compared to other local carriers. And that said before, in most of these markets, actually the RCC capacity is exceeding half of the total market capacity. Certainly, this is the case in, in the larger markets, Poland, Romania, Hungary and Bulgaria, but many of the markets as well. We have been building our market position, moved market share from 39% to 42%. We are the number one local carrier in San Francisco, significantly ahead of the others. But it is not only being the number one brand in San Antonio. I think we have been gaining a lot of ground by growing our awareness in Western Europe as well. The United Kingdom is a good example. As you recall, we established a London Luton base, which was migrated into the operational platform of we said, okay, that Iran is now operational and as a result, I think we said, has become more known, the British consumers are becoming more aware of our activities here in India in the country and we'll continue to be around that strength But this is also the case in, in the rest of Europe, Western Europe, that as we are gaining market positions and we are flying more and more, the market is becoming increasingly aware of the company. But with those initial results, I would like to turn it over to Ian. I was going to take you through the financial results of the company and I will take it back for some more strategic matters. Thank you. So moving on financial review. While growth is very important to us, we don't grow for the sake of growth. Financial performance, strong financial performance, strong metrics. Is key to our business. We want to grow as fast as we possibly can, but we want to maintain margins in the region of 14% to 15%. These are industry leading profit margins and arguably growing at double the pace of our nearest 4% to 1,950,000,000. EBITDA has increased 22% to 1,000,000 Net profits increased 22 percent to EUR 275,000,000, and that all translates into a very strong cash flow generation, up 27% to EUR 980,000,000 So that's an increase of nearly over million on our free cash balance. These numbers flow into EBITDA margins, Joseph highlighted some of the highest of 34% and the net profit margin fairly close to last year of 14%. Maybe give you a flavor of some of the drivers of the revenue performance. This time last year, we were guiding RASK slightly positive So we'd be we delivered a plus 0.4% on our ask. I think it's important to look at some of the drivers of that. We added 6,000,000 more seats to 32,000,000 seats to the market. That's 24% capacity growth. We grew passenger numbers 25%. We pushed higher are low factors higher, stimulating more traffic. That's up 1.3 percentage points. And we're flying larger aircraft, larger aircraft A321s we now, at the end of the year, we had 26, 35% of the seat capacity. These have 50 extra seats. That's 28% more capacity. So you're adding 28 more capacity to those markets. This has a diluting effect, but we managed to to recover that. We fly further and our ticket prices are even lower. Our base fares are even lower. I'll come on to the ancillary per packs. Which was flat year on year, which was a slight disappointment, but I can elaborate a little bit more further on that. So all of these factors together, the growth the load factors, the larger aircraft flying further, lower ticket prices stimulating even more traffic and we delivered on what we said at the beginning of the year at a slightly positive RASK. 0.4%. There's a little table bottom right to give you a flavor. I mean, the hot topic at the moment is fuel. What I wanted to highlight is that fuel prices do translate into high fares. We are seeing that. The guidance that we set this morning is seeing a constructive market in that. Brent year on year is up 16%. Our passenger growth is up, up 25%. So that's a 6 percentage point increase. As you go into fiscal 2019, clearly, we need to lever our our capacity down a touch to manage that. But we were able to drive our fares even lower and deliver industry leading margins. So I think from the revenue side of the equation, we had a very on performance in fiscal 2018. Moving to the most important slide of the deck. Our focus on ultra low cost is undiminished this business. The airline business is a commodity business. So in order to be able to be the most competitive, you have to have the lowest possible cost. Lowest cost will always win. Whether there's currency fluctuations, whether there's high fuel prices, whether economic shocks, whether there's geopolitical issues in any of our markets, Having the lowest cost means you will have the competitive edge against any of your competitors. Every year has a slightly different story, so maybe give you a flavor of what we saw last year. The two main items staff costs, the industry seeing inflation coming through, certainly from the pilot community. So staff costs on a unit cost basis were up 5.5%. Fuel prices. We saw the price of fuel increased 10.4%. So that saw some inflation coming through And as I highlighted a year ago, depreciation, we were seeing the back end of a high depreciation. That was up, a very large 27%. And as I also indicated, as we go in fiscal 'nineteen. That will turn negative. So you can expect something certainly of the magnitude of minus 5% on depreciation, unit costs may be slightly better. Depending on the fleet structure. So I think the key message that Joe highlighted as well is that the relative performance of our cost discipline remains undiminished. And while are seeing cost creep across the board. Not only do we have a very disciplined tight cost base, but when we look ahead to the A321s, the higher proportion of seats coming into our feet. When you look at the neos, when you look at the stronger balance sheet, when you look at the potential options we have on aircraft financing, certainly we see a lot of opportunities to further lower those costs. We're going to be guiding minus 1 on ex fuel CASK this year. And as we see the neos coming on board, which have 9 extra seats and also the benefit of the on balance sheet financing to be decided, we'll expect to see that to continue that further decrease going into fiscal 'twenty and also fiscal 'twenty one. So I think the picture is very bright from a cost perspective, with Wizz Air. On to the ancillary, this is a tale of 2 halves. We had a very strong performance in the first half. I was here 6 months ago saying that we delivered 1.5 years per PAX in the first half. Now in terms of some numbers, we delivered 15 point million passengers in the first half. That translates into 1,000,000 that we delivered incrementally on the first half. In October, I think you remember we changed our cabin bag policy. So we used to charge for cabin bags. There were a number of pressures which suggested we had to change that. We changed that in October, so we stopped charging for cabin bags. And the one item that we underestimated was the impact it would have on checked in bags. Simply people were not taking their bags and checking them in rather they were taken to the after and then being put into the hold. So we underestimated the impact of that going into the second half. So disappointingly, we had a year on year performance of flat to 27.2%. What I would highlight is that ancillary revenue remains a key pillar to our business model. Getting that trend back to positive, we'll start seeing that back in fiscal 'nineteen. Be a little bit of headwind, going into the first quarter, but we have actions in place to, to reverse that trend and you'll start seeing that in Q2. And the year on year effect, you'll see the benefit going into the second half. The other positive looking into the numbers is that the value add though there is that people actually want to pay for rather than the, perceived, punitive cost of baggage. That was up EUR 2. So we're seeing continued traction on all of those, whether it's allocated seating, the mobile penetration, family bundles and the like. On to our balance sheet strength, cash increased 23%. So we have 1,000,000,000 of cash, of which nearly 1,000,000,000 of that is is free cash. So the cash generation remains very strong. If you look at, our business model is fairly simple. Cash tends to follow profit. The net cash increase was 1,000,000 year on year. One thing that did change during the year is that we put in 2 significant orders for aircraft. The first one was 10 additional COs, essentially to ensure that we have the supply for the calendar year 2018 2019. Wrapped up. So that was 5 additional aircraft in 2018, 5 additional aircraft in 2019. Given the proximity of those deliveries, we had to increase our deposits to Airbus in the tune of 1,000,000. So if you have 1,000,000, add to the 212,000,000 you can see that the cash generation remains very, very healthy. Other items, cash collection unless the credit facilities continue One thing I would draw your attention to is the credit rating that Joe highlighted. So in the case of movies and Fitch, the Baa3 BBB Flat was particularly pleasing, to report over the past couple of months. This not only enables us to access capital markets, but it certainly has a huge impact on other, contract negotiations, whether it's sale and leaseback contracts, whether it's, with third parties. So having that credit rating and the, the, the assignment by Moody's and Fitch, certainly helps us with all other cost areas and will help us lower costs even further in all categories. In terms of leverage, what you're seeing today is a 1.5x that's improved from 1.7x. Really, that's a function of the FX rate. So when you look at the calculation of leverage, essentially, it's dollar leases that are capitalized. So nothing significantly changed in terms of our business, just the FX rate. Where do we want to be? Questions asked in terms of what sort of leverage we want to maintain or have better, metrics when we look, with, with Moody's and Fitch. So maintaining that rating will remain a key objective for us. IFRS 16 is a topic that's being talked about. And if you look at the IFRS 16 number. It's around about 1,000,000,000 that would be on our balance sheet today, if we were to convert to IFRS 16. That number will be dropping to $1,300,000,000. So I think, a few surprised in terms of the magnitude, certainly a lot lower than I think a number of analysts had been affecting in terms of that impact. So it's full year guidance. I think maybe it's worth touching on a couple of the areas. In terms of capacity, we had been indicating something north of 20. Last year, it was 24%. We were suggesting it would be roundabout to 23%. We'll be tempering that down to 20, which is still more than double than our nearest competitor. That will be skewed more towards the back end of the year. 21% over the summer. We're very happy with what we're seeing in the summer, so we'll be flying at full capacity. H2, though, that's the, the area where you tend to be investing more into routes. But the high fuel price suggests that we might want to be slowing down a touch. So on an annual basis, capacity growth, we should be looking around about 20% Stage length will be relatively similar, slight increased load factors. We believe that you could be pushing load factors even higher. And actually, if you're slowing down your growth a touch, load factors is a great vehicle to get more passengers onto your plane. Fuel prices, I think, are well documented. On to the ex fuel side of the equation, I think there are 2 items. One I highlighted is depreciation will start to give us some tailwind but crew costs will be giving us more headwinds. So crew costs, you should put in your numbers around about 8% to 9% on a unit cost basis. That depreciation, we should an improvement around about 5%. So minus 5% on a unit cost basis. All other areas broadly aligns some improvements pretty much across the board. In that one. Onto the RASK, a hot topic. So we are pretty much, we pretty much closed Q1. We've have April, May, pretty much in the bag, good forward visibility on to June. We're seeing flat rat in Q1, which I think is a very good performance. Especially there's no Easter. Last year, we suggested Easter was to the tune of about $17,000,000, depending on where the days of Easter sit. Whether it's Orthodox or other. So to deliver a flat risk, certainly, certainly highlights that the revenue environment remains constructive. If you want to look in and break it into quarters, so it'll be flattish RASK in the 1st quarter. 2nd quarter, you should be looking somewhere to the tune of about 3%. In the second half of the year, we should be looking more to the tune of around about 4%. And in terms of the demand, what I would highlight is that I think Wizz Air is fairly uniquely positioned. The GDP growth in a number of our markets, Romania's forecast is 7.5%, Bulgaria is 6% Serbia, 5.9% Ukraine, 5.5%, Hungary, 3.6%. So again, I think if you look at the relatively constructive capacity environment combined with, I would say, a fairly strong robust and strong demand environment puts us very well placed. So we believe that the fuel pricing will be flowing straight through to the fares and we'll be able to deliver net profits to the tune of between 1,000,000 to 1,000,000. The remain focused on growing that's our core territory, our niche. And it is an important market, not only because of its size, we see the market to be around 200,000,000 people, but that market keeps growing much ahead of Western Europe. We are expecting GDP growth of around 4% in the next year or so, and that compares to less than 2% in Western Europe. These markets are underpenetrated. We have a lot of ability to continue to stimulate this market. And we're seeing that we are very well based for achieving that given the cost base, what we have. And as said, it is a commodity ending commodities lowest cost wins. The markets, especially, further east, continue to be deregulated. I mean, you will see a chart, how we have been taking advantage of that. And we believe that we'll have further opportunities to be difficult. Very importantly, now the macro environment is changing. We are seeing fewer price rising and we don't think it is the best thing from our perspective that we put pressure on the weak performing airlines and almost all of Central Eastern Europe's income from national carriers performed very vulnerable with no profitability, no liquidity, no liquidity So we shall see what happened to them, and we're seeing that it will fuel the consolidation game in Europe and we could take advantage of that. We have been, building our leadership positions in our markets We have 57% of our total flown capacity in markets where we are the market leader. We are the leading scheduled hunger to remain in Bulgaria, Macedonia, Macedonia and Boris, boosting ahead of Sabrina. And again, when you translate that into the environment that high will require capacity discipline and ability to, to feed the higher input cost into the fare environment when you are the leading airline in the market you have much more ability and capacity to do so than just being one of the competitors there. And as you can see, 57% of our capacity actually is in markets which we pretty much control and 40% is in markets where we are number 2 or number 3. So still very strongly affecting the with that regard. So we're seeing that we are pretty well positioned for managing our sales, managing profitability of business going into a higher input cost era. The way we are delivering growth remains fairly similar to previous patterns 2 thirds of the growth we have deployed on increasing frequencies, on existing routes, 24% of the capacity go to airports, which we are familiar with, which we operate and we are joining existing airports, joining the dots. And less than 10% goes into new territories either new airports or new countries. So we're seeing that this is a very derisked growth platform of the company and makes the financial results very predictable as a result. Fiscal 2019 is a fairly special year, from our perspective. As we say, we remain focused on Sentinel and I think this is what you should be expecting us to deliver in the years ahead of us. Nevertheless, given the consolidation opportunity, we are reacting on in the United Kingdom as well as in Austria makes us somewhat biased for deploying more capacity, investing in rope as we speak. But this is, I think, more of a one off. And in terms of proportion, I would expect that at least 2 thirds of our gross capacity will be deployed in Central Eastern Europe in the future. Nevertheless, we are in the process of building up our UK operations here and having a head start in OCR with 5 aircraft. But as you can see, we continue to fuel capacity into our core markets Poland, Hungary, Romania, and also, we are quite excited about the opportunities in further east and we are deploying capacity in Ukraine and Georgia. So just talking about Western Europe, again, we we have said and I think we will continue to pursue that the strategy should a market consolidation opportunity arise we would certainly consider that and we would react on that. And don't think of M and As and those sort of things, it is more reacting on vacuums to backfill capacity of airlines for day may, leave behind if they go back on to day backlog significantly. London Newton is a good example. On the one hand, we took a measure for Brexit by setting up Visa UK, but on the other hand, we also create an operating platform that could be a platform for taking advantage of further consolidation in the UK should that happen And given Brexit, given the changing oil price environment, you could actually imagine that in Vienna, we reacted to, to the failure of Air Berlin and fly Nicky and we are taking a head start with 5 aircraft of that. Just back to, to be said, UK, as you know, a couple of weeks ago, actually we got license and we started operating with the UK so that Airline is now operational. Ash fleet is now operating 3 aircraft and that goes up to 8 aircraft fairly quickly. Towards the end of the year. We are not only looking west. We are also looking further has been helping us increase capacity in that region. You can see that if you pick, these countries like Georgia rail, Moldova and Ukraine, we have been launching quite a significant number of routes, 66 routes in total in those markets delivering almost 2,000,000 seats. So it is also very important and access to market remains a key issue, but we are certainly seeing the regulation to be a continuous process that a little less predictable about once it happens be certainly monograph opportunities. Israel is a good example 5 years ago, we didn't fly a single seat to Israel. Today, we are the largest international airline in this country. As you know, we have a significant aircraft order on hand This is important, especially in the context of the market today. It is not easy to access the active market right now. Act of the even the second hand act of market is pricing up as a result of high demand. Now that could change with the fuel environment. But as we speak, I think we are at a very fair place strategically, to be able to access acts of, to be able to access the right acts of the direct cost level going forward. I mean, given the magnitude of the aircraft orders, what we have been placing, you can expect us that we are taking advantage on the pricing side of things. OEMs, price, aircraft and that assets on the base of the order size. And as we were party to the to the ever larger single Iraq act of order, last year, you can you can expect us, getting pretty good market pricing as a result. Ian mentioned the credit rating, we're seeing that it will allow us to tap into much lower cost capital than before. So we will certainly improve, the economics of aircraft ownership going forward as a result. We have 271 aircraft to be delivered between now and 2026, a few left of the CO aircraft order and during the next year in 2019, we will start taking deliveries of the A321neo order And a few years later in 2022, the latest stacks of order, Abir Khikin, again, AC20, AC21 Neo aircraft. The AC21 has said is a very important aircraft for us given that it's delivering 10% lower unit cost than the AC 20. And once we start taking deliveries of the AC21 Neo, that will add another 10% reduction on unit cost on AC21 Neo, we deliver 20 percent lower unit cost than AC20 today, which is the core fleet for us. So we think that we are well positioned for continuing our journey, to become the ultimate course leader and the undisputed, cost leader, of any allies in Europe. It is not only the cost side, what we are focused on, but we are also focused on the franchise, the consumer franchise. This ad.com has become one of the world's top airline websites. Actually, we are number 16 in the world, only 4 U. S. Airlines, and 1 European airline are ahead of us. And this is significant given the size of the franchise and the number of consumers we carry I think I can say to say that, we said it's probably the most digital airline of the world given our exposure to the market. Let's not forget that this is in the context of our consumers with an average age of twenty eight. So the consumer is also pushing us these are the millennials. So we have to be very technologically savvy to meet their requirements. We are the number of airline in in Europe on Facebook, they have over 3,000,000 Facebook fans, quite a bit of growth, in the last period. We also accelerated our presence on Instagram. We are clearly digital and web and app based. We have almost 2,500,000,000 page views registered in 1 year and and that number keeps growing. Interestingly, we have 2 thirds of our interactions with consumers smart devices, smartphones and hyper type of devices. I think that makes us fairly unique compared to the rest of the industry. So let me just summarize the presentation today. Again, we delivered 1,000,000 That's significantly ahead of the initial guidance that we provided. I know that the consensus was was a bit more upbeat, but we were trying to give you the number and you decided not to take it and ignore it, but think we delivered against our commitment in this to see what we can what we can measure. We delivered 34% EBITDA margin, which is indeed the highest in the industry of any airlines, a very strong year in terms of growth, delivering 25% more capacity, 25% more passengers to 30 1,000,000. And very importantly, and strategically, I think this is the most important issue for us that we are increasing our our competitive hedges versus our competitors by controlling our cost. All airlines supporting cost creep, exterior costs, we are reporting flat performance. And going forward, we are seeing further opportunities with the roll out of the AC 21s, the induction of the AC 21 neos, and the opportunities, the credit standing of the company gives us seeing that we can offset the headwinds and there are many of those. And actually we can be in a better position vis a vis our competitors. We keep gaining ground in terms of all market positions, obviously, on the back of the growth that we are delivering. And on the basis of the competitive advantage, what we have resulting from the business model, the USC III business model, delivering this business at the lowest possible cost. ASC21 is a big deal to us. It is a more efficient type of better economics higher margin and now we've got 35 percent proceeds flown on the AC21 at the end of the financial year 2019. We're going to have 44% of the seats loan and AC21s. Investment grade rating gives us many opportunities for further lowering our costs. And actually we remain quite upbeat in our ability to, to observe the, the fuel headwind by reducing our unit cost and pass through higher input costs in the in the fares. And as a result, we are guiding on that profit of 310,000,000 to 340,000,000 Thank you. Okay. And we'll pass over to questions. Damian's got his hand up front. Good morning, Damian Brewer from RBC. Ask 3 questions, please. First of all, you mentioned about actions on the ancillaries. Could you elaborate a little bit more on what the both the strategy and tactics are there to recover that. Secondly, on the credit rating, clear that has in for CapEx, but also can you talk a little bit more about where how much scope there is to renegotiate payment terms, for example, fuel providers, airport, banks providing credit card payments, you know, is there scope to sort of accelerate some of the cash flow gains there? And then very finally on Vienna, clearly there's you, there's boiling, there's loud emotion, and German wings, whatever it wants to call itself in Vienna. Boiling failed in Brussels. So if we discount boiling, where do you think your position in Vienna will be relatively unique? Or do you think your USB and Vienna versus louder in general meetings? Thank you. Okay. Well, let me start with the ancillaries. Actually we have done very well on every single order then backs, in the, in the reporting period. So, if I look at the performance, actually we are up to euros on non bag or non bag revenues. We have been able to dynamize many of the, of the existing, revenue streams. So for example, with discount club was significantly enhanced and increased, I mean, we are tracking 1,400,000,000 members as we speak. I think we successfully deployed the seat allocation model, gaining significant answer revenues there. We have a 30% uptake on, on, on seed selection, that we have been failing, is is back revenues. And certainly, this is something that we are reviewing at the moment. So you can expect action on that. So specifically to your I think this is really the biggest ticket item, which we will come forward with. The problem we have right now is that when you deliver load factor, you have issues with Bags, and you need to saw those Bags somehow. And at the moment, the current Bags policy is not only affecting asset revenue performance negatively, but also it's affecting operations negatively, and this is something what we are reviewing and but I don't want to speculate, but I think fairly quickly, certainly in a couple of months, we're going to be out with a new approach and an action on the and we're seeing that, that is going to reverse the current trends on back revenues. But on everything else, actually, we are doing very well. With regard to VNI and then I will October on the credit rating to our 3N, I think we we want to be the lowest cost producer in Vienna. And let's not forget that we are deploying our own operating platform, with all due respect to lower the motion, the aircraft is not going to be nowhere near to our unit cost. And all the others, Eurowings, varying others, we have significantly higher costs than what we are delivering, we certainly make sure that we take advantage of the AC21s we have on hand, and we will become a very formidable, competitor at very low cost in Vienna. So we're seeing that, you know, based on the logic of the industry and consumer demand. This is a commodity lowest cost we have prevailed and lowest cost we have been. So we think that our cost base will position us very well be with anyone there. Short term, it's probably going to be a pressure on yields. It's going to be pressure on financial performance, but long term, bonds to Dosecetera zone, I think we'll be fine. We have seen this in many markets. We've seen this in Budapest in the in the Baltics in Romania and Bulgaria. This is a fine game to play. It probably takes a year or 18 months and then everyone comes down and we'll take it from there. And for so long as you are the lowest cost producer, I think you're going to win. Yes, maybe adding another comment on Vienna. I think we do have a slight edge. I mean Vienna is on the doorstep of South Eastern Europe. It's only a 3 hour train So we've been looking at Vienna as a base for many years. There's a lot of hungarians, lots of vacuums living in Vienna. So in terms of the brand, we actually have pretty significant brand awareness already. So it wouldn't be I wouldn't compare Vienna to, let's say, launching a base in another Western European country where we have limited local and awareness. So I think Vienna certainly pose a very good opportunity for us. On the credit rating, I think in terms of renegotiating, I mean, that's in our DNA. We want to get renegotiate every day. Contracts on an annual basis on a 2 year basis. So certainly we will be looking to use that credit rating as leverage. Specifics credit cards, or card acquiring, we actually already have pretty good terms. That's an area we've already been driving lower. There aren't any cash collateral requirements. So your question on releasing cash, that would come in the more in the form of letters of credit. So we choose to actually collateralize our letter of credit facility. We have, the million of cash with a bank as a collateral on those letters of credit. We could convert that to, unsecured financing, but there's a cost. So when you see deposit rates at minus 50 basis points actually is good use of cash. And so we could release that fairly quickly if we wanted to. So in terms of actually releasing the cash, I would say no. There's no immediate targets for that. Where I think it will really come into force will be, as you say, I think in terms of airports, in terms of I mean, the fuel providers, it depends really on the market if it's more of a monopoly unlikely, but it's really on the big the big asset, which is the aircraft. So sale and leaseback if you're a lessor and you're essentially lending to an investment grade company like ourselves, then you'll be getting better terms then you have the on balance sheet financing. I mean, 5 year euro money, you're looking at 1.3% in terms of interest rates, 7 year money, 1.7%. So if you compare that to the embedded financing charge of leases, when we announced our investment grade credit rating, we had quite a few vessels knocking on the door saying what does this mean for us? So you can see the value that that credit rating will bring to us. It may be that we will still do sale and leaseback because I think we can have that a little bit more leverage. So it's only a it's only a good thing to have that investment grade. And certainly when you look at on balance sheet financing, there are a lot of compelling arguments to bring them on balance sheet, not only from a cost perspective, but also from a fleet flexibility perspective as well. Hi, there. Good morning. It's Vashti Gastaljani from Barclays. Can I just ask you to talk about how you about balancing growth with your margin? So, you know, you clearly have a very kind of strong pipeline of new aircraft coming in. You've got the growth in UK and Vienna in the short term plus rising input costs. So it might be fair to assume that margin could come under a bit of pressure in the short term, but I think you'll tell me the reason why you slowed your capacity. So maybe you can just talk about how, you know, are you committing to the flat margin and is that how you're still running the business? Thank you. Okay. I think we have a few levers on hand, but we also have a few issues to deliver. And you need to put those next to each other. I think the levers that we have on hand certainly AC21 AC21neo AC21neo is not going to be greatly affecting, fiscal 2019. We're just going to start taking deliveries next year. So it's a marginal impact, but AC twenty 1 keeps growing in proportion of the free and that makes a significant impact. I said, AC21 seat capacity is going to move from 35% today to 44% at the end of the financial year. This is a unit cost reduction of 10%. I think we have told a lot about credit rating and the opportunities that gives us as a result and we're going to start affecting the business on that on that basis. The RA cost manager business. So when we have the option to decide between cost and reducing cost or chasing revenue, we always decide the cost line and not the revenue line. So you can expect us to remain a incredibly and very disciplined on managing cost in the business item by item issue by issue. And as a result, as you see, guiding minus 1% reduction of ex fuel cost. Now you need to put that against the market. I mean, our competitor I think it's guiding 5% or 6% unit cost increase, going forward. So we're seeing that we have an inherent cost advantage in the business, which is obviously turning into a structural advantage, versus our competitors. We were talking about the positions of the airline in different markets. We have over 40% of our capacity non competing with any airlines. So we are the only game in tone from an airline, an airline perspective. And actually, that proportion has been growing over the last period. It used to be 30 some 37%. We are, leading airline on 57% of our capacity. So I think our ability, to manage fewer pass through has become much greater than ever before. I mean, we need to play the capacity discipline ourselves. And as I said, an airline set up for growth. I mean, growth is a great thing and obviously it excites us very much, but we had an airline set up for delivering the financial metrics. So our number one objective is to deliver the margin of the business and the profitability of the business as a result. Growth is always just an output to that. And we have been guiding the market on structure of 15% growth. The flexibility of moving up or down depending on market circumstances. We took advantage of the loss periods through the best of the industry over the last few decades and we moved gross up to 20 plus percent. Now we are still holding 20% but we are not religious about 20%. If the fuel price goes crazy and it's totally out of control, we would be reviewing our own capacity and we would be adjusting capacity as a result to make sure that we maintain the performance on the financial metrics. We have not been talking about the behavior of others, but you could expect, and this is empirical. I mean, we have seen that happening fairly consistently. Especially when approaching an off peak period, the winter period, and input costs are rising then you see a lot more capacity discipline playing into the game. So you can expect weaker airlines with no liquidity, with no profitability to be pushed for, contracting capacity, or even going bust, if it becomes a dead bet So we're seeing that the capacity environment will improve as a result, which will improve the fair environment and that will improve the ability of the industry to pass through a fewer cost into the fair environment. But even without the others, I think we are much more capable today of controlling our own destiny, and that's why we're saying that, we're going to be able to hold our commitment on delivering the margin performance of the business. Maybe a couple of other comments. I mean to Joe's point about, the weak carriers, I mean, we'll certainly help them on their way out. They're going to be struggling going into the winter. The fuel price is going to be higher. They're going to be hemorrhaging more cash. So you'll be you can bet your bottom dollar will be the ones helping them on their exit. Just one thing to add. Maybe the the capacity. So what we've been seeing now, a fuel price spike between the before summer, all airlines tend to make money, most of them make money in the summer. So you don't really see the capacity adjustments coming through the summer. But the lead time that airlines have now is that they will have the ability to adjust their schedules. So I think if you look at our numbers, in the last fiscal year in Q4, we grew capacity by 24% this year. We're looking at around about 18% in Q4, or certainly the second half. So I think you can see that we are demonstrating discipline, but there will be opportunities where we'll need to help our competitors lead them market. Thank you, Mark, from Fortis here from Panuil. Just on that point really, if you just talk a little bit more about the consolidation theme, particularly looking east where consolidation has been a bit a bit more benign in Eastern Europe than Western Europe. I mean, maybe in two parts, if deregulation does increase, what's your sort of priority of opportunities there, organic versus buying something? And then if deregulation is slower to come through do you really still think there will be opportunities as, you know, in a higher fuel price environment? It's quite hard for us to assess the financial condition that some of these legacy players, it's quite opaque. Can you give any sort of color on your thinking there? Yes. I think my starting point would be, to look at the overall economic context of San Antonio, Central East Europe is growing at a rate of around 4% on GDP. To 5% on most of the markets we operate from and that compares to 1.5% to 2% in investing typically what you see is that, the airline growth, the industry growth is around twice of the effort GDP. So if, you see 4%, 5%, you may expect kind of 9% to 10% airline growth. That's actually quite consistent with what we are seeing today, the whole of Europe is growing at around 6% on airline capacity. And within that, Central Eastern Europe is around 11%. And it's just a better overall market, probably, and more local carriers. So actually, you can stimulate more markets that carriers in euro. So I think that GDP grows that overly stimulation opportunities in the marketplace. I mean, let's not forget that if you look at a country like Hungary or Poland around seen 18% of the population fly. So more than 80% have never flown in their life. I mean, that would be 60% of the breach flying with 40% non flyers. So that is a long way to go on penetration. And underpenetrated market with high GDP growth, that's going to create a lot of simulation opportunities. And it has nothing to do yet with deregulation, but the deregulation happens or not. The degradation we believe from our perspective is more of a sideline strategy. It is more opportunistic than strategic. We don't control that. I mean, this is all political countries may decide to create access to markets or may not. But our track record is that actually we can be very successful in grabbing those market opportunities. But if you look at it today, Certainly, when you look at base capacity, we are deploying around 80% of our capacity, on markets in core in Eastern Europe and probably around 10% to Western Europe and 10% to further So I would say that, we are not really betting on that, but should further de regulation happen, we're certainly going to be there to, to carry the flag of into those markets. Manette from EMEA Securities. Just two really quick ones. Just to follow-up on Damien's question on the bag issues. I just wondered if you could give us a feel on what's giving you confidence that those diluted impacts on checked baggage are have now all come through given the surprises that you did face. And I know that you'll obviously be lapping easier comps, but just a bit of a feel on your view on that. And then just in terms of labor costs, I know you've given guidance for 8% to 9% for FY 'nineteen, but should we think of that as going forward at that sort of rate for FY 'twenty and beyond? Is that an underlying theme or is that how much of that is pressurized by the tightness of the general market within pilots, etcetera? Thank you. Terms of labor costs, I mean, we've been making adjustments to our pilot and cabin crew salaries every year. You tend to see once every couple of years that there's a bit of a bump. The last time we did it, we increased the sector pay of pilots. I think it was 3 years ago. And so this year was due for another rise. So you would have seen at the back end of last year, we implemented some changes in the second half. So that's why you're seeing a 5% increase in fiscal 'eighteen. And as you go into fiscal 'nineteen, the full year effect be 8% to 9%. Are we going to expect the 8% to 9%? I certainly hope not. We're looking at something slightly lower than that. Onto the baggage, it's, I suppose reinforcing what Joe said on all the things that we did very well. So we saw a plus 2 euros per pack on all the value add and there are a number of areas. Certainly, we can increase the penetration, increase the conversion. I think certainly we can do job on conversion on the mobile. We tended to focus a lot of our initiatives on the web, and then migrate on to the the mobile, but mobile, you're seeing the penetration and usage increasing significantly. So certainly, there's a bit to do on making sure that we get the same the conversion on the mobile apps, which is all in the pipeline. On the banks itself, I mean, it's been a little bit of a headache the past 5 years. I think I've always had the same chart saying it's going to bottom out, it's going to bottom out, it's going to bottom out. And the change in the cabin bag policy was underestimated. I mean, the cabin bag renew was per passenger per year, but I think we had underestimated the impact on the checked in bag. So the changes will be I would say more in line with what the industry is doing. So certainly encouraging people to check-in your bags. That will certainly help the on time performance bags, less disruptions in terms of the operational side. But I think there is more of a desire for passengers to take their bags through the entirety of the journey. So you should hopefully start to see improvements coming through on, let's say, the priority side of the equation where if you don't want your bag to be taken off the gate, you'll need to pay for it. So these changes are coming through, within the next few weeks. And hopefully we'll start to see some real improvement from June. And I'll report back in July at our Q1 numbers to see how that's doing. Morning. It's Alex Patterson from Investec. Congratulations on the results. Can I just look slightly further ahead? What do you think your capacity growth will be beyond FY 2019? You've previously given a longer term target, does the slightly slower capacity growth next year mean that you get slightly more the year after to balance it out or does that get pushback? And what do you think your or do you have any visibility on any of your competitors in terms of their longer term growth? I think our growth will remain subject visibility mostly. And as I said, we are not planning on growth in the first case we are planning on financial performance in the first case and attaching growth to it, subject to conditions of the market, structurally, we've seen this moderate escape, we were up growing 15%. And this is how we have been aligning of the aircraft order to deliver capacity to the business by creating significant flexibilities, both for opting capacity and taking capacity down again, depending on market conditions and our ability to deliver financial results. I think it's fair to say that we are still very upbeat, about market conditions overall. Yes, fuel is an issue, but we think we can deliver it but overall demand is very strong and we're seeing that our relevance to the market given the business model and the improving awareness of consumers actually help us achieve more than before. Whether that translates into 20% or 15% growth rate, I don't know, asking for modeling purposes, I will look at 15%. But if the market conditions are better, than the baseline assumptions, we would certainly do more we did over the last few years. What we are seeing at the moment, assuming there is no significant market deterioration or option, we think we likely, to be more than 15% beyond fiscal 2019. We could be 17, 18%, or even more, again, depending on market conditions. But structurally, we've seen this model is a 15 growth model? I mean, maybe, Alex, maybe to I think one of the other constraints is probably the, the operations, I would say that this year growing 25% was probably the maximum that we could do in terms of the operations. We could probably have grown at 30%. And delivered the performance. But I think operationally is going to be one of the questions I think in the industry. The other thing I think you're probably seeing as the market is I think aircraft availability for our competitors, pilot availability for our competitors is going to be also a bit of a constraint on market capacity. Joe highlighted the fantastic aircraft order that we've secured. We have a very enviable pipeline of aircraft coming online. So I think the mark is going to find difficult to getting their hands on aircraft. So, that would suggest that we could grow certainly continue to grow above market growth levels. In terms of the competition, I think what we're seeing is, Spain seems to be recovering. So you'll probably see the traditional Western European Carriers going back to Spain, the monarch, departing will certainly give some opportunity to them. Germany seems to be a bit of a the moment. So you're seeing a lot of capacity going to Germany. And we are seeing some capacity being redeployed from our markets into places like Germany and like. So I think, I think the competitive environment certainly looks very constructive and the capacity environment from going into the next year. Handing over to questions on the phone. Thank you. And the first question is from the line of Mark Simpson Good buddy. Please go ahead. Your line is now open. Thank you. Yes, good morning guys. Two questions. Just want to go back to ancillary, the non bag component. You talked about the value add, obviously, doing well, but if you look at the half year split, on an SKAY based RASK non bag, was up 17.4% in the first half, up only 7.9% in the second half. So I'm wondering if you can just talk about that kind of seasonal split there or the kind of longer term run rate you'd expect in terms of RASK or maybe just give us a sense of guide for FY 'nineteen on the non bag side. And then also just want to check on the fuel front. In your full year guidance, you have the line, plus 15 percent fuel CASK. Then you've got fuel price of $6.85 that 685 is that what you're saying is the blended or is that what you're saying is the market price that you're assuming ex your hedge position. I just want to clarify what makes up your 15% fuel CASK? So the in terms of the math, so what I would look at in terms of the plus 15. So the GBP 6.85 is the spot rate going into that. You're seeing the liquid price up around about 22%. So interplane premium doesn't move with the price of fuel. So when you look at the actual all in price of fuel year on year, taking into account the hedging, we have around about 19%. Then you adjust for the favorable dollar last year, it was 1 turn this year. So it was this year, you're looking around about the 1.19 versus 1.15. So you're seeing about improvement on that. And we have more and more A321s, the shark that's coming in. So that's giving you some consumption. So you're seeing about a 20% increase on the fuel You're seeing some tailwind from the FX around about 4% and then you're seeing about 1% coming through from the consumption. That gets you to your 15 percent. I think the question, your next question is going to be the price today is $7.40, although the price is actually down today. What it's important is that you'll be looking to the RASK environment will be reflective of the fuel environment. So the fuel environment of 6.85 is giving us a 3% RASK improvement. If we push the fuel environment higher, then it's our objective make sure the RASK responds accordingly. In terms of ancillary, it's a bit of a mathematical question. I think I lost my way a little bit on that. And essentially, essentially, your risk or sorry, your risk on non bags was up 17 point 4% first half per PAX. It was up, sorry, per ASK. It was up 7.9% only in the second half. For the overall performance for the year of 12.7. Only only up. I think a couple of points. Baby jumping to, I mean, 40 revenue still is 42% ancillary and the aim will be for that to increase. I wouldn't guide specifically on RASK 4 bags per quarter or half year. I mean, ultimately, we've always stated we Ancillaries incredibly important to us. We should be delivering 1 year per PAX per year. We haven't delivered that on the past few years and last year was a disappointment But what I would say is that, that should start to recover. And the checked in bag portion of that will start to see a return to the positive territory. And in terms of the value add, that should also be increasing. So certainly I would just keep tracking what we've done in the past and be looking for positive improvement on ancillary per PAX per year. Will we achieve a 1%, a 1 year per PAX for the full year? That's our ambition, will be a very traged one. Okay. And just going back to the, the kind of leverage tweed fuel price spot and your pricing. That suggests that you think that's coming through more quickly than the usual, it happens 12 months out. I mean, it sounds as though given the lower level of hedges that the market has generically, that actually market pricing or fares will respond more rapidly than has been the case in the past in terms of in the face of where fuel prices are? Well, I think I think the difference this time versus last time far as we are concerned is that 40% of our capacity is non competing with airlines. So essentially, we are the So, by concerning capacity, disciplining our own capacity deployment, we can affect the market pretty much immediately. And in 57% of the, of the overall capacity, we are the leading airline, in the marketplace. I mean, this is a much more significant position than ever before. So over it is again to affect the market is much stronger than before. I think simply, we are seeing that we can, play the capacity discipline game, does the the fuel cost feeds through into the fare environment much quicker and much more effectively than previously. Okay, great. Thank you. And next question is from the line of Jerry Castle from UBS. Please go ahead. Your line is now open. Thanks. Good morning, gents. 2 if I may. 1, firstly, just coming back to capacity, I mean, just call it $80 Brent. I mean, how much further would it have to go up before you'd reduce your 20% capacity guidance at $5, $10, etcetera? And then just secondly, just given the investment grade rating, and the strength of the balance sheet, are you thinking any differently in terms of that may or may not be out there at the moment? Okay. Let me start with the second one. With regard to consolidation, I don't think that we are, planning on So the numbers we are presenting to you, excludes any assumptions on consolidation. So I think it is rather an opportunistic matter. We are not going to buy airlines. That just wouldn't fit the model, what we have, but should we have an opportunity to assess the infrastructure, what we are unable to do because airlines are departing and those sorts of things yes, we would have an interest in, but simply this is unpredictable at this point in time. But we just want to make sure that we have contingency plans in place and we would have capacity in place to move around should that opportunity adjust the rise. But you don't see that assumption, any of these assumptions in the plan. So that would come on top of what are doing and what we are, what we are counting in. With regard to capacity versus the fuel price, I don't think, we have gone that far, mathematically, but certainly I can just repeat what I've said that we are much more capable and able to own our own destiny in terms of, delivering the financial metrics vis a vis a changing input cost environment. But I would certainly say that if if fuel goes crazy and it really spikes up to levels, what we were seeing years back, I mean, this is going to discuss the industry. I mean, this is not an issue to us. This is going to be a modulator issue to the whole industry. And again, just putting that in context, We are operating and focused on Central Eastern Europe. In Central Eastern Europe, not a single national carrier is financially fit for dealing with a situation like mean, they have no liquidity, they have no profitability. So yes, on the one hand, it would be painful to us, but on the other hand, I think that would create plenty of opportunities to have to offset that pain, certainly through a certain period of time. Okay, thanks. And one more, if I may, but Has there been any attempt by your staff to unionize? Obviously, you've seen a bit of wage inflation like the rest of the industry, but is labor relations good at the moment? We think so. We try to be very proactive in managing labor in the company. I personally don't think that union is the way to go. I mean, it can actually stress the organization. It can stress the development of the or distress the development of the business. We have been very proactively engaging with our employees. We try to understand what's going on, what issues, opportunities they see, to give them the opportunity to speak up, in different channels and management tends to act on that feedback And, you know, we want to maintain that culture. We've seen that that culture has been a key contributing factor to the of the company. And we certainly hope to be able to maintain it, and we don't see any emerging pressure as we speak that could change that, game, but you never say never. So I mean, know the industry, and we know how the industry is working, but so far so good. And next question is from the line of Ross Harvey from Citi. Please go ahead. Your line is open. Ross Harvey from Davy. Your line is now open. That was the easiest question. Okay. As there is no answer, I will move to the next question, which is from Andrew Lupenberg from HSBC. Please go ahead, Andrew. Your line is now open. Hi there. Could I ask for a good guidance if you're able to on future CapEx beyond 2019 as we move towards planning on taking aircraft on to balance sheet. I don't know whether you'll be able to give us anything that lets us. Secondly, if I can focus on you kind of gave as an IFRS 16 net debt guidance. Can you explain why that drops recently from fiscal 2018 to fiscal 2019 given that the, obviously, the size of the fleet is increasing. Are you taking aircraft on short terms or or what's driving that? And then the 3rd question, staying on the airplanes, how confident are you going to deliver but they still seem to come and keep troublesome at the moment. Thanks. Okay. Let me start last question with regard to aircraft deliveries. With regard to the current technology aircraft deliveries, is been brought in line with the with contextual commitment. So, you know, we we experienced little delays here or there, but overall, I don't think it has really affected the business substantially. So I think we regard to current engine option deliveries, we are fine. Now with regard to new deliveries, they come up in January 2019, obviously, we have been keeping an eye on the market and we have been heavily engaging with the with the OEMs, both Airbus and the entry manufacturer, Brett and Whitney. I think we understand the situation there. We understand that the entry manufacturer is is in catch up mode at the moment. So far, we have been assured that we should not be expecting significant delays on those delivery. But, you know, we continue to monitor the situation. We will add to our plans, you know, should the situation change, but so far, we've, as been, certain that, by and large, those deliveries will happen as contracted. The 2 questions. In terms of the future CapEx, I think there's 2 things. 1, I in terms of what the PDPs on the aircraft deliveries, as I highlighted, that we've actually had a step up in fiscal 2018 by around about EUR 125,000,000 because of taking essentially 10 aircraft in the next 18 months. So that will start to be returned as those aircraft. And so in terms of the PDP on the streams, you should start to see actually a net cash inflow coming through. I can't give you the magnitude. In terms of the future CapEx on the Neos, the decision has not yet been made. We're in the process. Obviously, we'll be looking at all options. There are a number of options, geocos, whether it's selling leaseback, on balance sheet financing, the capital markets. So we it's a bit too early, Andrew, to give you the guidance on that one. And then on IFRS 16, it's maths, essentially the way IFRS 16 works on the leases. It's the time to the end of the lease. So obviously leases are going to be dropping off and those that are dropping off are at, very different interest rates. So I think it's purely mathematical calculation, in terms of why that number will be dropping down to fiscal 2019. Okay. Thanks. Heard, Ross Harvey again. So, Ross, please go ahead. Your line is open. Loud and clear, Ross. I just have one question. So I was just wondering, in light of the fact that you're moving 10 aircraft, I guess, opportunistically into Lutz and into Vienna, Can you give a sense of what the ex fuel CASK development would have been in FY 2019 worth not for these new presumably more costly airports? What I'm trying to get at is the impact of the increasing overall size of the company and the gauge and what the impact would have like for like costs? Thanks. I don't think we'll move to needle. I mean, certainly there'll be a little bit more inflation. The items where you are seeing certainly, I mean, Luton is the airport costs are within line with the corporate average. So from an airport costs perspective, it's actually in line. Yes, the crew costs are slightly higher. You're seeing a little bit of And it's also important to look at what's at the other end of the route. So those flights from Bluton too, you know, to Century Sun Europe, there are some very low cost there So from an overall ex fuel cat, Luton doesn't really move the needle. Now there are a couple of 1,000,000 in terms of setting up that AOC and having people base there. So you're looking at about GBP 2,000,000. So sort of run that through the numbers. And Vienna, again, we had a very good airport deal it's not dissimilar to a Bucharest or Budapest or also. So I don't think that's really going to be moving the needle. What I would say is that we're committed to maintaining ex fuel gas. So on the airport side is that the challenge that we pose ourselves is for any primary airport that brings in a little inflation on the airport cost needs to be more than offset by somewhere at the other end that gives you, below average airport costs. So from that perspective, I think the one area that we saw maybe we flagged, in Q3 was the training, so taking 17 aircraft in 17 weeks. Does put a lot of stress on the organization. That delivers an awful lot of pilots in cabin crew and training. There are slightly training procedures for the UK AOC. So therefore, you see a training period growing from a few months to maybe 6 or 7 months. So that's That's something that should start to flow through and we should start seeing the benefit going into fiscal 2019. So certainly the training part of the organization. I mean, taking 17 aircraft in 17 weeks is is pretty ambitious for any airline. And I think something we'll be doing less of in the future. I mean, just one kind of mathematical perspective to the question. So when you compare our operations in Western Europe versus Central Eastern Europe, essentially 75% of the cost would be the same. Because 75% of course would depend on aircraft utilization, would depend on fewer cost spend and all charges we charge common, irrespective of the of the origination of the aircraft. So we have around 25% of course, that that are subject to the market and typically labor and airport related cost. So if you just run the math, Even if you know, we see like a 10% increase, of course, in Centric this is affecting the overall cost 2.5%. It is 20%. It's affecting 5%. So that's why Ian is saying that we are seeing a marginal difference in overall cost investing of compared to San Antonio. And again, whatever we are doing in a more costly environment, we make sure that we offset that in a less costly, capacity deployment on the destination end of the equation. Very interesting. Thanks. And that's our final question. So I will hand the call back to the speakers. Please go ahead. With that, thank you very much ladies and gentlemen for joining us today. Any further questions, just follow-up directly. Thank you.