Good morning, everyone. Thank you for coming to this presentation. I'm very pleased to present you strong results for Wizz Air for the first half of the current financial year, I think we remain very positive about the future for so long as we have visibility on our future. This is a period which is characterized by the number 25. Everything looks like coming in clusters of 25. The increased passenger numbers by 25%, revenues up 25%, net profits up 25%, and also we delivered 25% net margin during this period. Essentially, we've been able to grow this business by 25% without diluting the profitability of the business. EBITDA margin is up to 43% and asset net profit delivered on 25% margin. Very robust, very strong financial performance in the period.
All these developments obviously have been helped by the strong macroeconomic context in Central and Eastern Europe. GDP development in the region remained robust and obviously that helped our growth, our ability to continue to stimulate the marketplace. During the period, fairly recently actually, we applied for a U.K. AOC. We set up a U.K. legal entity, and now we are licensing that legal entity to become a U.K. airline, hopefully starting operations in March 2018. I will elaborate on that later. Free cash exceeded EUR 1 billion. That's good. We feel very good about it. Obviously, you may have a question what we're going to be doing with that cash, we think it is important to remain a formidable competitor in the marketplace and have the options with regard to our financial ability to invest in aircraft later if we wish to do so.
Should we see any opportunities in the marketplace, we could step up on the back of that liquidity position. As a result of the strong performance in the first half, we are seeing that trend continuing into the second half, especially in the current quarter. We are raising our guidance to EUR 265 million-EUR 280 million of net profit for the full financial year 2018. If you look at the operating metrics of the airline during the period, asset passenger count is up 25% to EUR 15.6 million. As we speak, we are operating a fleet of 87 aircraft. This is 14 more than same time last year. We've got 144 airports in the franchise, we opened up new airports, 40 new airports, during the period. We also added countries to the network.
We operate from 43 countries in total, we also opened up two bases, London Luton and Varna in the period, now we have 28 operating bases in 16 countries. We've got 3,300 employees, 500 more than a year ago. Obviously, with that growth, we operated many more flights than before, 18% more flights. This is reflecting on the increasing seat count of the aircraft through the deployment of the A321. We delivered many more passengers than flights were filled, this is 18% more flights. Utilization was up a bit to 13 and a half hours a day per aircraft. This is industry-leading number. Wizz Air operates the highest utilization of fleet in the industry in Europe. Load factor goes up to 92.8%, 1.7 percentage points. Regulatory remains the strength of the operating metrics. We operated 99.9% of the flights.
We were forced to cancel 110 flights during this six months period. Again, this is seen to be best in class in the industry. Some of our competitors, based on some issues and announcements, they were canceling thousands of flights. But our performance is consistent with historical performance of actually delivering the schedule as it is published. Punctuality dropped a little to around 80%. This is because of better ATC strikes and all those sort of constraints. But this is still fairly intact compared to the performance of the industry. This is the fleet growth we are delivering today and the fleet growth in front of us. You see that by the end of the financial year, we're going to be ending up with 92 aircraft. As said, we are currently operating 87. We will start building the A321 proportion of the fleet.
By the end of the financial year, 33% of the seat capacity will be flown on A321s. The A321 component is becoming chunky. Another year down the line, FY 2019, we're going to be adding 16 incremental aircraft to the fleet. We will take many more deliveries, but some of the deliveries will be used for replacing existing aircraft. By the end of FY 2019, this is March 2019, 44% of the seats will be flown on A321s. A year later in FY 2020, we are going to another 17 incremental aircraft, build the fleet to 125 aircraft. At that time, in March 2020, 55% of the seats will be flown on A321. The A321 is now really kicking in terms of impact on the business.
We're going to see all the efficiencies on fuel, on overall operating cost, overall operating unit cost, coming through the system very robustly. We're seeing this is a key driver for our cost management going forward. With that, I will just turn it over to Iain to present the financial results.
Thank you, József. Good morning, everybody. I think as most of you are aware, we want to grow this business as fast as we possibly can and maintain industry-leading margins in terms of EBITDA margins, in terms of net profit margins. It's therefore very pleasing to report a very strong set of first half results to 30th September 2017. We increased passenger numbers by 25%. We delivered an EBITDA margin slightly ahead of last year at 42.8%, nearly one percentage point higher than last year. We maintained a net profit margin of 25.1%. These are very strong and arguably some of the highest margins in the industry, which on the back of 25% capacity growth is pretty impressive. If you look at the left of slide six, these are the building blocks of our growth. We added 17.8% more aircraft.
That's 13 aircraft in unit terms for the six months, the 14 that József referred to is add that today. 31% of the seats are now supplied with the A321 aircraft. Therefore, seat growth is ahead of aircraft growth, the seat growth of 22.6%. Slightly longer stage length. It's important to remember that we generally fly around about 25% further than our competition. It's important when looking at fares versus competition, that we actually fly a lot further than our competition in terms of stage length. Our ASK growth was up 24% and with a higher load factor, we increased load factors by 1.7 percentage points. We delivered passenger growth of 25%, which is particularly impressive. Passenger growth up 25% to 15.6 million. Revenue growth up 25% to EUR 1.15 billion.
Profit growth up 25% to EUR 288.6 million, and a net profit margin of 25.1%. What's very encouraging about the first half as well is if you look at where we've added the incremental capacity. In the past, we tend to see a skew towards increasing frequency, increasing the density of our over 550 routes. 53% of our new capacity that was added in the first half is on brand new routes. It's encouraging to be able to deliver 25% growth, but also delivering it on a fairly immature network. That certainly gives some very good signs for the future. This platform in the first half of 15.6 means that we can grow. We've always said if we have a strong first half, we'll tend to grow faster in the second half.
Over 23% in terms of seat growth, we'll be looking to do 23% going forward into the second half. This will deliver us around about 30 million passengers for the full year. On to slide seven. When we issued guidance back in May, we were saying that we were seeing essentially a flattish RASK for the full year. I think the market took this bit by surprise that we were being a bit bullish, but that's the way we see it, that's the way we see it today. A flattish RASK with a little bit of a bump because of Easter at both ends of the year. In the first quarter, there was Easter. Back in Q1, we said this had a value of about EUR 17 million.
We also have a few days, not a full Easter in the fourth quarter, but there's a few more days of Easter. Flattish RASK for the full year with a little bit of a bump, slightly positive RASK, and our view has not changed. That's how we see the environment. Again, given the strong first half, we can grow faster in the second half. I've had a few calls this morning already. People are saying, "Why aren't you seeing a slightly stronger performance in Q4?" It's important to bear in mind, we're growing 23, 24% in the fourth quarter. Last year was 18.7%. We are all about growth. We believe we want to grow this as fast as we can, but maintain flat margins.
That's essentially why we expect to see flattish RASK with a little bit of upside maybe from Easter in the fourth quarter. The platform Q1, we had a very strong Q1. We delivered EUR 58 million of profit. That I would say outperformed slightly ahead of expectations for us. The second quarter delivered pretty much in line, we delivered EUR 231. Therefore, that highlights the real seasonality of this business. If you have a good first half, you can grow faster in the second half. Moving on to the all-important ancillary revenues, again, some of the highest in the industry and the highest in Europe. The stated target we have is we want to grow ancillary revenue per passenger by 1 EUR per year. This certainly outstrips that. This is a function of two things.
One is that we've increased penetration, we've increased conversion in things like allocated seating, partner revenues. If you look at our route mix, you're seeing a lot more leisure routes coming out of Central Eastern Europe. The partner revenues on hotels and car hire and those sort of things, you're seeing some traction coming through on that. There's a strong performance on the ancillary revenue in the first half. Looking for the full year, I wouldn't extend that 1.5 EUR. I'd say 1 EUR is a fairly sensible assumption. We have changed our large cabin bag policy. That's around about EUR 2 per passenger. We've only had 1 week of that in practice, it's a bit too early to draw conclusions.
What we have been doing, and this is also the other part of the 1.5 EUR, is changing the product profile so that customers are more suited to that new cabin bag policy. Customers will be more interested and are paying more for the bundle, the convenience, the priority boarding. They want to take their bag on board. That'll be something that flows through. In terms of magnitude of that change in cabin bag policy, we don't believe that will have any impact on our revenue per pax. Moving on to costs. If you look at our fares, we delivered on average EUR 44 fares, and the only way you can do that is 2 things. One is the ancillary we just touched on, but also the cost base. Cost for us is absolutely paramount.
It's fair to say that we've had a pretty good cost performance. I'll talk about some of the headwinds on the later slide. But in terms of the opportunity, there's every reason to be very optimistic about our cost base going forward. The A321 that József highlighted earlier, fiscal 2020, 55% of our seat count will be delivered by an aircraft that delivers 10% lower unit cost than the A320 and a lot of our peers. In terms of the cost traction, we will definitely be looking to certainly maintain a flat CASK, but obviously looking to try and lower that CASK. As the A321s get a higher proportion of the fleet, we're seeing around about between 1% and 2% improvement on the structural benefit of that aircraft coming through. József also highlighted the EUR 1 billion in free cash.
That strong balance sheet certainly helps us in a lot of other areas, whether it's the lease financing, we're seeing very strong lease markets for us as an airline. In terms of other contracts, you're seeing that strong balance sheet really helping flow through the cost environment. There may be some specifics in terms of the challenges and the headwinds that we're specifically seeing on the ex-fuel CASK really. Fuel CASK was really a function of the fuel price, but it's fair to say that we do burn less fuel versus our competition coming through from the A321, the larger aircraft, but also the engine and the initiatives that we drive in the organization. I would highlight two items coming through on the ex-fuel CASK. One is the crew. Crew cost has been fairly well documented that the pilot community in Europe is fairly tight.
It's been fairly tight for a few years. We don't have any issues with retention, but given the growth trajectory that we are planning and we are delivering, that requires an awful lot of pilots. We're not immune to that. I think it's fair to say that the crew cost, the crew CASK, will be slightly up. We do have a structural benefit. You still need 2 pilots to fly at A321 versus an A320. There's a structural 2.4% improvement coming through next year on crew CASK, but given the tightened environment, you'll start to see a little bit. That'll be slightly positive, 1%, 1.5%. That's an area which you can expect a little bit of inflation. The other item is depreciation. We highlighted in May that there's an 18-month blip going through as a function of we have 100% all leased aircraft.
At the end of those leases, you tend to find maintenance events and return conditions on those leases. The first half was that, I would say, the high point. If you look at the absolute numbers, the absolute depreciation was up 100%. In ASKs it was up 60%. Flowing through into the second half, the absolute number will be up around about 35%. In ASK terms, it'll be up more like 10%. As we flow through into fiscal 2019, that number will be more normalized. We have every reason to be optimistic in terms of our cost base. That blip will start to diminish. I think the only item that I would sort of flag is crew, just as a function of us wanting to grow very fast. In terms of the cash, we have EUR 1.029 billion of free cash. That's up EUR 255 million versus the start of the year.
The slight difference, delta between the profitability and the cash is a function of slightly higher deposits. We concluded an extra 10-aircraft order with Airbus during the year that required a little bit more CapEx on deposits. Restricted cash also up EUR 10 million or so. I think what's very pleasing to see is that cash follows the profit. It's a very high cash generative business, and will continue to do so. On leverage, that number's slightly improved. It was 1.4 last time we spoke. That's really the function of the translation effects of the USD leases. USD in H1 this year versus H1 last year is 112. Essentially that number just returned back to 1.3. In terms of the balance sheet, a very strong performance continues.
Thank you, Iain. Moving forward, when you look at the markets, we continue to be the number one local carrier in Central and Eastern Europe, with 42% of the capacity supplied by us, followed by Ryanair and EasyJet. I think for the first time for a long period, actually, we are seeing other than the LCC sector also growing in Central and Eastern Europe. We've seen some growth coming through the legacy carriers. I mean, for example, LOT Polish Airlines, it was growing 30% during summer, all sponsored by the Polish state. It's all subsidized growth, but nevertheless, it is growth to the market. When you kind of look at all these financial results we are reporting, those results were achieved in a capacity-inflated environment in Central and Eastern Europe.
As fuel price starts going back up, I think you're going to see some moderation of capacity in the future. We have been building a network in a fairly diverse way. 47% of the new capacity was put on existing routes, 53% of the new capacity was put on new routes, either by joining existing airports or flying brand new airports, brand new countries. Not only that, if you look at the way we allocate capacity in terms of traffic direction, the sea to Western Europe is only 72%. It used to be overwhelmingly 80%, 90% of the capacity. We are doing now much more on intra-Central and Eastern Europe and other east-worthy directions as well. As a result, you can see the sort of countries that we were just opening Kosovo, Albania, Morocco, Kazakhstan.
Kind of pioneering LFCC, ULCC in brand new territories as well. We opened 12 new destination points in the network in the first half, putting up 94 routes. We've been very active in not only deploying capacity on existing services, but continue to build the network. Now we have a network of over 550 routes in total. We continue to innovate, we continue to appeal to the consumer, recognizing the changes in consumer trends. We are the world's sixth-largest airline website, following the four U.S. majors, including Southwest and Ryanair. If you look at it on a relative basis, relative to the size of the passenger franchise, by far, wizzair.com is the largest airline website in the world compared to any others. 60% of the interactions with consumers are now on smartphones. This may not be that surprising.
As a matter of fact, when you look at the average age of a Wizz Air customer, it's around 28 years compared to some of our rivals that are above 30, around 35 years. We are much more reliant on the new generation of customers coming to the market. They are much more savvy with new technologies like smartphones. I think that also gives us an opportunity because we are really engaging with this new generation of customers, and once we hook them, I think we can make them loyal to the franchise, to the airline. Quite a bit of transition that we have been observing over the past few years. Our website is now geared to the marketplace, recognizing the multinational nature of our markets. We put our website on 24 languages. We are getting over 1 billion page views.
The app is well-functioning on certain languages, 700 million views. We are very active in the digital world to try to appeal to our customers. We continue to bring in new services and new functionalities of our devices. Of course, we continue to innovate our digital approach. Let's spend a bit of time on Wizz Air UK. Maybe just a few highlights why we are doing it and what we are trying to accomplish here. Well, we are having two thoughts and two strategic considerations when it comes to Wizz Air UK. On the one hand, we think that Brexit is yet uncertain. Nobody knows how this is going to play out, and we want to make sure that we play a contingency, and no matter how it unfolds, we are ready to deal with the situation under any circumstances.
We think that Wizz Air UK, being a U.K. legal entity, a U.K. airline, would be well-positioned to observe the market and continue to fly and continue to get access to traffic rights under any circumstances. Secondly, we think that Monarch is not the end, but it's more the beginning of a market consolidation in the U.K. We think Brexit is going to shake up the industry, and we just want to make sure that we stand ready for those opportunities should they arise. Obviously, this is speculative, and you don't know exactly how this is going to unfold, but we just want to make sure that we have a platform that can take advantage of any consolidation opportunities in the marketplace. With that, we decided to turn the London Luton base of Wizz Air Hungary over into Wizz Air UK.
As said, Wizz Air UK will become operational in March 2018. Our initial plan is to have three aircraft based in Luton, operated by Wizz Air UK as of the start, pretty much scaling it up to five and then seven aircraft over the next two years. This plan may change depending on the situation. One of the factors we are actually contemplating is the Monarch slots at Luton. Once we understand what the hell is going on there, we can form an approach how to best go for the opportunity. Again, as other opportunities arise, we would react to that, and we would scale up the operations. We are very excited about this approach, and we think this is going to step change Wizz Air's presence in the U.K., and we will be a different airline after following through this initiative.
On guidance, we are pretty much seeing the plans, what we observed in the first half going into the second half. Obviously, we have some visibility on the current quarter. We have very limited visibility on the last quarter. With that note, we are guiding the market based on the views how we see the business today. This is not conservative. This is not bullish. This is a realistic view of how we are seeing the business. Capacity is going to grow 23%. Second half will be similar to the first half. Load factor will continue to rise in similar fashion as in the first half. We are expecting exterior costs to be flat broadly. This is a little better in the second half than what it was in the first half. Obviously, fuel is the function of the market.
As you know, we are hedged on 50% of our requirements over the next 18 months. We have some protection, but we are not fully protected from any fuel price changes. Revenue is expected to unfold similarly to the first half, slightly up. On the basis we are putting up a new guidance of 265 million EUR-280 million EUR to the market. Just in summary, again, very strong financial performance in the first half. Everything is up 25%. Passengers, revenues, and net profits. The enhanced EBITDA margin performance to 43% and maintained net margin performance at 25%. This is all against a very strong economic backdrop in Central and Eastern Europe. We are very excited about the U.K. opportunity and the way we are going about it with Wizz Air UK. We built significant liquidity.
We brought free cash over 1 billion EUR, and as a result of the strong performance and the visibility what we have in front of us, we improved guidance 265 million EUR-280 million EUR. With that, I would close the presentation. I would turn it over to questions.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. That is zero one to register for a question.
Hi, good morning. It's Rashika from Barclays. Can I ask two questions, please? Firstly, on the growth, you said 50% is on boarding frequencies and approximately 50% is on new routes. Is that the right rate of growth on the profile of growth going forward? Or to the extent that you can comment or quantify it, what would a RASK profile look like on the routes where you're boarding frequency? Or put another way here, what was the dilution because of the new routes? On the second question, just on the free cash flow profile and CapEx in particular. I think looking at your numbers, you had some proceeds from sales of assets. Could you maybe just help us in terms of what you think the growth versus net CapEx profile looks like for the full year?
very finally on ownership cost, you touched upon the strong balance sheet and the fact that at the moment the fleet is fully leased. Are your thoughts around that changing? The latest update on that would be helpful. Thank you.
Okay. Let me start with the network development question. I don't think we have a preference for increasing frequencies over new routes or new routes over increasing frequencies. We simply just look at the opportunities of all kinds and try to determine the expected profitability of those opportunities and rank them up and take the best opportunities. Historically, we ended up with a lot of new routes, obviously at the beginning when we were just building up the network. Over the past few years, I think we became a bit more skewed towards increasing frequencies on existing routes as we created the backbone of the business and the skeleton of the network. Now it looks like we are doing more new routes than before. This is simply just a function of the changing circumstances and expected profitability of the various opportunities.
We don't necessarily have a strategy here, but definitely we are seeing maturity coming through the network. We are seeing a diversity coming through the network. While the network was very skewed towards migration-related travel at the beginning, it is a much more balanced network nowadays. We are building the proportion of leisure traffic. We are building the proportion of business traffic. Obviously with that, the proportion of migration-driven traffic is coming down. It is also becoming more diversified in terms of geographical spread. It used to be much reliant on east to west traffic flows. Now we've got quite a bit of east to east and also intra-Central and Eastern Europe. Also, it is much more diversified in terms of country setup and base setup. As said, we have 28 bases in 16 countries. We fly four to three countries.
This is just a very well-diversified network now, and we try to take it from there. Profitability remains our overwhelming priority, and we simply have just not found a better strategy than profit, and this is what we continue to pursue.
I can take the other on the CapEx question. The CapEx for a leased business, when you're continuing to take redeliver aircraft to lessors and then take new aircraft, it's essentially a bit of a carousel. The CapEx number I think you were looking at is probably around about EUR 100 million. The number that you had for. I would say there's probably no change since the beginning of the year. Yes, there's a little bit more of proceeds coming from some engines. Last year we flagged that we used some of our cash to buy some engines because the market for engines, as you could probably imagine, given issues in the engine market, that it's fairly hot. We took the opportunity to do some sale and lease back to those engines. That would have been offset by some additional cash going out for these 10 extra aircraft.
From a CapEx perspective, there hasn't been any change since the beginning of the year. We don't have a stated guidance on CapEx. It can change, but there's nothing untoward you should be concerned about. What was the third question on ownership? Sorry, can you repeat the third question?
Yes. Sorry. Just related thoughts around ownership costs. Lease versus kind of full ownership and
Yeah
other benefits.
Sorry. The lease market today is actually incredibly hot. I think there are some advertisements around about the deliveries of the NEO aircraft. They're fairly well-documented as well. As a result, you're seeing residual values of the older aircraft increasing. Therefore, when going out, the recent 10 aircraft we just completed, the financing for that are some of the best terms we have ever seen. Lease versus buy, the leasing market is incredibly hot right now. It's fair to say, as József highlighted, that we have EUR 1 billion of cash. We are excited about the NEO aircraft. We take three of those in fiscal 2019 and 17 in fiscal 2020. We'll need to make sure that we have the right balances in place at the right credit rating to have the optionality to choose.
In terms of the ownership costs, looking forward, we're very excited either through the lease environment or through the ownership side.
Thank you.
Damian Brewer from Royal Bank of Canada. Two questions, please. First of all, on the growth, the sort of 25% growth, it doesn't sort of feel like ATC or infrastructure capacity is growing 25% per annum. How do you think of that going forward in terms of the sort of the limits that that might impose on you in certain areas, and how do you plan for that in terms of fleet and aircraft utilization? Is that sort of 13 and a half hours utilization still an ongoing figure, or will there have to be some slack in that as the system becomes more pressured? Secondly, we're already seeing some of these sort of, I guess, CE legacy struggling, TAROM's EUR 50 million loss and the next big restructuring there.
When you think about looking to sort of next summer in a tight pilot, high fuel cost, maybe sort of slightly tight infrastructure environment, how do you sort of think about contingencies and ability to sort of move where you're operating if there are some sort of further failures in Eastern Europe?
Okay. With regard to growth, I think we are in a slightly different situation compared to our competitors. We tend to avoid congested infrastructure. We tend to avoid congested areas, congested airports. If you think about it, we have 28 operating bases pretty much all over the place in Central and Eastern Europe. Most of these airports are kind of underdeveloped, under-penetrated regional infrastructure with plenty of opportunities to grow. We tend to prefer secondary regional airports, even in Western Europe. We don't really fly the heavily congested airports in Europe. We think that infrastructure should not really be a significant constraining factor to our growth going forward. We have been consistently delivering 13 and a half hours of utilization in this period of the year. We are delivering on 12 and a half through the whole financial year.
I don't think this is going to dramatically change. We've been able to scale this business up to around 87 aircraft as we speak. This is the size of the fleet. It should not be changing significantly going forward. I don't think it is going to go much beyond this, we should be able to hold on to this level of utilization. This is quite core to the business model, to be honest. We need to do better than our competitors if we're going to deliver this business at lower cost than our competitors. This is the ultimate goal of the company. With regard to the trading environment in Central and Eastern Europe and the state of the legacy carriers, I think you are right.
Should the trading context change to the worse and the market would become much firmer than it is today in terms of higher fuel price, maybe some macroeconomic slowdown, I think that should shake out the marketplace. The problem is that simply it is just impossible to kind of calculate those airline failures because there are factors which are outside of our controls and outside the kind of economic rational. We have no idea how governments intervene. Look at Alitalia. This is not in Central and Eastern Europe, but I think it's kind of giving you the case. Everyone believed that the king was dead when Etihad decided not to further fund the airline. The king is not dead. It's still flying, and the Italian government put in EUR 900 million.
We know for the airlines it's growing by over 30%. They just consumed EUR 400 million of loan over the last two years, and God knows how the government is funding the airline at the moment. You have all these irrationalities in the system. If you really apply a long-term strategic view on the marketplace, most of these airlines should be going out of business one way or another, or should become irrelevant. If you look at countries like Bulgaria, the local airline, the local national carrier, although that's a private company, Bulgaria Air, has been essentially diminished by the market. Even if they are hanging in, they only operate five or six aircraft. If you look at TAROM Romanian Airlines, now we are operating twice the capacity of TAROM as a national carrier in the country of Romania. They are getting diminished in any event.
Yes, of course, I think we try to be ready for these events, and we have our own contingency plans. We simply just don't know how to time those plans because we have been burning a few airlines, but we are still hanging in. End of the day, long-term strategically, lowest cost will prevail and we'll win, and all the inefficient capacity and airlines will go away or will get destroyed in the system one way or another.
Thanks. Good morning. It's Jarrod Castle from UBS. Two or three for me. One, can you give us the magic cap number for now under IFRS 16 that you're thinking of? Two, you are flying further east. How far east would you fly, especially, if you're thinking A321neo airlines. Just looking at the AOC. Depending if it's a smooth Brexit, would you still continue to have the U.K. AOC or would you reconsider it? Thanks.
I'll answer the first one. IFRS 16 obviously is an important change in accounting standards. It's important to note that it hasn't yet been endorsed. Rest assured, we are spending, or spent our time analyzing what that impact is, but we're not going to give any public comments on that at this stage.
Okay. With regard to expanding west and further east, taking into account the advantage of technology coming to the market. Really, we are not gaining a lot of range on the A321, simply because we are not operating the A321 at its maximum takeoff rate, so we are somewhat range limited. The range what we are looking at, whether this is A320, A321, is around six hours. Whatever we can do within that range, we'll look at it. I think we built quite a bit of a network to Dubai. By now we fly a lot to the Canaries in Spain. We actually built quite a significant network to Iceland. We have been exploring kind of medium haul, if you wish. We'll continue to do that depending on the market opportunities.
The problem with further east is that it is not only just a commercial decision of the airline, but it is also subject to regulatory discretion. Those countries tend to be fairly regulated based on the kind of old-fashioned bilateral system. It is a challenge to get traffic rights to a place like Kazakhstan or Azerbaijan and those sort of countries. It is much easier to fly now to Israel or Georgia. The system is changing, but we are subject to their discretion. With regard to the U.K. AOC, we're going to be doing the U.K. AOC in any event. First of all, Brexit is March 2019, or maybe not. Based on the current view, this is the timing of it. I don't think we're going to learn and we're going to know really how Brexit is going to unfold anytime soon.
We just want to make sure that we have the right contingency from a Brexit perspective. As I said, the U.K. AOC is not only for Brexit, it is also for market consolidation opportunities in the U.K. We're seeing that having a local entity with a local AOC, we simply are just better positioned for grabbing those opportunities should they arise. We'll do it in any event.
Mark Simpson from Bernstein. Just two questions. First off, on fuel hedging, your 23% covered for FY 2019. A year ago, you were 33%. We have seen a number of airlines having lower levels of cover going forward. Just wonder if you could take us through your thinking there. Second question, on the lease return related depreciation costs, do they normalize going forward at a nominal level and decline at a cash level, or are you expecting them to normalize at a cash level?
On the fuel hedging 23% versus I think 30%, essentially, the way our hedging policy works is that we do rollover transactions. Every time we go into one month, we'll just top up as you go from one quarter to the next. Essentially, all it means is that there's one month that we haven't done. Given the fuel prices have risen 15% or so in recent weeks, we held off on that transaction. You'll see us just topping up normally as we move forward. Sorry, what was the second question?
Normalization.
Normalization depreciation. On a cash level, you'll start seeing a decline.
Just to comment on this. If you kind of put that in a macro context from the company's perspective. We have been rolling out the A321 Program. The A321 is the best single-aisle aircraft today to deliver the lowest cost possible. The A321 is achieving 10% lower unit cost than the A320, roughly around that number. We have not been able to benefit really from that cost decline because of the headwinds coming through lease returns and maintenance accounting. As that issue is sort of getting phased out, you're going to see the A321 impact coming through. You should be seeing actual decline. In the meantime, the A321 proportion is going to just get larger and larger in the business.
I'll just add to that. We're fairly uniquely positioned in the fact that we have 100% of our fleet leased. The reason for that is that we're going, as József pointed out, the A321, but also the NEO aircraft. This is a once in a generation change in technology. We are uniquely placed for that. That's why in the past few years, the decision of lease versus buy has always skewed towards lease because of the residual value risk. The function of our fleet as of today is really paying for that choice. Looking forward, we're going to be one of the best placed in the industry in terms of fleet evolution.
I think we also need to add that there is also headwind out there. You see the pilot situation is tightening, that's putting inflationary pressure on the entire system. It's not only an issue of an airline. The tight market is affecting all the players in the marketplace. Pilots will become more costly, it will cost more to the company. We have to invest more into pilot trainings, into cadet programs, and all those sort of things to start owning our own destiny, I suppose, which is being subject to the market. This business is always obviously subject to the macro environment, fuel price effects, and those sort of issues. It is not just a clear cut that once we have the A321, everything is glorious.
For sure, on a relative terms, relative to our competitors, we should be gaining a competitive advantage as a result of the A321 rollover.
Andrew Light, JPMorgan. Are you seeing a benefit from Ryanair scaling back on your routes or competitive routes, and has that impacted your guidance?
I think we look at life on a longer term basis than just jumping on the opportunity of the week. We're seeing that Ryanair will come out of this, and will fix their issues. Yes, there have been some opportunities, but I don't think that these opportunities represent structural moves for the business. I wouldn't say that we got overexcited. At the same time, obviously we like our competitors struggling.
It's probably worthwhile highlighting, I think last year we had some headwinds on capacity, the competitive environment in the fourth quarter. There was a chart that we showed that actually we were supplying 16% of additional capacity. The CEE last year grew at 15% in terms of additional seats. This year it's growing at a 14.1%, we are actually adding 28% of that. We've gone from a 16% of the growth to 28% of the growth. You can see that in the environment, whether it's through promotional activities. Again, you are a lot more in control of your destiny. Yes, there are some airlines trimming a bit of capacity, but fundamentally we are driving that growth. The additional seats that Wizz Air has put to the market in Q4 is nearly three times the nearest competitor in terms of seats.
We are driving that growth.
All right. James Hollins from Exane. Three from me. Strong need 1.3 times leverage. Is that sort of a target you look to maintain, obviously depending on ownership? Perhaps are you looking at maybe net cash per aircraft, which I certainly used to have done in the past. The second one is on, do you plan on targeting any Monarch slots outside of Luton in the U.K.? The third one is load factor. Are you pretty comfortable where we are now? Do you expect to push harder on that, particularly as you go more to the A321s? Thanks.
Leverage for us as an all-lease fleet tends to be a bit of an output. I think let's be open about that. It's not particularly a target. What we're doing right now is, as again, with the NEOs coming online, we want the optionality, we'll be looking to get a credit rating for the organization. We're going through that process I think that will be the output of making sure what sort of target we'll be getting to. In terms of cash per aircraft, no, that's not something that we feature for us.
Okay. With regard to the Monarch slots, as said, first we need to understand what the hell is going on with those slots. Our interest is limited to Luton. This is what we are looking at. This is where we have the strong core in the London market, and this is what we want to further build on. With regard to load factors, I'm sure that's not going to go beyond 100%. We are at around 92%, so there is some way to go. We are not a load factor maximizing business. We are a revenue maximizing business, and load factor is a function of yield, or yield is a function of load factor. I think we are approaching an area where it's pretty much maxed out. There may be another % here or there. I think this is quite efficient by now.
Morning. Michael Kuhn from . One follow-up on traffic mix. What currently would you say is mix between migration driven, let's say short-term business trips and leisure, and what different growth rates do you see in those areas? Secondly, on current trading, could you give us an impression on how your current forward load factors look like? Lastly, on guidance, I heard you commenting about it still, if I look at the implied H2 guidance, it basically says you expect a modest widening of the losses. Is this prudence at the current time, or do you see any specific things? Thank you.
I'll take the traffic mix.
Okay. With regard to the traffic mix, the plan is that The proportion of leisure is growing, the proportion of business is growing. It is the function of the diversification coming through the network development. We have been launching quite a number of leisure routes recently. Summer leisure, winter leisure as well. As the network deepens, so we are flying more frequencies on certain routes, obviously it becomes more appealing to the business traveler as well. Roughly speaking, we are seeing business around 10%, leisure around 30%, 40%, and around a good half would be migration-driven. This is quite an evolution, let's say, versus what we had five years ago, where migration-driven traffic was dominating the passenger mix, probably around 75%-80%. This will further evolve.
You're going to see this proportional growth on leisure and business, and the continuing decline in terms of share of traffic, of the migration-driven traffic.
On current trade, in terms of the forward bookings, we're pretty much in line with what we saw last year. Nothing particularly spectacular. In terms of you look at the capacity on a monthly basis, November and February tends to be the weak months. In terms of the capacity growth, you're probably seeing more like a 20% growth in November. I know that wasn't what you asked, but just to give you a flavor of when you see the sort of statistics coming out for November, capacity will be more like 20%. In terms of guidance, I think it goes back to the capacity again, because we are looking to grow the fourth quarter somewhere around 23%-24% in terms of capacity. That compares to 18.7%. Yes, we are the largest part of the capacity going into the market, but that clearly will be diluted effect.
Yes, there is a bit of an Easter effect, but that enables us to grow faster. On the back of a very strong first half, we can continue to deliver the schedule that we have at 23+%. In terms of the revenue environment, it will be, I would say, clearly flattish. In terms of second half loss, yes, there's a little bit of loss. If you look at Q4 last year, we lost EUR 20 million in the fourth quarter. Q3 was up around about EUR 13 million or so. We have October behind us. November, we're sort of halfway through with the forward bookings. It's looking okay. Q4, there's always a little bit of a question mark. There will be a loss in Q4.
The question is the magnitude, I think that's why, if you look at the guidance, people have been asking me today about the guidance and how that's evolved throughout the year. In May, we were saying EUR 250 million to EUR 270 million, that was right at the beginning of the year. We make all of our money in the first half. With our July, we were seeing positive signs for the summer with the forward bookings, that gave us confidence, with the low fuel prices, to raise towards the top end of the EUR 270 million. Obviously, we now have the summer in the bag. We can then continue with our growth plans. We still expect to lose that money in the second half. No, I wouldn't say there's anything we're particularly hiding. I think it's just the way we see things today.
Are there any questions on the telephone?
Once again, if you do have a question for the speakers, please press 01 on your telephone keypad now. We do have a question from the line of Ross Harvey from Davy. Please go ahead. Your line is open.
Hi. Good morning. Thanks for taking the question. I was looking to try and tease out maybe a generic first look at FY 2019. Firstly, you might talk about the bankruptcies of Air Berlin, Monarch, and Alitalia, how they impact on you. Is there any secondary impacts? Then more so following on from one of the questions earlier around the fuel hedging. You guys are less than a quarter hedged. Ryanair would be 30% hedged, and you're all hedged just sub EUR 500, whereas spot obviously as of last night was kind of touching above the EUR 600 level. You might run us through the sequence of events around competitive responses to that. You'd mentioned on the fuel prices going down that it's a two- to three-quarter lag effect on people's capacity movement. Is it the same on the way up?
Just what some of your competitors might be expected to do into next summer, in particular.
Okay, maybe I would take the market question with regard to the sort of consolidation process of Europe. I think the fact of the matter is that the consolidation of the big four airlines, Air Berlin, Monarch, and Alitalia, is not as impressive as you may think. Again, Alitalia is still flying. Air Berlin is pretty much taken apart by Lufthansa and EasyJet. There isn't a lot of consolidation with regard to overall market capacity, there is a lot of uncertainties around Monarch, what's going on there. Actually, the infrastructure Monarch has been using, whether or not it becomes accessible to other airlines and what way it becomes accessible to other airlines. Indeed, we are, I think, a big enough airline by now that whatever happens in Europe, we should be looking at those opportunities, and we are doing it.
With Air Berlin, the competitive overlap has been almost negligible, although we are acting on the situation. We launched new routes, we launched new capacity that used to be operated by Air Berlin, but it's fairly marginal in the bigger context of the business. Monarch is more interesting given their Luton presence, as we have been publicly stating a few times, actually we would have an interest to explore the opportunities in Luton once we understand what we need to do to get there. As said, Alitalia is still hanging in. In a bigger context, we think Europe will go through a consolidation process. Again, if you just look at the U.S. market, four airlines provide 80% of the U.S. capacity after a very significant consolidation in the early 2000s.
Some consolidation has been happening in Europe, not as impressive as in the U.S., I'm not sure it would ever be as impressive. Certainly, we know that there is a big number of ailing and failing carriers. For various reasons, they are still hanging in. Once the economic circumstances, market circumstances, harden up on them, we're seeing that could be a trigger for further consolidation. Again, there's a lot of irrational elements in the process as well. Strategically, we want to stand ready for those opportunities, I think we are big enough by now to actually take advantage of such situations. To what extent this is going to impact our fiscal 2019, we are not really planning on it. I think we are a little opportunistic.
As I said already, actually, we had been driving quite a number of airlines out of business in any event. Even if these airlines are still flying, but they are becoming a negligible player in the marketplace after that time. We pursue our own strategy, if something happens, we'll look at it, we are not betting on airline consolidation.
Maybe just to add in, there was only one direct competing route, Budapest-Berlin. We've already upped that product. We've initiated that product. That's essentially how we would start competing or taking advantage of that. Ross, on your first question with teasing out something in fiscal 2019. I think you'll just have to continue teasing. I think we have forward bookings of on average 40 days, six weeks. I think today it's far too early to be able to give any thoughts on our fiscal 2019 guidance. On the fuel hedging and the fuel position, I think it's always interesting taking a snapshot of the point in time. I think you alluded to the fuel pass-through. We've seen historically that there is a fuel pass-through effect, as they go up and down, competitors react.
The question is the lag, because you need to give airlines sufficient time to pull the capacity. On average, we tended to see the fuel pass-through kick in three months, and then within 12 months, it's sort of fully flown through, depending on the time of year. During the summer, every airline flies as much capacity because you're making money. The fuel pass-through effect tends to have less impact just before the beginning of the summer, which is what we've seen. I think what's important is relative. We burn less fuel than anybody else in our markets. We have the A321 is a much larger aircraft. It burns less fuel. The majority of our fleet is sharklet. The average age is four and a half years, they're much more efficient engines with less downtime, in terms of burning the fuel.
I think in terms of relative, we're very well-placed. Having a look at a particular number, somebody's always slightly better hedged at a point in time. It's a bit futile to say who's in the best place. What I would say is that with fuel prices, you do start to see competition curbing capacity. We are seeing airlines trimming capacity, certainly in the winter. If fuel prices continue to rise, you'll probably see that going through to April, May, maybe less so in the summer period.
Thanks for the feedback.
There are no further audio questions registered. Please go ahead, speakers.
I think there's one further question. Damian?
Damian Brewer, RBC again. Can I ask you one, just sort of for comparative. Of the seats you're planning to sell for summer 2018, how much proportion of this is the U.K. changes as part of your network, i.e., whatever happens with Brexit, what's the proportional exposure looking like in 2018 versus, say, last summer or the summer before? Secondly, just if I can come back to labor costs. There is thoughts in mind to view that maybe consolidation in the U.S. hasn't been such a good thing if it empowers labor groups, given U.S. airlines are seeing margin collapse to three-year lows on the back of labor inflation. How much consolidation in your mind is too much consolidation, given it removes sort of labor comps and labor competition in the market?
Maybe I take the first one. Well, we are building our U.K. business on the back of 8% growth as we speak, compared to 25% of the company. You see that actually exposure is proportionately coming down to the U.K. Nevertheless, we continue to grow the business in the U.K., I think we must be in the forefront of any airlines doing so. I think we are optimistic. We are robust in the U.K. At the same time, I think we are also somewhat contingent.
One of the things worth highlighting on the Luton opportunity is that our first flight was Katowice to Luton back in 2004, and every year since then, we've been growing. Three years ago, because of the strong performance of the U.K., we were penciling in 32% capacity growth. With Brexit, we could still grow. We grew 16% instead. This year, again, we'll be looking at 8%. I think the U.K. regions, you probably saw recently, we've been scaling back some of the U.K. regions. They were softening. Something we were flagging for a couple of quarters. We scaled back the U.K. regions, but the London market is one of the largest aviation markets in Europe. We committed to that, and I think that's going to be a strong platform for further growth for us. Onto the labor side of the equation.
I think it's important to note, we value the crew, we value the pilots, and I think that's a slightly different attitude to the way we look at the world. We offer great career prospects, whether it's through the cadet program, whether it's through promotions, going from one seat to the other seat. Cabin crew, they have strong career prospects, and they have opportunities to become base managers, regional managers, et cetera. I think it's fair to say that the retention side of the equation, we have no issues with that. We have a very content workforce, and the management team works incredibly hard on base visits to make sure that we're very attentive and making sure that they have as much attention as they need. In terms of your comment in comparison to the U.S., I think it's a slightly different equation.
We're in 43 countries. We have bases, I think now in 16 countries, as opposed to the U.S., which I think is a slightly different kettle of fish.
Of course. With that, I think, ladies and gentlemen, thanks very much for calling in and coming today, and thanks for your questions.
Thank you.