Earnings Call: Q2 2018

Nov 8, 2017

You are now live. Okay. Good morning, everyone. Thank you for coming to this, to this presentation. But I'm very pleased to to present you strong results falling over the first half of the current financial year, and I think, they are remain that is positive about the future, for so long as we have visibility on our future. But this is a period, which is characterized by the number 25. Everything looks like coming before says 25. The increase message numbers by 25%, revenues up 25%, net profits up 25% and also, the delivered 25% net margin during this period. So essentially, we've been able to grow this business by 25% without diluting the, the profitability of the business. EBITDA margin is up to 4% to 3% and the set net profit, delivered on 25% margin. So very robust, very strong financial performance in the period. All these developments obviously have been helped by the strong Mac in economic context in Sentinel, GDP development in the region, remained robust and obviously, but have our growth, our ability to continue to stimulate the marketplace. During the period, fairly recently actually we applied for a UK, AOC. So we, set up a UK legal entity, and now we are licensing that legal entity to become a UK airline, hopefully starting operations in March, 2018. I will elaborate on that later. Free cash exceeded a €1,000,000,000, that would be we feel very good about it. I mean, obviously, you may have a question we're going to be doing with, that, that, that has what we think it is important to remain a formidable competitor in the marketplace. And have the options, with regard to our financial liability to invest in as of later if we wish to do so. Or, you know, should we see any opportunities in the marketplace, we could step up on the back of that, that liquidity position. As a result of the strong performance in the first half. And, we are seeing that, that plant continuing into into the second half, especially in the in the current quarter, we are raising our guidance to 1000000 to 1000000 of net profit for the full financial year 2018. If you look at the operating metrics of the of the airline during the period, a set passenger account is up 25% to €15,600,000, as we speak, we are operating a fleet of 87 aircraft. This is 14 more, at the same time last year. We've got 144 airports in the in the franchise. So we opened up new airports, 40 new airports. During the, the period. We also added countries, to the network. Now we operate from, 4 to 3 countries in total. And they opened up 2 bases, London Luton and Varna in the period. And now we have, 28 operating bases in 16 countries. And we've got 3300 employees, 500 more than a year ago. Obviously, with that goal, we operated many more flights than before 18% more flights. This is reflecting on you know, the increasing, seat count of the act of solar deployment of the AC 21. So we delivered many more passengers than than that flight but still, this is 18% more flights. Utilization was up a bit, to 13 a half hours, a day per aircraft. This is industry leading number, which I had, of course, the highest utilization of fleet in the industry in, in euro, low factor, goes up to 92.8%, 1.7 percentage points. Regulatory remains the strength of the operating metrics, the operated 99.9% of the, of the flight we were forced to cancel 110, flights during this 6 months period. Again, this is seen to be best in class in the industry. I mean, some of our competitors based on Spanish rules and announcements, they were cancelling thousands of flights. But our performance is consistent with, with, historical performance of actually delivering the schedule as it is published. Punctuality drop a little, to around 80, 80%. This is because of better ATC size and order 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 gonna be ending up with 92 act up. They said they are currently updating, 87. Maybe start building the AP21 proportion of the fleet. So by the end of the financial year, 3 33% of the seat capacity will be flown on AC 21s. So the AC 21 component is becoming chunky. Another year down the line, fiscal 2019, we're going to be adding 16 increment back off to the fleet. We we take many more deliveries, but some of the deliveries we've used for replacing existing, assisting aircraft. And by the end of fiscal 'nineteen. So this is March 2019, 44% of the C3 be flown on AC21s. A year later in fiscal 2020, we are going to another 17 incremental acts of be it a 3 to 125 aircraft and that time, in March 2020, 55% of the seats to be flown on AC21. So the AC21 is now really kicking in, in terms of impact on the on the business. And we're gonna see all the efficiencies, on fuel and overall operating cost overall operating unit cost coming through the system very robustly. And we're seeing this is a key driver for our cost management going forward. And with that, I will just turn it over to Ian to present the financial result. Thank you, Joseph. Good morning, everybody. I think as most of you are aware, we want to grow this business as fast as we possibly can are maintaining industry leading margins in terms of EBITDA margin in terms of net profit margins. It's therefore very pleasing to report a very strong set of first half to 30th September 2017. We increased passenger numbers by 25%. We delivered an EBITDA margin slightly ahead of last year at 40 42.8%, so nearly 1 percentage point higher than last year. And we maintained a net profit margin of 25.1%. So these are very strong 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 6, These are the building blocks of our growth. So we added 17.8% more aircraft, that's 13 aircraft in unit terms. For the 6 months, the, the 14th of Jericho, she was out at today. 31% of the seats are now supplies of the A321 aircraft. So therefore, seat growth is ahead of aircraft growth, a seat growth of 22.6%. Slightly longer stage length, and it's important to remember that we generally fly, around about 25% further than our competition. So it's important when looking at fares, versus competition that we actually fly a lot further than our competition in terms of stage length. So our ASK growth was up 24% and with a high load we increased load factors by 1.7 percentage points. We delivered passenger growth of 25% which is particularly impressive. So passenger growth, up 25 percent to 15,600,000, revenue growth, up 25 percent to 1,150,000,000. Profit growth up 25 percent to EUR 288,600,000 and a net profit margin of 25.1 percent. What's very encouraging about the first half as well as if you look at where we've added the incremental capacity. In the past, we sort of we tend to see a skew towards increasing frequency, increasing the density of our over 550 routes. But 53% of our new capacity that was added in the first half is on brand new reach. So it's encouraging to be able to deliver 25% growth, but also delivering it on on a very, a fairly immature network. That's certainly, that gives some very good signs for the future. So this platform in the first half a 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. So we're 23% in terms of sync growth, we'll be looking to do 23% going forward into the second half. This will deliver us around about 30,000,000 passengers for the full year. On to Slide 7. When we issued guidance back in May, we were saying that we were seeing essentially RAS, a flattish RASK for the full year. I think the market took this bit by surprise that we're being a bit bullish, but that's the way we see it. That's the way we see it today. So a flattish RASK with a little bit of a bump because of the Easter at both ends of the year. So the first half, so in the first quarter, there was the Easter back in, in Q1, we said this have a value of about 17,000,000. And we also have a few days, not a full Easter in the fourth quarter, but there's a few more days of Easter. So flattish RASK for the full year with a little bit of a bump So slightly positive for us and our view has not changed. So that's how we see the bear in the environment. Again, given the strong first half, we can grow faster in the, in the second half. So, I've had a few calls this morning already. People are saying, why, why aren't you seeing a slightly, slightly stronger performance in Q4? Important to bear in mind, we're growing 23%, 24% in the 4th quarter. Last year was 18.7%. So We are all about growth. We believe we want to grow this as fast as we can, but maintain flat margins. So that's essentially why we expect to see flat flattish rash with a little bit of upside maybe from the Easter in the fourth quarter. So the platform in Q1, we had a very strong Q1. We delivered 1,000,000 of profit And so that, I would say, outperformed slightly ahead of expectations for us. And the second quarter delivered pretty much in line. So we delivered 2 31 And 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, what's some of the highest in the industries and the highest in Europe. This, the stated target we had is we want to grow ancillary revenue per passenger by 1 year ago year. So this certainly outstripped that. This is a function of 2 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 Century some Europe. So you so the partner revenues on hotels and, and car and those sort of things, you're seeing some 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, I wouldn't extend that 1.5. I'd say one is 1 Euro is a fairly, fairly sensible assumption. We have changed our last cabin bag policy. That's around about 2 Euros per passenger. We've only had 1 week of, of, of that in practice. So it's a bit too early to draw conclusion. So what we have been doing, and this is also the other part of the 1.5 is changing the product profile so that customers are more suited to that new cabin bag quality. So customers will be more interested in that are paying more for the bundles, the convenience, the priority boarding, they want to take their bag on board. So 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 packs. Moving on to costs. If you look at our fares we delivered €44, on average, €44 fares. And the only way you can do that is 2 things. 1 is the ancillary we just touched on, but also the cost base. So cost for us is is absolutely paramount. It's fair to say that we've had a pretty good cost performance. I'll talk about some of maybe the headwinds on the late slide, but in terms of the opportunities we remain, there's every reason to be very optimistic about our cost base going forward. The A321 that Joseph highlighted earlier, fiscal 2020, 55 percent 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. So in terms of the cost traction, we would definitely be looking to, certainly maintain a flat, flat cash, but obviously looking to try and lower that CASK. As the A321s, get a high proportion of the fleet, you're seeing around about a one point between 1% and a 2% increase on the structural benefit of that of that aircraft coming through. Josie Pfeiff also highlighted the $1,000,000,000 in free cash, that strong balance sheet certainly helps us in a lot of a lot of other areas, whether it's the lease financing and we're seeing it very, very strong lease markets, for us as an airline and also in terms of other contracts. So you're seeing that strong balance. It's 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 fuel cask really. And then fuel cask is 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 2 items coming through on the ex fuel CASK. 1 is the crew. Crew cost has been fairly well documented that the a community in Europe is fairly tight, and it's been fairly tight for a few years. We don't have an issue with retention, but given the growth trajectory that we are planning and we are delivering that requires an awful lot of pilots. So we're not immune to that. So I think it's fair to say that the crew cost, the crew cat will be slightly up. We do have a structural benefit. You still need 2 pilots to slide A321 versus an A320. So there's a structural 2.4 percent improvement coming through, next year on, on, on, on precast, but given the type of environment, you'll start to see a little bit. So that'll be slightly positive 11.5%. So that's, that's an area, which you can expect a little bit of inflation. The other item is depreciation. We highlighted in, in, in May, that there's an 18 month split. Going through as a function of we have 100 percent all leased aircraft. And at the end of those leases, you tend to find maintenance events and the term, conditions on those leases. So the first half was that, I would say, the high point. So 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. So We have every reason to be optimistic in terms of our cost base. That blip will start to diminish. And I think the only item that I will sort of flag is through just as a function of us wanting to grow very, very fast. In terms of the cash, we have 1,000,000,000 to 1,000,000,000 of free cash. That's up 255,000,000 for the start of the year. The slight difference, so delta between the profitability and the cash is a function of slightly higher deposits. We did We completed an extra 10 aircraft order with Airbus during the year. That required a little bit more CapEx on deposits. Restricted cash also up 10,000,000 or so So I think what's very pleasing to see is that cash follows the profits. So it's a very hot cash generative business and we'll 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 dollar leases. So dollar in H1 this year versus H1 last year is 112. So essentially that number just returned back to 1.3. So in terms of the balance sheet, very strong performance continues. Thank you, Ian. By moving forward, when you look at the markets, we continue to be the number of local carrier in Central East, Europe with 42% of the capacity supplied by off, followed by Ryanair and Easyjet. And, I think for the first time for, for the long period, actually they are seeing, other than the SEC sector also growing in Central Mississippi. So we've seen some growth coming through the legacy carriers and a good time to look forward to share lines. You know, it was growing, 30% during, of somewhat responsible by the party state. It's over some to that growth, but nevertheless it is growth to the market. So when you kind of look at our results, financial results we are reporting, those results were achieved in a a capacity and freight environment in in San Francisco. Now as fuel, price starts going back up, I think we're going to see some moderation of of capacity in the future. We have been building the network in a fairly diverse way, 47% of the new capacity was put on existing routes and 53% of the new capacity was put on new routes either by joining existing airports or, or flying venue airports, brand new countries. Not only that, but 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, 80, 90 percent of the of the capacity. So we are doing now much more on on the infrastructure in Eastern Europe and, and other east worthy directions as well. And as a result, you can see the sort of quantities, but we were just opening Kosovo, Albania, Morocco, Kazakhstan, Morocco, Pakistan, kind of pioneering, SCC, USCC in brand new territories as well. The open 12 new destination twins in the network in the first half, putting up 94 routes. So we've been very active in in not only deploying capacity on assisting services, but continue to be the network. And now we have a network of over 550 crores in total. We continue to innovate, we continue to, to appear to the to the consumer, recognizing the changes in consumer trends. The other word, 6 largest airline websites, following the 4 U. S. Majors, including Southwest and Ryanair. But if you look at it on a relative basis, a relative to the size of the, of the passenger franchise, by far, this AdbotCom is the largest airline website in the good. 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 Visa customer, it's around 28 years compared to some of our drivers, they're above 30, around 35 a solid start here. So they are much more reliant on the new generation of customers coming to the market. They are much more savvy. They the new technologies like, like smartphones. But I think that also gives us an opportunity because we are really engaging with this, new, new generation of customers and once we move them, I think we can make them a loyal to the, to the franchise, to the, to the airline. So quite a bit of transition that we have been observing over the past few years. Our website is now geared to, to the marketplace recognizing, the multinational nature of our markets, Deepakawa website on 24 languages. We are getting over a billion page views. The app is functioning of certain languages, 700,000,000 views. But we are very, 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. So let's spend a bit of time on this value. Okay. Maybe just a few highlights why we are doing it and what we are trying to accomplish here. But we are having 2 sold and 2 strategic considerations when it comes to, this value pay. On the one hand, we're seeing that Brexit is yet uncertain. Nobody knows how this is gonna play out, and we wanna make sure that, we play, a contingency and no matter how it unfolds, they are ready to the situation under any Spanish circumstances. And the the thing that we said, UK being a a UK legal entity, a UK airline, would be very positioned to, access the market and continue to fly and continue to get access to graphic rights on the range circumstances. Secondly, we're seeing that monarch is not the end, but it's more the beginning of a market consolidation in the United Kingdom. We think Brexit is gonna shake up the the industry, and we just wanna make sure that we stand ready for those opportunities should they arise. Obviously, this is speculative, even you don't know exactly how this is gonna afford, but we just wanna make sure that we have a platform, that can take advantage of any consolidation opportunities in the in the marketplace. With that, we decided to turn the London Luton base, obviously, our Hungary over into, into Vista UK. I said, this UK will become operational in March 2018. Our initial plan is to have 3 aircraft based in in in in in luton operated by beside UK. As of the start, pretty much, scaling the top to 5 and then 7 aircraft over the next, 2 years. This plan may change depending on the situation. So one of the factors, we are actually contemplating is, is is is someone offslut, at, at Luton. Mostly understand what I had is going on there. We can form an approach how to best, go for the, the opportunity. And again, a survey report in this arise, we would we would react to that and we would scale up the, the operations. But we are very excited about this this approach and we're seeing this is gonna step change, this has presence in the, in the UK, and 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 and 5, obviously, we have some visibility on on on the current quarter. We have very limited visibility, on the on the last quarters, probably that note. We are guiding the market based on the views, how we see the business today. This is not conservative. This is not Buddhist. This is a realistic view. Of how we are seeing the, the business. Capacity is going to roll 23%. So second half will be similar to the first half. Load factor, we continue to rise in similar fashion as in the, as in the first half. We are expecting exterior costs to be, flat broadly, with the better in the segment higher 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. So we have some protection, but we are not fully protected you know, from any any fuel price changes. Revenue, is expected to, unfold similarly to be, to the first half, slightly, slightly up. And on the basis, we are, putting up a new guidance of 1000000 to 1000000 to the market. So Justin, in some of you again, based on 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 and 25%. This is all against a very strong economic backdrop in San Francisco. We are very excited about the UK opportunity and the way we are going about it with with with with the UK. We did significant liquidity, we bought 3 cash over a 1,000,000,000. And as a result of strong performance and the visibility that we have in front of us, the improved guidance 265,000,000 to EUR 280,000,000. And with that, I will close the presentation. I would turn it over to please press 1 on your telephone key card. If you wish to withdraw your question, you may do so by pressing 2 to cancel. So that is 1 to register for questions. Hi, good morning. Is Michey from Barclays. Can I ask 2 questions, please? Firstly on the growth you said, you know, 50% is onboarding frequencies and approximately 50% is on route. Is that the kind of the right rate of growth, on the profile of growth going forward? And to the extent that you can kind of comment or quantify it, what would the rough profile look like on the routes that you're building frequency, you know, or put another way here? What was that dilution because of the of the roots of the new routes? And on the second question, just on free cash flow profile on CapEx in particular, I think looking at your numbers, you had some proceeds from sales of assets. So could you maybe just help us in terms of what you think the growth versus net CapEx profile looks like for the full year? And then they finally on ownership costs and we touched funds from balance sheet. And the fact that the new element of the fleet is fully leased. Are your thoughts around that changing, you know, things that fit on that would be helpful. Thank you. Okay. Let me start with the network development question. I don't think we have a a preference for, increasing frequencies of new routes or new routes of increasing the, frequencies. We simply just look at the opportunities of all kinds and try to determine the expected profitability of those of those opportunities and rank them up and take the best best opportunities. Yesterday, we ended up with, with lots of new rules obviously at the beginning when we were just building up the network. Over the past few years, I think it became a bit more skewed towards increasing frequencies on agustin groups as we created the backbone of the business and the skeleton of the of the of the network. And now it looks like we are, doing more new routes than, than than than than before. But this is simply just a function of, of the changing circumstances and expected profitability of the value of Supervisors. So we don't need to still have a strategy here, but definitely we are seeing, maturity coming through the network, we are seeing a, a diversity coming through the network. So while the network was very skewed towards migration related level at the beginning, it is a much more balanced network nowadays, we are building the, the proportion of leisure, traffic. We are building the proportional business traffic And obviously with that, the proportion of migrations, inventory is coming down. It is also becoming more diversified in terms of the geographical spread. It used to be much reliant on East Coast traffic flows. Now we bought quite a bit of East to East and also in Eastern Europe. So and also, it is much more diversified in terms of, in terms county setup and base setup. As I said, we have 28 basis in 16 countries. We fly 4 to 3 countries. So this is just a very bad diversified network now, and, and we try to take this from there. But profitability remains our overwhelming priority. And we've seen the hedge has not found a better strategy than profit, and this is what we continue to pursue. I can take the on the CapEx question. I mean, the CapEx for a lease business, when you're continuing to take, regional aircraft and that redeliver aircraft to vessels and then take new aircraft. It's essentially a bit of a carousel. So the CapEx number, I think you were looking at probably around about 100,000,000. The the number that you had for, it's, I would say there's probably no change since the beginning of the year. Yes, there's a little bit more of a proceed coming from some engines. So last year, we flagged that we used some of our cash to buy some engines because of the market for engines, as you could probably imagine, given issues in the engine market, but it's fairly hot. So 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. So from a 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. So can you repeat the Yes. So it's just related to the land ownership costs. So, you know, leave letters and cancel ownership and Yeah. Opportunities. So I mean, the lease market today is actually incredibly hot. I think there are some nervous misses around about the deliveries of new aircraft. They're fairly well documented as well. As a result, you're seeing residual values of the older aircraft increasing. So therefore, when going out the recent aircraft, we just completed the financing for that are some of the best terms that we have ever seen. So, lease versus buy, the leasing market is incredibly incredibly hot right now. It's fair to say, as Joseph highlighted that we have a beginning of gas. We are excited about the new aircraft. We start to, we take 3 of those call 'nineteen and 'seventeen fiscal 'twenty. So we'll need to make sure that we have the right balance sheet in place at the right credit rating to have the optionality to choose. So terms of the ownership costs, looking forward, we're very excited either through the lease environment or through the, the ownership side. Thank you. Damian Brewer from Rolland Canada. Two questions, please. First of all, on the growth, sort of 25% growth, but it doesn't sort of feel like ATC or infrastructure. Capacity is growing 25 percent per annum. So how do you think of that going forward in terms of the sort of the limits that might impose on you in certain areas and how do you plan for that in terms of fleet and aircraft utilization? And if that's the 13 a half hours, utilization still an ongoing figure or will there have to be some slack in that as the system becomes more pressured? And then secondly, already seeing some of these sort of, I guess, CE legacy struggling Torom's 50,000,000 loss and the next big restructuring that When you think about looking to sort of next summer in a pipe 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, they tend to avoid contrasted infrastructure that we tend to avoid contrasted areas, contrasted airports. If you, if you think about it, we have 28, operating basis, pretty much lower the pace in in Central Eastern. Most of these efforts are kind of underdeveloped underpenetrated, regional infrastructure with plenty of opportunities to grow We tend to prefer secondary regional airports even in investing in Europe. So we don't really fly to heavily contrasted airports in, in, in, in Europe. So we're seeing that, infrastructure should not really be a significant constraint factor to our growth going, going forward. They have been consistently delivering certain a half hours of utilization in this period of the of the year. You know, we are delivering on 5a half through the, the whole financial year. I don't think this is going to dramatically change. I mean, we've been able to scale this business up to around 87 aircraft as we speak. This is the size of the the fleet. It should not be changing, significantly going forward. I don't think it it it is gonna go much beyond this. But we should be able to hold on to this, this level of utilization. This is quite core to the business model, to be honest, I mean, you know, we need to, we need to do better than our competitors if you're gonna deliver this business at lower cost than our competitors. And this is the ultimate goal of of the of the company. With regard to the trading environment in Central Eastern, I'm going to state of the legacy carriers. I think you're right. The trading context change to reverse and, you know, the market, you know, would become much firmer than it is today. In terms of higher fuel price, maybe some macroeconomic slowdown. I think that should shape hold the, the marketplace. The problem is that simply, it is just impossible to, to kind of, calculate those are unfair because there are factors which are outside of all controls and outside the the kind of economic national I mean, we have no idea how governments intervene. I mean, I mean, look at look at Oditania, this is not in San Francisco, but I think it's kind of giving you the case. I mean, everyone believes that you know, the king was dead. You know, Vanetti had decided not to further fund the airline, but the thing is not that. I mean, it's still flying, and, it had a government put in 9,900,000,000, you know, it's, I mean, we now hold share lines. It's growing over over 30%. And, you know, the agents consumed €400,000,000 of loan over the last last 2 years and god knows how the development is funding the, the airline at the moment. So so you have all these irrationalities in the, in the system. But if you really apply a long term strategic view on the marketplace. Most of the designer should be going out of business funding and other should become irrelevant. I mean, if you look at, countries like Bargadia, the local airline and local national carrier order that's a private company, airbag area has been essentially diminished by the market, even if they are hanging in, they only operate 5 or 6 or 6. So if you look at Tom, romaine and allies, Now we are operating twice the capacity of Durham as a national carrier in the country of Romania. So they are getting diminished in an event. But, yes, of course, I think we try to be ready for, for these, these events. And and we have our own contingency plans. It's interesting to just know how to time those plans because we have been doing a few errands, but we are still hanging in. But end of the day, long term, strategically, you know, lowest cost will prevail and intervene and all the inefficient capacity and airlines will we'll go away or we'll get, you know, disturbed in the in the system one way or another. Thanks. Good morning. It's Jarrod Castle from UBS. Mike, can you give symmetric, CAPITAL now under IFRS 16 that you're thinking of. To, you know, you're flying further east. So, you know, how far east would you fly, especially, you know, if if you think you may through 21, Neo Allos. And then just looking at the ARC, I mean, it's depending if it's a smooth Brexit, would you still continue to help the UK AOC or would you reconsider it? Thanks. I'll answer first. I mean, IFRS 16 obviously is an important change in accounting standards. It's important to know that it hasn't yet been endorsed. Rest assured, we are spending a spent I'm analyzing what that impact is, but we're not going to give any public comments on that at this stage. Okay. With regard to, expand investment address, taking into account the, the, the, the advantage of technology coming, coming to the market. I mean, I mean, really, we are not gaining a lot of range on the A321. Simply because, they are not operating the S621 at its maximum CapEx rates. So we are somewhat range limited this is a range, what we are looking at, whether this is 8, 6, enter, 8, 6, 21 is around 6 hours. And whatever we can do within that range, we'll we'll look at it I think the beer is quite a bit of an effort to Dubai. By now, we fly a lot to the cannabis, in Spain, they actually did quite a quite a signature to Iceland. So we have been exploring kind of medium haul if you, if you wish, and we'll continue to do that depending on the, on the market opportunities. But the problem with bit further east is that it is not only just a commercial decision of the airline, but it is also subject to, you know, regulatory discussion those concepts tend to be, fairly regulated based on the kind of old fashioned bilateral system. So it is, it is a challenge to get, traffic rights to, to a place like the Kosasthan or Azerbaijan and those sorts of countries. It is much easier to fly now to, to use that or Georgia. So, you know, the system is changing, but, you know, we are subject to that discussion. With regard to the UKAC, they're going to be doing the UK AOC in an event. But first of all, you know, Brexit is much 2019 or maybe not. But based on the current view, this is the timing of it. I don't think we're gonna learn and we're gonna know really how gessages gonna afford, anytime anytime soon. And we just wanna make sure that, you know, we have contingency from aggressive perspective. But as I said, the UK is not only for Brexit. This is also for market consolidation opportunities in the UK. And 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. So we'll do it in an event. Just two questions. And first off on fuel hedging, your 23% covered for FY19. A year ago, you were 33%. We have seen a number of airlines having lower levels of cover going forward. Just wondering if you could take us through your thinking there. Second question, on the lease return related depreciation costs. Do they normalize things forward at a nominal level and decline at a CASK level or are you expecting to normalize at a CASK level? On the fuel hedging and 23% versus, I think, 30% essentially, the way our hedging policy works is that we do roll over transaction. So every time we go into 1 month, we'll just top up as you go from 1 quarter to the next. Essentially, all it means is that there's 1 month that we haven't done. So given the fuel prices have risen 15% or so in recent days weeks, we held off on that transaction. So you'll see us just topping up normally as we move forward. And sorry, what was the second question? On on a cash level, you'll start seeing a decline. I mean, just to comment on this, I I think really if you kind of put that in a in a metro context from the company's perspective, you know, we had been, a rolling old A321 program. I mean, the A321 is the best thing to write aircraft today to deliver the lowest cost possible. And the AC Pentagon is achieving 10% lower unit cost than the AC then the AC 20 roughly around, that that number. We have not been able to benefit from that cost declined because of the headwinds coming through, at least returns and maintenance accounting. Now as the issue is sort of getting phased out, you're gonna see the ACIF and 29, 20,000,000 impact coming coming through. So you, you should be seeing actually decline. And in the meantime, the AC21 proportion is gonna just get larger and larger in the, in the business. And then I'll just ask that. I mean, I think we're fairly uniquely positioned in the fact that we have 100% of our fleet leased. And the reason for that is that we're going as to to Joseph pointed out with the A321, but also the neo aircraft. I mean, this is a once in generation change in technology. So we are uniquely placed for that. So that's why in the past few years, the decision of lease versus buy is always skewed towards lease because of the residual value risk. So, the function of our fleet as of today is really paying for that choice. But looking forward, I think 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, you know, that is also had been lower there. I mean, I mean, you see the pilot situation is tightening. So that's putting inflationary pressure on the entire system. So it's not only a issue of an airline. I mean, you know, the tight market is affecting all the all the players in the, in the marketplace. So pilots will become more costly if it was more to the company, you know, we have to invest more into, pilot trainings, into credit programs and all those sort of things. You know, to start owning our own destiny, I suppose, such as being subject to the market. You know, this business always obviously subject to the metro in and fewer price effects and and and and those sorts of issues. So it is not just a clear card that, you know, once we have the A321, everything is good. But for sure, on a relative terms, relative to our competitors, we should be gaining competitive advantage as a result of this, if anyone or all over. Hi, Andrew. Thank you, Jamie. Anything that benefit from Ryanair scaling back on your roots or competitive roots and how that impacted your guidance? I think if you look at life on a longer term basis, then just jumping on the opportunity of the week, we're seeing that Ryanair will come out of this and we'll fix that, that issues. Yes, I mean, there there have been some opportunities, but I don't think that these opportunities and structural, moves for the business. So, I wouldn't say that we got over excited but at the same time, obviously, if you like, our competitors struggling. It's probably worthwhile. I think, I mean, last year, we had some headwinds on capacity. Competitive environment in the fourth quarter. If you and there was a chart that we showed that actually we were supplying 16% of additional capacity. So The CE last year grew at 15% in terms of additional seats. This year, it's growing at 14.1%. And we are adding 28% of that. So we've gone from the 16% of the growth to 28% of the growth. And you can see that in the environment. Whether it's through promotional activities. But again, you're you're a lot more in control of your destiny. So, yes, there are some airlines tuning that if 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. So we are driving that growth. Hello. James, Helen, Mr. Nexam. 3 for me, just on the 1.3 times leverage, is that sort of a a target you look to maintain, obviously, depending on ownership, or perhaps you're looking at maybe net cash per aircraft, which is certainly needed yet done in the past. The second one is on do you plan on targeting any monarch slots outside of Luton in the UK And the third one is load factor. Are you pretty comfortable where we are now? Do you expect to push harder on that particularly if you go more to the A321s leverage for us as an all lease fleet is tend to be a bit of an output. So I think it's pretty, it's been open about that. So it's not particularly a target. What we're doing right now is, again, with the news coming online, we want the optionality, and we'll be looking to to get a credit rating. For the organization. We're going through that process and I think that will be the output of making sure whether what sort of target we'll be getting to. In terms of cash per req, half, maybe that's not, that's not something that will suit you for us. Okay. With regard to the preliminary results, but I said, you know, first, we need to understand what had it going on. With those sorts. But our interest is limited to, to Luton. So this is what we are looking at. This is where we had the stronghold in, in, in the long market and this is what we're gonna further be done. The big outflow factors, I'm sure that's not gonna go beyond 100%. They are at around 92%. So that is some way to go, but, yeah, not a load factor maximizing business. I mean, we are a revenue maximizing business and growth load factor is a function of, of, you know, yield or yield is a function of a load factor. I think we are approaching an area that It's pretty much maxed out. I mean, there may be another percent here or there, but, I think this is quite, quite efficient by now. Morning, Michael Kuhn from Societe Generale. One follow-up on traffic mix. What currently would you say if mix between, migration driven, let's say a short term business trip and and leisure and what different growth rates do you see in those areas? Secondly, on on current trading, could you give us an impression on how your current forward load factors look like. And, last year on guidance, I heard you commenting about it. Still, if I look at the implied H2 guidance, it maybe this says, do you expect a modest widening of the loss? Is this some prudence at the current time, or do you see any any specific things. Thank you. Okay. So with regard to our traffic mix, the the plan is that, the proportion of of leisure is growing. The proportion of business is growing. It is a function of the, the diversification coming through the natural development. I mean, we have been launching quite a number of leisure routes recently. Summer leisure, winter leisure as well. And as the, the network deepen, so we are applying more frequencies on certain routes. Obviously, it becomes more appealing to the the business level as well. At office speaking, we are seeing business around 10%. Leisure around 30, 40% and and and around the good half, would be, migration driven but this is a quite an evolution, let's say, versus what we had 5 years ago where, migrations, even traffic was illuminating the the passenger mix probably around 75% to 80%. So, and, and, you know, this, we'd further go So you're gonna see this proportion of growth on leisure and business, and, and and to continuing decline in terms of share of traffic of the migration of women's ethics? On current rate, in terms of the, the forward bookings, we're pretty much in line with what we saw last year. So nothing particular secular. In terms of you look at the capacity on monthly basis, I mean, November of February 10th to the, the weak months. So in terms of the capacity growth, you're probably seeing 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 up in November, capacity would be more like more like 20%. And in terms of guidance, I think it goes back to the capacity again because we are looking to grow the 4th quarter somewhere around 23%, 24%, in terms of capacity, that compares to 18.7%. And so yes, we are the largest part of the capacity going into the market, but that clearly will be dilutive effect. Yes, there is a bit of an Easter effect, but that enables us to grow faster. So on the back of a very strong first half, we can continue to deliver the schedule that we have at 23 plus percent. So in terms of the revenue environment, it will be, I would say, fairly flattish. In terms of second half loss, yes, there's a little bit of loss. I mean, if you look at Q4 last year, we lost 20,000,000 in the fourth quarter. Q3 was up, right, about $13,000,000 or so. So we have October behind us. November is is 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. So there will be a loss in Q4, the question of the magnitude, and I think that's why if you look at the guidance and people have been asking today about the guidance, how that's evolved throughout the year, it may, we were saying 250 seventy. That was right at the beginning of the year. We make all of our money in the first half. So with our July, we, we were seeing positive signs for the summer. With the forward bookings, and that gave us confidence to raise with the low fuel prices raised towards the top end of the 270. Obviously, we now have the sum in the bag, we can then continue with our growth plans. So we still expect to see, to, to lose that money in the second half. But no, I wouldn't say there's anything 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 1 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. I mean, firstly, you might talk about the bankruptcies of Fairburn can't tell you how they impact on you, is there any secondary impacts? And then more so, following on to one of the questions earlier around the fuel hedging. I mean, you guys are less than a quarter hedged. Ryanair would be 30% hedged. And you're all hedged just sub 500 were spot obviously as of last time. Touching about the 600 level. You might run us through the sequence of events around competitive responses to that. You'd mentioned when the fuel price is going down that are you know, it's a 2 to 3 quarter lag effect on on, you know, people's capacity movement. Is it the same on the way up and and and just what some of your competitors might be expected to do internet somewhere in particular? Can I be able to take the market question with regard to the sort of consideration process of Europe, asking the fact of the matter is that, the consolidation the deferred airlines, I believe, monarch and Alitalia is not as impressive as you may? You may think again. Alitalia HD flying. Adberlin is pretty much taken apart by Lufthansa and Egypt. So there is there isn't a lot of consolidation with regard to overall market market capacity. And, and and there is a lot of uncertainty surrounding with our monarch what's going on there. And, actually, you know, the infrastructure monarch has been using whether or not it becomes successful to other airlines and what they become successful to other airlines. I mean, indeed, we are asking a big enough airline by now that, you know, whatever happens in Europe should be looking at those and those opportunities. And we are, and we are doing it. EBITDA Berlin, the competitive overlap, you know, has been almost negligible. So there isn't a lot of upside there, although we are acting on the situation. So we launched new routes. We launched new capacity, that used to be operated by Air Berlin, but it's very marginal in the bigger context of the business. More likely, more interesting given the outlook on presence and, you know, as we had been publicly stating a few times, Actually, they would have an interest to explore opportunities in in root and mostly understand what we need to do to, to get that. And the third Oletaria is still hanging in. But in a bigger context, we think europe will go through a consolidation process. I mean, again, if you just look at the the U. S. Market, you know, Ford Airlines provide 80% of the U. S. Capacity, after a very significant consolidation in the early, early 2000s. Some consolidation has been happening in Europe, but not as interested as in in the US, and I'm not sure it would ever be as interested But certainly, we know that, there is a big number of aiding and failing carriers but for various business, they are still hanging in. I mean, amongst the economic circumstances, market circumstances, harden up on them. We're seeing that, you know, that could be a trigger for further consolidation. But again, you know, there's a lot of irrational elements in the process as well. But strategically, we we wanna stand ready for those opportunities. And and I think we are big enough by now to actually take advantage of of such situations. But to what extent this is going to impact of fiscal 2019, we are not really planning on it. I think we are a little opportunistic. And, and, and, as I said already, actually, we had been driving quite a number of airlines over the business in any event even if these airlines are still flying, but they are becoming a negligible player in the, in the marketplace of the, after the price. So so we pursue our own and, and if something happens, we'll we'll look at it, but we are not betting on an airline consolidation. Maybe just to add on that, Berlin, there was only one direct competing route, Budapest, Berlin. We've already upped that product. So we've initiated that product. So that's essentially how we would start to competing or taking advantage of that. Ross, on your first question, the teasing out something fiscal 2019, I think you'll just have to continue to use in. I think we have forward bookings on average 40 days, 6 weeks. So I think today it's a little far too early to be able to give any thoughts on our fiscal 2019 guidance. On the fuel hedging and the fuel position, I mean, it's always interesting taking a snapshot of the point in time. I mean, you lead it to the fuel pass through. We always we've seen historically that there is a fuel pass through effect. So as they go competitors react. The question is the lag because you need to give airlines sufficient time to pull the capacity. So on average, we tended to see the fuel partially kick in 3 months. And then within 12 months, it can, it's sort of fully flowing through. Depending on the time of the year. So during the summer, every airline flies as much capacity as you're making money. So the fuel pass or effect has that tends to have less impact just before the beginning of the tunnel, 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 sharks with it. The average age is four and a half four and a half years. So they're much more efficient engines with less downsides in terms of burning fuel. So I think in terms of relative, we're very well placed. Having a look at a particular number, some is always slightly better head to the point in time. So it's a bit futile to say using the best place, but what I would say is that with fuel prices, you do start seeing competition curving capacity. We are seeing airlines trimming capacity, certainly in the winter. And if your budget continues to rise, you'll probably see that going through to April May, maybe less so in the summer period. There are no further order costs registered. Please go ahead speakers. Damian Brewer. Harvey speaking. Can I ask you what is sort of the comparative of the seats you're planning to sell for summer 2018, how much proportionate does the UK changes as part of your network, I? E. Whatever happens with Brexit was the proportional exposure looking like in 2018 versus the last summer or the summer of the field. And then secondly, just a different come back to labor costs are sort of their responsibility 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 3 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'll take the first one, but, you know, we are we are we are we are building our UK business on the back of 8% growth as we speak compared to 25% of the, of the company. So that you see that actually exposure is proportionately coming down, to the UK nevertheless. To continue to grow the business in the in the UK. And I think they must be in the forefront of any airlines doing so. So I think we are optimistic. They are robust in the UK. But at the same time, I think we are also somewhat contingent. One of the things worth highlighting on the losing opportunity is that our first flight was going to be dilutive back in 2004 and every year since then we've been growing. 3 years ago because of the strong performance of the UK, we were looking, we're penciling 32% capacity growth. Now with Brexit, we could still grow. We grew 16% instead. This year, again, I'll be looking at 8%. So I think the UK, UK regions, you probably saw recently, we've been scaling back some of the UK regions. They were softening something we were flagging for a couple of quarters. So the scale that we go east in, but the London markets, 1 of the largest aviation markets in Europe. And so we committed to that. And I think going to be a strong platform for further growth for us on to the lady side of the equation. I think the it's important to know, I mean, we value the crew, we value the pilots. And I think I think that's a slightly different attitude to the work, the way we look at the world. We We offer great, career prospects, whether it's through the cadet program, whether it's through promotions, going from one seat to galaxy, cabin crew, they have strong career prospects and they have opportunities to become base managers, regional managers, etcetera. So I think it's fair to say that the 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 they're very attentive and making sure that they have as much attention as they need. In terms of the comment in comparison to the U. S, I think it's a slightly different equating when we're in 40 three countries, we have bases, I think now, 16 countries as opposed to the U. S, which I think is a slightly different different cattle of fish. So with that, I think ladies and gentlemen, thanks very much for calling in and coming today and thanks for your questions. Thank you.