Earnings Call: Q1 2022

Jul 28, 2021

Hello, and welcome to WithAir Fiscal Year 2021 Results Call. Just to remind you that this conference call is being recorded. Today, I am pleased to present Josef Baradi, CEO of Wizz Air. Please go ahead with your meeting. Good morning, everyone. Thanks for joining this call. So this is to present the fiscal 2021 annual results of the company. And with that, let We take you through the presentation we prepared for you. So moving the presentation. Offshore, let me just give you some highlights how we are seeing this business performing and what views we have with regard to the future. Clearly, It's been a very challenging year, the toughest year for the industry, the toughest year for this in our history. But at the same time, I think as every reset, it has also created a significant Number of opportunities for the airline, and we have been trying to take advantage of those opportunities. But Of course, we've been dealing with issues as they arise day by day, but we have been keeping an eye on our future. We have been strongly invested against the opportunities as we move along the lines. We believe that we are a Longer airline today than a year ago, despite the fact that our own performance was almost marginal relative to previous times. I mean, we lost 75% of our revenues during the year. But relative to the market, relative to our competitors, We believe that we are a better airline, a stronger business than ever before. We have been very disciplined on managing liquidity. We ended the financial year with €1,600,000,000 of cash. This is significant and that Makes us obviously very resilient and not only resilient, but kind of investable when it comes to investing into Into new markets, into aircraft. And those two strategies have been fundamental for Building long term structure of competitive advantages for the airline during the pandemic. We retained our investment grade rating by Both Moody's and Fitch, that is relevant not only for the feel of it and the look of it, But certainly for financing aircraft, we have been taking significant aircraft deliveries, new aircraft deliveries during The past year and we will continue to do so going forward. As a matter of fact, our fleet has grown 13% during this Period. So we need to take out financing in quite a significant magnitude for those new aircraft And obviously, our credit rating flows through the cost of capital deployed against of our active delivery stream. So it is very important that we maintain investment grade credit. And it's not just been The fleet that has grown during the period, but we have much broadened and enlarged our network or footprint during this period. We opened up 8 New operating basis in this period at least announced some of them yet to be open. And we have been trying to take advantage of the market opportunities that they arose During the period, obviously, our capacity, our growth have been much wanted by the market. We are one of the very few airlines in Europe that We can deliver a growth to airports and we have been benefiting From that we said, striking good commercial deals for the long run and tapping Into very attractive markets. We are ready to move. We have created a lot of flexibilities In the company, we can move aircraft. We can move people with the aircraft. That has made us very agile and asking to continue to be very agile going forward. Depending on the operating circumstances, We will see how restrictions will evolve. We are ready to go. And we think that the consumer is there. The consumer actually wants to fly, wants to move. There is nothing wrong with willingness to travel. If you look at the U. S, the U. S. Already at 80% levers versus 2019 and is expected to exceed actually 100% for domestic Flying in peak summer. So we think the consumer is totally intact and want to come back into the franchise. It all boils down to travel restrictions, and Europe has not done too well with that regard. It's been a roller coaster, and there are still significant uncertainties going forward. And that kind of taints in a way our ability to guide you on fiscal 22 because I think it is actually quite a broad range of outcome that we may end up with in the end depending on our ability to Depending on our ability To operate within the framework of restrictions or no restrictions. So I think we need to see how markets get Honestly, the good news obviously is vaccination. I mean, vaccination lab has been rolled out more aggressively in certain countries, but now everyone, I think, is Certainly in Europe. So that should make a significant difference. I think we also understand that various new variants could affect This whole paradigm, but this is yet to be seen. So we are cautiously bullish. We are certainly very upbeat with regard to our ability to move quickly as the market opens up, And we will do so. So if you move to the next slide. This is the footprint of the airline today. A lot of expansion during the pandemic, hundreds of new routes Launched and a very significant network today. We are operating to 48 countries In total, as said, we added 80 new operating bases during the year. So this is a much Enlarged and enhanced operating network, certainly a much enhanced commercial network, but we are selling them what we had a year ago. We've got a number of recognitions during the year. I would note that Wizz Air is the very first European airline. If you You can think of such thing as a European airline. You should certainly think with that, our license number is 1. We are the 1st European airline licensed by EASA. We think it's a significant move, and that gives A significant path for our ability to expand and scale our business, not only from Commercial perspective, but also from a regulatory and operational perspective, if you move the page. As you can see, As I said at the beginning, we are a better airline than what we were a year ago relative to the market. We have gained strength Pretty much in every core markets we operate from in Central and Eastern Europe, but also in select markets in Western Europe. Some of it is obviously our ability to have been able to take advantage of the pandemic and some of it Obviously, it's arising from the weakness of our competitors. And clearly, what I think is going to happen post pandemic is that We will be a much strengthened business platform operating a newer fleet of aircraft At much lower operating cost than our competitors that we have to rely on aging aircraft and higher operating cost. And This is being a commodity, obviously, triggers the winner on the basis of who Deliver the lowest cost, lowest cost, previous and we are just going to further enhance our lowest cost position in the marketplace. And with that, let me hand it over to Jariq. Thanks, Josef, and good morning to all. Let me just add a few Financial highlights for the year and also some color on the last quarter. So on Page 5 here in the deck, You will see that our revenue was down 73% and quarter 4 revenue decline was not different. It was down 74%, given The restriction that continues also into the entire quarter, we reported an underlying loss of €482,000,000 for the full year, With the loss for quarter 4 at €222,000,000 and reported loss for the year was €575,000,000 with the The difference between those two numbers being the exceptional losses linked to the discontinued hedge Given where the fuel prices are and the hedge coverages are for F 'twenty two, we don't believe you will have major exceptional items going forward. And over time, you can just go back to one reported profit number. As Joseph highlighted, the total cash number It was €1,670,000,000 and we'll come back to that a little bit later. On the next slide, Page 6, you will see that the total costs were reduced with 46% and ex Fuel cast by 38% versus last year. Recall the ASKs were down 64%, 63.5% for the period. And you'll see that the costs were almost fully variable. We're obviously fuel airport charges, distribution and marketing costs. We also reduced staff costs 43%. I mean, recall, we don't meaningfully benefit from our furlough schemes In our region, we released roles with 19% back in April 2020 and the same month also the Our lease was 14% on average. So that was a big reduction on the employee cost, on the staff cost, even though During the last quarter, quarter 4, we reversed some of those, let's say, salary reductions For the lower earning incomes, cabin crew and office staff, whilst we kept, obviously, these reductions in place for Maintenance and depreciation are the 2 cost buckets that were more rigid. Obviously, we want to keep our Aircraft airworthy even if we launched Thailand, and we also started to redeliver Certain amount of aircraft and even accelerated some of that into the year, into quarter 4. This brings us to liquidity on the Next page. If you look at liquidity here, we're finishing the year That's €1,600,000,000 So it's ahead of the €1,500,000,000 where we started the year. But of course, a lot has happened in between. We issued €300,000,000 commercial paper with the Bank of England under their CCFF program, and we issued a 3 Year bonds in Jan 21 of €500,000,000 From a cash point of view, you can see from a cash burn point of view, you can see that we've Despite all the adversity, a relatively good job with the cash burn highest in the Q1 of the fiscal year and in the Q3 Of the year, making up 95% of the Q1 to Q3 cash burn with a pretty good summer cash performance Even at a time when we're not back to full schedules. And also in quarter 4, I mean, it was a relatively difficult Well, in terms of operation, with still a lot of restrictions, we only burned €84,000,000 Recall, our guidance has been In the last 6 months of fiscal year, to burn €70,000,000 per month in case of full graphics. So we're burning only €84,000,000 in the quarter where we operated just over 20% of capacity is a pretty good performance. On On Slide 8, you see a little bit more color on the last quarter with the all in cash burn, as mentioned, €28,000,000 per month or €84,000,000 for the quarter. As we mentioned, we maintain the investment grade rating. We do not have overdue refunds with passengers other than some French cases linked to, for example, The upflow revenue remains at the level where it was in the December, So around €65,000,000 which obviously holds a lot of potential for the features as bookings will come back in and then balance sheet account We'll kind of fill back up. And then Obviously, we continue to focus on the contribution of the fire as a key principle for the operation. On Slide 9, just to close off on the financials, speaking a little bit on the ancillary revenue, we continue To reiterate our strong performance and capability on ancillary revenue, on a like for like basis, ancillary revenue was up €5.7 per passenger. Of course, there are some tailwinds here because of COVID-nineteen, both in terms of Update on certain products in the portfolio, but equally in terms of pricing because, obviously, pricing in the last couple of months has been relatively inelastic Our adjusted demand has been rapidly in the market. But still, we have strong confidence for the future to have Ancillary being in line on a like for like basis with our long term target of €1,000,000 per passenger per year. And with this, I mean, Ancillary makes up more than the majority of our total revenue, which Again, it's really critically important for our model as we try to stimulate demand with low fares and have a partial or full And with that, Joseph, back to you. Thank you, Jorg. So if you look at the focus of the business going forward and the focus what we have Really putting into this business. Of course, we remain very intact on our other As a matter of fact, we're seeing that given the times, given the challenges in the industry, the Arthur low cost model prevails more than ever. And it is the model that is expandable, that is scalable, and we have been trying to take advantage of that and making Arter Locust even more Arter Locust going Forward. As said, we have much focused on diversifying our network. We have A significantly enhanced and enlarged geographical footprint today Then before, then we're seeing that benefits the business. I mean, clearly, we see that due to the roller coaster effect of the past 15 months, you saw certain markets performing well in a period and some others performing much weaker and then they kind of reversed. So but we always had markets It's outperforming, the rest giving the sources for financial Solid performance liquidity, liquidity performance. So clearly, the more diversified you are The network has integrated your abilities to deal with issues like the current pandemic. We think sustainability It's a big deal and it will be an increasingly big deal going forward. Clearly, we are best positioned For sustainability, given the act of the operator, the efficiency of that flowing Through from a sustainability standpoint and as well as the operating model what we have and how efficiently we are flying a passenger. So we are already leading the pack when it comes to sustainability, carbon impact of the European And we're seeing that our continuous investment into aircraft and technology will give us More scope for leadership, and we are working on exploiting that leadership profile. And we have been further digitalizing our business, our operating platform many ways, and I will touch base On that later on. So if you move to the next page, please. I would just like to highlight a few things We are enhancing our ultra low cost model going forward. If you look at the first chart, We are up gauging and we are going to operate a younger fleet of aircraft going forward. And both will significantly benefit the business from an economic standpoint. Obviously, a younger fleet of aircraft delivers lower unit And the gauge and off gauge fleet of aircraft delivers lower production costs. So we are going to benefit From both in the coming years, which I think is a significant source of competitive advantage going forward. Jarek touched base on ancillary revenues. Ancillary revenues A significant source of competitive advantage for the business. You can see that we have And we would expect to outperform it going forward as well. So we will remain very focused on this line of business. So will be on Secondary airports are strategically important to us. We are a high utilization model. So we want to keep the aircraft In the air, when you devote capacity to primary airports, you become more constrained, and that operation requires more ground time. So Secondly, airports are not only important because, of course, delivering a lower cost operation, but also for delivering a more asset utilized operating model. And we have a way to go to catch up to Previous productivity levels, if you look at load factor, currently we are performing 64% load factor and this is a significant gap to 94% where we In 2019, but we believe that we're going to be back to that level very quickly once the markets become unrestricted and same with asset Divizations then basically dropped to a 3rd versus where we were before. And as we are ramping up and the markets become Unconstrained, we're going to be revamping our operating platform to these levels. So there's Significant way to improve productivity to get back to previous levels. So if you move to the Slide 3. We have talked a lot about this, how we have been diversifying our markets. We opened up 8 in new operating bases during this period, and you can see that it's been very diverse. So some of it happened in Invested in Europe, some of it in our core, Central Eastern European Markets, and we also opened up Abu Dhabi in the East. It's It's a much more diversified network than before. And obviously, that gives us a significantly improved ability To deal with the headwinds coming from situations like COVID, some of These market openings obviously are trying to take advantage of the pandemic situation. And once we Gain experience, obviously, we'll have to make some choices possibly. And I think we've already started making some choices. And The choice is what we have made. On the one hand, we are going for Italy very strategically. We think Italy is an investable market, and we should in the country and continue to invest by opening new operating bases and bringing more aircraft, more crews Into the country. So we made a strategic investment decision when it comes to our Twitly. We feel very comfortable that The market resonates very well with the business products and services. And it It has been largely constrained during the period, but when there was a bit of an easing, the market reaction was very positive to this. And we also made A decision to pull out of Norway as a domestic operator. We will continue to serve the market as an Inbound airline, flying international roads. And basically, this is the trade off of this investing inbound market Being able to invest in another market in Italy as we said. And also we are quite excited about the investment What we are making in the U. K, we need to see those investments through once the market opens up. But we've already opened Gatwick And on Koster, and we are looking forward to opening Kabi in the near future. As far as obviously seeing that the U. K. Remains a good investment market of opportunity for Bizet. If you please move to the next slide. Sustainability and ESG in a broader scale are important And we're seeing that Wizz Air is very well positioned for those metrics. You can see that we are already the leading airline in terms Of carbon footprint and we'll continue to reduce our carbon footprint going forward. But obviously, this is the function of the aircraft age, The steep count and the efficiency of operation. Gender diversity It's another important metric we are focused on and that is important at management level as well as Crew, especially pilot level, we are really making significant efforts and putting programs in place To make sure that we are dynamizing our gender diversity. We are a very diverse Just in terms of nationalities, we have 53 nationalities in the company and I think our culture benefits a lot from that. And obviously, we have a lot more other measures. We are looking at like noise or other Any briefly related measures. And we're seeing that we're going to be able to do very well Within our scope of influence in the industry, but obviously we need to see other kind of bricks in the wall, how They play out in terms of technologies developing, affecting the sustainability performance of the industry and some of the other Tools like sustainable aviation fuel, like the whole Navigation system, how that will evolve and how that would affect the industry's performance. But we are here much focused on what we can do as an airline to With regard to our digital investments, a lot of investments actually have been happening in that area. As you know, we are probably the most To start with, we have most of our revenues flowing through digital channels. Very interestingly, over the past few years, we are now seeing the app becoming the core Channel for interactions with consumers, there is a very significant shift. So I think our investment into that platform is now Bearing fruits, you can see that handset revenues are reaching record highs. That's important. That's totally digital channel for the company. And we think that all this digitalization is very relevant to the consumer, especially For the up and coming consumers coming into the franchise of flying. We launched electronic flight back, Making us totally paperless in the cockpit. So it's not only The consumer interface, we are focused on, but we are also looking at the operations of the business, the operations of the We need to make sure that we benefit from digitalization that and recently we just owned Amelia, the our Virtual assistant, helping our customer service and helping customers with their With the company. So if you please move. Talking about the outlook of the business. As said, it is difficult to give exact guidance to you Taking the uncertainties into account out there with regards to the regulatory framework and travel restrictions. But certainly, what you can see is that we have Been incredibly agile during the last year. When the market opened up, we Significantly outperformed the market. I think it just comes down to our ability to move very quickly. But also, when the market Became highly restricted. We took more capacity out than the rest of the industry. And I think that comes on the basis of our financial responsibility. I mean, we are not sentimental. We fly cash contribution positive flying. If that doesn't make sense, then we simply don't fly. So we are not going to fly for the sake Flying as many airlines do that, but we are financially very disciplined when it As to operating flights under distressed financial or regulatory environment. The good news is that, I mean, we Start seeing some easing. There was a long period when every single flight we operated fell under some Restriction, now you are seeing that around 10%, 15% of all flights are becoming unrestricted. And as a result, you see immediately how the market reacts and how consumers react and want to come back to the franchise. So if I look at last week, We operated 30% of our 2019 capacity of the same week, But we sold 70% of the revenues versus the same reference period. So clearly, we are seeing A turn of the market consumers coming back. If you please move Just to give you a quick outlook for so much as we can say, Transmubility restrictions remain the key issue and will determine the pace of recovery and timing of recovery. And actually the results of our fiscal 2022 financial year. So that's why we are a little blur on what guidance We can give you because if we operate in a non restricted market, we will deliver totally different results and financial performance versus Operating through a restricted market. So I think we just need to understand how that's going to play out. What's important from our standpoint is that I think we are ready to deal with any circumstances, with any situation. As said, Q1 capacity is going to come in at around 30 And the rest of the financial year will really depend on the restrictions prevailing. Having said all of that, I think we have adopted the principle of cash positive flying, and we're only going to be operating A cash positive flying program. So if the markets are unrestricted, we do more. If the markets are more restricted, we do less. But we will Stay very financially disciplined with that regard. With regard to peak summer, we are expecting 2019 levels, even higher levels than 2019, again subject to But this is what we are planning on. And we're seeing that sort of the second half of the financial year would We'll kind of fall in line at least or somewhat to walk through 2019 levels. But again, if we are seeing an unrestricted market, we can do much better We are adopting or re adopting the core disciplines of the business model to make Sure that we are getting asset utilization back to standards, 12 plus hours, and we are getting productivity back to standards when it comes to personal productivity, labor productivity of the business. We believe we will continue to perform strongly on cash. Liquidity has been Our most important priority, we think we have preserved liquidity quite well. And going forward, this business will be very strong We are returning to some normalities to Proven model, and that is around stimulating demand, growing ancillary revenues, Penetrating more and more consumers through digital platforms. So we're seeing that as the market gets somewhat normalized, Our model will also be operated in a much more normalized way similar to previous experience. And with regard to To fiscal 2023, I mean, this is kind of long time out, certainly given the times we are in. We think we should be kind of swinging back for At that time, certainly, and capacity. But we also think that given the competitive advantages, this business will be able to deliver at that time That kind of an event will flow through the financial metrics largely as well. If you So just to wrap it up, we think we are well positioned to take advantage It is an issue we have to deal with day in, day out. But at the same time, it is also a great opportunity for the business to reset Ourselves in the new competitive landscape, and we think this year will come out of this as a structural winner. We have A strong a very strong liquidity position, probably much stronger than the rest of the industry and balance sheet. And those are enablers of the airline to capture these market opportunities. So actually, we can invest those. So we are not just surviving every day, but We are investing into our future. We are investing into markets. We are investing into aircraft. And we will follow through those investment lines Going forward as well. We are totally geared for pretty much an immediate restart of that event, subject to market conditions, Subject to regulatory restrictions, we have developed the flexibilities to move capacity, to move aircraft, move people with the aircraft pilots and cabin crew As required by the market or as the markets allow us to move. We are well positioned for sustainability. We think it's going to be one of the strategic agenda items of the world in the next decade. And we think actually there is no better airline in Europe to perform against ESG sustainability The expectations then we said. So we think it will be another source of competitive advantage for the business going forward. As said, fiscal 2022 outlook remains uncertain because it is largely subject to Restrictions prevailing restrictions imposed by governments. But as far as we are concerned, we are ready to go. And I think we are able to Many of the operating parameters of our business model that have been making us Successfully in the past. And we are fairly confident in our ability to recover quickly quicker than the industry And to start seeing kind of full swing performance standards on capacity, The revenue and the financial metrics going into fiscal 2023. Thank you. And I think that gives you the floor for Thank you. We have a question from the line of Daniel Raska from Bernstein Research. Please go ahead. Good morning, gentlemen. 3, if I may. 1, you said your outlook for 2022 is cloudy, but referenced that you're back at kind of full speed in 2023. What's the minmax range you're currently considering For financial year 2022, maybe in terms of passenger numbers or relating to the size you had in 2019. Following on from that, Could you talk a little bit about your staffing levels and kind of since the lack of furlough schemes makes it a little bit more difficult, How do those staffing levels impact your min and max scenarios in the next 12 months? And then lastly, could you you mentioned the EASA AOC. I guess this was granted back in August. What's the impetus here? Are you planning more operators In Europe, what's the key advantage for you since the U. K. AOC isn't kind of isn't related to the other AOC? Thanks. Okay. Thanks, Daniel, for the questions. On the first one, I would say, I mean, even the mid max could be very difficult to call. But I would Between 60% to 100% of capacity flying is what we would be looking at For the remainder of the fiscal year, maybe 100% will not be there immediately yet. On your second point, from a staffing level because that's not where we are At this point in time, we will gradually build up the capacity for crewing as we see a progressive linear progress So with regard to stocking level, I think we are able to ramp up to around 90% Operation at this point in time and obviously with a few more months down the line, we can Reinstate some formal employments with pilots and cabin crew and we can Recruit from the market, but our current capacity level allow us to ramp back up to around 90% level in a very short space Thanks for peak summer. So I think we are fairly relaxed with that issue. It is not really our ability and our internal capacity to be able to ramp up, but it is much more down What the restrictive nature of the regulatory framework will allow us to achieve in summer. With regard to EASA, I think the benefit of being governed by EASA is that, first of all, It is the European regulator. So you are closest to the fire with them too. EASA has capacity to expand its regulatory oversight. Hungary is a relatively small country with somewhat constrained resources available at regulatory level. And We just wanted to make sure that we don't run into batonax with Desigard. So being able to deal with the regulatory itself, I think we have much greater In standards affecting some operating procedures, I think as we are learning from my assay also, we learn from us. And certainly, we are eliminating potential better next in the future for expanding our business. But with regard to the UK AOC, yes, the UK AOC is important because that gives us the The regulatory platform for being able to serve the UK not only from The European Union, but also from third countries or we can have operations from the UK to those countries. And we will be looking at expanding that network in the future. So it is important that we have the right To go about it, I mean, we have to recognize that UK is no longer a member of the European Union that requires A different level of regulatory compliance than before. Great. Thanks. Our next question comes from the line of Mark Simpson from Goodbody. Please go ahead. Yes, good morning. Couple of questions, some on cash flow, maybe for Eurek and one on revenue mix. On the cash flow, deferred income, Obviously, marginal at the end of March. But on the current run rate, would it be reasonable to think that deferred income Would be circa EUR 350,000,000 EUR 400,000,000 by the end of this quarter. Obviously, very strong presales beginning to be seen. And on the cash flow on the longer term view, FY 2022 and FY 2023, Can you give us a net CapEx after refund of advances, assuming all deliveries are based on a sell on leaseback Platform, so more annual data for those. And then finally, on the revenue mix, Obviously, significant progress continues on the ancillary, but pricing on the tickets within the pandemic. I'm wondering as we look into summer 2022, Michael O'Leary, Ron there, was talking about potentially price ticket prices being above 2019 So I wonder if the mix will favor some inflation on ticket prices going into summer next year. Okay. Thanks, Mark. So on deferred income, I mean, we are indeed seeing a buildup As you've also seen from the chart that was shown, right, on the weekly sales progress, now We're not building up to €350,000,000 levels for the quarter. It's still significantly lower. So we will see a lower cash burn in the quarter than the €84,000,000 in part thanks to the good cash discipline, but also due The deferred income, but the levels are still relatively modest because the booking window is still 50% of the booking are within 2 weeks, 80% of the booking are within a month. So it's not yet that we're already booking here August September To a large extent. On the CapEx level, I mean, this is also like our fleet, a number that sometimes changes during the year, But the outflows are relatively modest, I mean, below €100,000,000 or so for F 'twenty two. So that should not be a big ticket item. And then on the revenue mix, I mean and the pricing more generally, I think it's clear that there will be a lot of pressure on pricing over this summer, so summer 2021. I think even more so what we see on leisure routes as they open up, there's capacity piling in very often Relatively on discipline, not controlled, which then leads to depressed pricing. I think BFR is a little bit more hedged from that point of view. So So probably on a relative basis, we'll be a little bit better protected. But I think it's no it should Be an expectation that pricing levels this summer will be strong. I mean, for next summer, in theory, so 2022, in theory, they could be Higher, and they should be higher because a lot of the cost structure of the other airlines has significantly gone up. I mean, we're one of the only airlines That did invest in fleet, that did invest in the network. But if you look at all the other airlines, they have done. So they've continued to operate all fleet. And there are some cost headwinds that they will be seeing, which we're not seeing. So yes, it could be that pricing is higher. But again, I mean, history doesn't really speak an advantage of the very rational pricing environment in this industry. Yes, Jurek, just going back on that. So it's not so much comparison to FY 2022 summer on this summer. It would be Surprising if prices didn't rise. It was more the comparison FY 2022 on the summer 2019 On the basis, that is to say, by that stage, we should be in a full demand recovery. Yes. So the summer of 2022 versus the summer of 2019, it could be that we're back at those levels because Rationally speaking, it should be the case. We will need to see what the capacity discipline is in that summer. But yes, I think that's a good base plan that it would be roughly the same level as summer 2019. This summer 2021, I don't see that. Yes, that's great. Mark, I mean, I think one thing you can certainly say is that the unit cost level of the industry In 2022, summer 2022, it will be higher than what it was in summer 2019. I mean, a lot of headwinds will be developed for many airlines. I mean, we shall see how state monopoly charges will evolve like Eurocontrol, etcetera. But certainly, the cost stress coming from an aging fleet will be significant. And with that regard, I think 2022 is going to be a deteriorating kind of cost platform for the entire industry. And this was really the point I was trying to make that I think When you put our business in context of that, I mean, we're going to be delivering a significant competitive advantage Coming out of an off gaged and renewed fleet of aircraft, and we should be in a really good position To benefit from the situation. Just following that up, Joseph, I mean, looking at your Forecast suggestion of 2 percentage points of intra European market share. I know you give it as a CE kind of originating, but On a broader basis, 2 percentage points of market share this calendar year and next, is that kind of what your fleet is suggesting? Possibly. But to be honest, I mean, we don't really measure market share. I mean, that's not the basis of doing business For us, I mean, it is more like an outcome of what we end up with. So we are not driven by market share. I think we are driven by shareholder value creation. We The investment on the base of profitability, return on investment, etcetera. And if it comes with market share, great. And I think this is going to come with Significant market share because I mean if you just apply the logic of being more cost competitive in a commodity Coming out of this is a significant source of competitive advantage, and we will have a much enlarged fleet. And on the On one hand, we have the new aircraft delivery program, but we also have another lever on capacity. And this is the return of aircraft Of existing leases, I mean, we can extend those and you can extend those leases basically at no cost, almost no cost At this point in time, because vessels don't have alternatives to place those aircrafts. So we are certainly looking at All these opportunities and try to model what we can actually do and we have levers To do it properly at very low cost competitively versus the rest of the industry. That's great. Appreciate that. Our next question comes from the line of Jarrod Castle from UBS. Please go ahead. Thank you and good morning everyone. Can you just give us a little bit of color in terms of non EU markets in terms of travel restrictions? Obviously, The EU is trying to get off the vaccination passport, but I guess the end of June. So how do you see things playing out in non EU markets in Interesting slide on Page 4, because it looks like you've taken more market share from LCC, going from 40% to 46% rather Then from the legacy airlines, so the legacy airlines growing more on short haul to compensate for long haul, or am I reading that wrong Just given the relative mixes. And then in terms of Looking a bit further out, I mean, you've obviously got at the moment very, I'd say, elevated levels of auxiliary revenue mix. How do you see this normalizing as traffic recovers? Thanks. All right. So let me start with the non EU restrictions. Yes, I think it's fair to say that non EU is more difficult than the EU, Although the EU is also somewhat restricted inside, but we are expecting more restrictions So implied on non EU flying than EU flying. Maybe we shall see how the green pass will evolve and what relevance it will really Have and how this is going to get implemented, but I think it's a fair assumption that Non EU is going to be more restrictive order. I also think it depends on the very market we are talking about. But we are Planning on more restrictions when it comes to non EU. In terms of the legacies, yes, I mean, it seems Legacies are maybe doing more, especially in context of bad markets. When the markets are restricted, legacies tend to fly more than low cost carriers. But I think this is just a reflection of financial discipline or the lack of financial discipline. Low cost carriers are the financial discipline, so I think it's not only reserved, but the rest of the low cost industry also Implement cash positive flying. And if you have governments giving you SEK 10,000,000,000, then you don't really care and you don't apply the same Financial discipline. But also when you see an open market, a less restricted market, legacies are Usually beaten and outperformed by local carriers. I think it just comes from the agility Of the module. So I'm not sure how relevant what legacies are doing. I mean, they are just acting on different levels of financial Lack of financial discipline, we stay focused on our course. So we're going to be flying Cash positive network, and we are not going to fly for any other purposes than Really making money and contributing to cash. And the last question was? Yes, I'll take that one, Josef. So on ancillary, I mean, Again, so that everybody is really, really clear on this. If you look at quarter 4, our ancillary gross fare per passenger was up €15. Our ticket fare, and this is versus 2019, our ticket fare per passenger was up €10 gross fare. So You can't just extrapolate the current Please hold while we reconnect the speaker line. Sorry, we got, for whatever reason, disconnected, but we are back now. Yes. Sorry. So just Jared, I don't know if you're still there picking up on your last question. So we were saying that the pricing trends we've seen in the last quarter, quarter 4 are not to be extrapolated going forward. And really on ancillary, what we keep guiding is that we will be €1 per passenger per year higher. So in F 'twenty two, it would be basically €2 per passenger higher versus F 2020, that's why you should kind of put in the models and we continue to see that €1 In the out years as well as we still have headroom on products and pricing. Thank you. Our next question comes from the line of Jamie Robotham from Deutsche Bank. Please go ahead. Good morning, guys. I'll go quick because I've got 2 for Josef, 2 for Jurek. Josef, You suggest that peak summer capacity this year could exceed the levels you had in place in summer 2019. The load factor back then was about 90 6%. At the moment, it's 66%. What sort of load factor would you find acceptable or realistic this summer on that level of capacity? And secondly, in terms of the issues you came up against in domestic Norway, is there any risk that As the Italian government tries to relaunch Alitalia, you could come up against similar issues there. And does the experience in Norway mean You're unlikely to look at other Nordic markets that might have been of interest like Sweden or Denmark. And then, Jurek, You ended the year with EUR 1,600,000,000 in cash or EUR 1.45x restricted, but you also ended it with €3,150,000,000 in debt and lease liabilities, so €1,700,000,000 net debt. All else the same, What do you anticipate as the approximate impact on net debt from taking delivery of 27 A321neos in the fiscal year 2022, please. And finally, could you tell us where you're at in terms of carbon credits? Has there been any Resetting of your free allowance, have you done any hedging or forward buying? Thanks, guys. Thank you for the questions. With regard to peak summer, indeed, we think we may do better on capacity than what In 2019, but it may not translate into higher passenger numbers. But I think that's to be seen. We clearly Would expect better than 66% load factor performance during the peak summer period, although I would also say that We are launching a lot of leisure routes and some of it is going to be one direction at least at the beginning. So that will put some pressure on load factor. But overall, we would be expecting a much lower load factor performance. I mean, I think it's kind of hard to predict at this point in time what number exactly this business is going to deliver. Probably it's going to be less than 96%, but certainly more than 66%. With regard to Norway, I don't think it has any relevance to Italy, to be honest. I mean, the only relevance to Italy is really from a financial That was an investment decision. So I mean, we don't want to fund Western European Market opportunities by constraining strategic profitable markets in Central and Eastern Europe. So we are only prepared to invest A certain amount of capacity in Western Europe and you need to make choices. And the choice we made was Italy over Norway. And it doesn't mean We are leaving the Norwegian market. We are not basing operations in Norway, and we are not going to fly domestic services in Norway, but we Remain an inbound carrier into Norway. So Norway will still be very important, and we will serve it as an inbound carrier, and we have a lot of demand to fly to Norway. But if you look at the Italian situation and whether Oritalia would Put pressure on us. I don't think so because of the 17 aircraft we committed to Italy, only 4 aircraft are going to Rome, but on Italia is actually irrelevant. So most of the capacity we decided to deploy in Italy has nothing but nothing to do with Or italia, no matter what happens to our Italia, we would be good to go with that capacity. So our Italian expansion is not really related to what's going to happen to our Italia. I mean, my personal view is that The Italian government will figure something out for our Italia, but it's called our Italia or something else, I don't know. But it seems to me that Under any circumstances, there will be an Oritalia or the like of Oritalia operating in Italy, but our Italian plan is not affected by that. With regard to Kind of the halo effect in Scandinavia. I don't think the Norwegian decision has again any relevance to other Scandinavian markets Like Denmark or Sweden, I think every market would be looked at on its very merits of the market, and we would be making independent decisions. So simply given the times we are in and given some of the constraints what we have And some of the investment principles we have been applying in the business, we simply decided To fund the expansion of Italy from previous investments in Norway, that's a rational business decision making. Yes. Jamie, on your two other questions. So yes, it's true. Obviously, as we've shown in the liquidity chart, The liquidity position is good, but we are significantly higher indebted than when we were at the start of the year. However, if you look at our F 'twenty three, F 'twenty four projections, we're confident that we can steer the leverage back to close to one Ratio by F24. So clearly, we with the cash generating potential of this business And the business model, we're quite confident to do that. We'll repay the CCFF funds in February and take it from there. So we do not need to Do any other balance sheet repair activities other than just operating our business. And then on with regards To carbon credits, I mean, if you look at it, I mean, onethree of our operation is not exposed to carbon credits, onethree Our operation is having free credits and onethree is kind of exposed to market pricing. So that's kind of the exposure we're having. We're not hedging that, But we're taking as it comes. I mean that market is, I think, under a significant amount of regulatory development With potentially going from 40% industry coverage to a much higher percentage with potentially speculative money coming in. So we'll need to see how it goes instead of Speculating, just being focused on our own business and our own operation. Great. Thank you. Our next question comes from the line of Ross Harvey from Davy. Please go ahead. Hi, good morning, Jurek and Joseph, I just wanted to return to FY 'twenty three, if possible. I know you say in the statement that you'll be operating full capacity. I'm just Wondering, does this mean capacity will equal the FY 2020 levels or given the fleet additions? And Joseph, you mentioned the lease returns and the flexibility you have there. Could capacity be more than FY 2020? So that you have there, could capacity be more than FY 2020? And secondly, I might ask on the ex fuel CASK. Obviously, there's a lot of factors around that. You have some benefits coming through on staff, sounds like some benefits coming through on airports, maybe maintenance and D and A under pressure. Can you just talk about where the ex fuel CASK level will normalize post COVID and what factors are larger or smaller With regard to your first question, I think we are very keen on getting utilization back To previous standards, 12 plus hours. So essentially, that means for fiscal 2020 We want to operate the entire fleet of aircraft we have at that point in time with full strength, 12 plus Hours of utilization. So in terms of capacity, it's going to be we are expecting it to be 2019 level in terms of utilization, but in terms of seat capacity, obviously, that would add the growth to it. So we would be probably 30 And up versus 2019. In terms of the ex EU CASK, Ross, I mean, yes, I think you're saying it in the right way. We obviously need to have all, let's say, lingering effects of COVID-nineteen Kind of fully disappear restrictions. We need to be able to speed up the turnaround and the operation, etcetera. And if all of that kind of comes in the right place, you slide the right load factors, we should be steering the ex fuel cost very close to the F 'twenty levels. So that's kind of our target. Yes. Thanks for that. And one follow-up, if I may. Jurek, I noticed that the Fax gains swung by about €100,000,000 between or almost €100,000,000 between Q3 and Q4. I mean, you should get a gain in Q1 given the movement, but it's obviously sense. Just wondering, would you consider stripping this out of the underlying net income or would you consider additional hedging on this line? Just wondering any thoughts on that would be Thanks. Yes. No, actually, it's a good question. And we have kind of stepped away from hedging as a company. So we decided with management, with the Board to no longer hedge any input costs, so not jet fuel. We decided not to hedge any currencies anymore, and we decided not to hedge any translational currency exposures. You're rightly pointing out that at this point in time, it's leading to increased volatility on the P and L. But again, if you would have hedged that, you would have had that Volatility from a cash point of view, imagine you would have hedged the dollar exposure on the balance sheet. We would have been looking at probably close to €100,000,000 liquidity loss. So we need to do what's right for the business. Hedging has an inherent cost. It's around 4% of the underlying, let's say, commodity or Currency that you're hedging. And if you would look at our exposures, that would probably mean if it's truly is 4% and up more around 50,000,000 Euro per year. So that's a very large cost or frankly no benefits other than, let's say, some stability in earnings, Which from a balance sheet point of view, we just need to work more on natural hedging, which we're looking at. It's not something that we can switch on overnight, But there is things that we can do that we're looking at to get less exposed from a dollar point of view on liability side, etcetera. So we'll keep working on the natural hedge. We're a bigger company now. We're no longer an IPO sized company. That's kind of at that point in time, companies typically around IPO. It's good to have some stability in projections and earnings, obviously, Critical to establish market credibility, but now given that we do have the balance sheet and the strength on the balance sheet, we have stepped away from hedging in this environment, Which is significantly more volatile from a trading point of view than it used to be. Great. Thank you very much for the detail, Jorg. Our next question comes from the line of Carolina Torres from Morgan Stanley. Please go ahead. Hi, good morning, everyone. I have two questions. Looking at the changes in the FEED plan, you went down from 159 aircraft For the end of this fiscal year 2022 to 148, I guess, a part of it, it's a return of leases and postponement of deliveries. I wanted If you could give us a color on savings and what has driven the postponement, it's just you're not going to use the capacity or there has been a delay at Airbus? And secondly, could you give some color on your negotiations with airports? When you're resetting tariffs, are you doing are you getting used mainly for short term slots or you're actually locking in better deals for the medium term? Thank you. Thank you for your questions. I think I see the way to look at the fleet plan is that this is an evolving line. This is where we are at right We have rearranged some of the assumptions in a way. Are we with you? Yes, I can hear you. Okay. That was just some incoming calls or something. So, I see, you're going to see changes to it. I mean, this is what I'm trying to say that I mean, this is Today, what you are seeing, what we are working on the fleet program and obviously we are looking at each of the market opportunities we have been tapping into And we are looking at ways of best sourcing capacity for those market opportunities. So I think this is as much Just I can comment on the current fleet. So please just put some flexibility to the numbers because that can change, not necessarily To lower numbers. With regard to airports, no, we are striking long term this year. I mean, I don't think we would ever open a base for Getting attractive with a good deal for a year or 2. I mean, we at least we want to see 5 years as a horizon, and we want to make sure that the economics Of the deals remain attractive for a longer period of time and that is the basis of our commercial dealing with airports. Our next question comes from the line of Andrew Lobbenberg from HSBC. Please go ahead. Good morning, guys. Could you talk a little bit about the Of the Eastern European Government towards the EU Green Certificate. Sat here in the UK, we're very aware of the caution here and we can see clearly the enthusiasm of Southern European states to open their markets. What are the attitudes out in your out in Eastern Europe? And second question would be around EU ownership. Can you update us on where the EU ownership is perhaps now and then after the conversion of the Indigo branch? And on their call, Ryanair spoke of building their EU ownership to be majority EU ownership Within 12 months. Are you seeing any need to match that commitment? Or are you happy staying with Your disenfranchising strategy. And then just as perhaps a short term issue, The closure or the avoiding of Valorica space, is that giving you some longer routings on some of your clients? Okay. Thank you, Andrew. With regard to governments in Central and Eastern Nevada, I think they are Much different from governments in other places in Europe. As in so far, every government has been pursuing its own agenda Pretty much unrelated to Nabors and others. And I think EU SF framework has kind of collapsed on the pandemic. And now the green certificate is an initiative trying to get control over matters, and We will see how successful that initiative is going to be. I don't think there is any resistance to that initiative in Central and Eastern Europe. I mean, I'm pretty sure If it makes sense, this is going to be supported. I mean, clearly, there is one kind of hanging issue here that which vaccine It's a qualifying vaccine, and that may trigger some further debase. But other than that, I think The willingness to play in is not geographically dependent. I mean, I don't think there is a particular European interseal versus Western Europe with that regard. I think the bigger issue in my mind is that over the past 15 months, The EU has gone totally uncoordinated on pretty much anything related to the pandemic. So that would be the first kind of major initiative. And we shall see whether that succeeds or fears. I mean, what I'm hearing is that this is still kind of advisory as opposed to mandatory On countries, and I think we just need to learn how that's going to play out. But hopefully, it will work and that will kind of reboost travel, But we should see. With regard to Belarus, we are very much in the exposive. We don't fly the country. We have some overflights, but basically those overflights at the moment are non operational given the restrictions primarily in Russia. Once Russia is back, I mean, we may see more avoidance Needed to be made in our route planning, but at this point in time, it's almost negligible what we have. On the EEA ownership, I mean, it is around 15%. So actually, on your question on Indigo, I mean, If they sell down, then obviously EEA ownership goes up. And if there is a conversion back, then it goes down. So it kind of moves Always a little bit left and right. So there's no major impact really here on this one. On the line sorry, on your question on the ownership, yes, of We are also focused on that. We are trying to view more to European investors. But clearly, we're trying to manage The ownership and control regulation via disenfranchisement, as you know. And then on The lines are flying, yes, and indeed, I mean, domestic typically is shorter stage length and less domestic means that indeed the mix will Our final question comes from the line of Mani Takiani from Bank of America. Please go ahead. Yes, good morning. Just a few follow-up questions. 1, on the Indigo convertible shares to ordinary, Why the decision to convert now? And then secondly, on Abu Dhabi, now that you've been operating there, How has progress been so far? And how are the economics in Abitavie so far compared to say the European network? And then Thirdly, can you talk about on your U. K. Plan specifically on Gatwick and kind of What is your strategy at Gatwick at this point? Thank you. So on Indica, I mean, obviously, the historic approach has always been for them. They basically sold down and then they converted. With the Brexit Situation, basically, the articles didn't allow that, but it's still in the benefit of everybody to have increased liquidity in So the company has requested Indigo to convert their outstanding convertibles into ordinaries. And why now it's Just I mean ideally it would have coincided with when they sold down, but obviously we are not aware when they're selling down. And we had to as a company had to look into the articles and how that made that possible and that just had a little bit of lead time. But typically, those events would coincide, But because of the articles, it was slightly deferred in terms of timing. Okay. With regard to Abu Dhabi, I mean, obviously, Abu Dhabi remains a restricted market As we speak, although there has been announcements made in Abu Dhabi how the country sees the reopening of the market, I think we are gearing our operations accordingly. So I think it's hard to kind of Compare the economic stock of business to Europe, I mean, we are still in a very startup phase. At the moment, we are only operating 5 For that, we ramp up quite quickly once the market reopens. We have made some really good Progress in getting designations to market, markets in the subcontinent, in the Russia CIS frame as well as some of the GCC countries. So I think we'll have a really enhanced network Coming out of the pandemic there. And then I guess once the market opens up, we have a much better ground To compare the performance of the market, but conceptually, strategically, I don't think anything has changed. So we think it's the right move for the company. It is the right decision and we just need to see the results coming out based On our ability to essentially operate the airline, which has not really been the case today. With regard to the U. K, especially Gatwick, As we have expressed before, we are keen on growing our presence in Gatwick. Nevertheless, that remains subject to Slot rulings, at the moment, incumbent slots are protected by regulation. So that kind of Squeezes us and then kind of closes the door for a bigger expansion in Gatwick. We have a 1 aircraft base in Gatwick, and this is organic, so not related to slot aviation. And we shall see how the regulatory framework evolves and how airlines Move on when the regulation changes and would create different The environment for gastric slots, but for the time being, no one is moving because they don't have to. Thank you. I will now hand back to the speaker for any closing remarks. Well, ladies and gentlemen, thank you very much for your interest. We'll keep you Posted on our developments and as said, I think we are very upbeat and very positive about our future outlook of the business. Nevertheless, short term, The industry is fragile. The regulatory framework around the industry remains fragile. So this is the situation we have to deal with. But I think we are building very robust competitive advantages during this period to come out as a better airline as a stronger business. Thank you. Bye bye. This now concludes our conference call. Thank you all very much for attending. You may now disconnect your lines.