Wizz Air Holdings Plc

Hello, and welcome to the Wizz Air Q1 results call. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. And just to remind you, this conference call is being recorded. Today, I'm pleased to present Yosef Haradi, CEO. Please go ahead with your meeting.

Good morning, everyone. Thank you for joining this call. to start with the report of Q1 fiscal 21. Let me just highlight a few key points up front. Clearly, we have been very focused on preserving liquidity and revamping operations during this period. I mean, you can see that this quarter was pretty much a dire state quarter, not only for the reserve, but also for the whole industry. Nevertheless, we remained operational every day. We operated flights, but switched some of our capacity to repatriation flights and medical cargo services. We ended up the quarter with a strong liquidity position, 1.6 billion euros. You recall that the... took advantage of the Bank of England loan facility, so that helped our short-term liquidity position. But overall, I think our cash burn has come in, in the end, better than expected. And as a result, we have been able to preserve our liquidity quite well. We much focused on cost initiatives and liquidity initiatives. basically updating all of our commercial contracts. We have been taking advantage of the situation that we are an airline that continues to take new aircraft deliveries and continues to grow the business on a structural basis. And obviously given the situation where the industry is, that gives quite a significant advantage and we are trying to benefit from that. We are much focused on the network design of the airline. Despite the fact that we think there is significant underlying demand there and we can tap into that underlying demand quite strongly, of course, the demand level is not the same as it was last year. And as a result, we trimmed our existing network by around 25% and we reallocated that capacity to a new network, but we have created, by opening eight new bases and launching more than 200 new routes. So it is not just trying to recover the existing business, but we are also building a new business. And we think that COVID-19 and the resulting recession will support the winners and losers structurally in the industry. And we believe that we are a structural winner of the situation. And we want to start taking advantage of that by taking new market opportunities for the business. If you look at where we are standing today with regard to operational recovery, now we are operating more than 70% of the 2019 level capacity in July, and that compares to around 40% of the industry. So we've done much better than the industry. Nevertheless, I think whatever we are doing remains subject to the covid 19 situation and clearly what we are seeing is that it is more of a roller coaster what we should be expecting so the situation may may get better or worse country by country and may result in different restrictions or easing those restrictions so it's going to be a bumpy road going up and down so quite significant unpredictability and uncertainty in front of us moving to the next slide this is giving you an overview on the on our operations and what we delivered in Q1. So we were only operating 7% of our capacity in the quarter. If it was the first month, only 3% of the capacity was operated. At that, we engaged with other forms of operations during the period, especially flying medical cargo between China and Hungary. We performed 130 services, flights to China. And we also did quite a number of repatriation flights when we were picking European citizens in various countries and we brought them back home to their homes. Our fleet continues to grow. We are continuing to take new aircraft deliveries. We think a new aircraft is a source of competitive advantage structurally in the future, especially in context of the industry. pretty much deferring aircraft deliveries and cancelling aircraft orders, so unit cost production of those airlines will creep considerably, while we will benefit from new aircraft deliveries and we want to take advantage of the situation to build a structural competitive advantage as a result. As you can see, we actually opened quite a number of new bases and launched a lot of new routes in new countries, so even in this difficult period, we were growing the business and we were creating a stronger, more diversified network for the future. So moving on to the next slide, you can see that March and April were very difficult in Europe, basically in each of our home markets. COVID-19 basically shut down these countries in the form of travel bans, flight bans, and very severe restrictions imposed by governments on movements of people. The situation started easing in certain countries in May, and as you can see now, Europe is a fairly reasonable place for airline operations. Obviously, it is not perfect, so we are still having restrictions in place, but not as severe as like two months ago or three months ago. I would also note that clearly we are seeing a change with regard to the EU stepping up and trying to coordinate and orchestrate some of the actions. At the beginning in March, April especially, it was all down to countries to take a view and to take measures. I mean, you know, it's all understood that it is a country's sovereign right to deal with healthcare matters. But now we are seeing more coordination coming into place from the European Union's institutional system, which I think is creating a better operating environment for the airline sector. We have also observed that quite a lot of state aid has flown into the industry, which feels a bit like moving backwards 15, 20 years, that the governments are not only actors of regulating the markets, but they are actually the players of the market by having an equity interest or a strong financial interest in certain airlines. So I think unfortunately that will lead to distorting the market. It will distort level playing field and this is a new phenomenon in the industry and we will have to deal with. Having said that, I also think that because of a lot of taxpayers' money is flowing into the industry, that airlines will have to be more responsible, and as a result, overall airline capacity will consolidate and will shrink, which should give us the ground for step-changing our presence in the marketplace. And with that note, I would hand it over to Jarik to take us through the financial numbers.

Good morning to all. Just a few key financial highlights on the quarter. So on the first slide, you'll see that the revenue for the quarter was down 87%, reflective of the very low capacity that we flew in April, May, and to a lesser extent in June. We booked a reported loss for the quarter of €108 million and an underlying loss of €57 million. The difference between those two numbers is the loss which is related to the discontinued fuel hedges. These discontinued hedges relate mostly to the month of June, but also to July and August, and you'll recall that nearly all of the discontinued hedge losses that we booked in the year end last year were also related to April and May. So that's consistent with what we have done there. Despite the context of coronavirus pandemic, we had a very strong performance on the RASC, which was up almost 40%. Our cost initiatives are driving the bottom line. And as Joe highlighted, we maintain a very strong cash position, which together with our strong balance sheet continues to support our investment grade rating. And I'll cover a little bit more on these points in detail later on. On the next slide, if you look at our capacity and our revenue, you will see that the revenue drop is consistent with the capacity reduction. Our load factor was down 38 points from 94% to 55 and a half. However, we had smart pricing and an excellent performance on ancillary revenue that allowed to offset this impact. Moving on to the next slide, we had highlighted in June that ancillary revenue continued to develop very, very positively. You may have read in the results release that the reported NCLU revenue was 86.8 euro per passenger. And this is one of the metrics that unfortunately this quarter is quite hard to look at given the low amount of passengers. So if you strip out the cargo business, the risk discount club, we'll have a much cleaner number to look at, which is the 47.3 euro per passenger here reflected. And even this number has some level of distortion. In the end, I mean, what we really want to say, if you look into the details of this, we see continued strength on our key pillars in salary, baggage, priority boarding, and allocated seating. We had good uptake in flexibility products, and we continue to be on track for mid- to long-term targets to deliver half a euro to one euro in salary revenue increase for this year and then for every single year onwards. So I guess this is the most important message you should take away from this slide. Moving on to the next slide. Looking at our costs, we reduced our costs 74% versus an 88.5% capacity decrease. We're obviously obsessed with variabilizing our cost structure, and all of the actions include the previously announced interventions, so the interventions on compensation, on reducing the number of positions in the company, and our renegotiation efforts with suppliers on every single line item in the P&L. The details of this reduction is reflected in the next slide. You see the 74% headline reduction. You'll see fuel to be down 66%. If you were to take out the ineffective hedges, fuel would be down more than 90%. Staff costs were reduced by half, reflecting dimensions, pay, and role reductions. Maintenance was reduced quite well. We will not get this fully variable. Obviously, we need to keep our fleet air-worthy, despite it being grounded. in some areas or in some extent. This said, we will continue, obviously, to work with those suppliers to continue to improve in that area. Just a side note in the other line, maybe of interest, this also includes overhead costs. We have strong cost reductions also on the overhead line, which includes the headquarter costs, where we zero-based all the spend. We have role reductions, compensation reductions, again, in all levels of the organization and the headquarter. And we had a tailwind from some asset sales and compensation payments of Airbus related mostly to later deliveries. On the next slide, a little bit more detail on the cash position. So as Joe mentioned, it's 1.5 to 1.6 billion, increasing 92 million euro. If you strip out the Bank of England drawdown to 326 million euro, We burned, on average, 78 million euros of cash per month in the first quarter. This is consistent, actually. It's slightly better than what we had mentioned before, before we had said it's 90 million euros in a case where we don't fly a single flight. And obviously, we did operate in the quarter, reflecting on the work that we've done on maintaining some level of operation, the work we've done on cargo. and the work we've done also on the cost side, on the payment terms, and in general on flying contribution positive, as mentioned. So with that, the unflown revenue was still at a modest level, so significantly lower than what we had in March. So that was a cash outflow, given the short booking window. And this gives us ground in the next couple of months, maybe not, but maybe in the next couple of quarters, as the context will normalize by, let's say, next year, to have a driver of cash inflow for the future. All in all, our cash and investment-grade balance sheet is not only a key focus for us, but it's also a real strength to easily winter through COVID-19 whilst preserving and sometimes maybe even accelerating our strong mid- and long-term strategic agenda. Joe, back to you.