Wizz Air Holdings Plc

Good morning, ladies and gentlemen. Welcome to this report. We are reporting first half fiscal 21, which is the period ending March 2021. I would start by saying that we have been most focused on liquidity. I think as previously stated, we are managing this business for cash and liquidity. And as you can see, we've done quite well with that regard. ending the period with 1.6 billion euros of cash. And if you look at the relative cash burn, especially compared to the balance of the industry, we've been containing our liquidity very well. We burned 265 million euros of cash in the first half of our financial year, which compares very favorably with the industry. And that's been our focus. We did quite well with regard to recovery. In the summer period, in August, we reached around 80% of our last year's capacity level. But clearly, capacity is subject to restrictions prevailing at the time in Europe, in our markets, and we see that following the first wave of the pandemic and corresponding restrictions imposed by governments, Actually, summer was a better operating environment with less restrictions, but since the end of August, we have seen a new wave of restrictions imposed by governments significantly undermining demand, and as a result, they keep adjusting capacity accordingly to market conditions. So it has become a rollercoaster, and you may expect more capacity to be taken out should more restrictions come into play. But also, likewise, once these restrictions are getting eased, we should be back in the air with capacity. Demand is incredibly sensitive to restrictions. We are seeing, especially in the UK, that once a country is removed from the travel corridor, demand collapses pretty much overnight. And once a market is put back into the travel corridor, demand surges incredibly. We have continued to diversify our business by enhancing our children's footprint. During this period, we opened 13 new operating bases, launched 260 routes. We have been incredibly agile trying to take advantage of the situation of market vacuums, led behind by auto carriers and some of the commercial deals that have been made available by airports and attracted us with new capacity. These are strategic investments. I mean, maybe not every one of these initiatives will work out in the end, but I think most of it will. And clearly that new capacity is also subject to the operating environment restrictions and demand. So you can see the same kind of rollercoaster effect on that. But clearly once we are back into recovery, we will have a much enlarged geographical footprint to have a much more robust recovery at a quicker pace than most of the others in the industry. We are very proud of our investment grade. Following Moody's investment grade just a few days ago, Fitch Ratings also reaffirmed our investment grade. We are one of the four airlines in the world with investment grade credit. I mean, obviously, this is a statement. on our prospects going forward and you can imagine that these agencies fully scrutinized the current standing of the business as well as assumptions for the future and stress tested each of our assumptions with the worst case scenarios and they confirmed our investment. So I think this is a great credit for QDC from the market. Well, as said, restrictions are a part of our life at the moment, and looking ahead in the second half of the financial year, we think that we will have to live together with these restrictions, and these restrictions will fundamentally affect capacity planning through demand and our ability to operate. And we follow the news, and we are micromanaging the business to a large extent, and they keep adjusting capacity on a day-by-day basis depending on the state of restrictions. So I think in this winter period, the fundamental factor driving the business will be restrictions out there. There is a lot of talk around testing to replace restrictions like quarantines or lockdowns, but we don't know. We have not seen any commitments made by any governments going forward with that regard, but certainly we are. embracing the concept of testing to replace these hard measures. But we shall see what's going to happen. I mean, one of the disappointments clearly is affecting the business that after the first wave of managing the pandemic situation by government, we would have hoped that there would be a learning there to seek more European coordination, more orchestration to make the whole system more effective. None of it is happening. I mean, We are flying to 46 countries and there are no two countries that would apply the same sets of restrictions or measures which make Europe quite a tool and quite an ineffective system for the purposes of managing the situation. And you can clearly see that lots of politics have been playing into this now, so it has become very complicated. All in all, we believe that... While a crisis obviously is testing and testifying everyone involved, and we are not immune from that, nevertheless, Wizz Air is emerging as a structural winner from the situation, given that we are the lowest cost producer, and we have a very resilient financial position to cope with the challenges and the situation. And post-COVID-19, we would certainly be a much stronger and much more formidable competing force coming out of this crisis. Moving on to the next slide, as you can see, this is sort of giving you a snapshot of where the business is at this point in time. I mean, what I would really read out of this chart is that we have continued to invest into our future. As said, we have been diversifying our markets by opening new markets, new countries, new operating bases, launching a significant number of new routes. But also, we have continued our aircraft delivery program. In March 2020, we had a fleet of 121 aircraft. We are going to close the financial year in March 2021 with 137 aircraft, so 16 aircraft more. And in March 2022, we are expecting the fleet to be 159 aircraft, 22 more than a year before. we continue to invest into our free program. This is significant. I mean, you may think that short term, it doesn't make any sense. And indeed, it is somewhat stressing short term, but it is the right thing for the medium and longer run because new technology will enable us to operate this free at much lower cost than our competitors who have been holding the lines by deferring act of deliveries or canceling act of orders. So we'll have a significant competitive advantage arising from this on economics, but also once the industry gets more measured against sustainability, our fleet will deliver much better against that sustainability agenda, given the much reduced ecological footprint than other carriers. So keeping the long term in our mind remains an important issue. Nevertheless, we are dealing with a crisis by managing the business day in, day out. The next slide is showing how agile we have been, and maybe you can argue that we've been agile up and down. We pushed quite significantly in the summer period when demand was less restricted by restrictions, and you can see that we managed to get up to around 80% capacity level in August. But since then, we've been adjusting our capacity down as more restrictions came into play, and we might actually come below the industry numbers. And I think it's just showing how financially responsible we are. I mean, you can see other airlines reporting that we have contained cash much better, and we stay focused on cash much more than most of the other carriers. We think this is the time that we need to be very focused on liquidity on, on cash, and let's not forget that we are not planning on any government bailouts or anything like that. We think that we can self-sufficiently maneuver ourselves through these cases, but that requires us to be agile going up, but it also requires us to be agile and financially responsible going down when the market becomes restricted, and this is what we are expecting in the next few months. And with that headline, I would like to hand it over to Jörg.

Thank you, Gero, and good morning, everyone. So on slide five, you will see that our half one revenue is down 72%, with quarter two revenue down 61%. Our reported loss was 243 million euro in half one, whilst the underlying loss for half one was 145 million euro. So the difference between reported and underlying loss was the 98 million euro exceptional expense, which relates to our discontinued fuel hedges, You will recall that in F20, we recognized discontinued fuel hedges for the month of March, April, and May 2020, whereas now in half one, 21, so the current half one, we recognize discontinued hedges for the periods of June 2020 all the way to March 2021. So it's a different approach, but it's obviously commensurate with the recovery pattern that we're seeing. On slide six, you can see that our costs in half one, excluding the discontinued fuel hedges, reduced 49%, whereas the ASKs for the same period reduced 57%. So in that strong cost reduction on the total line, with strong variability on obviously cost of airports, handling, and on routes, but also distribution costs, marketing costs, staff costs declined 38%, Maintenance costs 28%, and as you know, depreciation is mostly fixed, only declining 15%. On the next slide, slide 7, we're outlining the strength of our ancillary revenue. When you strip out the items which are more one-off in nature, for example, the cargo flights we operated in April and May, you will see that the underlying ancillary revenue is up 3.8 euro per passenger in half one. And equally, the ancillary revenue per passenger in the second quarter was up strongly with 1.7 euro per passenger increase year over year. So bags, bundles, flexibility products, they drove the strength of the ancillary. And going forward, we continue to be focused on driving more conversion and implementing dynamic pricing. On slide eight, a bit of focus, as you know, on cash. All things considered, without the CCFF funding, we have burned €265 million of cash in half one, which is roughly €44 million per month. Our operations, including the cost of the leases, burned €185 million, and we cash settled on top of that €110 million worth of discontinued hedges in the first half. On the next slide, you will see that Again, we burned 44 million euros per month in half one. In the last quarter, we almost broke even, burning only 9 million euros per month. This is obviously, as Joe said, a stark contrast with the burn rate of some of our competitors. Our ramp up, especially over July up until mid-August, drove solid cash contribution, with September obviously being a little bit weaker as we had to adjust for restrictions in the environment because of COVID-19. We're pretty much fully current with refunds within this cash balance. We only have 6 million euro refunds balance at the end of September. We had obviously very strong cost and cash rise across all P&L and balance sheet lines and beyond cash as Joe mentioned, We feel very proud to say that our credit rating was affirmed by Fitch. The press release went out last Monday. I'm sure you've seen this. And as Joe said, we also had discussions with Moody's over the last month and they're maintaining our investment grade rating as well. So we have both on liquidity resilience and we have the investment graded balance sheet, which obviously is very important. Now on the next slide, slide 10, shifting gears to the second half of this fiscal year, It's clear that cost and cash remain our top priority, especially with restrictions and lockdowns in an increasing number of our markets, at least in the current period. We reiterate that in case of full grounding, our average burn rate is around €70 million per month from an operational point of view. Given the seasonality of our business and the restricted operating environment, the cash contribution of our operation may be less significant in the next few months. and the restricted level of activity could actually further unwind some of the balance sheet positions like unflown revenue or supplier payable. So I hope that is sufficient clarity on where we are on the cash side. In the current context, obviously it's very difficult to give guidance on profit or loss after tax or even on capacity for that matter. Our October capacity as you've seen in the previous slides was 45% year-on-year. November will be below, given the restrictions on travel and the lockdowns imposed in the last week. And don't forget, as Joe said, we only target to fly cash products, so capacity over the next month is anybody's guess at this point in time. The principle is very, very clear. As Joe said, our fleet remains our key strategic investment. Maybe this is not ideal in the short term, but without question, it's widening our competitive edge on cost, on sustainability. And additionally, we're working to build in more flexibility, which will allow us, together with a strongly diverse network, to respond even more swiftly to changes in the external environment. Joe, back to you.

Moving on to page 11, I think we have demonstrated our agility with regard to leading the business through the crisis situation. We have moved around 20% of our capacity by trimming existing networks and reallocating that capacity for opening new bases, new markets, new routes. enhances our geographical footprint in times when other airlines are withdrawing capacity from their markets. And clearly, it gives us significant leverage for the long term, not only for times when we are effectively revamping capacity, but much beyond on a structural basis. Simply, we're going to be able to occupy certain markets which markets would not have been available to us before. At the same time, I think we've also been somewhat opportunistic and we've gone by the flow when it comes to consumer demand. I mean, clearly, the structure of consumer demand has evolved during these times. I mean, one of the, I think, remarkable moves that we have made is entering domestic markets in Europe simply because Cross-border travel has been locked down or usually restricted, while domestic travel has been more open, less subject to restrictions. And as a result, we entered two significant European domestic markets, Italy and Norway. But now we are seeing that even the Italian domestic market is now under some pressure, given the new restrictions imposed by the Italian government. Very importantly, we received AOC for Visa Abu Dhabi. The airline is ready to fly. It's fully licensed, fully stopped, and now we are on a holding pattern, waiting for lifting restrictions by the Abu Dhabi government, and once that happens, then we would be putting the airline up in the air. We shall see how the country is going to open up. Probably it's going to be a phased approach, and we've got sufficient designations now and access to markets that we can flexibly alter our network program in accordance with the opening of the country. Moving on to the next slide, I mean, clearly you see that this actually led to a significant market share gains. We are not in a market share business, but I think this is just demonstrating that should we go HI, should we be seeing demand somewhat unconstrained, from the perspective of decisions, actually we can achieve quite a lot very quickly. And if you look at just our Central East European positions, we had 16% market share in the region prior to COVID-19. That jumped up to 22% in the summer period. But again, going into winter, we are in different times. I think we have to run this business for financial disciplines for... cash contribution, positive flying, but once we are back again into time span, demand is less restricted administratively by governments. This simply can ramp up very quickly and we can certainly repeat what we have done before we even achieve more when it comes to taking market positions in various countries. Moving on to the next slide. This is a summary to to demonstrate that we are absolutely ready and well positioned for a swift recovery and once the market conditions allow us to move quickly, we're gonna move very quickly and very, very robustly. We are flying the youngest data aircraft in Europe around five years. That is significant from a cost perspective and it is also significant from a an ESG from a sustainability perspective. We are the lowest cost producer in Europe, so this is a commodity business, lowest cost prevails, so you can't be in much better position than that. Our customer profile is very adequate to the situation. Bizelle's customer profile has been quite geared towards VFR traffic and VFR traffic prevails in current times. Today, over 80% of our passengers travel for purposes of VFR travel, so we are certainly benefiting from our passenger profile with that regard. We are well positioned from a financial resilience liquidity perspective, having 1.6 billion euros on hand. That will take us through the skies, no matter how long this is going to drag. They are very well positioned, especially relative to the balance of the industry. And quite importantly, we fly the youngest passenger compared to other airlines in Europe. That is significant because, again, from a recovery perspective, we think that the younger generations will come back to the franchise quicker than elderly generations. Once they are less impacted from a health perspective, Secondly, this is empirical that especially coming out of crisis situations, younger people tend to be more adventurous and more forthcoming and certainly our business will benefit from that as well. And we have a very appealing engagement platform with our consumers having or operating one of the largest airline websites in Europe actually, even globally. So we think we are really good to go, and we are well positioned for recovery, and once these restrictions fall away, we can have a very strong ride, again, similar to what we achieved last summer, even more. Moving on to the next slide, you can see that we are taking advantage of the times, and sort of the setback of the industry, and we are investing into our customers, we're seeing that it's not only that you need to manage the business for the short term, but you also need to continue to position yourself for the long run post COVID-19. And we've talked about the young fleet and being the greenest airline in Europe, but we've actually initiated quite a few other things as well. We launched our bulletin carbon offset program, so now this is available to customers. So should you want to take personal responsibility for your environmental footprint, then you can offset your footprint. We launched a unique interactive planner software, which helps you navigate yourself through the zoo of restrictions and COVID measures applied by countries. So I think this is a very good planning tool to understand what is going on in Europe in our network. So should you want to have a travel plan, you can certainly better enable yourself by using this planning tool. And we deliberately want to have an operating platform as extended as possible within the framework of being financially responsible to provide as many route connections as possible for people who want to unite and need to do essential travel. So we try to maintain most of our routes, only reducing frequencies for so long as this is rational to maintain connectivity in Europe. So we have never grounded the airline entirely. Obviously, we have taken capacity down quite significantly. The worst period was April this year when we were only operating 3% capacity. But we intend to operate always a network, a skeleton to make sure that connectivity is presumed. Moving on to the next slide, this is just to summarize this presentation today. As you can see, we are absolutely geared and focused on cash and cost. Liquidity is key. We are managing this business for cash and Everson Gas is secondary. We have taken advantage of the situation and expanded our network by diversifying capacity. That's been a significant move and we're seeing that positions us very well ramping up operations once the market conditions change and giving us a structural competitive advantage in the long run. We remain financially disciplined, agile, and focused on long-term issues, not only managing the pandemic on a short-term basis. And we are building competitive advantages for us through the market diversification, through new active delivery programs, and through preserving liquidity to enable ourselves to continue to invest into long-term priorities. And we're seeing that with all of these, we are widening our competitive advantage to win this game structurally and emerge from COVID-19 as a structural winner. Thank you. And I guess this is now your turn for questions.

Thank you very much. If you do wish to ask a question, simply press 01 on your telephone keypad. If you find that your question has been answered, you can withdraw your question by simply pressing 02 to cancel. We'll have a brief pause while questions have been registered. And in fact, our first question is in from Daniel Ruska of Bernstein Research. Please go ahead.

Thanks very much. Good morning, gentlemen. Three, if I may, I'll be quick. Can you talk about the challenges of ramping up to 153 aircrafts kind of at the end of next financial year, specifically when we're going to winter, which is such a skeleton schedule? At what point would you really need to start hiring and increasing your schedule to make that 153 at the year end? Or at which point would you need to start talking to Airbus to rejig the deliveries? Number two, you mentioned dynamic pricing on ancillaries, and I was wondering if you could just share a little bit of color on that. One, is it kind of banding ancillaries? As at Ryanair, is it something more sophisticated like a revenue management? And is that homegrown, or is that a tool you're using? And maybe a short comment, lastly, on the leasing market, kind of what you're seeing currently in terms of what letters are willing to offer, and any color on the terms you have for your financing until November next year. Thanks.

Okay, thank you. Maybe I will start with the ramp-up. As I said, next March, we're going to have 137 aircraft in our fleet, and a year later, and this is March 22, 159 aircraft. So we'll have substantial capacity. Currently, we are crewed for around 100 aircraft, and this is a balance that we have been striking. to make sure that we are addressing the current weakness of the market and capacity reduction of the flying program, but at the same time to maintain capacity for ramping up our operations again once the market reopens. So we will be very ready to go with 100, 120 aircraft, and obviously you can stretch your resources to some extent in the initial period. From our perspective, it takes us around three months to inject further personal resources needed for ramping capacity up, and we have a plan for that. We think that if market conditions permit, we could ramp up our entire capacity for summer. I don't know whether the market is going to be as good as that, but we don't think that we would be constrained. either from an asset perspective or human resources perspective. We are fully financed on our aircraft delivery program until mid-2022. So I think we are in a very good position and we've got very effective financing deals. I mean, again, we are an investment-grade credit. I think the financing market has become much more selective, but we are still benefiting from very attractive financing deals that With regard to flexibilities with Airbus, of course we have an inherent degree of flexibilities in the purchase order, and we are looking at ways of possibly deferring aircraft should the situation be dragging longer. It may not be as short term as you may think, but certainly beyond the industry lead time, like a year, I think we would have some level of flexibilities But we also have flexibility not only on the supply of new aircraft, but also on the delivery program because we have actually quite a lot of aircraft due for delivery in the next two to three years. And of course, lessors want us to retain their aircraft and continue to operate at very effective commercial deals. But we have a lever on hand that we actually can deliver quite a few dozens of aircraft should we wish to. And I think this is the... the exercise that we are putting ourselves through on a constant basis and we keep updating our assumptions to see how the market is evolving, how we see demand and what capacity is required to fulfill that demand and we would take capacity decisions on that basis. But actually we have quite significant flexibilities flexing free top or down in the next two years. Maybe you want to talk about that.

Daniel, on your second question, so you're well aware that on tickets, there are certain parameters that could basically make pricing more dynamic, like the booking window, the day of the week, the routes you fly, the load factors. And we're just reapplying some of that logic, obviously, with different parameters on the ancillary. This is very much a homegrown approach. It's something that we want to keep close to the airline. And in our experience, it typically beats some of the third-party vendors in terms of performance. So I hope that's helpful.

And with regard to the leasing market, asking the leasing market is... is trying to be helpful to the industry, but at a cost. I mean, what we are seeing is that lessors are accommodating liquidity requests from airlines, deferring rent payments and those sorts of things, but a significant loss. So we are not really taking advantage of that. I mean, cost remains an important issue for us and we want to make sure that we don't get indebted in this period as we are not taking government bailouts or anything like that, we don't want to go overboard on industry credit at a significant cost either. I mean, one of the things that we are clearly seeing is that the leasing community is very eager to retain the lack of bid operators with credit and expectations that they would be a survivor of this situation here. But again, I think that's our discretion to decide to continue to operate aircraft or return aircraft after the expiry of the lease, and this is exactly the exercise we are just going through as we speak. Okay, great.

Thank you very much. The next person on the line is Bob Simpson of Goodbody. Please go right ahead.

Yeah, that's Mark, but... Morning, guys, just in case you're confused there. Just picking up that comment you just made about crewed for about 100 aircraft, I mean, very roughly that's 75% of your fleet. You're flying currently only about 30% of capacity. So just with a reference to maintenance and flying hours for your fleet and staff, how are you managing those to remain current? so that you can deploy capacity quickly as demand recovers. So managing the existing operation interested in that. And I wonder if we could have an update on CapEx with regards to progress payments, especially in FY23, when the bulk of the delivery deferrals are being seen.

Maybe, Mark, I would start with the revamp of capacity. I mean, let's not forget that back in April we operated 3% of our capacity, and in August we operated 80% of our capacity. I think we have demonstrated our ability to go incredibly quickly and very robustly on recovery. And here now we are in a slightly better position. I mean, as we speak, we are operating around 30% of our capacity, and we shall see how good the market will be. But I think we can move very quickly on this. And, you know, when I say that we have a crew for about 100 aircraft, I mean, you know, that resource can also be stretched to some extent. I mean, it can probably do more than 100 aircraft with some heavier rostering in the initial period while we are accommodating onboarding of new crew. So I'm very confident that from a personal perspective, we don't have limitations here. We keep the aircraft current through the maintenance program. I mean, you know, we maintain aircraft. Maintenance is not as valuable as you would like it to be, to be honest. But in a way it is a good thing when it comes to recovery because essentially the maintenance arrangements we have in place really keep the aircraft current and from a technical perspective they would be ready to be re-inducted should we start flying more aircraft in the coming period.

With regards to CAPEX. Yes, the F23 progression is slightly lower than what we previously outlined, but obviously the fleet growth is still substantial, so you should really think in that way as you look at the CAPEX for pre-delivery payments. But this says, I mean, as Joe said, we're trying to bring increased flexibility in the thinking on our fleet, and this includes also the pre-delivery CAPEX.

Could you, Jurek, just give us a hard number in the sense of what CAPEX looks like over the next two years?

I mean, not at this point. I said, I mean, we keep working on this with our partners. So we'll refrain from giving a number here.

Okay. So appreciate that. Thanks.

My apologies to you, Mr. Simpson, for getting your name wrong. Our next caller is Ander Lopenberg from HSBC. Please do go ahead.

Oh, hi, Joe. Hi, Yorick. Can I ask you about what you plan to do with the UK government funding of the CCFF? Do you expect to pay it back in March or do you expect to roll it over? Can I ask, there's been some press reports that you guys are operating an A330 in cargo formation for the Hungarian government. Is that right? And is it getting you any cash? Is it relevant in the accounts at all? And then can I just ask about the entry to Norway, because the trade union environment in Norway is pretty intense. Do you think you can sustain a non-union operation up there and get engagement with the Norwegian community?

Thank you, Andrew. So on your first question, we do intend to apply for the rollover of the CCFF Fund. So obviously, given our position in the UK, we hope to also get a positive answer to that. As you know, it's an attractive program, and we definitely want to be part of it for another year.

With regard to the A330 operation, I mean, please don't look at it like a diversification of the business model. approached us with the initiative of trying to create capacity for the country for cargo flying, learning from the COVID-19 experience and we are accommodating them and we are able to contract an A330 operation on behalf of the government. So this is not our own aircraft, we are just an operator of the aircraft. It is no cash exposure to the business and it is no P&L exposure to the business There is a principle agreement that everything is prepaid by the government and we do it with a margin, so this is more like an answer revenue opportunity, but it is totally sidelined from our perspective, so please don't get overexcited about this. I think we are just getting involved here as an airline to operate on behalf of someone else, and this happens to be the Hungarian government. With regard to Norway. Yeah, I mean, the fact of the matter is that half of the Norwegian workforce actually is non-unionized, and half of it is unionized. Yes, there is a strong push by unions, and to be honest, I think it is more of a protectionism of the market. So we are the insurgent intruder in Norway, and I think this is the competitive response that we are getting. This is just an angle to it, but I think this is really... a response of competition or not wanting to compete with Bizet. The good news is that we are seeing quite a strong support by consumers. I mean, take-up is as strong as we planned on, so clearly the market reacted very positively. And, yeah, I think that we're going to, you know, we will sustain our model, our culture, Our organizational model here, yes, it is under pressure there, but, you know, again, half of the Norwegian workforce is non-unionized, and I think actually it is not some of the stakeholders' decision what they want, but it is our people's decision what they want. We fully respect the rights and regulations in every country, including Norway, but we would also expect these countries to respect Norway, the culture that we are having, which has been very effective. And I think it has created a lot of well-being for our people and our stakeholders.

Lovely. Thank you.

The next caller on the line is Neil Glynn from Credit Suisse. Please go ahead.

Morning. If I could ask two questions, please. The first one, I think actually as this call was starting today, The UK government has suggested it might be about to announce some aid for the sector. Just interested whether you've had any discussions with the UK beyond the CCFF facility and what your expectations or understandings would be on any forthcoming UK government aid and whether it applies to you. And then the second question, just on the level of payables in your accounts in September, 514 million at period end. Is it possible to give us some understanding as to what proportion of that number is indeed delayed or deferred at this point and might be relevant to think about outflows of cash in the next few months?

May I just start with the first question? I mean, if you look at our liquidity, we think we are good to go for two years, even if we don't operate a single flight in the next two years. That's a fairly unreal but we have very strong liquidity. We have been self-sufficient over the last seven months, and we think we will remain self-sufficient going forward. So we are not betting on any state aid matters. We are not betting on actually we would be deliberately avoiding any bailout programs affecting us. So with that regard, we are not really interested in state aid. Now, obviously, we need to see whether there are genuine and general stated schemes coming into play. I mean, the UK was actually quite strong on a furlough scheme, but that was sector neutral, so that was not affecting aviation only, but I think it went much beyond that, and we are seeing similar schemes in other countries. So we try to understand each of these schemes, whether they are sectoral or not, and to see if we kind of fall into it. But if your question is that whether we would indebt ourselves with government money or even include some equity measures, the answer is a definite no. If there are genuine schemes available to the industry or all industries, Yes, of course, we would look at them and we would take a position if we would want to subject ourselves to it or not. The only thing that we have done in the UK is really CCFF and, as said, we intend to renew that program. We think it is a good insurance policy at low cost and it makes sense to take it, but beyond that we have no plans in the UK or in any other countries.

On your second question, Neil, I mean, you rightfully pointed out, so there's some, what we called in the slide, the other buckets that helped us 30 million in the first half in terms of cash flow. Actually, there's a lot of moving pieces, as you point out, the payables and receivables were a positive inflow. Even PDP was a positive inflow. But there were also a lot of negative outflows, the refunds, currencies, the outflow in revenue. So all in all, I mean, with a lot of moving pieces, this led to the 30 million other that you see there. How to think about it looking forward? I mean, again, difficult to guide, but overall, if there will be lower activity, over winter, it would not be unrealistic to expect further outflow on payables and on revenue over and above the operational cash flow.

Great. Thanks for the call.

As we move along, the next caller through is Ross Harvey of Davie Research. Please go ahead.

Hi. Morning, Joseph and Jurek. Three questions for me if I may. The first is on the network strategy and the increased focus on domestic traffic, and I'm thinking of Italy and Norway. It's interesting. Can you just describe the rationale behind it from a competitive perspective on how it might or might not complement your larger gauge aircraft? Secondly, one for Europe. Within the other expenses, you had a 25 million year-on-year swing in terms of steel leaseback gains. You had 5 million swing in terms of OEM competition. What do we expect for H2 in terms of those items, and will they continue to be a year and year tailwind. And finally, on the hedging side, I'm just wondering what level of H2 capacity was assumed when you calculated the fuel and effectiveness for these sets of accounts?

Thanks. With regard to network strategy, I mean, it is fairly clear that in Europe, domestic travel is more resilient than international travel. I think this is the function of the lack of European coordination on the one hand, And secondly, I mean, obviously, there is a psychological effect on people pretty much played by governments to discourage people from traveling abroad. So as a result, we are seeing a much more resilient domestic market than international market. And we are very keen to add to our capacity program. I mean, I think this is all about adaptability and agility. to go with the flow of the consumer. So if the consumer is flying more domestic, relatively more domestic than before, I think we ought to serve the consumer that way. So I think that's what has made domestic markets more attractive to us. But let's not forget that we are not coming out of the blue here. I mean, if you look at Italy, we have been operating to Italy for 17 years. We have been operating to Norway for 14 years. We are the largest international airline in Norway already, or we were already prior to COVID-19, and we are one of the significant players, airlines in Italy as well. So I think this is a fairly logical next step with regard to enhancing our market presence in these countries. And this is just a timing matter, that this is the right timing, because what we are seeing is that there is a shift of consumer preference on the one hand, and secondly, there is a weakness of competitors in the marketplaces. And I think that made us attracted to this market. So this is the strategic rationale, this is the tactical rationale why this is happening now. But in terms of a strategic consideration, you know, it is a fairly logical next step versus what we have built up in these markets over the last 10 to 20 years.

On your second question, Ross, so the tailwind that you outlined is going to be much less for the second half. And then on hedging, I mean, this is calculated based on the strategy that we had guided earlier, which was around 60% for half two. So you're right. I mean, if the restrictions that were recently imposed would continue for the next month, there could be some more ineffective hedges going forward until the end of the year. And obviously that's also dependent on, in the end, the fuel price.

That's very helpful, thanks. And just one more follow-up from me. Joseph, you mentioned dozens of lease returns over the coming years. Can you just specify how many of those are coming up in FY22 that you have flexibility on?

I mean, between F21 and F23, we have in total 42 coming up that we could potentially not extend. We have the very large majority of those we plan to return. We still have around, as Joe said, a good dozen to decide on. They're kind of split mostly between F-22 and F-23. That's great. Thank you very much.

The next call on the line is Carolina Torres of Morgan Stanley. You have the floor. Please go ahead.

Hello. Good morning, everyone. I have three questions. I guess first one, with the opening of the 13 days, I was wondering what is the cost, if the incremental cost is included on your cash fund on the $70 million, just trying to get a sense on how much cost-cutting you actually managed to achieve versus what you have been investing in growth. Second question is if you could give us some color on what kind of deals the airports have been offering you on a daily basis, if any. And the third question is I appreciate the ample liquidity, but what is the minimal cash that you think you need to operate, meaning I really do hope you don't need to be grounded for two years. But at what point within those two years of foregrounding, you would need to tap the markets to raise more cash?

Okay. Thank you, Carolina. So on the 13 basis, I mean, the cost for us is relatively limited of opening these new bases because we use several principles. I mean, we try to use, for example, crew within our network. As I said, we will operate those flights in the current environment only when they're cash positive. So the investment is rather limited. We have some cost of IT investment, et cetera, when you open new base, but it's nothing too major. So we're being very disciplined on this one. With regards to the airport deals, I mean, you also, we can use riders. I think there was a report out there that there's around 200 regional airports that are on the brink of bankruptcy. So clearly when we move into new bases, we're trying to do a good deal and we're trying to do it for a multi-year contract. And so, yes, we are getting some of those good deals when we move into new places. And then on the liquidity question, I mean, we're kind of in a luxury position at this point in time to see what winter will bring. and then still be in a very good position in spring, and we'll see what the environment is like in spring and summer, and then we can have a good discussion amongst ourselves what we need to do. But for the time being, I mean, we're relatively comfortable with being disciplined on managing the crisis.

Thank you.

Carrying on, our next question is from Alex Patterson of Pure Hunt. Please go ahead.

Morning, everybody. I've just got two questions, actually, relating to your airports. You were just saying about you were getting good deals for new places. Can you say how long those agreements are? Is that a sort of longer-term agreement? Is it seasonal? And where you were previously flying for, have you also been able to make savings there, and how long do they last? And then secondly, there's been some press commentary recently about your potential interest of expanding at Gatwick. Could you just tell us what you're thinking about there? Do you think you need to buy slots or do you think that they're not going to get flown and that you could be awarded them? What should we expect in that perspective?

With regard to airport deals, you can imagine that we are not acting on the moment. We are taking advantage of the moment, but the deals are long-lived, affecting our post for five years or so. We are only entering into structural deals here, so we are somewhat opportunistic on on the time, but we are certainly not opportunistic on the structure and the impact of these deals to operate on our causeway. So these are all long-term deals, and you can also imagine that we are reviewing every single contract that we have with airports and other suppliers to see how to enhance our standing to get better out of these suppliers, whether this is cost or payment terms, managing liquidity. We are scrutinizing everything that we are doing as we speak. With regard to Gatwick, I think it will be an interesting situation, as you know, that there is an effective slot waiver out there at the moment until the end of March, and that's a European initiative. It is becoming increasingly clear that this industry as a whole will not be able to recover to 2019 capacity levels anytime soon. I mean, you can debate whether this is gonna take three years, four years or 10, but certainly this is not gonna be imminent. And I think this whole slot question will have to be fundamentally reviewed because I think this is totally against the public interest should the incumbent carriers be protected for years and years with even no intention to operate those slots So I think we will have to see how the system evolves and what outcomes that evolution will produce. And we are looking at various options to expand at GEPIC and we have been interested in expanding at GEPIC. We just don't know how the system is going to unfold with that regard. But my personal expectation is that I think the system is going to be reviewed and I would be very surprised if we are not seeing some of these slots. being occupied today with no intention to be operated would not come back to the market free of charge. Thank you.

And I do apologize beforehand. The next caller through is from Kite Lake Capital. I believe it's Mr. Broski. Please go ahead.

Hey, guys. Thanks for taking my questions. Two from my side. First one, you're saying your operational cash burn is $70 million a month. Could you just let me know what is not included in there? I assume the fleet investment is not in, but is there anything else that's not in there? And then the second one is you say the winter cash contribution is minimal, so you're expecting to be roughly cash flow neutral over the next six months?

Yeah, so on the operational cash burn what is included is or what is not included rather is indeed the investing cash flow elements like capex for pre-delivery payments but also working capital movements like if you would have an unwind for unflown revenue or payable so that is not included this time around. On the winter cash contribution I think that you need to take into account sometimes people forget. I mean, airlines typically make more than 100% of their profits or their cash for that matter over summer. So this is going to be even more so in this season if you overlay that with all the flight restrictions. So the flights that we operate, we do target to operate them cash positive versus the burn rate. But given the environment we're in with the restrictions, etc., that cash contribution is not going to be as much as it was in summer. So I think you just need to take that into account and we wanted to be very transparent on that.

Okay, that's helpful. Thank you very much.

We have time. Gentlemen, do we have time for one more question?

Yes, maybe the last question.

We have Ms. Sanjani from Barclays. You have the floor. Please go ahead.

Hello, Ms. Sanjani, are you there? From Barclays, you have the floor.

No, it doesn't seem like she's there. There are no further questions in the queue at the moment.

Okay, well, thank you very much. Thank you, ladies and gentlemen, for your interest, for your continued interest. These are the market conditions we are in, lots of volatility, lots of unpredictability, but we try to best deal with the situation as we can. So thank you for your interest. Bye-bye.