Wizz Air Holdings Plc

Hello and welcome to WISR fiscal year 2021 results call. Throughout this call, all participants will be in a listen-only mode and afterwards, there will be a question and answer session. Just to remind you that this conference call is being recorded. Today, I am pleased to present Josef Varady, CEO of WISR. Please go ahead with your meeting.

Good morning, everyone. Thanks for joining this call. So this is to present the CRISPR-21 annual results of the company. And with that, let me take you through the presentation we prepared for you. So moving the presentation. Off-front, let me just give you some highlights of 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 Viz 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 and we have been strongly invested against the opportunities as we moved along the lines. We believe that we are a stronger airline today than a year ago, despite the fact that our own performance was almost marginal relative to previous times. 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 and a stronger business than ever before. We have been very disciplined on managing liquidity. We ended the financial year with 1.6 billion euros 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 new markets, into aircraft. And those two strategies have been fundamental for building long-term structural 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 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 deliveries. And obviously our credit rating flows through the cost of capital deployed against our aircraft 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 18 new operating bases in this period, or at least announced some of them yet to be opened. And we have been trying to take advantage of the market opportunities as they arose during the period, obviously. our capacity, our growth had been much wanted by the market. We are one of the very few airlines in Europe that actually can deliver growth to airports and we have been benefiting from that reset, 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 I think we continue to be very agile going forward. Depending on the operating circumstances, We will see how restrictions really go. 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. is already at 80% levels versus 2019, and we expect it to exceed actually 100% for domestic travel. 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 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 unrestricted. The good news obviously is vaccination. I mean, vaccination has been rolled out more aggressively in certain countries, but now everyone I think is catching up 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 we move to the next slide. But 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 18 new operating bases during the year. So this is a much enlarged and enhanced operating network certainly a matching host 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 can think of such thing as a European airline, you should certainly think Wizz Air. Our license number is 001. We are the first 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 a commercial perspective but also from a regulatory and operational perspective. If we 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 market 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 is rising 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 costs than our competitors, that we have to rely on aging aircraft and higher operating costs and this is being a commodity obviously triggers the winner on the basis of who delivers the lowest cost, lowest cost prevails and we are just going to further enhance our lowest-cost position in the marketplace. And with that, let me hand it over to Jarek.

Thanks Joseph 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 restrictions that continues also into the entire quarter. We reported an underlying loss of €482 million for the full year, with the loss for Q4 at €222 million. And the reported loss for the year was €575 million, with the difference between those two numbers being the exceptional losses linked to the discontinued hedge losses. Given where the fuel prices are and the hedge coverages are for F22, we don't believe you have major exceptional items going forward and over time we can just go back to one reported profit number. As Joseph highlighted, the total cash number 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 costs by 38% versus last year. Recall the ASKs were down 64%, 63.5% for the period. And you see that the costs were almost fully variable, were 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 reduced roles with 19% back in April 2020 and in the same month also the salaries with 14% on average. So that was a big reduction on the employee cost. on the South Coast, even though during the last quarter, quarter four, 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 executives and pilots. Maintenance and depreciation are the two cost buckets that were more rigid. Obviously we want to keep our aircraft airworthy even if we don't fly them and we also started to re-deliver a certain amount of aircraft and even accelerated some of that into the year, into Q4. This brings us to liquidity on the next page. If you look at liquidity here, we're finishing the year, as said, at 1.6 billion. So it's ahead of the 1.5 billion euro where we started the year. But of course, a lot has happened in between. We issued 300 million commercial paper with the Bank of England under their CCSF program. and we issued a three-year bond in Jan 21 of €500 million. From a cash point of view, you can see from a cash burn point of view, you can see that we've actually done, despite all the adversity, a relatively good job with the cash burn highest in the first quarter of the fiscal year and in the third quarter 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 were not back to full schedules. And also in quarter four, I mean, it was a relatively difficult quarter in terms of operation with still a lot of restrictions. We only burned 84 million. Recall our guidance had been in the last six months of the fiscal year to burn 70 million euros per month in case of full grounding, so burning only 84 million in a quarter where we operated just over 20% of capacity is a pretty good performance. On slide 8, you see a little bit more color on the last quarter, with the all-in caliber, and as mentioned, €28 million per month, or €84 million 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 photographic expired cards. The upslot revenue remained at the level where it was in December, so around 65 million euros, which obviously holds a lot of potential for the future as bookings will come back in and that balance sheet account will kind of fill back up. And then, obviously, We continue to focus on the contribution of the flying 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 5.7 Euro per passenger. Of course, there are some tailwinds here because of COVID-19, both in terms of uptake 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, or at least the demand has been relatively inelastic. But still we have strong confidence for the future to have Ancillary being in line on the like-for-like basis with our long-term target of one euro per passenger per year. And with this, I mean, Ancillary makes up more than the majority of our total revenue, which again is really critically important for our model as we try to stimulate demand with low fares and have a partial or full offset within Ancillary. And with that, Joseph, back to you.

Thank you, Jorik. So if you look at the focus of the business going forward and the focus what we have been really putting into this business. Of course, we remain very intact on our ultra-low cost model. As a matter of fact, we think that given the times, given the challenges in the industry, the ultra-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 ultra-low cost even more ultra-low cost going forward. We have much focused on diversifying our network. We have a significantly enhanced and enlarged geographical footprint today than before and we're seeing that benefits the business. I mean, clearly we see that due to the rollercoaster effect of the past 15 months, we saw certain markets performing well in a period and some others performing much weaker and then they kind of reversed But we always have markets outperforming the rest, giving us sources for financial performance, liquidity performance. So clearly the more diversified you are as a network, I think the greater your ability is to deal with issues like the current pandemic. Sustainability is 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 efficiency of debt flowing through from a sustainability standpoint and as well as the operating model that 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 airline industry and we think 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 here, how we are enhancing our ultra-low-cost model going forward. If you look at the first chart, we are upgaging, 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 costs and a gage and off-gage fleet of aircraft deliverers lower production cost. So we are going to benefit from both in the coming years which I think is a significant source of competitive advantage going forward. JARIC touched base on answer revenues. Answer revenues are a significant source of of competitive advantage for the business. You can see that we have outperformed the industry and we would expect to outperform it going forward as well. So we will remain very focused on this line of business. So we'll be on secondary airports. 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 secondary airports are not only important because of cost delivering a lower-cost operation, but also for utilization 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 were 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 utilization and basically drop to a third 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 a significant way to improve productivity to get back to previous levels. So if we move to the next slide, Chris. We have talked a lot about this, how we have been diversifying our markets. We opened up 18 new operating bases during this period. And you can see that it's been very diverse. So some of it happened in in Western Europe, some of it in our core, Central and Eastern European markets, and we also opened up Abu Dhabi in the East. 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 will have to make some choices possibly and I think we've already started making some choices and the choices 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 follow through our early investments by extending our network, expanding our operations 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 treatment. We feel very comfortable that the market resonates very well with products and services, and Italy 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 routes. And basically this is the trade-off of this investing in one market for being able to invest in another market in Italy And also we are quite excited about the investment that we are making in the UK. We need to see those investments through once the market opens up, but we've already opened Gatwick and Doncaster and we are looking forward to opening Cardiff in the near future as well. So we think that the UK remains a good investment market opportunity for Bizet. If you please move to the next slide. Sustainability and ESG in a broader scale are important issues, 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're continuing to use our carbon footprint going forward, but obviously this is the function of the the aircraft age, the seat count and the efficiency of operation. Gender diversity is 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 We are a very diverse business 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 sustainability-related measures. And we think 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 issues like 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 operate more efficiently and more sustainably in the future. If you please move the presentation. With regard to our digital investments, A lot of investments actually have been happening in that area. We are probably the most digital airline 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 the consumers. There is a very significant shift, so I think our investment into that platform is now bearing fruits. You can see that as the 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 bag 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 company to make sure that we benefit from digitalization there. And recently we just found Amelia, our virtual assistant, helping our customer service and helping customers with their interactions with the company. If you please move. The outlook of the business, as said, it is difficult to give exact guidance to you taking the uncertainties into account out there with regard 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 ability 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 of flying, as many airlines do that. But we are financially very disciplined when it comes 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, travel restrictions, mobility restrictions remain the key issue. and will determine the pace of recovery and timing of recovery and actually the results of our fiscal 22 financial year. So that's why we are ready to blur on what guidance we can give you because if we operate in a non-restricted market, we would 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. But 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% capacity level, 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 are only going to be operating a cash-positive flying program. So if the markets are more restricted, we will do more. If the markets are more restricted, we will 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 our restrictions, but this is what we are planning on. And we're seeing that sort of the second half of the financial year would kind of fall in line at least or somewhat above 2019 levels. But again, if we are seeing a non-districted market, we can do much better than that. We are adopting or re-adopting the post-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 on liquidity position. We are returning to some normalities to the 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 normalised, our model will also be operated in a much more normalised way, similar to previous experience. And with regard to Fisker 23, 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 full steam at that time, certainly in capacity, but we also think that given the competitive advantages, this business will be able to deliver at that time, you know, that kind of event will flow through the financial metrics largely as well. If you please move. So just to wrap it up, we think we are well positioned to take advantage of the pandemic. 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 we will come out of this as a structural winner. We have a very strong liquidity position, probably more 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. 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 act of 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 expectations than Bizet. 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 restore many of the operating parameters of our business model that have been making us successful in the past. And we are fairly confident in our ability to recover quicker than the industry and to start seeing kind of full swing performance standards on capacity and revenue and the financial metrics going into fiscal 23. Thank you. And I think that gives you the floor for questions.

Thank you. Ladies and gentlemen, if you do wish to ask a question, press 01 on your telephone keypad now. So that is 01 to register for a question. We have a question from the line of Daniel Raska from Bernstein Research. Please go ahead.

Good morning, gentlemen. Three, if I may. One, you said your outlook for 2022 is cloudy, but referenced that you're back at kind of full speed in 2023. What's the min-max 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, 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 UK AOC isn't related to the USA AOC? Thanks.

Okay, thanks Daniel for the questions. On the first one, I would say, I mean, even the min-max could be very difficult to call, but I would say, I mean, between 60% to 100% of capacity sign 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. But we'll gradually build up the capacity for accruing as we see a progressive linear progress on the mountain in, let's say, a more solidified way. But that's kind of the range you should look at for a jurisdiction.

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 of time for for peak summer. So I think we are fairly relaxed with that issue. It is not really our ability and our internal capacity to deal with the ramp-up. I think it's much more down to 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 bottlenecks with that regard. being able to deal with the regulator itself, I think we have much greater influence in standards that are affecting some operating procedures. I think as we are learning from Ayasa, they also will learn from us. And certainly we are eliminating potential bottlenecks in the future for expanding our business. But we think actually the UKAOC is important because that gives us the you know the regulatory platform for being able to serve the UK not only from the European Union but also from third countries or you know we can have operations from the UK to those to those countries and we will be looking at expanding that that network in the future so it is important that we have the right way to go about it and we have to recognize that the UK is no longer 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.

Yeah, morning. A couple of questions, some on cash flow, maybe for Europe, 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 350, 400 million by the end of this quarter? Obviously, very strong pre-sales being to be seen. And on the cash flow on the longer term view, FY22 and FY23, can you give us a net capex after refund of advances, assuming all deliverers are based on a sell and lease back 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 22, Michael O'Leary-Rana was talking about potentially ticket prices being above 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 build-up, 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 million levels for the quarter. It's still significantly lower. So we will see a lower cash burn in the quarter than the 84 million in part thanks to the good cash discipline but also due to deferred income but the levels are still relatively modest because the booking window is still 50% of the booking are within two weeks, 80% of the booking are within a month. So it's not yet that we're already booking here August and September to a large extent. On the CAPEX levels, I mean, this is also like our fleet number that sometimes changes during the year, but the outflows are relatively modest, I mean below 100 million or so for F22. So that should not be a big ticket item. And then on the revenue mix 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 unlisted and uncontrolled, which then leads to depressed pricing. I think BFR is a little bit more hedged from that point of view, so probably on a relative basis will be a little bit better protected, but I think it shouldn't 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 haven't done so. They've continued to operate all fleets and there are some, you know, cost headwinds that they will be seeing. which we're not seeing. So, yeah, it could be that pricing is higher. But, again, I mean, history doesn't really speak in advantage of a very rational pricing environment in this industry.

Yeah, just going back on that, it's not so much a comparison FY22 summer on this summer. It would be surprising if prices didn't rise. It was more the comparison FY22 on the – the sort of summer 19 on the basis that, as I say, by that stage we should be in a full demand recovery.

Yeah, so the summer of 2022 versus the summer of 2019, it could be that we're back at those levels because, you know, 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 baseline that it would be roughly the same level as summer 2019. This summer, 2021, I don't see that.

Yeah, that's great.

Okay. Mark, I think one thing you can certainly say is that the unit cost level of the industry in 2022, summer 2022, will be higher than what it was in summer 2019. I mean, a lot of headwinds will develop for many airlines. I mean, we shall see how state monopoly charges will evolve, like Eurocontrol, etc. 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 reiterating kind of post-platform for the entire industry. And this was really the point I was trying to make, that I think, you know, 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 upgaged and renewed fleet of aircraft. And, you know, we should be in a really good position to benefit from that situation.

Just following that up, Joseph, I mean, looking at your forecast suggestion of two percentage points of intra-European market share, I know you give it as a CEE kind of originating, but on a broader basis, two 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. You know, we look at the investment on the base of profitability, return on investment, et cetera. 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 competitive in a commodity, coming out of this is a significant source of competitive advantage, and we will have a much enlarged fleet. On the 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 lessors don't have alternatives to place those actives. 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 Jared Castle from UBS. Please go ahead.

Thank you and good morning everyone. Can you just give a little bit of colour in terms of non-EU markets in terms of travel restrictions? Obviously the EU is trying to get off the vaccination passport by I guess the end of So how do you see things playing out in non-EU markets in terms of restrictions looking into the summer? Just coming back to the market share commentary, it's an interesting slide on page four because it looks like you've taken more market share from LCC, going from 40% to 46% rather than then from the legacy airlines. So are 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, 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. Yeah, I think it's fair to say that non-EU is more restricted than the EU, although the EU is also somewhat restricted inside. But we are expecting more restrictions implied on non-EU flying than EU flying. I mean, we shall see how the green pass will evolve and what elements 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, although 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, Yeah, 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 a financial discipline, so I think it's not only Bezell, but the rest of the low-cost industry also. implements cash-positive flying and if you have governments giving you 10 billion, 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 low cost carriers. I think it just comes from the agility of the model. So I'm not sure how relevant what legacies are doing. I mean, they are just acting on different levels of financial discipline or lack of financial discipline. You know, we stay focused on our core, 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?

Yeah, I'll take that one, Joseph. So on ancillary, I mean, again, so that everybody is really, really clear on this. If you look at quarter four, our ancillary gross fare per passenger was up 15 euros. Our ticket fare, and this is versus 2019, our ticket fare per passenger was up 10 euros gross fare. So you can't just extrapolate the current...

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Yeah, sorry, so just, Jaros, I don't know if you're still there, picking up on your last question. So we were saying that the price increase we've seen in the last quarter, quarter four, are not to be extrapolated going forward. And really on ancillary, what we keep guiding is that we will be one euro per passenger per year higher. So in F22, we would be basically two euro per passenger higher versus F20. That's why you should kind of put in the models. And we continue to see that one euro 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.

Morning, guys. I'll go quick because I've got two for Joseph, two for Jurek. Joseph, 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 96%. 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 €1.6 billion in cash or €1.45 X restricted, but you also ended it with €3.15 billion in debt and lease liabilities, so €1.7 billion net debt. All else the same, what do you anticipate as the approximate impact on net debt from taking delivery of 27 A321 NEOs 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 we did 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 you know we are launching a lot of leisure routes and some of it is going to be one directional at least at the beginning so that we put some pressure on load factor but overall we would be expecting a much longer load factor performance I mean I think it's kind of hard to predict at this point in time what number exactly you know this business is going to deliver probably is going to be less than 96% but certainly more than 66% Thank you, 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 standpoint that was an investment decision. So, I mean, you know, we don't want to fund Western European market opportunities by constraining strategic profitable markets in Central and Eastern Europe. So, you know, we are already 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 that 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 Alitalia 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 where Auditalia is actually relevant. So most of the capacity we decided to deploy in Italy has nothing but nothing to do with Auditalia. No matter what happens to Auditalia, we would be good to go with that capacity. So our Italian expansion is not really related to what's going to happen to Alitalia. I mean, my personal view is that the Italian government will figure something out for Alitalia, but it's called Alitalia or something else, I don't know. But it seems to me that under any circumstances there will be an Alitalia or the like of Alitalia operating in Italy, but our Italian plan is not affected by that. With regard to kind of the hero 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.

um yeah jamie on your two other questions so uh yes it's true obviously uh as we've shown in the liquidity chart um the liquidity position is good but we are significantly higher in desert than when we were at the start of the year however if you look at our f23 f24 projections we're confident that we can steer the leverage back to close to one ratio by f24 so clearly with the cash generating potential of this business and the business model we're quite confident to do that we'll repay the CCFF fund 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 with regards to carbon credits, I mean, if you look at it, I mean, one-third of our operation is not exposed to carbon credits. One-third of our operation is having free credits, and one-third 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 it as it comes. 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 Davie. Please go ahead.

Hi, morning, Jurek and Joseph. I just wanted to return to FY23, 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 FY20 levels or given the fleet additions? And Joseph, you mentioned the lease returns and the flexibility you have there. Could capacity be more than FY20? And secondly, I might ask on the ex-fuel cask, obviously there's a lot of you know, factors around that. You have some benefits coming through on staff, sounds like some benefits coming through on airports, maybe maintenance and DNA under pressure. Can you just talk about where the ex-fuel cask level will normalise post-COVID and, you know, what factors are larger or smaller than the other...

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 year 2023 that we want to operate the entire fleet of aircraft we have at that point in time with full strength, 12 plus hours of utilization. In terms of capacity, you know, it's going to be, we are expecting it to be, you know, 19 level in terms of utilization, but in terms of seed capacity, obviously that would add the growth to it, so we would be probably 30% up versus 2019.

In terms of the XCO cask, Roz, 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-19 kind of fully disappear. Restrictions, you know, we need to be able to do the speed of the turnaround in the operation, etc. And if all of that kind of comes in the right place, if we find the right load factors, we should be steering the X2 class very close to the F20 levels. So that's kind of our target.

Yes, thanks for that. And one follow-up, if I may, Jurek, I noticed that the FX gains swung by about 100 million between, or almost 100 million between Q3 and Q4. I mean, you should get a gain in Q1 given the movement, but it's obviously sensitive. I'm just wondering... would you consider stripping this out of the underlying net income or would you consider additional hedging on this line? I'm just wondering any thoughts on there would be helpful. Thanks.

Actually, it's a good question. 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&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 million 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 truly is 4% and not more, around 50 million euro per year. So that's a very large cost, but frankly no benefit 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 the liability side, etc. So we'll keep working on the natural hedge. We're a bigger company now. We're no longer an IPO-sized company. 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, Georg.

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 22 to 148. I guess a part of it, it's early return of leases and postponement of deliveries. I wanted to know if you could give us a call on savings, and one 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, with some color on your negotiations with airports, when you're resetting tariffs, are you getting deals mainly for short-term slots, or are you actually locking in better deals for the medium term? Thank you.

Thanks for your questions. I think the way to look at the fleet plan is that this is an evolving line. This is where we are at right now, and, you know, We have rearranged some of the assumptions in a way. Are we with you? Yeah, I can hear you. Okay, that was just some incoming voice or something. So, you're going to see changes to it. I mean, this is what I'm trying to say, that this is, you know, what you are seeing, but 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 as 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, we are striking long-term deals here. I don't think we would ever open a base for getting attractive with a good deal for a year or two. At least we want to see five years as the 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.

Okay, thank you. Our next question comes from the line of Andrew Luddenberg from HSBC. Please go ahead.

Morning, guys. Could you talk a little bit about the attitudes of the Eastern European governments towards the EU Green Certificate? 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 Eastern Europe? 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... 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 Belarus airspace, is that giving you some longer routings on some of your flights?

Thank you, Andrew. With regard to governments in Central and Eastern Europe, I think they are much different from governments in other places in Europe. I think so far every government has been pursuing its own agenda, pretty much unrelated to neighbors and others. And I think EU as a 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, if it makes sense, this is going to be supported. I mean, clearly there is one kind of hanging issue here that which vaccine is a qualifying vaccine. And that may trigger some further debates. But other than that, I think the willingness to play in is not directly dependent. I mean, I don't think there is a particular Central East European interest here 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 fails. 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. Hopefully it will work and that will kind of reboost travel, but we shall see. With regard to Belarus, We are very marginally exposed here. 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 EA ownership, I mean, it is around 15%. So actually on your question on Indigo, I mean, if they sell down, then obviously EA ownership goes up. And if there's 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 your question on the EA ownership, yes, of course, we're also focused on that. We are trying to appeal more to European investors. But really we're trying to manage the ownership and control regulation via disenfranchisement, as you know. And then on the lines of flying, yes, indeed, I mean domestic typically is shorter stage length and less domestic means that indeed the mix will increase again in terms of longer stage length.

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. One, 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 Abu Dhabi so far compared to, say, the European network? And then thirdly, can you talk about on your UK plan specifically on Gatwick and kind of what is your strategy at Gatwick at this point? Thank you.

So on Indigo, 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 the shares. So the company has requested Indigo to convert their outstanding convertibles into orneries. Ideally, it would have coincided with when they sold down, but obviously, we are not aware when they are selling down. The 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.

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, and I think we are gearing our operations accordingly. So I think it's hard to kind of compare the economics of the business to Europe. I mean, we are still in a very start-up phase. At the moment, we are only operating five frequencies a week. but that will 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 a really enhanced network coming out of the pandemic there. And I guess once the market opens up, we have a much better ground to compare the performance of the market. But conceptually, 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 to date. With regard to the UK, 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 regulations, so that kind of squeezes us and kind of closes the door for a bigger expansion in Gatwick. We have a one hectare base in Gatwick and this is organic, so not related to salt alleviation and we shall see how the regulatory framework evolves and how allies move on when the regulation changes and would create a different environment for get results 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.