Wizz Air Holdings Plc

Well, we are reporting the first half of the financial year. So this is April, September 2023. We delivered record profit over 400 million euros. I think you have to put that in context of all sorts of external issues affecting the business, proving the resilience of the model. Cash increased to 1.8 billion. We delivered 25% more passengers than the previous year. And when you relate it to pre-COVID passenger traffic, we are up about 50% in the reporting period. You recall, we talked a lot about operations and investments into operations, especially following the experience in summer 2022. We made significant investments and clearly we achieved significant results coming from those investments. Recently, last two to three months, Wizz Air has become one of the best performing airlines in Europe in terms of completion rate and on-time performance. And you can see that in the first half. And it had some issues, especially in the June-July period. All in, we delivered 99.2% completion versus 98.1% completion in the previous year. Of course, the capacity was up by 27%, 63% versus the same period in pre-COVID year, and that drove revenues by 39% and 83% versus fiscal 23 and fiscal 20, respectively. ROSC improved 10% in the period, mostly on tickets and somewhat on externalities. Costs reduced overall by 12%, helped by fewer price movements in the market and our hedges and ex-fuel cost was down 1%. We will talk about this because I'm sure that you will have questions why only 1%, but you will have to see how the engine issues were sort of evolving throughout the summer and how they affected our operations and put some adverse impact on our cost performance. Well, of course, the big topic is GTF. We just entered into an operational support and financial settlement agreement with Pat and Whitney. That is significant because that creates predictability for operations, but also it is creating predictability for the offsetting of that financial impact. We have also taken a number of mitigating actions to make sure that we are protecting capacity going forward. We have extended a number of current aircraft leases and we continue to take new aircraft deliveries. If you just look at those two lines, we're going to get more than 30 aircraft delivered in 2024. by Airbus and we will have roughly around 10 aircraft extended on leases. So that's kind of our way of mitigating the capacity impact of the groundings. As we said, we are expecting to ground around 45 aircraft as of January. We will certainly learn how exactly the program is going to unfold in terms of induction times of engines and recovery times in the shop. But this is a pretty good estimate, the best estimate of the day based on our current best knowledge. So moving to the next slide, the usual statistics. We are certainly very pleased with our ability to grow the business 25% year-on-year and 50% versus pre-COVID times. I think really we can say that this came out of the COVID period with strategic gains. We are one of the structural winners of the COVID times, having been able to invest against new market opportunities and solidify our positions in existing markets that has enlarged the footprint of the business, creating a much larger skeleton to continue to grow the business for the long run. I would also note that our sustainability performance continues to improve. We cut back on our carbon emission footprint quite significantly versus the pre-COVID period as well as last year. And just very recently, we were recognized by CAPA the Aviation Research Institute for our sustainability performance being named for the second time to be the most sustainable airline globally, which of course we are very pleased with, especially as that ranking is taken based on data, based on comprehensive analysis. So just back to the GTF matters. I'm sure that you have more questions than answers I can provide, but let me try to recap what it is. So you recall there was Tranche 1 and there is Tranche 2 coming. Tranche 1 had a limited impact on Wizz Air. Only essentially six engines were affected and we were able to cover most of the exposure with spare engines. Now Tranche 2 is different. This is what we are heading towards. A service bulletin was issued by Pratt & Whitney, which imposes a certain number of cycles for engine inspections. And once you reach the cycle limit, you have to stop the engine in operation. You have to remove the engine. The engine has to be inducted and inspected in a shop and cleared before you can operate the engine again. We were modeling the impact of those. We are expecting around 45 aircraft to be grounded as a result. So 25% of our fleet will get grounded due to the coming issues. Obviously, it raises two questions. Fundamentally, one is operational. How do we operate the fleet? How do we operate the markets? How do we stay competitive with that kind of a magnitude of capacity exposure? And two, how do we account for the financial impact of those? With regard to the financial impacts, we have a bespoke commercial and financial settlement agreement with Brett and Whitney. I'm sure you would ask what it is exactly and tell me the numbers. I can't. This is confidential, but you actually can figure it out quite easily if you read their assessment, the rating assessment, how much they think will have to be provided to customers and the market. And with that is 10% of the operation of the GTF engine. You just run the fashion numbers and you're going to get to it. But it is significant and indeed it is protecting the business from a financial standpoint. But the real challenge coming with the GTF exposure is not financial because we have the protection there with the settlement agreement. It is operational. Because, of course, we want to protect our markets and we want to stay competitive as a business and we want to make sure that we fly to capacity required by demand. We will have to learn how exactly this is going to play out. But our best assumptions at this point in time is that 45 aircraft, we have an agreement on induction program. So not every engine is going to be inducted immediately into shop. So there is a bit of a queuing. And depending on the very scope of the inspection, it will determine the shop visit time. If you just take the very issue, the engines are removed for inspection. That's roughly a 60-day issue. But once you remove an engine, you do other inspections on the engines too. And that will determine for how long you're going to take the engine out of service and keep it in the shop. So that varies engine by engine, basically. But we modeled all of that, and we're seeing that this is roughly an 18-month program from start to finish. And over the course of the next 18 months, all engines would be hitting shops. This is, of course, subject to availability of shop capacity, subject to material supply to the shops, etc. But based on our current best knowledge, this is what we are estimating. Later, I will talk about the fleet, the fleet composition, that you understand how the fleet is growing versus the lines of operations of the fleet, because the two things will go away from each other for some period. We also... address the Abu Dhabi issue that arose back in 2022. You recall, we had significant operational issues there. We replaced the bulk of the fleet in Abu Dhabi for V2500 powered aircraft. You know, still a hot temperature, send the environment, affect the operation, not only the GTI, but it also affects the operation of the V2500, but it is just a more mature technology. So you can spread the pain over a longer period of time and you can create more predictability over the operation of the engine. So this is largely behind us. So we're seeing that we have an operating platform that is Predictable now, plannable, and we can manage it operationally as well as financially. So I guess one significant fashion comes out of the GTF testimonial is capacity overall, what this business is going to deliver next year versus the current year. Maybe the best way to put it, this year we are carrying roughly around 65 million passengers. Next year we are planning on carrying around 65 million passengers. So we're seeing that we can uphold capacity with the mitigating actions and the programming of the GTF inspections. There will be a little bubbling here or there, so maybe the front end is going to be somewhat lower in capacity, but we're going to be regaining that capacity over time as necessary. We are coming to the end of the program. Capacity will be eased as we would be regaining engines. So overall fiscal 25 capacity is predicted, estimated to be the same as fiscal 24 capacity. But there might be variations by market and there might be variations by moms as we would be building up towards that. And with that, let me turn it over to Jan. Thank you, Joseph.

All right, so the fourth key themes that we keep on hearing that I want to address today are in terms of our ability to consistently deliver profitability, something that was tested over COVID, our ability to control costs and to keep them in a downward trajectory, the yield outlook, and liquidity. So in terms of the financial performance, despite adding 27% more capacity through ASKs, we managed to... grow revenue 39.1%, €3 billion in revenue for the half. So there's a number of milestones here for the company. So record revenue, record capacity, record passenger size. And as a result, we delivered €878 million worth of EBITDA. If you look at our fuel costs, they're actually down year on year as a factor of both fuel price and, of course, our hedging policy. But our EBITDA was four times as big as it was this time last year. So we're bringing that profitability back and our EBITDA margin is 29%. So pretty respectable results for the half when it comes to EBITDA. And in terms of net profit, 401 million, again, a record number, something we're pretty proud of. In terms of cash, 1.84 billion as of September 30th. And that's the 20% increase year on year. So we'll look at cash later on, but as part of the liquidity theme, but overall a respectable performance. So despite the challenges, we're growing pretty rapidly. And that's a feature of both better operational performance and a growing fleet size until, of course, the PRAT issues hit us. In terms of revenue performance, so that's the feature of our yield and our load factor. So the 27% capacity that I mentioned on the last slide, that would normally put a lot of pressure on yield, but we're still bringing our revenue per available seat kilometer up 9.6%. So 4.91 versus 4.48 last year. The increase comes in the form of ticket rasks, so 17.4% up, and the ancillary was close to one euro per passenger year on year. So we're still delivering in line with our anticipated trajectory there. Load factor was up to 93%, so almost six percentage points higher than last year. And overall holding, as you can see from our traffic statistics, notwithstanding the capacity that we're adding to the system. Our ancillary products continue to evolve and reflect where we see demand. And what we do there in terms of pursuing the assistive artificial intelligence and machine learning continues to be something that we find a lot of focus on and will focus on, especially as we enter into a period of potentially slowed growth as we work our way through the engine issues. Unit costs. As you know, we've set a number of KPIs in terms of where we want to be operationally. And utilization is, of course, a very important part. Our utilization for the half is 13 hours and 22. So it's significantly better than last year, 11 hours and 49 minutes. However, it is lower utilization than we had expected. That was driven by the issues such as engines. So we had non-powder metal related issues plaguing us throughout the summer, as well as the general disruptive issues that the industry faced all summer. And that drove higher disruption costs. Disruption costs driven by cancellation, by delays, disruption costs then imposed on us by EC261 costs. And as a result, that then drove crew inefficiency and other areas. So the big areas where we saw cost pressure this year was on staff, disruption, and a few other areas. Certainly distribution costs change as the mix of our airline evolves. And when I say mix, our geographic mix changes. Overall, our crew costs are also impacted by that as we move from different cost bases and certain tax consequences associated with that. Our ex-fuel cask for the half was lower, just under 1%. We're pretty excited about having this landmark deal with Pratt that I think we're the first one to announce. And that will address the costs associated with the engine issues for the foreseeable future. And then when it comes to the overall cost pressures that the business faces, we have been able to show completion factor on time performance dramatically improved by the investments that we made in our business over the last 12 months. And so the August onward numbers, August, September, October, November, we're seeing significantly better completion factors, better performance. And as a result, we'll actually eliminate the opportunity to pay compensation costs by actually delivering the product. And so that will deal with disruption costs. And that's why we're confident going forward that our Xfield CAS will continue to reduce. In terms of cash and liquidity, you can see we're actually generating more cash this year than last year, which makes sense considering we're a bigger business. I think the important point to note is that we were able to receive confirmation from Fitch that our investment grade rating holds, so no change there. We have conversations with Moody anticipated later this month to begin that journey towards their credit committee. And in terms of our net debt, it's flat year on year, but our leverage ratio has come down dramatically from 27 times last year to five times. And that is expected to continue to reduce and deliver the business as profitability continues forward. And we satisfy our debt obligations. So liquidity was healthy and leverage is reducing. In addition, we're in a position now of a positive equity on the balance sheet versus where we were before. So that helps overall on the balance sheet. In terms of free cash flow, you can see over the pre-COVID to post-COVID, we're starting to generate a lot more cash through EBITDA cash conversion. Working capital is an area that we're spending a lot of focus, especially since we go into the season. And we're very focused on terms of being disciplined due to the obligations we have. But that being said, we have tools in place to get through the low point. So obviously the cost element of the impacted engines from Pratt are now dealt with through our compensation agreement. We have our PDP facility in place to address any shortfalls in terms of our comfortable cash minimum levels. And then we have the ability through the winter now with taking capacity out of the system. So no longer having to deal with 27% growth, but maybe flat growth is to be able to generate cash from terminating or suspending cash negative routes and yielding up on our fares. And so overall, the outlook for the winter looks stronger than it has because we've managed to address the costs through operations and through compensation. We've managed to enter into an environment where we can price up due to scarcity and and overall the demand looks well. So that's where we are on the financial side of things. I believe that's my last slide and I'll hand the floor back to Joseph and I'll look forward to your questions. Thank you.

Thank you, Jan. We were talking about all these external challenges affecting the business and I would just want to recap those and kind of the ways how we are mitigating and addressing them. We have talked a lot about the GTF issues and I'm pretty sure that we will have ongoing discussions around that as the program evolves and we're going to learn how exactly it's going to unfold. But we have taken a number of initiatives, so we are trying to be as proactive as you can be with regard to the issue. I think we are probably the very first operator coming up with a settlement agreement and announcing a settlement agreement with Brett and Whitney. We definitely wanted to create predictability and visibility around the issues on the one hand. And two, you can imagine being one of the largest operators that you get treated by the OEM accordingly. We have also recosted the network as such that we maximize the benefits of the new operations, whatever is left of that, after the groundings. And we put the new aircraft on longer sectors to optimize the performance of the entire fleet. And as said, we have taken a number of initiatives to protect capacity through the extension of existing leases. As in the second group of external factions is geopolitics. If you just look back over the last 20, 21 months, so we started with the war in Ukraine last February, then we went through some events between Armenia and Azerbaijan and we operate both countries. And here we go now in Israel, where actually Wizz Air is the largest international carrier. So we have a significant capacity deployed to the market. I think we have kind of learned by now how to best deal with events like that. I mean, simply when the market becomes closed or unsafe, we withdraw capacity and we reallocate that capacity. And we do that with a very high degree of efficiency very quickly. I mean, there is a short-term impact, of course, because you need to create some safe lead time. So probably six to eight weeks, you will have capacity on the ground. But once the capacity is reallocated, you will start building capacity. of the franchise again, and you will start earning revenue on that capacity. I wouldn't say that this is like totally routine to the business, but fairly routinized when things like this happen, I think we know how to deal with them. Fewer costs, well, these dynamics better than me out there in the marketplace. We have resumed our hedging program. I think that hedging program is now totally effective, similarly to the times before suspending it. So we are back in the game with that regard. And let's not forget that as we continue to make new aircraft deliveries, we benefit from the fewer efficiency of that technology, of that aircraft. And I will have a slide. I will show you that actually this is a significant benefit derived from the fleet renewal program. Macro uncertainties, I think we keep talking about that. Is the world in recession or not and how demand is affected? I've done a few interviews this morning. I mean, if I just want to summarize it, people say that, OK, fine, we understand summer, how about winter? But the same questions have been posed year after year. So there is, I think, quite a degree of uncertainty in the minds of people looking at demand on a lot shorter term basis than longer term. We have a well-diversified network. And believe me that the view of life is very different depending on where you are in the planet. So there is skepticism in Europe, especially in Western Europe. Central and Eastern Europe is doing better than Western Europe with that regard. But you go to a country like Saudi Arabia or Egypt, the united arab emirates i mean those countries are sparkling i mean they are taking benefit of the times um trade is up um incomes are up people are spending and i think the more diversified you are the better hedge you are against these macro uncertainties but all in all we are seeing demand robust uh we are not seeing any significant changes uh we're seeing that uh people want to fly they have the um the money to spend uh and demand remains intact overall And then you have all these industry challenges. I mean, we made one significant investment. We made a lot of investments, but one very significant investment that we decentralized our operating model. So going from like a one airline, approach towards a multiple airline approach by having four AOCs. Those four AOCs have been solidified and are very robust. They have matured a lot. And clearly, if that is an issue in one place, we are able to isolate ourselves from that issue in other places. And we have invested a lot of management capacity and leadership capabilities against that model. And we are clearly benefiting from that. Also, we added more support to the operations in the form of more spare aircraft and more spare crew to make sure that the recovery process is aided capacity-wise as well, just simply not relying solely on the improvement of the supply chain. But if it doesn't improve, that we are still not dependent on the matters, but we can affect them directly our own ways. And you will see the operational results have been largely improving as a result. So moving to the next slide. I just want to address a few points quickly that you have better perspective. So let's start with operational performance. This is showing the... two major KPIs, on-time performance and completion rates. Now, we don't have the industry numbers on this chart, but the industry has been coming down on performance structurally. And this is the function of the underperformance of the supply chain. So you take on-time performance, the industry performed a lot better overall in 2019 than how it performs at the moment. At that time, ATC was intact, airports were intact, handlers were intact. maintenance providers were intact, they all deteriorated to some extent. So I think you have to take that context. But really what we are trying to demonstrate here is, first of all, there is a significant rate of improvement year on year. You can see the kind of the light blue line, this is last year's performance. The red line is current year and the dark blue is pre-COVID performance. So you can see that we are in between last year and pre-COVID. So we are trending up a lot better than last year, but not at the level of pre-COVID times. But again, the industry is not at the level of pre-COVID times. If you look at completion rate, We made a huge investment into completion rate. We prioritized completion. We're seeing that the customers have to fly. They paid for it because they have to fly and we need to make them fly. So you can see that we are starting to really come back to pre-COVID performance levels above internal target of 99.5%. And I can tell you that if I take August and September, actually Wizz Air was the best performing airline in Europe. No other airline achieved higher completion rate than Wizz Air. And we were consistently beating our low-cost peers, the other low-cost carriers. So really what I'm saying here is that we made significant investments into operational resilience, into operational KPIs, and you can see significant improvements coming through. So this is about utilization. I mean, utilization is cornerstone to the business model. We are still not where we need to be relative to pre-COVID times. Some of it is provisioning for the supply chain inefficiencies. So the business had to carry more slacks, more spares as a result of the problems, given our strategy of self-help. And also the threat and between engine issues started to come in in our business. operations already early summer so we started grounding aircraft and as a result those groundings were eating off spare capacity so we had to create more spares and it kind of started creating a liquid effect uh now we improved uh our utilization actually quite a bit versus fiscal 23 but you see there is still a gap to fiscal 20 and this remains our benchmark where we want to go back to So load factors continue to rise. This is all in context of very high growth. So we are up more than 50% versus pre-COVID capacity, 27% versus last year's capacity. So all these load factor numbers need to be seen in a very high growth setting. And obviously that puts some pressure on load factor performance on short term. I mean, over time we will recover that, but short term, some pressure. But it is improving and it's coming back to standards. Jan noted fuel efficiency, and I also took note of the fact that it is not just hedging, but we are operating a better fleet of aircraft for fuel burn. And you can see that the technology essentially upsets the impact of ETS and emission costs in the system. So primary, we are relying on technology. Hatching is good for eliminating short-term volatility, but the real game is technology. And when you compare our fuel burn performance to our peers, this is where we are winning very clearly. We are outperforming the entire industry on fuel performance and fuel burn. So talking over the brand, it's almost like two categories of markets, the established incumbent markets, the home run in Central and Eastern Europe and kind of the new markets in Western Europe and the Middle East. You can see that we are very consistently performing in Central and Eastern Europe, very high awareness levels. Obviously, after 15, 20 years of operation, you should be expecting that. But very importantly, we have been gaining a lot of grounds in Western Europe and in the Middle East. So our awareness continues to rise very, very steeply. Market shares, very important that in the reporting period relative to previous year, we continue to build market shares. So now we are up to 24% of the total of these markets versus 22% a year ago. And fairly consistently, our market share positions have been enhanced in most of the markets. So this is important. I'm trying to explain it to you because there are two lines now we need to track. We used to be showing this to you and you were able to model it kind of easily that, okay, we were growing the fleet. We are going to fly more capacity. And then you derive your numbers from that. Fleet growth will continue to unfold. So nothing is really changing with regard to long-term fleet growth. It's as intact as it used to be. Actually, short-term fleet growth is enhanced through the extension of existing leases. but the lines of flying will not match up with the Fnidgos because of the groundings. So you're going to have a bit of a depth here. So starting in the back end of 24, Fisker 24, throughout Fisker 25, you will have a reduced number of lines of flying as a result of the Krettenwitten issue. But why this is important is that, you know, we might be flying say, you know, 40, 50 less aircraft in fiscal 25. But once those aircraft are cured and cleared and the engines start back in line, the following fiscal year, we are going back to 287 aircraft. So this is going to be a significant growth year because gradually we are gaining engines back and also we benefit from the supply of new aircraft deliveries. So when you look at the GTF engine, this is a short-term issue. not a long-term issue, it doesn't affect the trajectory of growth for the business. And last but not least, sustainability. As said, we are happy to be recognized as globally the the best performing airline sustainability-wise. We have, as said, made significant investments into soft. We are coming up with commercial contracts with producers, but also we are making equity investments there. We think soft is probably going to be the bridge between now and 2050, when we would be expecting a brand new propulsion technology coming to the market in the form of hydrogen-powered aircraft. But this is not a short-term matter. This is more of a long-term matter. And we look at how best we can affect the SOF program. Changing gears, we appointed a new director to the board, Ms. Fitlian Chung from Singapore. I think she brings in another perspective, a more Asian perspective. And you see that we are expanding in Asia And we are trying to enhance our corporate standing with that regard. So moving on, I guess this is something of interest to you, although not a lot of change. With regard to capacity, we are reconfirming our previous guidance. You recall, we issued an RNS in September, and at that time, we affected the capacity guidance with the unfolding Brett and Whitney issues, and we are reiterating that guidance. So we are expecting the second half of fiscal 24 to be up 20% year-on-year in the construct of 25% in Q3 and 15% in Q4. With regard to load factor performance, we are expecting to fall in line with recent trends above 90%. Actual cost to remain on the same trend, but we are reporting for the first half, so lower than a year before. And we narrowed the range on net profit. We had 350 to 450. We are putting it into 350 to 400. I mean, obviously, we had to take all the issues into account. The war in Palestine, the process of the Bretton Whitney matters, and we've seen that this is a better reflection of our current best knowledge of the situation and the corresponding performance of the business. And that concludes my presentation. Thank you. So please go ahead with your questions.