Wizz Air Holdings Plc

Good morning and welcome to Wizz Air's full year 25 H1 results. In a moment, we'll be handing over to Joseph Faraday and Jan Malin for the presentation, which will be followed by Q&A. This is being broadcast live on a webcast and we will hand over to Q&A in the room first, followed by those listening online. We'll hand over to Joe.

Thank you. Good morning, everyone. Thanks for coming and thanks for listening to this. So this is our H1 results for FISPR 25. Would you please move the slide one more? Thank you. So I would like to spend a little time upfront regarding explaining you some of the drivers of the of the business all in. I believe that the ship is turning. and clearly we are entering kind of a better era for the business. I would just still like to remind you the challenges we have been navigating this business through, the war in Ukraine, the Middle Eastern conflict continuously dragging the business, and probably most importantly, the GTF engine groundings. So with regard to the revenue environment, first of all, We are reporting positive unit revenue development in the first half, and probably even more important, we are seeing that revenue strengths continue to unfold going into the second half. Some of it is the base. Same time last year was a fairly weak base. You remember early October, the Israeli conflict broke out, making a significant impact on our business by removing profitable capacity and putting that up after reshuffling to immature capacity. So obviously denting our ability to generate revenue and denting profitability as well. So we're seeing that this positive momentum is actually even getting stronger going into the second half. And I will elaborate on this a little later. Uh, we got to cost, I guess this is the area where we feel the most disappointed by. Uh, but this is all explainable. Um, most of it is, um. corresponding with the GTF engine groundings. And I know that you may say that Brett is compensating you for that, but that's not entirely true, certainly not in our context. If you measure compensation on the basis of direct costs to the business, yes, Brett and Whitney is compensating us for that. But if you look at our entire exposure to the GTF engine, we were forced to make soft scale decisions, especially for the current year. Overnight, we lost kind of 20% of our fleet and we had to make sure that we essentially back up our capacity one way or another. And we were opting for three things looking for two initiatives, and one was happening anyway, so we continuously received new aircraft deliveries, but we decided to extend old aircraft leases, and we decided to take market leases, market vet leases. Both of these come with costs. We could have decided to do nothing, and then we would have been kind of in the money with Brett and Whitney, but we had to take the decision, because otherwise, strategically, we would have been turning over invested markets, newly invested markets into into the hands of all competitors. So we had to protect capacity and we set the target to upward capacity. That came with significant costs. And also as we related on previously, now we are shifting focus towards more expensive airports to less expensive regional airports, secondary airports, alternate capital airports. And let's not forget that Airport costs came under pressure because we were not growing. And the airport business actually is fairly simple. Airports support you for growth, penalize you for no growth. And I think this is what we have been affected by. I think the business has been actually achieving a lot in this period. We have reshuffled our network further, so we remove capacity from underperforming markets and we deployed that capacity to actually perform in markets. If you just look at the Middle East, given that the Middle East continue to drag, I mean, people kind of don't like flying over war zones. So we started experiencing weakening demand in the Middle East. We removed significant capacity and we reallocated that capacity where actually that capacity was demanded. A very recent example was the Moldova Bays reopening. We used to have a very strong performing base in Moldova due to geopolitical reasons. We suspended the operation of that base, but now we've just reinstated it. that base operation, which makes a lot of sense. And we are basically tapping into already mature market capacity. Again, with regard to sustainability performance, we've got CAPA's recognition for the third time in a row of being the most sustainable airline in the whole of Europe. So we believe that we have become even more resilient uh to navigate ourselves through volatility uh continuous volatility i would i would say um if you look at the way we are uh going forward uh now we are entering the era of growth after standstill a period of a year or 18 months now we are actually at a tipping point that we're going to be growing again. Certainly that is the case in fiscal year 26. We are growing organically. We are looking at margin expansion and we are looking at our kind of valuation multiples to come in line with our peers. So we're seeing that we are enhancing our value proposition to the market. I mean, clearly, the grounded fleet is a hangover, and it will be a hangover for some time. But at the same time, the proportionality of the issue is getting reduced by the day because we've totally bottomed out on the number of aircraft on the ground. But given the fleet growth that we are having, actually, the proportion of the grounded fleet is getting less and less. And as we have said, we are in negotiation with Brett and Whitney with regard to the extension of compensation. That's going to happen. Just met the company yesterday. I think we have still some job to be done in terms of ironing out some of the issues, but that's going to happen. So I would be relaxed about that, although I cannot... give you much insights at this point in time given the confidentiality involved could you please move the slide so if you look at the um the numbers um um i mean as said the gtf um has been a significant overhang um on the um on the numbers but maybe if you kind of break it down you look at capacity uh capacity is kind of flat flattish ASK terms is down almost 1%. C terms, it's up 1%. So basically, this is the function of reducing stage lengths, which is important because by reducing... we are actually increasing sector productivity. So with the same volume of assets, we are reaching more customers. We are engaging stronger with the market and likely you should be expecting that plan to continue to unfold going forward. Our passenger numbers basically corresponded with seat capacity. We are up almost a percent with flat, flattish load factor performance. So the total fleet actually grew substantially during the period. So we went from 189 aircraft to 232 aircraft. So that's a significantly larger number of fleet, although that number contains the eight wet list aircraft. Now, those wet list aircrafts are out. They were removed from operations at the end of October. So we no longer rely on market capacity. You know that this is a very expensive capacity. We needed to do that for protecting overall capacity against competitive incursions. But it is at a cost, and now that cost is phased out from the business. We had around 44 GTF aircraft grounded. and that made a profound impact, not only on the cost of running the business, but also with regard to the measures that we had to take for protecting our capacity. Utilization was slightly improving in the period, so we were more effectively using the fleet on hand, which I think is important with regard to utilization and spreading costs on the basis of utilization. Some improvements on operational KPIs. Completion rate was slightly up. 99.4, our target is 99.5, so we were nearly on target. We think we will be able to catch up on that in the second half, and on an all-year-round basis, we will be able to deliver our target. On-time performance was slightly improving. I mean, let's not forget that ATC It was, again, disastrous during the summer, slotting the whole industry, and we were not immune to that. So that created significant distress. I think kind of where we are with regard to our operating model, we feel very confident in our ability to operate timely with integrity. But when operations peak up in Europe, especially the summer peak period, the stakeholders break down, especially ATC, and they continue to make significant impacts on our ability to operate. So we are looking at ways of further enhancing our resilience during these peak periods. And this is the... uh the focus going uh going forward and you see that with regard to airports and roads we have been consolidating ourselves so basically we have eliminated uh loss making routes for the benefits of uh uh routes uh actually where we are making uh good money so all or in all the performance of the company thank you let me just let me hand over to you

Thanks, Joseph. Can we go to the next slide, please? Thank you, Seth. So I guess the good news is that we're flying more people, and those that are flying with us are flying at higher fares. That's the takeaway from H1. We're seeing that trend continue dramatically into H2. So as Joe explained, even though ASKs came down, and that's due to a shorter stage length, which is by design, that's a deliberate choice to try and drive more sector productivity, we're generating more seats. and we're keeping load factors roughly stable, which means that the higher revenue comes from yield. So that's a positive yield environment in an industry that's challenged in that respect. So that's a positive outcome, and we're seeing, as I said, that coming through into Q3, and we'll talk about some of those dynamics in a little bit. Fuel cost was a support for us. Even though we're flying an inefficient fleet versus what we could be flying, Due to older aircraft and lease extensions that we had to take on, due to the inefficiencies around wet leases, our fuel costs went down. They could have been much lower had we been able to maximize the troop potential of an all-GTF-powered fleet. And that is something to keep in mind, is that as we continue to eliminate some of these older aircraft and bring more GTFs back online, our fuel efficiency will continue to benefit from that. In terms of non-fuel costs, I'll save that for the next slide because we have a Slide dedicated to that. EBITDA slightly down on prior year, and that's despite an average of 44 aircraft grounded during the period. We're around 40 aircraft grounded, and we expect that to continue. Those aircraft are incurring cost but not generating EBITDA, and so that puts pressure on the business. Likewise, on depreciation, I'll cover on the next slide. So overall, our positive RASC was driven by a strong performance in Q1, and a positive performance in Q2, so 1.4% up on the period versus last year. We're starting to see some strength in ancillary RASC, as well as obviously ticket RASC performing nicely, and the factor basically flat. So in terms of the revenue environment and why that's supportive is I think it's important to point out that while we're talking about flat capacity or slightly up on capacity for the year, Q3 last year, so F23 versus F24, we were up 27% in capacity. This year, we're basically flat. Q4 last year, Q3, F23 to F24, we were up 17%. So we were able to benefit from the lack of capacity pressure. and really be selective in terms of where we're deploying our aircraft and making choices around profitability and maximizing that. And so that's giving us the confidence for the full year numbers. If I can go to the next slide, please. In terms of cost, you know, while we see optimism on revenue, we do see pressure on cost. Now, I think the fuel environment is favorable, and we'll continue to see that through our hedging program, the benefits from that. In terms of ex-fuel costs, a lot of prices in the half and in the quarter on that. And I'd like to try and segment that into three categories, our costs. One of the costs driven by Pratt that are either something that we can control or have already controlled. So as we've mentioned, we had a plan to exit the wet leases. We've talked about that in Q1. We executed that plan in line with our target, which was to get out of them by October. Those wet lease contracts are terminated. They were full year contracts. And so that's no longer gonna be something that you'll see coming through our P&L. The other will be the ad hoc wet lease here and there for emergency situations, but not something structural like what we put in place this year. The takeaway from that is that the exit costs were higher than what ultimately we were expecting at the Q1. And that's part of the reason why you're seeing such high numbers flow through into Q2. And some of that overhang will fall into Q3 because we had wet leases in place in Q3. So things like wet leases gone, there's other inefficiencies that come along with the PRAC grounding that we're in the process of addressing. So if you think about, if you look at our cost structure, disruption costs were high in the period. And that's just simply down to the fact that if you don't have spare engines or spare aircraft and you have a technical problem with an aircraft, you're faced with no choice but to cancel. And that drives the costs up. We did pretty well in Q1 with disruption, and we're expecting to see very strong performance in Q3 and Q4 as we drive stability into the business and as we start to see more capacity come online. But in Q2, we had a rather high disruption cost line driven by the lack of spares, driven by the Pratt situation. Likewise, on crew costs, we saw high costs in the period. And we always said that crew was going to be an area of pressure on the business because we were deliberate and are being deliberate when it comes to maintaining the employee base so that we have them ready for the return of capacity growth. And so that's a choice that we took at the expense of short-term profit, but to the benefit of long-term stability. So that's the first bucket. I don't think that we can control or are controlling or have control. The second one are the costs associated with groundings. There is going to be a cost for as long as we are grounding aircraft. We're going to be seeing more maintenance events. It's just a simple fact. As we move engines around and try and optimize the availability of assets, there is a cost associated with that. And there's cost pressure in that across the industry. which we're dealing with. Likewise, there's depreciation. We have all these extra assets that are not contributing to ASKs, and they're not contributing to EBITDA. And so we're taking this fixed element and spreading it across an inefficient base in terms of ASKs. As we start to return to growth, and we're talking about growth somewhere between 15% and 20% for F26, that'll help take some pressure off that. But as long as we have aircraft grounded and as long as we're running a high spare engine ratio, there is going to be an inefficiency there. And so it's very difficult to compare that number in its current condition against the peer group, considering that we're grounding and others aren't. In terms of other costs and income, you can see we've given you a rather helpful breakdown of the constituent parts to that. We benefit from sale leaseback for the half. We did have lower sale leaseback activity in Q2 versus Q1. We would expect there to be a tick-up in Q3 and Q4 versus Q2 on sale leasebacks, and then a real ramp-up in F26 as the number of transactions happen. What will be different this year is that there will be no engine sale leaseback activity because we don't have any other engines in the delivery pipeline in the near term. That could change, so there are two discussions really underway, but this is all aircraft activity. Um, we take our sale leasebacks as the assets arrive. Um, and so, so we have a pretty good view as to when the aircraft are coming for the next, um, 18 months. Um, and that will be something that we can plan for. In terms of compensation, I would expect that number there to flow through, uh, pretty, pretty much consistently between Q3 and Q4, uh, because we're still seeing a consistent number of aircraft grounded. So that's a pretty reliable number there. The short-term wet lease numbers are going to go away. Um, and then, um, And then the other ones are, there's nothing unusual on that. So back to the buckets, you have the ones that we can control, do the prep, the ones we can't control, do the prep, and they will simply roll off either through un-parking or through capacity growth. And then the third bucket in terms of costs, are the ones that I would say are to some extent self-induced. Joe talked about that. So some decisions around the network that we made that we need to now change, and that's migrating towards aircraft airports that that are prepared to incentivize us or even pay us to fly there. And so really identifying those opportunities and making sure that the incentive program is right With us being the only airline out there that's really going to be able to add any sort of meaningful capacity and reward those airports, we're going to see benefits through the network in terms of cost and revenue by virtue of the quality of the network. So rather than being speculative or opportunistic and trying to identify new markets, and try and rapidly mature them, we're going to focus on deploying our capacity consistently within our existing footprint, so harvesting the profit that's available from our footprint. And there's a slide that shows later on where we're putting that capacity and how it's consistent with our core markets. And so that's how I would summarize the cost. We have a very specific cost plan in place, how we get through the end of the year and how we deliver on our numbers. that's the baseline if we are helped by revenue then that's upside and if we're helped by fx that's help that's upside as well but our focus is on cost and that's the plan they're here to deliver and with that i'll move on to the next slide please I'm trying to give you a little bit of color when it comes to our free cash flow and to show you our EBIT for free cash flow conversion ratio, which is roughly 100% at this point. Obviously, it's the better performing half, and so you would expect there to be a strong performance, but I want you to understand how we're able to convert EBIT into free cash flow. The net capex line after the operating cash flow bar of 720 is basically the combination of PDP deposit payments to the manufacturers out, the refunds from PDP payments when we take delivery of an aircraft, as well as the net benefit from sale leaseback gains under sale to operating lease or sale to Joelco arrangements. So that's the cash benefit from that. And then the lease repayments is the combination of all the type of rent that would be going out across all the structures, whether it be French tax lease, DOLCO, finance lease, or operating lease. That 447 number there ends up being the free cash flow. If I move to the next slide, please, you can see that we generated $270 million in cash in the period from Q4 at the end of last fiscal year to where we are now at the half. We ended up just under $1.9 billion in cash at the end of September. And that's after the bond repayment in January. So we basically would have been 500 million higher for the periods following Q4 had we not had to make that. So it shows a rather generous, a rather robust cash position. And in terms of industry peers, our cash-to-revenue ratio is sort of in the mid-30% range, which is higher than most. In terms of how we bridge our free cash flow from the prior slide of 447 to the 270 million in net cash position, the difference there to get to 270 down from 447 is a combination of repayments of PDP loans. We had a facility where we borrowed against our PDP deposits, and that's something we put in place in the winter of 2023. Sorry, winter of 2022. that when we were emerging out of COVID and we hadn't yet returned to profitability, We've since decided that we no longer need that facility, and it's part of our overall cost drive, and we've repaid that early. We've prepaid that. So that facility is no longer there, and as a result, we'll save on the interest costs. It's a structured facility. It's one of the more expensive costs of financing. I wouldn't say it's punitively expensive. It's just relatively more expensive than other sources that we have available to ourselves. So that's just one element of the overall cost. drive to deliver on our numbers. You would have seen that Fitch downgraded us from investment grade to one notch below last month. While it's disappointing, it's not unexpected. We've been spending a lot of time talking to them. It comes down to ultimately the math. And at the end of the day, our net leverage ratio is not where they want it to be, which is two times. Our net leverage is under pressure for a number of reasons. One is that we have 40 to 44 aircraft grounded, those aircraft grounded. They come with leverage because when you take a lease back, you have to add the leverage to the business. And this is the lease leverage. But they're not generating EBITDA. And so it's just simply hard to make that number work. On top of that, you have a very high spare engine ratio. Those engines, while they're contributing to the business in terms of reducing the number of grounded aircraft, they're not generating dollar per dollar the same amount of EBITDA if we were to invest those dollars elsewhere in the business. And so those two elements alone drive the leverage ratio out of the territory that Fitch was comfortable with in terms of maintaining the investment grade rating. i will point out that um if you look at the the the commentary from fitch over the last couple years in particular in the ratings actions um the reason why we were on negative outlook in those periods was was related so can we get back to profitability how are we going to deal with hedging what's going to happen with regards to geopolitical issues within our territories things like that um and um in this in this this time around all the commentary has shifted The reason for the downgrade is specific due to the inefficiencies caused to us by Pratt. And if you look at some of the commentary, we have some of the highest EBITDA margins. We have strong liquidity positions based upon their analysis. They see the aircraft order book backlog as a competitive advantage. And that's something that I think it's very important to emphasize. Lastly, we do see a lot of volatility flowing through our P&L due to the unrealized FX gains and losses. That is something that is unfortunately unavoidable being a Euro reporting currency company. with most of our leases being dollar-denominated, that problem is going to become more acute as our fleet growth starts to ramp up in the coming years as we continue to take aircraft that are dollar-based. We do whatever we can to try and secure euro leases or euro-type funding structures, but the market is dominated by dollar-type funding structures. And so just like we've successfully executed our hedging program when it comes to fuel and the FX portion of fuel, We're in the process. We have approval. We're about to start layering in cross-currency swaps to be able to swap our dollar obligations for euro obligations. And we'll start with addressing the existing portfolio using a combination of those structures as well as converting our free cash into dollars. to deal with the existing portfolio. And as new aircraft are delivered, we will continue to swap those in. And that'll smooth that out and giving everybody, certainly those of you with models, an easier time to try and predict how the unrealized effects, gains and losses flow through the business. In terms of hedging, there's a slide at the back, which I won't get to talk about, but we're very pleased with our position. So we can... we can confirm that we're continuing to execute our policy. As it was designed, that policy is delivering the results that we're expecting. And like I said, we've augmented our policy now to start these cross-currency swaps to deal with the balance sheet risk. And with that, I will pass back to Joe.