Wizz Air Holdings Plc

Well, I thought today would be kind of a heated day for me, but actually this is freezing cold here, so I don't know what it means to this presentation. But if you please move the slide, I just want to kind of give my perspective of what is going on in the business. And to be totally frank, this is good news and bad news, but we are coming up with it today. The bad news is that it's been a rough and tough year for this and more costly than expected. But maybe you appreciate that I've been in this industry for 23 years and this has never happened. So we haven't had any proxies or anything to reference our business to. So we have to kind of learn our base through this process. But the good news is that the year is over. And the context of the business is totally different today than when it was a year ago. So if you look at it, a year ago, we were just about to face the Brett and Whitney GTF issues. Now the peak is behind us. And while this issue will continue to drag, but the impact on the business is going to be less and less. Secondly, we basically lost our ability to grow the business due to the groundings a year ago. But now we are regaining strength again through the supply of new aircraft, and we are back on a growth plus gain. And that's very different. And thirdly, a year ago, we actually were facing quite a hostile competitive environment, a lot of capacity thrown against us. But this time around, actually, we have the capacity to grow and our competitors will be more constrained with regard to their own supply chain issues. So we're seeing that the context of the business has become a lot more favorable for us over this period, and we are in a lot better place right now. So with regard to the report, this is Q3 fiscal 25. Revenue, actually revenue comes across as a strength of the business. You can see that we have been improving our revenue on any metrics you can look at, despite All the challenges we have been facing, revenue got stabilized and increased on a unit basis. Load factor performed better than a year ago. So we're seeing that this continuing strength of revenue is giving us a strong foundation for demand going forward, which should be turned into our benefit increasingly, given the more benign nature of the competitive landscape. that our competitors will be more constrained on their own capacity developments. Costs, on the other hand, were more challenging. And again, we have been going through a learning process here. And we were always reporting our best belief and best understanding and best knowledge of our business. But the have proved to be different here and there. If I just give you one example, So we were talking about the GTF engines and the groundings and kind of how maintenance of those engines happened, that given the constraints of shock capacity and availability of labor and availability of parts, actually the whole process got lengthened dramatically from something like 70 days to like 350 days for the GTF engine. But the problem is that actually the very same shocks, the very same engineers and mechanics deal with the V2500 engines as well. And now those engines are queuing for induction, and now those engines are running out in terms of spares in the system. So it's not only a GTF issue, but it is increasingly becoming a V2500 issue too. I mean, that comes with costs and distractions and replanning and more maintenance events and more maintenance costs. And we were not predicting it completely right before. So costs are higher than expected, and I think that kind of affects the financial results of the business. Operational metrics, we talked a lot about that a year ago, that we were challenged with regard to fleet utilization, schedule completion, and you can see that all those core sentiments are now falling in place and are becoming drivers of the business. So we feel very comfortable with our ability to stabilize operations, the range statement of operational integrity and make it a continuous driver of the business going forward. But current trading, unfortunately, the higher cost than expected forced us to revise our guidance. Is it totally chance us to achieve the previous guidance? It is not, but we're seeing that a number of adverse effects have been forcing us to to put new realities on the table. Again, just to give you an example, a week ago we learned that euro control charges will be dramatically increased and that's a monopoly kind of play with an annual impact of 60 million euros as Edward costs to the business. And we have to take those into account as well as the increase. depreciation costs and increased maintenance costs resulting from the grounding. So if you really think about it, I mean, most of the issues we are guiding for are the consequence of the groundings, bigger than expected, and some of the monopoly pricing issues happening in the marketplace. If you just look at airports, airports are becoming increasingly capacity constrained. As capacity scarcity happens, obviously that translates into increasing the monopoly pricing and increased charges, especially against the backdrop of significant inflation, especially labor inflation in the industry. Now, as said, we are returning to growth. That's a significant event. And it is important to see how we are going to deliver that growth, and we are focused on network densification as opposed to diversification. So we are going to fuel an existing backbone of the network, which we think is the safest way to grow, especially with regard to financial performance. We reschedule the act of deliveries. I know this used to be a significant concern to this community, whether we're gonna be overly exposed to a too high capacity increase and whether we can execute against that. We adjusted our delivery schedule based on two developing realities. One is Airbus' own ability to actually deliver according to contract. As you know, Airbus has not been delivering according to contract. They've been a lot better than Boeing, but they were not in line with contract. So we had to adjust for that, and we had to learn exactly what Airbus is capable of doing on the one hand, and secondly, we had to take note of the fact that 40 aircraft or so due to the GTF issues are grounded and those aircraft will be lifted back in the air at some point. And we took that kind of a profile into account for resetting the path for deliveries. And with that, I think we eased the pressure, especially on certain years where new aircraft deliveries were coinciding with significant uplift of aircraft from the ground due to the GTF issues. matters, and now we are smooth on the underpass and back to the 15 to 20% gross profile on a CAGR basis going forward. Gross will also help us mitigate some of the cost issues we were facing in 2024. I mean, airports probably are the best example that, of course, due to the labor inflation pressure A lot of drive-by airports were out there to increase charges, and they did that fairly successfully from their perspective because we didn't have growth to offset that pressure. But now we are back into growth again, and I think that will give us leverage to better mitigate these cost pressure points. We are very confident with regard to customer demand. I mean, you can see our revenue performance. We're seeing that demand is there and actually spiking that again because of the ease of the competitive environment, we can really further strive over revenue performance going forward. And with that, you should be expecting the range statement of margin performance and investment-grade balance sheet at industry-leading level in the next few years. And with that, I would hand over to Julian.

Thank you, Joseph. We can go to the next slide, please.

So we typically save the best for last in terms of guidance, but we're going to bring it forward today just to tackle the issue head on. So, yes, we're taking the guidance down by roughly $100 million. We're also trying to address the dramatic impact unrealized FX loss that we incurred in this quarter due to a strengthening dollar. I'll talk about that more in the next slide. But what we're trying to do is maintain consistency with the H1 guidance number of 350 to 450. And the reason why we think we should look at FX differently is because it's unrealized, it's non-cash, it's non-operating. Yes, it matters, and it ultimately counts towards a net profit number, but in terms of performance, We're asking people to disregard that for now and focus on the 250 to 300 million number. In terms of the headline parts to the guidance picture, so in terms of RASC, no change there. We think the revenue environment is robust. We've been consistently outperforming our prior year results and our peers throughout this fiscal year. In terms of revenue, we see that trend continuing into Q4. There's a bit of distortion in March just because of Easter, which we knew about, and that is extending into F26. So we're pleased with the consumer, we're pleased with the overall environment, and we're pleased with what we can drive out of that. In terms of capacity, we're bringing that back down again, slightly down to flap. We were up a little bit at the H1, and that's just simply the challenges faced from grounding aircraft. That being said, in terms of passenger count, we have been improving, and you see that in our numbers where that's the result of load factors. So we are becoming better on some of the metrics, but our capacity is still under pressure just because of the overall fleet grounding profile, which, as Joseph mentioned, will start to improve, and I'll talk about that when we talk about the cost side. We are also looking at a benefit from tax. So we continue to optimize tax planning, especially in the changing world where Global companies are faced with an evolving tax landscape, especially around pillar 2 global B developments. We have a complex tax structure across the group with four AOCs, and we're optimizing that constantly. That was always part of the overall guidance number. It's obviously now a bigger part as we bring the guidance down due to cost reasons. And in terms of ex-fuel casks, that's really the driver to the downgrade at this point. And it reflects the general inflationary pressure It reflects the inefficiency on the groundings, which I'll explain shortly. And it reflects some of the timing around the Pratt & Whitney deal. So as you saw, we published the R&S at the end of the year around how we extended the deal for two years. It is a good deal. It is the deal that is consistent with what we had prior. We had hoped that there would be other features that we could benefit from that would have impacted fiscal year. Some of them came through. Some of them didn't. This reflects partially the impact of that. As Joseph mentioned, we saw some surprising cost increases since we published the previous guidance, and that came through. And there's only so much you can do with the time you have left in the year in terms of this year, so we felt it was prudent to bring the guidance down. We spent a lot of time talking and trying to look through unrealized effects, but as the dollar strengthens, there's also an element of realized effects in the business that you don't break out in the cost lines. For certain contracts of ours are dollar-based, and as the dollar strengthens, that drives the cost up. And so that was part of the reason for the decrease in profit or the increase in cost. And then while our overall disruption costs are improving, and you can see that in the numbers in the following slides, putting aside, of course, this summer where we didn't have the best performance, but in Q1 and Q3 and Q4, we're going to have very strong disruption cost management, despite the improvements in overall operational performance, what we're seeing is that the market is becoming more efficient in terms of claiming. So higher claim ratios, the number of people that actually are entitled to claim that do claim is going up. And that's just something that we're going to have to accept as the new reality. People are going to know their rights, they should know their rights, and they should take advantage of them. And so we're reflecting that element as well. So the only way for us to reduce that number is to continue to outperform in operations or continue to perform on that. And so we'll keep our focus there. So I'll move to the next slide just to show you the bridge in terms of how we get there. So if you look at the H1 numbers, which we printed earlier in the fiscal year, The combination of Q1 and Q2 delivered €315 million in net profit. What we're trying to get people to do is to focus on the environment at the time that we issued that guidance, which was roughly a €112 rate. If all things have been equal and the FX hadn't moved, then we would have had no unrealized FX gain or FX loss. But that's not the case. So I'll come back to that in a second. We stripped out the FX from the Q3 performance, and that generated an $81 million loss, which meant that for the nine months here to date, pre-FX, we delivered $234 million pre-FX. We then are expecting to generate a profit in Q4 that will get us somewhere around $250 to $300 million. If you take the $160 million unrealized FX loss from Q3 into account, that brings you down significantly. And then we think that, you know, based upon where the FX is, and that was as of Monday, we should be somewhere around 125 to 175. We don't know what that's going to be. And frankly, it doesn't matter because, like I said, we can't control it. We have tools in place that we're going to use to try and mitigate the impact going forward, but we can't control it right now. And it's non-cash, it's non-operational. So what we want people to focus on is an apples-to-apples comparison under the conditions at the time that we issued the 350-450 guidance. And that's the 315 number, which is what we had effectively banked, and then what we need to do now in order to deliver under those conditions. So if we can go to the next slide, we'll talk about the specific numbers. So overall, we had healthy revenue growth with the ticket RASC up 15%. Ancillary RASC was up around 10%. Importantly, we're back to that one euro per pax number. So we had one euro 70 per pax on the ancillary. So that's nice to see that metric come back in line. We had very strong fuel benefit in the quarter. I think it could have been stronger at the end of the day because what we're seeing is that we're still – seeing an inefficiency on fuel due to the blend of CO aircraft versus NEO aircraft. We're also managing our cycles on our engines for the GTS appropriately to make sure that we can maximize productivity of those NEO aircraft before they go in for inspection for powder metal. Unit costs is an issue. There's a slide on that next, which we'll talk about. But overall, we managed to reduce our operating loss by more than 50%. We are showing a better EBITDA position and obviously the revenue off of the same ASK is improving due to the better operational performance. So overall, putting aside costs, we're optimistic with the environment and we expect that to continue. We expect to maximize that with the actions that we're taking on the network, which Joseph will talk about later on. I'm sure I'll get questions on the FX side of things and where we are on our overall balance sheet hedging strategy. So I'll address that quickly now. We have the policy amended that has been board approved, and that is to put in place cross-currency swaps based upon our leases. Unfortunately, the dollar moved very rapidly against us after we got that approval, and we didn't want to crystallize the unrealized FX losses by swapping our entire portfolio into euros at that point. We plan on doing that at the start of the next fiscal year with regards to the existing portfolio and with regards to any aircraft deliveries that are coming. As we speak, according to the normal delivery schedule, we will swap them at the time so we lock in the rate at the time of deliveries. And that, we think, is the least impact to the overall profitability of the business. and the most prudent approach. Obviously, with something like $2.5 to $3 billion of existing portfolio to swap, it'll take us a few months to work our way through that, but we're expecting that to happen this calendar year.