Wizz Air Holdings Plc

Good morning and welcome to Wizz Air's full year 2025 results. This is being broadcast live online and after the presentation there will be a full Q&A session. So with that I'll hand over to Joseph Faraday and Jan Malen.

Thank you. Good morning everyone. Thanks for coming. So we are reporting the last financial year and obviously your interest is mostly on what's in front of us. We believe that indeed we are clear for takeoff. But at the same time, we are tainted over the short run, given the various issues we are facing. So let me talk about kind of how we see the next three years and what picture we are seeing developing there. First of all, we're seeing that we have a significant opportunity to win market shares in our markets. Centerny Syrup remains bread and butter for the company. This is where we are investing most of our growth capacity and we believe that we are in a unique situation that we actually can grow while our competitors will be contained. This is happening probably for the first time in our history when we have less constraint on our ability to grow while others will have significant constraints. Secondly, you look at technology as a significant driver of performance over the long run structurally. In the next three years or so, we're going to be fully converted into new technology. I mean, this is a significant benefit on fuel burn. This is a significant benefit in operating cost, and it brings significant environmental benefit to markets wherever we operate from. We continue to upgauge. We have done a big part of it, but still have sites to come through to 239 seats. We're going to be effectively an all A321 NEO operator in a short space of time. Again, this is a source of economic advantage, competitive advantage versus some of our competitors. Thirdly, we are looking at the network to be restructured against the realities that we are facing. First of all, given the cost grid, resulting from the Platt and Whitney situation and some other issues, we are moving the bar in terms of threshold for profitability. So we are reviewing the performance of our root network against the new threshold to make sure that we are eliminating loss-making activities. I think there is one significant portion with that regard, and this is operating in hot and harsh. Hot and harsh has reached roughly around 20% of capacity. In a hot and harsh environment, we are burning engine lifetime three times faster than operating in a benign environment. And in context of engine scarcity, obviously that creates a lot of opportunity cost as well, because we are unable to extend the engine lifetime. So it's not only cost, but also unavailability of engine. We are reviewing that operation. fairly fundamentally. We've already taken actions on Saudi Arabia and more to come. And in the next few months, you're going to be seeing significant announcements with Defigat. Also, we are refocusing ourselves to our to lower airport costs. We have not been able to leverage our positions vis-a-vis airports over the last 18 months due to the lack of growth, but now we are growing and I think we're going to be using it as a significant leverage for putting pressure on airport operators. And with all of that, we're seeing that our margins will recover and we will become investment grade again in the few years down the line and we will be back to kind of the performance what we were delivering a few years ago but we need to clean ourselves we need to clean ourselves with regard to the Brett and Whitney situation and we need to take some further actions especially on hot and harsh network adjustment to make sure that we benefit from the current environment as much as we can Could you please move the slide? So if you look at some of the numbers, I think that kind of gives you an idea of where the business is standing as we speak. So in fiscal 25, we slightly improved passenger count by 2%, adding another 1.4 million passengers to the franchise. You look at the fleet. By the fleet, size increased by 11%. Effectively, the operating fleet was stuck. It was flat. Same way if you measure it on the basis of ASK, but we were able to improve some load factor. This was basically the source of growth for the passenger account. Good news, revenue improved by 4%, so we are up on ROSC. But as you can see, our cost cash flow performance is hugely deteriorated. And I will explain why that happened. And if you look at the next piece of the table here, you see, kind of you start understanding the real damage of the Pratt & Whitney situation. So effectively, 14% of the fleet was on the ground during this period affecting utilization. But if you measure it on the basis of ASK, and we have a slide for that, actually it is 21%. So 21% of our capacity got grounded and affected free utilization. So if you kind of run the numbers and you say, okay, so let's say that the Pratt & Whitney impact is around 15%, if you kind of have to show the utilization and the ASK production, how much did we get compensated by Platt and Whitney? So we were getting roughly around 300 million euros against a 6 billion cost line. So this is kind of five points you were getting. So effectively you can say that one-third of the issue was compensated by two-thirds, so we had to observe ourselves. And basically, of the 20% ex-fuel cost, if you kind of flip it over on that metric, So basically 10% of that 20%, so half of it is purely associated with Pratt & Whitney issues, maybe a little more than that because you have some ripple effects here and there, but at least half of the actual cost came on the Pratt & Whitney issue, net-net after compensation. And I was elaborating on hot and harsh. I mean, hot and harsh became a significant issue because if you just run the numbers, 20% capacity operated in hot and harsh, three times faster engine degradation, that's roughly around 6% impact on cost across the board. So that's another 6%. And 4%, I would say, is genuine inflation, some spiking inflation. aircraft returns on old AC20s, we had wet leaves and all those sort of issues which we had to take in order to protect capacity. But really, when you look at cost performance as fuel, that really boils down to two issues. What we actually can affect or might not be able to fully affect. One is Pratt & Whitney, so strategically most important is to get out of Pratt & Whitney, the Pratt & Whitney cycle, this engine grounding cycle, as quick as we can. And that's why we have been acquiring 40 more spare engines on top of the original contract. That's why we are going to remove capacity from and reallocate that capacity in to gain engine lifetime. This basically helps you lift more aircraft from being grounded And the second big issue is the hot and harsh itself is simply just a higher cost operation. And we are going to address it with significant capacity withdrawal and reallocation of that capacity. So, I hope that kind of gives you a bit of a sense on the business, the good part of the business, as well as the bad part of the business, and you understand the drivers of the business. I think, again, just to sum it up, good news, revenue performs well. We're seeing there is demand out there, people continue to want to fly, they continue to book tickets. bad news is that uh we got hugely affected um by um some issues uh when it comes to uh cost cash fuel maybe uh pretend between net net impact and uh and our own decision making somehow on hash which is now being scaled back um uh but but but but all in all we're seeing that the long-term strategic drivers of the business uh continue to um to stand firm and positive, and they create the pathway for superior performance, what you guys got used to a few years back. And with that, I would just hand it over to Jan.

Thank you, Joseph. Could we please go to the next slide? So it's going to be a bit of a technical session today, just to help people understand what we've managed to learn from going through this journey of parking aircraft and the mitigation that we've taken to offset the impact of parked aircraft. So a summary in terms of the P&L for F-25, we were able to protect revenue. That was very important to us. We didn't want to concede markets. We didn't want to have to then go back in and compete to win those markets back. So revenue protection was very important. And so how we did that also plays into the cost base, which we're going to explain how that goes away. But revenue was up 4%, both in terms of nominal and in unit terms. We benefit from fuel. We had a slightly better fuel price this year. Obviously, we're hedged, and so we didn't get all of that but the unhedged portion, and we're locking in fuel pricing now systematically according to our policy, which will benefit us for the months to come. Our non-fuel costs are up, both in terms of unit and in nominal terms. I'll come back to that on the next slide. And we had basically an operating profit of $167 million, and then we had a net profit of $214, supported by this tax credit that added some group restructuring, and that drove a $214 million net profit. The tax credit is a big number. It ended up being bigger once we finished all of our tax calculations than we had initially anticipated. And what drove that is the way that the group is designed. So in an all-leasing-based business, we have a leasing entity in Hungary that is the counterparty to the aircraft lessors, the third-party aircraft lessors. They lease to that entity, and then we sublease to our various AOCs, the four AOCs within the group. And we do mostly operating leases, but we also do French tax leases and JOELCOs and finance leases. We'll talk a bit more about ownership later on. But those non-operating lease-based structures are problematic for the Hungarian entity because depending on the structure that you apply, the counterpart, the third party counterpart may have to apply and receive a Hungarian banking license. And not everybody has the appetite to go into that sort of framework. And so we decided to restructure where we hold our aircraft within the group into a non-Hungarian entity so that we can avoid that administrative burden placed on the financing market, because obviously that creates complexity and cost, which we are trying to mitigate. And so within the group, we have various entities in various locations, and we look at where we have substance. And so we moved that entity from Hungary to Malta. And in doing so, there was a tax rate differential, which creates this net tax credit situation. And so that's what drove that. And then, as you can see, that was a big contributor to the reported net profit number. We always knew that that was a potential, and so that was factored in initially to our early guidance last year. And so we were able to deliver that, and hence the outsized net profit versus the 175 high-end guidance range. In terms of ASKs, slightly lower this year, but they're supported by higher passenger numbers and higher load factors. That load factor trend is something that we're focusing on ultimately because we're trying to drive traffic into the business. It gives us opportunities to drive those airport costs lower, gives us opportunities to sell more ancillary product, and ultimately that's what we're in the business of doing is moving passengers around. In terms of the balance sheet, we ended the year at 1.7 billion that was after paying off roughly 250 million of of um of the pdp debt that we had taken out in 2023 uh to shore up the cash position we felt we feel comfortable that through the operating performance of the business as well as the additional renegotiated airbus contract that our cash profile will continue to be strong. And so we felt that it was time to retire as much financial debt as possible. And so what we really have outstanding now is the January bond maturity in this coming January of $500 million, and then some emissions-related repo loans that we're going to repay at some point next year. And that will take us completely out of financial debt as we look to try and reduce the cost within the business. Net debt went up as did our leverage ratio, and that's driven by the continued growth of the fleet, especially now when we see the fleet deliveries starting to recover. And, of course, the EBITDA dragged with the performance of the business, and therefore that drove the ratio up. We would see that number coming down this year to somewhere closer to three. That's our expectation for the end of F-26. In terms of revenue, as we mentioned, we were able to continue to drive revenue up. Ancillary revenue also increasing. We were up 57 cents year-on-year per PAX. So back to that one euro per passenger growth number that we're targeting. But overall, as Joe says, and we'll get into this further, the groundings have an impact on nearly all cost categories and specifically on those cost categories where you have a high fixed cost element. Next slide, please. In terms of the cost structure, so as I mentioned, fuel, we benefited from the efficiency of our aircraft as well as the fuel price. Our staff costs went up in terms of both unit and nominal. We always had expected that to happen because of the inefficiency that comes with carrying staff. as we prepare to return to growth. So that was expected. I would say that as we think about fiscal year 26, we've mentioned later on that we expect a modest ex-fuel cask increase in that fiscal year 26. I stress the word modest. And so maybe to give you guys a bit of sense is I think that fuel will continue to come down in terms of year-on-year improvement staff. We expect to be flat. Maintenance and depreciation are where we see the biggest jumps this year and where we'll continue to see pressure on that, and I'll deep dive into those. But you can expect maintenance and depreciation to continue to be elevated in F-26. Airport handling and en route went up year-on-year. I would expect that to be flat. This year, en route was a frustrating element because we were hit, as was the whole industry, with rather severe navigation charge increases. We're not the only ones to be complaining about the en route charges. And as Joe says, the airport side will benefit from the focus we're putting on the network. But ultimately, this is volume-driven. We've just started returning to volume growth, and we need to deliver that volume, and then we need to use that volume to our benefit. And we need to design the network around those airports that are prepared to reward us for that volume. Depreciation, we'll talk about later, comes from pure mathematics in terms of how ASKs work. as well as some of the maintenance costs that flow through the depreciation line. And then the rest of the items, there are small distribution and marketing, and then other costs we've broken out for you again. You can see that this year our sale-leaseback activity reduced. We did 30 sale-leasebacks in F24, only 16 sale-leasebacks in the other aircraft in F25. That number basically was cut in half. year-on-year because of the less activity. I would also caution that in the salee spec, our engine salee spec, so you're not going to get a pure aircraft salee spec number there, but you can see that in terms of nominal terms, it came down. That'll go back up. That put pressure on this year's earnings because last year relied on Saley SPACs for a greater part of its earnings. In terms of compensation, you can see that it increased, and that makes sense considering that we had a full year's worth of compensation this fiscal year versus F24, where we only had about four months' worth of compensation in there. Disruption was flat or flat-ish. We expect that number to improve this year. And then overhead is basically flat as well. So, overall, in terms of where things are going, I think the biggest – the benefits into Fiscal Year 26 versus F25 is going to be the wet lease costs. We're not going to see that again. It will be modest single-digit type wet lease costs as opposed to – 113 million this year. So there's always an element of wet lease costs required, especially when you have the peak season and you wanna make sure that you're not disrupting people's holidays or business travel or also to travel. So the benefit of wet leases will be basically offset by an increase in sale leaseback activity this year, but the maintenance and depreciation lines are what's putting pressure on the overall cost structure. Next slide, please. All right, so we're going to touch upon this now, and then Joe's going to talk a little bit more about how we're planning on looking at the overall commercial side of the business, and then I'm going to show you some more examples as to what's happening on the fleet. But in terms of the capacity, this is very important here. So we made a choice when faced with powder metal that we wanted to protect capacity. we would have liked, of course, to increase the capacity, but we were looking at, on average, 41 aircraft grounded in this fiscal year. And so we were taking delivery of aircraft. Like I mentioned, we took a total of 26 new aircraft in fiscal year 25, but we were unable to increase the total number of aircraft flying because of the aircraft parking that was happening with the existing fleet. And so that added a lot of cost to the business because we pay rent regardless of, and we take the appreciation regardless of whether we fly the aircraft. So we're able to protect revenue. by doing certain things like extending leases on older aircraft, getting these extra spare engines that were put onto aircraft so those aircraft could fly. We configured some of our flying differently, which came with benefits and detriments. And so the fleet grew to 231, and that's deliberate. That's part of our design, and that benefit will be with the business when we can unpack the aircraft. So that's consistent with our objective. However, as Joe mentioned earlier, whether you look at it in terms of hours per day utilization or the way that I'm showing it here on this slide, which is ASKs per aircraft, we generated 21%, let's call it 20% fewer ASKs per total aircraft versus operated aircraft. So we're basically generating 20% fewer units. And if you just, I mean, entertain me for a second here because I'm sure many of you get this, but maybe you don't. If you have $10 of cost and you have five units, You have $2 of cost per unit. If you end up now taking 20% of your units out, which is what we've done here, and you get 8 units at the end of the day, you have now 10 divided by 8, and you get 2.5. Your cost has gone up from $2 a unit to $2.50. Your costs have gone up 25%. So a 20% reduction in units is a 25% increase in cost. So any line item in our business that has a fixed cost element is mathematically inflated when you do unit costs by 25% in this fiscal year as a result of that. Where do we have a high proportion of fixed costs? We have it in depreciation at the end of the day. Depreciation is a complex topic when it comes to IFRS 16 lease accounting because you have right-of-use depreciation, which is effectively the depreciation you take on the aircraft. And then you have maintenance depreciation, which is a maintenance cost that gets capitalized and depreciated. And so, we'll come back to that in a second, but you have a lot of issues around that because of the profile of the aircraft, the durability of the engines that Joe talked about, and how the frequency of these events put pressure on some of the maintenance costs that don't show up in the maintenance line, but they show up in the depreciation line. Ultimately, what happens is that you're pushing up your costs, but reducing your units, and that's what's pushing all this pressure on your depreciation. But it's not just depreciation, it's any fixed cost within the business. And while we try and make as many of our costs variable, we do have fixed costs that put pressure on the overall line. As we unpack aircraft, that will come down, not because we have to do anything else, but because of math at the end of the day. Next slide. So here's a way for – we're trying to get people to look at the lines with a bit more nuance and context as opposed to just looking at the prior table and looking at the absolute increase, whether it's in nominal terms or in unit costs. So if you look at fiscal year 24 task, fiscal year 24 was impacted by the Pat Whitney groundings. The compensation that we get – as I pointed out earlier, flows through the other costs line as a negative expense. That compensation line includes not just the Pratt & Whitney compensation, but compensation received from Airbus, compensation received from other OEMs. Anytime there's an issue with a vendor and there's an offset, it gets put through that line. So it's not a clean Pratt-Whitney number, but what we've done is we've established a methodology for trying to allocate some of this compensation across cost lines. And we're trying to do this consistently so that we can show what a sort of net compensation effect is for specifically depreciation and maintenance, because those are the areas where we have the most challenge. And so if you take fiscal year 24 on the depreciation line, 0.62 cents gets down to 0.57 as a starting point. We estimate that this 21% ASK shortfall that we talked about in the previous slide is $0.11 worth of cost increase. Then you have the cost of aging CEOs. which I'll come back to, and then you end up with other costs, and you get to where we ended up this year at $0.79 a task. But then you need to allocate this year's Pratt & Whitney compensation to that, which because, of course, it's a full year's worth of compensation as opposed to a partial year's worth of compensation, it comes down $0.20 and we get to $0.59. So on an apples-to-apples basis, one could argue, we're arguing that the cost is up 5.2%. And that's because most of that ASK production shortfall is offset by the compensation at the end of the day. Maintenance. Maintenance is another interesting situation. So this is now not the depreciation maintenance, just the pure maintenance cost. Obviously, there's inflation that's, in fact, affecting us and everybody else. But there's also an interesting evolution of our fleet profile that's putting pressure on the business until we can get rid of certain of our aircraft. If you think about what we did and what we've told you about as part of this powder metal journey that we've been on, We wanted to protect capacity. We looked at what we could do. We grabbed as many engines as we could up the marketplace, but we also tried to squeeze as much utility out of our operating fleet at the time. Our operating fleet is mostly CEO, A320 family, CEO, the legacy aircraft engine model. Those aircraft are approaching the end of their lease life. Those are older aircraft relative to the new aircraft that we're taking. It's an older technology. There's less fuel efficiency that come with those engines. Yes, more durability, especially in hot and harsh environments. But ultimately, we expect the GTF engine to become durable at some point. But most importantly, those older aircraft cost more to maintain. That is obvious. But what isn't obvious is under lease accounting and under lease contracting, There are several things that we must do, not because of the technical obligations that we have on the aircraft engine, but because of contractual or accounting-driven drivers. I'm focusing on the maintenance here, so let's talk about the technical things. As an aircraft is approaching its redelivery period with a lessor, you have to perform certain maintenance activity. And those maintenance activities are not because the aircraft maintenance manual requires you to do it, but because the lease contract requires you to do it. And so you start to see certain costs peep into the maintenance line because you're now trying to comply with the lease contract. Typically, what you do is you try and design a lease contract to line up with the maintenance, the natural maintenance cycle, so that you do maintenance scheduled, a heavy check of some sort, and then you return the aircraft to the lessor fresh from shop. And that is a nice, neat alignment. But if you think about it, these leases were written, let's say, on average 10 years ago. by people who no longer are in the business or some of them. And since then we've had COVID and then we've had powder metal and all sorts of evolutions of the operating assumptions and expectations. And so what happened is that you may find yourselves, we do find ourselves in this scenario where you do the maintenance, but then the lease has a couple of years left before the re-delivery. And as a result, you're ending up facing the decision to either do extra maintenance to comply with the lease contract, even though it's not required, or there's an alternative, which is you pay the lessor compensation, which the lease has a formula to calculate. We were a much smaller airline 10 years ago, and we had less leverage over both our lessors and our maintenance providers. And so you can imagine that those calculations aren't particularly lessee-friendly. And so as a result, paying lesser compensation means you could either pay more costs or we can do the maintenance. But, of course, the maintenance ecosystem is constrained because of the whole supply chain challenges. And so we have to face the choice of either doing maintenance on our operating fleet or doing maintenance on our re-delivering fleet. And that creates then contention between how much capacity we have available for these activities. And so that's where you're starting to see cost creep. So a bit of context, we're going to come back to that in a little bit because I'm going to talk to you about how this problem goes away. It drove costs up in F25. It'll continue to drive costs up in F26 and to some extent in F27, but it starts to roll off as certain things happen. And in particular, I just want to go back to engine depreciation because it's an important context for later on. The other thing that happens back on these maintenance events that you capitalize and depreciate is that they end up being backloaded just because of how strict obligation accounting works. So you do an event, you capitalize it, and then you depreciate it over the remaining life of that aircraft lease. If you have a shorter lease, and some of these aircraft that are leaving the fleet now are, say, eight-year leases, and you do something in year six, you have two years to depreciate that cost, which creates a higher cost per year, versus if you had a 12-year lease, you do something in year six, and you have six years left. And so what happens is that we're starting to see, as a result of some of the retirements, these costs manifest themselves in our P&L in much more lumpy And because of all the renegotiating of lease redelivery terms and dates, because we had to accommodate powder metal, we're seeing a clustering of activity, pushing that cost up exactly at a time when our ASK production is down, causing this unit cost distortion. You go to the next slide, please. So just quickly on our cash conversion and our cash balance. I'm not going to dwell on this too long because I've created what I think is a pretty nifty slide in the appendix, which takes the same cash flow bridge and tries to marry it up to the different cash lines that you will see in our annual accounts, which we published today as well, audited. And so you can see that we generated 187 of EBIT. operating cash flow of a billion. Net capex is positive because we're taking money in as we do sale leasebacks and as we benefit from fewer PDP payments as a result of a renegotiated adverse contract. And so ultimately we generated 422 million of free cash flow this year. Next slide, please. Similarly, this shows our cash improvement. So we're end of the year at 1.7. And as you can appreciate, between March and where we are now, our cash balance has continued to grow as we continue to do aircraft deliveries and, of course, as we sell our summer bookings. And so cash generation is one of the few things that we're very good at forecasting. And that's helpful because what it does do is give me and us the confidence to look at other ways to reduce cost, particularly the maintenance and the depreciation. And we'll talk about the aircraft ownership-related opportunity as well later on in this slide. We also started balance sheet hedging. We were obviously looking at the U.S.-dollar-euro relationship post-election, and then post-Rose Garden in April, we saw the dollar weaken, and we've been jumping on that in order to build up our our least liability hedge position two levels in line with where our fuel and fuel effects hedge levels are. As of April, in the back, we have an appendix that tells you where our hedging was. It was 60% hedged at that point, our net exposure, and that hedging activity has increased since April. And I think there's an important data point that people need to make note of is that our average hedge rate for the balance sheet is around 110%. Okay, that's the result of where we started and where the euro is now. Next slide, please. So I'm going to quickly just summarize directionally where we think we're going for this fiscal year, and then hand the mic back to Joseph. So in terms of capacity, we are seeing growth return, which is reassuring, and you see that in the traffic figures as well. The growth is ramping up in H1, but it will be lower and then more active in H2. I'm sure we'll get lots of questions about the H2 capacity growth and how we plan on deploying that. It will make a lot more sense when you hear the next section of this presentation, but it's also important to remember that we don't want to be growing only in summer, taking that growth in summer, then you're putting immature capacity into your highest revenue opportunity, revenue generation opportunity period. So you do want to put some of that capacity growth in the winter to make sure that by the time summer comes along, you're able to capture that revenue. Load factor is increasing year on year, and we're seeing that through the numbers as we speak. RASC is higher than F25. We're not ready to form a view as to how much higher. And that's an important element to emphasize, considering that we're now returning to growth. So that's, I think, a combination of our focus on opportunities where we see profitability as opposed to trying to stimulate profitability. So that's staying within our markets and staying within our footprint and rationalizing some of the markets that we are operating in. And then CASC is one that we will continue to work on explaining. As we are getting better at running an airline under these conditions, we're seeing the impacts and better able to quantify that and also able to show what the business looks like as we move away from older aircraft and on park. aircraft so overall summer training is i think um solid i wouldn't say it's bad i wouldn't say it's terrific it's solid and uh and that's supported by the data and as we get closer to the peak summer and thankfully we'll be seeing you all in july uh at q1 we'll have a lot more visibility as to what that's looking like thank you next time uh i hope you guys are still with us uh after uh all these insights so uh thanks for putting it so would you please move to the next slide