Aegean Airlines Ord

Ladies and gentlemen, thank you for standing by. I am Mina, your chorus call operator. Welcome and thank you for joining the ADN Airlines conference call to present and discuss the full year 2023 financial results. All participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Ezequiel Vasilakis, Chairman. Mr. Vasilakis, you may now proceed.

Good afternoon, everybody, and welcome to our annual results review for 23. Just to note before we start that our CFO, Mr. Kouveliotis, our Treasurer, Mrs. Dimaraki, and our Investor Relations Manager, Mrs. Catalani, are all here. with me to answer questions since you need to have more questions. Let me get on with my initial comments. I think we now know that Aegean has had a truly excellent year in terms of all aspects of both growth in passenger count, in revenues, in terms of expanding in new destinations, in terms of developing its investment toward the MRO and the training facility, and of course, very materially in terms of profitability in all aspects, and even perhaps more important than profitability, cash flows as well, to such a degree that not only the investments have been financed in an adequate way and efficient way, but also We have lower loans by the end of the year relative to the beginning, and also we have proceeded with the decision and then the repayment of the warrants of the Greek state. Therefore, all in all, a very successful year. Again, I will give you some highlights, and then we'll stop for questions. So during 23, our overall revenues increased by 27%. our passenger count increased by 26%. This is significant because the whole market increase was up by 14%. So in 23, we had a significant outperformance of the development of the Greek market, both on the domestic side where we drew 22% and on the international side where we drew 29%. In terms of passenger count, as I said, with an average – Development of traffic to Greece by old carriers of 14%. So definitely recovery in terms of growth and market share across the board. Following another very strong year, of course, for us and the Greek market, which was 22%. And to be more specific, we offered 3 million more seats overall, reaching 18.9%. million seats over the year. We got 3.2 million passengers more, so a substantial increase of load factor as well by two or three points. And of the 18.9 million seats that we actually offered to the market, around 350,000 were by our subsidiary, Anima, in part subsidiary, 51% subsidiary Anima in Romania. which we divested end of the year. So from now on, we'll consider a starting point to be around about 18.5, 18.6 million seats for GN proper and Olympic in 2023. So we did add almost 30 destinations last year. Many of those were on regular networks, some in the charter network, reaching 180 destinations in total and 49 countries. Certainly the largest network we've operated. But more than anything else, the success of the year, of course, was reflected in revenues and profitability. We reached essentially $1.7 billion of revenue. As I said earlier on, 27% higher than the year before. $400 million of EBITDA, reaching a margin of 24% for the first time for AGM, which is a very high margin for the industry, I believe. with a 46% improvement from the year before in terms of total EBITDA to 400, as I mentioned. $246 million of EBIT, with a 68% improvement relative to the year before. Again, operating margin EBIT being among the top ones in the industry. A pre-tax result of $215 million, up 52% from the year before, and an asset tax result of $168 million, up 58% from the year before. So all these extremely strong numbers, and if I might add, it is significant to say that if we look at the development of the company between 19 and 23, we see certain elements which are actually worth mentioning. One, that it is one of the few, if not the only, listed non-low-cost carrier which is actually operating at 110% of ASKs of 2019. So we've grown, and from what I've seen, we're the only listed non-low-cost carrier that is actually higher in 2019, sorry, 23 in activity, materially higher than in 2019. But also what's important to note is that our improvement in terms of revenue and profitability has come with a vast increasing from 2019 of a total of 18%. So our revenue per available city kilometer is up relative to 19 by 18%. It's actually very close to the last number we had also in 22. But what actually led or allowed us to improve our margins is the fact that we only increased our cost per ASK, including fuel costs, for all these four years between 19 and 23 by 12%. So basically what has driven the improvement in margin has been a moderate increase increase of revenue per ASK at 18% relative to what we've seen other carriers report. There's been stronger unitary revenue increases, which are yield driven by other carriers, but also they've had higher cost per ASK increases relative to 19 in these four years. And therefore, we see in a GM that comes with a substantially improved margin, improving its balance its positioning relative to other carriers in terms of margin, and that improvement of margin to come out of a moderate revenue per ASK increase with a contained cost per ASK increase, which in our view is better news because it's more defendable. And also, of course, it's important that we remain attractive to the customer in a market that is very much leisure-driven. So industry-leading, I think, at least for non-low-cost carriers, EBITDA, EBIT and earnings after tax margins, balanced in their origin relative to a few years back from revenue unit improvement but also cost containment. So we feel very good about achieving these levels. In terms of some other elements that are worth noticing, cash flows, As we have noted also in the press release after operating leases, operating cash flows stood at 335 million for the entire year. And this has meant that we've been able to finance, of course, without any issues and quite competitively all the aircraft we've accepted. We've actually increased during the year by circa 100 million euro our unencumbered assets, either in aircraft or engines. We've decreased by around $70 million outstanding loans during the year. And having said that, we've reached at the end of the year a cash balance of $709 million up from $530 million the year before, so plus $180 million. So if we want to adjust for the warrant payment that was made actually two days after the beginning of this current year, still a net of plus $100 million of available cash post the payment of the warrant, while we increased unencumbered assets by $100 million and repaid loans of $60 million, which I think altogether shows the health of the company. Also, during this year, we have proceeded with the development of our reconstruction and development of our MRO program, and a simulator training facility. The simulator training facility is actually operational already as of December 23, and it's great to see the efficiency of our crews now being trained or retrained on the sims right next to us as opposed to having to travel distances to other countries with their trainers and reducing their productivity. And at the same time, we've opened the doors and third parties in our JV with CAE for the training. So that part is doing well and it's already operating. The MRO facility is very near to being completed. The relocation from the current smaller facility to the larger one will take place in around a month, a month and a half. So we expect that facility to be operational as well in a very short period of time. So all in all, as we also note in the press release, a very successful year in terms of increasing our market share, in terms of improving our profitability, and doing it in a relatively sustainable manner, coming both from revenues and cost containment, and at the same time, investing in the development capacity of our, let's say, underlying market. skills whether it is on the MRO side or in the training side. So a successful year and one which we create a much stronger starting base for 424. A few other things I would like to highlight, of course, this is going to be the first year after four years where GM will be paying a dividend. And we are doing that at the 0.75. The suggestion, the proposal to the AGM that will take place in the end of April will be for the dividend to be 0.75 euro per share. This represents roughly a 40% payout ratio out of our net income. for the year, and therefore we consider that it is a sustainable level going forward where we would like to remain or even increase in the years to come. And of course, the dividend re-contribution comes after the completion of the cycle caused by the pandemic of the loans that we have to secure, the aid we receive, the warrant that had to be there, and the repayment of all these aspects, be it the loans or the warrant, and therefore we now go into our regular, I would say, I would hope, operating period where the company, again, like it had before or up to 2019, is going to be paying a significant dividend on a year-by-year basis to shareholders. Having said that, it's important for us to highlight that it's not only the shareholders that will be benefiting by this year's performance. and hopefully the continued performance of the company in the same direction, but also our employees have benefited from the profitability of the company. The staff, to a great extent, contributed to the sustainability, sorry, to the resilience of the company during the COVID period, of course, because there were many of them in reduced work schemes, they had contributed part of their income or lost part of their income during that period. And now we're happy to report that in the results that you are reviewing for the whole year of 2023, there is an overall amount of circa 24 million that refers either to extra bonus or profitability related payments made to our employees or a $6.5 million provision that's been taken versus, again, a long-term incentive plan, 22 to 24, that we now know will mature positively to the benefit of the employee's concerns. So what's important to note is that from a number which was circa $6 million in 2019, became $12 million in 2022. This year, the payout was actually $18 million, and there was a provision for an additional $6.5 million to employees in various profitability and bonus sharing and profit sharing plans, which will mature at the end of 2024. So to describe what happened there, we have roundabout now 600 people in the company that actually participate in the end-of-year bonus plans in different levels and different ways. but also during 2023 and, in fact, also during 2022. Another 2,000 employees that have been in the company for more than two years and did not participate already in the bonus plans or the profitability plans received an extra salary this year as a bonus for the extremely good performance of the company. So in a nutshell, what we'd like to communicate very clearly is that we believe that the whole ecosystem or the constituents that relate to the company, be it shareholders, be it personnel, are now back in a very specific and very positive, I'm sorry, growth path in terms of their income. And that's, of course, positive, especially when it is achieved within a – cost-contained, I would say, efficiency-driven operation, which brings the increase of margins with a balanced performance between revenue per SK development and cost per SK development, as I explained earlier. I feel I should mention a couple of things with regards to the GTS engine issue, because it takes us from the performance, the excellent performance and growth of 2023 to what's going to happen in 2024. We explained to you in our last call, I believe, quite specifically the nature of the issue. It's now very well publicized over the last six, seven months from all airlines. Triton Whitney has identified certain sensitivities in some components of the engines of the NEOs. They have, both they and the regulator, have recommended or required that the engines come for inspection early or go for inspection early. This results in a higher number of engines than what is available for spare for G.T. Trum, the manufacturer, or from the company Scott, our own, to support the aircraft while the engines are in inspection. And as a result, will cause a high number of AOGs for an extended period of time, I think we'll last for sure during 2024 and 2025, possibly going into 2026. This has been presented in our two previous, I believe, calls. There's no particularly big news there since that time, except to say that the company has now reached an agreement with Pratt & Whitney in terms of how it will be compensated for the issue. It is, of course, substantial compensation. Nobody discloses exact terms. However, what we should say is that we believe it covers a substantial part of the cost of the issue, not the full cost. And the full cost of the issue refers, of course, not only to inefficiencies from the point of view of fuel burn or seat loss or maintenance costs because we will be flying, we'll be extending some of our older aircraft to replace aircraft NEOs that will not be flying. but also, of course, to the reduced ability to grow the company forward because of the number of aircraft that will be unavailable for a significant period of time. We can go into that in the Q&A if you like. Just to say that, of course, this is an important part of the equation of what's going on for 24 in terms of growth. Because of that issue, we have taken several decisions. One, of course, to extend some of the expiring leases. Another is to divest Anima in Romania so we can repatriate two of our own aircraft back into our proper operation. A third decision is to further cut back on charter operations that are non-core for our company. A fourth decision has come to employ one or two ACMI aircraft and third operators to support the remaining charter operations so that our proper fleet can serve our main basis in our network operations. And through all that, we have managed to produce a capacity, to have a capacity, an effective capacity for 2024, which will allow the company, again, to add about 1.1 million of scheduled seats, between around 800,000 in international and 400,000 in domestic, However, the charter operation, as I said, will be cut by around 250,000 seats and with another 300,000 seats missing from the ANIMA operation in Romania, the overall growth will be smaller. But what's important is that the scheduled operation, which represents the core of AGM, will continue to grow at its regular, almost regular rate, slower than 22%. but definitely we think well enough to keep abreast of the market developments here in Greece. So what you will see and what you should expect from us is, as I said, again, around about 1.1 million scheduled seats more in 2024. These seats will be coming out, will be added mostly in Athens and Thessaloniki. that in terms of growth, the international seats out of Athens and Thessaloniki will be circa plus 10% and the domestic seats circa plus 5% for an overall ASK, scheduled ASK expectation of around 7% growth for the whole year, which will come more in the early and late stages in the year and less at peak for a variety of reasons referring to the seasonality of different operations, but also due to various congestion issues and operational issues that we faced last year that we are trying to, making a lot of effort to improve upon. And I think I should repeat here that something we've said in the past, that one of the challenges in the post-COVID environment, despite the fact that demand has recovered, is that many issues, be it in supply, be it in the operation of airports, be the operation of air traffic control, both in Europe and in Greece, for many reasons, including the closure of the Russian and the Ukraine airspace, have become more problematic, and therefore having more, what's the right word, more spare capacity, more access, a little bit of access here and there, to be able to cover for shortfalls or delays is very important, to the balance of operation and the image of the company to the customers is very important to us as we are definitely a company that tries to be at least as close to the customer as possible and we try to be with small differences and relatively short distances but also our consistency we hope in our service a customer choice and to be able to command through that a marginal increase in revenue at the same time as we labor to contain our costs. So that's what I wanted to say as a start and happy to accept for me and my colleagues to accept your questions on last year or what we're giving you as an outlook for 24. Thank you.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from the line of Kumar Achal with HSBC. Please go ahead.