Aegean Airlines S.A. (AEGN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Constantinos, your Chorus Call operator. Welcome, and thank you for joining the Aegean Airlines conference call to present and discuss the first half 2021 financial results. [Operator Instructions]. The presentation will be followed by a question-and-answer session. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Eftichios Vassilakis, Chairman. Mr. Vassilakis, you may now proceed.

Yes. Good afternoon everybody and welcome to our H1 2021 analyst call. A few things to say. Obviously, another quarter Q2 of 2021 with substantial restrictions from the pandemic. We were only able to operate roughly 1/3 of our flights relative to 2019, due to the restrictions. So substantially restricted still during the quarter, although, of course, that's significantly changed from the early part of the quarter to the later part of the quarter. Despite the substantial restriction, we were able to significantly reduce the amount of losses we had in the quarter while increasing our revenues, of course, against the worst quarter we've ever had, which was the second quarter of 2020. So okay, a reduction of losses, but still loss-making in the quarter that is typically in a regular year, positive. At the same time, however, 2 more things, which are significant happened during this quarter. One, it was the first cash flow positive quarter we've had since the beginning of the pandemic. So that indicates a beginning of a turnaround. And second, we were able during this quarter to complete our capital increase of -- successfully completed our capital increase of EUR 60 million, which was also the remaining conditions for the satisfaction of the state's grant decided during last year and approved by the EU during last year. And therefore, a second significant event, which also took place towards the last few weeks of the quarter. So, to go into a little bit more detail. Clearly, as I said, Greece was in a lockdown what we refer to the second or third lockdown because it lasted for a long time, essentially from November of 2020 till early May of 2021. Therefore, only around about 40, 45 days of the quarter, we were able to fly and move people freely in Greece, even within Greece. And also, of course, Q2 was the quarter where vaccination picked up significant pace in Europe, and at the same time, the digital green pass was put into effect towards the end of the quarter. So certainly, a quarter ending in a significantly different place than it started, both on a Greek and a European level. And at the same time, a quarter where Greece made clear to potential incoming tourism, that was very much going to be open for business, which is, frankly, that declaration of intent from the part of Greece, the implementation of the digital green pass, and at the same time, the improvements, we call it, of the Greek brand in terms of tourism due to the significantly positive dealing of the pandemic, as it has been perceived abroad for us, led to that quarter being also the beginning of significant pre-sales for the summer of 2021. So for flying that followed the quarter, but of course, having a cash flow effect during the first quarter. So again, a quarter that started with something like 15% only of the activity of a regular year and ended at around about 45% to 50% of the regular activity of a year with an average of 35%. In terms of ASK, an average of only 25% in terms of RPK, of course, as a fact, indicating how low the load factors were during the lockdown period, but also during the buildup, the initial buildup towards more regularity and the revenue that reached 31% of 2019, again, significantly different, of course, between April, May and June as things gradually moved towards the summer. And Aegean like, I think, many other airlines in Europe had to have substantial flexibility during that period. The positive thing for this period was that the EU environment started becoming significantly cleared due to the digital green pass. So more or less, the EU countries started to have a uniform way of dealing with allowing people to come and leave from their country, at least for intra-EU travel, which was, of course, a significant difference relative to previous quarters. As I said earlier on, vaccination became significantly higher. So that, of course, helped quite a bit. Quarantines, by the end of the quarter were eliminated at least between intra-EU countries travel. So domestic travel and intra EU travel were both able to take place with adequate proof of either testing or vaccination or having passed the disease in the past, and therefore, that created gradually a better environment, a more certain environment in which we operate. On the other hand, this did not occur outside the UN with relation to the EU. And so, specific markets which are significant for us, such as U.K., Israel, Russia and some of the Middle East markets remained, I would say, volatile in terms of degree of access and both in the second quarter and even in the third quarter, we had different degrees of accessibility between our country and these nearby regions, which are significantly important for Greek tourism and therefore, for Aegean as well. However, it's fair to say that by the end of the quarter, as I said, EU travel was clear, and therefore, an ability to build towards the summer was developed. In the quarter, finally, we flew 15,000 flights with only 56% average load factor, which means a load factor that's about 27, 28 points lower than the normal for the period. So a significant investment, one would say in trying to start flying again in a more significant degree, but one which was motivated by the recovery of the pre-sales, which seemed to indicate that towards the summer, things will get better. And indeed, the trend towards the country, which also was quite positive. As I said earlier on, during this quarter, we did manage to initiate and complete our capital increase of EUR 60 million, which was of course, important due to the losses we had sustained during 2020 and the first quarter of 2021. But also, it was a precondition towards the granting of the EUR 120 million of aid agreed with the Greek state first, approved by the European Union second and last -- a little bit before Christmas last year, and so was implemented this year as well. However, what we should caution you, it's very clear in our statements, it's very clear also in our press release. The EUR 60 million capital increase did occur in the first 6 months. Therefore, it did become part of our equity. However, the state aid of EUR 120 million which was a result of the EUR 60 million capital increase that the shareholders did took place in early July, the second or third of July, I believe, and as a result, did not affect the equity over the first 6 months of the year. However, this EUR 120 million did become part of our equity a few days into H2, and that will be visible, of course, in the next financial statements that you will see. The cash flow situation was also significantly different between Q2 2020 and Q2 2021. The number, the total cash burn in the second quarter of 2020 was EUR 64 million, while the cash generation aside from the capital increase, of course, was EUR 78 million for the second quarter of 2021. And therefore, I think that's the most significant statement that things were actually changing significantly for the Company and for the direction of the rebound of the Company in the second quarter of the year, so from minus-EUR 64 million to plus EUR 78 million in terms of cash flow, excluding, of course the effect of the capital increase. That meant that at the end of the quarter, we found ourselves with EUR 545 million of cash and cash equivalents. And that, again, was after the capital increase, but before receiving the EUR 120 million from the Greek state, which was a few days later. Therefore, between the gradual normalization of the ability to travel within Europe, the successful completion of the capital increase, the significant shift in the reduction of losses, which are less than 50% of what they were a year before despite still having only 1/3 of the operation, the signs for good demand in the summer, and the positive cash flow, we did decide to reaccelerate the fleets coming in for 2022 and on. And we'll give you some more color on that later on in the call and to tell you about exactly what we did and how we think this will affect us going forward. So in a nutshell, to [ drive ] things [ forward ] an initial statement for quarter 2, still low activity, significantly lower losses, completed the capital increase, but did not receive the state aid until early H2. We confirmed, let's put it that way, our plans for the summer to operate at between 70% and 80% of previous year activity, which was very flexible, I would say, for the Company and have been changed quite a few times as the lockdowns preceded in the winter. And we, as I said, proceeded with reaccelerating some of our neo deliveries. This is, in a nutshell, a very brief summary of what happened in quarter 2. I will stop here so that you can ask questions. In answering the questions, I will also give you some color about what has transpired in the summer and how we see things continuing forward and also more details on the fleet. But I think it's better to do that as part of the questions to see also where your interest and questions will be. So thank you, and happy to receive questions by the way.

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Svyrou, Natalia with Eurobank Equities.

I was wondering, my first question was on how the capacities were formed in the Greek market. You said that intra EU was much better with a clear specific actual what was going on, but the other markets remained quite volatile. Did this continue in Q3 and has this affected fares? I was wondering all the capacity in fare in between these countries and how this has been formed? And also, if you could give us an update on the fleet plan. You just mentioned you're reaccelerating the new deliveries. And more importantly, on the pre-delivery payments schedule for these changes.

Okay, I will start with the capacity questions and leave the fleet for last, so that we get more about what was going on in the country and around the country. So Greece, the average recovery of traffic. And when I say traffic, I mean, number of flights, within Europe, because that's different from the number of passengers. The difference, of course, being load factor. So in order for, let's say, to have 60% recovery of flights, you only need the airline to decide that they should reconstitute 60% of their flights. But that does not mean that relative to 2019, they will have indeed the same load factors, so that would translate to a 60% recovery of passengers. It could be 60% of flight only means 50% of passengers. And indeed, this is what has happened around Europe gradually built up by August, and of course, this was step by step. It was different in June, higher in July, higher in August, and it has more or less plateaued at a certain level in August as a run rate. So the run rate of flight recovery overall in Europe has plateaued to around 70% by August, building up from June to August to that level. However, it is also the case that load factors observed are between 12 and 18 or 20 points lower than typical. Therefore, the recovery in terms of traffic, in terms of passenger traffic is significantly lower than that overall in Europe. Now, if you compare this 70% recovery of flights average in Europe, Aegean managed to reach almost 80% of flight recovery relative to 2019 in August again, I'm not giving you quarterly numbers for the whole Q3, I'm just giving you what is now complete, which is August, it's complete for Europe, it's complete for Aegean, so I can be more specific for the numbers. So 70% flight recovery for Europe, 80% flight recovery for Aegean, higher than 80% flight recovery for Greece. Greece had almost 95% flight recovery. Why? Because many carriers in Europe that had limited choices where to fly, either due to accessibility or because of relative demand saw that Greece had high demand in tourism, and as a result, increased their flights to Greece relative to 2019. So, we have a recovery of flights through Greece, by both network carriers, such as BA, Lufthansa, Air France, who were significantly restricted, all of them were operating between 40% and 55% of their regular flight schedule only in August relative to 2019. But all 3 carriers, for instance, these 3 carriers were all flying more than in 2019 to our countries. Why? Because they have an excess supply of aircraft due to under-utilization of their fleet; and two, because tourism to Greece was -- demand to Greece was high or relatively high relative to other markets, which had more restrictive policies. And as a result, more capacity was concentrated towards Greece than other markets. This is both a blessing and a problem. It's a blessing because it's much better to be based in a market where there is better demand and accessibility than other southern European markets, other leisure related markets. So we were in a relative advantage in that sense relative to other carriers based in other places in Europe. But at the same time, of course, that invites capacity from the competition who is underutilized very substantially. And that, of course, also means that there is more competition to the routes to Greece, and that tends to affect both load factors and prices. So to make a long story short, again, the recovery of Aegean is higher in August than the European average in terms of flights. The recovery of Greece is even higher because even carriers that do not operate a big percentage of their flights relative to '19, do try to fly more to Greece as they see relative demand here, and as a result, load factors, in particular, still are 12 to 15 points lower than they were in 2019. Now having said that, I have to say that this is, again a pan-European phenomenon. We don't see any markets in Europe where load factors have even approximated or have come close to 2019 numbers. So that's not necessarily a negative for Greece, it's just a characteristic of the market when there's more supply than overall demand. Fares have held on better than load factors. I would say that more or less, the fare effect varies from market to market. But overall, for August it was, I would call it, flat across the board relative to 2019 with significant variations from source market to source market, because accessibility and relative supply made things quite different. So I hope I have answered your question in terms of how we fared in terms of relative recovery of operation relative to the average European airline, where we've done better. But we've done less well than our country, because our country was very attractive and many carriers of both network and low-cost structure did [ force ] more capacity to Greece, even though they were flying some of them, 40%, 50%, 60% only of their original schedules.

Yes. That's what I was looking for. Pretty clear.

Not very good, by the way, because it's very good for hotels, for rental car companies for anything on the ground.

Yes, correct.

The next question is from the line of Kumar, Achal with HSBC.

Sorry, I think, first of all, I think you missed to answer the fleet question, the previous one, she asked for the question on the fleet and then...

Kumar, I didn't miss it. I just want to get past all the other questions that were market, the demand, bla bla bla and then answer that last.

Okay. So I had a couple of questions, actually. First of all, I mean, so you mentioned that your cash flows from operations have turned positive, primarily due to the ticket presale, higher ticket presale. I think it looks like a bit of a change in the trend because previously, if you remember, across the world, we saw that booking window has squeezed and passengers are now booking very close to the [ date ] because of the uncertainty, obviously. Now if that is the case, do you see that as a kind of a onetime effect? Or do you see the -- there is definitely a change in the passenger booking trend now? And do you see that continue? So that is my first question, if you could please talk about that.

So, let me say this. I think what is still the case is that people have a shorter booking pattern than before. However, the second quarter, as I said earlier, because of the digital green pass and because of the gradual clarification of what it would take to travel around Europe, we did see a resurgence to buying from a period of basically no buying, which was Q1 and Q4 of last year. So we should not infer from the improvement in the cash flow that there is a now longer-term horizon behavior from the customer, it's still a lot shorter than it used to be. But I will agree with you that gradually, as the months go by, we see that there is a small trend, gradual trend towards normalization, where customers are beginning to take the opportunity to book a little bit more forward. But we're very far away from the average pre-booking period of pre-pandemic times, Kumar. So I would still expect to have most of our sales over the last 45 days before flying as opposed to an average, which was significantly higher than that. And because carriers, especially in international routes within Europe continue to offer what I would call free flexibility for people to change their tickets in an attempt to try to improve this booking behavior, that's helping, but it's not helping to the point when we're anywhere close to the pre-booking periods we had before the pandemic.

Sir, on the same point, I just would like to extend a point a bit. So on this point, if the booking window has expanded a bit slightly, then it would be very useful if you could talk about a little bit about your next quarter. So we are already in 20th of September, so you might have some visibility in the quarter to December, which is usually a soft quarter, but this year it is a very special situation. We don't know how the pent-up demand is there, whether the passenger are still dying to sort of go into the [ alleged ] destinations and all. So if you could please give a bit of color, of course, I understand that it's probably a bit difficult and quite high uncertainty. But whatever color you can give for the next quarter, that will be very useful in terms of in trend, in terms of the fare trend. And especially when you talk about the fare trend, I mean, you said that fares held nicely. So how the fare trend you look -- you see in the domestic skies as well as the international skies?

Okay. So first, before we go into Q4, let's talk a little bit about Q3 and what we have already published in terms of information and try to expand into Q4 a little bit from that. So a few days ago, about ten days ago, we published our traffic figures for July and August. We made public that we transported 2.3 million passengers. The average load factor for the period was 72%. It was a little bit higher than that actually in August. But that still means around 14 points lower than a regular pre-pandemic peak period. We also publicized that during that period, we flew around about, as I just said earlier on, around about at least 80% of the flights that we did in August relative to 2019. And so we were consistent with our prediction before the summer that our rate of recovery in terms of activity, which means flights would be between 70% and 80%. And this 70% and 80% is indeed where you should expect to see us in terms of flights relative to 2019, for July, for August, for September of this year. And the load factors that you have observed while we have declared for July and August, more or less will continue for September as well. Going into the last quarter of the year, and indeed into the first quarter of next year, which are effectively the end of the year and the beginning of next year, the non-tourism season essentially. So these altogether, 5, 6 months, we would expect to have a recovery to between -- at the highest point, 12% lower than 2019 in terms of flights, and at the lowest point, around 25% relative to 2019. I'm giving you a range where I think our activity would be between minus 12% to minus 25%. So that's relative to the minus 30%, up to minus 20% that we had given you for the summer. So as we're going forward, expecting some further normalization and expecting a lower need for flight reduction relative to the past. Of course, we're still leaving a significant open window, a bigger window of flexibility for us to adjust between 12% and 25% relative to normal, but I'm sure that you all understand why that has to be that way, because, obviously, restrictions, again, both restrictions and the moods between countries and people to travel changes still quite frequently. Just to give you an example, Greece was downgraded about 6 weeks ago by Germany, not affecting quarantine rules because of within EU, but just put up there as a higher risk area, and then taking out of that around about 9 days ago, I believe. And immediately, you can see a delta and the recovery of bookings just by the country being moved up or down a category of relative risk. So these things will continue to be relevant, and they are quite frankly, impossible to predict. All that is possible to predict is that this delta related to '19 is going to be smaller relative to what it was in the summer. Now, is there a more convincing booking curve? Yes, it is more convincing than it was 4, 6, 3 months back and closer to what it was in previous years, even though it was from July and August. But are we certain that this will continue? No. Nobody can be certain. We would like to think it will be. We also think that, yes, October and even the first few days of November might have a little bit of a longer season effect this year in Greece, because the season started so late. Again, this is more a feeling and data rather than a situation where bookings would be higher today for October than they were back in 2019 on a percentage base of flights. That's not the case. I don't think there's one single airline in Europe that is more preloaded for October 2021 as a percent of seats be sold than there is today. So there is still a lower pre-loading situation than before the pandemic. However, that delta does appear to be closing, and we have to be a little bit more patient before we call it a consistent trend. Personally, I think we're going to see less variation, of course, than we did last year. We don't expect to see any lockdowns. So certainly, we will have a much more controllable winter than we had last year, which was, frankly, effectively for us even worse than the first lockdown, because we had to fly at very, very low load factors, where at least in the first lockdown, we effectively didn't fly. But we're still quite a bit away from calling it a full recovery. Now you said, and we all read that, yes, people say they intend to travel much more in the winter. But here, there is a caveat. They intend to travel more in the winter, yes, especially those that didn't travel in the summer, they want to go to sun and beach in the winter or somewhere warm in the winter. Typically, that doesn't mean Greece, Greek tourism, and the classic sun and beach tourism, after November it doesn't exist until, again, April. So I don't think Greece can be a big beneficiary of that, let's say, residual trend. The only way that Greece would be a beneficiary of pent-up demand for winter would be if it was demand for urban destinations such as Athens or Kolonaki. However, urban destinations have been the weak links in the travel recovery as city brakes are not what is at this moment, recovering faster. For obvious reasons, people do not want to be at this time where many, many other people are in urban situations. They prefer to be in more resort-type situations. So I don't think that we will have a big positive effect from November and on from this Latin, let's say, demand, that was not able to be filled in the summer. What we expect to see, however, is a good start with a full early season for Greece from mid-late March next year. So to have not only a click of a higher recovery, but definitely a full season that starts from March rather than basically the second half of June. So that's what we're looking forward to, an easier winter, but not one where we, like countries that typically sell more in the winter, some of the southern parts of Spain, Mallorca, some parts of Portugal, we don't have what you will call classic winter tourism other than urban tourism, which we don't fully expect to be very important, but we do expect to have a much earlier, stronger season for next year starting at some point in March. So that's our outlook for the winter. And again, not to confuse you, we're expecting between minus 12% and minus 25% of activity from November and until the end of March. I hope that's clear.

I think that's quite clear. And on the fares, I asked you about the fare in the domestic as well as international. So where do you see the fares holding well. But then apart from that, my last question was around your strategy. So basically, you started consolidating in Athens to make sure you manage your volatility, seasonal volatility better to avoid competition as much as possible. But now given that demand is dominated by the leisure passengers, and so more on the beaches rather than Athens and all. So what kind of changes do you see in your strategy because of that? And how would that impact? So that is my last question. And on the fares, if you could also please talk quickly on the fares.

On the fares, it remains to be seen [indiscernible] because we see a very, very divergent trend market by market. There's markets, domestic and international, that things are up and the markets in domestic and international that things are down. Overall, as I said, and you can tell also from the division of RPK and the revenue. Things are holding up reasonably well, but to be able to tell you whether the average fare level or the average adjusted for distance will be plus 5% or minus 5% is frankly impossible. I will not try to do that. Simply, again, a, we are in a changing environment; and b, we've seen significant divergences. So I think, again, I am not afraid that we will see fare levels that are problematic, but this seems to be behind us because we went through a summer where, as I said, supply to the country was significantly in excess of what we expected it. There was actually the month of August, the number of international flights to the country was effectively flat relative to 2019, the number of passengers, international passengers to the country was down by 25%, and still our average fare level was more or less retained with lower load factors by us and everybody else since one flights, 25% lower passengers for a national performance obviously indicate significantly lower load factors in international flights. So that's the best guidance I can give you to tell you that fares seem to be more resilient than loads across the markets and across the summer season. I don't see a reason why it would be significantly different in winter when capacity tends to be a little bit more disciplined. I would still expect to see lower load factors. I would expect fares not to be significantly different, plus or minus 2%, 3% up or down overall relative to previous years. But I would only hope to see load factors close the gap to previous years. They have a long way to go. And that's all I can give you in terms of prediction. Now, I think that leaves us with fleet, unless there's something else that I missed, fares, capacity.

I asked about the strategy about the consolidation level.

So that's a good question, and the answer is the following. I think 2021 was the bottom for -- well, '20 and then 2021, was the bottom for urban destinations. I think from here on, urban destinations will recover. It's very important to remember that regardless of how more or less popular Athens is, Athens is our hub. We have connecting flows to the islands. There's also an increasing trend to smaller islands that does help the hub even though people might not want to stay in Athens for a long time or at all. And also, do not forget that Athens is the access point for most of mainland Greece. So there's people coming to Athens, getting a car or a bus or whatever and going to some place in mainland Greece outside of Athens. So Athens airport does not only serve Athens, because you can get some kind of ground transport and go somewhere else, also because you can connect to the islands, and also, of course, it works as a small hub east or west for international; international, which is also recovering a little bit. So for Aegean the strategy is to restrengthen Athens as we go forward because we think both that all these trends, whether it is Athens as a starting point for a vacation using a car or Athens as a connecting point to some of the smaller islands that don't have direct flights. Athens as a combination of travel, a couple of days here and then to one of the islands will increase. And even Athens as an urban destination will begin to recover as we go into the winter and into next summer, and we have increasingly vaccinated visitors and increasingly vaccinated population. So I think no, it's quite the opposite. I think we did as much splitting to the periphery, as you would expect us -- you should expect us to do. You should expect Athens going forward to be a higher part of the overall activity of Aegean because the hub does work, and we need to retain that advantage against our competitors. And also Heraklion and Thessaloniki will be the other 2 points where we would expect to see further growth in our investment for the next year in terms of our second-tier basis in Greece. So yes, urban avoidance has been an issue, but it's already done the damage, and we expect there will be gradual recovery and Athens is not just an end destination. It's also a connecting hub and also a starting point for the mainland so definitely more activity to be expected by us from Athens. Well, basically, you all know that we had an order of 46 aircraft between Airbus and direct lessor positions. That was going to be delivered between essentially 2000 and 2024. During last year, because of the dramatic effect of the pandemic, we renegotiated the stretching of that order that basically reduced deliveries, especially for '21, '22 and push things back to '23, '24 and even added '25 and '26 as a tail end of the delivery. So during this year, in the second quarter, as we gradually saw things recovering we decided to take action together with Airbus environment primarily, but also with some of the other parties and renegotiate the delivery profile, especially of '22 and '23. The intent of actually accelerating '22 and '23, mostly '22 deliveries in order to accept -- to accelerate the building of a more efficient core. So by the end of where we are today, if you consider where we were before the pandemic and where we are today, we've got the same amount of aircraft coming in, 46. There was a year which was substantially affected by the pushback, and that's year 2021. The one we're going through now, where we've only taken one aircraft from an original 8 that were planned for this year. But following the action we took between April and June this year, 2022 now has 12 deliveries, and 2023 has 10 deliveries. So both these years have been accelerated in order to be able to, as I said, boost up the core of the company faster now that we know that there will be a significant measure of activity and normalization coming back, even though it might not be fully back to pre-pandemic levels. As a result of this action, there will be a movement from roundabout $68 million of predelivery payments incurred and withheld by Airbus on the end of June or the end of quarter 2 to $185 million that will be paid into Airbus by the end of Q1 2022. That means that basically $115 million or EUR 100 million will be a net outflow in H2 of 2021 and Q1 of 2022, cumulatively. The reason I'm mentioning this is because that is the high point of the amount of pre-delivery payments that will be paid to Airbus. From then on we start getting money back with the deliveries of the aircraft faster than we pay in. And therefore, after the Q2 -- after the Q1 of 2022, the net effect of pre-delivery payments paid for additional orders, minus the money, but we get back when we accept the aircraft will be a positive cash flow to Aegean. So the net, let's say, message out of all this is that we've decided to go to a core of 30 aircraft, 30 Neo aircraft as fast as we can. So we've accelerated '22 and '23. This will cost us a total outflow, net outflow -- not total outflow, net outflow of $115 million between the last 2 quarters of 2021 and the first quarter of 2022. And then the equation going forward balances out, and we don't have to make net-net any further pre-delivery payments because acceptances return money to us. As a result of this increased effort, we will be able to reach 30 new aircraft delivered to Aegean by summer 2023. And those 30 aircraft constitute what we would call the non-seasonal core of operations for our company. And that's very important because, as you know, we have more than 53% seasonality in our company. The amount of flying we do in all these relative to February is significantly different. Therefore, if we need, for instance, 50 or 55 jet, 30 of those jets need to fly a lot because it basically can fly around the year. While another 20, 25 jets need only fly for 4 to 6 months. This lends itself to taking advantage of the existing situation as follows: build up as quickly as we can, the core with new jets utilized at roundabout 3,000 flight hours plus for the year, while taking the opportunity of the very soft used aircraft market to extend the aircraft that are being expired to some degree to get better conditions and lease extensions, flexible conditions, somewhat powered by the hour, improve maintenance conditions and whatnot. And retain a part of the expiring aircraft as a cheaper, more flexible part of the operation, providing that they are utilized, of course, significantly lower than the new aircraft because remember, when you do utilize an aircraft for 3,000 hours, then definitely, you need to have a neo because that is much more efficient, cost to -- if you incorporate lease costs and also operating costs, whereas, of course, if you end up only using the aircraft for half of that per year, a lower lease, especially in the current environment, used aircraft can give you a very efficient result as well. So relative to the past, we're accelerating what we have to pay out in the second half and the first quarter of next year. We're accelerating the buildup of our fleet back to create an efficient core. We're taking advantage more than we were expecting before the pandemic of expansions of existing aircraft to take advantage of the very soft market conditions there. And relative to before the pandemic, we continue to retain a number of aircraft that was not there. It was pushed there for '25 and '26. So stretching out our delivery for 2 more years than normal, but not stretching back the time it takes to go to the core of 30 new aircraft, which you would consider the primary requirement for us. And this is what's going to cost us this $115 million between the last 2 quarters of this year and the first quarter of next year. So I hope now including that, I have answered your questions with regards to fleet unless I missed something.

Mr. Kumar, have you finished with your questions?

Yes. Perfect.

And obviously, as I'm sure you understand all of you, given we had EUR 545 million cash at the end of Q2, and we have not yet received the EUR 120 million of the state aid that we received early in July. That puts our overall liquidity position between EUR 650 million and EUR 680 million. And indeed, this is more or less where we are today. But when I say liquidity, I mean cash and available credit lines. And therefore, we feel quite confident that making this 115 and $120 million investment is EUR 100 million is quite feasible without stretching our resources. Even though we also know, of course, that from September, October and on, probably October and on our cash flow is no longer positive. And therefore, we also have to fund the winter, which every year, cause some cash to Aegean. However, the resources we have between the capital increase, the previous cash and the take grant altogether are at a level which does not cause us any concern about being able to fund these directions. And of course, other than the operating -- the operating cash flow improving, the completion of all these actions, these core production is what caused us to be able to take this reacceleration of the fleet with confidence. And I would like to say that there is something that we see towards tourism in Greece, which makes us very hopeful. It's not just the turn to strong numbers towards our country relative to other countries. We see an improvement in the average level of spending for people coming to the country. There is an increase -- a better increase or recovery in the higher-end hotels. There is a resurgence in terms of second home purchases. This points to -- there is also a significant effort to find new areas in the country, which are less developed to invest in or spend vacation in. These are all good news, we believe, for us for a variety of reasons. The most important being, we are not a low-cost carrier. We are a high services quality providing higher. We think it is important that the trend towards the country is taking a more qualitative direction, and we are going to also accelerate not only the investment to our fleet, but also our focus to the customer sort of signaling to the market that the effect of the pandemic to the company is largely behind us. We have to be cautious about saying this because we know the complete reversals and difficulties and we have the winter in front of us. But we feel that the main burden of the pandemic is behind us. And the time now is to show our customer once again that we are a company that has quality and novelty of services as primary focus that is developing and investing not only in its size but also in the ability of offering higher-level services. This week, we're going to open our new lounge in Thessaloniki, and we are starting following that a series of different introductions of products and services. Very importantly, towards the international market as well. And last but not least, I would like to note that in the last 30 days, after the last 18 months, for the first time, we see a relative resurgence of the Greeks' intention to travel abroad, especially for leisure. Up until now, until about a month ago, we had seen basically very imbalanced flows for international travel coming from abroad to Greece and returning, creating very dissimilar load factors in incoming and outgoing flights for a big part of the summer. This is now, in the last 30 days, beginning to improve, and our sales in the local market are also going up. And this is very important, of course, because Aegean claim to the Greek consumers' preferences are -- is always higher than -- and our significance to the Greek market is always higher than the average non-Greek customer. And so that's an important event that we hope to see being strengthened. So having said all that, I don't think I have anything else to add unless there is another question that any of you would like us to answer.

The next question is from the line of Mantzourani, Mary with Axia Ventures.

So my question is about how is inflation impacting your operating expenses apart from fuel, if you can give us some light on that?

Well, inflation, a big -- I mean, our operating expenses, what are the main elements of them, as you said, fuel, of course, which already has been impacted, lease costs, which are long term and in a way, interest rate driven there, we tend to have rather positive effect as the low level of interest rates means that we end up getting lower level of leases and we're expecting for the new aircraft. Also, of course, the excess supply of aircraft means that we are able to bring new contracts versus with lower leases. Airport costs, which are a big part of our expense, both here in Greece and abroad are largely flat. They're not, I would say, directly inflation driven, they're more policy driven. So we don't see a big delta there. There is, of course, a very big significant effect in CO2 rights appreciation, but that is for now a small part of the cost, not the case in 2, 3 years from now when the new energy-related or climate change related policies of the EU will come into effect, but that's about 2 to 2.5 years from now. So for today, it's there, but not too significant. And in terms of other local costs, I don't -- I don't in fact, I cannot say that we yet have a significant effect. Please do not forget that the various -- the particular labor support program of the government [indiscernible], which is the same thing as the [indiscernible] in Germany. The partial compensation for employees working partially is still around in Greece for companies that have significant reduction in revenue. So that is a mitigating effect to our costs as well. The Prime Minister announced it will continue until the end of the year, a few days ago in Thessaloniki. So yes, I mean, food, for instance, we're catering, whatever, yes, there is some cost increases there, but still early. So I would say until now, it's mostly fuel, which is, of course, it's gone through quite a bit of a ride from next to nothing to $75 per barrel right now. So I would say fuel is the main contributor to cost. The rest are either flat or in the case of leases negative today, but that's not the way it will be going forward. We think that everything is going to have some inflation effects over the next 1 or 2 years. However, this is not going to be the main driver and what happens in our industry. The main driver is, if indeed, people will feel comfortable to fly again and to what degree and how many of them. And certainly, what has always been the case in the -- in our market and in the leisure travel market, in particular, is that you have demand-driven crisis. In this case, it was because people were afraid or unable to fly restrictions or fear. And it's these effects reversal that will bring us back to a more positive trend. It's not -- the relative effect of inflation relative to restrictions or blocking or fear is relatively small when people reacquire or if people reacquire the desired travel.

[Operator Instructions]

So since there seem to be no further questions, let me add.

Excuse me, but we do have a follow-up question from the line of Kumar, Achal with HSBC.

Sorry, just last question. So you mentioned that you will benefit from the lower aircraft prices. So just want to understand what sort of opportunity or what sort of possibility you have to renegotiate the prices, not only for the older aircraft, which you might retain, remember -- but for the newer aircraft, which you're getting A320neo, what sort of opportunity? Do you have any opportunity to negotiate the prices given that the prices are already low?

I did not say we would benefit from lower aircraft prices. I said we would benefit from lower leases than we expected because the interest rates were lower. That is definitely the case. And because all sale/leaseback or direct leases are what we call floating rigs to delivery. Therefore, it's part of the contract that the delivery -- the interest rate, the swap rate at delivery of the aircraft determines the level of the lease, and they are a lot lower now than when we contracted. So that's one part of lease cost reduction, one. Two, when it comes to expiring leases of used aircraft clearly, the market is very soft there and the extensions in terms of flexibility, in terms of level and in terms of maintenance provisions that we agree with the lessors are a lot more advantageous to the company. So I did not mention reduction of aircraft prices per se. So that's where we are. Now one thing that has improved for the company and it was a very, very positive. I wouldn't use the word surprise, but let's call it event for us in the second quarter this year. When we decided to reaccelerate the order and start picking up more aircraft than '22 and '23. We went out to market to negotiate for sale/leasebacks for these aircraft. And because the market at the time, as you say, was relatively soft, we could have expected to see possibly a certain numbness or a certain, let's call it, lack of conviction from the point of view of people offering us sales/leaseback conditions. That was not the case at all. We ended up having excellent offers from many different parties. I think it's because 2 reasons. Many lessors did not have secured supply for the next 2, 3 years, one. Two, Aegean had once again made it through another crisis with a good amount of resilience and we've never fallen below EUR 400 million of available cash. And therefore, we are a better credit than we were considered before the crisis, always, of course, on a relative level in our industry. And these 2 things have enabled us to secure for the aircraft, food price is fixed, even better sale-leaseback terms on a market basis than we were getting before the crisis. So these are price-related effects in terms of what we will have to pay for our aircraft, but not in terms of the price that we pay to Airbus. It's just they all translate to lower lease rates, which define our cost, but there was no delta in the price per se that we had agreed to pay to Airbus. And we think that the desire of lessors to do sale/leasebacks with us proves that the price that we have stands very well in the market. Because essentially, what the lessor does with the sale/leaseback is it replaces a Aegean as an owner of the aircraft. We take Airbus one day and the next day we sell the aircraft. And obviously, since the lessor pays 100% of the consideration, they would not do that unless they thought that the price we have secured was very attractive. So it is a vote of confidence in the price we have, but it's also a better vote of confidence for the credit of the company and the ability to serve the lease. And the end result is lower than we were expecting pre-pandemics, and that's where one gain comes, the other gain being the extensions of the used aircraft where the market is softer. Thank you. So before closing, we have one more question. Okay.

Yes. The next question is from the line of Pent, Reino with Avaron Asset Management.

I have 2 short questions. Could you comment on your fuel hedging strategy? I see that you have roughly like 20% coverage of assumed fuel demand or need. So is this the kind of new approach of Aegean or the level that you tend to be hedged?

I will give you a very short answer for that one. The approach of the Aegean has always been to be a little bit less hedged than the average market participant that is relevant to us so the large European carriers, low-cost or network. What we have seen throughout the crisis is that people have materially lowered their hedging in terms of percent of their operations, and we have followed that trend because finally, it is very -- we consider it very important to be similar to your basket of competitors in that essence. I think the reason is very simple. People are very uncertain about the degree of flying they will do. They found out the hard way that when you think that you're hedged, but you don't know what you're flying, you can find yourself affected or not to use a stronger word by both inactivity and being long -- on the wrong instrument, their own commodity. Therefore, people have been hedging a lot less, and we have been following that as well. We are flexible to reincrease our hedging policy when we see the European market, the European industry, and the aviation industry going in that direction. But for now, monitoring what we see from them, we are staying significantly lower than we were in the past.

All right. So it's a kind of changing relative level. And then secondly, maybe you can also briefly comment on the vouchers that you were giving out during the pandemic. So what is the current level of the liability or where do you stand?

I believe it round about 2/3 -- between 2/3 and 3/4 have been used or paid out. So roundabout between 25% and 28% of what was existing at peak is still there. And that would lead us to a number that's roundabout EUR 50 million, I think. Any other questions?

There are no further questions at this time. I will now turn the conference over to Mr. Vassilakis for any closing comments.

So first of all, thank you all for attending. And before closing, just to give you a little bit more color in translating the different numbers I'm giving you into a little bit of a forecast, not a full forecast, but just a little bit of like going forward. By virtue of what I've already said and I think also by you doing your numbers, I think you will have realized that the third quarter of the company is going to be the first profitable quarter of the company for the quarter, not for the whole year, of course, in -- since the pandemic. We expect the profit of the third quarter to be higher than the loss of the second quarter as a quarter. So our results in the end of September would be at the very minimum at the level of the end of the Q1. We think it's going to be significantly better than that. At the same time, I have to say, to avoid any misunderstandings, do not expect the strength of a full summer for quarter 3. And we think, therefore, that putting all these things together, we will end up the year with a substantially lower -- a fraction of the losses of 2020 and 2021. And of course, cash flows also are going to be significantly better on an operating level, which is why, along with the -- along with completing all our corporate actions with the capital increase, state grant and whatnot, we are moving forward with the acceleration of the aircraft fleet. As I said, expect to be operating between minus 12% or minus 25% of 2019 between October of 2021 and March of 2022. And we are very hopeful that the season next year will have an early start, and therefore, will begin to approach normality gradually throughout the year. Having said that, I think we are all convinced now that despite the vaccinations and everything else, the residual effect of the pandemic will be with us probably until summer 2023. And also what I think we once again, I need to point out that our degree of further recovery will depend on how quickly Greeks begin to travel for leisure, and we hope this will be significantly improved over the next 6 to 9 months. And the second, which refers to all airlines, I believe, in Europe, how quickly major companies will reconstitute corporate travel, which is the big laggard in the industry while leisure is beginning to recover. Having said all that, I think, as I said, we are behind the worst part of the pandemic, and we are in the part now where we're going to be planning longer forward. And we're going to be focusing more than anything else in improving our profile to our customers and introducing more new services to them, even while we strive to make ourselves more efficient and reaccelerate the delivery of the new fleet. Thank you for attending our conference, and I look forward to speaking to you again soon once we conclude the year. And of course, our Investor Relations people are available to you for any questions you might have or any add-ons to what I said. Thank you very much, and let's all hope that pandemic will go away in small steps, but always in the same direction. Thanks. Bye-bye.

Ladies and gentlemen, the conference is now concluded today. You may disconnect your telephone. Thank you for calling, and have a pleasant evening.