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

Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Aegean Airlines conference call to present and discuss the full year 2022 financial results. At this time, I would like to turn the conference over to Mr. Eftichios Vassilakis, Chairman. Mr. Vassilakis, you may now proceed.

Good afternoon, everybody. Welcome to our annual call. First of all, let me say that today, besides me, there's also our CEO, Dimitrios Gerogiannis and Michael Kouveliotis, our CFO here. And Mr. Dimitrios and I will share the initial comments to you. And then of course, you're welcome to ask any questions. So indeed, as we've talked about in the 9-month results, this ended up being a very successful year for us, a year where we're seeing our financial figures, either getting back or being above the full rate figures of 2019. So our revenues, in fact, for the full year exceeded by 2% the 2019 numbers. And of course, we're effectively double the 2021 numbers. And more importantly, our profitability during 2022, ended up not only reversing the losses of 2021 and 2020, but also exceeding significantly by 36%, the profitability of 2019 and reaching EUR 107 million net income in total. So the result is extremely satisfactory for us. The margin in terms of pretax or EBIT or operating measurements stands very strongly among our European peers. And so we're very happy for it. What is definitely the case is that we went through a year that had multiple phases. It started, of course, with still the after effect the beginning of a low level activity for us, around about 75%, 73%, 74% of ASKs relative to 2019 in the first quarter, going up to 84% in the second quarter to 97% in the third quarter, which, of course, is the one that typically produces the most to the profitability and effectively reaching the 2019 numbers in 2000 in terms of ASKs in the last quarter of 2022, where it was 99%. On the other hand, vis-a-vis that in every quarter except the third quarter, the recovery of revenue was stronger than the ASK. So in other words, the only quarter of the year where the revenue recovery relative to '19 was lower than the ASK recovery was the first one. And then basically, what was 84% in ASK yielded 94% in terms of revenues in Q2 was 97%, yielded 111% of revenue relet 2019 in Q3. And the last quarter had the biggest overperformance with 99% of ASKs of 2019, we generated 115% of revenue. And indeed, that is the reason that the fourth quarter of the year was the first fourth quarter in the history of the company where we actually had a positive results. Typically, Aegean has 2 positive quarters, the second and the third one. The fourth one is usually mildly negative, and the first one is significantly negative. This year, we managed to only have 1 negative quarter with the last one, as I said, having a significantly profitable results. And that's very important for us because that brings us over to the dynamic going into 2023, obviously. But I also need to take very, very importantly, I think, for the discussion is that the capacity of our competition towards Greece, while the overall activity of most European carriers was below 2019. All 3 major European network groups, IAG, Lufthansa Group and Fair France KLM were significantly higher in capacity towards Greece than they were in 2019. And so indeed, were the 3 major low-cost carrier groups, Ryanair EasyJet and Wizz. As a result, despite this significant capacity recovery delta between what was happening to the European carriers to Greece relative to what they were doing overall, Aegean produced a very positive result, which indeed was improving in quality as the year progressed and which in the winter, as I said, reached the most successful level on a relative basis, of course, judging each quarter by what it supposed to potentially produce. So the year was a very successful one. We also generated around about EUR 225 million of cash flow that allowed us to effect CapEx of about EUR 8 million 85 million concerning mostly engines, spare engines, which we bought and 3 ADRs. At the same time, we pay another EUR 75 million of loans and still managed to increase our end of year cash to EUR 530 million, up by about EUR 30 million from the year before. So in total, a EUR 225 million cash flow generation during the year coming, of course, at higher figures than the EUR 140 million of pretax or EUR 106 million profit after back. So on the cash flow generation, also a very positive outcome. And equally importantly, perhaps, and I think even more are for European airlines, we have managed to repair our balance sheet, not only in terms of outstanding debt from the point of view of bank loans relative to the past, but also in terms of equity. So at the end of 2022, our equity was a little bit higher by EUR 20 million rather than what it was in the end of 2019, and that's very important also going forward. During the year, many important things happened that Dimitrios Gerogiannis will give you a sense of in the next section of our discussion. And then I'll come back and talk a little bit about the outlook going forward. So please, Dimitrios if you can give us some input on the important areas that we have touched upon during the year.

Yes. We can start with our fleet developments. As you know, we have continued our investment in upgrading our fleet and services throughout the pandemic. In fact, 2022 was an important year in terms of arrivals. We took delivery of 9 brand-new news from Airbus. The original plan was to take delivery of teleporter, due to supply chain problems. Airbus managed to deliver to us 9. In 2002, the benefits from the new fleet, we can see the benefits, the contribution of the new activity to our total activity keeps increasing. And for example, in terms of flying powers in 2022, 29% of our flight out were performed of our jet flight hours were performed with new aircraft. This percentage will become 48 in 2023 with the addition of the neo news. In terms of flight numbers, 22% of our flights were performed with new aircraft in 2022, and this will become 33% in 2023. In 2023, we expect we take delivery of 9 additional news. At the same time, in 2002, we completed the restructuring of our turbo fleet, a process that started in late 2021. And we completed the redelivery in 2022 of all our Q400 turboprop aircraft, and we placed them with ATR to 600. There are 3 why this refleeting is very important for Aegean. The operation of the ATR fleet is more efficient, and we had already operated ATR-600 since 2016. The aircrafts are definitely a really significantly more fuel efficient than Q400. And we have managed to get significantly better and more competitive terms with Greece's the Q400 agreement. The fact that the ATR as 472 has a rig disadvantage relative to 400 is not relevant for our operation. since our international network, where the speed of the aircraft mothers, the all international networks performed with the Jet aircraft. So Gas we stand now we operate a less complex and more efficient fleet, and we have a more dutiful operation, which facilitates also the day-to-day operation. Moving from the fleet to the maintenance and training activities. In 2022, we announced the creation of the first aviation ecosystem for technical support services and training services in Greece. It's an investment which has, on one hand, it facilitates our operation and improves our efficiency. But at the same time, is an investment which has a strong type of extravasation and competitiveness. And since we will be able to, over time, to offer through this investment also third-party services, both in maintenance and training services. It is important to note here that the effort this effort started during the pandemic. During the pandemic, during the time that the asset was not flying and they were grounded due to the restrictions. We shifted technical staff. This started in 2020. Restricted technical stuff from doing line maintenance or we sifted more technical stuff on doing line maintenance to base maintenance, we trained them and we identified an opportunity in this pit. We exploited the availability of a major building beyond the Olympic are technical base in Latin Airport, which has been remaining, has been sitting there idle for about a decade. And we agreed a long-term lease with the Athens International Airport. So the main objective of this investment relates to, first of all, improving the cost effectiveness of our own operation being on one hand on the maintenance side, plus the flexibility and is in serving our maintenance needs since we will not be restricted by the tight slots into to us by foreign maintenance centers in a very tight maintenance market. We didn't enhance the technical capabilities of our company, and we expand the development options and the know-how of our people. As I said earlier, through this facility, we will be able over time to offer third-party services and we respond to fair party demand. And over 3, 4 years, a significant revenue stream will be added to our revenues. On the simulation and training center for pilots and cabin crew members, this will also allow us to offer third-party services. Plus it will increase the efficiency and utilization of our crews. And since our cruises and our trainers will not need to fly around in different training centers in Europe to cover our planning needs and will also allow us to better utilize our people and our pilots because the training will be performed here at time slots that are convenient to us. And still, again, it will not be restricted by the time plus restrictions imposed by the in the different training centers in Europe. So this is the second element that is concerning the creation of our ecosystem around technical services and training services. But going to the third pillar, which concerns our people, our colleagues during the pandemic, we made a conscious decision to retain the overwhelming majority of our permanent staff people. The fact that helped to establish a better trust level among our people and facilitate our restart during in the beginning of the post-pandemic meaning last summer. We have already started a process of offering scholarships for pilots. That was back in 2018. During this period, 100 scholarships were given to candidates but went through a very tight selection process. This process has matured, and pretty much all of these 100 scholarships will be by the end of May will be in our topics, flying our aircraft. This policy program was renewed in November 2022. We announced another 120 scholarships over the next 3 years, fleet year for an for young men and women that they want to develop their career in the professional civil service and started career as pilots. In 2022, we complemented our pilot program with a similar program Scholarship program going for new aircraft mechanics. We started in June 2022 with the first group of country polar ships. The first group started in September 22 in our maintenance train organization already, they started their education. And the second group of another 20 scholarships will start in March 2023. The goal here is also to create our own pool of mechanics, the same way we do with pilots, which entered the company up in issue. They will be the result of our own training and our own culture in flight ops and maintenance ops, which enhances our capacity to address the staffing needs of our operations in the coming years in a market which is, as you know, is very tight in Europe. This obviously the investment also on the art of mechanics college program very, very strongly related to the decision to develop MRO and third-party maintenance activities over the next years, which will help us to address all the staffing needs that this expansion will need. Closing the pillar of related to our people. It is extremely important to say that we really appreciated very much the persistence and the commitment and sacrifice of our people during the crisis. And we are very happy to not only to recognize the commitment and the support for the company and their persistence, but also to reward them. And as a part of the profitability bonds 2022, about 700 people, 700 pole of hours, we gave a profitability bonus, which totals EUR 12 million. On the core figure related to our customer service and our passenger service. During the pandemic, we continued our efforts to improve our customers' experience, invest in every stage of the travel journey, invest in digital technologies and services to our customers. A couple of examples. During 2022, we launched 3 new lounges extra center lines in tens, business class loans, new business class loans in Salonika Airport and renovated and enhanced [ international ] lounge at Athens International Airport. We further have passenger experience by offering high-speed in-flight broadband powered by the European Aviation Network in all our 321 new fleet. We worked and we deepened our product in our business class product, a product segment that in the past had very low contribution. But since the pandemic period has almost doubled. The fact that is the total segment, which is very important, not only for revenue but also for the perception of the company. We remain one of the few carriers in Europe that we still offer a food service for free in economy. And we believe that all our efforts that we had bank also given the pandemic and upgrading our product and offering more quality products to our passengers goes hand in hand with an overall upgrade in the Greek tourist and the target of a more qualitative segment, which is the higher segment also in the market. Finally, closing and going to the last but obviously not least, the last pillar regarding sustainability. Aegean in 2022, we launched the first sustainable aviation fuel program, and we became the first and only carrier Greece one of the keen Europe that is operating part of the domestic international network with SAP. We remain committed as the whole airline industry in the targets to achieve net 0 by 2000 by 2050. And obviously, part of our sustainability strategy, in fact, the most significant part towards the reduction of the CO emissions is the investment in our anew 310,320 and new renewal fee. The launch of the SAP program assisted and has in that direction. Overall, on the sustainability front and on the environmental front, -- the combination of the brand to a new fleet, the replacement of the turboprop fleet with more fuel-efficient ATR 72-600 and the use of SAP contributed to more or less a reduction of 10% in CO emissions per ASK in 2022 versus 2019. So this completes the [indiscernible]

So thank you very much, Dimitrios. So I think it's important for you to see areas we're working on. We'll just try to give you a take beyond the pure financials. Going back to reviewing the financials and the way forward. You will have noticed in our press release, we mentioned we would not be paying dividends for the fourth year in a row. Obviously, that's not something we aim to continue in the future, but it's something we felt we had to mention at the onset of our presentation this year because there is an element of further capital building equity building that needs to take place, a, because we have still an outstanding obligation to the state with regard to their warrants. Our current intention is when they decide to exercise the warrants, to actually buy them out. We believe this intention will still be there when and if they exercise the warrants. They've got 3 years between the 1st of July of this year and July 26. We have taken a provision of EUR 30 million against our equity when we accepted the compensation for our losses back in 2021. However, today, the price of the stock, which determines not to a certain sense, determines the value of the warrants is at a level that requires a higher provision, would require -- I'm sorry, a higher amount if beyond the provision. So that would take a certain amount of our equity. And therefore, we need to be more conservative about that. None of us are going to be unhappy if our stock price goes even higher, and the state gets a little bit more money back from what it gave that's fine, too, because that we're going to validate the direction of the company. However, we do need to be conservative as our balance sheet grows in the equity level. We've never had a problem with cash. But of course, during the pandemic, equity did get challenged to a significant degree. Now going into the outlook, first of all, let me say that this is certainly going to be the year where even at the start, we have seen that we are exceeding full total passenger numbers from the year of 2019. So we managed to exceed revenues gradually and significantly but net or passengers during 2022. The first 2 months of this year have seen us exceed the passenger count of 2019 as well. This is led by our performance in the International segment, which is showing significant strength even in winter. It's never going to make the first quota profitable. Please don't expect that, but it shows a very good dynamic going into the summer. But we have planned in terms of activity is significantly higher than 2022. So we will operate actually with 76 aircraft. We will retain a very large amount, a number of aircraft double the usual for spare in order to try to improve our performance against logistic issues, whether they are Airbus delays, whether they are end spare engine delays, whether they are any other kind of supply issue related to effective availability of aircraft. So we are doubling our spare capacity in order to deal that. So the increase in the number of the fleet is not only to grow but also to be more robust in terms of supporting our operations. So it's a similar strategy to what we're doing. We're trying to develop our people to scholarships, but of course, with aircraft is a different thing. On the other hand, we will actually fly around about 2.2 million, 2.3 million seats more than 2022. That will be about 18.1 million, EUR 18.2 billion of seats displayed altogether. And that will mean around about 20% ASK up from 22 and around about 10% ASK up from 2019. Of course, the bulk of the investment in terms of network, where we have a large number of new routes being launched from Athens and [indiscernible], especially, but also from other bases around Greece is going to be on the international side again. We will be operating to 46 countries with 261 total different routes coverage and to a total of 161 destinations, that is certainly the largest program and any Greek airline has ever flown. But more importantly than the size, what we aim to do is to make sure that this year, our operation, as I said earlier on, not only has the quality of what use does. But again, be as well-equipped as possible to be more robust. Of course, we cannot compensate for everything. We cannot compensate what happens with ATC. We cannot compensate on what happens in different airports in Europe, but we try to do what we can with our own people, with our own equipment and with our own handling main companies here in Greece to try to improve the support behind the operation because we understand and we see customers who want to travel. They're willing to pay a significant amount of travel. Our sales show that. Our presales for the summer show that. They're very strong, and we need to be able to support that, not only in size but also to the best of our capacity in terms of retaining and expanding for. So the outlook for the year at this stage is very positive. Of course, it's very x. Of course, we have seen in the last years, many black swans. We hope there will be none this year. But we always have shown that even when strength things happen, we are resilient and we are able to be flexible and come back from whatever difficulty appears. Let's hope that this summer will continue as the year starts with a very good and strong demand that our people, our aircraft and our network will be able to benefit from and get to even higher numbers than last year. Thank you, and happy to take questions.

The first question is from the Natalia Svyrou with Eurobank Equities.

Yes, and congratulations to the very solid performance of the can be very soon. I have 2 questions. One is if you could elaborate a bit more on the investment plans of the current year, what we should be expecting in the predelivery and refunds and the new service center should be considered it as more front-loaded investments like more in 2023 and a bit less in the year like in the 7 years ahead. And have you identified any investments you could carry out under the IRS funding program. That was one question on investments. And I also have a question on the jet fuel spread, which has been quite high and it remains in a high level. And I would trying understand a bit this is related to supply or production if China restrictions had an impact of this if you have any indications on this and trying to understand how this works mostly.

Starting from the end, I think you should relate back to price of Brent for what's going to happen on the crack spread. Let's just say that on our side, we have seen it go from 50 to 450 and back to 200, but still it's quite high for us. I cannot make predictions about which way that will go. That is actually more difficult for us to understand even on the fuel itself. But you are right to identified that this has been a source of cost for us. especially since the beginning of the war in the Ukraine, and it has driven a wedge a significant edge that has been up to 25% additional burden on the price of fuel beyond them. And that's beginning to calm down. Now I will not try to get you to choose between Pearl and Aegean on what we wish to happen. But obviously, we'd like to see revert to its normal levels. I can't make predictions about that. Now I can tell you, though, that whatever hedging we do is on debt by 95%, 97% as opposed to Brent because despite the fact that Brent is more liquid because we are afraid of what might happen to that spread, and therefore, we don't want to take that risk. So whatever hedging we do have is on debt, not grant also because of the variation of the variability on the tracked. Now going to investments. Investments there are several of them. The question is, of course, how do you finance the investments. The MRO and the simulator investment has 3 elements. One is a concession agreement with Athens National Airport. That's a payment of EUR 60 million and then some, let's call them, participations in the revenue, which are in the form of a minimum rent. The EUR 60 million is spread over the next 5 years. We've already paid 10 million. So let's call that EUR 10 million a year for the next few years. That's one part. And another part that's more front loaded than that is the equipment, both for the simulators primarily. However, the equipment for the simulators will be also supported by the loans that from loans that are related to the IRS. So CapEx is significant, but out-of-pocket expense will be less than that. So nothing all really significant looking at the balance sheet and cash flow capacity of the GM. What is significant is our choice of how to finance our fleet and whether to continue on the course that we've had in the past of primarily doing sale leasebacks with our aircraft that we acquired from Airbus or having more of them on balance sheet and in our ownership and of course, then deciding what degree of loan to value to finance them with. Our decision and direction in the last few months has been to try to increase over the next couple of years, the balance between owned assets and leased assets. As a result, last year, as I said, for instance, we bought all the engines, the spare engines was not an insignificant amount. It was around about EUR 60 million as opposed to doing daily stack that we would have done in the past. We also bought 3 ATR 7 and 2. In the next couple of years, we expect to be buying roughly 2 or 3 aircraft without selling lease backs. So let's say, a third of what we expect to procure in total will be -- we used to say on balance sheet, but now that IFRS everything is on balance sheet. So I don't know [ tell us ] what you like. We do need to develop our asset base, our owned asset base also as a hedge against inflation because we have seen that more important. So that's going to take -- let's call that around EUR 50 million to EUR 60 million a year that's going to be added to our CapEx. And if you combine that with the portions of the concession, the part that has to do with the equipment of the MRO or the simulators, and we're talking roughly about EUR 100 million to EUR 120 million of CapEx for each of this year and the next year. I hope I have answered your question. I don't know if I missed something.

The next question is from the line of [indiscernible] with Data Securities.

I have a couple of questions, if I may. One, how should do with any potential predelivery payments for neo news that will be paid during this year, during 2023. That's the first question. The second one has to do with the pure hedging only for the jets as you mentioned. From what level do you start the -- of hedging, you start the 2023 and after what level do you aim to reach during the course of the year, I mean, for the hedging. Third question relates to the trends that you noticed for the previous 3 quarters that we saw an accelerating growth rate in revenues compared to the ASK available, if that stands the same for 2023 so far. And last but not least, for the warrants, you mentioned that you want to keep liquidity in case the government proceeds with the exercise of the warrants and so was to buy them back and cancel them. Due to the recent political turmoil and developments, supposing that government does not go on with willing to exercise the warrants in this July when there is the 2-year anniversary. Are you willing to keep the money in the balance sheet or you are probably thinking of rewarding shareholders with something extra during H2-23 or you are not invited to give any remuneration as long as the warrants are there.

Okay. Rewarding shareholders being that I am one is always close to my heart, and I have basically, as you know, 65% of the shareholder base is in our Board. Therefore, second to serving our passengers and second to keeping flying as safe as we can. This is also a very important concern. So let me be very clear. I did not mention, first of all, that retaining cash is a constraint, gaining equity levels. Cash in the company, as we wrote already on the press release, we have actually on the 15th of March, we paid the last of the remaining loans that we took from during Covid. During Covid, we raised in total EUR 270 million of loans from the 4 major big banks. We paid back EUR 120 million in the summer of '21 million and the GB capital increase. We paid back another EUR 80 million circa in last December. So before the reporting of these results, and we paid another EUR 68 million, which was the last part as of 2 days ago, if memory serves on the 15th of March. That means that EUR 270 million has been repaid. And as we also wrote in the press release, our current liquidity levels are in excess of EUR 500 million, and they are building for the summer. So in terms of availability of cash, there's absolutely no restrictions to do anything reasonably relevant to the running of the company or indeed of paying or execute on the CapEx or of paying dividends, nor is there a restriction in the warrants, agreed with the Greek state that does not allow us to pay dividends even this year. However, we felt because we live in a world that's become more volatile and because we have a growing balance sheet because of the number of aircraft -- new aircraft that we're investing in, that we need to develop our equity base at a higher level. Our equity level, not our cash flow. Therefore, we need more time to build it higher, and we need more good years like the one we just had. Hopefully, if things continue as they look like today, and that's always a big if in this world. Then we will have a significantly stronger equity base by the end of 2023. And that means that we will be able both to have a very safe balance sheet, at the same time, be able to pay back the warrants at any time that the government or any government decides to exercise them. And of course, we intend, if indeed, we have a good year as we expect in 2023 to start paying dividends to our shareholders in 2024, irrespective of whether the government has or any government have actually exercised these warrants or not. What we need to build is our equity base. We have 2 very strong loss-making years. Then we had a capital increase. We had the loss recovery, the loss recovery fund or fund amount given by the government of EUR 120 million. We took a EUR 30 million provision against our equity for the value of the warrants already. So that's already gone from our equity. And we had a first positive year with EUR 106 million after tax in 2022, we're building our equity at higher levels, but we want to be, let's call it, over 400 million of equity before we start paying dividends. That's basically is because our balance sheet has grown. And yes, if the value of the share, for instance, is what it is today, and the government exercised the warrants, then we'll need about EUR 42 million to pay. And that will mean another EUR 12 million hit on the equity because we've taken the provision of 30 million. Therefore, that's the additional potential effect, let's say, if the price is like today, another EUR 12 million. If the price gets hold to be positive, is another EUR 1 higher. That will be another EUR 10 million because about 10.5 million warrants. So what I'm trying to say, to be clear, we're trying to be conservative to have strong equity. We don't have restrictions from what has been agreed to the government, other of course, then to fulfill our obligation when they exercise are they to allow them to become shareholders or buy out their rights. We've always indicated we prefer to be in a position to buy out the right, and we're trying to secure that. There is no restriction in terms of legal restriction of paying out dividends that's related to the exercise of the warrant from the big government. Now I think I've covered that. PBP is a very easy answer. PDP net-net 0 this year. That means the money we're getting back from deliveries and the buy we're paying in is roughly the same. It will go up, it will go down during the year. But net-net, beginning plan is 0. And from 2024 and on, it begins to just slow down. So from now on, PBP, is 0 for this year, net-net or from 2024 and on begin to decrease. Hedging level is around about 54%, 55% as we -- sorry, let me say it's up 62% in total for 2023. So it's on get fuel, and it's around EUR 850 per metric ton, which is the hedging level. We've also had a small amount for 2024 at lower levels. So that is the total that we have, and it covers all our cover, as I said, 62% of our means. Now the trends, I said earlier on, yes, the sales are higher than 2019. Yes, there is an increase of revenue related to the ASKs. We need an increase of revenue related to the ASKs because costs are higher. More or less all costs are higher. So not only do you need to be over the amount of ASKs you're producing relative to 2019, but you need significantly higher than that. For now, we seem to be going the right way. Hopefully, it will continue. So I think I've answered again all our questions.

The next question is from the line of Caithaml Jakub with Wood and Company

I wanted to ask about the capacity outlook from your competitors for the summer season to the extent that you may have visibility already. Can you share with us how much capacity do you expect will be allocated to Greece either compared to last summer or to summer '19, then on pricing, do you already have some visibility into late second quarter? And if so, how do May or June yields compared to the levels we have seen during those months in '22? And lastly, something which you touched on in the last center. Could you elaborate a bit more on the evolution of the ex-fuel CASK with the inflationary pressures on one hand, the efficiency achieved by the more efficient fleet on the other, what do you expect will be the key drivers of the ex-fuel cost year-on-year?

Okay. Thank you for the question. So capacity, when we look at published figures of scheduled flights, we are talking about 5%, circa 5% capacity all over Greece increased relative to 2022, but 15% relative to 2019. That is because already last year, there was actually more capacity decrease than the 2019. And of course, the deltas relative to last year are primarily in the first part of the year, the first 6 months, and they also refer mostly to activity towards [indiscernible] whereas in the regions, the rest of the islands, which were really high also. As of last year, there is ins and outs, but round about net-net, a very small increase. So overall, again, 5% to 6% relative to 2022 as market capacity, not competitors, which includes ours, which is single higher than that. So the average for the competition is a little less and 15% relative to 2019 for the overall market, which is a little more than we're up, which means, basically, this year, we're catching up with the capacity recovery towards Greece that some competitors have shown. And of course, we are shifting the capacity between routes and between airports in a way that we consider more productive. So that was question number one. Question number 2, about yields. I think other than to repeat things are looking good. I shouldn't say so much because typically, when we say things are looking good, it means that their prebookings, which are only a share of your bookings are somewhat higher fares than they used to be in '19, and that looks good. But until you actually see that the pattern up until the day of flight continues in the same trend. You cannot give a definitive response to your question, and I'd rather be a little bit more conservative about that, but we feel pretty good about it. The last part I missed, was it about nonfuel costs, I think. Nonfuel costs. I think we do need to recognize that there is an inflationary environment, and that means that our employees must be compensated in a different way, depends on what kind, what level of people and what specialization within the company could be a fixed increase or could be participation through productivity bonuses or profitability bonuses already a combination of the above, but definitely that's a part of it. Also what is clear is that airports around Europe are increasing their fees and charging levels, and that refers to some of the airports of Greece as well as well as people effort to fly into Europe. Same for handling services. And of course, we see escalation but significantly higher than usual on all kinds of supplier agreements for maintenance or parts around the effects. So all that comes together to create significantly higher inflationary pressures were to the past. And on the other hand, you have improvements because either we have one type less of aircraft with the APR with the removal of the Q400s and having now the smaller crops and the larger crops the same time, 7260, whether it is the higher number of new aircraft, more fuel-efficient aircraft in the fleet, but also more seats paragraph in the fleet. And of course, because they are younger, lower maintenance costs. So do we expect an improvement on the non-fuel cost per ASK, I would say it's hard to say because by the end, it will depend on the level of utilization. And one more thing that is burdening us is the retention of additional aircraft for spare, as I mentioned the real one. So I wouldn't expect a significant improvement on that area. It will depend more on the utilization side and how all these different effects come together. If I had to bet, I would expect that nonfuel costs will go up by a couple of percentage points or 3. I think that should cover.

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

Great congratulations. I have a few questions actually. First of all, on the capacity guidance, so you mentioned that you won't fly 18 million seats, which is broadly as same as 2019, while the number of aircrafts are significantly higher. In 2019, you have about 67 aircraft. And now you're saying you're flying 76 years and for number of seats are same. So where is the way the mismatch. So that's my first question. Go question by question.

Sorry, to answer that we get it out the way. The number of seats are the same, not the ASK. The ASKs are going to be 10% higher. All the buildup is in international. So sets are not the only count the ASK is 10% higher. So that takes part of your question. And the other part of your question is answered by the fact that we are doubling the number of spare aircraft from the back to cover for logistic fissures... Sorry.

So does that mean you are saying that you will not defensively you will not be flying 76 aircraft, is that what trying to say?

We will be operating 76 aircraft, but we are retaining aircraft for spare. Every year, we have aircraft for spare. Usually, it's 3 to 4. Now it's going to be 6 to 7 between all the number of agri. So around about 6 or 7 aircraft instead of 3 to 4 aircraft will not be flying. Why? Because we want to be ready for Airbus delays. We want to be ready for spare engine delays. We want to be ready for spare part delays. Last year, we had to pay around EUR 9 million in the summer for 2 very expensive ACMI, meaning wet leasing of aircraft operated by others because of Airbus delays and because of spare engine delays. We want to avoid that cost, but we also want to avoid the disruption to our operations and to our passengers because we feel as we are charging them more as all other airlines do. And as we're trying to also say that we are having a better product, we need to support that and how can we support that other than training rather than trying to have better support by our handler and also having more spare capacity in the back to cover for what we've seen every year since the pandemic, a completely different logistics in a than before. And I'm sure you've read and heard about that. So that's the reason that there are 3, 4 more star craft than there would be. So that's about, let's call it, a 4% to 5% gap in the number of aircraft, but also we will be producing 10% more ASK. So at 67% plus 10% is 73%. The 73% to 76% is the spare aircraft gap.

And how should we look at the usage in terms of utilization of assets versus 2019?

Well, obviously, that means that if you have 14%, 15% more aircraft and 10% more ASK relative to 2018 -- '19, I'm sorry, is going to be a little bit lower because this is what the spare aircraft, this is the cost of having the spare aircraft. But you have that cost in a worse way already in 2022. Why? Because when we pay the EUR 9 million for the 2 ACMI aircraft, that's equivalent to 5 aircraft of that age sitting around unused. So instead of 5, we're going for 3 that can be flown by our crews as opposed to somebody else's. So that's how you think about it.

Okay. No, fair enough. Second question I had around the shortage of pilots and crew, I mean, I'm listening a lot about the shortage of piloting yesterday. Yesterday only Air France announced something about the pilots, I mean, paying some extra bonus if they cancel the lead. I mean, how do you see the situation in terms of pilots and crew, especially when the demand is growing so fast, so rapidly and everybody is growing. So how do you see that? Is that issue? Can that be a risk to the capacity [indiscernible]?

This is precisely the reason why we embarked on the scholarship programs that Dimitris mentioned earlier on. And we identified this risk back in 2018, '19, which is why we became the first company ever in our country at least to invest EUR 7 million on training people didn't know, but they put through a lot of testing before we accepted these people in this solution program. And we've paid for 2 years of education in what is the broad pilot license, the initial pilot later and then, of course, their pirated to join our specific just operation, Airbus 320 321. Therefore, we have seen that coming for a long time, and we have tried to address the fact of paying EUR 60,000 for young Greek to the trend as a co-captain a pilot is a very large amount of money, which is why we instituted this scholarship program back in 2018. As he mentioned, we also went into V2 with another 120 people over the next 3 years. So we have secured today crews more -- sorry, 80 individuals more for our organic operations that are people who own their ability to be pilots, to become pilots to Aegean. And this, we hope, is also not a quantitative issue only, but also we hope a trust and loyalty issue going forward, which might allow us if we treat them right and if the company develops well to have a different relationship with us, and they would be to just hire them off to market. So this is how we've been dealing with this issue in a very, very medium-term plan way in a very unique way, especially for a country at because I don't know what other people do in other countries. So today, I cannot say that this is not an issue for all the airlines, but I think we have a pretty good situation and one where we have basically 20% more organic pilots than we had before the pandemic. And I think very, very few people in Europe can say that.

All right. Okay. The other thing I wanted to understand about the domestic demand. So you mentioned that international demand has been very strong. But now, of course, given that the Greek economy is doing so well, do you see -- I mean why do you see the domestic demand is not recovering at that international demand is coming better than domestic. What kind of weakness do you see in the domestic demand? Or how do you see rather domestic demand versus 2019?

No, no. I would never say that domestic demand is weak. Overall, domestic market is recovering pretty well and it's actually a little bit higher, I think, already than it was in 2019. But there is a domestic competitor that is now using Airbus jets as well that did not exist before the pandemic, and therefore, they take away around about 10% more of the market than they did when they were flying just cross. As a result, we have to compensate for that in our thinking. But that's only a normal, let's say, a normal matter. Now in terms of how much that affects us, as we also wrote in our press release, we are, 80% of our revenue is international every year, international becomes more of a part of our revenue, and that's where we make most of our profit. However, it's true to say that, yes, around about 10% of domestic market share has been lost since before the crisis because our domestic competitor is now flying jets as well as opposed to just drops. So the domestic demand is not at all weaker overall than what it was before the crisis. It has a smaller capacity delta than the international because it doesn't depend so much on tourism. It's more about people moving one place to the other and more tourists in the summer. But that's the situation there.

Sorry, when we say domestic peers, are you referring to the players like Ryanair and all? Or I mean, are you talking about the local players?

No, no, local one. Actually, Ryanair, there are 4 companies partially active in the Greek market. I mean one, of course, is us. Second is Ryanair, but only a couple of routes. And typically only in the summer, [indiscernible] is also active in domestic routes, 3 or 4 of them, but again, 5 of them actually, but only in the summer. And then there's a local competitor by Express, which has existed for about 8, 10 years now, initially only with crops and then eventually with just as well. And it's the evolution of the jet capacity of the local competitor that I'm referring to. So that capacity has grown. The capacity of Ryanair and the domestic market is less. The capacity of a couple of other small operators that used to exist in the past over Greek has disappeared. So there's ins and outs, but broadly speaking now, there's less international competition in the domestic market and more local competitor.

Right. Sorry, I have last 2 questions. I'm sorry for the long list, but I told me I'll shut up after that. So I have last 2 questions, please. So one, if you could just discuss a bit more about your SAP usage. You said you're using SAP. And of course, along with the more advanced airplanes, have you've been able to cut your carbon emission? I mean, I'm just guessing, most of the carbonization reduction must have come -- must have come from -- because of the more...

Don't trouble yourself. You should have added the word.

So now I just want to understand, I mean, what is the kind of -- what is the -- what kind of blend you're doing in SAS and...

Hold on... There's no reason -- we are only trialing. We have initiated the use of SAS a trial basis, a very small amount. It's very difficult to source higher and, of course, very expensive. We're using it on a trial basis in Thessaloniki, but on a trial basis, the bulk of the delta comes from just burning less fuel by using more fuel-efficient aircraft, which is why, again, this year, going from 2023, I title explained, when we go up to around about 40% of the hours flown by just 48%, I think it was by the new fleet. That's going to bring a reduction that's again going to be more significant. But about 99% of the improvement does not come from SAS a trial basis with us as it is with other in Europe.

Yes, exactly. That's what it was. I'm sorry, but I was actually -- I was actually requesting you to expand a little bit more about in terms of SAS. So when you use SAS, of course, I heard from the other European airlines that we are so trying to build into the fare at some stage, but the takers are not very many, not many passengers are ready to pay for carbon emission. Do you have any thoughts around that? So if you could please share that? And my last question was around the warrants. You said that if the government wants to convert or want to exercise those warrants, then of course, you will have to -- there will be some additional burden. But then the question is that would you really want a government interference because if the vet government as an option, then, of course, the government will be onboard and there'll be a sort of interference from the government, how do you see that situation?

I think what was highlighted and what I said earlier on is what is the warrant? A warrant is the right to participate in the capital increase at what level, at the level of the share price that we conducted the capital increase in June '21. What is that? That's EUR 3.2 per share. How many are the warrants? 10.4 million, EUR 10.5 million. So technically, when the government exercises their right, they declare their intention to participate in a capital increase in a discounted way, a dilutive way for the shareholders that would allow them to invest EUR 34 million in the company and get round about 10% of the company. When we do that, we have the right when they do that, if they do that, to buy out their rights by carting warrants by saying the delta between the stock price and the 3.2x the number of warrants. So we, today, and we have always felt. So long as we can do it, we will do it. We will buy out the warrants, one and upon their intention to exercise. So that's what I described earlier on. If they were to come here in July and say, yes, we want to do it, and the price was as it is today, that would be an amount that we would need to be able to invest EUR 40 million, EUR 42 million, EUR 43 million. You can follow it every day with the price of the share that we could pay out. And we've already taken a provision of EUR 30 million for that. So as I said, cash-wise, it might be EUR 4 million, EUR 42 million, EUR 45 million, additional provision or additional hit to equity wise, it will be the delta between the final cost and the EUR 30 million that we're taking a provision for. So yes, we have the cash, of course, to do that, and we have the intention to do that when and if they exercise the warrants.

Okay. And on SAP one, please, if you could share your thoughts.

On SAP, I think what is clear is that there are 2 different things, how an airline reduces what it turns in terms of CO2 and or the mix in terms of CO2. And on the other hand, how an airline relates with passengers. Those are 2 different things that we intend to approach in completely different ways. We have a program about how to enact different smaller or larger actions that make us look more concerned about sustainability goes beyond just fuel to our customers with the materials that we use in flights, what we use to serve food with everything else and, of course, going into also how we fly and what we use for line. But that's different, but about the impressions of the customer and the effort that should be consistent around different directions for retainability. The real issue about fuel, as I said, in the short run of the next 2, 3, 4 years can only be determined by the efficiency of the engine. The amount of SAP are going to be very small. So for the next 4 or 5 years, regardless of what kind of staff we're talking about, the effect is going to be negligible in terms of what's going to be used. Beyond that, it will depend on how different investors in the energy field come together to bring down these costs and to increase the supply. Unless the increase of the supply takes place, it's clear that we will not -- not we, any airline in Europe will not be able to materially use those and then comes the issue of course. But to make a long story to for the next 3, 4 years, it's the efficiency of the planes that we use that's going to drive things. Beyond that, it's going to be the investment in the development in SAP. I'm not ready to tell you today because it doesn't really depend on a genre prayer airlines, how the cost of the supplier of SAP is going to develop. That's a European-wide problem, it goes far beyond the aviation industry even, and it's an issue that needs -- that could have a lot of solutions, but do not depend on us.

The next question is from the line of [indiscernible] With Capital.

A couple on my side, please. Firstly, on your international expansion plans. I was wondering if you could give a bit more color on whether -- how much of the ASK growth? And how much is from frequency, what part is from destination increase? Then with all the aircraft coming in and the rate environment going, could you talk a bit about how you handle the interest rate impact pressures with hedging and everything? And finally, if you'd like to comment on just any color direction guidance on EBITDA margin for '23 versus '22?

Right. So first of all, I would like to say that what is clear is that the bulk -- I don't have a division between new routes and existing routes or frequency. But I can tell you this, the bulk of the ASKs will always come from existing routes. And this year, in addition, we have the big delta on ASKs that's going to come on the first 6 months, because of what happened last year and the years before. So I would say expect 98% of the ASKs to come from increase of frequency in existing routes. Why? Because first, they will be fully flown in the first 6 months. And second, even the delta on peak is going to be mainly in frequency as we in those existing routes because those are the from crudes. The routes that we launched this year, whether they are 3 Baltic routes, whether there are 2, 3 additional routes in the Peninsula in Sevilla or in Palma de Mallorca. These are seasonal, they're small. We're doing many different ones. We're doing Olbia and Sardinia. we're doing Daman and Kuwait in Saudi and Glad, respectively. We have a number of routes that expand on 2 things, expand on our relevance to adding to the Appen hub and expand also on the ability to bring people directly to open and to other places. We are making a significant investment in Thessaloniki. We are flying even in winter, 6 more routes, and we're flying at the same time last year, and those are, I would say, significant routes because they're Zurich, Berlin Milan and Rome and Brussels. And so there are significant routes that are coming online, but the bulk of ASK is from existing routes for the 2 reasons I mentioned. Now margin on EBITDA, I wish I now. And I would -- if I did, then I would be a very happy person if it was going the right way. I think there's a lot of positive things about this year, but it's always good to give more definitive guidance by the end of early by June or the end of June. Typically, after we publish at least our first quarter and we have a good idea of what Q3 presales mean. Because today, if we're doing better than 2019, that's good, but that still means that we have a lot of capacity to sell for the summer and how we sell it will determine a lot of the EBITDA that you're asking for. It looks good, but it's early.

On the interest rate and effects

yes. We have a number of swaps for some of the aircraft deliveries that we're taking this year. I believe we've got another 4 or 5 that are in existence and are 4 or 5 of them are significantly in the money, so protecting a little bit of the cost of the interest. But broadly speaking, there is no way to get away from past no matter where we entered new agreements, whether they are floating rate or fixed rates, they are a significantly higher level than the past. There is some comfort to the fact that, of course, our cash, which is typically invested in very secure either depository or bill and government bond type or AA bond type investments will be somewhat higher yield than in the past, but that's a small compensation for the overall increase of interest rates. So I think the most important thing we will be doing for that is using, as I said, more of our cash to buy aircraft as opposed to lease aircraft because that in effect, we'll have both a better yield and be a better inflation hedge at the same time and allow us to be more flexible in the future in the case we need to change the size of our fleet without having to negotiate with the lessor. And typically in difficult situations is not a navy discussion.

Maybe one small thing on capacity of Athens Airport with capacities growing from you from competition. Do you have any color on what's the capacity utilization rate when if at all, you think it would be full in what time frame?

The word full is a complex word in discussing an airport, the size of Athens. Athens is a long way from being full in terms of runway capacity in terms of ability of aircraft to land and they go from 2 runways that has got a lot of room to grow from that aspect. And then there is the terminal space, which dermis, let's call it, the comfort level of passengers and how you feel when you're inside the terminal is getting more crowded. And yes, indeed, there is a plan by Athens Airport to expand. There's also an obligation by Athens Airport to expand as it reaches certain numbers, the obligation comes from the concession agreement with the Greek State. The Athens Airport, as you know, is one to be listed in the Appen Stock Exchange. So I'm sure they will be eager to show that they are developing and investing, and we are eager to see them do that. Now granted had we not have Covid perhaps some expansion would have already taken place, but like-on-like. So short answer, runway capacity, no restriction for a long, long time, and that's the main restrictive part in airports. So there's no issue there. Terminal space, it is important, but they do take investment[Audio Gap] if it's delayed by a couple of years relative to what we would like, yes, that's true. But it's not so intense this delay or so large this delay that will really affect our operations too much.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Vassilakis for any closing comments.

Thank you. So, ladies and gentlemen, thank you for attending our conference call. We're very happy to be reporting these great results and that we're back on track to being and looking like a healthy developing European airline with a very good margin with, I believe, an excellent product and an improving product with the investments that we're making both on the aircraft and on our service. Of course, as always, our people and the development of our people is what's going to determine our ability to compete forward. And I hope that Dimitri gave you a very good idea about some of the things we do to deepen our ability to compete and deepen our ability to offer the kind of service that will deserve a good EBITDA margin and eventually dividends that our shareholders expect. So thank you for attending, and I hope to have equally good news the next time we can.

Thanks... Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for the call, and have a good afternoon.