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

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome, and thank you for joining the Aegean Airlines conference call to present and discuss the briefing on current developments. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference call over to Mr. Eftichios Vassilakis, Chairman. Mr. Vassilakis, you may now proceed.

Hello, everybody. Good afternoon, and welcome to our briefing. We thought, especially due to the AGM that we have announced, the extraordinary agenda was announced that we needed to have another briefing call. And I hope you found whatever you hear, helpful. in understanding the states we're in. So I'll start from our results, which we published 10 days ago, then go a little bit to the extraordinary general assembly and the warrants issue, talk to you a little bit about our fleet and the GTF issue and then, an overall outlook as we go towards the end of the year, the beginning of next year. We'll try to keep the discussion on a relatively high level to steer you into understanding a little bit more about our company. And I would appreciate that questions also stay on a relatively broader level since the Investor Relations department has already, to some degree, taken questions on detailed figures. And of course, they're available to you after this brief as well. So starting from our results, 10 days ago, we published on the 14th of November, what is clearly the strongest 9 months results we have ever released. It's very important for us that after an extremely positive year of 2022, we managed to have a year in 2023 or even in Q3, which was already historical high on a quarter-by-quarter basis of '22, the numbers of Q3 '22 were exceeded by Q3 '23. And as a result, the overall 9-month picture of the company, the results of the company, comes to EUR 1.33 billion of consolidated revenue, EUR 367 million of EBITDA, EUR 217 million of profit before tax and EUR 170 million of profit after tax. Clearly, these results which are significantly higher than last year, 30% -- 31% higher on revenue, 56% higher on EBITDA, 79% on pretax profit and 83% on after-tax profit are extremely strong, considering once again that last year was already a record year for us. And I think they do serve to establish that the company not only has fully recovered within -- on the post COVID, let's say, period, but also has probably strengthened its overall position in the market as the relative strength of its results, the relative strength of its profitability relative to what we have seen in the market also ranks very well and with some degree of significant improvement relative to how we used to rank back in 2019. What's also extremely significant for us is that the cash flow side has developed extremely well. We have EUR 755 million of cash and equivalents at the end of the third quarter. That's EUR 230 million more than at the end of the year after significant CapEx activity and repayments of debt, either relating to COVID related loans or actually even aircraft financed before 2021, where we have opted to increase a little bit the degree to which we own aircraft. So overall, extremely strong cash flows, never have seen cash flow level again at the level that we have seen for these 9 months, resulting into a situation where our net debt even including, of course, the lease liabilities, which is the part that is growing as per IFRS 16 stands at a level that's around about EUR 70 million lower. Net debt stands at EUR 70 million lower than it was at the end of '22, and more importantly, the EBITDA-to-debt ratio has fallen from 1.7 of last year. The trailing 12-month EBITDA is now -- today it is now just 1, tracking from the last quarter of '22 to the third quarter of '23. And I believe this number puts us also very high up there in comparison with the healthiest of airlines, not only in terms of profitability, but also adjusted for size, of course, also for our balance sheet. If we want to consider slightly more commercial elements, I think all ratios, again, showed a positive evolution. There is a positive evolution in the load factor in the 9 months of 4.7% higher. There's a positive evolution for the quarter at 1.8% higher from 83.9% to 85.6%, which is also significant. There is a slight reduction on the cost per ASK for the quarter by 1% for the 9 months or minus 2%. And excluding the fuel, our overall cost per ASK despite the significant inflationary pressures, which affects several aspects of our cost is only 1% up without a significant change, of course, in the average sector length, which has stayed around about the same level as last year. RASK has continued to perform as we have outlined to you in our previous calls. In other words, in the third quarter, it was more or less in line to what it was in Q3 2022. Of course, with a significantly higher level of activity and density of operations. So at the full 9 months, we're actually 5% higher on RASK than for the previous year. In terms of -- in terms of profitability, I think what is also important to note, as a ratio it is the fact that on an EBITDA level of 9 months, we are at 28%, which I believe ranks extremely high -- highly among European airlines. And even on net income versus revenue level, we're just below 13% to 12.8% again, one of the highest numbers among European listed airlines that we've actually seen. So a very positive quarter and an extremely positive 9 months, establishing a higher degree of confidence for us as we go forward. I think it's also important to highlight that, as we also did in our last call, it's important to highlight that the improvement is driven not only by continuing increase in the tourism flows coming into the country, which have continued to also grow the difference being that we gained market share this year versus the year before. So our rate of growth in the market, in the international and in the domestic market was higher than the average this year relative to the industry, whereas last year, it was the other way around. But tourism flows in the country in both cases have been growing. What we've also highlighted is that the improvement in the Greek economy and the post COVID era continue to drive a resurgence of travel by Greeks. And so it is both elements of domestic consumption and incoming tourism-related flows but actually support our development and performance. And we see that also coming out of the summer, of course, towards the more winter months, where as it typically is the case, Greeks become a higher percent of our overall customer base. So that is also a very encouraging feature of what is going on. I will not go into more details on the results because I believe you've had already 10 days to look at them, and I'm sure you've asked our Investor Relations team a lot of questions already. I think you will agree that they are indeed extremely strong and very promising for the continuation of the company going forward. So I'll switch into the second topic I wanted to discuss. This refers to the fact that on the 3rd of November of this year, we received from the Greek state the notice of their intention to exercise all of their warrant rights in the company. We immediately briefed the market. This was a Friday. On the 6th of November, we immediately briefed the market to this event. This is, of course, in terms of an outstanding issue for the company, very well known to you. It's been there since the summer of '21 when we completed our capital increase and then received the compensation of the EUR 120 million as approved by the EU from the Greek government and as a function of the overall agreement between the company and the Greek state, despite the fact that the EUR 120 million were compensation and therefore, not redeemable. The Greek state had placed 2 more conditions. One, of course, that we preceded their support by EUR 60 million private shareholder capital increase, which took place in June '21, preceding the July grant. And also after receiving the grant, we issued the rights for the Greek state to receive a total of EUR 10.4 million warrants into the company, exercisable for 3 years from July '23 to July '26 and at the strike price, which was the price of the equal to the price of the capital increase of June '21, i.e., EUR 3.2 million -- sorry, EUR 3.2 per share. Therefore, on the third of November, we were already 3, 4 months within the period that the Greek state had the right to do so. We, of course, had signaled in several -- on several occasions that as a company, we were already from a capital point of view and from a liquidity point of view, in a position to potentially buy out warrants. The Greek state, therefore, obviously observing also a significant appreciation in the value of the share, which has taken place even duration of the year, decides to exercise the right and send us a notice on the third of November. As a function of their exercise, what happens, automatically the day that they submit their intention or they declare their intention locks in the 60-day average weighted price preceding those -- that date as an average share price, whereby actions will be calculated. The 60 preceding days had an average share of [ 11.4 ] which means that effectively, 2 things can happen. We, as a company, have the right upon the exercise of the Greek state to decide, obviously, through a general assembly to repurchase these rights paying the Greek state EUR 11.4, minus EUR 3.2, so EUR 8.20-something per share or a total of EUR 85.4 million to buy back these rights and never have these shares issued so they can dilute our current shareholding base or alternatively, if the AGM so decided we could allow the Greek state, if we could actually ask to the Greek state that we don't intend to buy out their rights and allow them to become shareholders by spending EUR 3.2 per share and increasing the capital of the company and diluting by EUR 33 million and diluting our existing shareholder base by roughly 10.3%. So these were the 2 options created -- specified, I would say, by the date of the Greek state decided to exercise the warrant upon. And we, of course, immediately notified the market about what was going on. We notified the market about the values that I just referred to you with our sixth November announcement, which was very specific about all the numbers I just mentioned and also letting the market know, we would immediately call a general assembly so that we can respond to the state within the 60 days described by the law and the terms of the warrants. And this is, of course, what we have done. We have called the General Assembly for the 14th of December in order for this issue to be decided on. At the same time, we have also informed the market just a few days back when we announced the general assembly that we have received notice already from 60% of the existing -- or shareholders representing more than 60% of the company that they intend to know to vote in favor of the buyout of the warrants by the company. And therefore, the outcome of the general assembly is assured. We will certainly, post the general assembly, have a situation where the company will indeed pay the EUR 85.4 million, reduce this capital by this amount and retire the right of the Greek state to dilute our exiting shareholding base. Now this is the technical part from a market, commercial and I would say, completion of a cycle point of view. I can say that it's very important for us that this entire issue is now heading towards its completion. It has been defined as a level of buyout. It's an overhang over the company, which we're very eager to see completed and also a very important step in terms of signaling to be able to say to the public and to the Greek state that even though we received the aid in an unconditional way, meaning in a nonredeemable way as compensation, the value of the warrants that we have granted has far exceeded what the expectations of the state on the value of that warrant were at the time that it was granted to them. Why? Well, simply because the company, of course, has performed so well in terms of profitability and in terms of market price. And so we are very eager to complete this process, put it behind us, give the satisfaction to the Greek state that it has gotten a value from the warrants that was significantly higher than what they initially had budgeted when they got it and this is a win-win situation. Obviously, since this increase in value only comes from the increase of the value of the shares and the performance of the company itself. So very important to put this whole cycle behind us, the company has recovered in revenues. It has recovered in employment. It has recovered in network. It has more than recovered in profitability and therefore, it's very important that this whole cycle is completed, and we are once again out there, without any further burdens or pending contingent liabilities that could dilute the company in the future. And of course, based on what we told you earlier about the level of the cash flow of the company and the level of the cash at the end of September, standing at EUR 755 million. I think we all understand this is not a problem for our company from a liquidity point of view. So I'll stop there with regards to this matter as well. Once again, of course, formally, it will be decided at the general assembly on the 14th of December. However, having received from already 60% shareholding-based component, aggregate components, their intention to vote and support, it is virtually guaranteed. Now moving further down. Briefing you about our fleet. Here, we have 2 developments, 1 positive one and 1 not positive one, which, of course, you have been already pre-notified by us and by others. The positive development is that we have decided to expand the count of aircraft ordered from Airbus from 46 to 50. So we exercised our remaining option for 3 aircraft and also secured another aircraft from a lessor. So increasing the count of overall NEOs to be received for the company from 46 to 50. At the same time, also converted 5 of the remaining aircrafts that we have not received from 320 to 321. This means that because also all the options and the additional aircraft are 321, we will be looking at the total fleet of NEOs that will arrive at 50 aircraft total count with 29 aircraft, all those being 321 NEOs, up from a total of 20 NEOs. -- sorry, 20 321 NEOs prior to the conversions and the options exercise. So we are going to a 60% penetration of 321 versus 320 in the order and we're expanding the order by 4 aircraft and converting another 5. The effect of this expansion in the order will not be immediately felt because the first aircraft that affects refers to 25 and the others are beyond that. So the effect in capacity is not immediate. But I think what's important is that we have recognized both the value of the order and the terms we have secured from the market before. So we wanted to make sure that we exercise our options. And at the same time that we also have seen how valuable it is to use the 321 NEOs and the additional fleet they provide and how efficient that is and, therefore, have moved to further increase, and this is a second time we do that through conversion of the penetration of 321 to the total order now reaching 60% or 29 out of 50 aircraft to be received in total. As a reminder, as of today, we have actually received 28 aircraft, and therefore, there are another 22 aircraft to go. Now turning to the second issue that refers to fleet, which is definitely not a pleasant one. It refers to the GTF engine issues. As you might recall, it's an issue we touched during our September call as well. However, just 4 days after the briefing of GM to the market, so our briefing call was on September 7. On September 11, Pratt and RTX, it's a mother company made a significant disclosure about a rare condition in the powder metal used in the GTF engines, and certain engine parts of the GTF engines which make a long story short because you've heard it from many airlines in the market since it affects more than 40 airlines worldwide and a very significant overall number of aircraft. It means that basically to ensure that this issue does not ever come to affect the operation of the aircraft, what does the manufacturer and the regulator mandate we do is that the engines are inspected after significantly lower levels of cycles or lower level of maturing than initially prescribed by the manufacturer. So what does that mean is that as aircraft reach a certain level of cycles, then they have to come down, the engines have to get off and b, inspected and potentially repaired by the MRO. However, the MRO where they receive their power is duration support. However, the issue that typically arise and it is certainly one of those cases when there is such a high number of aircraft around the world that require additional inspections and repair. It's that actually the MRO capacity is not adequate. And as a result, you have very significant waiting times before -- between the time that the engines are grounded or the aircrafts are grounded, and the time where the engines are returned into -- after the repair into use. At the same time, the number of spare engines that we have or that the manufacturer is able to provide is not adequate to cover the shortfall in the engines and the net effect is a high number of grounded aircraft. This -- for our current 28, our current fleet is at 28 NEOs. It will be at 31 NEOs, including some deliveries we expect by next year in July. Out of these aircrafts, we expect an average of 10 aircrafts to be grounded on average. It's not going to be a steady number. It's going to start lower and get there for 2024 which means, in total, we have 32 CEOs, 31 NEOs, out of an overall fleet of 63 aircraft that will be available to us in Jets, excluding the turboprops 10 aircraft, so roughly 1 out of 6 will be forced to be grounded during the course of the year on average, and we do expect this problem to be in an equivalent level on the year after that in 2025. We do not yet have for 2025, the floor availabilities that we seem to have for 2024. So it's not easy to be certain for '25. But the 2024 projection, we think, is quite solid. Now naturally, 10 aircraft being -- 10 aircraft among the newest and more efficient aircraft being out of commission due to the requirement to inspect the engines and have the whole cycle, removal, waiting time to go into MRO inspection return, taking a very long period of time, which seems to be now round about a year for each one of those cases is certainly a very significant effect. And here, there are 2 directions of remedy. One direction of remedy refers to what we do with our fleet in terms of balancing this shortfall. And there, the main reaction is the extension of expiring aircraft. So we have already procured the extension of 5 expiring sales in order to cover -- to partially cover this 10 aircraft shortfall. And of course, then you still have a shortfall relative to what you intended to do around about 5 aircraft. And there, you will see a GM in essence, using its charter capacity by 4 aircraft relative to what the plan initially was, which means that we'll make our charter capacity, our charter -- sorry, activity quite low. In 2023, our charter activity in total stood at 6 aircraft, whereas in 2024, our charter activity will stand only at 2 aircraft. So 5 aircraft we have covered from extensions to 4 aircraft we will cover from not operating charter activity. Actually, 3 out of 4 of the aircraft will not be operated as charters, did not even operate out of Greece. They operated 2 of them out of Romania, 1 of them out of France. And therefore, we're not certainly part of the core of the activity of Aegean or indeed part of the true scheduled or commercial activity of the Aegean, they were not part of what we consider the most important and the most important to defend either in terms of margin or commercial rationale and commercial presence activity. Therefore, taking all that into consideration, what is going to be our expected output in terms of ASK for next year? We had signaled that we were looking at levels between 6% and 8% growth of ASKs for 2024 relative to 2023. Now we're going to be looking at levels between 2% and 4% ASK growth for 2024. So that's around about a 4% loss of ability to develop. But again, I want to highlight that what we want to do in terms of increasing capacity out of Athens and out of Thessaloniki in terms of our hub and our important commercial destinations will continue to happen. You will see us increasing capacity to existing routes and to new routes such as Dubai, we just started about now 20 days ago. And the planning, I would say, out of Athens and Thessaloniki relative to what we were looking at before is not affected at least in terms of ASK. The second element, of course, refers to having a very significant discussion with our supplier, Pratt & Whitney or [indiscernible] with regards to compensation about this particular matter. It is clearly something related to problems that stem out of their responsibility, either a responsibility as a manufacturer or as a contractor to our engine support program, which is a very comprehensive one. As a result, we have been in a significant discussion with them. We have received already offers for mitigating the cost of this issue. However, the significant offers we have received to date do not yet come to our full satisfaction. So we have not yet concluded the agreement with them and are still negotiating to improve the level of coverage of this issue. It is definitely the case that flying more of the CEOs and less of the NEOs that we were planning, is a cost and efficiency negative effect. And therefore, whether it is the increased number of aircraft without actually using all of them or whether it is the shift -- a partial shift of usage back to seals has significant cost effect and those are the nature, those are the objectives of our discussion with Pratt & Whitney to recover them. We expect this agreement will be complete before the end of this year. And once again, I want to say that already the manufacturer has made specific significant proposals. However, we do not consider them yet fully satisfactory. And therefore, we continue to negotiate. And as you might expect, in all cases, and I've also heard that in other discussions, the aspects of such agreements are always confidential. So please do not try to get our Investor Relations people to tell you because, a, they don't know; and b, they couldn't tell you if they did know. So that's the part relating to fleet, both some good news and some bad news, which will actually have an effect on our overall growth, but not in our core growth in 2024 and possibly '25. And the last thing I wanted to talk about is the outlook post the events in the Middle East, the current trading of our winter quarter and how the market seems to be and our performance seems to be heading towards the end of the year and the beginning of the next year. Clearly, the effect of the conflict in Israel, certainly had some negative effects. We do not fly to Israel anymore because of security concerns as most European airlines also do not fly to Israel. Obviously, we are very eager to get back on the market whenever the situation improves. However, beyond the effects of the Israel market itself, we've also seen markets like Egypt, Jordan and Lebanon be affected by the relative insecurity of people flying to or from these destinations. And as a result, we are adjusting our capacity to these markets and all these markets together are roughly around 5% or 6% over our existing capacity. Having said that, while this is certainly not something we expected, and this is something that reduces the rate by which our activity develops, we continue to have growth in ASKs and a growth in passenger numbers during the winter months. We have specifically increased our frequencies to Frankfurt from Athens. We have started a new route to Dubai on November 11. We have tried to extend the season in several routes where we have seen promising results in the summer. And I would say that in most cases, things are progressing quite well. Obviously there are markets that are performing better in terms of revenue per flight or revenue per ASK than last year in markets that are worse than last year, especially considering how high the level of RASK was the last year for us in the last quarter. You might recall that last year, our last quarter was the only one in Aegean's history which actually had a positive result. I think circa EUR 20 million before tax. Part of that was driven by positive valuation movements of FX, about half of that. So of course there is no -- so if you take that out, that was about EUR 10 million, but still, that was always better than the typical result of 2000 of the last quarter that tends to be negative for our airline through the years. This year, considering what we see in terms of revenue quality, where we have improvements and we have some improvements in some cases that are below, we expect overall to have a higher activity by around about -- sorry, 11% or 12% in ASK -- or 14% to 15%, sorry, of ASK up higher in the quarter. We expect the revenue per ASK to be mildly lower than last year, perhaps around about 2%. It's due to the fact that there are significantly higher -- the performance of last year and winter in Greece was so strong that many competitors have extended their operation in winter this year. So just like us, others have increased their capacity as well. That takes away a little bit out of the strength of RASK last year, but in a very, very low level and significantly still at higher fare prices relative to 2019. So, we're looking at the quarter that's going to be, I think, around about 0 excluding valuation effects in terms of EBT and still high up there in terms of where -- in terms of where this quarter will compare with any other quarter in Aegean Winter. So as a forecast for the year, excluding possible valuation effects, as I said, which would come from FX movements. We expect to have a full year EBITDA of between EUR 400 million and EUR 415 million and earnings before tax and exceptionals between EUR 200 million and EUR 215 million. Again, it's before tax, please don't make the mistake or considering this the after tax number. So very much a record year even compared by the last one. And certainly, what's actually, I think, the best element for me is that I see the winter performance once again being significantly supported either by the extension of what we would call the tourism season or by the level of travel that Greek choose to do. And once again, Aegean performs very well in terms of competitors during winter months. So I think these are the basic elements I wanted to relate. I think if we try to look a little bit further forward, we do not see an abatement of the demand. We see demand continuing to be with the levels we have seen in the last, basically, 18 months. Still very strong behind trouble -- behind travel. Yes, shifting, of course, between markets, depending on what happens with issues like security or issues like the relative performance of various economies. However, on an overall level, still going very strong in a positive direction. And although as we also said in our statement, you can never make very safe predictions these days. Geopolitcs are volatile and economies to some degree are volatile. We can at least say that there is no obvious reason today for us to be concerned for the short-term demand we face going into the next few months. So the year is going to end well. It's going to end with the whole cycle of corporate behind us, not only because of performance, but also because of the repayment of the repurchase -- I'm sorry, of the warrants by the Greek state. So there will be no overhang on the company. Our investment in the MRO and training facility is progressing very well. We fully expect it to be functional before the end of the year as we have previously told you. Simulators have already been put in place. Three simulators are already being put in place, and we expect by the end of next year to have 6. The first customers into the training center will come probably starting January. And the same will happen also with our new MRO facility and activity which is about to be licensed from a point of view of repair of the facility we took over by end November, beginning December, and started operations early January. Of course, as we've often told you, when it comes to the MRO, the real challenge is gradually building up the labor force to cover third parties as well. And this is a much more gradual process, which will take some years to mature. But up till now, everything with regards to the plan of training people, of bringing in people, of reconstructing parts of the building that needed repair or of constructing the new training center and the simulators within the building has gone very well. And we look very much forward to having this facility add to our capabilities. I might add that also because of the difficulties related to the GTF engines in this space and this facility has even more valued than it did in the past as our ability to house and protect aircraft or while they're going through this transition and the engines are out substantially facilitated by the space and capacity that we now have. So while this is going to be a significant operating problem, certainly, at least we're indicated by our choice of investing in a direction, which seems to be relevant for us and for others. And we believe that this effort, while it is slow and bringing results is certainly very important and the level of strategic value of Aegean with self and others. So that's what I wanted to say about the call. And last but not least, my last piece of good news for our shareholders. Once we have completed the repayment of the warrants, we will feel now that we have the right to exercise our financial capacity also towards our shareholders. So we fully expect that in the AGM of early next year, which refers to fiscal year '23, we will have an approval for distributing dividends to shareholders as of April, May 2024. Therefore, after 4 years of abstinence from dividends 2021, '22 and '23, Aegean shareholders will in 2024 after the repurchase of the warrants and the closing of the cycle of the COVID systems will start to receive again, dividend, which we feel is an important maturity and recovery event as well. So thank you very much, and happy to answer a few questions if they are broad about your understanding, about where the company is in any of these directions. Thank you.

[Operator Instructions] The first question is from the line of Svyriadi Natalia with Eurobank Equities.

Yes. Good afternoon. Thank you for this very illuminating call. I think you've covered pretty much everything. I was only looking to clarify something to be sure I got it correctly on updating our fleet forecast for the next year, for 2024. If I understood correctly, we're looking for 31 NEOs. So we are waiting for only 3 deliveries in next year? This is what I wanted to clarify. And maybe if you are intending buying some also as you did last year, if you're going to consider this for the next year or we should wait like this to go further out?

Your understanding is partially correct. We will receive indeed 3 aircraft by summer peak. So in terms of what is available to operate by summer peak, it is 3 aircraft, but there's also another 3 aircraft in the second half of the year. So the total number of aircraft received -- new aircraft received in 24 will be 6. However, ahead of the season, which, of course, defines the peak of the activity, it's only 3 and so that is...

Okay. Yes, that is what I was looking for. And are you thinking of buying some of or it's something that you're not taking like at this point?

I mean the word -- we were buying them all. The question is whether we're doing, say, leaseback or we're funding them through different means.

Yes. That's what I meant, sorry.

Yes, right. So yes, there will be potential for up to 2 aircraft, 2 to 3 aircraft to be next year funded by different means. We have 2 aircraft that we're taking directly from lessors, if memory serves. We have 2 aircraft that are funded by sale leasebacks already. And we have 2 aircraft which are available to be funded by different means, meaning by means through which the final value of the aircraft is with Aegean or stays with the Aegean. And I think that's the way it will go. This next year, the last 2 aircraft that we had ordered initially from lessors will be delivered. And so actually, we expect after that, after 2024, the percentage of aircraft being funded by different means to actually increase further. And also, we are substantially considering euro financing for a part of these aircraft, but beyond 2024. I don't think we'll do that in '24. '24 will be dollars, whether it is sales back, whether it's directly or whether it is debt, but '25 will probably include also some euros because we are interested to reduce somewhat our exposure to dollar volatility at least on our balance sheet.

The next question is from the line of Memisoglu Osman with Ambrosia Capital.

Just wanted to follow up on demand and ASK growth and yields on both factors. In Q4, I think you mentioned in your comments, you're expecting a RASK decline of 1% to 2% year-over-year. I was wondering you obviously have quite a bit of capacity growth. How much was the capacity growth? Or is the capacity growth from competition in Q4 year-over-year, if you could give us a rough figure on that, that would be helpful. And also, what kind of load factor performance are you seeing in Q4? You had a very strong quarter in Q3. And related to this, in '24 with a much lower capacity growth, how would you expect load factor and RASK performance to evolve?

Well, I'll start from the end. It's -- what I can tell you about '24 is I expect because of the shift of our activity less charter, less leisure to the regions more to Athens and Thessaloniki. This is going to have a seasonality effect. So you're going to have a delta relative to 2023, which is not going to be equal month by month. You will see somewhat more growth before the peak and somewhat less growth at the peak because of actually concentrating in the areas that are both less seasonal and more profitable. But I cannot guide you today about load factors and RASK, I mean, concerning 2024 because, frankly, it's very difficult to predict that. In terms of the last quarter of '23, I expect our overall load factor around about flat. It will be around about flat relative to last year. So the planes do -- I mean, our additional movements are effective in attracting additional passengers, including our growth in the average size of aircraft flown. The RASK as I told you, let's call it, an average of minus 2%. It's not uniform across areas. We have many areas with increases in some areas with decreases. And what else was the question? I think that was it.

Competition ASK growth.

Competition in international activity to Athens and Thessaloniki is around about 15% up in terms of capacity for the winter. It's actually interesting because in 2022, there was a huge increase of capacity in the summer by the competition, which we did not follow. In the winter, we actually had a significant increase of capacity, which they did not follow last year. And this year, it was the reverse. In the summer, we had a higher increase of capacity than the industry. And in the winter, we are perhaps 1 point less or 1.5 points less in capacity growth than the international competitors, but retaining share of ASKs in the domestic market. So in a nutshell, if we are 15, maybe they are 17 in international. And in domestic, I think we're around about -- both companies around both 8%, 9% -- 7%, 8%, 9%.

And are you seeing anything different from your local competitors or similar?

Everybody tries to grow.

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

Great presentation. You've given a lot of information and quite a valid information. Just wanted to understand, first of all, on the aircraft, you said that you're going to extend the leases of 5 aircrafts. So do you -- would you have any scope to renegotiate the leases to offset for the maybe higher fuel consumption or maintenance, whatever? So would you -- what kind of opportunity or options you will have to renegotiate the needs of these aircraft? And then -- I mean in case the demand turns out to be stronger than you expect next year, I mean, do you have that kind of possibility in mind, which means you might want to look at any possibility of tapping secondary markets from where you can take some additional aircraft in case the demand turns out to be strong, and you see some possibility, some opportunities? So are you sort of looking at -- are you thinking about those lines? Are you in discussion with any other further lessor? Or are you ready for taking more aircrafts in case there is a demand? That is my first question. If you could please help on that.

Well, let me start from the end and try to -- this is a global issue. The issue with the GTF engines. It affects around about up to 1,300 NEO -- Airbus NEO aircraft with GTF engines that have been delivered between 2016 and today. Of course, they will not be affected at the same time. But there are estimates that there will be between 350 and 500 aircraft grounded at any one time among this fleet of 1,300 aircraft. So you -- as you might understand, this automatically creates a shortage of aircraft in the global market that is quite significant. And I would say probably more so in the European market because of the effect and the significance of narrow-body fleets here. I'm sure you have already heard this from many participants in the market. Therefore, what does that do? That means that to secure aircraft from others becomes more expensive. Lessors are increasing lease rates because there is a demand out of the short fall of aircraft for people like us to try to recover capacity. Therefore, it's important to be very selective. It is in our, let's say, strategy in the response, is to accept the fact that there will be an operation that would not be lower than what it was in 2023, but it will be lower than what we were planning. And we have to take out 4 or 5 aircraft out of our overall planned capacity choosing which part of the capacity to take it out of. Why? Because it will go out in the market to negotiate 4 aircraft now, we will get significantly worse turns for a longer period of time. Now you might say, okay, so you decide to fly 5 aircraft, 4 or 5 aircraft less. You cut your charter operation, but it's not strategic for you. That is not, of course, the highest margin business. We do that mainly to retain capacity to have flexibility or divert capacity and remedy capacity shortfall like what we have now. But then the other thing that you have to do, of course, is negotiate the compensation with the supplier with Pratt and Whitney, ie. Therefore, this is where the compensation for the cost in leases or fuel burn will come on. It will not come from a market that has been deprived by -- has been shortened by 500 or 600 aircraft overall over the world that will be grounded. Because it's a very good time for lessors. And every airline out of the 44, I understand airlines that operate NEOs with Pratt and Whitney engines and share this problem, we'll be seeking capacity. This makes capacity scarce. So nutshell, we take -- we realize that if 10 are going to be grounded, we want to mitigate the shortfall by 5 by extending leases, but we also want to accept that we'll have 4 or 5 aircraft less in our operations. We take it out of the park, which is not strategic, and we don't earn very much. And then we go to our -- simultaneously, we will go to our supplier like all the other companies, and of course, say, well, you have created a very significant problem for us. We're going to be paying full leases for 10 aircraft we will not be using. Not only that, we will be parking them, we'll be storing them. We'll be maintaining them being idle, which has cost, and we will be flying less efficient aircraft for the part of the business that we were expecting at lower fuel costs. All these things put together create a significant cost, which we're asking them to mitigate or cover. And they have mitigated this as per what they have proposed. They have not covered it, which is why we're still under substantial negotiations with them. So -- and the last part, which you will all like, of course, if there's 500 or 600 aircraft sitting down, that means less available capacity for everybody. Well, that tends to protect -- that tends to protect yields or it has tended to protect yields in the past when equivalent things have happened regardless of what was the reason for that particular shortfall. So that's the only what can I say, indirect effect of a positive effect to the market, not to us, to the market, by having a specific type of aircraft go through specific requirements of inspection that reduce the effective capacity in the market. I hope I've answered your question.

Yes, you did. And on the extension of 5 leased aircraft, do you have any possibility of renegotiating the leases? Or that is well covered in your answer about saying that.

Not in a positive way. Everybody -- I mean, I think you can go to any single benchmark in the market, and you will see that lease rates have increased significantly. What is the case for us for which we feel very happy that we stood by our order with Airbus during the COVID, we didn't cancel anything. We continued with our obligations. We have extend order and therefore, in a market which seems to have continuous supply related, logistics-related spare parts related, technical-related problems, we have secured a larger amount of aircraft in the larger derivatives than we had anticipated in the beginning. And we have locked terms for these aircraft that cannot be affected by such short-term effects like the lease rates of aircraft that you will opportunistically secure to cover shortfalls in the market. So that's what makes me more comfortable. That's what makes us more assured of our long-term cost and not suffering the effects of such, let's say, anomalies in the market for too long. But on the other hand, let's be real. When the 500 or 600 aircraft missing from the market used to fly, leases are going to go up.

Yes. No, I agree. I agree. Just extending this point a bit. So I mean, of course, if you're grounding the planes and you will fly less capacity, are you worried or concerned about a potential takeover or potential grab of market share the competitors? Because I mean, if you see the competition, I think Lufthansa, Aegean, and Air France, I think Air France has 0 impact due to these engine issues because they don't have -- they don't have Pratt. Even Ryanair doesn't have Pratt. And then I think those are quite a big players flying to Greece. So are you concerned about? Because I mean, I think if you look at the market, I mean, I think Wizz Air, who is also impacted badly due to Pratt, I think they are concerned about grabbing market share, some of the market share and hence they are sort of thinking about targeting. They're tapping the secondary market to have more capacity. So in that case, are you concerned about a potential risk to some of the market share, of course, not much, but some of the market share grabbing by the competitors? And secondly, you just made a comment about the potential benefit to the yield due to tight capacity. I mean if I look at my communication or my discussions with IAG, Lufthansa, Air France, Ryanair, easyJet, Wizz, everybody, I mean, I think most of the airlines are probably on the opinion that while definitely yield is an outcome of demand side and on the supply side, but the key question is the fares are already very high. So do we really expect the fare to go up further? Do we expect you to benefit from this tightness in the capacity? Or do we -- or do we think that probably yields might not or sales might not decline due to this but upside is less? I mean how do you see...

Let's not -- it's definitely the last part. I mean we have seen extremely good yields in the last 18 months. And I think people in the market would be very happy to see them stay around about the same levels. I agree with you. It is an overly optimistic assumption to expect the yield to further increase, but it's one thing to say they will not further increase. And it's another thing to say they will not decline as much as they would had there been another 600 aircraft in the market. So those are the 2 different things, right? So there is an effect even though you cannot take this effect and just put plus 5, plus 3, plus 6 in your estimate relative to '23. You have to compare it with what we have been, had there not been this issue, which is a theoretical number? Now are we afraid? I explained earlier on. We will be flying more out of Athens and Thessaloniki, and we will be flying more in terms of scheduled capacity relative to '23, which was significantly higher than '22 and is -- we are, as far as I know, the only nonlocal carrier in Europe that is actually flying more ASKs already than it was in 2019, at least among the listed companies, which I can observe in terms of declaration. So our scheduled capacity will not decline. It will increase, and it will particularly increase out of Athens and Thessaloniki. What are we doing? We are reducing our charter capacity by -- from 6 aircraft to 2. Well, our charter capacity does not technically operate for us. It operates for 2 operators. And we work for the tour operators, delivering to their customers. So it doesn't have any strategic relevance to Aegean other than the relationship with the particular tour operator, which is also not bad to have, of course, because on occasion, you can make a little bit of money flying there and you keep your overall capacity and hopefully, efficiency levels higher if you fly that. But -- on the other hand, it's not scheduled. It's not like you're going back on anything that you have developed and spent money on developing and maturing them. So anything that we are doing well in, anything that we want to continue to develop positively in terms of capacity will be developed positively in terms of capacity without having an effect from the shortfall. Because the effect will be felt at the reduction of the charter level, full stop. What remains, however, is the cost effect of additional aircraft, not flying, end of the shift in the consumption and the average consumption of fuel and part of the maintenance cost because you will be using -- you will not be using 10 young aircraft and you will be using 10 older aircraft, okay? So this is what is going to be left, but we are not going to allow ourselves to put in a situation we're not developing what we need to develop and what we see to have been successful in development, either in margin and commercial scope in the last few years. That's why we've chosen to reduce charter.

Right, right. No, fair enough. The other thing I wanted to understand about any thoughts around your x fuel unit cost. I mean, of course, you mentioned about higher fuel cost because of the less efficient [indiscernible].

I really don't want to get into that now. I would respectfully request that you asked that off-line from our 2 Investor Relations people to the degree they can respond to it right now because it's still a work in progress for us in terms of having a full budget for next year for a variety of reasons.

Okay. Perfect. And last question, if I may. By the way, your Investor Relations team is really superb. Wonderful. Hats off to them. They're great.

They have a bad Chairman, so they better be good.

No, super, great team. Last question, if I may. So I think another key question, which is, I think, flying around. Is that okay, fine, 2024 will be impacted due to a lot of grounding -- I mean, aircraft will be grounded. So unit cost will go up and all that sort of thing. But then what happens when all these planes comes back in 2025? So would there be an overcapacity situation? And I think that is one of the key question and key concern. In your case, of course, you'll be adding some more aircraft than probably I'm not sure if these 5 leases, which are expiring -- which you are extending this time. Do you want to return those in 2026 -- sorry, 2025. So do you see any kind of overcapacity risk going into 2025, which means the first normalized year could be 2026 now? How do you see that, please?

To be honest, as far '25 goes, I am more concerned about making sure that the effect of this cycle of repair and inspection has less or equal in effect to our overall operation as it does in '24. What I'm trying to say is the following. I answered earlier on that next year in total, we will accept 6 aircraft, okay? And also probably in the beginning of '25, some more. So by accepting the more aircraft we have and assuming that the number of aircraft on a sort of a cyclical basis, because of the requirement of time to be spent in inspection and waiting for the MRO to free up a post remains that round about average of 10 aircraft. Then going into '25, this is still going to be 10 aircraft, but it should be 10 aircraft out of a larger total fleet of NEOs and therefore, we'll have more NEOs flying. So the most concerning thing for us is to ensure that with the actual implementation of the inspection and repair cycle by the manufacturer, we will secure that in 2025. We will actually have more NEOs flying even though the total number of grounded might be the same as we do in '24. So I would say the initial, let's say, risk for the market and ourselves is the opposite of overcapacity for '25. And then comes '26, where we all hope that this issue will have run full circle and everything will have through with repair and inspection cycle, and we will have it behind us. But it's too far away to be able to tell you what the market dynamics will be then. So all I can say now is that for '24 and for '25, the -- what appears to be the more, let's say, concerning aspect is to make sure that what the manufacturer is saying is going to be the pace of inspection and repair due to the undercapacity of the MROs that need to do the inspections and the repair will not be worked than what is expected so our shortfall either for the end of '24 or '25 will not be greater than what we now expect. And so that is our main risk. I don't think the problem -- Nobody thinks the problem will be over before summer '26. So, there is no, let's say, indication that this will automatically resolve itself at end '24 and half '25 be over capacitated. What will happen, frankly, in 2026 is simply too far away from me to tell, and I'm being entirely honest.

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

Thank you all for being on our call for more than an hour. Once again, I'm very happy about our results and about way the year is proceeding to its close. Also very happy to be announcing that we'll be paying a dividend for next year, and I'll be even happier when we announce how much it will be during our -- prior to our AGM next year. So thank you very much. Have a good weekend, and talk to you soon.

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