Aegean Airlines S.A. ($AEGN)

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 2025 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Eftichios Vassilakis, Chairman of the Board of Directors. Mr. Vassilakis, you may now proceed.

Yes. Good afternoon, everybody, and welcome to our annual results call. It's been another very positive year for Aegean and normally would be in a great mood right now presenting these results and the proposed dividend to the market. Obviously, our mood is mitigated or adversely impacted by what's going on in the Middle East, which is now 2 weeks old and where all of us, of course, are dependent in terms of both activity and cost structure by what happens there. Nevertheless, I will go through some comments confirming issues we have discussed in the past with regards to '25, and we'll give you also some limited input on certain things that are going on for '26 that will affect us going forward in regard to what we're planning to do. So starting again from '25, the company registered a EUR 1.86 billion revenue, a 5% increase relative to the year before, which actually goes pretty much in line with the increase of the number of passengers, which is just about 6% as well to EUR 17.3 million and a 5% increase also in ASKs, which means that our RASK for the year remained roughly constant and so did our load factor. Our results were improved by 5% in terms of -- sorry, 4% in terms of EBITDA, reaching EUR 421 million, 17% in terms of pretax profit, reaching EUR 192 million and 14% in terms of the net profit after taxes at EUR 147 million or EUR 148 million altogether. So as I said earlier on, another strong year for the company with very balanced growth in terms of the domestic and international, presenting an equal amount of increase in terms of passenger traffic, 6% on both of those areas. So a successful year behind us despite 2 elements that were negative for the year and 2 elements that were positive for the year, balancing each other out. The 2 elements that were negative were basically the first year of implementation of the 2% SAF mandatory intake, which added costs, regulatory costs to our operation. And of course, the gradual abolition of the grandfathering of the EPS of the CO2 allowances, which dropped another 25% in 2025, going down to 1/4 of what we had in like 4 years ago, and therefore, bringing another EUR 20 million in terms of cost. So the regulatory costs between those 2 increased by EUR 43 million -- circa EUR 43 million for the year. So those were the 2 negative effects. Another negative effect would have been the -- was the continuation of having significant air traffic-related issues in our country, which contributed to building out disruption costs, whether it is in compensation or whether it is in actually additional fuel burn or overnight stays in hotels for passengers. So those were the elements that weighed negatively on the cost structure. And on the positive, of course, we had a better fuel rate for last year by about 10%, which, however, translates to a benefit that is a little bit lower by about 20% than the regulatory cost increase that we have and also a lower dollar, an improvement in the euro, which actually provides some valuation effects which differentiates to a great degree between 2025 and '24, where we had the reverse effect. So if we adjust, if you like, for these different results, I consider the results of 2025 equivalent in terms of operating quality to those of 2024, neither better nor worse, even though the after-tax result is better. However, both years were, of course, impacted by the GTF issue, the grounding of the aircraft that we have, the new aircraft that we have because of mandatory checks on the engines. And in that aspect, again, '25 was burdened by a higher amount of aircraft ground. There were on average 10 aircraft grounded on average in 2025 versus 8 aircraft grounded on the average for 2024. And the end of 2025 is essentially the peak of the disruption and the cost coming from this area with around about 13 or 14 aircraft grounded at the end of the year and decreasing from now on with several actions being taken by the company and with some partial support from Pratt & Whitney. So the result, once again, quite positive. Of course, this is supported also by how Greece has continued to develop in its incoming traffic and the spending of Greece also for travel. In both areas, we have continued to see improving numbers, the strength of the Greek economy contributing to Greece being able to travel more frequently and the continued attractiveness of the country, bringing in some additional tourism every year, albeit at lower rates of increase relative to the year before. And here, we're continuing to see something which we expect to continue in the future, again, a rather more pronounced increase in the visitation in winter in terms of percentages rather than in the summer. And there, part of the reason is seasonal extension and part of the reason is the capacity of Greek Airport and Greek ATC in the peak doesn't allow for very much more from different sources. So that's kind of a negative positive in the sense that it fears the growth to take place in the winter, which especially as our neo aircraft fleet increases and recovers is going to help us both with utilization and costs. So in a nutshell, that's the outlook -- that's not just the outlook. That's the actual condition of the year. We ended the year with EUR 955 million of cash and cash equivalents. We had an additional of EUR 155 million, how do you call them, prepaid -- predelivery payments to Airbus for upcoming aircraft. That number was increased from the year before because some orders we did the year before that. Actually, today, as we also wrote on the release, we actually repaid the first bond that we issued back in 2019, pre-COVID of EUR 200 million. It was a 7-year bond issued at the time and the first publicly listed bond the company has issued. It has now been repaid as of today. And I would like to also thank the public for participating in that. As you know, last summer, we issued another bond for EUR 250 million. And we, of course, intend to continue being part of the capital markets because we believe that's a very positive plus for the company. In terms of what we were expecting to see from Aegean in 2026, we had guided in previous discussions, and I believe our Investor Relations department must have been more granular on that to an expected growth for the company for 2026 that would range between 6% and 8%, centered both in Athens, out of Athens, but also out of our regional bases in Greece, Thessaloniki and Larnaca. This is how we started, and this is how our network has been published, and this is the direction that the network has moved for the first 2 months of the year. Of course, within the last 12 days and looking forward, we do have now a significant level of uncertainty with regards to our network. That has to do with the Middle East. Middle Eastern destinations that we don't fly to today are actually 7 in different countries in the Middle East in Israel, Jordan, Lebanon, Saudi, Iraq and UAE. These destinations and these routes represent roughly at peak -- between 7 and 11, at peak, they reach 7 flights a day from Athens, 7 rotations a day from Athens plus another 3 to 4 from our other regional bases. So all these together constitute around about 4.5% to 5% of our seats and about 6.2%, 6.5% of our ASKs. So as one can imagine, if one takes these away, then we are looking at a year that in terms of activity would be flat. This is how the activity is shaping these days when we don't fly them. How long these destinations will not be flown, of course, is not known because that depends on what happens in the Middle East and the war that has erupted down there. In terms of another -- a couple of other important elements that I think we should highlight looking forward. One is fleet. In terms of fleet, the overall number of aircraft that we have committed with, with Airbus directly or through lessors has stayed constant at 60 aircraft, 60 neos, out of which 38 have been delivered to date. From -- in these aircraft, however, we had counted as we had announced last year, 2 XLRs, 321 XLRs that we were going to get from another airline that wish to cancel them. With those aircraft, there has been a problem in terms of some certification issues in the seats. The deadline to receive them was pushed back by around 7 to 8 months. That created a situation where the arrival of these aircraft basically by the end of the summer and later in autumn would have made them rather redundant for us because they were meant to accelerate our entry in longer distance markets like India mainly. And therefore, because we have already aircraft LRs of our own order coming in early '27, we took the decision around 2.5 weeks ago to walk out of that contract where we had, of course, the right to do so due to the extreme delay that had been experienced where the other contracting party had the liability. Therefore, these 2 aircraft have been canceled. They are no longer going to be received. On the other hand, we have replaced the overall capacity with 2 regular 321neos coming from another opportunity available towards the end of the year to keep the number of aircraft on the neo fleet steady. And we're looking at converting 2 more of our regular order 321s into LRs so that the subfleet of LR is able to fly longer distances and also have a very different product specification for the company to remain at 6 as it would have been if we had indeed received the XLRs. Again, I don't want to confuse you with too much information with that. The bottom line out of all this is we remain committed with 60 neos. Out of the 60 neos, 39 will be of the higher derivatives, the 321 -- the larger derivative 321. There will continue to be 6 aircraft in total within those that will be able to fly longer distances. There will be LRs, and those will be also configured in a different way in the cabin with 178 seats and 16 sleeper seats. And actually, the removal of the XLR from the mix has 1 plus and 1 minus. The plus is that we will have a homogeneous subfleet of 6 aircraft as opposed to 2 subfleets, which would have made things a little bit more confusing. On the other hand, we pushed back our launch to the Indian market effectively by 1 year between the delay and the arrival of the new aircraft. So that's the fleet issue. This year, we will receive actually 7 321s. All the aircraft that we're receiving from now on are all 321s. There are no 320s coming into the fleet. Obviously, this is the more efficient level -- efficient -- sorry, size derivative of the 320 family. And also, the significant delta this year relative to last year is that while there will be, at the peak, the same number of aircraft grounded as last year, 10 expected in July, August to be grounded with 10 also last year due to the number of aircraft received and certain other actions with regards to leased engines, we will have 33 instead of 26 neos flying. But even more importantly, we will have 22 out of 12 321neos flying. So the average size of our seat capacity per flight and our fuel efficiency will be significantly improved. And of course, especially within an environment like the one we're looking at now on a relative basis to performance to other airlines, this is very important. Now looking at our hedging because I'm sure you would all like to know something about that. The company is 60% hedged from now until the end of the year, assuming the budgeted network, which encompasses all the destinations, including the 7 that are now not flown. Without the activity at those destinations, so long as we don't have the activity to those destinations, however long that might last, that takes us to 65% or 66% of actual fuel needs hedged. So basically, while this is going on, roughly 1/3 of our activity is not covered by attractive fuel hedges. In terms of what we have seen in terms of initial reaction in terms of our booking flow since the beginning of the war, I would like to say that it's been rather similar to what happened when -- 4 years ago when Russia invaded Ukraine. There has been a reduction of flow around about 8% to 10% relative to the weeks before. And we see it beginning to normalize. But of course, it really will depend with what will happen in the next few days. Now keep in mind that, of course, we have now also taken out of our network for the few forward weeks that part of the Middle East. Therefore, it's natural to have some shortfall, but there is also a holdback from people concerned about travel in general during this time. This is not at a very high level, but 8% to 10% is not insignificant, and therefore, we have to report it. Obviously, quite some people will wait to see how this evolves or whether it will become either to be resolved or whether it will become part of the "People's routine" like the war in Russia and Ukraine has become. The cycle -- the initial cycle, I think, in terms of reactions by people typically last 2 to 3 weeks. So I think by the end of the month, we'll have a better feel about what the customer reaction is, especially as we get closer to Easter and the summer period. One more note with regards to the fleet. We, as I said, have 7 aircraft to be received this year. 5 or 6 of those will be financed by sale leasebacks or leases. 1 or 2 will be financed by JOLCOs or finance leases. We are well progressed in covering the agreements for all that. The AGM continues to be very attractive in terms of lessors and financial capacity suppliers in general. And we are very happy with the evolution of the offers and the cost we are receiving from that side. Having said that, just one more comment to make with regards to something that's a little bit longer term and slower moving, but where there have been some developments. As you know, we have been operating for the last 2.5 years, our MRO facility, our new MRO facility. We do see a gradual evolution of its activity. We know it's going to be slow because it depends on the numbers of people that we train and include within that, but it is performing reasonably well. And it's nice to report that already 2 subsidiaries of 2 of the 3 largest airline groups in Europe are already our customers in that MRO. And also in the effort to develop what we have referred to as the maintenance support ecosystem, we have made an investment in a small Greek company that has a significant history in providing services to airlines in our area. It's called APELLA. They have around about EUR 15 million of annual revenue. We bought a 45%, sorry, stake in the company early in the year. The owner and manager of the company will stay in place. And the idea is to develop the synergies between the activity that they have, which is supporting basically wheels and brakes for commercial aircraft, and they do some also work for the foreign subcontractors of major suppliers to the Greek Air Force. So both those areas are quite interesting. The synergies and the depth of what we're trying to develop are gradually moving forward. And so we are hopeful that with the years that come, we will indeed develop a significant facility with significant capacity to serve in different areas that were actually underrepresented and underdeveloped in our country. So in a nutshell, that's what I wanted to say. I will left the reference to the dividend for the end. It's obviously there. We will increase the dividend. We will propose to the AGM that will take place in April to increase the dividend to EUR 0.9 per share. This is a significant increase from last year, and it's consistent with our payout policy, the same amount of the net after tax than the previous number for last year. And it's another year where Aegean will be able to return a good number to its shareholders. I believe the overall payout is -- will be EUR 81 million, 82 million if this is approved by the AGM. So that's where we are. Obviously, many of you will need to contact our Investor Relations department over the next weeks to get updates of how the situation is evolving. I, in many ways, of course, -- the situation is visible to everybody. So things as regards to the cost of fuel and what's happening in the Middle East, you don't need a brief for us -- from us. The way that it reflects back to us and how we will make adjustments, whether it will be adjustments in fuel surcharges, whether it will be further adjustments to the network, how we might redirect some of the capacity and what our overall outlook for the year will be are all things that will be shaped over the next 2, 3 months. I do not believe that we will have immediate answers in the weeks to come. I would like to say that I am hopeful that this will be resolved in a week or so, but I don't really believe that. I think Aegean will have to, as usual, be conservative and flexible. We have built the capacity to adjust and make sure that whatever happens in the short term does not compromise our ability to serve our customers. It doesn't compromise our ability to develop in the future. And that while short-term results might be affected, what remains mostly relevant is how competitive we are and how the efforts that we are gradually unfolding to develop the capacity and the skills of our people and our company continue to evolve even within patches of instability that unfortunately, for all of us have become rather more frequent in the last few years. So thank you for attending our call. I'm happy to ask -- to answer whatever questions you have so long as they're not really about outlook because I think all of us have about the same information on that to the degree that it is relevant to what is happening in the Middle East. Thank you.

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

Congratulations on the results, and I hope you keep up the good work. I have 2 questions. One is regarding your investment in Volotea. How has this been evolving? If you could give us some insights on this investment and if you went through on investing further there? And also, I wanted one clarification on the fleet deliveries, the 7 aircraft we're expecting this year. Are they all coming before summer? And how has the owned versus leased mix evolved, okay, before the new aircraft coming probably? These 2 questions for me.

Thank you. I'll start from the second part, which is the fleet because it's faster to answer it. There -- the 7 aircraft out of the 7, 5 come before the summer and 2 after the summer. So yes, it's March, April, May for the 5, and I believe effectively September, October or October, November for the last 2. The last 2 are the ones which again come from another airlines cancellation diversion, release, call it whatever you want to call it. As I said, out of the 7, 5 or 6 will be leases and 1 or 2 will be funded with JOLCOs or finance leases. Where does that take the mix, Stella, for owned and...

18%.

It's 18% according to Ms. Dimaraki, if she's wrong, you can blame her. So 18% and 82% sounds pretty specific to me. So yes, so that's that part. In terms of Volotea, we have invested EUR 31 million in 2024, EUR 6 million in 2025 in a small top-up. Basically, let me explain what's different from the initial plan. The initial plan was that there would be a total capital increase of around about EUR 90 million, EUR 95 million by the different shareholders, of which we would have taken roughly 55% in 2 tranches, one which occurred when we started in '24 and another one in '25. Basically, what happened is the first part happened as planned. We had a small -- we had an opportunity to buy some additional shares from a shareholder that wanted to sell. So we bought at a lower valuation. So that's how the EUR 26 million became EUR 31 million in '24. And then the shareholders of the company last year decided the company did not require cash-wise, the initial injection that had been budgeted, the EUR 45 million. So only a EUR 10 million increase took place in the summer of '25, out of which we took EUR 6 million. But with this second participation, our total participation reached EUR 37 million in terms of investment and our holding of the company reached 20%. And there is an active discussion close to conclusion right now for another tranche of EUR 16 million, where we are likely to undertake EUR 10 million, and that's our expectation for investment to Volotea this year. The company continues to improve its EBITDA every year. However, it also continues to have on a net basis, a negative result due to the high financial burden that it has from the past. So I would say it still has significant challenges going forward. But on the other hand, it is the case that it hasn't required the amounts that were initially budgeted as a whole, which means that they are managing their cash needs and their performance in a rather positive way with a difficult start, of course, which was the weakness of the company even before we entered it. The good thing, I think, for Volotea is that the part of their activity is centered in basically France, Italy and Spain. And of course, they don't have any activity towards the Middle East. So there is no demand related or rather operational challenge related effect from what's happening in the Middle East. The challenge for any low-cost company like Volotea, of course, is whether by the necessary increases of fares, whether done through surcharges, fuel surcharges or just simple increase of fares that will be needed to cover the delta in fuel costs. What will be the elasticity, will it be high, will it be low. But at least what's good for them is that they operate in a part of the market that's probably going to benefit a little bit from the, I would say, reduction of options for Europeans in terms of going towards the Middle East, towards potentially Muslim countries and also the higher difficulty of crossing over to Asia. So I think a mixed bag in terms of what this means for them. For us, a potential investment of up to an additional EUR 10 million this year. And overall, as I said, an improving EBITDA performance year-on-year '24 -- '23 to '24, '24 to '25, but still a bottom line that's negative in the company. And we have not yet as a whole, as shareholders, invested even including the EUR 10 million that we expect to invest this year, the amount that we had initially budgeted in that direction.

The next question comes from the line of Caithaml, Jakub with Wood & Co.

Three from my side, please. On hedges, could you share a little bit more color on how the coverage is spread throughout the year? And second question, are you already seeing any signs of your competitors redeploying the capacity that they were using in the Middle East elsewhere in their network? And if so, how are they going about it? And has there been any impact so far on the routes in the markets that you fly? And third and maybe partly related to this, could you share what is your current expectation on summer capacity growth on routes to and from Greece?

You mean overall capacity market growth?

Yes, that's correct.

Okay. All right. So I'll try to answer to the degree that I can. I think it's too early to say what are people redeploying capacity in because people have not -- airlines have not yet, let's say, what's the right word, fully digested or decided or estimated in a decent enough way how long this would last and therefore, whether they are just discontinuing operations to the Middle East for a couple of weeks or whether they're doing it for the whole summer period being the 2 extremes. So up till now, redeployments that we have seen have been relatively limited, although in the last couple of days, we have started to see, for instance, some airlines saying, well, we have taken out Israel from our summer program. But it's still quite early. I think 2, 3 weeks down the line, the translation in changes from initial planning to -- from the market will have taken more shape. Now as far as what is affected in our markets, other than the parts that we don't fly, there is a higher effect with regards to traffic to and from Cyprus due to proximity and the -- some of the discussions about the U.K. base there and whatnot. And I would say that's probably higher than the 10% that I gave you overall. There will be a higher number than that, the apparent shortfall in bookings or traffic. And we are, of course, quite eager to see that go away. And I think I'm hopeful that, that will go away regardless of the duration of the war because I think people will soon realize that the -- whether it continues or not, the damage is going to be significant, but probably more localized around the Middle East area or the Gulf area, I would say, more precisely. What else did you ask for? Sorry, because I -- sorry?

Hedging.

Hedging. Hedging is pretty much flat around the year. We don't have 80% in the first month and in the first quarter and then 60% and then 40%. There is a little bit of a higher hedging percentage in the summer months where you might have in Q3, 3%, 4% higher than the rest. But otherwise, it's pretty much flat at 60% around the year. And the way it works, as I said, 60%, if you think about it in what was budgeted as activity, 65%, 66% if you think that we're not going to be flying -- there's the activity now not being flown -- will continue not be flown and not be replaced. That's pretty flat around the year. So no big deviations about that. Anything that was -- did I miss something else?

This is super helpful. I appreciate it. Maybe on the summer capacity growth [indiscernible] Greece, keeping in mind the uncertainty.

Yes. Sorry, on the market, we had seen something that looked like more or less on the Greek market, 6% in Q2 and I think 3% or 4% in Q3 was the overall market expectation. But I don't know that -- how that will change. I don't expect it to increase with -- I would not expect significant redirection to our country, but that's just a guess.

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.

Thank you overall. Thank you all for attending. Happy that we have another successful year behind us. We know that the start of this one will be more adventurous. And I hope that soon, we'll be able to be more specific about things quieting down, even though as we all know, it's not certain at all. So I hope that this year will be -- I'm certain that this year we'll be able to adjust in a way that will be at least as efficient as our competitors and probably more. How that will translate forward will, of course, depend on the world around us as well. So thank you. What I want to say is that AGM will definitely not pull back on any of its plans or capacities under development because of this. Our longer-term, medium-term direction remains the same. We will continue to try to be an airline that offers in short haul something a little bit more than the others. We will continue to develop our MRO capacity, and we will continue to seek to fly to somewhat longer destinations and to offer as of next year, a product with a part of our subfleet that will be addressing the gradual shift of the market back to premium, which we think is both relevant for our company and actually very close to our hearts in terms of what we want to present as an image to our customers. So thank you, and we'll catch up to you on the next call. Thank you.

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