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

Ladies and gentlemen, thank you for standing by. I'm Konstantino, your Chorus Call operator. Welcome, and thank you for joining the AEGEAN Airlines conference call to present and discuss the first half 2026 financial results. [Operator Instructions] The conference is being recorded. 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. Just to say, I'm joined here by our Deputy CEO, Michalis Kouveliotis; our Deputy CFO, Stella Dimaraki; and our Investor Relations Manager, Anthi. So welcome again for our -- to our 6 months presentation. Clearly, this year has shown for our industry, and indeed the world, many more challenges than anticipated, both in terms of geopolitical stability and particularly its translation to energy cost and jet fuel costs in our case. Within that context, AEGEAN had what we believe is a reasonably successful second quarter of the year where, despite these challenges, we have managed to retain for the quarter positive profitability despite the disruption of having to forego part of our network in the Middle East, and more importantly, of course -- or even more importantly, the dramatic increase in the jet fuel cost. I'll give you some of the basics and then we can come back to questions. So in the second quarter, our activity was increased in terms of revenue, by 3%, with ASKs basically remaining stable. This comes from the imbalance of the cancellations of a significant number of the routes in the Middle East that was -- that is well known to the market. And due to the flatness of the ASKs, the passenger number was only up by 1%. So EUR 495 million -- EUR 496 million of revenue, 3% increase relative to last year, an EBITDA of EUR 99 million, down 12% for the year, and EBIT of EUR 44 million, down 29% for the year, and a pretax level for the quarter of EUR 23 million, down almost 70% for the year. This latter part is also materially affected by the valuation effects, which were heavy this year on the negative side as opposed to quite positive on last year's side. So on the quarter that had a significant effect. Nevertheless, the quarter was positive. And also what's significant for us is that the RASK managed to stay on positive territories relative to the year before, something which seems to be reasonably good in comparison to short-haul carriers that we have seen published results in the industry. So despite our relative, I would say, proximity to the Middle East where a significant part of our network was affected and a lot of our connectivity was affected as well as we lost part of the network that contributes to East to West for the period, still we managed to pull out a retention essentially of the RASK level with a marginal improvement, which seems to be better than market for short-haul carriers for the period. Including the quarter itself for the whole 6 months, we carried 7.8 million passengers. This is a 3% higher number than the year before, which is just about the same increase that we had in ASKs as well for the 6 months. In the 6 months, due to the imbalance of the second quarter, domestic traffic growth was higher than international. But this is momentary. This has been restored after Q2 once these routes were reconnected. And of course, with the inclusion of the second quarter, with the positive but significantly reduced profitability to the total of the 6 months, we arrived to 700 -- sorry, EUR 817 million of revenue, a 4% increase of revenue relative to last year, EUR 145 million of EBITDA, which is 7% lower than last year, but a 35% reduction in operating profitability or EBIT and a marginal loss after tax of EUR 3.3 million relative to the EUR 48 million of profit after tax of last year. Once again, part of that delta has to do with the financial valuation effect, which last year was quite positive during the period and, this year, negative. During this first 6 months of the year, we have taken delivery of 5 new A321s neos. We have gone through the peak of the disruption in terms of grounded aircraft, which was round about between February and April, where we reached actually 14 to 15 aircraft grounded at the time. I'll remind you last year in the summer, we were at 10. But between the April -- March, April peak of 14, 15 aircraft, the peak of this summer, we, again, we're back down to 10 aircraft, and now we're clearly on the 10 aircraft being grounded. And now we're clearly on the declining side of this whole disruption. We're still in negotiation with Pratt & Whitney for some items, but our conviction is that we will have a substantially lower level for next summer and, by the end of the year of '27, we will be down to no further aircraft being grounded. It's already the case that we have accepted 43 aircraft, including the 5 that were accepted in the summer. And indeed, in this summer, 33 aircraft were flying, which was a significant increase relative to last year. 33 neo aircraft were flying, a significant increase relative to the 26 that were flying the year before, due to the number of groundings and the lower number of deliveries. So our schedule of accepting aircraft is moving forward with the planned base. There's been no change with that. We're also quite gratified that the majority of the aircraft that we have accepted this year, 4 out of 5, we did sale leasebacks for 1, we did a JOLCO 4. Difference is that sale leaseback is 100% fixed, JOLCO is part fixed, part floating. And so given the volatility and the upward trend in the interest environment, it's important to note that the vast majority of our fleet, we can give you precise numbers later, is on a fixed rate basis and not open to rate variation. In terms of liquidity, it's very important to note that the Group has stayed very much on a very strong position. We have, as we note in the press release, EUR 100 million more than last year at the same time, or the same amount as we did on the end of 2025, which is circa EUR 950 million, EUR 956 million of cash and cash equivalents. Having repaid our bond -- our first EUR 200 million issue -- 7-year issue EUR 200 million bond in March of 2026, and also having paid a little bit over EUR 80 million to our shareholders and dividends. So despite the EUR 200 million prepayment of the bond loan and the EUR 80 million of dividend payment to our shareholders in May, the cash position of the company remains at EUR 950 million as of the end of last year, which shows that, once again, AEGEAN is in a significantly robust, let's say, capacity of absorbing the volatility and risks as they may come from our environment. A couple of words for the summer, meaning Q3. In the summer, we have managed to increase again our ASKs after recovering, as I said earlier, our capacity from the Middle East. However, it should be noted that we have never recovered the full plan of 2026 as it was estimated we had guided you before the year started very much at the beginning of the year to a 7% to 9% ASK growth overall for the year and something like a 6% for the summer. Clearly, due to the circumstances, both in terms of the Middle East, but also in terms of jet fuel and fears about demand, we have reduced that significantly, not only in the first half, but also in the second half. So in Q3, we're flying at an average of 2%, 2.5% increase of ASKs. However, by the end of August, we have achieved a little bit shy of 5% in terms of passenger count, which means that we're able to take advantage of the larger capacity of our 321neos, which are now more numerous in our fleet. And also, again, we have a pretty decent indication, which is not a certitude today, but at least an indication -- a strong indication that our revenue per ASK for the quarter will not be lower than last year. It will be somewhat, a little bit, marginally higher than last year, including September. And this is, I think, again, a positive indication of how successfully we have managed to balance our network in reaction to what's going on vis-a-vis what we're reading and hearing about around the market and also different, let's say, fare trackers that we have used also to see what's happening around us. So the summer quarter is -- has been reasonably resilient in terms of demand. Of course, we did not expect the jet fuel situation to rebuild in terms of a level of where it stands today at 100% higher where it was at the beginning of the year. We had all hoped in June, after that initial ceasefire agreement, that there would be an abatement. This was only temporary. And now we're looking at a situation where it's clear to all of the markets that, at least for the next, I would say, 2, 3 quarters, it's likely that we'll be faced with a significant delta in the price of fuel to what we're accustomed to, possibly even twice what we used to pay 1 year or 1.5 years before. Clearly, this means that our attitude towards capacity has to be completely different going forward, especially after Q3, where, traditionally, especially in Greece, the revenue quality or the fare level begins to be significantly weaker than it is during Q3. So for sure, the maximum you should expect our capacity to range for Q4 is around about flat. It could be between minus 1 and plus 1 in ASK, but certainly no higher than that. And this is something that's going to be checked and rechecked every week to -- with a much faster adjustment pattern than in the past, treating this situation very much as very special cost situation wise in which, depending on the particular demand and cost structure of every route, we might need to make adjustments, particularly during the winter, where DOC, direct operating cost, or variable cost, becomes a much higher percentage of overall revenue. And we have to try to ensure that the great majority of what we fly continues to contribute towards our fixed expenses even in winter. So looking at what we aim to do in the next 4, 6, 8 months, because I think, by necessity, the planning horizon becomes shorter in situation similar to this one. As I said, we do plan to have much more frequent revisions of the network to ensure that we're balancing our commercial requirements with the financial situation and costs as well as possible. We will continue to work with Pratt & Whitney and other entities in the market, lessors, engine lessors and whatnot, to accelerate, to the degree possible, the employment of our already delivered and partially idled fleet in neos. We will refrain from extending any of the expiring jet aircraft. These are older aircraft. And in this particular situation with the costs that we have today, it is important to let them go because the delta between using neos and older generation becomes much higher. And we are glad that we have the opportunity to receive early -- starting first, second quarter of next year, the LRs in our fleet, not only because they are longer range, but more specifically because they will offer us an opportunity to upgrade the quality of service we offer to some of the routes we're already flying. And if I were to say, 2, 3 years ago when we took the decision to get into the LRs, that I would have expected that a more comfortable business class, a more true business class product would be as important as it seems to be today, I would not be telling the truth. It seems to me that around the world and in Europe, airlines are actually pretty much heading in the way of upgrading the product offering because what they see is that the demand of the more demanding, more frequently flying customer is more resilient to basically macroeconomic shortfalls. And therefore, travel is getting more expensive no matter what we do on the choices of airlines, unlike what was happening in the 10 years or 20 years that preceded COVID. And therefore, we're very happy that we have the opportunity to offer to our customers, as of next year, in some of the routes that we'll select to fly this aircraft, an upgraded product. We're also moving the direction of -- we're moving in the direction of upgrading our services in other areas. We're building a couple of [ Louniak ] lounges. We are deepening the product offering of our mileage program. And we think that these things will become more relevant for customers going forward, as I said 2 minutes ago. We do think that, whether it is by necessity or by choice, the next year, 2027, is going to be a year where all of us will have to concentrate much more on consolidating efficiency, consolidating quality, removing elements from our activity that don't make sense, reevaluating where we should invest more and make sure that we are doing it right, because -- and at the same time, give us a chance to catch our breath and improve the training level, the performance level, the cooperation level and the culture of our people. Because in any situation where the market is challenged, like the year we're having and possibly the year ahead, we know that what's very important is to be able to stay on track on your long-term direction and to ensure with your loyalty to your people and taking care of your customers, that whenever the crisis abates, there'll be strength enough and momentum enough and capacity enough, whether it is financial, human or otherwise, in the company to keep growing forward once again in a more dynamic pace. But there's no mistake, we are definitely, whether because of the energy crisis, the disruption in the relationships and the geopolitics in our wider region, war in the Middle East, or because of the yield environment, not in fares, but rather in bonds and interest rates and government debt, we are definitely in an environment where consumer capacity to spend and confidence to spend could be challenged. And that, together with the higher jet fuel cost, is a very difficult mix, which an airline like us with a tradition of being prudent and being able to navigate through crisis, has to sell through very carefully. So that's what I want to say as an opening statement, and I'm glad to take questions by any of you, either me or my colleagues. I would ask only the things that are very granular be addressed, if possible, after the call directly to our Investor Relations or treasury, so we don't sort of get away from the larger picture, which I think is more relevant in this particular time. Thank you.

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

Well, I was thinking on how we should think on capacity growth, but you already answered this. I don't know if you could give us some color on how competition treated capacity in the summer period, obviously, not what is going ahead. And I also had a question on the fleet that you mentioned. How many JOLCOs have we got in the fleet at this point? And you also mentioned that you're going to let go some older ceos. Do you have maybe an indication on how many are expiring in the next like a couple -- 1 or 2 years, so we can get how this can affect that?

Yes. Let's start from the fleet because it was the last and that way I can try to remember the first part as well. ceos were always going to go. Actually, we have delayed ceos from going away, if you would recall, because of the grounding of the Pratt & Whitney engines for checks. So we have been forced, looking 3 years back, to make extensions on aircraft that we would have wanted to have redelivered. So what is happening now is one problem is abating, basically gradually the problem with the increased checks of the GTF engines. So the requirement to extend ceos is gradually going away. But at the same time, of course, adopting a more cautious approach towards capacity means that other than getting more neos to fly, we don't want to get any further capacity by retaining some of the ceos. Now having said that, there -- I believe there are 7 ceos that expire in the next year and probably another 5 to 7 a year after that. So that, you have to put that against the fact that we intend to reactivate 10 aircraft that are now idle. We are accepting 2 more aircraft next year. And we have 7 aircraft to accept as new jets in 2027 and '28. So 2 more to go this year, 7 to come in the next 2 years, that makes it 9 that are not today in our fleet. So that plus the 10 that are idled and will come back to work by the end of 2027 gradually makes up 20 aircraft, which means that actually we will have a higher number of aircraft by the end of 2028 even if we allow all our ceos to expire. So there is no challenge in our current capacity, neither in the qualitative, nor in the total, let's say, availability sense. In order for us to actually get back to the number of aircraft we're flying today without increase, that would be the end of '28, beginning of '29 as per expirations, I think. So mid-'29 expirations, I think. So that's for the fleet. In terms of how many JOLCOs we have altogether, we have 5 JOLCOs altogether. And so -- but I think what's more important is to note the following. In total, we have EUR 1.6 billion liabilities, in euros, either in leases or for aircraft or in borrowings, loans, JOLCOs for aircraft or in our marked -- traded public bond. So we have a total of EUR 1.6 billion of liabilities for aircraft, for the bond, for loans and for leases. Out of those, 87% are fixed interest rate and 13.5% are floating interest rates. So basically, EUR 1,400 million or EUR 1.4 billion fixed rate and circa EUR 200 million floating rate. The fixed rate is fully in dollars and the floating rate is largely in euro. The only fixed euro rate liability that we have, main one, is the EUR 250 million bond. I think that should answer the fleet-related financing and availability questions. And then I forgot your first question, I'm sorry, because you -- capacity of competition, right? Well, I think what we have discussed in previous meetings and previous calls was there were no -- I mean, many people took 1.5%, 2% away from their peak summer capacity this year relative to what they were planning at the beginning of the year or the end of the year. Why? Well, first of all, if we're looking at European carriers, we are among those closer to the Middle East, right? So we have a relatively larger part of our short-haul network that gets affected. But the second reason is that for everybody, the summer is a time where the revenue per flight is significantly higher for all carriers than the variable cost per flight. In other ways, the cost that you save from not flying the aircraft, but of course, keeping the aircraft and the crews, the staff. So in an environment of a summer operation, it's actually much more difficult to improve your results given you have a given level of fleet and staff costs, by reducing flights. So the degree to what you can do that -- to what you can do that and improve your results is usually 1%, 2%, 3%. And that's what people did. They moved basically 1.5%, 2%, something like that, out of their respective systems. Now going into winter, it's an entirely different situation. We've already had 2 or 3 major carriers making statements that they intend to go to flat capacity relative to the year before in winter. When they were looking at 4% or 5% or 6% growth on an annual basis and as an overall policy in the beginning of the year. So there's already been a movement, and I expect -- and it shows to be next to -- I mean, if we're looking at the capacity to Greece, as it shows today for the last quarter of the year, it looks like a 2% increase, whereas last year was a 10% increase when we're looking at the same point in time. And I don't think you will see that 2% plus materialize. I think even that will go away, because people have a shorter horizon. And when we look at the beginning of next year, it's going to be even lower than that because the weakest part of the year is for every airline in the Northern Hemisphere and in Europe, in particular, is the first quarter.

Okay. Great. That was very, very clear.

But to be clear also, and this is the main challenge for all of us, we have not seen evidence yet of short-haul carriers being able to collect more per flight or per available seat kilometer to recover the part or full of the fuel cost. So that has been more effective in the long-haul market where, yes, fuel is even more important than in the short-haul market, but also where the competitors are fewer, and in some cases, like over the Atlantic, aligned between themselves, between the 3 joint ventures. So this is what needs to be addressed in the short-haul market. And this can only be addressed by a gradual reduction of capacity, which will allow the carriers to get the confidence and the evidence to -- that the revenue per flight can be different. Because as we have also discussed in the past, you can change your rates, but then we know that in every flight, you've got 20 different prices and what you sell depends on the propensity of people to buy your ticket. So if the capacity doesn't get reduced so that people gradually get used to higher fares, it's not going to happen. And when fuel is 20% to 22% of an airline cost and when it is staying double what it used to be, there is no other way to deal with it, if we're talking about a level that's going to be retained for some time.

Somewhere off to a tough winter. Let's see.

Yes, I read in the paper that it's going to be tough, this morning. So apparently, I'm only validating it.

The next question comes from the line of [ Lynn Ngulian ] with Wood & Co.

I just wanted to ask, if the fuel prices remain very high over in 2027 as the curve currently indicates, what behavior do you expect to see from competition, as you previously said? And what else do you judge could be like the best course for AEGEAN in such an environment? That's my first question.

I'm sorry, could you repeat the first half? What do we expect from competition, in which direction? If fuel stays high for most of '27, then what was the question?