easyJet plc (EZJ) Earnings Call Transcript & Summary

[Audio Gap] your conference call -- full year results conference call. At this time, I would like to turn the conference over to Johan Lundgren, CEO. Please go ahead, sir.

Thank you very much for that, and good morning, and thank you for joining us to discuss the easyJet's full year 2020 results. And with me on the call are Andrew Findlay here, our CFO; as well as Michael and Holly from our IR team. You should have been sent the slides along with the statements, which are also available on our corporate website. And we'll talk you through the presentation and then follow up with plenty of time for your questions. So starting on the first slide here. easyJet is positioned to be the winning European airline as we come out of the COVID pandemic. We have responded robustly to the challenges, having raised over GBP 3.1 billion in liquidity since April 2020 from a diversified range of funding sources. Our year-end liquidity position has increased by GBP 900 million compared to the end of March 2020. We still retain ownership of 55% of our fleet, with 37% remaining unencumbered. We have launched the largest cost efficiency program in easyJet's history, taking out cost at every level of the business. And not only will this create a step change in our cost base, but it crucially will give us a much more seasonal cost profile going forward. Our cash burn performance has been strong, and we have materially outperformed the expectations set out in April. EasyJet has an unmatched network with #1 and #2 positions in the airports where customers want to fly. This has enabled us to achieve an industry-leading unit revenue performance in the fourth quarter. It has seen our summer 2021 forward bookings ahead of the same time last year, with solid momentum continuing post vaccine announcements over the last week. And we continue to strengthen our lead by growing market share in the top 20 European leisure destinations. And our trusted brand status, coupled with improving customer satisfaction, which is up 14% year-on-year, sees customers choosing to fly with us time and again. And also with the proportion of seats booked by returning customers increasing by a further 2 percentage points to 80% compared to last year. So taken all together, the strong liquidity we have with the leaner cost base provide us with the firm foundations, together with unmatched network and trusted brand will mean that customers will choose us when they return to the skies. And our flexibility to ramp up quickly means we can capture and serve that demand when it returns. And that's why I believe that we firmly will bounce back strongly as we come out of this situation. But before we go into that in more detail, I'm going to hand you over to Andrew.

Thanks, Johan, and good morning, everybody. Let's start off with some key performance indicators for the full year. I don't intend going through them all, but it's clear from this slide that the impact of COVID on the business this year has been immense. As you can see, our total capacity decreased by 47.5% to 55 million seats and passenger numbers fell to 48.1 million, a decrease of 50%. This reduced demand and capacity in the second half clearly had an impact on our revenue and cost per seat metrics, as can be seen on the slide. It's worth noting, however, that overall load factors only decreased by 4.3 percentage points to 87.2%, which reflects the focus we have placed in the second half of the year on prudently managing capacity as the crisis took hold, in order to optimize the cash contribution of our flying. On this slide, we have broken out the revenue drivers during the year. Despite the highly variable capacity and passenger numbers in the second half of the year across our network, we have managed to deliver strong loads and revenue per seat throughout. A load factor of 76.3% in Q4 was the highest amongst our low-cost and legacy competitors due to our extremely disciplined and prudent approach to capacity. Our Q4 revenue per seat was one of the best in the industry as a result of our focus on cash-generative flying and yield management. Moving on to the income statement on Slide 7. Total revenue decreased to just over GBP 3 billion during 2020 as a result of the pandemic. EasyJet's underlying cost performance was strong in the 2020 financial year, despite a high level of fixed costs in the business. Headline costs, excluding fuel, reduced by 31% as the team achieved material savings across many areas of the business, including airport fees, ground handling, crew and maintenance costs. Fuel cost decreased by 49%, reflecting the reduction in capacity. As a result of these factors, easyJet has incurred a headline loss before tax of GBP 835 million, compared to a headline profit of GBP 427 million last year. Non-headline items amounted to a GBP 438 million charge. The 2 large items within non-headline were a GBP 123 million cost related to the restructuring that was embarked upon during the second half of the year and is now well progressed. The majority of the charge related to redundancy costs. And a GBP 311 million charge related to hedge discontinuation and ineffectiveness relating to the significantly reduced fuel requirements during the year as we enter into FY '21. Other non-headline items include the profit on sale and leaseback transactions undertaken in the year and the impairment charge relating to a number of leased aircraft that we have put into storage prior to their lease return. This led to a total group loss before tax of GBP 1.27 billion compared to a GBP 430 million profit last year. Now moving on to the revenue per seat bridge, which reflects a year of 2 halves. As disclosed at the half year, trading in half 1 was strongly positive with a GBP 2.72 per seat positive impact from the strong underlying performance of the business, including network optimization, market consolidation, increase in route maturity and RPS growth, particularly in Germany. Late yield initiatives allowed us to better capitalize on increased demand, particularly during Q1. Ancillary revenue also showed positive performance in half 1, driven by good performance of first bag and allocated seating, generating an incremental GBP 1.16p revenue per seat. Clearly, the COVID pandemic had a very substantial impact on our RPS in half 2 with a negative GBP 10.64p per seat impact over the full year. During the second half, our operations, commercial and finance teams worked together to proactively manage our capacity in scheduling real time. We responded flexibly to rapidly changing travel restrictions, and were able to capitalize on all available demand. We demonstrated an unflinching focus on positive contribution, whilst doubling down on yield management to ensure optimized pricing whilst remaining competitive. Now moving on to cost. As highlighted earlier, group headline costs, excluding fuel, reduced by 31% at constant currency. We achieved material savings across many areas of the business. Airline cost per seat at constant currency, however, rose materially, primarily as a result of the decreased capacity flown. Despite the cost savings taken -- cost savings actions taken, the main area of cost per seat uplift were in categories where more of our costs are fixed. The uplift in ownership cost per seat reflects our depreciation policy. Unlike some other airlines, it's on a time -- straight-line basis rather than a usage variable basis. So the charge is not reduced due to less flying. In crew, we took decisive action to utilize European-wide furlough arrangements and initiated the restructuring program to remove up to 30% of headcount, the benefits of which we saw at the tail end of the year, and we'll see in FY '21 and beyond on a sustainable basis. Overheads benefited from the termination of discretionary spend and a 30% reduction in management and administrative headcount. Maintenance activity was reduced in a targeted way, but continued to ensure we support it to a safe operation and with aircraft ready-to-use if demand returned. It also includes the one-off maintenance provision catch-up from half 1. In other areas that are more variable, we also took cost action, particularly in airports and ground handling, where we have secured lower rates and more favorable contracts. So moving on to fuel and FX. This slide summarizes the impact of fuel prices, currency and hedging. The average market price for jet fuel in the year was $575 per tonne, a 13% decrease. Due to the full grounding of the fleet on 30th of March 2020 and the lower capacity thereafter, easyJet became significantly overhedged from both jet fuel and FX perspective. After taking into account our commodity and currency hedging, the sterling cost of fuel per metric tonne was GBP 489, which is a GBP 31 or 6.8% increase compared to 2019. Moving on to foreign exchange. The euro rate fluctuated between EUR 1.05 and EUR 1.20 -- EUR 1.21 during the year. And net-net, there was a headline GBP 29 million positive impact from currency movements, which includes those within the revenue, fuel and other cost lines. Now moving on to the cash flow bridge on Slide 11. I have expanded this graph to illustrate the cash movements in half 1 and half 2. I won't dwell on the movement in the first half, and will focus on the second half cash flows to the right of the second gray bar. EasyJet took swift and decisive action to raise almost GBP 2.4 billion during the period through a diverse range of funding sources. Liquidity raised during the second half comprised GBP 400 million from a drawing down of an existing revolving credit facility, GBP 400 million from 2 term loans, GBP 600 million [ for ] the U.K. government's COVID corporate financing facility, and net GBP 588 million in sale and leaseback transactions, and a net GBP 409 million in new equity issuance. Since the end of the financial year, sale and leasebacks of a further 30 aircraft have been transacted, raising an additional GBP 717 million. Following completion of these transactions, we retained ownership of 55% of our fleet with 37% unencumbered. These measures have further underpinned easyJet's liquidity position and credit metrics, whilst also enhancing our robust balance sheet to provide a significant liquidity buffer as we enter winter. Our cash position at 30th of September 2020 of GBP 2.3 billion is more than double the average level over the prior 3 years. As previously indicated, easyJet will continue to review its liquidity position on a regular basis, and we'll continue to assess further funding opportunities should the need arise. Total cash burn of GBP 774 million during Q3 was reduced to GBP 651 million during Q4. Working capital movements in half 2, excluding refunds, were positive, reflecting strong management in this area. And cash refunds paid to customers in half 2 totaled GBP 863 million. Unlike many of our competitors, during the pandemic, easyJet has sought to offer its customers increased flexibility and options, including the choice of refunds or vouchers or the ability to move flights without fees. The amount of flight vouchers currently in issuance is relatively low with a value of approximately GBP 250 million, which we look forward to honoring this financial year. As can be seen on the slide, as a result of these actions, cash and cash equivalents at the end of the year are almost GBP 1 billion higher than at the end of March. This brings us on to the balance sheet, which continues to be rated as one of the strongest in the industry. Movement in our derivatives primarily reflects the reduction in market fuel price and our overhedged year-end position. Unowned revenue decreased by GBP 455 million. This reflects the reclassification of amounts due to customers whose flights in April and May were canceled due to COVID travel restrictions into trade and other payables, but also the payment of GBP 863 million in cash refunds in the second half of the year. Trade and other payables have increased as a result of this reclassification, but also reflect extended payment terms from our suppliers. And looking at cash, easyJet ended the period with GBP 2.3 billion in cash and money market deposits compared to GBP 1.6 billion in 2019, having successfully raised liquidity as discussed on the previous slides. Net debt increased to GBP 1.1 billion. And as at 30th of September, our liquidity position was GBP 4 million per 100 seats, representing a material headroom compared to our target liquidity buffer of GBP 2.6 million per 100 seats. Moving on to our fleet plan. The deferral of 24 aircraft deliveries from Airbus delivery dates beyond 2025, means that for the first time in easyJet's history, there will be no new aircraft deliveries in this financial year. This also drives a reprofiling of the predelivery payments. Our contract with Airbus is a key demonstration of easyJet's fleet flexibility, allowing us additional flex in the phasing of our aircraft deliveries and capital deployed. So just to explain the graph, the top dotted line in this chart illustrates our current maximum arrangements with Airbus as well as current lessors. And the lower gray line represents the contractual minimum fleet size. This illustrates the flexibility in our fleet deal with a range of over 30% between our maximum and minimum fleet sizes. Overall, we believe that easyJet enjoys the most flexible fleet arrangements of any European airline. It should be noted that this chart does not include any future potential opportunistic lease additions to the fleet if incremental demand arises. As at FY '21, easyJet will be storing 8 leased aircraft on behalf of their respective lessors. These are held at 0 rent and less flown and are therefore not included within the 302. Slide 14 summarizes our expectations for gross CapEx over the next 3 years. This doesn't take into account any sale and leaseback proceeds. In FY '21, we expect to spend around GBP 600 million with only a very small fraction of that to be spent on predelivery payments, as represented by the orange sliver in the first bar. Maintenance expenditure includes amounts expected to be incurred on lease returns. The lease payments include the capital elements of the lease rentals relating to sale and leaseback transactions. Gross CapEx for financial year '22 is expected to be in the range of GBP 600 million to GBP 800 million, and to be in the range of GBP 600 million to GBP 1 billion in financial year '23. The broad range of CapEx outcomes reflect our aircraft order flexibility and rate of lease returns, and will depend upon the decisions we take in the light of future demand. Slide 15 summarizes our forward jet and currency effective hedge positions. As we've already discussed, there was a GBP 311 million charge relating to hedging effectiveness due to easyJet's significantly overhedged position from both a jet fuel and FX perspective, following the full grounding of the fleet and lower capacity thereafter. To mitigate the effects of overhedging, a number of actions have been taken, including putting jet fuel hedging on hold for the period up to October 2021. Excluding any ineffective amounts, our expected FY '21 jet fuel requirement is currently around 77% hedged at $605 per metric tonne, and our expected FY '22 jet fuel requirement is currently around 44% hedged at $490 per metric tonne. With that, I'll now hand you back to Johan.

Thank you very much for that, Andrew. So we have been decisive in meeting the challenges of the coronavirus through delivering over GBP 3.1 billion of liquidity from a diverse range of funding sources, including the announcement that we've done today with further sale and leaseback transaction. We've launched the largest cost efficiency program in EasyJet's history, which will see cost reductions delivered across all cost lines in the business. Implementing a restructuring program, which has so far seen Union or Works Council agreements reached in the U.K., Germany, the Netherlands and Portugal, maintaining strong control of the cash burn throughout H2 in 2020. Remaining extremely disciplined and focused on flying, which drives a positive contribution as delivered cost savings as expected. And then also maintaining a high level of flexibility, as Andrew talked about here, in our fleet plan while reducing CapEx. So moving on to Slide 18. Let me just demonstrate how responsive easyJet has been to some of the rapid spikes in demand when restrictions have been removed. So when restrictions were lifted for U.K. travelers to the Canary Islands last month, we were able to add 180,000 seats just within 24 hours, and the first departures leaving within just 48 hours in time for the half-term holidays. We were by far the fastest to act on that. We were also agile, not only in capturing the existing demand, but in stimulating even more through immediate updates to our homepage app, e-mails and social media targeting 8.5 million consumers. And the response was tremendous. We had an increase in sales of 876% over the following 5 days. So we know that there's not only a huge underlying demand to travel when conditions allow us to do so, but that demand is increasing every time a change in the quarantine occurs. And this was seen most recently in the Canarys, where demand was significantly higher than that experienced when Portugal came off the quarantine list weeks earlier. And this shows that the pent-up demand is set to grow as the pandemic continues. So moving on to Slide 19. We talked many times before about easyJet's structural advantages, and never have they been more valuable than now. Our network or #1 and #2 positions at the primary airport is unmatched and drive higher yields. One effect of the pandemic will be to create new opportunities for us to expand. The recovery will come first in shorter leisure market where our business model is primarily focused. This is also where we have recently grown our share in key leisure markets that matter, with a 9% increase this summer in key leisure destinations and the announcement of 2 seasonal bases in Malaga and Faro. And not only do we have the leading positions in Europe's favorite leisure destinations, but when business travel returns, and it will do so, we expect to take market share with customers who will gravitate towards value, as we've seen in previous downturns. The high caliber of our people is a key source of differentiation for easyJet compared to other airlines. And despite the challenges of the COVID and the resulting restructuring, we continue to attract and retain the best customer-facing talent, which drives excellent service, CSAT and customer loyalty. The easyJet brand ranks as the best value for money and is the first choice brand in most of our home markets, and as sustainability is becoming even more important for consumers when choosing brands. And easyJet is a clear industry leader with its efficient operation, carbon offsetting and focus on future technologies. And finally, we have a significant cost advantage versus our competitors in the primary airports which we serve. The restructuring we're undertaking is further strengthening that competitive advantage as our cost base becomes more flexible and seasonally aligned. And these structural advantages gives us the best foundation upon to which we can build for the recovery. And I'd like to talk to you more about these in a little bit more depth. So moving on to Slide 20. As we discussed before, easyJet has 55 #1 or #2 positions in key airports across Europe. We're #1 and #2 positions in London, Paris, Berlin, Milan, Amsterdam, Geneva, Manchester, Lyon, Basel and many more. These are big public wealthy catchment areas with more than 300 million people living within an hour's drive of an easyJet airport. This network has not only provided a competitive advantage, but it cannot also be easily replicated. The scale of our operation in these cities provide us with the leadership position that cannot be matched. For example, more than 30 planes touch Milan, 20 touch Paris, 15 in Geneva, and more than 100 in London. And while we do expect changes in the competitive landscape in the wake of the coronavirus, we will defend, maintain and build our market leadership in these cities and compete vigorously. Moving on to Slide 21. In addition to the existing lead we have in our core markets, we see significant opportunities for growth. In particular, we will see further bolster our leading positions in Western Europe's top leisure destinations, adding new bases to provide network breadth and flexibility as well as unlocking cost benefits, managing seasonality and importantly also supporting the growth of easyJet holidays. This approach will also ensure that easyJet remains top of mind for customers and is seen as the local airline. We will also look to expand in an opportunistic, but disciplined way through a list of focus cities. This is a low-risk way of serving large origin markets, creating a leading offer without necessarily basing assets there. Slide 22. EasyJet's business model is the foundation for us to bounce back strongly. And as you can see, short-haul travel is already recovering more quickly from the pandemic than long haul. Short haul is seen as a lower financial risk from a customer point of view and from a health perspective. Secondly, over 80% of our passengers travel for leisure and as seen in previous downturns, leisure demand will return and come back 1 to 2 years faster than business travel. We're also increasing the opportunities for our customers to fly for leisure with the opening of Malaga and Faro [ on ] a seasonal basis. And our airport capacity there and our capacity share at the top leisure airports will increase to 13.6% in 2020, which is up 1.1%. As business travel returns, we're also well positioned. And as you can see on the bar chart on the right of this slide, in the downturn, which followed the global financial crisis, customers gravitated strongly towards value, so we are likely to increase our share of this market. That's why we're uniquely positioned to benefit from the bounce back in demand as we're recovering from the pandemic. EasyJet Holidays. The package market holiday is also expected to benefit from an early recovery. EasyJet Holidays has also seen increasing demand while some countries are removed from quarantine restrictions, with a growth of 308% in bookings when Portugal was removed in July, rising to 552% in October with the Canarys removal. And more recently, also, the news of the vaccine resulted in our Holidays bookings doubling the day following the announcement. This, in addition to us having retained the majority of disrupted customers from summer 2020 into 2021, means easyJet Holidays bookings are significantly above previous years at this point. As well as being well placed to capture leisure demand, easyJet Holidays is also in a uniquely strong position, thanks to its combination of its low and flexible cost base, great value holidays and hotel partnerships and flexible policies, which drives confidence for consumers to book. A flexible model without commitments enable us to be able to offer the destination and hotels which customers want, not those being sold to fulfill financial obligations, like traditional tour operators. The low-cost base of the airline support [ for ] our value proposition, using external price comparison data on like-for-like searches. EasyJet Holidays offers the best value on 75% of all Holiday search. And with a 93% variable cost base, the business can adapt quickly to future demand. And with the repositioning of our holidays offering through directly contracted handpicked hotels, we've been able to increase the average booking value by circa 70% compared to previous outsourced model. Key to leisure travel success in the future will be customer flexibility. Our leading protection promise offers the best price guarantee, full payment on the 28 days before departure and fee-free changes and cancel without losing money. Let me talk to you about our people, who differentiate us from competitors and are a key reason for customers choosing to fly with us. They are the foundation on which this business is built upon. And the right people, as they do in easyJet, will make the difference. On our aircraft, I believe we have absolutely the best crew there is in the skies. And like so many other businesses, we have recently had to make some very tough and difficult decisions that were very difficult for everyone in the company. But despite this, our people have been remarkable in their support of the airline, and that is testament to the orange spirit that they have in them. Recent appointments that we've done to the AMB have seen us invest in industry expertise, further bolstering the experience in every area with both Kenton Jarvis joining as CFO in February; and Stuart Birrell as CDIO, that has recently also just joined us. Moving on to the brand. Slide 25. Our brand and customer proposition is clear and is well understood, providing ease and value. And not only is this winning with our customers, but it will be ever more important during the recovery. In times of uncertainty, customers look to brands they can trust and that offer them the best value. And easyJet has a leading industry position in price versus worth metrics, and it's also seeing positive movement in brand trust scores across all our markets. Moreover, despite the challenges of the pandemic, our brand scores, including First Choice brand score, has seen positive movement across all major markets, U.K., France, Germany, Switzerland and Italy. And customer satisfaction increased to 83% in Q4, which is an improvement of 14 percentage points versus Q4 in 2019. We have a strong customer loyalty, and this is significant because returning customers are less expensive to attract and typically buy twice as many flights per year as first timers. And this year, 80% of our seats were booked by returning customers, which is up 2% from full year '19. Finally, COVID has changed customer habits, moving them more online than ever before. And we already have many years of digital leadership and innovation under our belt. Moving on to Slide 26. Cost and cash are absolutely crucial. Over the course of the pandemic, our largest ever cost program is resetting our cost base and driving sustainable efficiencies for many years to come, as well as addressing structural issues like seasonality. In the initial period, post the COVID hit, easyJet went through a decisive list of actions to deliver a rapid cost-out program that included utilizing deferral schemes available across Europe for all crew and M&A staff, renegotiating the fleet deal and the aircraft deliveries, deferring nonessential maintenance and aircraft storage. As part of our cost efficiency program, we've been able to right size the airline and deal with the issue of seasonality. Initiatives in this area included a 30% reduction in full-time employees, while also reaching a 2-year pay freeze agreements with unions in 6 countries, and 10% of our U.K. headcount has moved to seasonal contracts to date with the agreements also, including changes to the work patterns, and a 30% reduction in M&A staff. Finally, the program is also focused on delivering structural efficiencies that will drive long-term cost savings. And these would include targeting accrued productivity improvement of 20%, deliver simpler ground handling contracts that drive greater value and focus on punctuality, productivity improvements with better service, targeting a 50% reduction in events that leads to EU261 cost. Airport deals focused on growth and volume, maintenance in-sourcing and low-cost contract extensions, and a fleet allocation and a fuel saving program that drives efficiency and supports our sustainability agenda. I want to talk about sustainability. EasyJet is the world's only major airline who started offsetting 100% of the CO2 from our flights and our ground operations on behalf of our customers. Since then, we have retired over 3 million carbon credits on high-quality schemes certified to the international respected VCS standard, our gold standard. These schemes also have a wider benefit on communities' livelihoods and biodiversity. We firmly believe it's the right thing to do, while we do work to encourage and support the development of radical new technologies to reinvent aviation. In the meantime, we continue to work tirelessly to minimize the carbon we emit, flying the highly efficient Airbus Neo airplanes, which are 15% more carbon efficient than the aircraft that they replace. And during the relentless bad news of the pandemic, one positive strand of news has emerged, and that's the stream of technology breakthroughs. This summer saw both the first all-electric flight take off from Cranfield and also the first hydrogen powered flight, both of which would have been unimaginable just some years ago. Our own partnerships with Wright Electric and Airbus has also seen exciting developments, particularly the Airbus announcement in September of their plan to launch a 0 emissions hydrogen-powered plane by 2035. And we are running joint work [ just ] with Airbus to help inform [ other ] designs of that concept. I'm also very pleased to be sitting on the Jet Zero Council set up by the U.K. government this year and tasked with making net zero-emission flights a reality. Meanwhile, we have taken steps internally to enhance our carbon management and reporting going beyond compliance to publish our Scope 3 carbon emissions and having our carbon KPIs externally also verified. Our sustainability governance has been strengthened with sustainability now a regular focus at the Plc Board, at AMB and also the dedicated steering committee. Moving on to Slide 28. And despite the pandemic, we have not lost sight of the commitment that we have to sustainability. Not only is decarbonization a fundamental challenge for the industry, but we also know that this is of increasing importance to our customers. 72% of consumers say sustainable behavior by a company is now a more important factor when they make a purchase decision. That is borne out by our data. We've seen an 8.3% increase in likelihood to choose easyJet over another airline when a consumer is aware of our carbon offsetting policy. We have also seen a 6.6% improvement in overall satisfaction for those that are aware that their flight is offset versus customers who are not aware, evidence that flying carbon neutral is not only the right thing to do, but it's actually also an active driver when it comes to customer preference, satisfaction and retention. Moving on to outlook. And as we have stated, based on the current travel restrictions in the market in which we operate, easyJet expect to fly no more than circa 20% of the planned capacity for Q1 financial year 2021. The European slot waiver in place for this winter will enable easyJet to best match our capacity against the lower demand that currently exists. We remain focused on cash-generative flying over winter to minimize losses during the first half. And we'll retain the flexibility to ramp up capacity quickly when we see demand return. And at this stage, given the continued level of short-term uncertainty, it would not be appropriate to provide any further financial guidance for the 2021 financial year. So moving on to the summary. As you could tell, we've responded swiftly and decisive to the actions that we have taken at the start and the outset of the pandemic. We've launched the largest cost efficiency program in easyJet's history, which is going to see cost reductions coming through in all cost lines in the company. We have a unique short-haul network and the trusted brand that will see customers choose easyJet when they return into the skies. We believe that people are differentiating us and ourselves from competitors. And we know that customers are choosing us for the people that we have and the crew that we have that we believe is the best in this industry. And this is what this company is built upon. And we know that customers will return. And when they return, we know the underlying will definitely be there. And we will see also pent-up demand that is increasing also as we speak. And crucially, we retain the agility and the flexibility to rapidly ramp up to capture and serve that demand when it comes. So with that, thank you very much for that, and we are now going to take questions.

[Operator Instructions] And we'll now take our first question. It comes from Daniel Roeska of Bernstein Research.

Please, if I may, then. Number one, if you only fly cash positive flights -- the majority of which should be processed by now and your restructuring efforts now -- would it be fair to assume that your cash burn should not increase during winter? In the past, you gave a little bit of an outlook of what you expect in terms of cash burn. Could you kind of let us know a little bit what the downside risk to that view would be, kind of saying that the cash burn cannot get worse into your Q1 and 2? Number two, [ confirm ] the negative outlook for your credit rating. How important is an investment-grade rating to your capital allocation strategy going forward? And what action could you still execute to maintain your investment-grade rating into next year? And then lastly, maybe on your initial comment, Johan, saying, a winning airline exiting the COVID scenario. I'm just trying to reconcile how are you planning to capitalize on the opportunities that you see in the market with the shrinking fleet? Does this mean you'll retreat from some markets and kind of concentrate on others? Just how you're thinking about kind of capitalizing on the opportunities with your current fleet plan?

Thanks, Daniel, for that. I'll start with question 3 and then Andrew, you can do the 2 other ones. I mean this is a very important question. We know what's going to happen as we're coming through the pandemic because you can look at the patterns that has taken place in previous downturns. So what is going to happen? You're going to see short-haul returning quicker than long haul, as an example. You're going to see that leisure and the holidays is going to recover quickly than business. And you're going to see 2 things that's going to happen. Customers will both focus on companies that they can trust and that also provide value for money. All those things fits at the core of the strength of this company. We don't know to what extent it will happen, when. But we know it will happen because as we go through the pandemic, once the infections and the COVID-19 is under control through a mix of vaccine, through a mix of testing and quarantine systems, we're going to see the recovery coming back. So what we have done and what we set out to do very early on, Daniel, was, as you know, we talked about the flexibility we have within the fleet. The flexibility we have to also grow when we see opportunities that are there. And there will be opportunities coming our way. And we can also see that we have the opportunity to adapt to maximize the profit per seat, if that means that we need to have a lower number of the fleet. And that's why it was so important at the start of the pandemic, when we had our discussions with Airbus, to make sure we have that flexibility within the fleet deal to be able to do that. This is an important thing. EasyJet is a growth story. Make no mistake about this. But we have also set out very early on, and I think we were right to do so, to say we don't know for the extent, how long this pandemic will last. There were multiple competitors out there who said that this is going to be over in Easter, out of this year. Or we will come back in the summer. We've said that we don't know when that's going to happen. We need to plan accordingly. That's why it's important with actions we're taking, reducing the cost, managing the cash burn. Getting access to liquidity, make sure we got flexibility in the fleet, knowing that the parameters that I said earlier will come and they will happen. And I can't think of another airline that would be better placed to capture on that. Look, we've been -- we're going to have the opportunities to grow where we see we grow, but we will only grow when we can see that it's profitable to do. And in the cases where somebody wants to attack us, we will attack back. It's the way it is. And that's what we're going to do. And I think with the reset that we have in our cost base now, that's going to deliver savings for years to come. That's going to put us in a relatively better position, I believe, than where we were going into this crisis. So I hope that answers your question.

What's your lead time to kind of getting from the, let's say, 302 aircraft, which your base plan is, to the 322? I mean, how fast could you potentially switch directions if you wanted to?

Let me answer that one, Daniel. I'll answer the other 2 as well. Let me go back to the first couple you asked. We haven't given guidance on cash burn. Clearly, it's an absolute area of focus for us. We're taking all actions to ensure we mitigate cash burn, as you saw in Q3, Q4, and we haven't given any further guidance on that. But rest assured, the cost actions we've taken and the working capital actions we've taken are all around mitigating that cash burn through this winter period. With respect to credit rating, clearly, maintaining a strong credit rating and balance sheet is very important to us. We've taken significant steps to ensure that's the case. The rating agencies, I won't speak for them, but they are very focused on liquidity, hence our focus on that. They're very focused on cost actions that we can take, and we're very focused on that. And to a certain extent, they look through the cycle, and we're, again, very focused on that as we talked through today. With respect to the fleet from a point of -- we have a plan to get down to 302, as we speak today, for FY '21. Now as we said, we retain the upside flexibility to grow if the demand comes back better. But I think it's fair to say our ability to flex is significant. Not only have we got a significant proportion of our fleet are leases where we can choose to extend or not extend, that's the majority of the reduction that you see in the bottom side of that fleet graph, is a result of termination of leases. We have the ability to extend them. Let's face it, lessors would love to have us as a covenant -- as an extension to their leases. Plus we're in conversation with Airbus around exactly how many aircraft we're going to buy over the coming years. So we've got flexibility there as well.

[Operator Instructions] We'll now take our next question from Jarrod Castle of UBS.

And just exploring some of those topics further, can you give an update where your actual liquidity is as of now? Because obviously, you've done some sale and leaseback post year end. So that will be useful. And then just on cost control, where are we in terms of overall group targets? I think a few months ago, it was potentially [ extra ] unit cost could be flat, so if I'm not mistaken, going into 2021 or during 2021 at some point, at least. Can you give any kind of guidance on cost control targets, please?

We're not giving any guidance on the cost. But this is the largest, most comprehensive program on cost that easyJet has ever launched and will deliver. And this is going to reset the cost base of what we do. And we have very ambitious targets, as you could imagine also internally. But I think that there's still too much uncertainty out there in the environment for us to come out with targets on this, but it's a massive focus for ourselves. And by resetting the cost base, and then also giving us now the opportunity to match the seasonality with the agreements that we have with unions is going to give us significant advantage to where we were before, as an example. So we're not giving any guidance on that. But I'd just like to say also that this will be a continuous focus for ourselves because we want to make sure that we come out relatively stronger than others as we evolve through this situation. So not only to manage through the current situation and the crisis, but also then make sure that we come out in a way that we have a competitive advantage relative to others on the airports that we serve. On liquidity, clearly, I can't answer the question regarding where we are on liquidity today, [ can only ] answer [ what's in the RNS ]. As you know that we're at GBP 2.3 billion cash at the end of the year. And subsequent to the end of the year, we've raised a further GBP 700 million on SLBs, hence, the GBP 3.1 billion raised. That's all I can say, I'm afraid.

Our next question comes from Savi Syth of Raymond James.

I realize this is not guidance, but I was wondering what level of activity is Johan indicating that you're 77% hedged for fiscal year '21 and 44% for fiscal year '22. And then for my second question, if I might ask Daniel's question slightly differently, if you compare it to kind of the September quarter and -- in the December quarter, what are kind of the headwinds and tailwinds from a cash burn standpoint? I realize there's kind of lower activity, lower sales, but are there any kind of catch-up payments or anything else we should be aware of that's different in 4Q -- in the December quarter versus the September quarter?

First question, I didn't quite hear it.

Sure. Sorry. First question. Just kind of curious what level of activity is assumed in that hedge guide? I'm just kind of curious so that I know what level of fuel is actually hedged for fiscal year '21 and fiscal year '22.

I'll take those. So on the hedge, they're based on our estimates as of today, what we expect the fuel to be. Clearly, we're not going to give you a specific guidance on fuel burn because that will give you guidance on what we expect to fly for the full year. But it effectively reflects the reduction in winter capacity and our expectations throughout the remainder of the year. We continue to review it, as you'd expect, and we have a rolling program, but we've stopped hedging for the period up until October 2021 from a prudent perspective, but we have started our hedging beyond that period, and we'll review on an ongoing basis. With respect to Q1 cash flows, you're absolutely right. The key focus -- [ there's ] key drivers on cash flow, obviously, around bookings. And obviously, Q1 is quite a quiet period because everyone's focused on Christmas and spending [ money at ] Christmas. We'll obviously look to post-Christmas to see the typical uplift in bookings that we expect to see. But Q1 is pretty quiet when it comes to bookings. One other -- of the other tailwinds. Obviously, you've got the working capital payments that you pay for the flying that you've done in the Q4 period that you'll see in Q1. So they are kind of the 2 big swings in the Q1 period that you might not get elsewhere in the year. Hope that helps you.

Our next question comes from Stephen Furlong of Davy Research.

Just got 2 questions, back to cash and cost. So how important would you say calendar Q1 is on the cash inflow? It's usually a significant period for cash for the summer bookings. And you model that relative to previous years before you decide whether you need other liquidity actions, particularly with Easter coming up and now on the fourth of April. And second point, maybe just on cost. I mean, I guess, is there a certain size -- I mean the previous guidance given back at the interims of flat ex fuel cost by 2021. [ My ] just point is, do you model or forecast is there a certain size the company has to be compared to pre-COVID to get back to something of that kind of magnitude. Just the general, even qualitative comps would be good.

Thanks, Stephen. So on cash, you're absolutely right. Post Christmas, you do see a ramp-up in bookings. We've been absolutely realistic in that. We've been prudent. We do expect a shortening of booking curves as we've seen in this financial year as people book tighter to the point of journey, and we'll keep a very close eye on that. But Q2 is typically where you start to see the ramp-up into that Easter and early summer period. With respect to costs, again, we're -- to a certain extent, we are not as focused on cost per seat. We're now focused on absolute cost and getting that down as much as we can through the efficiency program that Johan talked about with the view to getting this business really efficient. And also to the extent that we're looking at seasonality of that cost, which is absolutely important. And you'll have seen from previous announcements that we've done a very good job in discussion and partnership with our unions to improve the seasonality of our summer versus winter cost phasing through agreements of part-time pilots within the U.K. So that's a really important focus to us at the moment. We're now into the next phase. All of these cost savings are baked into our budgets and [ task ] for the whole team. So the whole team is geared up, ready to deliver on the cost savings that we talked about today.

Our next question comes from Jaime Rowbotham from Deutsche Bank.

Two from me. Firstly, in light of the restructuring you've done to the fleet plan and, in particular, the employee base with that 30% reduction, I'm just wondering, what's the theoretical maximum capacity you think you could put on for summer 2021 in case the snapback in demand is very strong? And despite your responsiveness to date, I'm guessing that percentage would be some way below 100% of pre-virus levels? And then secondly, a follow-up just on cash relating to timing. Are there cash outflows still to come linked to the restructuring charges booked in fiscal '20 and linked to the fuel overhedging? I.e., is any of that not cash settled yet? Perhaps I could just add. What do you think is the most likely plan for repaying the first GBP 300 million of the CCFF loan? Is that bond issuance, perhaps?

I'll do the first question on that. We are absolutely certain that we're going to be able to supply the capacity they'll need for whatever demand is out there for the summer. If this bounces back and it comes back quicker than any one of us would have expected, I can assure you that we're going to be able to accommodate that demand in any way, which way. On cash outflows, with respect to the restructuring charge, as you know, we took GBP 123 million, I think in the back end of the RNS, you'll see some commentary around some of the accounting judgments we've made on provisions, and you'll see in there the provision position regarding the restructuring is about GBP 100 million. So we've still got a fair amount to go on that. And that's all baked into our cash outflows for fiscal '21. And clearly, discussions are underway with a number of our European colleagues. And we -- frankly, we hope to be in a good position with regard to that cash outflow as we were in the U.K. with respect to the [ fewer ] redundancies we made. With respect to the hedging, that's an ongoing rolling. So the ineffective hedging charge of GBP 311 million in the year, that's a rolling cash outflow, and it occurs when the hedges are closed down. So effectively, we have to take the P&L charge and that rolls through. Clearly, some of that -- a fair proportion of that would have reflected -- would have been relating to the Q4 period in the prior fiscal year. The remaining amount predominantly is related -- is to Q1 financial year this year, and just slightly over into Q2, but that's kind of the timing of those. And with respect to the CCFF, this is all around capital management in a sense that -- from our perspective, we've got to wean ourselves off that short-term debt. We haven't announced any plans around replacing it. We've been very clear today around the SLBs that we've transacted today. We've been very clear around the timing of cash flows on the CCFF. And we continue to assess all funding options should the need arise in the future.

Our next question comes from James Hollins from Exane BNP Paribas.

Just one from me, actually. On the sort of seasonality and flexibility in the staff cost base. I think it's pretty important strategic update. You said 10% of the staff will be on seasonal contracts. I assume that includes pilots or [ mainly is ] pilots. I was just wondering what the right number is on that in order to be, sort of, have the flexibility you want? Is it 10% or should it be more? Secondly, is that something you expect to be able to keep long term? Obviously, as things normalize, I suspect unions and pilots get a little bit less interested in that plan. And then just finally, where we are on staff cuts. You're still targeting up to 30%. It's running where we are now. And if 30% is still the expected number?

Yes [Audio Gap] much for that. Yes, you're absolutely right. I mean these are changes to the structure that is sustainable, that will give us benefits also as we continue in terms of the seasonality. You would also see that there's a productivity improvement that we target about 20% on what we're doing. So I think that's really a step change from something that has long been an opportunity for ourselves that we've now managed to achieve. I think it's also in terms of when we're looking at the impact and the redundancies, we've been discussing and engaging, I think, constructively with our union partners that's going to get us into a good place when they are, some of those things are concluded. But we are also looking and are in discussions also continuously throughout the whole of the network also, and we will not stop looking at things that is going to make us more efficient and more productive in every sense. This is not only about what we have done and delivered to date of what is here. But it's a continuous focus and will continue to be something that we're going to spend a lot of time on also going forward.

Our next question comes from Muneeba Kayani of Bank of America.