easyJet plc (EZJ) Earnings Call Transcript & Summary

Thank you very much for joining us here today to discuss the results of our first half in the current year that we are in as well. And we are -- I'm excited about 2 things. I'm excited that we actually can continue to do this in person, as an example, following up from what we did clearly by the full year results that we had, and also to be able to demonstrate now that the actions and the initiatives and the measures that we have talked about throughout this pandemic was going to start delivering for us at some point is now coming through, and we can demonstrate that in the numbers. It's, of course, difficult when you don't have any real capacity and volumes to talk about to say, well, we are doing this on ancillaries, and we are doing this when it comes to changing the network. But of course, you need capacity, you need customers into the system to actually showcase and demonstrate the benefits out of that. So we're going to talk about that, and then also trying to get across to you the momentum that we're now having into the summer. And then I'm sure, in the Q&A, we'll talk about the overall macroeconomic picture and what we think that, that will be then going forward as well. But I should then also point out that I'm not here by myself. I'm here with my fantastic colleagues: Kenton, our CFO; Sophie Dekkers, who is our Chief Commercial Officer; Ella Bennett, who's our HRD; Thomas, who's in charge of markets and marketing customers; Garry Wilson, who's doing holidays; and also Peter Bellew, who is our COO as well. So do take the opportunity also and don't be afraid to ask them questions specifically, also directly to them when we have our Q&A as well. So really, first of all, just to say, I mean we are absolutely determined and focusing on delivering strong shareholder returns. We know that this has been a tough journey, and I did say that before as well, and that is what everything we are doing and driving is towards that goal to deliver strong returns for our shareholders. So we're absolutely committed to do that, and we feel also as a team -- and not only the people that are here today, but in general in the organization and the leadership, that we feel very strongly about the ability we have to deliver and what we set out to do. You would know the targets that we set out here at the time of the rights issue last year. We remain -- internally, our ambition is, of course, that we should beat them and we can beat them, and that's why it's important to demonstrate the steps we're doing today towards what that internal ambition is as well. And the company has been transformed. The company has been transformed throughout this pandemic, and I think that's important. You will see signs of it, just even in the half that's just gone by, in the H1, where you see total yield is up some 9%, as an example. You would see as a change of the reallocation of the aircraft into the high return basis and the step change we've seen in the ancillary, as an example. And then carrying through that momentum now into the summer, where we, for H2 now, have unearned revenue of over GBP 1.7 billion, which is over and above where we were at this point in time in 2019 for the summer. So that gives you a little bit idea of that momentum that we're seeing. So basically, we are delivering on what we set out to do, what we told you that we were going to do, we have implemented, and we've seen those actions now coming through also in the numbers here, and that's what we're going to talk about today. So with that, I'll hand over this to Kenton.

Thank you, Johan. Good morning, everybody. So we'll start on Slide 5, Michael. Thanks. So Slide 5, the key performance indicators for the half year. We had a good start to the half with momentum growing -- continue to grow from last summer. October and November traded out well. This development, however, was paused by the spread of the Omicron in December and January, and then demand built back up again following the removal of travel restrictions by the U.K. government on the 27th of January, and a few weeks later, for the rest of Europe. As you can see, our total seat capacity was up 373% to 30.3 million seats, and passenger numbers increased 471% to 23.4 million. This increase is due to the very low levels of flying in the first half of last year when lockdowns were imposed and the travel restrictions in place throughout Europe. In addition to capacity increases, load factors improved to 77.3% across the half. That's up 13.6 percentage points on the same time last year. We saw our average sector length decreased by 10.3% primarily a result of the prior year being skewed by the portion of flying to the Canary Islands last winter. Airline RPS increased 28.9% to GBP 47.61, and by 32.8% at constant currency, reflecting the increased load factors as well as the continued strength in our ancillary revenue per seat, which increased 44.6% compared to the first half of 2021. Airline operating cost per seat, shown as EBITDA cost ex fuel, reduced by 54.9% driven by increased flying volumes as fixed operating costs are spread across more seat capacity. The favorable movement in both our per seat revenue and costs have led to airline EBITDA per seat improving by 90.6% to a loss of GBP 6.78. And the airline headline loss before tax per seat reduced by 83.5% to GBP 17.81. As you can see on the slide, we're now going to set out the performance of easyJet Holidays to give greater transparency and reflect the growing importance it has for the group. The loss contribution was GBP 5.5 million for the half as the majority of Holidays are operated in the summer period. This is a GBP 2.6 million improvement on the prior year and demonstrates the low level of fixed costs needed to run this business. On Slide 6, we've broken out the key performance indicators in the quarter. As I mentioned, performance during the period started strongly, with October and November continuing the positive trend of improving loads that we saw last summer. However, this momentum was halted with the outbreak of Omicron and subsequent travel restrictions, which weakened consumer demand. This impact was felt during December and January, as shown on the load factor graph. Demand then rapidly picked up following the relaxation of restrictions at the end of January. Despite the impact of Omicron, H1 results were very positive compared to the prior year with load factor up 13.6%, and capacity increasing from the 6 million sold to 30 million. In comparison to 2019, that means we flew 66% of our '19 capacity during the first half and our load factor was actually down 12.8 percentage points compared with '19 loads, which were just over 90% for the same period. The performance in Q2 is the reverse of Q1. We saw a soft booking environment at the start of the period. However, as travel restrictions eased, the resurgence of customer demand helped drive a strong finish to the quarter, with February and March both achieving load factors over 80%. Our overall performance for Q2 outperformed the prior year by 18.3 percentage points on load factor, and obviously, capacity was 6x higher. During these months, we continued to offer our charge-free flexible booking policies, which we think caused a mid-single-digit reduction in the load factors we achieved with passengers transferring out. Charges were reinstated in our policies on the 1st of April, and we immediately saw the benefit with our load factor increasing above 86% for the month, also helped by continuing demand. Throughout the half, we've proactively managed our yields and look to build load factors. We know our ancillary revenue products are bringing in valuable incremental revenue. Our revenue per seat has benefited from increased load factors, strong ancillary yields and the strength of our primary network. So moving on to Slide 7. Here we go, financial performance. As I mentioned, this is the first time that we're splitting out easyJet Holidays numbers into our results presentation. And Johan will talk you through the update on Holidays, but the business is on track to carry over 1.1 million passengers this year. During the first half, easyJet Holidays carried 224,000 customers. The numbers presented on the slide for Holidays include the elimination of intercompany transactions with the airline, namely the fee ticket. So this is effectively showing the incremental contribution from the Holidays business. Total revenue was just under GBP 1.5 billion during the half. It's broken down into GBP 985 million from passenger revenue, GBP 458 million from ancillary revenue and GBP 55 million from the revenue contribution from Holidays. Our headline EBITDA costs, excluding fuel, increased 113% to just under GBP 1.3 billion, and I'll provide more detail on our cost per seat drivers in a moment. And fuel costs increased 273% to GBP 362 million capacity increase year-on-year. Although due to our hedging, our effective price actually dropped 12.9 percentage points to $599 per tonne. easyJet Holidays EBITDA costs were GBP 58 million, which is in line with the revenue growth of the business. As we've previously stated, this business is very asset light and has a small fixed cost base. With the increase in operation during the second half, we're looking forward to seeing a strong summer for easyJet Holidays. The group headline EBITDA loss of GBP 208 million is less than half the loss incurred during the first half of the prior year, and we recorded a GBP 2 million foreign exchange gain in the year, resulting from the retranslation of foreign currency denominated assets and liabilities held on the balance sheet. Aircraft ownership costs increased 32.8% year-on-year. This is due to higher interest costs from servicing our Eurobond and UKEF debt along with higher depreciation charges driven by more flight hours for the maintenance. As a result, easyJet has delivered a headline loss before tax of GBP 545 million, which is at the better end of the guidance range we gave out in the pre-close. Non-headline trading resulted in a loss of GBP 12 million and comprised of a GBP 21 million loss as a result of the sale and leaseback of 10 A319 aircraft in the period. This is a return to the normal sale and leaseback activity we undertook prior to the pandemic to manage residual value risk. These aircraft will tend to be the oldest in the fleet. In addition to sale and leaseback loss, we had an GBP 8 million credit in relation to our restructuring provisions and a fair value adjustment of GBP 1 million. This has resulted in the total group loss before tax of GBP 557 million compared to GBP 645 million for the first half of the prior year. So moving on to Slide 8 and our revenue per seat. Total revenue per seat increased 33% on constant currency. Our ancillary revenue per seat increased GBP 5.09 as a result of the step-changed ancillary offering we now have and also the increase in load factor compared to last year. The underlying passenger RPS increase of GBP 7.04 is largely driven by the increase in load factor during the current period. If we take a moment to look at the yields we achieved in the period, you can see that the passenger yield have remained fairly robust compared to 2019, only 4% down. This demonstrates the strength of our primary slot-constrained network. Ancillary yields are up GBP 7.09 compared to 2019. That's a 57% increase, which is really encouraging, especially as we believe this uplift is not at the detriment of ticket prices. And this leads our total yield for the first half to be 89% higher than -- more than 9% higher than full year '19. Whilst we're very happy with the ongoing ancillary revenue performance, we are mindful that we have not yet seen a full return of city and business traffic, and therefore, we've yet to see how we perform at a fully normalized capacity. However, we have continued to demonstrate a step change in our ancillary revenue generation, and we expect it to continue on into the summer. So now let's move on to headline cost per seat. Analysis of costs on a per seat basis is not particularly meaningful when capacity fluctuates significantly between periods, as comparability is more difficult due to the large variance in volumes that fixed costs are spread over. So we've highlighted at the top of the slide the absolute change in cost year-on-year in constant currency, and that's shown in percentage terms. If we start with airport and ground handling charges, that's increased by 482% in absolute terms, which is broadly in line with the growth in passenger numbers and by 23% perceived. So despite rate decreases which have been achieved at many airports, the improvement in load factors led to an increase in passenger numbers, which combined with an increase in security charges and [ de-acting ] events, drove airport and ground handling costs up by GBP 3.03 per seat. Navigation charges increased by 367% in absolute terms, and that's broadly in line with seats flown. So it saw a GBP 0.04 seat reduction in cost due to the decrease in average sector length flown in the half. This reduction was partially offset by the EUROCONTROL rates increases we saw. Crew costs reduced by GBP 24.11 or 69% per seat primarily due to fixed payroll costs being spread over higher volumes. This favorable variance was partly offset by the reduction in the benefit of furlough schemes when compared to the prior year. Maintenance cost per seat also reduced by 69% due to the fixed element of our maintenance cost being spread over an increased capacity in the period, whilst also having a reduction in repair and cleaning costs as a result of the continued focus on cost savings. Ownership cost per seat have decreased by 72% at constant currency due to an increase in capacity. However, in absolute terms, the underlying movements have worked against us as described previously, with higher interest to service our increased gross debt along with increased depreciation on the fleet. Other cost per seat decreased 70% primarily due to additional volume to spread over the fixed costs. I'll talk to the fuel in more detail on the next slide, but as you can see on the waterfall slide, the airline headline cost per seat at constant currency before balance sheet revaluations decreased by 55% compared to the same period last year primarily as a result of the increased capacity. The bar on the right of the chart illustrates the net benefit from FX and balance sheet revaluation movements in the year of GBP 1.39. So after taking all that into account, the net headline cost per seat for the first half was GBP 65.42. So now if we move on to Slide 10 and look at the impact of fuel, currency and hedging. During the first half of the year, the average market price for jet fuel almost doubled from $382 a metric ton up to $762 per metric ton this year. However, the post-effective fuel price for H1 '22 was reduced to $599 per tonne, and that's 13% lower than the post-hedge fuel price of $688 per tonne in the prior year. After taking into account our commodity and currency, the sterling cost per metric ton of fuel was GBP 434, a 14% decrease to the cost in H1 last year. The average market rate for the U.S. dollar was $1.34 per pound and easyJet's effective rate was $1.38. This was a 1% favorable movement from the previous year. At the bottom, you can see that net-net, we saw no impact on our headline loss as a result of currency movements, which includes those within revenue, fuel and other cost lines. If we look at fuels and now our hedging, easyJet continues to forward hedge our fuel and foreign exchange positions to help manage exposure to market movements, which have been particularly volatile in recent months. As we previously stated, our full year '21 results, we've amended our hedging policy, shortening the tenor from 24 months to 18 months as well as reducing the proportion of fuel we hedge and its flexibility to adjust capacity in this uncertain environment. We're currently 71% hedged for fuel for the second half of this financial year at an extremely good rate of $619 per metric ton, pretty much half the current market rate. For the first half of the financial year '23, we've hedged at 49% of fuel at $701 per metric ton and then 20% for the second half '23 fuels forecast requirements at $807. Our fuel hedging is supported by U.S. dollar hedging, and that's set out in the table on the slide, where rates are also considerably favorable to the current market spot, and we've actually got 80% of our hedge position for this summer. We manage our exposure to market price on carbon as well, and we're currently 100% hedged for the calendar year 31 December '22, which needs to be surrendered in April '23, and 54% covered for the calendar year 2023. The hedging we have in place puts us in a good competitive position, but with fuel at around $1,225 a metric ton and the U.S. dollar at $1.23, the unhedged exposure will put an additional burden into the second half of this year and beyond. Looking at cash, during the year, our cash position, including money market deposits, held stable with a net reduction of GBP 31 million, taking our cash and money market balance to just over GBP 3.5 billion at the 31st of March. The movement resulted from GBP 159 million outflow from financing activities, with the repayment of the remaining GBP 300 million tranche of the CCFF in November, partly offset by the final receipts from the rights issue of GBP 54 million and also from the proceeds of the 10 A319 aircraft that we completed the sale and leaseback transactions on in the period. Our net outflow from financing activities was largely offset with the positive cash generation in the half of GBP 109 million. As you can see on the chart, this positive cash generation is as a result of an increase in unearned revenue of GBP 934 million since the year-end. This was boosted by the sustained uptick in bookings which was seen post the U.K. government's announcement to remove all testing restrictions on the 27th of January, and that was followed later by relaxing restrictions in the rest of Europe. Other working capital movements are an outflow of GBP 157 million. As in the early part of the first half, we are planning for the flying boom in the summer, and we incurred capital cost -- CapEx cost of GBP 339 million, and that's composed of our capitalized lease payments, our aircraft through delivery payments and the balance on the 5 neo aircraft in H1 that we took delivery of. Other cash movements and FX leave us with cash and money market deposits of GBP 3.5 billion at the end of the year, which underpins our excellent liquidity position. So if we look at Slide 13, we can see the balance sheet, which continues to be rated one of the strongest in the sector. We've seen a large increase in our derivative financial instruments in the half, increasing GBP 268 million since full year '21 to GBP 471 million. And this movement is largely down to increases in the market price of jet fuel, making our fuel hedges extremely valuable. Unearned revenue and trade and other payables have both increased as a result of increased flying in the half and forward bookings coming through. Notably, unearned revenue, as Johan mentioned, last year was abnormally low due to the results of low flying, but for reference, our unearned revenue at the end of this first half of GBP 1.78 billion is actually higher than the figure we had at the end of the first half of full year '19. And so in a period impacted by 2 bouts of Omicron variant and the war in Ukraine, I think that speaks volumes for the strength of both the bookings and the yields we're seeing in the half. Unearned revenue also benefited from the growth of easyJet Holidays. That accounts for about GBP 108 million of the unearned revenue. Other assets increased during the half driven by current intangible assets, which increased GBP 379 million, and that's due to the higher level of ETS-related assets we hold at the period end. At the 31st of March, we had net debt of GBP 596 million, which comprised of cash and cash equivalents of GBP 3.5 billion, borrowings of GBP 3 billion and GBP 1.1 billion of lease liabilities. Moving on to our fleet. Whilst we retain the flexibility to downsize the fleet if required, we're not constrained by the fleet numbers in the graph. So we can look to externally source market aircraft to go beyond these jaws if we see the right opportunity. The shape of the chart reflects the deferral of deliveries undertaken as a result of COVID. Just to explain again how the graph works, the top dotted line on this chart illustrates the current maximum contraction agreements with Airbus as well as the current lessors. The solid orange bar represents our base plan to the end of full year '22, and the lower gray line represents a contractual minimum fleet. As I just mentioned, the chart does not include any future potential additions to the fleet, which can often be done at attractive lease rates or indeed any wet leases in operation. For instance, you may have noticed that the current contractual maximum figure for full year '23 of 332 aircraft is actually 6 aircraft higher than the number we set at the year-end. And that's despite the fact that we return 6 leased aircraft to a lessor who had links to Russia, and that's because we took the opportunity to increase our fleet by securing mid-life aircraft at good rates and also extending some of our leases. As the A319s are leaving the fleet, they are being progressively replaced by A320 and A321 aircraft, allowing the fleet to upgauge. This represents a significant opportunity that we have in front of us as we go through the replacement of 99 A319s that currently sit in our fleet. In our total fleet, currently 55% of the aircraft are owned with 39% being unencumbered, and compared to 70% of the fleet being unencumbered in 2019. The second chart at the bottom summarizes our expectations for gross CapEx over the next 4 years. This is a gross CapEx position, so it doesn't take into account any future potential sale and leaseback proceeds. As you see, our CapEx expectation has reduced in full year '22 from the GBP 900 million we announced at the year-end in November. This is a result of reduced maintenance expenditure from lower H1 volumes, and we continue to keep our fleet in a flight-ready mode. Delivery of our larger -- 5 larger, more fuel-efficient neo aircraft have been received so far this year, with a further 4 due before the end of the financial year. This is one more than we updated you on in November due to one delivery being moved forward from early '23 into late '22. Gross CapEx for this financial year is expected to be GBP 800 million, and this will grow in the coming years, in line with our aircraft deliveries and also as a result of higher maintenance CapEx and the increased number of aircraft in operation and the aging CEO fleet. The CapEx investment allows us not only to renew the fleet, but also to upgauge and realize the sustainability and operational benefits that the A320neo family aircraft enjoys over a CEO predecessor. I'll now hand back to Johan.

Thank you very much for that. If we move on to the next slide. So basically, just building on the things that Kenton has said, we're in a strong position when it comes from our balance sheet. And this also then gives us the opportunity and the flexibility to capture growth when we see them. And I think Gatwick is a known example, where we have taken on the slot from BA, and now we have 81 aircraft there for the summer from the 63 we had prior to that. But if you're looking at the momentum of where we are in terms of the capacity, I mean we've been one of the airlines who has been flying the least relative to our size, if you're thinking about the 2 years we've been into, because of the travel restrictions that did into some of our core markets. But this has also been very much in the in the half of how we are then scaling up the capacities into the summer. So we've been going off 50% of capacity in 2019 in January to now what we're seeing in April, 86%, and we then have now 90% of 2019 capacities on sale for Q3 and then also 97% for Q4. And the load factors then are coming with this as well. So our load factor, we expect to be over and above 86% in Q3 and over and above 90% as well. And what is really, really encouraging is also the fact that our yields are strong in this period. So in Q4, they're 15% up, and that is then excluding the ancillaries, but that's what the ticket deal is. And it's also a positive yield in Q3. So we would be up 3% on the ticket yield also in the Q3. And I think that is, compared to other airlines, a very solid result. And like I said, there's some themes in here that we're now going to talk through a little bit more into the details on this, but there's 4 things that I really would like you to take out of the session that we are going to describe today. One is the absolutely change we've been doing into the network of allocating underperforming routes to the most in-demand routes as well to drive higher returns. And we would have talked about the last time we met, we had some 47 aircraft that was moved around the schedule to do that. And from the start of this year, we have then allocated differently 1.5 million seats to the more in-demand routes that gives us a greater return. And we are not going to be patient on underperforming routes because we know we have a lot of flexibility within our markets also then to shift capacity where they are. The ancillary change that -- as you would have seen from the numbers in the half, delivered 57% uptick in the half gone by, we are continuing with that momentum into this summer where we're seeing over 50% uptake on the increase in the revenue spend on the ancillaries for this summer. And I think we -- last time we met, we talked about the fact that, look, how much of this will actually stick as we're coming through into the summer and after coming through to getting more of a normalized mix within the program, but we're extraordinarily pleased to see that we're over and above 50% on the ancillary spend. And we get a slide next on that to describe in a little bit more detail. We've been doing a lot of things when it comes to cost. And of course, as you would expect, every cost line in the company, we've been taking a very, very hard look at to see how we can be more effective and what we can do to operate with the lowest cost possible and still deliver a great service to our customers. But one of the things that we set out early on was, one, to say we want to take the cost initiatives with us on a sustainable basis. So we didn't do pay cut, as an example, because we always knew that, look, there will be a point in time when there's going to be a pent-up demand coming back and suddenly, you're going to be pushed and you're going to get pressurized to reset those. So it's a temporary thing where we set out to really look at the productivity and also the seasonality that Peter and the team have worked extremely hard on to make sure we get the benefits on a sustainable basis with them actually going forward. So that fits with us. That stays with us. And I think that's a really, really important highlight to do. We also set out the fact that we wanted on the cost to come out of this to be, relatively to competitors, in a better shape to any airline who has a lower cost base than us. We wanted to make sure the success looks like that we are reducing the gap and also then widen the gap that we have the cost advantage, which is really on 2/3 of our network. 2/3 of our competition is where we are going head-to-head with the British Airways and the Air France and the KLMs and the Lufthansas as well. And as far as I can tell right now with the actions that we have done and we have in play versus others, I think that is very much something that we can look forward to come true. So that has been the philosophy around that. And then also then easyJet Holidays, which we today then upgrade in the numbers onto that 1.1 -- over 1.1 million customers for us this year. And we set out then that the target is to deliver here in midterm over GBP 100 million of profit to the group, incremental over GBP 100 million in the midterm, incremental to the group. And we're very pleased to see that the summer looks very encouraging, so we would be on track to deliver upon that as well. So this all then drives in to the fact that we see that we are in a different place and we still have growth opportunities. I mean one of the things that Kenton mentioned, you're going to think about this, the 99 A319s that we have at 156-seat capacity. That will be leaving the fleet here in the coming years with an automatic then upgauge to the A320 family, as an example. I don't think that there's any airlines who can do that and have the ability to grow on constrained airports. It's really, really a good position to be in just by doing the upgauging, which is growth in a very risk-free way. Moving on to the next slide then. So talk about a little bit on the summer as well. I mean we are now, by a clear margin, the second largest airline again in Europe with that ramp-up that we've done now over the spring as well. And you can see that what has come back the quickest is the leisure and the beach routes. So for instance, at Easter, we had 115% of the full year '19 capacity that were flown in the Easter to leisure, and the load factors was over 90% on that. I should also then say, and it's been well documented, that there has been quite a lot of challenges from an operational point of view. And what happened was that it's cumulated really at the end of March into the first weekend of April, where we saw primarily 2 things happening. One, there was a big increase in the sickness levels in our crew that was really following the infections levels that we saw in the U.K. and everywhere in the society. And at the same time, there was also a very difficult challenge to get people through the processing of getting IDs in. And that meant that we went up to have to cancel on the day, that first weekend in April, but we took very quick actions. So on the same weekend and on the Monday, we did a number of things that we have implemented to mitigate to avoid cancellations going forward, which include things like preemptive cancellations in the programs of the April and May as an example, and to build further resilience into the program before we had more visibility on what available crew was going to come through the pipeline and the sickness level. We also have done initiatives to boost the recruitment campaign. We put more resources into checking of the references that is a necessary process as part of getting ID as well. And since that weekend, we've been having quite a stable program. So today, we're flying 0.25 million passengers as we speak here today, and it's week by week, and Peter can talk about that. It is pretty much in line with the same type of operational performance that you would have seen in 2019. So I think that's important when we're talking about the cancellations. That was all the cancellations that were done preemptively at that weekend that was in there to build resilience back into the program. We believe now that we have the right amount of crew. What we now need to make sure is 2 things. One, we can continue to get people through today the processing to get the references done, to have them into the system, and of course, to make sure that the attrition level is also on a predicted level. So we are very focused on this, and we'll continue to monitor this, and we want to protect the program so we can give customers a fantastic experience also then flying with us into the summer. But the fact that this has been quite talked about and written about, and it is -- it has been an issue, it's also important to note that it really hasn't affected the confidence in the booking for the summer. You can tell there on the things that I said earlier, we're now sold in Q4 with a ticket yield which excludes the ancillaries of 15% up with a load factor of 36% around that 97% to capacity in 2019, and the ancillaries, they continue to track over 60% per customer versus '19. And the run rate, I think that's also a great thing to point out. If you're looking at the run rate in the last 10 weeks, we've been significantly over and above where we were at this point in time for 2019. And we had a slower start because we had Omicron. Then we had travel restrictions that were being removed there in the January timeframe in the window, but we then saw that this was then building up as well. So now there's a strong momentum into the summer. And then also, just to point out this with a network that is so important for ourselves, we believe we have the best network that is there because we have the leading positions at the primary airports. And now we have, in terms of #1 and #2 positions, we have more #1 and #2 positions than we have ever had before at the primary network, with 2/3 of our competitive sets are the legacy airlines. So that is an important thing to note from our positioning in the market. And we continue to build on these positions as well, and I'll talk more about that when we come onto slides going ahead. This one. So we talked about Gatwick before. We now actually -- it's not only 81 aircraft that we're now going to have in Gatwick for the summer. But if you include also the aircraft that is touching Gatwick, it's going to be at the record level of 90 aircraft versus the 73 aircraft equivalent that we have on touching aircraft before the pandemic. We secured slots in Linate, which is highly constrained, as you know. We managed to get first wave departures both from Porto and from Lisbon, and we also managed to add slots of the value of 5 aircraft worth into the Greek islands this summer. So easyJet is the largest airline from the U.K. to the main Greek islands this summer, which fits perfectly well with the demand we're seeing that it's really driving from a beach point of view at this moment in time. We get more aircraft and positions than we've ever had in Manchester, Milan and Paris. We are basing -- as we said, we're going to do the 21 aircraft as a destination basis, which is really starting to come through also in the trading numbers, yielding great results for ourselves. And we continue to do all of that allocations and then also adding new routes where we see that we have the opportunity to drive the higher returns and margins. So really, on the leisure side, we can see that we are now fully recovered over and above where we've been on beach and also then on domestic. What we are lagging behind, what is behind what it was in 2019 is then [indiscernible]. So whilst the run rate and the track record of that is also growing, it has definitely been behind, which was exactly what we said that what we're going to see was going to happen. Short-term was going to recover quicker, beach and leisure going to be coming quicker. And also -- we can also see that businesses are coming back as well. Businesses are coming back as well, but it has been slower in the recovery curve that gives us this mix that we're having. And we're very keen to adapt our network to the demand that we are experiencing. Also just on the backfill, that's an example, we talked about the slots. We are flying at Gatwick, and we also see a retrenchment on Air France, as an example. And I think just in context of looking historically back in the times of higher fuel prices, you will see legacy carriers with a higher cost base than ourselves. Hence, they withdraw capacity more than low-cost airlines, and because we are operating at these airports facilities, it gives us the opportunity to continue to grow there, particularly also because customers in these times tend to focus much, much more on value than ever before. So on to the next slide as well. This is really a slide that we're proud of. All the ancillary products that we said we're going to launch, we have launched in there, and they're delivering great for us. If you're looking at the ancillary revenue mix, you can see at the bottom of the slide there as well that we're now up to the 32% of the total revenue that is now represented by ancillary where we previously had been around that 2021 and '22, and it is sticking, which is really, really pleasing for us to see. We introduced on the 27th here, the in-flight retail concept that we have, which is basically a concept where we remove the intermediary, and we're doing direct contractual arrangements with the suppliers. We're getting greater control of the stock so we can match the stock better to the demand based on the routes that it is flying for. Even at the time of the day, we can do that. This has now been introduced across the whole of the network. We've been having some challenges on the delivery of the fresh food items on there in the U.K., whilst outside U.K., this has very much gone exactly towards plan. And what we can see there when it's been introduced that we get higher conversions, we get a greater spend per passenger because they appreciate the stock more than before, and we also then get greater margins on that. So this is a great contribution further on to ancillary offering as well the customers do like as well as crew. Sophie and Stuart, who's our CIO, they do have a data team as well, data analysts and data scientists as well. They've been doing some fantastic work when it comes to the pricing. I think we -- fair to say that when it comes to the ancillaries, that we've been leading very much the dynamic pricing of that instead of only having it within band, and that is also starting to yield results of it, and we're going to see more of that as we then progressing forward on to that. There's been a lot of work doing on the pricing piece. We spent a lot of resources to make sure that we actually is absolutely the best in class when it comes to our ability to price accurately according to demand to maximize the value for ourselves. And coming on then to Holidays as well. I see Garry smiling. I'm sure he wants to have some questions on this later as well. This is something that we are very pleased and very proud to see. Like I said, over GBP 100 million of incremental profit to the group is what we expect to be in the medium term. And the summer '22 bookings is 530% up versus the previous model in '19. Margins up 300%. And I think this is one of the things that is important about this, that the huge increase we can see in volumes and margins still doesn't take away what the offer is to the customers in terms of getting value. When we are measuring ourselves on the hotel on a like-for-like basis versus your competitors, we achieved 75% of the time of what we're doing. And this is very much because the business is set up as a digital-led business, technology-led business with a high degree. As you see here, 96% of the variable cost base without no commitments to hotel as well, building on the brand that we have, building on the network has been the largest airline into leisure and beach from where we are operating as well. So it gives a massive opportunity with no distraction to the airline to deliver that over GBP 100 million of incremental profit to the group as well. And very much of what we're seeing this summer is the growth that we're having from Gatwick, which is a reflection, of course, also of what our client program is on Gatwick. The cost, we have been working relentlessly on cost as well. You would have known the GBP 512 million that we reduced the cost with in '21. We said that almost half of that will be sustainable going forward. But look, there are more initiatives that we're working on in the pipeline. That needs to be there also to compensate for some of the headwinds that we will be seeing that will affect the sector and it will affect ourselves as well. So that is an ongoing thing that we're doing. Peter has done an absolutely fantastic work with his team to really reinstate that culture of looking at cost at every point in time and to make the right and the smart decisions to make sure that we are as efficient as possible. And like I said, what we wanted to do on this was primarily to make sure that the actions we've taken throughout this pandemic are savings that we can carry on in a sustainable way and then add on with further initiatives as we're coming through the years beyond, which we have a pipeline and we have an idea of what we're going to continue to also to do. That means that the cash level H2 is expected to be close to H2 2019 levels as well. And like I said, remember that we are working on the network we're competing head-to-head with 2/3 really against the legacy carriers. And that's where the focus is for us, and we are absolutely determined to see that the cost advantage we have had of that will widen as we progress and go through this. But it's not only around the productivity and the seasonality, but the crew, which is a big thing for us. But it's also about every way we've been looking to try to digitalize the business. Prior to the pandemic, the early part of the pandemic, we had 80% of the customers who wanted to contact us for changes to the booking, have to contact our call centers, and 20% can manage to do that through the app and through the website. Those figures are now reversed. So we've got 80% of customers who can manage all the things they want to do themselves, which gives them better customer experience and a lower cost for ourselves. That's just one example of the things we've been doing. We've been also then looking at the in-sourcing and the outsourcing, and by in-sourcing the line maintenance in Gatwick, Berlin and Glasgow and Bristol, we managed then also to get better control of what we're doing and then also lower cost base going forward. To that, one should then add the things and the costs that are unique to us and the things that will be a headwind to basically in the whole of the industry as well. So we got clarity on some of these, but we don't have clarity into what all of this is going to mean. But the only thing we know is that we're going to continue to do a lot of work on the things we can control ourselves and then mitigate the consequences to come out better than others on the relatively scale from what we have been going into the pandemic as well. So there's a huge focus that exists in the organization on that, that I would say, hasn't been there years before. Sustainable travel. This morning, we also announced the fact that we submitted now our science-based target initiatives, which will mean that we will then look for a reduction of our carbon intensity to 2035 by 35%, with a baseline of '20. And that basically then means that it is one of the steps we're doing together with the partners that works within this initiative to get ourselves towards that net-zero roadmap that we will present later on in the summer as well. So that -- the science-based target really consists of 4 key elements in here. One is what we're doing in terms of the fleet renewal. Basically, all aircraft is going to come into the fleet from now will be the newer generation fleet that has a significantly lower fuel burn than the CEOs that we have in place at this moment in time. We also have a number of operational efficiencies measures that we have been introducing over the year. I mean we reduced our CO2 emissions by 1/3 since 2000 on the per passenger kilometer, but we've got more things to do on that going forward. We have airspace modernization that we are now destined to see that this will start to come in play, and I know this has been around for some 20-odd years now with single European skies. But I must say that the latest you hear from [ Brussels ] and other decision-makers around that, that given where the climate sits at the moment in time, starting to be very little excuses on the fact that this cannot be done. And one argument that somebody pointed out to me here last week, which I thought was good, that one of the reasons why people have said that we don't want to modernize the airspace and get more centralized command of this has been because of safety and security. But as somebody who works in one of the air forces in one of the countries we're operating in said, well, that's just nonsense because you can see in this moment in time where they have issues going on in Ukraine and Poland, you just shut it. If you ever would end up in a situation like that, it would be no problem that you actually just shut off the airspace, and therefore, that is nothing that would stop you in peacetime from actually doing efficiencies and improvements within this. And thus this will drive at least the easyJet network some 10% improvement from that. EUROCONTROL estimated a 10% saving on that. We have estimated that it's more than that, but we've been conservative in this and putting down 10% of that. We will also use SaaS. We will be using SaaS in the -- in line with the mandates that exist on that. We believe SaaS will be part of the solution as well, but it's not a secret that we are much more excited about the zero-emissions technologies that we're doing quite a lot with a number of partners, and there's going to be more things to announce on that here in the not-too-distant future. So we're working with Airbus, working with Wright, GKN, Cranfield as well. And I think the thing that comes out right now just seems to be the most promising is the technologies around the hydrogen, and clearly, we want to be leading that as we have been leading the work on zero-emission flying here going forward as well. We've got a very robust approach to the ESG. We're the first non-IATA airline to be accredited with the environmental assessment program Stage 1 that exists in there. We improved our rating on the CDP, and we've also been recognized as a leader within the Britain's Most Admired Companies on the subsector when it comes to the ESG. And we're also doing a lot of things on the social side. I mean one thing that we did here that gave us a record-breaking collection on board for the people of Ukraine was delivering over 600 -- I think GBP 618,000 to UNICEF, as an example. We've been giving free staff travel for organizations who work to support and help people who are dealing with people in Ukraine as well, and there's a lot of things going on locally that we are also delivering on the social side. And there is a report. There's a supplement -- an ESG supplement that you can find on the website that you can read in addition to the annual report that describes what we do more in this area as well. And we're committed to the race to Net Zero, and like I said, we will then continue to do the work on the Net Zero 2050 pathway, come back to you and announce that later on as well. So the outlook very much is the thing, just to summarize where we've been in the trail. We see strong yields in the summer for both tickets and ancillaries as well. Forward bookings through the run rate consistently ahead of full year '19 levels. We've got the capacity at '19 levels, that is at 90% of that in Q3. Q4, 97% of that. Ancillary is really delivering on that after yield, as I mentioned. Load factor is expected to be 86% -- over 86% and over 90% in Q4 as well. There are disruption challenges really across the whole of the sector. This is, of course, something that affects airlines. We see difficulties with the ATC, but that's more of the normal things that we have to mitigate the consequences that we're not directly responsible for, but will be an output that will affect the customer journey. And then coming back to these 4 things that I really hope I got across by now: the changes we've done to the network; the step change we're seeing in the ancillary revenue; the cost and the productivity and the seasonality will benefit us as we're going through, particularly in the full year and also in the winter seasons; and easyJet Holidays is on track to deliver over and above the 1.1 million customers for this year. So that, we believe, is a very good position to be in to deliver on the focus that we have, which is shareholder returns as we go forward as well. So with that, we're going to do questions.

James Hollins from BNP Paribas. A few for me, please. Kenton, the CASK outlook, thank you for the H2 guidance. I'm just wondering if you can share any thoughts or potential guidance beyond that as you look into full year '23. And maybe a bit more on sort of what's left to be done. I think Johan was talking about some initiatives. Just run us through how the shape of that is beyond H2? Secondly, as requested, a question for Garry, but Kenton might want to jump in instead. On easyJet Holidays, are you -- I mean you say you're on track for the midterm GBP 100 million PBT. I was wondering if you could quantify or even just qualify profit expectations for this year as we look to model that out. And then finally, on the upgauge exercise, you talked about the 99 A319s. I was wondering what sort of speed we should be thinking about that upgauge? What speed the A319 exit? And if we take our minds back to sort of pre-COVID, there's quite a lot of excitement about A321s coming in. I see you've got 15 currently. Kind of the speed that they come in from here?

I'll kick off with -- in reverse order then. So on the fleet, the A319s' average age is just over 13 years. So as we look towards the 5-year plan, they're pretty much all gone by the end of the 5-year plan, so 2027. And as you said, we got just under 100 of them -- we've got 99 of them. A little stat, if you move an A319 to an A320, you get another 19% more seats. If you move an A319 to an A321, you get 50% more seats. So it's quite an upgauge, and therefore, in most slot-constrained airports, as Johan said, the capacity growth to be had with the existing stock before you think about adding them. In terms of our agreement with Airbus, we have the right to a certain time out to decide between the A321s and the A320s. And certainly, the team are looking at their wish list, and then we'll feed that into the delivery schedule. I think there's another 15 already stated, and then we're looking at how we take the -- what percentage we take of the 115 orders that are still to be delivered on the order book. That ignores the kind of 53 purchase [ riders ] and 6 options we still have that fixed around those 2013 prices. So upgauging is one of the key measures in any new orders that are a key part of bringing the ownership cost down over time. I guess deleveraging will be the other aspect because to carry the cash we have. Obviously, we have gross debt that goes alongside that. So if we can start seeing performance come through, then that allows us to deleverage. We actually paid off 100 million of the dollars of the UKEF in April. So we started that journey. So that's on ownership costs. On easyJet Holidays, we're very excited with what we're seeing in terms of the booking position. It is a strong booking position. We have got good yields. I think we're not deliberately giving guidance on this, but we are looking forward to giving more details on easyJet Holidays for Q3, but we're really comfortable with what's happened. Good margins are coming through and the volume is coming through. So it's in a very good place. Garry, do you want to take your seat, mate?

I would say, yes, just to kind of this point on the margin piece. I mean obviously, you've seen that it's 300% up from the previous '19 level, but we're very focused on margin. And if you look at that number of 88% of the capacity that we're getting is coming through free channels, I mean this is really a significant number versus our competitors because what we're finding with the pent-up demand is there is a huge rush to PPC in spending marketing money in order to get acquisition for those customers, which we're not having to spend. So we're very, very keying on that cost line and really trying to get that upper end of the margin versus our competitors. And so far, as Kenton said, that's what we're seeing. So we're sticking to that strategy at the moment.

And one of the things that's particularly pleasing, and that's why we thought we'd start the breakout now as it becomes a bit more material. Firstly, because we didn't want GBP 55 million of that revenue popping up in ancillaries and cloud in that ancillary message, but also to highlight really that you run through the winter. Holiday companies don't make money in the winter, but because of the very small fixed cost base that we have in that business, it's a GBP 5 million loss. So it's kind of the 1% of the number we had that we've just announced. So it's a very tight operation and then leaps into profit in the summer. On the CASK, yes, we are operating CASK when you exclude fuel and ownership costs. We're targeting to get closer to the '19 levels. I think what we kind of like about that is that in the airports that we operate in, I think it will be a differentiator to the other airlines. We already lower costs and therefore, keep the pressure on that. A lot of the work that's been done, Johan talked to around the crew seasonality, which actually because that's an H2 guide which will help more in H1 actually having part-time pilots because they're all fully flying in H2. The in-source maintenance is going to help improve our on-time performance and the extension of engineering contracts is a big part because obviously, there's a lot of inflation out there. The challenge we have going forward is a challenge everyone is going to have. As I kind of look at the inflation, there's clearly a labor shortage. Everyone can read the -- what's happening with cost price indexes starting to touch 10%, and that will impact where labor is more intensive in the supply chain. So ground handlers, there's an inevitability that we're going to see increases in ground handling. It's a labor-intensive business. We see some of that today where we have open book contracts. But where we have contracts that may be indexed costs, we'll see that one in the future because you always are a year in arrears on that. Airports, to a certain degree, security handling customers is labor-intensive, and therefore, as always, there'll be those robust conversations. But on the airports that are regulated, then I think those -- we could expect to see some of those costs coming through because that's the way they operate. Now because they're regulated they're heavily stock-constrained and the competitors get the same cost pass-through, but it doesn't mean it's not a headwind. And then obviously, the fuel and the dollar. So we do have a very good position for fuel and dollar for this summer, particularly dollar having 80% at $1.33. But we -- as you look forward, the percentage that we have drops. We have about half of the future winter and then we dropped to 20%, 25% of the summer beyond for '23. But what you also see when you have a look at the fuel curve is the backwardation is there. So today's prices are lower. If you wanted to hedge 12 or 18 months out, you get a lower price than you do today. So the expectation in the market is that whilst we're going to live through an expensive 6 months of fuel, that it will settle a little bit as we go forward. So I think the focus is going to be for Peter and myself, looking at where labor shortage creates a pinch into the supply chain. Also where -- how we continue to layer on our fuel and dollar hedges, but we're in a good place today, and it's the intention to keep it in a good place. But I don't know -- I think that's probably all I was going to say on cost.

Yes. And it's the same as all as you go for the big ticket item first, and we've done a lot of it only this pandemic as well. But like I said, in every part of the company, you will go through that, and there are more ideas in order to do that to mitigate some of the headwinds.

And just, I guess, one other thing on the topic. When you're reworking the network, decisions that are margin-enhancing don't necessarily mean they'll bring your cost down. So when you close airports like Southampton or Newcastle and then increase your establishment in London Gatwick, that's a margin-enhancing decision. You can really see it in the revenue, but obviously, you pay a little bit for it in the cost. But overall, it's the smart thing to do from a margin perspective.

Stephen Furlong from Davy. Quick one for Kenton first. Helpful on the hedging, could you -- what is your actual carbon cost? Rough idea of what it is for the year? And then for -- I have questions on competitors and capacity. So I was just wondering how you feel about any competitor action from the likes of thinking of Gatwick or Luton or indeed Orly? And then just overall in capacity, it just seems to me that the network airlines don't seem to be running back all the capacity into short haul as they had in 2019. And maybe you could see that the market share gains for LCC is more permanent, which is obviously key for you guys, particularly given that 2/3 of your capacity competes against those. That would be great.

Yes. On the capacity, and Sophie, you can fill in if you want here, I mean when you're looking at the latest data that we've seen, it looks like we've got some 46 million less seats out there on the short haul in Europe compared to 2019. That's pretty substantial. 7%, 8%, I think, compared to 2019 is out, and that is coming primarily from the legacy airlines. That is a retrenchment. And I think we've seen also just in the last few -- well, last week, that there's the 9% cuts at Air France, there's been 8% cuts at BA. So they are usually the ones who retrenches for various reasons, and of course, because it is the airports that we are operating, and we're very mindful that we want to keep those leading positions, whilst it's important that we have the flexibility to capture those opportunities as they come. And I think Gatwick is one example of that, but that would be also then the same in other parts of the network as well. Is there something you'd like to add, Sophie, on that?

Yes, I mean I can give you lots of numbers, but I think interesting stats on, when Johan mentioned, we are now the biggest airline in London, which is for the first time ever. If we look at 2019 in Q4, BA was 6.3% bigger than us. This summer, we're going to be 2.5% bigger than them in Q4. And we talked a lot in previous kind of meetings and calls around legacy carriers retrenching, and we're actually seeing it now. So if I have a look at some of the other markets, so Air France in Paris has taken out 14.3% in Q4. TAP in Portugal has taken out 23.8% in Portugal. We've added 19.9% in Portugal. Interestingly, Ryanair has only added 9% in Portugal. So we are able to get some good ground in those primary airports where we've got good positions. Swiss has taken out 18%. Lufthansa has taken out 10%. So in every jurisdiction where we have a good presence of the primary airports, we're seeing the legacy companies taking quite a significant amount of capacity out of there. But even if we look at -- as Johan said even in the last few weeks, we see quite a lot of retrenchment even from the likes of Swiss since January. They've taken out -- in Q4, they've taken out 13% of their capacity for Q4. Whereas we've actually grown in Q4, and the only other airline that's grown in Q4 is Ryanair, and we've grown at about a similar sort of rate. So all others seem to be retrenching this summer, and it's a great opportunity for us in those primary airports to be able to take some of those positions.

And your first question on carbon. So we burn about 2.5 million tons of jet fuel per annum. And when you translate that into carbon for buying ETS credits, you need 3.15 is the multiplier you apply to the jet fuel. So somewhere between 7.5 million and 8 million tonnes of ETS credits that are required, and an ETS credit today has a spot of about EUR 85. And you know exactly where I think -- [ I think you know what I feel about it ].

Jaime Rowbotham from Deutsche Bank. Most of my questions have been asked, but I might just follow up on Stephen's, which is about the carbon. Can you tell us what price you hedged at in fiscal '23? I'd be amazed if it was commercially sensitive, given you tell us on jet fuel.

Well, when you saw the price on '22, that is a mix of the free allowances and the carbon we buy. And then what we do is, we keep layering up. So I mean at the moment, it will be very low because it will be there with our expectation of free allowances. We have a very proactive treasury department, and there was a little dip. I don't think if you saw it on ETF when it suddenly dropped to 60. So we did jump in and get a little bit to the top of the -- within policy, but top of policy. So we're still layering on, and the approach we take with the ETS is we layer on each month with the intention of getting to the end of the calendar year and then having 25% beyond at the end of that period. So that's roughly where we find ourselves at the end of last year with [ '22 ] covered and 25% of the following purchased in last year's prices. And then we keep layering on as we go through. So we'll show that number in Q3 and then bring you up to date in Q4, but it's in that -- it's a relatively low number in terms of cost at the moment.

Damian Brewer from Canaccord. Three questions. First of all, just comparing to 2019, when you talked about in particular about Q4, specifically yields, how much of that is the disappearance of Thomas Cook in the market? And how much of that do you think is just pent-up demand and the withdrawal of other capacity? Can you just give a what's sort of the underlying there? Secondly, on the Holidays business, this higher contribution, how do you think about managing the selling channels on the aircraft side? How much particularly on a peak Saturday, say on Manchester or Gatwick in the summer? You leave the ticket only versus holding back for the Holidays business? And where are you in that thinking? And then very finally, given the Gatwick position, 90 equipment aircraft, when you look at what Heathrow is asking for, GBP 42 per passenger plus that APB on top of that, that alone is bigger than many low-cost carriers' average ticket price. How much scope do you think there is to pick up short-haul groups that were the next to be dropped from Heathrow that the economics then cease to work?

Yes. On the 15% yield uptake, I think they went top in -- yes. So we would have had that, but the 15% is pretty good across the whole. It's good across the whole of the network. It's not only in the U.K., we're seeing that. So we're seeing that I think it's more of the fact that you have a big pent-up demand really across the whole of the network. I think it's more and it's stronger in the U.K. because we've had more travel restrictions. It's the first time in 3 years that people can travel. But also, you would have seen that a lot of capacity at similar scope was replaced by Jet2, as an example. So I don't think it's kind of a Thomas Cook effect that all that drives the majority of that. So it is a strong yield that's coming through. And also, like I said, it exists also across -- outside the U.K. network.

And one -- yes. Obviously, our leisure flying is the one that's most up, 115%. So we are seeing that strength, and in part that's because of Sophie and the team getting 5 aircraft worth of slots in the Greek islands. And that obviously is helpful because it backfills some of that previous Cook's capacity, but also is -- Greek islands are as slot constrained as [ Skippel ], pretty much. So it's really good stuff to have.

The other thing to add on that question about whether that is taking up flying with tickets from the airline, to Garry's dismay, you're buying the tickets for the same price as you can buy it from the website. So there's no internal transfer on pricing in there, but I think that it's very much also down to the route and the network. For instance, you would have higher shares when it comes to Turkey and Egypt as an example, but it also helps build the support of the growth we're seeing in some of these destinations.

I'll pick up -- yes, I'll pick up on a couple of those points. So yes, Garry's often moaning to me that my August prices are too high. I turn tough. But certainly, what Holidays have helped is to build some of the early yield in some of these markets. So we're already on a -- Holidays are already on sale for next summer. We're not as an airline on sale for next summer, but it means that when we do go on down, we've already got some seats that we've secured at Holidays prices. We can then revenue manage the remaining fees. So it helps to underpin a baseline, but it doesn't undermine once you're in season, you're live. They are buying, as Johan said, at the current airline rates. In terms of capacity, and then I'll come on to Heathrow question. Yes, in terms of capacity, not only are we in U.K. beach, we're also up in Europe to beach destinations as well. So it's not just the Thomas Cook backfill. So Europe beach is up our Q4 112% sort of level. So it really is city that's down, but Europe to beach, non-EU and domestics are all up across the network. So it's a combination, and Thomas Cook was obviously only a small proportion of that on U.K. beach, but we're seeing a similar pattern across Europe as well and a similar strength in yield, too. In terms of your question around Heathrow, I mean it's an interesting one. BA, obviously a lot smaller in Gatwick than they've ever been before, and we've taken advantage of that. Interestingly, at the moment, a lot of their long-haul capacity has shifted to short haul because of needing to find somewhere to fly and somewhere to operate. But I think, yes, longer term, they will be switching back to non-haul, as you say, at those sort of prices that Heathrow charge at GBP 40-plus per passenger charge. It's not going to be competitive on short haul. We know what works on short haul in Heathrow is feed the traffic for long haul. And then also it's a good redemption tool for them to see people to burn miles and so on, but that's not ticket yield. So I think you will see in the short term, you'll see short-haul higher, but that will switch back to long haul as long haul recovers. And I do think you're right, it's going to be very difficult. They don't make money on short haul, they've made that quite clear. They don't make money at Gatwick. They make that clear as well. So it's a great opportunity for us because we've got such a strong position in Gatwick to really yield up. And that's where you would normally see adding the amount of capacity that we've added in Gatwick that Johan talked about, going up to 81 based aircraft, you would normally see some yield dilution, but actually, because that capacity has come out from the legacy carriers, we're not seeing the yield erosion. We're actually seeing the strengthening of that. So normally, that shock of adding that capacity in a short space, you would see that your yields dilute, but we're not seeing that. So that's very positive for rest of the summer.

Carolina Dores from Morgan Stanley. First question is on your -- I guess on cost, 2 questions. Any particular reason why you move from cost per seat to CASK? And my second question is, do we include -- when we think about the second half, any effect of disruptions that you might have on this guidance? Second question is, you mentioned that business travel is not -- obviously, not back to 2019 levels. If you could give some color on where we think business travel is now? And as we move to 2023, what's your working assumption of how the recovery takes? And my last question is, you gave us very good color on cost and revenues, where it's going. Any reason why you withheld from giving us a financial target for the second half of the year?

Okay. Well, I'll start on why we started looking at CASK. We saw the -- at the moment, the mix of the business is not a normalized mix. So we had -- we just showed H1, and our costs dropped 10% versus H1 last year because it was overindexed in the Canaries last winter. As we look to this summer, our kind of average seat kilometers is growing as we have more leisure flows. And when you have more leisure flows and less city flows, then that chew block hours and that will chew your flight deck time. That will chew your cabin crews time. That will increase your navigation charges because you're longer in the air maintenance cycles through longer block and flight out. So that's why we want to keep an eye on CASK, whilst we're seeing kind of such fluctuations in the average sector length, but obviously, we'll still though be using cost per seat. In terms of disruption, we have fed disruption into that cost. That is considered in that cost. The disruption in the first half of April, we've put into our numbers. There was the EU 261, and the welfare costs have been considered as we look at what's paid to date. It's not much more than GBP 10 million, GBP 11 million, but we've allowed a greater number for that because, obviously, claims take a little bit to go in. If you get beyond the 20th of April, all the proactive resilience measures that have been taken mean that it's not EU 261 anymore. So preemptive cancellation or consolidation, we were getting up to 80% of people rebooked on flights within 24 hours and outside the EU 261 window. So this kind of minimal really costs associated with welfare or disruption other than paying for any change in the fare for our customers. So we've factored it in, is the answer on that one. And on business travel return, I don't know, Johan?

Yes. So basically, I mean we see in certain markets that business travel is almost back to the same mix that we've had before. So that's why we feel confident in our ability to recover that. But we always said it was going to be slower, it's going to take more time. I think the other thing to notice is the change we've seen in the pandemic is that companies, first of all, there's a drag on larger companies. The SMEs are much quicker to start traveling again because they haven't put in place corporate policies that said you can't travel. So that's number one, and that's where we are strong at. We are also seeing that the companies have been much more focused on sustainability, and we've had very good feedback on the work we've been doing, whether that is the carbon offsetting fees, and we're coming up as a preferred airline for many companies. And a lot of people have to choose the most sustainable option that is available. So that has worked to our benefit. And then I think also then going forward, you will see that companies as will individuals will gravitate towards value, particularly in the times. So now every company has cost issues to face as well and we know that makes sense. So there is also a demand there, but it is lower than it is on the leisure. But the reason why we're confident that this is going to come back is partly that we're seeing our share is increasing because of the things that I mentioned, the way we are positioned. And then also going forward, we will be much more focused on the things like value, but it is still -- overall have some place to go. But in certain markets, it's absolutely there. So...

The guidance?

I forgot that one. The reason we haven't given financial guidance is still super volatile. We're very -- really encouraged with bookings. I mean the ticket price is great, plus 15%. And we have a lot more visibility of Q3. We're 76% sold. The ticket price is 2% to 3% up, it's there in the presentation, but Johan, how much in that? 2% to 3% up, and ancillaries are still performing. In Q4, we're 36% sold. So there's 64% still to sell. What we're seeing is positive. Sophie's constantly looking at that tension between the yield and maintaining that high yield premium that we're getting at the moment. The attachment for the ancillaries seems to be coming through quite nicely. Obviously, we're targeting ourself to get back into the 90s, which I think is really important to the load factor as well to start filling the plane. What is in the less certain bucket or the -- or where we are, even though we are really well hedged in that 70%, what, 71% on fuel at a great price of $619, if you flip that on its head, it means we've got 29% of fuel to buy. Goodness, there's what, $1,200. So that needs to be factored in. And we're doing a good job on recovering that, but there's still quite some variables. And every time we look at the fuel price and we think it's $1,000 and that looks like a sensible number, it jumps up again. Andrew?

It's Andrew from HSBC. Can I ask to -- please to talk to us a little bit about the resilience and recovery on the operations, maybe some starts on OTP or completion? And what is the cost of those measures you're taking, [ consecutive 60s, that's a narrow play ] -- that's not free, is it? And how confident are you that you'll be resilient when there's the next wave? Can I ask a really tacky question for our hedge fund listeners? On the unit revenue, you're telling us we've got book yields at 15% above pre-pandemic level. Is that 15% kind of stable? Is that building? Is it very volatile? Or is it declining from having been richer before? And then the obvious question which you alluded to at the start and we haven't gone there is, how are you thinking about managing the business for the uncertainties that lie in the winter ahead?

Thanks, Andrew. Just on the resilience month-on-month, if you take through the month of May, we've been running at around about 76%, 75% on-time performance, which is comparable to the same month in 2019, and that excludes delays from traffic control which have been much worse in the last month and even in the month of April than they were in 2019. And we had a very good Easter. Easter actually, operated very much on time. We've run in the 80s in a lot of days. And Gatwick, for customers, the security flow rates have been really good. We've completed recruitment last week for everybody we need for the summer. We just -- we're laser focused on executing them to make sure that their training is completed and that we try and mitigate measures to attrition. We put in a summer recognition bonus that's paid at the end of the summer. So that should help retain some people and also to attract some people coming in. And we've put a team of more than 50 people in the head office dealing with the ID processing. And we've had good cooperation with the [ deco ] over the last couple of weeks, getting the speed ramped up on that as well. And then we've converted some of the contracts that were fixed term contracts for the summer, they're moving into full-time contracts. That's been very good in terms of attention and retention in the U.K., and we were underweight for the winter. So that's given us a boost that we'll have people in place for the summer coming. On the other side, the other big call we have at the moment is air traffic control. We've seen significant disruption across Europe. Some of that's been a little bit related to the conflict in the Ukraine war. And I think all carriers are dealing with that as best as they can, but on the other side of that, in some of the main airports, there isn't the same level of activity yet that we've seen. So we've yet to see what the impact of that would be in the peak of the summer, but we continue the recruitment now right through the winter months. And we're focused again right on summer '23 to make sure that we get everything in place in terms of ground handling and staff for the following summer.

On pricing, Andrew, where kind of demand is a bit softer like in Q3, we still got the price above '19 level, and that does exclude ancillaries. And it kind of stayed there roughly where it was. When we look at Q4, I'm constantly waiting for it to drop. I'm constantly looking at Sophie's daily dashboard, but it is -- but there is genuine demand in this place. We are the reason the ticket yield started pushing up because we are running fast. We showed you the stat over the last 10 weeks, running up 13%. And we're talking about load factors over 90%, and there was a proper pause put into the bookings in December, and more importantly, January with Omicron, which has put us behind where you would want to be to build 90% load factors in Q4 when you're trying to fly almost 100% of the program. So I don't know, Sophie, if you want to talk about the last week or 2 and say how pricing has been.

Yes. I mean it's exactly as you said, Kenton. So the last couple of weeks, it's been trending very stably at plus 15. And yes, like you say, we're waiting to see if it may drop, but there's no indications that it will drop. It's not growing either. It's staying pretty stable at plus 15.

I have to remember what happened in full year '19 to answer that because, obviously, as you come late to full year '19, you would have expected the price to go up towards the point of departure because we're enjoying 93-plus percent load factors. So that will be interesting, that final bit, whether it keeps on its trajectory above 15% because we don't have the -- all the kind of history behind the algorithms to say what's going to happen in a market where you punch a hole in your forward booking turn-of-year numbers and then gain them back so quickly, but it is staying resilient.

Alex Irving from Bernstein. Three for me, please. So first of all, could you please speak a bit about your initiatives on in-flight retail percentage and KPIs on the slide. We talked about them being better, but how much better? How large the opportunity, both on a revenue and on a profit per passenger basis? Second one, only for Kenton. We've got GBP 3.5 billion in the balance sheet for the moment. What is the right level of cash for this business? And how do you get there? Is it reduction in gross debt? Is it expansion of the fleet, the shareholder returns on the table? So how do you think about that going forward? And then finally, on network steering. So we're clearly seeing the increase in stage length into this summer versus summer 2019. Is that permanent? Is that temporary as we need to, say, build back schedule density in some of the business hubs? Any color on that as we get into '23 and beyond, please?

Yes. On the in-flight retail, we just very recently have launched it. So we can't see exactly what the numbers will be, and I think it's also distorted by some of the operational challenges that we've seen in the U.K. But if you're looking where it sits, where it's been introduced without any operational issues as well, it is growth in all these areas. But I think it would be too early to call because we're talking a matter of weeks where it's been in place to obviously where this is going to lead us to, but all the metrics around that is up from where it's been. And like I said, it's a big delight for customers in Switzerland, as an example, to buy Evian water instead of Perrier water, and we have adopted also the program more to be locally adapted. So there will be less [ bagel and loxes ] on French domestic and more baguettes, as an example. And those things matter to have a good offer on sale. And it also means that when we are fine-tuning this right now, we're also going to be much better in making sure we don't run out of stock, but we're going to be better at assure that we are really -- can adapt what is on the trolley and what people can buy in terms of what they want. We're also going to be able to use the internal WiFi on the plane where you can download. Basically, you can order from there going forward, which would make it easier also in terms of the purchasing process around that. So there's a number of things that is promising, but right now, we're keen to operationally get that functioning 100% in the U.K., which is down to some shortish drivers, as I said, in some of the airports to get that out there, but it's all good signs we're seeing on it.

Okay. So on the kind of have I got too much cash question. We -- in terms of our kind of liquidity policy, we're looking to cover unearned revenue plus GBP 0.5 billion buffer. So customers' money plus a GBP 0.5 billion buffer. And you saw where it was, it was at GBP 1.8 billion. So you could define that as GBP 2.3 billion. Hopefully, it will grow a little bit before we start flying this summer, and then it will unwind, should grow through Q3, but more of an unwind through Q4. So you're looking at GBP 2.5 billion potentially of cash to be comfortable on the liquidity policy. And hopefully, with a bit of growth, that will start lifting as well. Obviously, we're really pleased with the bookings and the online revenue that flew in to give us the position we're in today. And of course, it does give you protection of what we're seeing in the market. But at the same time, with the treasury team, we have a monthly balance sheet review, and we decide whether now is time to start deleveraging. We obviously cleared the CCFF because the GBP 600 million because that was when the second tranche was due. But as we look at our kind of most expensive, I guess, line of debt being the U.K., we decided to take that deleverage a little bit, GBP 100 million, then that leaves about GBP 950 million of that drawn, but still a very useful kind of GBP 820 million of that undrawn. That's a great liquidity facility, but we'll be looking to kind of deleverage as we work our way through the summer and see if the demand is still there. Dividends, that's a slightly different question. We will be sitting down with the Board in the coming months. Under no allusions the Board is very kind of committed to dividends. We know it's important to shareholders. And as and when the kind of economic conditions are right, but also our financial performance is right, then we'll look to resume paying dividends again and come to the market. We always said we'd come at the year-end in November to talk about what kind of a fresh dividend policy might look like in a post-pandemic world. But we've got a very strong run on the bookings, and we're in a good place on unearned revenue. So that's why we have the GBP 3.5 billion. Now we also have -- we've also restarted up the -- taking the neos again. So you saw that we've got about 39% of our neos unencumbered, having had 70. So there's an opportunity to take some of those in and bring them into our fleet without raising any different financing on them.

Yes. So I think you're right in the assumption that as we build up our capacity back into city routes, that will reduce the average sector length. We're currently at -- for Q4, we're at 86% for city in the U.K. and 78% in the EU. So there is headroom to grow. I think one of the things is, given we've now got much more seasonality within our crew and pilot contracts, we probably won't get back to -- right to those sort of levels at the detriment of beach because it enables us to make much more money in the summer. One of the reasons we did a lot more city in the past was because we carried the cost of crew all year round so you needed routes that would work in the summer and the winter, although their average in the summer performance will be lower than your beach routes were. So we can now have that flexibility to flex up more and keep some of that beach [ back ] in the summer and not have to carry so much on city. But yes, the network points that we're doing primarily is the capital city to capital city flying. Absolutely, that will recover, and we will be getting that to those sort of levels. But the ambition doesn't necessarily have to be that we get back to 100 because we've got that seasonality now which enables us to flex more into beach as we go forward.

Yes. So I think I would just mention one thing as well, because it was apparent when I did all the media interviews this morning as well, and it was all about the cost of delivering prices and how that would affect the household and what's going to happen. And I think that what we're demonstrating today is very much what we're seeing for the summer, but in terms of how we believe that this is going to pan out going forward. First of all, there isn't enough visibility going into the winter and beyond to see what impact it will have and what will actually happen to the cost of living expenses going forward. But we do know one thing, and it's not the first time, if we were to come into a recession again, that we've been in a recession, and what historically happens then is that we tend to do better than competitors in that point in time because I have a couple of reasons. One, legacy carriers tend to be the first to retrench capacity, which means that, that will be beneficial for us in the network that we're operating. We also tend to see that people and businesses tend to focus even more on value, tend to focus even more on the value from other proposition, which we are rated as #1 in one of our key markets. So whilst we don't have the visibility on what's going to happen on that, people will gravitate towards us, the previous half being with other carriers. And because we don't compete overlapping primarily with other low-cost carriers, but it is the legacy carriers on these constrained airports. We can see that if it's coming down a route of a much more economically difficult situation for households and for the business as well, we feel pretty confident that we will at least versus competitors make sure that we can continue to do better and build on all the initiatives that we have been doing and will continue to do as well. So I thought I just wanted to finish on that as well, and thank you all so much for coming here and joining us and look forward to seeing you perhaps fly with us this summer. Book early. Prices are good still. Thank you.

Thank you.

Thank you. That concludes today's conference call. Thank you for your participation.