easyJet plc (EZJ) Earnings Call Transcript & Summary

Everybody is here. And as I said, I'm really pleased to see that the load factors of the planes are better than it is in this forum today. And I think we kick off with that and start by saying it's okay, very good. Listen, first of all, very welcome, and good morning to everybody, and thank you all for coming here today to discuss easyJet's full year results of 2022. We're going to give plenty of chance also as we go through the presentation, where we're going to talk through in more detail on how we believe that the transformation that we have embarked upon when it comes to number of actions within the company is really starting to deliver for us as well and then, of course, talk about the year that we are in and how we can expect more of this to come, at the same time that we also clearly are faced with a number of industry-wide challenges, particularly on the cost side as well. So we're going to talk you through that, leave plenty of time with questions to myself and also the team that I have here today as well. With me is, of course, Kenton Jarvis, our CFO, and I'm going to introduce also the other members of my team here. I'm actually going to start with David Morgan, David Morgan, who's been our interim COO in the company, is now announced from yesterday that he will be the permanent addition to the company as a COO as well. And David has an extensive experience from being in low-cost airline he was at with before he joined us here. And David, together with a number of our colleagues has been one who's been really driving the operational performance that we saw from the peak period where we delivered customer satisfaction levels that was above 19. We had a better operation performance in terms of less cancellations on the day leading to us becoming the most preferred airline here in the U.K. part of the summer as well. So congratulations to David and it's great to have you on board. We then also have Sophie Dekkers who is our Chief Commercial Officer. We have Garry Wilson, who is our CEO, easyJet Holidays. We have Thomas Haagensen, who's a Country Director here. We have also then Robert Birge, who is our Chief Customer & Marketing Officer; and we have Stuart Birrell, who's our CIO. And last but not least, we also have our Chairman Stephen Hester, who's here and do take the time also after the presentation if being around to grab and ask any questions to anyone on my colleagues as well as we have everybody here today. Well, listen, I'm going to start off with 1 slide that I think really summarizes in 3 different things on what has really helped us delivering the record EBITDA performance that we saw in Q4 and then also helped us achieve the GBP 1 billion bounce back that we see. And then I'm going to talk a little bit about one thing we're going to come back to, it's really about the great opportunity we have going forward. So in terms of the network, the network has really continued to deliver a lot for us where we have also then been absolutely relentless in optimizing, moving aircraft, changing route to the higher performance basis and routes that we have, we have moved around over 2 million seats in the full year '22, and we have also continued to add very valuable slot positions in the portfolio that has held and driving also then an increased contribution per block hour over 10% in the quarter 4 versus where we were in '19. And a big part of what we have been doing throughout the pandemic has really been about this network. But I think quite frankly say is that it's almost impossible to replicate to have these type of positions at the leading primary airport, where we know there are higher yielding, it gives us a great opportunity to continue to do more in the next 12, 18 months on optimizing that network. We said we're going to deliver a step change when it comes to ancillaries, and we certainly have been doing that and ancillaries is up 59% on the year versus '19, and that has been primarily to the things that we enhanced the product offering that we've had there, primarily through the cabin bag, primarily also then how we've been yielding the ancillaries where we've gone on to do more of a dynamic pricing on the ancillaries that is similar to what we are doing on the fares that is looking to deliver also great results for us to come in the future. We launched a different IFR, an inflight retail proposition that was fully embedded here in September, and we're going to talk more about how that is delivering for us because there's also more to come on that as we're introducing new products and features from that as well. easyJet Holidays is well underway to hit its target of GBP 100 million plus PBT profit for us delivering a GBP 38 million profit for us in this year, which is really the first year of the operation. But it's the fastest-growing, highest-margin, lowest-cost travel company in the U.K. with a model that is really based on very, very little risk and we'll talk more about what we think we can achieve with that one as we go forward and then opening up on new European markets within that model. One thing I just want to highlight also, which I think is something that we don't -- have perhaps spoken to as much as we should. It's really the up-gauging that we have coming ahead, which allows us really to expand and grow the capacity from the primary markets. We're going to have basically 40% of the 319s that we believe in the fleet here within the next 3 years. And just to put that in context, when we are replacing this with 320s and 321 , just to give you an example of some of the numbers in here with basically 50% more capacity from an A321, we will use the same amount of fuel on an absolute number, which is quite extraordinary. Because a lot of the constraint that exists is in how do you then grow at the primary airports. This is what this allows us to do. So it's great for our cost. It's great for growth and it reduces also the impact on the environment in terms of what this swap of moving out the 319s into the 320s and 321s will deliver for us going forward. So a number of things that we set out to do has resulted in that GBP 1 billion bounce back and a record earnings in Q4. But having said that, let's talk that through in more detail and also let's talk on some of the challenges that we are now facing that are industry-wide as we go into the year that we are in right now. So I'm going to hand over to you, Kenton, to go through the numbers, and then I'll come back and talk to this in a little bit more detail.

Thank you, Johan. I should just say I've got a bit of a cold. It's not COVID. I'm glad to say, but it is a good old-fashioned thinking cold. So I apologize if I reach my water or I have a little cough. Right. So if we kick off on Slide 4, I'm in charge. Here you go, with the key performance indicators for full year '22. So we had a good start to the year with momentum building from summer '21, trading remained positive in October and November before slowing down with the spread of the Omicron variant in December. Post this, we saw the removal of travel restrictions from the end of January in the U.K. and into February for some European countries, with demand beginning to build from that point into the summer. Total capacity was up 189% to 81.5 million seats and passenger numbers increased by 242% to 69.7 million. This increase was due to the very low levels of flying in the prior year when lockdowns were imposed with travel restrictions in place throughout Europe. In addition to capacity increases, load factors improved to an average of 85.5% and up 13 percentage points year-on-year. Airline RPS increased 31% to GBP 66.23, reflecting the increased load factors as well as the strength across both ticket and ancillary yields. Airline operating cost per seat shown as EBITDA cost ex fuel, reduced by 22%, driven by the 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 134% to a profit of GBP 6.46 and the airline headline loss before tax per seat reducing by 93% to GBP 2.65. Airline EBIT per seat has improved by 99% year-on-year to a loss of GBP 0.43. And when looking at the group level, including easyJet Holidays, we delivered a small profit EBIT. easyJet Holidays has continued its rapid growth, carrying 1.1 million customers during the '22 financial year. And from these operations, the business has delivered an incremental profit of GBP 83 million to the group -- sorry, GBP 38 million to the group. On Slide 5, -- here we go. On Slide 5, we've broken out the key performance indicators into quarters. As I mentioned, the performance during the period started strongly with October and November continuing the positive trends of the previous summer. The momentum then paused in December and January with the outbreak of Omicron and the subsequent travel restrictions. However, as you can see, there's been a step change from where we were last year with the recovery of demand driving increased capacity and improved load factors. The steep ramp-up can be seen in Q3, where we flew almost 25 million seats, over 5x the amount of the prior year. And this ramp-up resulted in increased levels of disruption across the industry. Capacity peaked in Q4 with 26.3 million seats, up from 17.3 million in the prior year. Overall performance in Q4 was strong, with load factors up over 92% and our revenue per seat over GBP 88, helping us to deliver a record EBITDA performance in the last quarter. Our yields have been practically managed throughout the year as we've capitalized on our flexible network to meet customer demand where it's the highest. We also saw our new ancillary proposition continuing to deliver in the post-COVID environment. If we move on to the financial performance on Slide 6. Total revenue increased to just under GBP 5.8 billion during the year, broken down into GBP 3.8 billion from passenger revenue, GBP 1.6 billion from ancillary revenue and GBP 0.4 billion of revenue contribution from holidays. Our headline EBITDA costs, excluding fuel, increased 125% to just under GBP 3.6 billion, and I'll provide more detail on the cost per seat drivers in a moment. Fuel costs increased 245% to GBP 1.3 billion as capacity increased year-on-year and fuel prices rose, in part driven by the Russian invasion of the Ukraine. The market price for fuel has almost doubled year-on-year. However, easyJet's strong hedging position, limited this increase to an effective price increase of 12%. EasyJet Holidays EBITDA costs were GBP 325 million, in line with the revenue growth of the business, and we will continue our focus to keep our low fixed cost base below 5% of revenue. The group headline EBITDA profit of GBP 569 million is a GBP 1.1 billion improvement on the prior year. Airline depreciation, amortization and dry leasing costs increased 17% year-on-year. This is a result of increased flying hours combined with an increase in the number of leased aircraft and the annualized impact from the change in useful economic life estimation in the prior year. This increase was partially offset by a gain on discounting of the maintenance provision due to an increase in the U.S. interest rates. As a result, easyJet has delivered a headline earnings before interest and tax of GBP 3 million compared to a GBP 1 billion loss in the prior year. Group interest and other finance charges have increased by 6% during the year due primarily to the sale and leaseback transactions. We recorded a GBP 64 million noncash, nonoperating foreign exchange loss in the year, resulting from the retranslation of foreign currency denominated monetary assets and liabilities that we hold on the balance sheet. The non-headline items of GBP 30 million, primarily as a result of the loss on the sale and leaseback transactions of our 10 oldest A319 aircraft and the return of Berlin slots from its rightsizing. This results in a group -- in a total group loss before tax of GBP 208 million. Moving on to revenue per seat bridge on Slide 7. The total revenue per seat increased by 33% at constant currency. The underlying passenger RPS increased by GBP 12.13, and that's largely driven by an increase in load factor during the current period and the impact of easyJet's continued network optimization. Our ancillary revenue per seat increased GBP 4.66 as a result of our step change in ancillary offering, combined with the increase in load factor compared with the prior year. If we take a look at the yields on the left-hand side, you can see that total yields have been strong with a 17% uplift over full year '19, and this demonstrates the strength of our primary slot-constrained network and ancillary offering, which has continued to deliver. Now moving on to cost per seat on Slide 8. Airport and ground handling charges per seat increased by 19% as a result of improved load factors increasing the passenger airport and security charges during the year, alongside inflationary cost pressures. When looking at the composition of our airports, we have about 80% of the cost is at regulated airports or airports with RPI or CPI linked agreements. The remaining 20% is at nonregulated non slot-constrained airports. This means that we will see a similar cost development to other airlines operating from our stock constrained airports. Disruption costs increased as a result of the unprecedented pressure across the industry, leading to the widespread disruption that we saw particularly in Q3. This has resulted in a GBP 2.49 disruption cost per seat in the current year. The prior year had very low disruption rates due to lower levels of flying. And it's worth noting that the stability of our operations have improved in line with our expectations since the start of July, with our Q4 disruption costs being lower than the same period in 2019. This is evidence of the proactive management actions taken on operational resilience. Navigation costs increased by GBP 0.60 per seat, following an increase in EuroControl rates that were effective from January of this year. We are seeing continued increases being proposed across the network from EuroControl, clearly impacting all airlines. Crew cost per seat reduced by GBP 8.11 or 46%, primarily due to fixed payroll costs being spread over higher flying capacity, partially offset by the reduction in furlough schemes, which is obviously now ended, as well as additional one-off crew payments such as retention bonuses. Going forward, I see the inflationary labor environment being offset by the continued capacity ramp-up, helping our productivity. Maintenance cost per seat decreased by 53% to GBP 3.69, this was driven by the fixed element of our maintenance costs being spread over increased capacity in the period, whilst we also saw a reduction in repair costs. Going forward, I expect maintenance cost per seat to remain around this level. Ownership costs have decreased GBP 12.67. This favorable variance has been driven by fixed costs, again, being spread over the higher capacity and a gain on maintenance discounting, which resulted in a credit in the income statement of GBP 71 million due to the increase in the U.S. dollar interest rates over the year. These favorable variances were partially offset by an increase in the number of leased aircraft and the annualized change in the useful economic life of our older CEO fleet during the '21 financial year. I provided more information on our expectations for depreciation and interest costs in the appendix of this slide deck. Other cost per seat decreased by GBP 6.09 primarily again due to the increase in flying spreading these fixed costs. partially offset by wet leases that were required to support the increase in slots at London Gatwick, Porto alongside those already brought in as part of resilience measures in Q4. As you say, all the wet leases have left the fleet at the end of October. I'll talk to fuel in more detail on the next slide. As you can see on the chart, the airline headline cost per seat at constant currency before balance sheet revaluations decreased 25% compared with last year, primarily as a result of the increase in capacity. The bar on the right of the chart illustrates the net loss from the foreign exchange and balance sheet revaluation movements in the year of GBP 0.77. So after taking into account all these factors, the net headline cost per seat for the year was GBP 68.88. Moving on to Slide 9. This slide provides more detail on the impact of fuel prices, currency and hedging. During the year, the average market price payable for jet fuel almost doubled to $1,063 per metric tonne. However, the post-fuel -- the post-hedge effective fuel price for the year reduced to $705 per metric tonne, which is just 12% higher than the post-hedge fuel price of $631 per tonne in the prior year. If we didn't -- if we hadn't got the hedging in place through the year, it would have cost us an additional GBP 662 million for fuel. After taking into account our commodity and currency hedging, the sterling cost of fuel per metric tonne was GBP 532, a 13% increase compared to last year. The average market rate for the dollar was $1.24 to the pound with easyJet's effective rate being $1.33. This was $0.02 adverse to the prior year. Net-net, we have an GBP 88 million hit on our headline loss before tax as a result of currency movements which include those within revenue, fuel and cost lines. This was in addition to the noncash nonoperating GBP 64 million loss from balance sheet revaluations. This is our hedging position. Slide 10. So we continue to forward hedge fuel and foreign currency positions to help manage the exposure to market movements, which have been particularly volatile this year. As we move into this winter, fuel is the largest cost headwind as we see the spot price of fuel currently over 50% higher than it was this time last year, magnified by a strengthened U.S. dollar. We're currently 74% hedged for fuel for the first half of this year at a rate of $814 per metric tonne. For the second half of the financial year, we've hedged 51% of fuel at a price of $903 per metric tonne. Our fuel hedging is supported by U.S. dollar hedging as set out in the table on the slide, with rates considerably favorable to the current market spot rate. Hedging position that we've not previously disclosed is on our U.S. dollar aircraft lease payments. which are hedged -- fully hedged for the next 3 years at a very favorable rate of $1.33. We also hedge our CapEx requirements for the next 12 months at the relevant underlying currency. We manage our exposure to market price on carbon as well. We're currently 100% covered for the calendar year '22, which will be surrendered in April '23, with an effective price of EUR 17 per metric tonne and 77% covered for the calendar year '23 at EUR 31 per metric tonne. These hedges continue to put easyJet in a strong position relative to the wider market. Moving on to the cash flow bridge on Slide 11. During the year, our cash position, including money market deposits increased by GBP 104 million taking our cash and money market balances to just over GBP 3.6 billion as at the 30th of September. The movement resulted from a GBP 236 million outflow from financing activities. With the repayment of GBP 377 million of debt financing made up of the remaining GBP 300 million CCFF in November and $100 million of the UKEF in April. This was partially offset by GBP 53 million in Q1 relating to the rights issue and proceeds from 10 A319 aircraft that we completed the sale and leaseback transactions done. As we move into the 2023 financial year, we have a bond maturing in February '23 for EUR 500 million, and we intend to settle that from cash as we continue to deleverage the business. Our net outflow from financing activities was partially offset by our positive cash generation from operations in the year of GBP 36 million. As you can see on the chart, this positive cash movement is mainly as a result of the operating cash generation in the year of GBP 537 million. The positive cash generation also benefited from continued increasing -- benefited from continued increasing capacity and operations compared to last year and also resulted in an unearned revenue increase of GBP 197 million and a positive net working capital movement of GBP 101 million. These offset the gross CapEx outflow of GBP 778 million in the year which in part is driven by taking delivery of 8 new neo aircraft, which were all taken into ownership through cash purchases. After other movements in FX, we held cash and money market deposits of over GBP 3.6 billion at the end of the year, which underpins easyJet's excellent liquidity. On Slide 12, we can see the balance sheet, which continues to be rated as one of the strongest in the sector. We've seen a GBP 239 million increase in our derivative financial instruments in the year as a result of the increase in market price of jet fuel and strength in U.S. dollar, making our hedges more valuable. Our unearned revenue and trade and other payable positions have increased from the prior year as a result of increased flying and forward bookings coming through on a large winter flying program than the previous year. Other assets have gone up by GBP 403 million, mainly driven by the increased number of ETS assets we hold as a result of our increased flying and also an increase in the trade and other payables. At the 30th of September, we had net debt of GBP 670 million, which comprised of cash and cash equivalents of GBP 3.6 billion, borrowings of GBP 3.2 billion and lease liabilities of GBP 1.1 billion. The cash and net debt position clearly puts us in an advantage from the majority of our peers. And this provides the flexibility to take advantage of opportunities as they present and also helps protect the business and downside risk. Moving on to the fleet slide on Slide 13. Whilst we retain flexibility to downsize the fleet if required, we're not constrained by the fleet numbers in this graph as we can look to externally source market aircraft to go beyond these jaws if we see the right opportunity. Just to explain how the fleet graph works, the top dotted line on this chart illustrates the current maximum contractual arrangements to Airbus as well as with our lessors. And the lower gray line represents the contractual minimum fleet size. As I just mentioned, the chart does not include any future potential additions to the fleet or any wet leases in operation. In addition to the current 59 neo aircraft in our fleet, we have an agreed order book consisting of 168 firm orders, 135 for A320neos and 33 for A321neos. This includes the aircraft purchase approved earlier in this year securing 56 aircraft deliveries with also the conversion of 18 A320neos into A321s. This order book is driving up our up-gauging opportunity. As our mix of A319s will continue to fall with around 40% of our A319 fleet set to leave in the next 3 years. This is a huge opportunity as we see the benefit from the increase in seats alongside significant sustainability benefits and the fuel efficiency that the neo aircraft gives. And Johan explained earlier the benefit we get if we move an A319 to an A321 because they have similar fuel while, but the A321 is 50% more seats. In total, we currently own 57% of our aircraft and 41% are unencumbered. On Slide 14, we look at our gross CapEx. Going forward, we expect gross CapEx over the next 3 years to increase in line with the delivery of aircraft we have scheduled. We have 7 deliveries expected this year, in '23, 21 deliveries in full year '24 and 25 deliveries in full year '25. All of the deliveries we'll bring in during the '23 financial year are expected to be funded through cash and brought into ownership. I should make it clear that the CapEx in the top chart is the gross CapEx position and does not take into account any future potential sale and leaseback proceeds. In addition to sale and leasebacks, we're able to fund gross CapEx through free cash flow generation or from debt. It's worth noting that we'll continue to manage the residual value of our older aircraft by completing sale and leaseback transactions as part of our risk management. I'll now hand back to Johan.

Thank you very much for that, Kenton. Okay, very good. Now I just wanted to start by saying I'm going to show you a slide that really demonstrates some of the underlying strengths that we think that we have at easyJet that is really a good position to be in to deliver strong shareholder value. I mean that is one of the things that myself, Kenton and everybody in this room and in the organization is doing. Every action we're taking is there to really, really put us in a position to deliver strong shareholder value; and b, Europe's winning airlines, both the shareholders and our people and our customers. And this position that we have of the strength is really within 3 buckets the way we look at it. One is the network strength that we've had. I know there's been quite a lot of talk about other low-cost airlines coming into some of our positions at the primary airports. But the truth is that if you're looking compared to pre-pandemic, we haven't seen a big shift in the head-to-head competition from other low-cost carriers because the constrained airports are just what they are. They are constrained. And in a number of cases, we are actually winning, as you can see in Lisbon as an example, in Porto those position that becomes available as the legacy airline is pulling out of there. So it's a great position to be in, and we have a significant cost advantage against all the main operators from these airports, whether that is legacy airlines or whether that is other low-cost airlines. A 5 planes operation from West can compete with our 80 operation planes from Gatwick from a cost point of view. So whenever you're looking at a cost average from an airline, you have to look at what does this do in terms of the head-to-head competition. And because of the scale we have, and because of the positions we have there, we have a significant cost advantage over our main competitors in this airport. And I think that this is something that we look to widen as we are then also moving into what I said earlier and also Kenton mentioned about the up-gauging. We've been absolutely focused to make sure that we're coming into this pandemic, we always set ourselves the target to say the competitive advantages we have we want to expand on. We want to increase on as we go forward. And as far as we can tell right now, we have the opportunity also to expand the cost advantage because a number of actions and in particular about the up-gauging that no other airlines can do from these airports that we can do. It's about growth. It's about lowering the unit cost and so also then reducing the impact on the environment. We also have not only the network strength, but we also have the financial strength and this is something that is quite remarkable when you're putting it up to a chart like that when you're looking at the net debt of some of our airlines, whether that is the legacy airlines or the [West] as an example as well, not even to mention the gross debt positions that a number of these companies have as well. We're one of the only 2 airlines in Europe who has an investment-grade balance sheet as well. And this gives us good position from terms of dealing with further challenges that can come our way from a macroeconomic perspective or then also capture opportunities that we believe is going to also then come our way. We have a brand strength and I know there was a lot of talk and there were certainly some challenges for easyJet, not only easyJet but for the whole of the industry as we ramped up capacity into Q3 and the potential impact on the brand. But really from the end of the summer season, where we have introduced a number of actions that stores deliver higher customer satisfaction numbers better operational performance in -- from July and onwards as well. We were voted as the #1 preferred airline in the U.K., and we have strengthened that position also then in a number of other key core markets that we have. And this matters. This matters even more now as we're going in a period of uncertainty because you know people would gravitate historically to 2 things, one, value for money, which is really one of the key core propositions of easyJet and also brands that they do trust. So this gives us a really good foundation to deliver on strong shareholder value as we go forward in the time to come. So if you're looking at the 2023, this financial year that we are in as well and on the winter, we have continued to optimize the network, we have launched new routes. I should remind you also that easyJet is by far the largest airline into the ski markets. And as of now, at least, we're looking for this winter to be the first uninterrupted ski season. And we know that there's a huge pent-up demand because people haven't basically been able to go on ski on Christmas and New Year and over the February half term since pre-pandemic. So that is clearly something that's going to play into our favor as well. And this Christmas ski flying is plus 30% versus also the last year as an example. We see that there is strong demand in the peak periods. We had a strong half term in October. We see Christmas and New Year. We see the ski season being strong. We see the early indications also that the Easter next year is good. easyJet Holidays who has an earlier booking profile then the airline is also seeing some strong encouragement signs also then for the peak periods into next summer. But it's also fair to say for this winter, with this winter outside the peak period, that there is a need to stimulate also the demand there through pricing actions and also then campaigns. So that's the kind of trend and the pattern that we're seeing. Peaks are doing well with strong growth on the yield. But outside those periods as well, it is clearly the normal seasonality and the needs that we have then to do market stimulation. We're also in this quarter and into the next quarter, really investing into resilience to make sure we have the right level of resilience into -- to the next summer to make sure we can deliver a strong performance operationally also as we're starting up to ramp up the volumes into Q3 and Q4. And all these actions that we are taking, they are really there to help offset some of the cost that we're seeing is coming our way, not only has the dollar strengthened as you know as well, we then see the fuel price go up on a year-on-year comparison in this half with over 50%, and that is a significant part, as you know, of the airline's cost base. So those actions are there to help offset some of these pressures that we do see going forward. So in terms of the capacity, we will have approximately from a seat capacity point of view, this quarter about 20 million seats available on sale, 18 million into Q2, Q3 ramping up to 26 million. And then in Q4, you will see us get back to the pre-pandemics level of the quarter around 30 million seats. So that's all in all, total seat capacity, we estimate to be around 94 million in this financial year. And we've been ramping up capacity quite a lot. Remind you that we did only 20 million customers in '21. In the numbers you would have seen for last year, we did 70 million customers as well because we had much tougher travel restrictions and being the largest airline in the U.K. that has clearly had an impact on that capacity. RPS, the visibility we have for this quarter, we're looking to be over and above 20% of the RPS. We see that load factors, we predict to be about 10% where that was in -- versus last year. And like I said, the booking pattern is that the peaks are doing well for us. But outside the peaks, it continues to be a challenge to stimulate that demand. And that's something that we recognize everybody is dealing with at this moment in time. So if you then take a step back and you say, okay, so describe really what easyJet is on a pace. This pace really does it because it really puts together what is the purpose of the company? Who we are? What do we want to achieve and how are we going to do that to be the winning European airlines for shareholders, for our people and for our customers? So the purpose we have and we have taken the opportunity to really refine this in the last couple of months as well and we launched this into the organization. It's really about what the company started out as we promised to do, making low-cost travel easy, that is really at the core of what we can do better than anybody else. And we know that this can also deliver value for shareholders when we get this model right, as has been demonstrated also in the past and we'll do so again. We know the customers want us to make their travel easy as well. And there are really 4 ways on how we're going to do that. One is to continue to build on Europe's best network. I mean we are the largest airlines from the primary airports in Europe, if you exclude [indiscernible] as well, and it's a great position to be because they are constrained, and we can still grow from that position as we are seeing Legacy Airlines and others, not only Legacy Airlines, but also local sales are retrenching from some of those positions that we can build upon and continue to drive where we know we have higher returns on those airports as well. And we've done a number of things in this that has really benefited ourselves. We have not lost a single #1 and #2 position throughout this pandemic. We have gained #1 and #2 positions, and that's important because they deliver higher than the average above returns within our network. And that's something we will continue to do within the next 12 to 18 months. We said that we're going to transform the revenue capabilities of this company, and we have delivered that and we got more to come within this area and 59% up, as you've seen on the ancillaries, but also the way that Sophie and her team are doing the pricing. We'll talk about that in a little bit more detail where we think that we have more opportunities to go in that area. The inflight retail that we launched earlier this year, fully embedded from September as well. So that is together with other actions we're doing within this area, something that is yet to be delivered on. Delivering ease and reliability, we know the customer wants to have a seamless experience as they travel, as they fly in Europe, and that's where the focus is. And we get some specific target points that we've been addressing to make sure that those things that matters to most of the customers are something that we deliver better at the primary airports than anybody else is doing. And we do have a loyal customer base and loyal customers isn't just there because we think it's nice to be nice to customer. It is because they actually tend to come back to you more often than they go to competitors. That's really the point of why the loyalty really matters for us. And we have had 76% of all the bookings are from returning customers within a 2-year period, which is a strong number. And the operational stability that we're focused on and actions we've taken has really delivered for us in the peak period. And that's what we're investing now in this winter to make sure we deliver great experience also for summer '23. And continue to focus on cost by really, really capitalizing on the low-cost model that we have, where we do have this advantage from a cost perspective from the main competitors at the primary airports with the various things that we'll go through in detail going forward. So this is what's really going to help us deliver that strong shareholder value, be the preferred airline for our customers and also be the most attractive employer within this industry. So looking then on to the network and just spend some time really to see what has then performed within the network and what is then lagging behind from where we stand today. So we can see that Beach has been really the star performer. We've been up 10% on a year basis versus where we were to pre-pandemic levels in summer '22, the particularly outstanding one has been the U.K. Beach. Now that's down to also that there's been a huge amount of pent-up demand that we're seeing for people not being able to travel since the restrictions have been put in place. And we also see an increased customer choice. We launched new markets. We launched Tunisia as an example from the U.K. and also in Switzerland and a number of other destinations in there as well to really capture that demand that was there. From the domestic that is also fully recovered, the domestic was the one who really held up the strongest throughout the pandemic because the restrictions wasn't really capturing the domestic part of the travel. That was more on the international side as well. We launched 7 new domestic routes. And we've also seen that business travel is coming back. And one interesting, I think, stats about easyJet versus other airlines when it comes to the business travel that consists about 18% of what we do. And as it's recovering now, it constitutes primarily of people from SMEs. So small, medium-sized enterprises that do not have the same type of travel restrictions that large corporations are putting in place. So we can see that this represents an opportunity where we can come back quicker on this than other airlines who are focused on that big corporations. City has not yet recovered to the same extent as the 2 other parts in here, and it is not an insignificant part of the company that you know that represents our city business. It is coming back and it's coming back quicker, but it's starting from a lower point than the 2 others has been in place. The City breaks are doing well for us. but it's really outside those breaks that we see that we have more recovery to come from this part of the business as well. And we continue also then to adapt the network. So we can see that we fulfill where the demand really is at. This is what this slide really shows. And sometimes we talk about the ruthlessness is on how we can move aircraft from bases that we can see that they can perform better at other bases. We showed you this graph before where we basically have all the bases lined up, and we're looking at the contribution per block hour. And in simplistic terms, we are taking capacity from the one that performed less good to the highest performance bases that we have above the averages. But this is not only about how we're moving aircraft between bases. We also have a great opportunity that we demonstrated in Italy that we demonstrated partly also in the Berlin operation where we're actually moving the aircraft to the routes that performs better, adapting ourselves to that beach demand, adapting ourselves to that leisure demands and I can tell you that we are not very sentimental in terms of making those moves and really to capture the value to meet the demand to the higher return bases that we are seeing. In Gatwick, we -- since pre-pandemic, we increased the capacity with some 20 aircraft. And given the noise that some of our competitors have been making, we're adding 1 or 2 aircraft, it wars in terms of the scale that we have at that airport. Porto, another 4 aircraft, that's 80% increase in equivalent of the seat capacity from those aircraft. The list and slot which makes us now overtaking Ryanair is now the second largest airline in this place. On a slot-constrained airport that we won those slots as well is about to deliver for us this year because the decision of that was only taken at the end of the last financial year. So that's for us to come and we are also the largest airline into the Greek islands, which has demonstrated great demand in '22 and the early signs of '23 is also that everything in the Eastern Mediterranean looks really strong because people are focusing on value for money, Greek islands, Turkey, Egypt, as an example. So these are the type of examples, you will see on -- what we set out to do, we actually have delivered and we're absolutely being focused to make sure that we're allocating the aircraft to the routes and to the bases where we're getting the best returns as we do going forward. And we have more things that's going to come within this area in 12 to 18 months going forward. We also said that we were looking to really make a transformation of our revenue capability. That's part of the plan that I showed earlier as well. And for those of you who have watched and monitored the company, you would have known that for many, many years, we had about 18%, 19%, 20% of the total revenue mix that was driven by ancillaries. But with the changes we've done mostly in part of the products that we offer, the cabin bag propositions, the bundles that we've been doing, the way we price that at least some 30% of the total revenue mix was ancillaries -- came down the percentage point last year, but that was more because of the strength of the ticket fare rather than anything else that we saw a drop in the absolute numbers that we got through to the ancillaries. We've been also working a lot and Sophie is doing a huge amount of work when it comes to optimizing also the pricing on the fares. We're cooperating now with a leading-edge company, Datalex, which will help do primarily 3 things in here. One, having the opportunity also then to be quicker to the market. We've had system constraints in here that is just meant that it's taking too long for us to sometimes to get out to the market with bundles and with offers that we're having. One, looking at personalization, much more in the product offering that we do, which means that we can do a higher yield than we can ask for more money when it's more suited into certain target groups and individual customers. And we continue then also to work on the algorithms. We have some 600 different algorithms that we're working with, and we know that when we can get this to work on the route-to-route basis, we see huge improvements within this area as well. And this is something that is really for us to be enjoying the advantage as we continue to work within this area. I think it's fair to say that I don't think that there are any airline, as I have seen as we go through that does more investments into how we can grow the revenue capability, and that has certainly delivered into the results that we saw in Q4. The inflight retail proposition that is now fully embedded is really going to take on for the next year to come. We've seen that the profit per seat impact that we've had during September is about 70%, so that's GBP 0.42, 42p. And that's actually profit per seat about all the capacities. So it's not only the ones who's then clearly buying the products that we have. And we're looking then to get further improvements in here when we're from January, we're going to introduce a closed-loop WiFi system where we'll be able to merchandise the offering that we have in a much more effective way going forward. And we will introduce also then the capability to preorder this by the end of this financial year. easyJet Holidays, you look, I know there were some skeptical comments about this when we launched this, and we said we're going to refocus our efforts in a separate company in a separate P&L that Garry is leading here. And we've now had the first year, we set out the target to get to GBP 100 million. And I think it's fair to say that if anything, we've seen that we're moving closer to that target than perhaps we were -- we thought at that point in time, delivering a GBP 38 million of profits in there. And like I said at the earlier point of it as well, this is a company with almost no committed risk, it's a variable risk product. It is the fastest-growing, lowest cost, highest margin business in the U.K. within travel. And 1 thing that we set out to do was great about is that this model can easily be replicated also into other countries. But I don't think you can find any other company can do. So this differs immensely from any traditional travel company that doesn't have the fixed risk that it has, which means that the winter operation as an example, will not occur losses the way you see other, if anything losses. We don't think we're going to do any losses in the holidays company for this winter. So it's all upside that we're seeing in the profitable summer season. And we will then also then look to then add on source markets going forward. But just to mention that, that GBP 100 million doesn't involve any other outsourced market. This is driven by the great opportunity that we see in the U.K. So we are really pleased with that performance and look forward for this to deliver that GBP 100 million, that's even closer and quicker than we anticipated. Focusing on our cost and really capitalizing on the low-cost model is hugely important for ourselves. And we did set out some things that we wanted to structurally change within the company, there wasn't really a one-off nature as we headed into the pandemic. One was to introduce the seasonality contract for our pilots as an example because that means that we don't have to have that cost in the unprofitable winter season, as an example, but we can look to see that we can add growth where we then see the profitable summer season has and we can utilize that part of that community. So that's in place. We launched and have now some 21 aircraft in a seasonal basis operate on an 8-month profitable basis, and we'll look to do more of that in the next coming years as well. And that gives us an opportunity also then to introduce aircraft start-up base from lower cost environment that goes in and take advantage of the slots that we have at the primary airports also in Europe, which is a great position to be in. We insource in-line maintenance. We have compared to a number of our competitor airlines, we have concluded the majority of the crew deals now, both on the cabin crew side with 60% of all the agreements are in place now across the union communities. And 80% of the pilot units are completed right now. And we're working through the remainder of that as well that gives us certainty about the cost as we see going forward. As Kenton mentioned, we're in a leading position when it comes to the hedging for the fuel FX and the [ECL]. All these actions, all these actions are helping to offset some of the cost inflationary pressures that we are seeing and it will give us opportunity then also to deliver strong as we go forward in the future years. So the main focuses that we have for on '23 on the cost side lies within fuel. Fuel being the single largest component of our cost base. We introduced Descent Profile Optimization software tools, as an example, which looks to reduce the fuel burn that we have on a like-for-like basis with 1%, completion now on the remainder of the crew deals that we have. We will continue to add also then, feature for customers to self-manage and self-service. So that means that when there are changes to a booking that needs to be made, that the customers can do that themselves. Prior to the pandemic, we had some 70% of all the customers that had to contact us through a contact center to physically get somebody to help them to do the changes. That's now down to 30%, and we look to make sure that, that will be reduced even further. It gives better customer satisfaction, and it reduces the cost for the company. And we then also have the opportunity now for the up-gauging of the fleet from the constrained airports where you actually could not add any growth in terms of the number of aircraft but the seat capacity will do that for us. So just to highlight this once again, we do have a significant cost advantage versus the main competitor that is not only the Legacy Airlines, but also other low-cost airlines in there because they simply don't have that cost that is driven by the scale that we have. And they cannot get it because these airports are constrained. Delivering ease and reliability. We talked about that as well. There have been really 3 points I want to highlight on that, and we put a lot of focus into for this year, and we'll roll that out also now going forward. The auto backdrop where we are basically having people the opportunity to deliver the bags without any staff assistance when they check in. They can pay for their hold bags as well at the airports. We're moving that out to another 6 airports within the network. The [trailer] backdrop, which really well received, where you can get customers that they can deliver the bag on the evening before an early flight and therefore, removing the step of that journey on the same day of the flight. And we're also investing in presence in Gatwick, which is clearly the biggest part of our operation in a single -- from a single base point of view, by adding a terminal fleet manager in there as well that will help us then support the operational performance at that base, which we're looking for to benefit from as we go forward into summer '23. And the recruitment process started earlier than ever. We have something like 2,100 positions to fill from a cabin crew point of view. We have recruited at this moment in time, 1,500 are recruited and signed up. We had about 19,000 applications in terms of filling up those 2,100. So it's a record number of applications that we've had, which demonstrates that people are attracted to come and work for this brand. So we're investing, we're doing fully training courses as we speak right now to make sure we have that resilience going forward. There -- it's also true to say that I think it differs also in certain regions where we see that the labor markets are tighter in some region versus other. The Gatwick Air or Southeast continues to be demonstrating quite a tight labor market but in general, we are on track on what we are looking to recruit and we in generally oversubscribe really across the rest of the network as well. So this is something that we will continue to focus a lot for when we go into Q3 and Q4. And also I know there's been some discussion about some competitor not paying up refunds as well. When consumers are eligible for a refund -- that is an automated process right now that will be paid out to them within 3 to 5 days. Sustainable Travel. I don't know how many of you that was watching David here at BBC yesterday as well. But we -- most of you would have seen what we did when we launched a road map to net-zero in September. And last week, we, together with Rolls-Royce, conducted the world's first test of a jet engine 100% run on green hydrogen. So David will stay physically present. I'm very happy, pleased that you came back safe and sound from that experience, but this is really a fantastic milestone because it demonstrates what we kind of said all along, and the purpose of this test was really to run and control that jet engine on that 100% green hydrogen. It is a lot of things left to be done on that whole thing, but it's been one of the reasons why the claim that I think we got for the road map to net-zero was what it was because this was the first time somebody demonstrated that zero emission technology can actually be part of that zero -- net-zero out to 2050. Within this, we have also done a very, very granular plan on how we're going to reduce our carbon intensity by 35% to 2035. And this is something that we are continually investing in doing. And I think that no airline as far as I can tell, in the world is doing more than we're doing. It's the right thing to do for the environment, but it also reduces our cost as we look to reduce the amount of fuel that we're using, moving on then to zero-emission technology. And then at the end of the road map of 2050, then look to remove the residual emissions that is a result of our operations. We've seen enhanced ratings really across all metrics, the CDP, the MSCI and the Sustainalytics. And we also -- is the world's first low-cost airline to have been certified from the IATA's IEnvA environmental management systems in place. So we continue to do quite a lot of progress within this area. And this is something that fits as part of my objectives. It's part of Kenton's objective. There's a strong governance even from the board level to the management about all the areas we do within this, and that is something we will continue to want to lead on. So if I just finishing off on this slide as well. We talked about what's been delivering. We talked about the position we have, this is all really for us to demonstrate that we are absolutely focused to deliver strong shareholder value. That's really the core. That's really the key thing. That's what we want to do. We recognize that this has been a rocky road for shareholders within this industry, not easy to have been excluded from that. And we want to demonstrate and are committed to deliver exceptional strong shareholder value versus other going forward. And what we can see in the outlook we have today, we're looking at over 20% year-on-year RPS revenue for the quarter that we are in. We're looking for load factor to be about 10% higher than they were at this point last year. We are investing into the ramp-up of summer '23 in terms of the resilience, all these actions are helping us to cope with the inflationary pressures that we do see when they are there, particularly in terms of the fuel we're seeing for this half. And in general, we can see that the peak bookings are doing well for us. It is outside those peak bookings that it remains to be with the seasonality we would expect in the winter to be some challenge around that. And we're looking then to fly some 38 million seats on offer here in H1, 56 million come back to pre-pandemic levels then in Q4. And Holidays is targeting, can I say at least 30% growth, Garry, for the summer to come as well. So we look forward to come back to you to demonstrate that, that success is also then continue. So with that, thank you very much, and I think we are ready to take some questions to myself and Kenton and also to anybody in the team, feel free.

It's James Hollins from BNP Paribas Exane. A few for me, please. Very interesting long-term stuff there. But with apologies, I'm going to focus a couple in the short term and they're both for Kenton. I think there was some confusion this morning on your unit revenue outlook. Perhaps I could ask if you'd give us some pricing outlook for Q1 '23, so that yield per passenger on tickets, Q1 '23, and whether that's against Q1 '20 or Q1 '19, you can see how my morning is gone. Secondly, on the unit cost, perhaps you could give us some guidance on whether you want to give H1 full year '23 or maybe when unit costs get back to pre-COVID levels? And thirdly, and more longer term, I'd love to hear from David has now has got the keys to the top job as permanent COO maybe just to hear from him, his thoughts, his focus, his areas of weakness, opportunity, et cetera.

Thank you, James. So in that order then, so Q1 yields, what we said in the statement here was that we were seeing RPS over 20%. So the key is over. So we do see it being greater than 20%. The load factor we're saying will be 10% more than it was last year. We're seeing ticket yields and have an expectancy that ticket yields versus last year will be low double-digit higher. Ancillaries carries on, even though now we're at the time where it was in place last year, we're still seeing a kind of low double-digit increase in ancillaries as well. So that's on last year. If you did that versus '19, the ticket yield would still be up around the kind of high single, low double digit because Q1 of the '22 year was fairly flat on ticket yields. And for ancillary yields, obviously, we were already -- last year, we were running up 50%, 60%. So because we're still growing, then versus '19, the ancillaries are going to be like up 80%. And that load factor of plus 10%, we did a 77% load factor last year. So that would give you around the kind of 87%, 88% mark. I think pre-pandemic, the Q1 for '19 was 89%. So a little bit softer, but not hugely softer. And we're focusing on the RPS. So hopefully has a bit more flavor on the Q1. In terms of cost, the way we're looking at cost is -- to our focuses. Firstly, in our kind of primary slot-constrained airport, which is the vast majority of our airports, maintaining a good cost leadership position, and that's against kind of all carriers. Obviously, we'll clearly keep that and want to keep that against the Legacy or the Legacy kind of low-cost carrier variance. But also, as Johan said, when -- if a Wizz comes into Gatwick with 5 aircraft to operate long haul slots into short haul, it's a pretty ugly cost base. So it's a better cost base from those coming into the lower cost airline. The lower cost our kind of network. And then when we look at the kind of costs that have been kind of achieved, we've still got a good proportion of our pilots on part-time seasonal contracts. We've got the seasonal bases that are open for 8 months of the year and therefore, the costs follow that. We're kind of having very constructive negotiations with our unions and having kind of over -- having 80% of the pilot contracts done for the forward years now at levels below the running inflation is giving us certainty of where that cost is going, and it's about 60% for cabin crew. Obviously, we still got the fact that we insourced our line maintenance. So that will give us OTP benefits, but also some cost certainty there. And one of the focuses is still to continue the automation on the self-service app because it's just a big plus for the customers to be able to manage their own bookings and if this disruption manage that as well. And obviously, it puts less pressure on the back office, so we can have fewer people supporting the call center. Longer term, we've got the up-gauging opportunity. We've got 94 of these A319s, and the average age of those is now pushing 14 years, and none of them will be in the fleet after their 18th birthday. So that gives you an idea of how quickly they'll be leaving the fleet. And even if they're replaced by an A320, it's still 19% more seats and A321 is obviously 50% more seats. So there's a natural growth of 6% over the next 5 years, nearly from cycling those out before you think about putting any extra metal in, which all helps towards -- and David, maybe one of the things he would say on cost would be, so looking on the optimizer -- is looking at -- is constantly looking at efficiency measures for the way we fly. And we're looking to install new software on the fleet over the coming months to optimize the Descent Profile, which again gives us about another 1% fuel burn benefit. But if we're looking at the cost for winter, we have to be mindful of the fact that the market price for fuel is 50% higher. It's $1,000 a metric tonne, it was [ $70 ] or something like that a year ago. And although we got excellent hedges, $800 a metric tonne and a really good kind of [$129] for the dollar for that winter. We also had excellent hedges a year ago. So against the market price of $670, we were hedging at $500. So we're seeing this kind of 50% plus increase in the unit cost of fuel compounded by the strength in dollar even though we've got a good dollar. So competitively with other airlines, but a really good hedge. But year-on-year, we're exposed to that cost and the pricing that's good in the peaks, ticket price up about 18% for Christmas. But typically, in the winter, it's outside the peaks that you have more of a challenge recovering it. But like I said, Q1, at least 20% RPS increase and the focus goes on to Q2 now.

And I think in terms of operational focus and challenges, clearly, we saw some challenges, particularly early on in the summer this year. with labor shortages right across the industry. So we started, as Johan mentioned, we're taking the opportunity during this winter to invest into that. And we've started, particularly on the cabin crew, which is one of the most challenging areas last year. and we already have several hundred cabin crew in the pipeline going through the process at the moment, and we're well on our way to delivering that. For the pilots, we're in very good shape. Actually, we've got a very good connect program with our partners on that. And the pipeline is delivering well and that we are completely on track to have full pilot numbers for next year. Other parts of operations, we're adding resilience into like the operations control center, just to make sure we've got the right number of people to deliver -- to manage any disruption on the day through weather and whatever it is. And this year, particularly, we're paying a particular focus on our third-party suppliers. So we saw last year. They were also coming under a lot of stress, ground handlers, PRM providers, coaching, ATC, you name it. there was hardly a bit of business that wasn't impacted by that. So we're kind of all over them with their own recruitment plans as well, making sure that they are keeping pace with early recruitment, getting the right numbers there. so that we've got confidence about delivering a great operation for next summer. We're using a little bit of software as well, which has challenges. We did have also was clearly some of the ATC environment. And we're very pleased to see also that since NATS took over the control tower in Gatwick, it's really performing much better, and there's a bigger resilience and better resilience in Gatwick now from the ATC environment. which we think we're going to benefit from going forward as well. But it is a big part of that is also that is actually initiatives that will not only improve the customer experience and the operations to build it, but also reduce the cost to make sure we run the operation in an efficient way going forward. That's where the -- a lot of focus will be.

Alex Irving from Bernstein. Three for me, please. First one is on up-gauging. So constantly, you have a dense network between slot-constrained airports. Is there going to be enough demand when you put a higher-gauge plane on those sorts of routes? Or do you need to reduce schedule density to have enough demand for that route? Alternatively, if up-gauging is quite beneficial as we're talking about. Would you like to convert more A320neo orders to A321neo orders? Second, if I can follow up on the revenue per seat guide, please. So for fiscal Q1, it looks you have about 3% versus fiscal Q1 in your FY 2020. If I have this right now the stage line it's up around 10%, so it implies RASK would be down minus 7% or better than minus 7%. Is that right? And if so, what explains a swing from summer to winter and then finally, a question on Amsterdam. So that's clearly been one of the jewels in your crown, but we have the Dutch government proposing to cap flight movements, 11% below the levels of 2019. How does that affect you, please?

I'll do 1 and 3, you can do 2 then. I mean, first, we don't really see that the -- we have any cannibalization really when we're adding capacity onto the existing bases that we have. So the application has proven earlier that, that was just a benefit coming in because we got the operation, we got the presence. We got the awareness in the market. So a lot of that just fall straight down into the bottom line. So it actually doesn't increase any frequencies either. It's just more capacity on the seats that is already well established. And we will also look to introduce in clearly in the same way where we have the stronger and the better returns on that. Then on the third part of Schiphol as well, look, we are very disappointed with their performance. There's no question that this has proven to be an awful customer experience to some extent, and it's been also damaging ourselves and this now is to look to continue with the capacity caps, I think, into March and in April, as far as we can tell. So we are in discussions with them. We are supported by legal firms to see what we can do and what we can recover because they have not delivered what they set out to do. But in any case, in any airport that we are paying for performance from the airport is part of that component. So whether that is Amsterdam or whether that is somebody else, we will always look to have negotiations around the fees and the charges, what we've been paying and also in comparison as to how they performed. So that's what I can say about the Schiphol operation right now.

Okay. Just finishing on Schiphol, one of the good things about slot-constrained airports is where we saw this flow rate reduction, which of course, is frustrating, et cetera, we also see now a ticket rise because there is natural demand for a popular airport like Schiphol that's never going anywhere. And therefore, if the flow rate is reduced, we do see the benefit in ticket prices. The calculation on the -- versus 2019 in that first quarter and what it meant for prices. I think -- what we're seeing is -- or what we're expecting is a ticket yield versus '19 to be around a high single digit, 10%. So I'm not quite sure I'm seeing your 3% calculation. And therefore, if it is around that amount, with the increase in average sector, and you're right, it's at best flat ticket price per average sector. What you are seeing though is obviously on ancillary income versus back then in '19 of we said it was up 60 odd-percent last year at this point. It's up at least another low double digit on top of that. So it's 70-plus-percent ancillary increase. But you're right, the ticket RASK is probably either flat or marginally down versus '19. And the other one on where can we deploy the A321s and the A320s. In terms of deployment, I might defer to Sophie, if you comfortable with that. But in terms of our intention, when we did -- when we put in the aircraft purchase order of the 56 to complete our 2013 order, but we also took the opportunity of doing another 18 conversions. So inside those 56 are another 18 A321s that we kind of asked Airbus to deliver, and they've obviously agreed that were originally slated for A320s. We'll continue to review the network look where that's a good opportunity but clearly, slot-constrained airports and thick long leisure routes would be the kind of preferred network. But Sophie, you want to give any more detail?

In terms of the efforts in the [indiscernible] I think the key thing is one of the interesting facts is with the list and slots that we won, the 2 criteria that EU Commission weighted most heavily were capacity of gauge and route mix and number of destinations that you put on. So our capacity gauge as we went into that competitive tender with A321s, the 235 seats, we understand that Ryanair went in with 189 seat Maxes and Vueling went in with 180 seats, 320. So that was one of the driving factors of us winning those slots and then we added in the route mix of number of destinations that we can serve that also played a part in that. So I think from a 321's perspective, they've got a really key role to play in those slot-constrained airports. And clearly, when capacity comes online from legacy carriers, the EU Commission will be looking at who can add the most seats in there. So I think there's a real role for the 321s in opportunities like that. In terms of your point around do you end up reducing frequencies because that's what we've seen with Air France switching to Transavia with their larger gauges on French domestics, for example, is they've gone from multi-daily frequencies into much thinner frequencies because they've got a larger gauge. I think with the majority of our capacity operating on constrained airports, actually, the demand is there and all the external factors we're looking at in the kind of medium term is that demand for air traffic growth is just going to continue. So actually, the fact we're in slot-constrained airports and that demand will continue to grow and it's primary to primary airports means I think the demand will be there for the 321s. But in the near term, we will still have a mix. So we will still look to deploy the 319s on those multi-daily domestics, for example, and things like that. We will still have that mix in the near term anyway, and we'll be able to play with that on those sorts of routes. And then as Kenton, you then deploy them on the long sector, 321 kind of routes where they are slot constrained like the Greek islands. And so we've actually got 6,000 more slots for Greek Islands next summer in the summer application that we've put through this year. So we're still able to grow and then we can lay the 321s on there, and that's a great opportunity for us.

Jaime Rowbotham from Deutsche Bank. Two from me, please. The fleet plan suggests 4% to 5% growth in fiscal '23. But ownership costs or depreciation anyway seem to be increasing about 20% according to Slide 31, Kenton, could you run us through some of the moving parts on that one, please? And then secondly, a quick one on Gatwick. There was some speculation in the press recently about BA wanting to expand again at Gatwick just conscious that your -- some of your recent growth there has been by leasing slots from them. Can you remind us under what circumstances they could and when they could take those slots back?

Well, I'll start with the last question. And look, from what I understand, and I don't know to what extent it is negotiations with Heathrow or what. But look, I mean, if they were to come back to the numbers that was being reported, that would mean that they were basically install primarily the capacity they had prior to the pandemic. So it's not more than that because they've reduced quite a lot of the capacity they had in there. The agreement we have with them is that there will be an opportunity for them or for us, depending on how you see that, that some of the slots will be starting to come back to them in '24. And then it happens gradually over X amount of years in there. So we don't see that as any major difficulties for ourselves as well. And like I said, if they were maximizing that opportunity, they would just be closed back into the pre-pandemic levels. So...

Okay. In terms of depreciation, what we've got in the depreciation line is you've got -- you've not only got the depreciation from your owned aircraft, you also have the depreciation on the right of use aircraft for the leases and you also have the maintenance cost. If you own an aircraft, when you do a big engine shop visit kind of 8 or 9 years, which is typical for the CEO fleet, you capitalize at that point and thereafter, you do the depreciation. If you lease an aircraft, you start accruing up and providing for the next event when it comes and when it comes to you, you pay for it and you release the accrual. We got a benefit as all airlines would have done with a lease fleet in '22 from the movement of U.S. interest rates because of the way you do that calculation on your maintenance reserve as you accrue up to the next event, which can be multiple years out, you accrue a dollar amount for that liability and our maintenance provision is GBP 600 million, GBP 700 million. And then you discount it back using a U.S. dollar interest rate. So as interest rates went up, the discounting back had a greater impact, and therefore, it reduced the level of the maintenance provision. That's something that any airline with leased aircraft would have experienced. The benefit to us was GBP 71 million. Clearly, we're not forecasting in the kind of guidance we're giving on interest rates that we see a similar development of increasing interest rates over this calendar year. As it happens, there has been a slight increase in the first quarter. So you'll get a bit of a maintenance discounting benefit in that first quarter. But we just assumed no movement in interest rates, they do keep going on, that will repeat. But that's GBP 70 million, which is kind of half of -- the other half is we have more aircraft in the fleet. So that's an impact. And then we also have, as our kind of older 320s hit that shop visit, they -- that shop visit gets capitalized and the kind of depreciation element of that goes through. So the average age of our 319s is 14 years. They're all past that appreciation is running, that's what happened. But the 320s is more 7 and 8 years. So they're starting to hit. The older ones are starting to hit that engine shop visit and that depreciation comes through. So that's why that and the combination of the fact that we've got a few more aircraft in the fleet that at least gives us the depreciation cost. The other thing in ownership costs, obviously, the interest line where we've taken quite a bit of depth since before the pandemic, and we're thinking about how we deleverage that now. Was there another question?

Muneeba Kayani from Bank of America. So just following on the lease comment, how are you -- what are you seeing in the lease market right now? And how does that impact your thinking of new sale and leasebacks and the mix of the fleet going forward? And overall, kind of what would be the cash impact on your lease payments for next year? Is my first question. And then secondly, Johan, how are you thinking about consolidation in the industry, kind of -- we heard from some of the legacy airlines, their focus on M&A has increased now. Do you see that kind of changing the landscape next year?

I think it was actually -- there was a journalist who was more focusing and thinking that there was somebody who wanted consolidate. And if there's been any truth in that, I'm sure the panel would have forced them to come up with a statement at this point in time. Look, I always said that I don't believe M&A consolidation happened to the extent perhaps that some people think, partly because of the structure of the European airlines. There's a number of -- well, we can mention -- well, we should mention it anyway. But a number of companies who should have gone bus by this time, unless they've been supported by the respective government. So it's not clear that the normal market rationale about unprofitable airlines means that they will go out of business. But I do think that it will trend that we have seen of regional airlines not making it through this year will continue. And consolidation also happens when you're seeing retrenchment. We're seeing in our airports. And this is so important that our focus is at the primary airport, and when you look at the overall market growth, we are looking at what is the capacity movements at the primary airports. 300 million people is really 1 hour drive of an easyJet airport. There's enough for us to gain from that. And we've seen that the main competitor are removing capacity out there, we can expand on the capacity going in there taking place, doesn't mean that we are not ruling out M&A activities ourselves, but it's going to do 2 things. One, it's going to deliver value for the shareholders. And it's going to be doable. It's going to be something we feel we can execute with a risk level that we feel confident about. But in general, we are confident in our own plans to grow. And then also the other thing, even if you were to speculate on these things, who would take over who. You're looking at some of these debt positions, and it's not like you're thinking that some of them are in a great position to do big transactions as you come through this, we have a very, very strong position from that point of view. Share prices has been up and down for a number of airlines. I think that depending on what time you're looking at our share price performance, we would be somewhere in the middle of the pack if you compare to the European counterparts in there as well. So I'm still of that view and I'm so far, I'm proven right to say that M&A transactions is not as likely. I think of one of our competitors speaking about it most in the self-interest way because it benefits them. So -- and I think this will continue in terms of the consolidation from retrenchment rather than M&A activities.

And then when it comes to aircraft, how we think about the fleet, leased aircraft, et cetera. At the moment, we've got 57% of the fleets in ownership. Pre-pandemic, that was typically around 70%, and that served us pretty well as we entered the pandemic and allow some kind of liquidity to be unlocked from the order book. What we're doing is we -- the 8 aircraft, the neo that we have delivered this year, we took in into ownership and paid cash for them. the 7 next year will repeat the same thing. And the way I'm thinking about the neos is I want to take those into ownership because they're kind of a better class of asset with a higher residual value. And at the moment, the neos in the fleet are kind of 70% owned. If you look at the A319s, because as they get older, what we do is for the -- as they get just typically 13 years, 14 years, we put them on a short 3-year lease which makes the lease levels look higher than they are really because you're just securing the residual value because you don't have to sell them, you just hand them back to a lessor and you negotiate kind of a lease at the end of their life. So of those kind of A319s -- of the 94 A319s, we only got 37% in ownership. So you can see that 57% in ownership is skewed to the better value aircraft, and that's the way I'm thinking about it going forward. Airbus -- really tight. They have -- they're pretty much sold out to '27, '28. They have, like everyone, some supply chain issues that you read about. They've been -- we're pretty confident on the deliveries we have from them. But it's -- in terms of neo aircraft, it's a pretty tight supply. With mid-life aircraft are available in market. We've taken some A320 CEO aircraft during this year and 320 deliver next year. So we've been able to find 10 sister ships at good rates. So in that kind of mid-life 6-, 7-, 8-year-old CEO A320 market, there is availability. The kind of neo market is pretty tight in terms of the order book from the OEM but we can have conversations with lessors as well if we choose to take an A320neo or 321neo. So there's a number of options about how to play the fleet. But at the moment, we're just looking to see where the demand comes and where -- and the primary goal of our fleet next year, when you saw the fleet jaws is, it will trend towards the upper end of those fleet jaws in '23 because we'll look to backfill all the aircraft that we've had on wet leases. So we have 6 aircraft in London Gatwick on wet leases and 1 in a Porto for the slots one. So those 7 will come back into our fleet and our own pilots will fly them in cabin crew mainly.

It's Harry Gowers from JPMorgan. I've got 2. Maybe just on costs. maybe a bit of extra color or reframing one of James' questions. I mean, how should we think about the trajectory of total ex fuel unit costs in the course of the year, given the pressures that you've talked about. So if we get back to pre-pandemic levels of capacity in Q4, where should we expect the nonfuel unit cost to be relative to '19? Should they be back to '19, but maybe add, I don't know, 5% or 10% for inflation, for example? And then just on yields, early days, maybe if we could try and look out that far, but what kind of visibility do you have ticket yields into Q2 at the moment? And what sort of averages are you seeing above '19, not just in the peak periods.

All guidance questions. Thank you very much.

On Q2, similar to Q1, that the end of Q2, you start seeing the Easter pricing, that's looking very firm. Ski, as you'd expect, is in demand, Feb half term, the weeks in demand there. And we're seeing a similar performance, should I say, that we're seeing in terms of Q1. So in terms of demand for Q2. Beyond that, really early days, but given I think for Q1, we're over 75% sold for Q2, we're about 20% sold. And a little behind where we were in '19 for Q2. So I think pricing is firm for what we see, but the visibility is not huge at the moment. In terms of how we're seeing costs going forward, we will get some productivity benefits. So when it comes to crew, it wasn't the most optimal summer for our pilots in particular, this time in terms of productivity. So we'll look to get more productivity from the pilots. But we'll also have some of the kind of inflationary pressures coming through in the wage deals we've secured. So I would imagine that the productivity would offset the inflation we're seeing in the wage deals for our kind of cabin and pilot community. In terms of maintenance, as we do more cycles, we'll have more maintenance, but also you'll get kind of more volume to spread the fixed cost elements of maintenance over. So I would imagine that would be fairly static from where we are because parts there obviously -- parts around engines are inflating LLPs and so on in line with what you're seeing in the wider inflation market. I think that the challenge is always airports because we have 80% of our airports are either slot constrained or actually regulated. So with the regulated one, it's not really a negotiation, it's -- you may get some incentives if you're putting in the near aircraft, which is why they're also valuable because they're in demand from an airport perspective because of the sustainability credentials of the aircraft. But what it does mean is those slot-constrained airports where you're more CPI index, you'll see that CPI inflation coming through, but everyone else kind of operating out of those airports, we'll also see those -- see that inflation coming through. So you don't lose any competitive edge out of those airports, but you do get that level of inflation. Navigation charges, they -- from what I can see, they look like they might go up about 10% next year from this year's level. That's obviously going to be the same for everyone who flies through each of the air corridors because it's just a regulated cost. But what the EuroControl bodies are looking to do is to cover some of our COVID losses, they will naturally be lobbying through 8 airlines for Europe and airlines care, et cetera, against that. But you can expect to see that. I mean in terms of returning to '19, it's a long time ago. I'm not sure how many industries will be doing that. So the inflation has been running 10% since then. And obviously, fuel carbon topics like this are going to be coming into the cost base. But we put on Slide 36 in guidance or some key drivers next to each of the cost lines. And probably if you have a look through that and then have conversations with Adrian and Michael, we can give you some flavor.

It's Alex Paterson from Peel Hunt. Can I just ask a bit more about your recruitment and those labor costs, please, and then a bit on the dividend or future capital allocation rather. So it seems the U.K. labor market is very tight at the moment. So how are you able to secure staff at the moment? If you are taking staff on now. I'm assuming that really you need them for summer '23 rather than winter '22, '23. So you're going to be paying them and training them in the interim. So what kind of incremental cost is that going to be? And what are you doing on retention? Is there anything that you can do to improve that? Are there any areas you've been losing staff to and things you can change? And then on the dividend, you mentioned in your statement that you would look to pay one when market conditions and company performance were right. Well, can you elaborate on what you would look for in order to make that? And I'm guessing it's not just going to be profitability given the investment that you're making in fleet, so there may be cash flow considerations as well.

Yes. So on the recruitment, I mean, we would be normally at this point in time in any year, really look to gear up in terms of the summer '23. I think it's fair to say that we have a big ramp-up now because we're replacing the wet leases with own crew as an example. So that's why it is the right thing to do the investments into the training, the courses are full. We got all the trainers available to run the programs on that because it comes back from the fact that we've been at lower levels of flying than some -- we could have done. That's been part of the restrictions, and we adapted the program and the capacity of flying towards that. Remember also that in last turn of year, that Christmas New Year peak period of bookings into the summer, nothing happened. And we had the Omicron by that time as well. So I think it's going to be really interesting to see what that pans out. But we were adapting ourselves to an environment where we actually didn't know how much flying we were going to do really coming out of the January. And now we feel pretty confident that the fact is that we're going to see these levels coming back to us in the next quarter, and that's what we need to do. So it's good to see the numbers coming in. We launched this campaign for over 45s, which is really about challenging the stereotype that exists about this job in terms of the age profile, and we've seen applications running since the launch of this campaign here last week with up 75% on a daily basis. The traffic to the carrier site has gone up with 3x, 4x. So we can see that there's plenty of people who are attracted to come and join us, and we want to continue to do that because in certain pockets in certain regions, you don't know what even as David was saying, that we are now working closely with the suppliers to see what the labor market will do to them. But if you're coming into a situation that we saw last year that actually it started off with one competitor, missing people. And then money was thrown in various things and incentives. And then of course, that created a lot of uncertainty with the pool that one had available. So this is not only up to us. This is also to make sure what happens really across the rest of the network. I think that -- so we can say at the moment, recruitment is doing well. We're in an attractive airline to work for, we had the highest Glassdoor rating at any travel companies as an example in terms of attractiveness as an employer and those type of things help for us. I think we haven't seen a big loss of people leaving. We did have ourselves also introduced a summer bonus and performance bonus for a cabin crew and when that payout was done, we saw hardly anybody leave the company in comparison to what Schiphol experienced as an example. So we know that people are attracted to that. So -- but it's something that we are absolutely focused on to make sure we deliver partly because it's great for the customer but because partly also because it's very costly unless you finish and you complete your programs, as you will see from the disruption number that we had in Q3. But it's been industry-wide issues and we are focusing on delivery on what we set out to do in terms of capacity. But so far, and we're watching this on a daily basis. We feel that we're in a good position. And we have also multiple plans that we can -- how we can recover if we think that we see drop-offs coming through the pipeline, which we're not seeing at this moment in time.

On the dividend or cash return to shareholder question. Yes, I mean, as an entire Board, we're very mindful of the importance of dividends and when we put that statement there, what we're really thinking is around the kind of medium-term targets. We're still very confident we can kind of meet and then exceed those medium-term targets. So we've got the mid-teen EBITDA target and the kind of low to mid-teen ROCE target. The CapEx isn't new news. We always intended to exercise the 56 remaining purchase options and purchase rights and that's part of the modeling when we put that guidance. So that's not new news. But I think to answer your question about when we feel the market conditions in our own financial performance is ready. It's when we're kind of evidencing delivery of those medium-term targets and exceeding those medium-term targets. Clearly, this year was a loss. So there's no dividend to be declared.

Sathish from Citigroup. I've got 2 questions. Firstly, on the winter, you actually talked about market stimulation that needs to be done outside of the peak travel period. Any color on that? How does it look actually across 3 segments, domestic, beach and then city? And also, you mentioned that the booking is slightly behind in Q2, around 20%. How does it actually compare within those 3 segments? Where are you actually seeing a strong recovery versus lag? And then the second one is, sir, on the ancillary normalization. Historically, H1 and H2, it's about 25% lower in H1 versus H2 ancillaries. Would you see a similar trend this year considering the run rate that we have seen in H2 and would we take a 25% step down as you go into H1 and then see it coming back up? Any color on that would be helpful.

Yes. I think in terms of that market stimulation, it's not significantly different what you would see in a normal winter season. We should remind ourselves that this is -- all airlines makes a usual loss in the winter season as well. And we can see that the demand is there for the peak. But outside that, it gets down to the price levels and the way you can attract the demand on -- from that basis and also then the campaigns we've been doing. As you would have seen, we're taking, we believe a right but a prudent approach into the capacity going in for this quarter and for next quarter partly because of the overall environment give some uncertainty of what the demand is going to be outside the peak, which proven to be right. and partly because it is a loss-making season, you wouldn't be too enthusiastic throwing on capacity for capacity's sake and then also partly because we want to invest in the resilience this winter coming in then to the possible summer that is there, but it would be the normal type of things that we would do on campaigns and prices it to see where we have elasticity when we can stimulate it and come in. And when we can't do that, we are clearly focusing on the yield in order to do that. So it's that whole mix about how much load factor driven are you with the benefits you're seeing on the ancillaries versus on how much you are looking then to focus on the yield on the ticket trade as an example, and therefore, might compromise some of the load factor. I mean, we're not driven primarily by load factor, we're driven by total RPS, total contribution into the company. And that's a lot of work is going into that.

Yes. If I just add from a rate mix perspective, thanks for your question, just to give you some numbers on how we compare in terms of overall route mix H1 versus where we were in '19. So our beach capacity for H1 versus '19 is at 9.2%. So we're still seeing more demand for kind of that beach but also non-EU, which includes kind of your Turkeys, Egypts, those sorts of destinations. That's actually up 41.2% versus H1 '19, that's on lower volumes, that only makes up around 2 million of our seats, but the beach capacity that I mentioned before is around 7 million of our seats. City is still slightly down in terms of overall capacity versus H1 '19 is down 28.1%. So we're still seeing that, that is taking slightly longer to recover overall, but that still makes up around 18 million seats. So it's still a large proportion of our capacity is on cities. But also domestic is still slightly down as well versus H1 '19 is down around 6.7% -- 16.7% apologies, but it's still 9.1 million seats. So in terms of route mix, you're still -- you're seeing an increase in terms of demand still for the beach and for the non-EU and part of that is also driven by Easter holidays. But in terms of overall mix overall, it's slightly down on city and domestic. But overall, those still make up a larger proportion of our overall capacity. Should I take a bit on ancillaries, is that helpful?

Yes, You go.

I'll pass the baton. I think the point on ancillaries to make is one of the things that we have introduced since '19 is the cabin bag charge. And one of the things that we do see in the winter season is more people taking short breaks. So actually, that cabin bag charge will help to improve that kind of seasonality of ancillary mix. And normally, like you say, in the summer, you've got the hold bags and everyone's taking those big trips, there's a bigger demand for that. Actually, the cabin bags will flatten some of that ancillary mix into the winter because you see more people taking city breaks more like to take cabin bags. We didn't have that charge pre-pandemic. So I think that will flatten some of that seasonality on ancillaries overall, which might make -- which will make a difference, I think, going forward.

Okay. I mean, in terms of your -- what are you seeing in Q1 and how does that shape through, Q1 has got the last of the annualization benefit because of the timing that we introduced some final Phase 2 and 3s in last year. But to Sophie's point, there is then with the cabin bags, it's really boosting winter and then obviously, people take more hold bags as you move into the summer. So we'll get that. I think we'll still have that natural shape where some are average price for ancillaries per person will be greater than winter. Other things, obviously, you should think about in ancillaries is inflight retail, although we put a new proposition in place towards the end of the summer. Unfortunately, the supply chain restrictions and the labor shortage meant that we weren't really able to fire on all cylinders there, but it's starting to come in now. In September, we saw a really good performance that was highlighted in the slide. And I think the kind of the profit per seat, which is the final ultimate 1 off the spend per head and it's been converted, was up 70%. We're seeing -- we saw a very promising, in September we saw again that repeated in October. So the inflight retail is around GBP 0.42 per seat. So imagine the kind of 100 million seats, that's what you get. So the target there is obviously to get that 70% lift running right through the year and then keep working with that product to improve it. The other thing, he doesn't like it being called ancillaries but holidays is a great ancillary and clearly, we've made the GBP 38 million from 1.1 million seats. There's nothing to constrain the growth for Garry and the team. But at the moment, we're looking to exceed 30% growth next year. And I don't really see a need to be diluting the margins. So when you're modeling what 30% looks like, I assume we don't dilute the margins. Now there will be more city in the mix which is a shorter duration, but the challenge will be to compensate that would have been of margin accretion. So holidays coming through inflight retail opportunity, which is really a '23 year rather than '22 year. And then I think the annualization of the cabin bags and that work is largely done, but the work then moves into fine-tuning the algorithms and dynamic pricing and total basket optimization.

Gerald Khoo from Liberum. Three, if I can. Firstly, on the holidays, you talked about how the GBP 100 million target is based on the U.K. as the sole source market. Could you size the other source market opportunities? And should we be thinking of say the profit per customer being any different in other source markets? Secondly, I think earlier in the year, you had an issue with elevated absence rates. What's happened to those? Have they returned to pre-pandemic levels? Or if not, where are they? And on staff turnover, I was wondering whether you would give us a number in terms of the run rate and how that compares with pre-pandemic please?

I'll do the 2 in absence and staff turnover. And Garry, you can fill in on the Holidays part as well. Absence rates has normalized, we come back to the levels of that what we usually are at around 7% as well. And we should remind ourselves also that we did saw big surges of COVID taking place at certain points in time and which led to absence rates as we disclosed at that time coming up to some 20%. So what we've been doing in terms of looking at the resilience needed now we are going back to look at the same level of kind of resilience that we had in '19 and then adding on to that to some extent. But at the same time, wanting to be cost efficient in the way we utilize the crew. So I think that we are working a lot with the data available to ourselves in order to make sure we do that. So -- and on the staff turnover, we think we're in a good place. Like I said, we haven't seen any big attritions coming through on crew or for that matter or also anything different that the whole of the industry and outside this industry seeing in general from an M&A population, we don't struggle to recruit the talent and top talent also are quite keen to stay on to where we are. So but it's something you don't -- you're never complacent about. You need to make sure that you continue to be attractive in what you do, and we monitor this on a daily basis. Holidays.

Yes, on holidays, the GBP 100 million you saved based on really the U.K. predominantly on the U.K. And I think how to think about the opportunities. At the moment, we've got -- the beach and the city offering is very similar when you go through the book flow. So we've got a huge opportunity, I think, on City, where we're seeing kind of enormous demand growth. I mean we're over 150% for this year versus last year in terms of holidays demand, so in the city. So we're looking to change that book flow for customers and really develop a very specific holidays offering within cities. And that should really drive some of that volume and margin growth. There's also opportunities on different products on ski on villas, which we're looking at and also in yield management, which we've not really done a great deal of work on. We've launched the yield management platform, and we're gathering a lot of the learnings now, where we're going to automate the pricing from next year. So there's huge opportunities as we see it within the U.K., and that's where the main focus will be. In terms of launching into other markets, we will launch next year into other markets. And I think, yes, you can think of it on a per person profit basis, the same as the U.K. The only difference may be we might need to do some more marketing outside of the U.K. just to establish the holidays business there and get the brand known for holidays as well as airline outside the U.K.

But it's fair to say that the big opportunity is still slight to continue to grow in the U.K. because of the network and strength in the brand. So that -- yes. Okay. Listen, I just wanted to say, once again, thank you very much for coming here today as well, and everybody is listening into this as well. Like I said, what I wanted to do here was talk about the demonstrating also that the thing that we've said we wanted to do are starting to deliver. It is a real transformation when you're looking at the changes we've done to the network. The revenue capabilities that we demonstrate as well and also the up-gauging on the cost and efficiency we will get out of that going forward. Clearly, we have targets out there, mid-teen EBITDA targets. Let's just be clear about that, myself and everyone -- my colleagues we want to meet them and exceed them. We want to go beyond that. That is not our ambition to stay at that level. We want to get ourselves into a position where we can say, yes, tick the box on that and now we're moving forward because we're going to see that happen. So we need some certainty in the market. But clearly, the actions we are taking is taking us along that line. So once again, thank you so much for taking the time, and thank you all for the questions as well. Thank you.