easyJet plc (EZJ) Earnings Call Transcript & Summary

And thank you so much for joining us here today as well. Everybody is in the room. I think we have more people than usual. So you're all very welcome, and everybody who's joining in also on the stream here to discuss easyJet's Results for the First Half in 2023. So we're going to do, as we usually do, we're going to take you through the presentation, and then we're going to leave plenty of time also for questions that you may have as well. And I'm not doing this by myself. I have the evident assistance of the company's CFO, Kenton Jarvis, who's here as well. And also, I think we got full house also of my executive team, David Morgan, who is the COO; Sophie Dekkers, who is our Chief Commercial Officer, Jane storm, who is our HRD; Thomas Haagensen, who is the Country and Markets Director; Garry Wilson, CEO of easyJet Holidays as well; Rebecca Mills, who's the General Counsel; and Robert Birge, who is our Chief Customer and Marketing Officer is here in the front row as well. So I really take the opportunity also in the Q&A. And I think we will hand over to some questions also so you can hear directly for them as well about specific areas. So before we go in and dive into the presentation, I just want to make a couple of introductory remarks that I think kind of summarizes some of the headlines that we're going to discuss today. One is the winter results, whilst it is a GBP 134 million improvement versus last year, we regard the winter as a big and huge opportunity to significantly reduce the losses and ultimately come into the profits in the winter seasons we have ahead of ourselves. That is where we are spending quite a lot of time on to focus and plan right now. In this winter performance that we've just had right now, we've had a number of one-offs in there that has been partly related also into the increased investments we've been doing in terms of resilience. And it's really, really good to see, and it's evident now that, that investment is actually starting to pay off and has paid off over the winter. When we're looking through, and you can see this on the Cirium data here, when you're looking through punctuality here in the U.K., as an example, we are the most punctual airline in the U.K. among our top competitors at the airports that we operate from. And we have a similar position amongst the top competitors at #1 and #2 positions on punctuality really across the network on the core markets we have. So that is good because we were quite determined, as you would expect from last summer with the challenges that the whole of the industry had, that we really wanted to deliver a great customer experience. And even when we had challenges, external challenges, we've been able to mitigate the investments that we have made on that. And that has also then led that I think we have increased confidence in customers to book with ourselves, and we're seeing also that people now prioritize holidays and travel in a different way than they did prior to the pandemic, which is coming through in what we're seeing for the summer. So we're going to talk more about that as well. But I think easyJet is uniquely positioned right now to also capture the demand that we are seeing. Since a lot of people also because of the cost of living challenges, gravitate towards value more than ever before, which is really the trademark where easyJet is at this moment. So let's go on to the first slide in here as well. You know the strategic priorities for the company. We talked to you about this before as well. But I just want to pull out some of the key things within these priorities, just to give you a little bit sense of what we have said to you earlier that we wanted to deliver, we are now delivering and the rewards are coming through, and then we have more to go at. The changes we've done in the network as an example, where we have now reallocated 50 aircrafts within the network, is probably the best demonstrated in terms of what it can give us is when you're looking at Berlin. We've seen that we've had about 190% performance improvement when we're looking at the contribution per block hour. So it's going to reach, we expect this year, about average about where the network stands. And that is a massive change from something that was heavily loss-making for us before the pandemic. We're seeing also the step change we've been doing within the revenue and within Sophie's department. This is partly around the ancillaries, where we now have over GBP 10 per passenger in ancillary spend that we didn't have before the pandemic. And it hasn't diluted the ticket yields. We come on and talk about that. I will tell you what's ahead of us in the more opportunities to come within that area. EasyJet Holidays is -- I mean is delivering exceptionally well. We announced this morning as well that we now expect this part of the business to deliver over 80 million of PBT to the company this year, and there's a lot more to go at. And we're also announcing the first market now outside the U.K. this morning with Switzerland for departures in 2024. When you look at these and reliability as well and the investments we've been doing in there as well, we believe that this has been essentially a critical part when people are choosing what company to fly and what company to travel with. So not only does it give us also then a better customer experience with the investment to be doing, but it also reduces cost by the disruption that we have seen in previous years. And we have a massive focus to do more in this area as well, and we'll talk about that in the presentation. And we can now say with confidence that we are been able and have been able now to get ourselves in a position where we are on a day where we're doing 1,700 flights a day. I mean that's 275,000 customers per day on a normal day, which is not far off where we would be in Q4, and we're delivering them with hardly any cancellations on the day. And like I said, in #1 position when it comes to punctuality versus competitors from the airports we fly from. The cost, we've been doing a lot of actions on the cost to mitigate the inflationary pressures we're seeing. So we're looking for this H2 that we're in right now, this half, that we're going to deliver headline cost ex fuel to be broadly flat, which we think is a good performance. And that gives you an idea how we're thinking about the cost going forward as well. If you take all that into consideration, the strong demand we're seeing, people's changed views on travel and how they prioritize that, together with the actions that we have taken, what we talked to you about that we're now starting to see delivery coming through as we're getting capacity back into the schedule, means that we expect to accelerate the delivery of the medium-term target that we set out to you at the time of the rights issue in 2021. So we're going to do a little bit more deep dives on that later in the presentation. But I'll hand over now to Kenton to talk more the numbers through the half we've been through.

Thank you. Welcome, everybody. So we're going to start on Slide 4. Thank you very much. So starting here with our key performance indicators for H1. Total capacity was up 25% versus last year to 37.9 million seats, and passengers increased 41% to 33.1 million. Our load factor improved by 10 percentage points, mainly driven by the low levels of demand last year as travel restrictions were in place to reduce the spread of the Omicron variant. Average sector length increased 5% year-on-year or 12% when compared to H1 '19. And this is due to the network reallocations that we've made and an increase in the longer leisure flows where demand is proving to be very strong. Airline RPS increased 40% to GBP 66.46p, reflecting strong ticket and ancillary yields coupled with increased load factors. Airline headline cost per seat ex fuel was up 7%, driven by the increased sector length and the load factor growth alongside inflationary pressures across the whole industry, but offset by a capacity restoration. The favorable movement in per seat revenue has improved our airline EBITDAR per seat by 69%, reducing the loss to GBP 2.12p. Airline headline loss before tax per seat reduced 38% to GBP 11.12p. EasyJet Holiday has continued its rapid growth in H1, carrying 0.6 million customers. That's 3x last year's level, and this resulted in the delivery of a GBP 10 million profit in the first half. So wonderful. If we move to the income statement on Slide 5. Total revenue increased just under GBP 2.7 billion during the first half, broken down into GBP 1.7 billion from passenger revenue, GBP 0.8 billion from ancillary revenue and GBP 0.2 billion of revenue contribution from the holidays. Our headline EBITDAR airline costs, excluding fuel, increased 42% to just over GBP 1.8 billion, and I'll provide more detail on our cost per seat drivers in a moment. Fuel costs increased 114% to GBP 773 million as capacity increased year-on-year and fuel prices rose. The effective U.S. dollar price per metric tonne of fuel increased 44% year-on-year. And this has been compounded by the strengthening U.S. dollar exchange rate, resulting in the sterling cost of fuel per metric tonne, increasing 59% year-on-year. EasyJet Holiday's EBITDAR costs were GBP 161 million, and that's a lower increase compared to the revenue, which reflects a strong operational gearing of this business. I'll provide a further breakdown of easyJet Holidays costs in the appendix. The group headline EBITDAR loss of GBP 69 million is a 67% improvement in the prior year. But clearly, we've got an ambition to generate positive EBITDAR even in the winter months. Airline depreciation, amortization and dry leasing costs increased year-on-year. This is a result of increased flying hours and a loss on the discounting of our maintenance provision due to a decrease in the U.S. 5- and 10-year interest rates. As a result, easyJet has delivered a headline loss before interest and tax of GBP 392 million compared to the GBP 486 million loss in the prior year. Group net interest costs and other finance cost charges have decreased -- sorry, 25% during the first half. EasyJet benefits from rising interest rates as the majority of our debt is fixed, and we maintain floating rate cash balances as part of our liquidity policy. EasyJet also repaid a EUR 500 million bond in February. We recorded a GBP 27 million noncash nonoperating foreign exchange gain in the first half that results from the retranslation of foreign currency denominated monetary assets and liabilities that we hold on the balance sheet. Non-headline items resulted in a small loss of GBP 4 million, primarily due to a noncash disposal arising from the final return of Berlin slots following its rightsizing. So this has resulted in a total group loss before tax of GBP 415 million for the half. So now moving on to our revenue per seat slide. Total revenue per seat increased by 37% at constant currency. The underlying passenger RPS increase of GBP 13.6p is largely driven by the impact of easyJet's continued network optimization and the increase in load factor during the current period. Our ancillary revenue per seat increased GBP 4.77p as a result of our step-change ancillary offering, combined with the increase in load factor compared to last year. If we take a moment to look at the left-hand side of this chart and at the yields we achieved in the period, you can see that total yields have been strong with a 23% uplift year-on-year, which is 35% above H1 2019. This demonstrates the strength of the primary slot-constrained network and a step-change ancillary offering. So let's have a look at costs and the cost per seat bridge on this Slide 7. As you can see on the slide, the airline headline cost per seat at a constant currency and obviously, before fuel increased 5% compared to last year. Taking into account that the impact of average sector length also increasing 5%, our CASK ex fuel development at a constant currency was flat year-on-year in H1. I expect the average sector length in H2 to be broadly flat year-on-year, to be in line with last summer. So the headline cost per seat ex fuel should also be flat through H2 when compared to last year. Airport and ground handling charges per seat increased by 19% or GBP 3.4p as a result of improved load factors impacting airport and security charges because they're levered on a per passenger not on a per seat flown. So this accounted for about 55% of the increase or GBP 1.67. Alongside that load factor improvement, there's been inflationary cost pressure, especially when looking at the slot constrained in regulated airports. These airports account for around 80% of easyJet's flying with contracts either linked to CPI or RPI inflation rates. As we move into the second half, the load factor income -- impact will become less material as we'll not see the same 10 percentage point gains against last year's H2 load factor because that was already at 90%. Navigation costs increased by 58% following -- sorry, 58p following an increase in the calendar year euro control rates in both January '22 and January '23. The longer sector length has also driven an increase in navigation charges, which has clearly been more than offset with our RPS increase. EuroControl rate increases in January '23 will continue to impact on H2 year-on-year. Crew cost per seat increased by 41p or 4%, primarily due to labor deals being agreed and the early recruitment ahead of the summer's ramp-up to flying to ensure resilience was built into the system. This is partially offset by the fixed payroll costs being spread over higher flying capacity. I see resilience in the labor inflationary environment being partially offset by the capacity ramp-up this summer as well in a similar extent. Selling and marketing costs have increased by 25p, as we return to more normalized levels of marketing spend. This spend has helped drive our strong summer forward booking position but also results in an increase in the merchant fees charged in the period. Maintenance cost per seat decreased 72p or 14%. This was driven by the fixed elements of our maintenance costs being spread over increased capacity in the period, whilst also seeing a reduction in our repair costs driven by the in-sourcing of line maintenance at Berlin. Going into the second half of the year, I expect maintenance cost per seat to increase year-on-year, driven by inflation and an increase in our operational fleet. There are no wet lease aircraft planned in H2 compared to the 15 which operated in the fleet last summer. So this will result in a reduction within other costs, but maintenance costs will increase because capacity moves onto our own metal. Ownership costs decreased by GBP 1.52p year-on-year. This favorable variance has been driven by fixed costs being spread over a higher capacity. I've provided more detail on our expectations for depreciation costs in the appendix in the slide deck. Other cost per seat increased 66p due to general wage inflation and a higher number of disruption events compared to last year when the volumes are very low. This was partially offset by a true-up in our disruption provision after adjusting for the current [ data ] on claim rates. I see other costs reducing year-on-year as we move into H2 as there are no wet lease aircraft in the fleet and we also expect a reduction in disruption costs coming from our investment in resilience. Fuel increased by 55% or GBP 6.60p at constant currency. This movement is driven by the effective price of fuel being USD 860 per tonne compared to USD 599 in the prior year. The bar on the right of the chart illustrates the net loss from foreign exchange and balance sheet revaluation movements in the year of GBP 2.77p. So after taking all of these factors into account, the net headline cost per seat for the year was GBP 77 -- sorry, for the half was GBP 77.58p. So let's move on to Slide 8 and our hedging position. EasyJet continues to forward hedge our fuel and foreign exchange positions to help manage our exposure to market movements, which were particularly volatile through the period. We're currently 75% hedged for fuel for second half of this financial year at a rate of $885 a metric tonne. For the first half of the next financial year, we have hedged 52% of fuel at a price of $868 per metric tonne. Our fuel hedging is supported by U.S. dollar hedging as set out on the table on that slide, which is helping to secure cost certainty for future periods that we currently have on sale. U.S. dollar lease payments continue to be fully hedged for the next 3 years at a very favorable rate of $1.30. And our CapEx requirements are hedged for the next 12 months in the relevant underlying currency. We also manage our exposures to market prices on carbon. We're currently 96% covered for the calendar year '23 with an effective price of EUR 41 per metric tonne. So we move on to the cash flow. During the first half, our cash position, including money market deposits, reduced by GBP 154 million, taking our cash and money market deposit balance to just under GBP 3.5 billion as at the 31st of March. The movements resulted from a GBP 372 million outflow from financing activities with the repayment of a GBP 500 million Eurobond in February. This was partially offset by GBP 61 million of proceeds from 6 A319 aircraft we completed the sale and leaseback transactions on. In October '23, we have a GBP 500 million Eurobond maturity. We retain flexibility to be able to pay this down through cash if we choose to, and I'll continue to monitor the bond market as we move closer to this maturity date. Our net outflow from financing activities was offset by our positive cash generation from operations in the first half of the year of GBP 375 million. As you can see on the chart, this positive cash movement is mainly as a result of forward bookings generating GBP 1.3 billion as we saw a more normal turn of year sales period. The positive cash generation benefited from the continued increase in capacity compared to last year alongside pricing strength and the growth of easyJet Holidays. This inflow offsets the other working capital movements as we obviously pay for the flying completed in Q4 of the previous financial year in the first quarter of this year. Alongside this, we took delivery of 5 new A320neo family aircraft, which were all taken into ownership through cash purchases. After other movements in FX, we held cash and money market deposits of just under GBP 3.5 billion at the end of March, which underpins easyJet's excellent liquidity position and cash position. This contributed to an overall liquidity position of GBP 4.5 billion, which has headroom of GBP 1.6 billion to our stated liquidity policy, which is to cover unearned revenue plus GBP 500 million. This cash and liquidity position gives us flexibility as we move forward and provides easyJet with a number of options. We'll look to deleverage further, something I'll be reviewing as we move closer to the October bond maturity. And if we do redeem that second Eurobond, that will be EUR 1 billion of debt retired in the calendar year. We'll further strengthen the balance sheet with new aircraft being taken straight into ownership. And we'll also look to build liquidity reserves ahead of our ramp-up in aircraft deliveries coming in the next few years as we renew the fleet. An improved financial strength will also allow easyJet to take advantage of the commercial opportunities as they present themselves. We, of course, remain mindful of the importance of capital returns to our shareholders. So we'll review our position as we progress through the summer. The timing and quantum of these returns is something for the Board to consider at the year-end. And we want to make sure -- and although when we -- and we'll reintroduce dividends. When we reintroduce dividends, we want to make sure that the policy is a sustainable one. And therefore, it will be a measured but meaningful level. Today, we remain focused on operational delivery to ensure a strong summer performance on deleveraging and on taking aircraft into ownership. On Slide 10, we can see the balance sheet, which continues to be rated one of the strongest in the sector. We've seen a GBP 597 million decrease in our derivative financial instruments in the year as a result of the reduction in the market price of jet fuel and a softening U.S. dollar compared to March '22. Our unearned revenue and trade and other payables positions have both increased from the prior year as a result of increased flying in the year and forward bookings coming through with strong pricing. Other assets have gone up GBP 564 million, driven by a greater number of ETS assets held at the end of March and also the further build of our deferred tax asset position. The calendar year '22 ETS assets were surrendered in April. At the 31st of March, we had net debt of GBP 156 million, which comprised of cash and cash equivalents of GBP 3.5 billion, borrowings of GBP 2.7 billion and GBP 1 billion of kind of IFRS 16 lease liabilities. But obviously, those are more BAU. So now if we move to our fleet. And just to explain again how the fleet graph works. The top dotted line of this chart illustrates the current maximum contractual arrangements with Airbus as with our current lessors. And the lower gray line represents the contractual minimum fleet size. In addition to the current 64 NEO aircraft we have in our fleet, we have an agreed order book consisting of 163 firm orders of A320neo family aircraft. This order book is driving our up-gauging opportunity as our mix of A319 we phased out as the order book comes through. This is an opportunity that's ahead of us as we are set to benefit from the increase in seats alongside the significant sustainability benefits and fuel efficiency that the NEO aircraft bring. An example is obviously that the A320neo burns less fuel than an A319 when it flies, but has 19% more fees. So it means the fuel burn per seat is obviously vastly improved. Our current average seat gauge is 179 seats across the fleet. This will move to above 190 when our up-gauging journey is complete. Going forward, we expect our gross CapEx over the next 3 years to increase in line with the delivery of aircraft we have scheduled. All of the deliveries that we'll bring in during the 2023 financial year will be funded through cash and brought into ownership. We've taken 5 aircrafts into ownership to date with 3 aircraft still to be delivered. Now it's been widely publicized that both the aircraft OEMs have production difficulties and challenges. The Airbus delays formerly notified to us have been reflected in this fleet slide and we remain in constant and I would say, constructive dialogue with Airbus to help protect these easyJet positions. So for clarity, the '23 and '24 positions are those already notified, including delays. I should make it clear that the CapEx in the chart is the gross CapEx position and does not take into account any future potential sale and leaseback proceeds. We're looking to fund our gross CapEx spend through free cash flow generation, existing cash, debt or sale and leasebacks. It's also worth noting that we'll continue to manage the residual value of our aircraft by completing sale and leaseback transactions over the older aircraft in the fleet as part of our risk management. Just as we completed the 6 leaseback transactions in the first half, which generated GBP 61 million. Currently, 55% of the total fleet is owned. However, when we're looking at the NEO ownership, we're 72%. And this is what I'm focused on as this is where the value in the fleet sits. I'll now hand back to Johan.

Thank you very much for that. So we're going to do a deep dive into these 4 strategic priorities of the company. And I come back to this as well because I think what's so great about this that it gives us absolute clarity about the strategic direction and where do we invest our focus in improving the overall results of this company. So we have identified the opportunities, and we have more to come within these areas. So if we go on to the next slide and talk about the network as well. And just to reiterate what you already know, but it might be worthwhile doing as well, easyJet is Europe's largest airline from the primary airports. There's over 300 million people that live within 1 hour's drive from an easyJet airport. And we think that we are uniquely positioned to capture now the tailings that we see among the demand in the European consumer. And we've done a radical reallocation of aircraft since the start of the pandemic. Over 50 aircrafts have been moved within the network, and that is going to deliver us some great significant improvements going forward. And one of the things that we see that is working, especially really well for us is that when we have presence on routes and the ability we have to make those routes more dense, to thicken those routes up, to add capacity on markets where we are already on to. And we can do that in a number of ways, switching aircraft size and in some cases, also add aircrafts. One example is what we're seeing into the Greek islands, where we've been growing since the pandemic with over 9 aircrafts. That's a 65% increase in the capacity with no dilution to the returns. And I think that's just a great evidence and a testament how this thing is working and why it is so attractive for us with the strategy we have to focus on Europe's primary airport that we know are getting more and more constrained, and we already have those positions. And those positions have been built up, as you know, over since the company was really founded because this has always been part of that model. We have another example in Portugal, where we added, in total, as you will see on the chart also 11 aircrafts since the start of the pandemic, where we've taken now the #2 position in Porto. And you know that together with what we've already done in Lisbon. So we now have 2 majorly heavily constrained airports where we've been able to grow our presence in there. And those type of things are almost like once-in-a-lifetime opportunities when you come over these positions like Lisbon as an example. We're launching Birmingham for summer '24. We've been operating Birmingham in and out of that airport since really 2007. We've had a market share without the additional aircraft we're putting in there around 9%. And with what we're now doing for next summer, we're going to be up at about 16%, 17% in market share as well. And that market lends itself exceptionally well for the network that we have in there, and it will be also very well supported by what we're doing within easyJet Holidays. So it's an example of where those 50 aircrafts have been moved around, 11 gone into Portugal, 11 gone into the U.K. We've seen 11 aircrafts also being then deployed into the seasonal basis, which gives us more flexibility and a lower cost base that we can operate to the primary airport from. And we also are not as dependent on sending all of them to one place so we can change that depending on where the demand sits as well and with the big change of Berlin we see that this has really transformed the company in the way the network looks like. And I keep going on about the Berlin. But the importance of that, and I think it's important for you to just remember about the Berlin and what Berlin was and what it is for us right now. This was an operation that costs in operational losses over GBP 100 million in 2018. That number over GBP 100 million was repeated again in 2019. That was in our overall results in those years. And when we're now seeing with the changes we've done, that this is coming back up to the average network contribution per block hour that we expect it to be is going to have a significant change to our overall performance and results as well. And we will look to continue to change the network according to where we see we have demand in order to also then reduce the underperformance that we have, and we have a lot of work going forward also where we are monitoring this on a very detailed level as well. If you look in then at the transformation of the revenue at the next slide as well, we talked about the step change in the ancillaries as well. That GBP 10.65 that we now have the past year, the difference really from 2019 to where we are expecting to be this year. That's GBP 1 billion. That's GBP 1 billion that this company didn't have before with really no cost attached to it because it fits so much into the product that we've been offering, from the bag point of view, from the merchandising that we also do as well. And some examples of that merchandising would be things like we've introduced bundles that is now available also on the app. Improved seat maps as well. So we're making it easier for customers to purchase the ancillaries that we have. We do much more now timely and accurate and more effective reminders to customers on how they can book this. And this is already something that we have within our systems, and there's more to go on that. It's now been at that 30% now -- 30% of '21 and 29% in '22 and 30% where we are right now for this year. But we don't think that there's like a limit to this at all. We think that there's more to come as we're introducing more products. And one example is the inflight retail. With the change in the model we've done there where we see higher spend per passenger, we see greater margin because we are now working directly with the suppliers and we get better deals than having a middle part in between. And we also see better conversion. So that means that we don't put this at a limit to say we always now think it's going to be 30%. That could well go up as well. But also, you can say that there's one thought or thinking that this will now continue to grow in line with the ticket yield. But I think uniquely, I say all those uniquely. We haven't seen that with other airlines that we managed to add this, and we managed to get this without diluting the ticket yield, which I think is pretty extraordinary. So there's more things to come on this as well. So we have the: AirFi, we have the closed-loop Wi-Fi that we introduced in onboard, that's done. We said we're going to do that. That's done across the fleet right now. That means that we're going to be able to do it, then also unlock the fact that you can preorder to the seat here before the summer. And also for next summer, we're going to be able to preorder duty free and high-value items as well, and that is yet things -- opportunities to come for us within this area. If we move on to the next slide, talk about easyJet Holidays as well. Look, this is a part of the company that is just performing so exceptionally well. It is a relatively simple idea, executed phenomenally well with Garry and his team. You're seeing a number of stats up there as well. We're confirming today that we believe that this is going to make in excess of GBP 80 million of profit -- PBT to this company that we didn't have before as well. And it's uniquely positioned. And I would say that -- and I was asked about it and we talked about it the other day that, look, is this taking share from traditional tour operators or from OTAs? It's really, first of all, it's building upon the natural flow that we have coming into easyJet overall. We are taking share from tour operators. We are taking share from OTAs, but it's really a unique model in itself because it's built on us being Europe's largest airline into leisure and beach destinations. It's built on the fact that we are already one of the most visited travel website because of the airline, which means that if you're looking at some of these, the stats that are in here, that are all quite impressive, it's a 60% growth. As we stand right now, 80% of the program is sold. Customer satisfaction of 87% is pretty unheard of. But look at that one, the 88% of direct bookings that's coming through unpaid channels. There is no one. There is nobody out there who would see anything similar to that, which means that the cost effectiveness and the cost base that we have is simply unique, simply unique. And it's a low-risk model. There's really basically the termination of us and what we want to do on the variable cost that we have to take into consideration. So when we're now launching Switzerland for departures in 2024, it's a multicurrency technology platform that allows us to do that and the cost that will be attached to that will be the variable cost. And it builds really upon the positions of the leisure flows that we have across our network. There's about 6 million flows that we have in Switzerland alone. That addressable market is just over 1 million customers. What you say in the U.K. would be 30 million. So the big price is still here in the U.K. But in the U.K., as an example, we have 5% of the market. The market leader would have 15% in the market. That only still represents those 5%, 4% of easyJet's capacity on a seat basis. So you can see that there's really no constraint in here on how this big this can become. But there's no reason why this one day wouldn't be the biggest in the U.K. And there are also more areas and there are more countries that will follow on this calendar year from what we're doing in Switzerland as well, but it's a low-risk proposition with basically all variable costs in there. And it builds upon something that nobody else, I would argue, can replicate. If you go on to the next slide as well, delivering ease and reliability. And we talked about the importance about this as well. And we know this is important not only for ourselves from a purely financial point of view because it costs a lot of money to run the disrupted organization and disrupted programs. But if you're looking in terms of how people view us, and this is the latest we've done on the Kantar brand study, we are firmly #1 in a number of our core markets when it comes to the brand awareness, when it comes to how they view us from a value point of view, and I just say on the value as well. We did a survey here in the U.K. that said now that 45 -- that half of the people in the U.K. consumer now, are -- 45%, are more likely to choose a low-cost airline than before the pandemic, which proves exactly the point which we have said historically also been led into evidence that when times are tough, people will gravitate towards value and brands they can trust. That makes us pretty uniquely positioned to capture that demand that is out there. We are now, in terms of punctuality ,#1 and #2 according to the Cirium data against the main competitors across the core markets where we operate on. Customer satisfaction levels are back up at the prepandemic levels. And we got 78% of our passengers are returning passengers within 24 months. And there's still a whole range of other things that's going to come in order to make sure that we do 2 things: improve the customer experience and reducing our cost of delivering that operational experience going forward. And I think, Michael, we're going to do a day in Gatwick here in the summer that I really encourage you to go to, where David and Rob is going to host to what we are doing really behind the scene, what we've been doing so far and demonstrate also some of the improvements we will embark upon and we will implement in order to make the customer experience even better as well. And it sits around everything from how we communicate with the customers in a timely and accurate fashion, how we are also using AI as an example. This business -- this type of company lends itself so AI and generative AI as well because the millions of data points that we have, that will do 2 things: improve the customer experience, reduce the cost of delivering that experience. So that's where we're very much focused on as well. And like I said, I really encourage you to participate in that day at Gatwick. We will talk more about this. You know that we were the world's first low-cost airline to present the road map to net-zero verified by the SBTi. We are -- I can say at this moment in time, we are tracking ahead of the plan. On the other hand, we are still over there. We got some way to go before we get to the net-zero by 2050. But there's a lot of things happening within this area. We have secured the [ SAF ] requirements according to the mandate that exists currently in Europe with the [ Kuwait Aviation ] for the next 5 years. We're working together with Rolls Royce, as you know, on zero-emissions technology on the hydrogen. And David can tell you more about this. But I mean, the development in this area is just phenomenal. There's no doubt that hydrogen will play a role for short collation here from 2035 and towards the end of the road map towards the net zero. There's no doubt about that. We unlocked tens of millions of fundings together with Rolls Royce to do further R&D into the hydrogen as well. And we also then maintained our [ DCP ] score, and we improved on all the other ESG indices as well. So we're really on track and we'll continue to want to lead as an airline as we can grow more, but also then decarbonize aviation as we go forward. Low-cost model. Kenton has talked about this as well. The headline CPS ex fuel broadly flat for this summer in this half we're in as well, and that gives you an indication about the actions we've been doing in order to combat and mitigate some of the inflationary pressures that we're seeing. And there's a whole range of things we talked to you about some of these things as well. The introduction of the Descent profile optimization tool that sits now really across the fleet as well. That's delivering that, say, 50-kilo per fuel flight. That's GBP 20 million per year savings for us. The introduction we've done on the Berlin hangar, where we do it now in-house and the savings per aircraft, that's about a GBP 10 million savings that we're getting. And we have a number of opportunities to come. But on the right-hand side of the slide, when you're looking at what we have ahead of ourselves as well. And this is why this is really, really so exciting when we're looking at the focus we have to reduce the winter losses. The ability we have to restore capacity and volumes now come back into the winter with the ancillaries that we have, that change has completed the threshold of where we believe we can put on capacity and get the prices we need from the current yield environment that we're seeing gives us a very, very strong confidence that we can significantly do something about those winter losses even when we come on to the next winter as well. That leads to increased utilization. That leads to better productivity, a better efficiency in everything we're doing as well. So there's much more to come on this. As we then go through this high inflationary environment and fuel cost environment, whilst the fuels has now gone down recently, it is something that we're keeping quite relentless about. So if you then come into the next slide and wrap this up with 2 slides before we take questions on this as well the summer. I think that there are 2 things that we should keep in mind. One is the sentiment on travel and holidays have changed. It's really benefiting everybody who works in this space right now. As I said, we've seen that the views of travel has changed since the pandemic. People don't take this for granted in the way they did before the pandemic. We have -- not only do we see it in the current trends as well, where people are saying that holiday is now firmly the #1 thing people want to do here in the U.K. when it comes to allocating how they allocate the discretionary spend they do. And also, 45% would say they're more likely to book a low-cost airline. And with the value we have by being the biggest we've ever been in the U.K. before, we're adding 1 million seats than we ever had -- we had prior to the pandemic in the U.K. We're actually the same size now as we're prepandemic in this quarter as well. We believe we are uniquely positioned in order to capitalize on that. And then also the question we also asked was that what about the spending next year? And for all sense and purposes, 9 out of 10 said that in '24, they will keep their spending on travel and holiday as they've been doing this year. Now we know that those things can change. But it gives you an indication that the change in behavior on how people are prioritizing this over house renovation, over eating out at restaurants, takeaway foods as well, it's really a change. So you take that tailwind on the demand side, together with the actions that we have described that makes us feel quite confident about where we stand. We have delivered on the volume that we said we were going to do, [ 56 million ] for this half for capacity, we'll be back around the prepandemic level as well. With the reallocations and the changes we've done in Berlin, which is so significant, we're up here in the U.K. as a -- well, we're up at 108% of 2019 capacity. U.K. Beach is up -- sits at 128% of prepandemic capacity as well. So we've seen a lot of growth, and we want to continue to grow. We want to have -- make sure that we have the right to grow, so we can deliver profitable growth. We're looking to grow for next year. We're looking at about a 10% increase in capacity for next year. We still have to work on various ways on how we're reallocating that. But with the European consumer on travel continues to be strong, we think that we have a really, really good position to build upon. So that would lead us then to what the outlook look like the Q3 RPS is expected to be 20% on a year-on-year positive. We have the 73% that we talked about bookings for Q3 which is 1% ahead of 22%. Q4 sits at 36%, 3 percentage points ahead of where we are and the cost per seat ex fuel headline, as Kenton, broadly expected to be flat year-over-year. We talked about the network changes. We talked about the ancillaries. We talked about holidays as well and also then the balance sheet strength that we have. You take all of this to say the blue. This is now a company that sits really where you should be sitting at this moment in time. Changes have been done through a difficult and challenging period. Tailwinds now coming in from the demand that we're seeing means that we expect to accelerate the deliveries of these targets that we set out at the time of the rights issue in 2021 as well. So I'm going to stop there, and then we're going to start taking some questions. Thank you very much.

I love the idea when the arms comes up even before I have stopped the presentation. That's good.

It's James Hollins from BNP Paribas. A few for me, please. Acceleration of midterm targets. Maybe just spend a couple of minutes on what that means in terms of timing, where you were before, where you are now and how soon you could deliver that or these targets? Secondly, Ken to maybe push you a bit on dividends. You're sort of teasing a bit of information there. But how should we think about when they come back? You say you're underway on deleveraging. I would say you're well underway. And also on the payout, should we be thinking about something along the lines of 50% payout we saw pre-COVID? And then the final one on costs. Johan, I think you talked there about capacity up in full year '24, up 10% year-on-year. If we've got H2 '23 costs flat, year-on-year, should we be thinking flat again on that capacity or a bit better, bit worse? Just how you sort of see it for full year '24?

Thank you, James. So yes, let's kick off with what to accelerate midterm target to me. I think the best thing to say that number one, we're completely focused on delivering for this summer, the stats that we showed were that Q3 is 73% sold and up 1%. And we talked about a 20% RPS improvement for Q3. So last year, we finished with about 88% of load factor in Q3. We're currently up 1%. So I would imagine in that 20% RPS delivery is done with either 19% yield improvement and that 1% load factor sticking or that 1% could come back to 0 in 20% yield. But that's the kind of thing we're looking at for Q3. And if that happens against the same period in '19, that would be running at about 33% up for total yield. And you saw that H1 ran up about 35% versus '19 for total yield. What we're seeing when we look at Q4 is we are only 36% and we're 3% up against last year in terms of load factor build, but that actually puts us more in line with '19 for load factor build is -- last year, our Q4 was strong. So Q3 was difficult. We know there was disruption both for ourselves and right across the sector. But in Q4, a lot of that cleared up and that the booking position was strong last year, and we actually had our record EBITDA performance. So year-on-year, we won't see the same relative improvement because last year, we already saw some of that gain. But therefore, against '19, if you look at the yields, what we're seeing so far are in those Q4 yields is that kind of 33% that we're seeing in Q3, that's what's coming through. So that's the kind of color I could give on the Q4. Obviously, a lot to play for. We also gave more information on holidays. So before we were talking about up 60%. So we're still up kind of circa 60%. But what's pretty pleasing because the way the business is geared is that means that the profits will be up over 100%. So that's why we're saying over 80% because that's the kind of gearing that we're seeing in that business because it has very little in the way of fixed costs. So we're not guiding for Q4, but what we are saying is with that confidence in what we're seeing in the bookings, when we set out these medium-term targets, which we did at the time of the rights issue were referring to medium term being 25%, 26%, accelerating in the medium term means just that. So earlier -- before 25%, 26%. So -- but the ingredients are really there and with a flat CPS, but I'll talk about more cost and costs because that was your third question. So what does all that mean for capital returns and for shareholder dividends. Like I said, it's something we'll -- we know how important this as a Board. It's something that -- and I will reflect on as we go through the summer. And then ultimately the timing and the amount will be something that the Board come together to decide on as we hit the year-end. What I would stress is our kind of priorities are let's deliver this summer. So let's remain operationally resilient. Let's get this summer delivered where we're heading. Let's deleverage. It's not to have a net debt down at GBP 156 million, but we've still got GBP 3.7 billion of gross debt, although GBP 1 billion of that is IFRS leases just deleverage a little bit, but strengthen the balance sheet by taking the NEOs on, and let's build some resilience for the fact that we ramp up in terms of delivery. So we've been talking about understand that we're going to get the [ 8 ] this year. We're looking at [ 18 ] next year, and then we move into the 20s. So we want to make sure we've got the money in place for that and obviously to take any opportunities. But regarding the kind of timing, if I look at where you guys are in terms of what you've got slated for dividends, there's hardly anyone who has got it slated for '23. The vast majority of you got it slated for '24. I'm not uncomfortable with that. And where you are with -- well, that's opinion. Obviously, our Board's got to come together and see if they agree. And then where we are in quantum. What I want to do and what I'm sure the Board would want to do is have a sustainable policy when we put a policy out there. And for me, that needs to be measured and that needs to be kind of meaningful. So no, I wouldn't be thinking of where we perhaps were before. And that's the cost one. I'm sure someone else will ask it.

Why don't you answer the cost one and then...

I'll start with the cost one. Is that what you'd like to answer. I'll ask answer the customer and obviously get a bonus question because you really ask it. We are confident about where we are in terms of our cost position against the competitors in those kind of major airports that we operate from because when I talk about 80% of our airports having CPR/RPI type of agreements or 80% of flying coming from those constrained regulated airports, it's the same for everyone. Where they're regulated is genuinely the same for everyone. Where they're heavily slot constrained, we will have better deals because of our scale that those deals come with a certain characteristic. So yes, good to have effectively the CASK flat in H1, although the CPS is up 7%. [indiscernible] means we should see CPS flat. But the most important thing is kind of the measures we're doing. And Johan touched on some of them in the slide. But like if you -- if you kind of think about the big cost buckets and start with something like crew, we have finished all the pilot union negotiations right across the network [ buy 1 ], and that [ 1 ] is kind of coming hopefully to an end shortly, but we all [ buy 1 ] in terms of the pilots. And the vast majority of the cabin crew negotiations have been completed. And again, the majority of those are under inflation levels. So that gives us a nice position, a nice platform because we've been busy in the background on those things. We still got a good proportion. We've spoken this for our captains who want to retain on their part-time flying contract. It is much more the captains than the first offices because it's more of a lifestyle choice. And we obviously have the seasonal basis, and we're looking to expand or open seasonal basis as we go forward because we have more aircraft idle in the winter than we have aircraft in a seasonal basis. And when they're in a seasonal base, you don't pay for the pilots and the crew year round because they're on kind of 8/9 month contracts. And obviously, as we start doing with this RPS increase on yield and with this ancillary pickup that we've got plus the added benefit of holidays, when we look at the capacity opportunities in the winter, far more of the flying that previously was underwater and not contributing and therefore, cut for the right reasons, becomes profitable or becomes contributing. And therefore, we'll be looking to restore capacity. And as we restore capacity, that's where we lose out a bit in our pilot productivity with their winter arrives, that's where we lose that's where we lose out on our aircraft utilization. So that will bring productivity up for the crew community. So I think those are the things we've got coming on crew. If you take maintenance, the Berlin hangar, the in-sourcing of line maintenance because we've already done it for a lot of the U.K. stations. We had it in Glasgow. We had it in Gatwick. We had it in Edinburgh. We had it in Bristol. But we had our European fleet landing with the SR Technics, the Lufthansa Technics of the world. So having -- building that hangar and starting that hangar, which started in January of this year operating, we've seen a 41% decrease in cost per aircraft visit going through that hangar. So we'll be thinking about how we do our other maintenance, that's line maintenance that's now largely in-sourced for us as a group. There's other -- there's potentially other opportunities there. We talked to -- you know the fleet, you know the upgrade and you know the fuel efficiencies of the fleet. But -- and I remind the A319s are now just sub-15 years in terms of their average age. So they are aging, and they will -- they obviously will be leaving the fleet. But we'll get better utilization as we restore some of the capacity. Things like with the Descent profile optimization software, that means we're not just sat waiting for the NEO fleet to come along and they have that technology. That's a retrofit to the CEO fleet, and that gives us that kind of benefit right across the CEO fleet because it gives a much better fuel efficiency. And then you look at things like our self-service app, developing that app doesn't sound like a big deal, but now in times the disruption over 70% of our customers are self-serving on the app. And that means less cost into call centers, which means less buns in call centers, sale on seat. Because obviously it's what the customer wants to do, and it's a better service. So we'll keep refining that up, keep putting the functionality into people being able to self-service. And finally, we're having a big push on supplier relationship management. So we can really maximize the kind of performance and the value we get out of our suppliers. So that's another big push. So when you have all those things kind of lined up, then the -- what we're seeing in H2 I'd like to see again in '24. That's certainly our goal to start holding costs flat. Now the real question.

Jarrod Castle from UBS. Three, 2 on holidays, one on CapEx. You showed the slide with CapEx upside downside case. But in an environment where it's difficult to get a slot for delivery, I mean why wouldn't you be at the upside case? And I guess, related to that, you've seen some competitors or to follow-on deals beyond [ 28 ]. So you're thinking around that, I guess. And then just the 2 on holidays. You're actually starting to source from Switzerland. I mean, how many source markets would you look at? I mean, how many do you view as attractive, I guess, when you're thinking about packaged holidays. And then you mentioned in the U.K. that you could potentially, I guess, get to at a license levels of Jet2 and Tui. I mean, what time frame are you thinking about in terms of closing the gap between the #1 and 2.

Yes. Thank you very much. The hot question, I'm actually going to let Garry speak to directly as well. So to hear from the horses now.

Yes. So on the source market question. I mentioned that the platform has been built and the currency and all of the back office processes have been built. So we can go into whatever source markets we want whenever we want at very little cost. And really for me and the team, the big prize is the U.K. So I don't want to be distracting the team by going into marginal source markets at this point, but we can roll in, we can test them. We can see what the appetites like. But really, the focus for me at the moment is absolutely optimizing what we can do within the U.K. And then on when we get to the size of Tui and Jet2, really the focus is on the business model we've got ensuring that we can continue the real focus that we've got on that business model, so not varying off track by developing loads of new products or doing things that are more niche and more peripheral and really having sustainable margins. And I think that when we see the demand when we see it coming in, there's no reason to think that we can't get to those levels in the -- outside the medium term, I suppose, but not certainly in the next couple of years. I don't think we'll be at Tui's level.

And also, while we're on holidays as well. I mean, the big opportunity we have still lies within our pricing in ancillaries, which we are still got loads of headroom to go.

Yes. I mean, that's an interesting one because while you look at those margins, although they're really, really strong, and they are very strong compared to any of the competitors. And it's because of that 88%. But really, in terms of the hotels, we're only scratching the surface at this point in terms of things like supplemented room types and how we can actually get customers to trade up within the hotel that they're buying, and that should all start to flow through in '23 bookings for '24. So we should start to see that picking up in technology where we have got direct access into all of the hotels' inventory so we can really start driving into those supplemented room types. And then also things like excursions and activities or other things that you can add on [indiscernible] holidays, we don't do any of those at the moment. So again, they're on the road map that we can start rolling them out to.

And CapEx. So the OEMs are definitely both having their challenges with supply chain. That is definitely leading to delays. I mean on the good news, we stay in very constant contact with Airbus with our biggest European customer, and therefore, that relationship is strong. We originally, if you look back through the presentations, I thought we're going to get 7 aircraft this year. That got notified. It got reduced to 6. However, with working with Airbus, we were able to step into 2 production deliveries, which was actually had delivered now and have just been work in progress. We're in WIP to make some minor changes, but we were able to step into deliveries that were on the production line where customers moved away from. So that 7 became 8 effectively, which is good. The 18 factors in the delay is being scheduled for Airbus in '24, or am I? But in '25, '26, that's back at our contractual position, and we'll have to see how the supply chain challenges kind of work through. And obviously, we'll work collaboratively with them. Next order book are kind of -- right now we're talking about triggering deliveries in this fresh order book from 27 to 34. We have our 27 requirements, and we have our 28 requirements in the current order book. So when we go again, and we're bound to go again because you can't just not -- then it will be for the 29, possibly to 34 kind of window. And obviously, we'll be fully engaged and talking when the timing is right for that. And then on the CapEx, what I would say when you look at those gross CapEx numbers on the gross. Two, they have about GBP 300 million of capital lease costs in there. So it's -- that's not -- in the old school world, that's not capital. That's what your monthly lease payments are to your thing, and you split them up between capital repayments and interest and scatter them around. But really, they're kind of just lesser payments. And they sit in, because of the capital elements, they can sit there. So yes, we -- there's nothing new in that CapEx buildup. That's exactly what we were modeling when we ordered the remaining 56 options that we have with Airbus. So no new news fully built into the model.

It's Andrew Lobbenberg from Barclays. Can I ask about winter and your aspiration to reduce the losses there? Well, I think you're talking about profit, but I'm curious to me understand is this EBIT, EBITDA or EBITDAR on a Thursday? What's that? What are you hoping for? Through the labor renegotiations as we came out of the pandemic, I think you had to hand back some of the seasonal working and give people full-time pilot contract. So how well placed are you for that? And the growth in Holidays, I mean, yes, there are opportunities, both Holidays is a seasonal business. So yes, how are you going to get winter to more profitable and at what level do you think it would come? And then just can I ask about yield management in the context of having the Holiday business because that books a lot earlier, doesn't it? And you're telling us that your loads are up 3 points for Q4 array. But to what extent is that coming from Garry's hard work, not anyone else's. And to the extent that you've got fewer seats left to sell. How cleverly can you optimize the revenue?

Right. Let me do a couple. I'm sure I'm going to forget something and then you fill in as well. I mean in terms of what I did say was that -- I think I used the word ultimately get to profits, Andrew. But look, we have historically, I think, easyJet has made profit once since the launch of this airline in 1995. We see significant opportunities to dramatically reduce the losses we had this year. And with the levers we have available, we're aiming to get to profit at some point. But it's not to say that, that is the guidance where we're going to get to for this winter. But we're always trying to maximize the performance at every point in time. I think what has changed now is that as we're referring to in the presentation, the threshold on what we need in order to put on capacity from a yield point of view have changed with the ancillaries. You take that into account alongside with the tailwinds we see in the overall yield environment driven by strong demand, and that means that we have a great opportunity to do that. And by the way, Holidays is making a profit in the winter. So it's actually contributing towards the PBT in the winter because of the setup. So -- and that was the case even in this winter, and that is one level also to use. But overall, this is down to the fact that we're going to be able to restore the capacity at different levels with different results in there as well. On the seasonality on the pilot, as Kenton has said, it is the more expensive part of that community that are staying on to the seasonal contracts that we have. You're absolutely right that we have come back up into much more of the full year contractual level of agreements with cabin crew and partly first officer as well. But we have quite still not an insignificant portion of the capital, which is the higher pay grade, of course. It gives us also that benefit. On the yield, when you said, hooray, you're 3 months ahead, how much is there? Look, I'll take the load factor where it gives it to me. Quite frankly, we are here, and we can regard almost the Holidays as Garry won't be offended by this as well, but it's super ancillary. It is the super ancillary to the company that is built upon in a very low-risk way, where we're using this very cleverly executed well by Garry's team to actually get ahead of the booking curve. And here is one of the things that is so great about this when you're looking at this business is that, look, if the airline and the industry and the sector will struggle more in delays, Holidays will do even better because of the flight prices that's going to come through. And in the end, if the aviation sector does well on the delays in terms of the pricing, we're going to get a benefit from that. So this is why this is so -- such a good complement to the overall business of what we are doing.

I just add one more thing on winter losses for you, Andrew, like the way I look at it anyway. I think Q1 winter losses, which is October to December is a very tangible thing to say, can we make a profit there. You've got Christmas. You've got the last summer months, you got October half turn. I think then the Q2 one is a longer journey. But that would be the case for all airlines.

What do you talk about the yield in the airline for the summer and the output on a that.

Yes, sure. So I was just going to add to that in terms of the other thing that's driving the earlier load factor booking is also the route mix. So if you think about our route mix versus where we were in '19. So from a route mix perspective, if you combine Beach and non-EU for this summer, we're at 39% of our capacity is flying on Beach and non-EU versus 32% that was flying in '19. So obviously, that will have an earlier booking profile. And also then in terms of selling out too early to holidays, you've got all that additional capacity. So we've got loads to sell. So we're not going to have an issue there, but that profile will drive in a slightly early load factor build because of the nature of it. So if you think the city by comparison is at 41% for this Q4 versus 49% that we had in '19, which would have had a slightly later booking profile. And domestics is flat, is at 21% this year versus 20% in '19. So your route mix will play a part in terms of your load factor build. But also then it also means we've got plenty of seats for Garry to sell, and he can sell a lot more if he wants to.

Conor Dwyer from Morgan Stanley. 2 quick questions. One was you highlighted growth in non-European destinations, African beach is being one of them. The question on that is, is that growth at all influenced by increasing cost of EU ETS? And do you expect that to kind of continue to reduce that liability? And then on the Holidays business, a few years ago when you outlined the kind of profit targets and the passenger numbers that you would need to achieve that, looks to be running ahead of where that implied profitability level was per [ pax ]. I'm just interested is what is driving that? Is it pricing? Is it better-than-expected cost performance? Are people just staying for longer holidays than you expected?

I think the -- when it comes to the route mix and the demand, I think that there's an overall focus on value, we know that. So I think that when you're looking through the -- what's selling at the beach and the leisure destinations as well. You might want to complement that, Sophie, as well. We see that where it delivers great value. That is where people are gravitating towards. So there's no doubt that you would have some non-EU destinations who is also benefiting from because of the value that they are delivering as well. And we're looking for that to continue also across the network. We still are underrepresented in a number of routes, France to North Africa being one example as well. And we see more opportunities in Turkey. We see more opportunities in Egypt. We see more opportunities in Morocco as an example, which we are also then looking to adapt and grow in as we go out in the further years. I think that the -- on the holidays piece as well, I think it's a combination of what we always knew was a very effective [ ID ] implemented well together with tailwinds together with the fact that people here want to go on holiday, they want to travel. So I think it's just -- it's come together at the right time at the right place as we have set this up as well. And as I said, we've discussed this, as you would expect us to do. It's almost like impossible to replicate this because if you're comparing with the OTAs, I mean the cost of the traffic that we have is like it's so much smaller than anybody else would be having. The network that we have, the attraction to the brand that we have and we can capitalize on means that this is not a big thing for people to consider. And what's interesting, and Garry, you want to elaborate perhaps on that is that the spend on the hotels is quite high. This is 4 and 5-star hotels. So they're utilizing the network and the value of easyJet to get there, that's absolutely fine. But then there is nothing that makes them not spend what is average now value of the booking you have.

Yes. So firstly, thank you, Andrew, for recognizing my very hard work. It's much appreciated. On those 2 things, I think, as Johan says, our marketing spend as a percentage of revenue is tiny in comparison to others when you look at their marketing spend, and that's driven by an 88%, which can drive those superior margins. And I think the second one is this 4- and 5-star hotels. So 79% of what were sold so far for summer is into 4 and 5-star hotels, and that's typically GBP 70 -- GBP 750 per person is our average spend on beach and obviously, 4 and 5 star is higher than that. So I think the increase is because we're seeing a lot more going into that premium market than we maybe initially anticipated.

Damian Brewer, Canaccord. Can I just come back on the winter losses again, please? I just want to be clear what the message is you're trying to say here because clearly, summer is still the highest margin contribution part of the year. So is it that you see ancillaries and holidays as a way of providing more profitable parts of the existing winter capacity or that you would see it as actually higher levels of winter capacity being operated I just want to be clear because obviously, it's a very big difference in approach.

Yes. So I think we will be able to restore volumes and capacity into the window, so we're going to be able to put more capacity on because the threshold where it makes sense and where it delivers a positive contribution has changed. So that gives us the opportunity to do that. So just to repeat again, the ambition here is ultimately to get on to a winter who actually makes money. And we are looking now at significantly reduces the losses as much as we can as quickly as we can. So I think we're in a good position to do so. But when that profit comes, I can't tell you, but we were always like in everything we do, we want to maximize the returns of what we're doing. So let's see where we get to.

Alexander Irving from Bernstein, 2 from me, please. Can I start off with corporate travel. So I think historically, you had a bit more of a corporate travel mix compared to the other point-to-point airlines in Europe. We've seen kind of move away from a city in towards Beach. Can you just give us a steer on, a, remind us what your mix was in terms of volumes and revenues pre-COVID and where that recovery is up to now? Second question please around, you've seen some problems in the sector. with the geared turbofan engines across some A320 operators, is that -- is it affecting you at the moment? And if so, how are you dealing with any of those engine problems, please?

I'll do the first one and Kenton is going to do the other one. So our corporate travel is back up at 90% of the prepandemic levels right now. And actually, that's another thing that we see. It is recovering. It is recovering slower, but it is recovering, as Sophie was alluding to for in the summer. But that means that we're expecting to have more city to city and more business travel to come on also in this coming winter season as well. And just to remind you that we're overrepresenting in that SME segment, which doesn't have as onerous travel restrictions and policies that some of the big large corporations have as well. And also, we overrepresented in the segment of people actually physically needs to go somewhere to power plants, to factories, what to do, which is not as easily replaceable as make that assume or a team's call. So it sits at 90% of prepandemic level and it is growing as we speak.

On the engines, the main issue is with the Pratt & Whitney engines. We have no Pratt & Whitney engines. So we have none of that problem, the CFM LEAP engines are performing very well.

90%, is that volumes or revenue?

That is in volumes.

Muneeba Kayani, Bank of America. So I have 2 follow-up questions. One is just going back to the unit cost. So your unit cost ex fuel right now are I think 25% above prepandemic levels? If 10% is coming from stage land, so 15% -- I think from some of your other competitors, we're hearing targets to get back to prepandemic levels, whereas I think you just said you're kind of going to stay flat at these. So if you could help me understand why I not go back to prepandemic levels is the first question. And then secondly, like Ryanair put out a target of getting to 30% market share in 10 years. How do you feel about that? And what are your targets? .

I'll do the first one. You can do the -- you'll do that. I'll do that one. We just have a completely different network. So we've taken 50 aircraft and put those somewhere else in our network. We've taken them out of the kind of Brandenburg, Schonefeld, relatively cheap airport, doing domestics that didn't really work. And we've put them back into densifying, as you said, making thicker the routes in our slot-constrained primary airports, where we make better yield and we make better returns. So I'm very much now looking at year-on-year development, both in terms of RPS, I probably look at RASK and in terms of CASK and CPS because that's what matters. You just lose yourself going back into 2019, which is a completely different world. And if you weren't in the airline sector, I don't know any other audience that will be saying, how do you feel about 2019 4 years on. So yes, not something we're looking at. What we are looking at is how we can completely fight inflation in today's world on the route network that we have and move forward. So that's what we're really focusing on how we can bring that cost down. And I think what you'll see with others as they kind of start restoring some of the capacities that year-on-year becomes more of a challenge. But no, we deliberately choose to operate from those primary airports and a lot of them are regulated, and that means you're not going to go in there and demand 20% reductions to kind of reduce them back to where they were in '19 because no one's going to get that. But if you're operating from that, you have a very competitive product. And we have a significant cost advantage now we do have, then I think we're in a strong place to compete.

So as the market share is said it was going to have in 30 years. 30% 10 years, okay -- 31 in 10 years. It's -- I don't know. Look, we are -- we feel very confident about our ability to grow and continue to be the largest airline at the prime airports that's what we are focusing on as well. And the overlap versus competitors, it's not massively different. We've seen a slightly increase in overlaps on Ryanair, but there are also many airports, where we compete with them successfully. And I'm sure they're having a good time. We're having a good time. So we can compete with any airline that is out there. We've seen that it's been a retrenchment of Wizz head-to-head capacity. There's been a retrenchment of some of the legacy airlines that we're competing against as well. And there's no significant difference really when you're looking at the network now for this summer as an example.

No, exactly. I mean, if you look at some of the capacity that both Ryanair was adding this summer. So Ryanair adding 10.5 million seats this summer, Wizz was adding 5.8 million seats this summer. Of the Ryanair capacity, 1.1 million is head-to-head with us. Of the Wizz capacity, actually, it's a reduction of 400,000 seats with us. So net, if you combine the 2, it's 700,000 extra seats on our 56 million seats for this summer. That's 1.25%. So actually, they are growing, but they're not growing on our network. And so yes, the capacity constraints benefit us in terms of the primary airports. And as Johan said, where we do have a similar market share with Ryanair at certain airports, actually, were both profitable. So we can coexist, and we do have an issue with that.

Neil Glynn from AIR Control Tower. I'll ask 2 questions. Firstly, for Sophie and then maybe one for Garry. So Sophie on the city break side, weekend breaks and so forth, you're growing 13% there this summer. As people have more flexibility with work, are you seeing a change in booking behavior for particularly days of the week, Monday to Friday relative to prepandemic? And does that help you manage yields these days relative to prepandemic? And then the second question for Garry. On the procurement side with respect to rooms, obviously, inflation for hotels as well as for everybody else. As you're growing so strongly, can you give us a bit of color as to how you're managing that as either deals roll over or you do new deals and how you feel that compares to some of the competitors in the market?

Neil, you're absolutely right. In terms of the proportion that we're flying that first wave Monday and back the last wave Thursday, Friday, has reduced slightly. And actually what we're seeing is a more blended view across the week. So you're seeing more capacity on demand on Tuesdays than we ever saw before on Tuesday. It used to be historically the weakest day of the week. It's still weaker than other days, but we're seeing certainly a significant improvement. And from a yield management perspective, that's great because you've got higher yields across more seats that you're able to achieve. So we're definitely seeing that. And then we're also seeing more flexi working, so people doing the kind of work away. And so then again, it takes away from the Saturday to Saturday peaks that you would normally see. So people will go out midweek. They'll work for 3 days remotely, and then they'll be on their holidays. So it is certainly helping to benefit, I would say, the midweek yields and with midweek flow that we normally see.

Yes. On the hotel side, if you look at the Eastern Med, first of all, they don't have the Russian or the Ukraine market. So that's really driving some very keen prices there. So we're actually seeing way below inflation price increases coming from there. And by this point, in a normally robust year, you would start to see the beds going off sale. That's not happening at the moment. So it suggests that there's quite big gaps left by the Russian and Ukraine market in places like Greece and Turkey that's driving those keen costs. And then overall, the Thomas Cook capacity, this is the first kind of -- or last year was the first full year that it was flowing through. So they're still getting to fill that capacity. And then with TUI's kind of stated ambition of filling their own hotels, a lot of the third-party hoteliers that we work with are very keen to distribute the beds through us, and they understand that they need to keep those prices competitive. And if I look at what we would pay versus the competition, I am absolutely confident that we don't pay any more, that the buyers we have, have got years of experience working with these hotels. We know what the others -- how the others work with them. And it's in the hotelier's interest to have competitive prices with us. So we're not seeing a slowdown in supply, and we're not seeing increases in the cost even being an inflation level at this point. So we're confident that, that will continue into next year.

Okay. Listen, thank you all so much for coming. Everybody has come and joining us in this room as well, and everybody who's watching on this as well. I think we are in a really strong position. There's a natural tailwind from the demand that we're seeing. We think we are uniquely position as well. Our absolute focus is to deliver trading through this summer, operationally, keep it really, really strong. And then we're on to planning for a significant reduction in the losses here come forward in the winter. So thank you all very much.