easyJet plc (EZJ) Earnings Call Transcript & Summary

Good morning, everyone, and thank you so much for joining us here today as we are to discuss the easyJet performance in the first half and then also go through a little bit about more specifically how we're progressing towards our medium-term targets as well. With me, as usual, is Kenton Jarvis, our CFO, and I'm going to come back to that by the way. And also, the eminent team of colleagues that I have with me here from the whole of the Airline Management Board as well and then, of course, Chairman, Sir Stephen Hester, who is here. And as we always do here, we're going to leave plenty of time for questions after we've gone through the presentation and do take the opportunity and feel free to ask any of my colleagues, if there's anything you'd like to talk to anyone here individually about as well. So you should have been sent the slides alongside with the announcement that we released earlier this morning as well. And as usual, all the material is available also on our corporate website. So I'm going to start off by giving you a little bit of a performance snapshot of where we stand. Kenton is going to go through the numbers in more detail, and then we're going to do this deep dive and then talk about how we're progressing towards the midterm targets and then finish off on the kind of an outlook and a summary. But before we do that, I'm just going to draw your attention to another announcement that we did this morning, and that is that, I will be retiring from easyJet here in early 2025. Now this is very much an orderly and seamless transition. And by that time, I would have been in the company here for over 7 years as well, and I'm super excited about the fact that the Board and Stephen has appointed after a thorough process, Kenton to be the next CEO taking over after me. And I'm going to hand over also to Kenton to tell you all how much he's going to miss me. But the key thing is in here to say that this is still in the early 2025. We are all focused and so is everyone here to really perform and deliver on what we believe is going to be another record summer and then also land all the initiatives here in the summer, in the fall, that's going to take us towards our midterm targets and beyond this. That is the key thing, that is what we are focusing on as well. But on that note, Kenton?

Thank you, Johan. Thank you. Well, I've worked with Johan for -- have the pleasure of working with him for a number of years now. So therefore, he's right, it will be sad when...

I am not so sad.

Quite sad, when it comes to retire at the start of next year. But that said, I'm absolutely delighted to have been appointed by the Board as the next CEO for easyJet. I've got a huge belief in easyJet, and I'll be very proud to take on the role. It is a privilege to lead a fantastic company like easyJet, along with a very talented and experienced management board, and I look forward to that. I think one important thing to say is since I joined easyJet in early 2021, I've led the strategy function as part of my responsibilities as CFO. And therefore, along with the Management Board and actually the wider kind of leadership team have helped co-create the strategy we now have, and also its implementation. So I think it's fair to say that I am completely committed to that strategy. I believe it is the right strategy. And I remain confident, as does the management team here, that we will deliver on those medium-term targets that we set out in October. But as Johan said, he'll be leading the company for the rest of the summer. So now the announcements made we'll look to move on with the search for my successor. And then in the meantime, we'll focus on delivering what is going to be a good summer and also for me to focus on what is my current role, that of the CFO. And I'm going to take the opportunity to spend more time out in the business and the wider network to speak and visit with more colleagues. But let's get back to the matter in hand and our progress towards H1 and this year.

Listen, let's go on to the next slide and talk a little bit about what we have seen here in the winter and what we can expect out of this year as well. So you would have seen from the numbers that we managed to reduce the winter loss by GBP 61 million, and that is clearly, despite the conflict that we've seen in the Middle East that is still ongoing, but also supported, I should say, also on a strong Easter. Upgauging is on track. We're probably the only airline, I'd say, in Europe, who are getting aircraft deliveries here, 16 A320 aircrafts coming in to that, which means that the updation plans that we have to continue to remove the 319s here in the next 5 years is still on track. Easter lead holidays, Garry has had a very strong performance in the first half, GBP 31 million in profit, and we're now with 77% sold of the planned program within holidays, we expect this to deliver more than GBP 170 million of profit to the group. Capacity growth that we've seen in the winter of the 12% that remains on track for the summer. So we're looking at approximately around 8%, which is going to give us then around that GBP 100 million of seats for the full year as well. So all in all, together with what I'm going to talk you through when we're going through the strategic initiatives means that we are well on track and progressing towards our medium-term targets. And that means building on the record summer that we had in '23, also means that we expect to see strong earnings growth in the full year. So I'll come back to those things in a little bit more in detail on the initiatives, but I hand over to you now to go through the numbers.

Thank you. Thanks, Johan. If we begin with Slide 4 outlining the key performance indicators for the half. Financially, H1 was a good first step towards the medium-term target of structurally reducing our winter losses, driven by targeted capacity growth where demand was strongest. Total capacity rose by 12% compared to the first half last year, totaling 42.3 million seats and passenger numbers increased by 11%. We saw strong pricing across the half with airline revenue per seat increasing 5% year-on-year to GBP 69.87. In line with our guidance, it was good to see cost per seat ex fuel remained flat for the first half as we continue to manage our cost base within the current inflationary environment. The average sector length saw a 2% decline year-on-year due to the impact of removing planned capacity into Israel, Jordan and Egypt. These longer sector routes were redeployed onto shorter routes, which limited the cost per seat impact, but did impact the cash performance. CASK ex-fuel increased 2% year-on-year. EasyJet Holidays continued its strong performance with a growth in profit of 210% driven by an increase in customers of 42% year-on-year. And as a result of this performance, the group's loss before tax per seat improved 24% year-on-year. Now turning on to Slide 5 and the income statement. Passenger revenue increased 17%, whilst ancillary revenue increased 19% year-on-year. Demand remains strong through the period, with some benefit also realized by the early timing of Easter. Fuel costs increased by 18% to just over GBP 900 million, driven by an increase in capacity and a 6% rise in fuel cost per seat. EasyJet generated a positive EBITDA through the winter of GBP 15 million. Progress towards our medium-term target of structurally reducing winter losses was highlighted with a GBP 61 million improvement year-on-year despite the GBP 40 million direct impact from the conflict in the Middle East, but benefiting from an early Easter. We remain focused on making a profit in the December quarter and minimizing the losses that all airlines make through the March quarter. The group headline loss before tax for H1 was GBP 350 million compared to GBP 411 million in the prior year. Now moving on to the revenue per seat bridge on Slide 6. The total airline revenue per seat increased 5%, both at constant currency and at a reported currency. Ticket yield increased by 5% year-on-year, driven by easyJet's targeted network growth, route maturity and strong demand. Airline ancillary yield increased by 7% as a result of increased uptake of our ancillary product offering alongside pricing enhancements from our improved algorithms. Compared to revenue per seat, RASK increased 7% in the half due to the 2% reduction in sector length. Now let's move on to the cost per seat bridge on Slide 7. The headline cost per seat ex fuel at constant currency for the half was reduced 0.8% year-on-year for the airline. Airport and ground handling charges saw an improvement of 11% year-on-year due to a slight reduction in load factor offsetting underlying inflation seen in regulated airports. Crew costs increased by GBP 0.52 per seat. We continue to support our crew along with all of our colleagues as they are critical to the successful execution of our strategy. Through the period, we've seen new labor deals being agreed and these have been set to ensure our crew are competitively paid in all of our markets. We've also relaunched performance shares. This initiative makes all of our employees, shareholders, giving them a vested interest in the future success of easyJet. Maintenance costs remained stable. We've now in-sourced all of our U.K. line and light-based maintenance with a growing proportion also insourced in the EU through the opening of our Berlin Hangar. This has helped give certainty of supply whilst also generating cost efficiencies. And we've now agreed to deal to purchase our very first heavy maintenance facility, which is established already in Malta. This facility will deliver further supply certainty, and we expect it to unlock cost benefits as it will serve around 25% of all our heavy maintenance requirements. Ownership costs decreased by GBP 1.05 per seat as the fixed costs were spread over a higher capacity. The scale benefit was coupled by a 7% improvement in aircraft utilization year-on-year. Productivity and utilization is expected to further improve into next winter as we continue to grow and scale our costs. Fuel increased by GBP 0.94 at constant currency. However, as we move into the summer, we no longer expect to see a fuel headwind year-on-year despite the EU ETS free allowance unwind starting to come through. Maintaining cost control in the current inflationary environment continues to be our focus, and I expect costs to be well controlled throughout the summer with H2 CPS ex-fuel expected to be up low single digits. Moving on to Slide 8, and fuel and FX hedging. We've continued to build a strong hedge position with 74% of our fuel -- of our aviation fuel needs hedged at an average rate of $825 per metric ton for this summer. Our U.S. dollar requirements are hedged to a level of 75%, now for the summer at a rate of $1.25 and U.S. dollar lease payments are hedged for the next 3 years at a very favorable rate of $1.27. CapEx is also hedged for the next 12 months in the relevant underlying currency. Carbon obligations, including free allowances, are fully covered for calendar year '24 at EUR 43 per metric ton and 82% covered for calendar year '25 at EUR 30 a metric ton. We continue to actively manage our exposure to carbon as demonstrated by the coverage we're building for these years. Our continued fleet modernization and upgauging journey will help mitigate the impact of the free ETS allowances being phased out. Now moving on to the cash flow bridge on Slide 9. During the first half of the year, our cash position increased by GBP 407 million, taking our cash and money market deposits balance to GBP 3.3 billion. We saw an inflow of almost GBP 400 million from financing activities driven by the repayment of a EUR 500 million bond, which matured in October '23 and EUR 850 million bond, which was issued with a coupon of 3.75% on the 20th of March. The latest bond matures in 2031. Our financing activities have allowed us to prefund the EUR 500 million bond, which matures in June 2025. In addition to our financing activities, we had a positive cash generation from operations before dividends and FX of GBP 79 million. As you can see on the chart, this cash generation is driven by the positive movement on forward bookings, reflected through unearned revenue increase, with capacity growth, increased pricing and growth of easyJet Holidays, all contributing. Included in CapEx of the delivery of 9 A320 family neo aircraft. These aircraft have been taken direct into ownership through cash payments, and will further strengthen the balance sheet through the remainder of the year as we take the final 7 deliveries into ownership. We will then look to build our liquidity reserves ahead of the ramp-up in aircraft deliveries coming in the next few years as we renew the fleet and benefit from upgauging in the resultant cost and sustainability benefits. We also paid a dividend in the period at a level of 10% of profit after tax for the 2023 financial year. We expect this to rise to 20% for the 2024 financial year. Now moving on to Slide 10 and the balance sheet. Notable increases have been seen in our unearned revenue due to a higher level of forward bookings. You can also see an increase in our property, plant and equipment driven by the increase in fleet size to 343 aircraft from 328 aircraft at the 31st of March '23. We've seen a GBP 140 million increase in our derivative financial instruments in the half which reflects the positive hedging position we hold today versus the spot rate as of the 31st of March. At the end of the first half, our net cash position was GBP 146 million, and this compares to a net debt position of GBP 156 million last year. If you remove the IFRS 16 lease liabilities, our net cash position will be GBP 1.2 billion. We continue to hold investment-grade credit ratings with both Moody's who are rated Baa2 with a stable outlook, and Standard & Poor rated BBB with a positive outlook. So turning on to Slide 11 and a slide on our capital discipline. Making the highest returns from the metal that we deploy is a primary focus for us. We're relentless on allocating aircraft to the highest performing basis whilst maintaining an optimal network. We're seeing this come through in our financial performance following the rightsizing of Berlin and the continued improvement in Porto and Lisbon following the investment was made there last year. Alongside our aircraft and having them in the right locations, I also want to drive revenue growth on our existing assets. EasyJet Holidays with its asset-light model continues to drive additional returns for our fleet. As we increase our market share in the U.K., we'll continue to see these returns come through as we take margin that historically third parties have made from flying on our aircraft. Both ticket and ancillary trends continue to be positive as we drive increased uptake on our ancillary products as well as ongoing pricing improvements for our algorithms. As we invest in new capital over the coming years to deliver on our growth targets, we're going to be disciplined with how we allocate those aircraft. We'll grow within our network through increasing frequencies or adding network points into existing bases for example, Cape Verde, which we've recently launched from Porto, providing more choice for our customers. Upgauging will provide further growth on our existing routes without any additional frequencies whilst providing cost and sustainability benefits through reduced fuel blend and lower noise pollution. As we bring new aircraft into the fleet, we'll also see our ownership costs reduced due to our attractive pricing with Airbus and the fact that the new aircraft do not have the engine shop visits capitalized until they are incurred. Slide 12 shows the flexibility we maintain when it comes to growing our fleet, which are all Airbus A320 family aircraft powered by CFM engines. The orange line through the middle shows our current base fleet plan for the next 4 years, aiming to grow to a fleet of 384 aircraft by full year '27. We now have an order book for 306 A320neo family aircraft delivering up to full year '34, with a further 100 purchase rights on top of this. These deliveries will drive our upgauging story as we move from our current average gauge of 180 into the low 190s by 2028, and then into the low 200s by 2033. The industry is facing supply constraints from both AMs struggling to meet their delivery schedules. easyJet continues to expect all 16 aircraft deliveries this year and is unaffected by the GTF challenges as we continue to operate a 100% CFM engine powered fleet. We retain good flexibility to mitigate the notified slippages from Airbus in 2025 due to the A319 fleet we have in service today. Moving on to gross CapEx projections on Slide 13. We expect our gross CapEx expenditure to rise over the next 3 years, reflecting an increase in our scheduled aircraft deliveries. This increase is also driven by the step-up in predelivery payments in line with our delivery profile, increased investment into spares to ensure operational readiness and maintenance cost growth as the fleet expands. All the aircraft deliveries in 2024 and 2025 are expected to be taken direct into ownership. And this will take our near ownership percentage to 81%. It's important to note that the CapEx shown in this slide is the gross CapEx position and doesn't account for any potential sale and leaseback proceeds. We currently have 53% of total fleet in ownership with 77% when it comes to the neo sub-fleet. The neo aircraft are our primary focus as this is where the real value lies. As set out in the capital allocation framework, we're looking to maintain the proportion of neo's we have in ownership at greater than 75% going forward. To help give some context on what the net CapEx could look like for, say, full year '26, if we were to take 75% of the 25 deliveries into ownership that year, the net CapEx will reduce from GBP 1.9 billion down to GBP 1.6 billion. If we were to reset our total neo ownership back to 75%, the net CapEx would then further drop to GBP 1.4 billion. If, however, we were to take all the full year '26 deliveries through cash, then the full year '27 net CapEx could reduce from GBP 2.4 billion to GBP 2 billion, if we took 75% of those in that year into ownership, and were further reduced to GBP 1.6 billion, if again, we reset our total neo ownership back to 75%. You can see on the slide that we have a number of options open to us when it comes to financing the fleet. And I'll be hosting a session on this on the 20th of June. So please reach out to Adrian, if you would like to attend that session. I'll now pass back to Johan.

Perfect. Thank you very much for that, Kenton. So I'm going to move on to this slide, and I know that this might be a little bit repetitive for you because we have shown this to you, I think, for a very long period of time. But it is important to know that this is our strategy. This is the plan that really guides everything we're doing. This is how we're allocating our funds. This is how we're allocating our top people to get on to the initiatives that we know it's a platform to progress towards the next set of the medium targets we have. Continue to expand the presence at the primary airport, really continuing the transformation of the revenue, including holidays and then also delivering great customer service and really capitalize on the low-cost model that means we can give attractive fares to customers, but at the same time, also deliver strong shareholder returns and earnings on that. But as you know, with strategies, they are something that can be put as it used to be on a piece of paper now in the document, but it has to be delivered by people. It has to be delivered by people. If you're turning on the next slide, I'm just going to talk you through a little bit of the things that we're seeing when it comes to this organization, which I am immensely proud about. Now we know that we have committed people. We know that we have passionate people, and it is important not only because it's the right thing to do. But when you are fighting for top talent, when you are fighting where there is shortage of market of capability, this really matters. So we're spending a lot of time to be an attractive employer. And if you're looking at some of the data in here as well, in the U.K. ranked as the #1 company when it comes both for airlines and travel, on Glassdoor as an example. EasyJet and the Holidays and Garry's business was ranked as the #1 company among best places to work in The Sunday Times and Sunday they came out with that. And you won it also last year, but then you were in the smaller companies division. Now you move up to the big companies division as well. But it's just examples of the fact that, look, this is an attractive place to work and to be in. And the good thing about that is, of course, also it helps attrition. So when you're getting that top talents come in, you also get the chance and you stay good opportunities to keep them, and that attracts more people as well. We've done a lot on the crew, focused a lot on the engagement, particularly at the local places at the basis because we know that, that's matter the most for our frontline crew. Multiple courses and training courses when it comes to health and well-being, mental health awareness. Also when we're looking at inclusion as well. And we have also invested GBP 8 million in a performance share plan for employees. So now all employees of easyJet is also shareholders, which we believe is the right thing to do because it really incentivizes the same behaviors as it is for other larger shareholders as well. And we really think that this makes a positive difference for the performance of the company. Now if you then go into next slide, looking at how we're now progressing towards the medium term target that we set out to you here in the fall, I think it was September -- October. And just to show you and demonstrate the progress that's been made for the first half of the first year and then also what we can expect from this year. You would have known that the profit we had per seat was equivalent to just about coming up to GBP 5 and with the principles that we laid out where we saw had the opportunity to reach a new target, which is GBP 7 to GBP 10 profit per seat, we can see that reducing the winter losses that we had done on the GBP 61 million represents about GBP 0.40 on that. We then had the upgauging, which is something that we will measure over clearly, the medium-term target, and that comes into play when you're looking at the all 319s will be leaving the fleet here within 5 years, and we are on track to do also that. And that represents in itself, as we talked about before, a cost saving that is pretty unique to us of some GBP 3. We've then seen also then Holidays, which the expectation to do GBP 170 million and above that will represent about GBP 0.50 on that end. And then you have some other initiatives, in flight retail, which I will talk about, and then also the maturity we see on the network that really brings also the benefits on this. So you take that into consideration, you can say that after the first half of the first year of the medium-term plan is, that we're looking to be in over and above that GBP 1 in that year to get on to that GBP 7 and GBP 10. So we're well progressing towards that and that to constantly and consistently deliver over GBP 1 billion of profit for the whole of the group. So if you then do a little bit more of a deep dive into this on the strategy, building and continue to increase our presence at the primary airport in Europe. Let's just do a little bit of an update on that, 158 new routes that have been announced and delivered for this financial year that we are in. And a couple of highlights on that. The new bases that we launched here in terms of Birmingham and Alicante is all delivering actually over and above what we thought it was going to do. Load factor is actually above on both those 2 bases, the average of the whole of the network. And we continue to see also the further improvements to come from them. Today, we also announced the investment and the starting of our 10th base here in the U.K., Southend, and you would have known that we closed this base at the early start of the pandemic, which was more about at that point in time, rightsizing the network to where we were. But we have seen a huge improvement in the flying that we do into Southend. So we see that there is a strong demand from that base. And I think also with the easyJet Holidays business now, it changes also the opportunity that we have overall because it's a big catchment area for Holidays that we can provide now in addition to the airline with the easyJet Holidays. So we're really confident about that base. Continue to do more work on the network to reduce the winter losses, we're adding 35% in the coming winter into the North Africa region. We launched in Cape Verde as an example that we all know that these destinations, including Cape Verde is a healthy and positive contributor further to reduce the winter losses as that is a part -- a big part of our plans to hit that over GBP 1 billion and above. And we continue to see the maturity of the network that we have, we talked about before, Berlin as an example, Italy is in proven, and when you're looking through the investment we've done in Porto and Lisbon as an example, we expect that to deliver over 25% in profit improvement also in summer '24 to what we saw in '23. Coming on to the revenue side as well. And you should take the opportunity to ask Sophie more about this on the Q&A because we actually have -- we have loads of initiatives within this area. But I am going to highlight 2 of those as well. I know you've had separate sessions with Garry, most of you when we talk about the Holidays as well. But we've now sold 77% of the planned program that we have. And not only do we get the demand coming in there. We do get the margins coming in there. We do get the customer satisfactions coming in there. And in terms of likely to rebook, I don't think that I have ever seen such high scores as well. This is a very unique model. I was asked about this earlier in the media call. Well, why can't somebody else do that? Well, there's a couple of things in here. One, it builds on a network that is pretty unique. We are Europe's largest airline from the primary airport to these destinations that holidaymakers go to. That was there even before we had the Holidays part of it. The trust in the brand is pretty unique among low-cost airlines, never to mention others, and that gives us that opportunity to easily transform customers who are going on a low-cost flight and then transfer to them into accommodation that most of the time are in the 4 and the 5-star areas. And then also executed exceptionally well by a team that is in there. So clearly, over GBP 170 million is what we're expecting on the way towards that GBP 250 million, but I can assure you that the internal targets that we have for that goes way beyond the GBP 250 million. In-flight retail is an interesting one. We had about -- prior to the -- in '19, I think we had about 35, 40p that we saw that this was delivering for as well. And we changed the model, and we talked about the model, how we're now contracting directly with the suppliers on to this, and we changed the whole way on how we're using data to better accommodate and localize actually the supplies towards the [Indiscernible] we're seeing. And for this winter, as an example, we've seen a profit uptake of about 40%, which means we're going to move this up, we expect for the full year financial about 70p of what the contribution is going to be about this. and there's more things to come from this. Spend per seat, profit per seat and conversion is all up, and we're still in the middle of that journey to really hit that GBP 1 and perhaps even below -- go above from that. Looking at ease and reliability. So we've taken a lot of actions and invested a lot of time and effort into really driving a strong on-time performance. And we started really well here in the early part of the season in April, with actually on-time performance being on the first wave, which is so critical, higher than it was actually back in 2019. And the reason why the first wave is important because you might think, well, all airlines would do that. But we actually have seen because when you have congestions and when you have crunch points across the network, which we ultimately know who's going to be there any summer, you have to try to get away on time. And we've been using quite a lot of data to analyze also what this means for the schedule that we are simulating different on-time performance. And I come on and talk about that when I go to the next slide. So we can work out how we can deliver a great experience also then for our customers. We're using a lot of data. We're using a lot of automation also from how we're engaging with our customers. We have 67% of all our customer queries now are done via live chat. That's close to 50% uptick from where this was at this point in time last year. When you're looking at automation of the communication channels, so that would be things like what we do in social media, what we do on e-mail as an example, we see an increased productivity also of 46%. And the customer service aspect of that has actually gone up 17%. So lower cost for the company and a better customer experience, and that is something that we continue to look now as we kind of move in a lot more also and how we personalize this better. We're working with some of the world's leading experts and companies and partnering up with on how we can take this to the next stage. So this is going to continue to generate a better digitally and seamless experience for our customer where self-service will really be at the heart of it for our passengers and our customers, continue to capitalize on the low-cost model that we have extraordinary important. Now working on the cost and the cost discipline doesn't -- it just with one department. It fits with all of us as well. But I must say Kenton has done a tremendous lot of job since he joined to bring transparency, to bring clarity, to bring discipline in this as well. And I think you will see that when you're looking at the cost performance we've had recently and what we expect also on to have going forward. And that is really helping us to make sure we can deliver the attractiveness of the fares, but at the same time deliver also the earnings that we think we can do to give strong shareholder value. This winter was very much about targeted growth. We know that just throwing on capacity, hoping for the best, that's not the way to do it. It can easily go wrong in the winter if you do that. But we have analyzed very clearly where we think, and when we know we're getting contributions on what we have, over and above the variable costs we contribute towards the fixed cost in the winter. So we're going to continue to do that through better productivity and utilization as we also then go forward into the next winter. And we have then actions that we laid out earlier. They are annualizing. There are more things coming into the pipeline, this mean we're going to have -- we believe, quite a good and healthy cost journey here, particularly against competitors versus others. We are in the process, waiting for competition approvals on a purchase of SR Technics in Malta. This means that we're going to do -- we reckon about 25% of the heavy base maintenance on the fleet done in this area that gives us greater certainty to perform of that and it also gives us cost benefits going forward. And then what I mentioned earlier as well as some of the tools we're using within the company and Sophie and David seem really looking at things on how we can optimize the schedules. We have something called SkySYM, which is literally an OTP simulated that we're using. We're using something called SkyMax, as an example. We have the Atlas project, which really dives deeper into say what parameters not only OTP, but also the expected yield and the revenue that we can get out and simulate that in beforehand before we finalize also the schedules going forward. And not only does this build as on historical performance, but also anticipated changes there will be a network that has to do with predicted capacity changes from competitors as an example. So we really can try to optimize that. And as far as we can tell, when we look at the reporting, we have seen in the latest reporting to be able to widen the cost advantage we have against the legacy airlines as well. And starting to reduce some of that when it comes to some others and really seem to be fighting the inflation better than others. And that's something that we are very mindful that we want to continue that trajectory, and we do think we have more opportunities to come also in this area. So this will then lead us to look at the outlook and the summary. Q3 RPS, we believe, it's going to be slightly up year-on-year. In Q4, we say that yields are slightly up. And we are also then looking for the RPS as you -- sorry, the load factor in the quarter is about 1 percentage point ahead of where we stand. Costs we talked about, capacity growth is on track about that approximately 8% as well. And because we have sold 77% now with the planned program within easyJet Holidays, we expect that to deliver over and above the GBP 170 million that we're talking about here. So a clear strategy, disciplined capital allocation framework that we've gone through with you before as well means that we are progressing well towards those medium-term targets and to deliver a great platform to drive strong shareholder value going forward. So I'm going to stop there, and we'll do some Q&A.

It's James Hollins from BNP Paribas. 3 from me, please. First one, congratulations, Kenton, fully deserved. Straight into a hedge fund question. Are you -- relative to where we saw your update about a month ago, maybe just clarify, have you seen any softening in pricing for the summer? Second one is on, I think, for you as well. Just those Airbus deliveries, if we look at your midterm target, this is a longer-term question, you'll be thankful. If you look at your midterm targets, the biggest chunk, I think, is from upgauge, and clearly, Airbus are screwing you, whatever you want to call it, with their deliveries in full year '25. Just wondering how much of that changes the dynamics of delivering on your midterm targets, as clearly, well I assume the upgauge from those low deliveries is clearly going to come through more slowly. And thirdly, I can never not ask a question for Garry, who seems to be the best boss in the U.K. Sunday Times [indiscernible], there's something to aspire to Kenton. Back to where I was. Any surprising booking trends in the holiday space? I think we've heard from a number of operators really around some changes in how various U.K. demographics or bookings. Maybe talk about demographic regions and any sort of update on -- any surprising booking trends now you're 77% sold.

So I'll start on the pricing for the summer as well, and [indiscernible] and then the best boss in the U.K. will surely want to say something about that as well to help out. But look, I think we've been pretty consistent in the way we've been talking about the pricing. We said we've been well ahead on it. And now we're getting closer to the quarters. And of course, things will then tighten up. We're 77% sold for the Q1. And then also when it comes to the Q4, the thing is we're still 39%. There's still a lot left to sell, but we're ahead of load factors. And we're ahead on the yield. And remember here, we got an 8% capacity growth in here. So we're going to take that into consideration as well. So I think it's absolutely consistent where we have been. It's too early to call what this will be because there's simply the nature of the capacity that's left to sell not only with us, but also on the market. And it will continue to be something we were going to work extremely hard on to do. But overall, the demand is positive. We've seen the momentum into this. We have over 1 million more passengers booked than we had at this point in time last year, which is a result, obviously, then about keeping that load factor over and above where we were last year and the growth that we have. So I don't think we've seen any big shifts either way on this. And I think it's pretty consistent where we've been.

Yes. And I'd just like to add -- I mean add to that, because of the capacity growth, what that means in reality is Q4, clearly our most profitable quarter in the entire year. We've taken 9% more bookings for Q4. We've got load factor ahead. We've got ticket yields slightly up. We didn't say that ancillary yield also slightly up. So we are seeing positive momentum for Q4 and that's a pretty solid set of numbers. Airbus and upgauging. I mean we're very pleased to be getting the 16 aircraft that were slated to be got this year. In fact, they're coming in a month or 2 early. We've got another 4 last month. So we'll have them all by the start of the summer, which is what we want to by the start a peak summer. Next year, we'll be getting 9 aircraft. And we'll be covering that shortfall with the A319 to maintain ourselves on the base plan. But as we look and talk with Airbus and we talk frequently with Airbus, we're confident that, that shortfall gets recovered quite quickly over the next few years. So when we look at our medium-term targets, where we look, in fact, at our 5-year plan, we still anticipate all of our A319s being retired at the end of that plan. And that's where the majority of the up-gauging benefit comes from because it's removing those 156-seat aircraft and replacing them with far more fuel efficient, larger aircraft.

Garry?

Yes. Thanks for the question, James. I did ask the team to carry me in a seat on chair this morning, but they told me to do one. So -- now on the Holiday surprises, I mean, I think because we are still young, we're kind of really getting to understand how the customers are buying our Holidays. And I think one of the pleasant surprises this year for us is that in the earlies market, we will follow the traditional curve of very, very high sales in January. That will then level off as we get into February and March. But what we're also finding is we get an extra boost in the kind of super late market, so that's 6 weeks out, where the airline is typically getting a lot of customers onto the site looking. We're seeing quite a bit of conversion there. And some of the traditional players would find that quite difficult to pick up because it's not really an area that holiday makers look at is very, very late for holiday makers. So I think we do particularly well there, and that's been pleasantly surprising to us, and that continues at the moment. I think the other area that's been kind of not surprising, but proven is that business model piece, where the really highly demanded destinations we will sell very early on. And what we're finding now in the kind of 6 weeks out is where hoteliers are starting to reduce their prices because they've got occupancy -- we are able to pick up a lot of that market as well. So whereas somewhere like say, Greece and Turkey did really well for us in January, we're now finding places like [indiscernible] and Egypt, where hoteliers are taking prices down because of the availability are really starting to come to the full. So I think that plays with that model of not having fixed capacity in any one destination, we can pick up where the kind of elasticity is in terms of the pricing, which has been really good for us.

It's Jarrod Castle from UBS. Congrats on the changes. Just firstly, I mean, we've seen a lot of stuff still about consumer pressures and more so actually coming out of the U.S. now -- do you think -- especially on the hotel side, actually, I mean, do you still think it's possible to -- with cost inflation, to keep passing it on to your customers? And your ability to grow your margin? So that's the first one. Secondly, just looking at package holidays again, can you give any idea in terms of how you're selling by source market. I think there's 2 the U.K. and Switzerland, but just kind of how the selling is going in each market? And then thirdly, just looking more longer term, you've obviously got a lot of planes, 300, 400 coming. And you pride yourselves on kind of dominating slot-constrained airports. So how are you going to put those in airports, which are really slot constrained. I mean there is a, I guess, in the appendix, kind of a nice table. But is there room to kind of deploy that capacity? Or are we going to see kind of more planes going to less constrained airports?

Yes. I think -- look, I mean, when you're looking at the customer, I think it's -- one hand, you're looking at the pressures that is on households and the discretionary income is there. But when you take all of that into consideration interest rates here and the inflation as well, what we've seen is also that a lot of the increases we've seen has actually been offset by the fact that this is something that consumers prioritize more. So there's, I think, more of an equation of the fact that travel and holidays are getting a larger share of that wallet. We always felt and we always see that when it becomes pressure on households and the consumers in U.K. and Europe, that people will gravitate towards value, people will gravitate towards the brands that they trust to make sure they get the absolute utmost out of what we're offering. And that is something that I think is a very strong protection against the other things that might work against that. So we will certainly look to pass on the cost increases that we have. But at the other hand, as well, we we're having things like the ancillaries that is delivering for us. We have things like we can do -- that is not really related into that in terms of increasing the productivity and the utilization. We talked about the winter being one example on that. So there's a whole range of things that we can do that isn't just entirely based on the fact that we just need to put a big price out there on the fares and hope it's going to work for us. We still have plenty of opportunities to go at and to do things just to become more efficient and better and more sophisticated how we're using data, how we're automating, I'll show you some examples in there as well. So that's the reason why these initiatives we're doing that is around these 4 strategic areas, is really coming to the fore. I think there's going to be a lot of -- I'm not going to give you the mic all the time. But in terms of looking at the Holiday business, I think it's very clear that the Holiday business will predominantly be focused and the results will come out of the U.K. But as we have launched Switzerland and Germany and France as well, we see that we do well in those markets. I think particularly in France, has been stepping up really to it, and it's been really well received there as well. But what it helps Garry to do is obviously it helps him also when he negotiates with the hoteliers to also them say that I'm representing more markets because there are hoteliers who wants to have distribution really in more markets than only the U.K.

Yes. I mean, and on the aircraft and where we put them, you can see from the fleet plan, we've got 343 today. We're growing that 390 say by the end of the 5 years. We -- there's 2 things to think about here. The growth of just over 5% per annum in part comes from upgauging and replacing those 100 A319s. So that's a big part of that story. And therefore, we don't need any more slots to do that. We don't need any more routes or any more frequencies. The other thing you can see is we keep finding opportunities. So Birmingham was launched at the start of this summer, hugely successful. Really successful start with Birmingham underpinned by the success of the Holidays business. We're looking to launch Southend. We're seeing lots of opportunities in destination basis. We get an arbitrage on when it comes to costs. And also, we can fly back into those slot-constrained airports when they're not actually slot constrained. So you can't get a first wave slot for lot of money at Gatwick. But if you're flying back in at 11:00, you'll find slots. So if you're coming back from those destination basis, that really works, you can only do that if you already have a really good presence in those primary airports. So you're well known and there's no more incremental marketing cost. So as we look through our network plans and trust me, Sophie and the team, look through them in huge detail, we see plenty of opportunities.

It's Jaime Rowbotham from Deutsche Bank. Two from me that potentially follow on nicely and maybe Sophie, might care to comment on these. The first one, so when Ryanair announced back in March that they'd only have 40 MAXs this summer instead of 57. They said they'd make scheduled cuts as a result of some of their higher-cost airports, and they mentioned Milan Malpensa and 4 Portuguese airports. Given your ability to link up -- to link up other primary airports like Gatwick to those primary airports. Is that something you've been able to take advantage of, do you think? And secondly, also looking at competition. Transavia's point-to-point leisure routes out of Paris seem to be maturing nicely. So I just wondered how you perceive the competitive dynamics currently for easyJet in France?

Yes, great questions. In terms of what we're seeing in terms of market capacity, I think it's fair also to reflect that although Ryanair have not getting the 50s, they are still getting 40 aircraft. They are still growing in the summer. So I think we can't kind of be too naive to think that they're not going to be growing on some of our markets as well. In terms of those opportunities, I mean, what we are seeing is interesting. So they're adding 8.9 million seats this summer overall. GBP 1 million is on routes that are head to head with us. GBP 2.4 million on routes that we could access, but we don't currently operate. But GBP 5.5 million on routes that we wouldn't even operate at either end of those routes. So actually, they are still growing, but most of that isn't on our capacity. In terms of kind of individual opportunities, yes, I mean we will absolutely take those from where we were at the end of September to where we are now at the 9th of April, taking OAG data, we've added 3.1 million seats into H2. So yes, we will constantly look at those opportunities. I mean some of that also, not the Ryanair specifically, but looking at where we've taken capacity out of Tel Aviv, but actually, we've been able to have more seats into the rest of the network because those are quite long sectors. So we will actually be bigger as a result of the reductions that we've made into H2. But yes, of course, if there's any great opportunities there, we will be taking them. In terms of Paris and in terms of France, we're definitely seeing some improvements there. I mean, it was interesting, some of the movements that we're seeing and the hearing in terms of base closures from competitors potentially later this year as well are great opportunities for us. And we will continue to retain the strength we've got in France. We also obviously have the benefit of operating inbound into France from the rest of the network, and we are growing from the U.K. into France as we head into the summer and into autumn as well. So yes, those are good opportunities. Interestingly, Air France, Transavia have removed 6 head-to-heads with us in the French regions for this summer. We're seeing Volotea have taken out another 6 routes that are head-to-head as well. So we are seeing quite a bit of kind of reduction in head-to-head capacity in France, in particular. And if we're looking into Italy, and overall, with Wizz, they've dropped 26 head-to-head routes with us this financial year so far. So our market overlap has reduced by 30% with them. So yes, it is a positive environment for us to continue to grow in those primary airports.

It's Harry Gowers from JPMorgan. Two questions, if I can. I think there was some news this week, that your latest pay offer to the U.K. pilots have been, I think you said narrowly rejected. So maybe just how far apart are you there? Is it just on pay? And then what's the potential financial impacts on that? How much is incremental to your planning already? And then the second one was on Holidays. The PBT upgrade to GBP 170 million. I don't think the customer growth guidance has been changed much. So maybe just what's driving the driving the upgrade there? And is there more room to go on that over the next couple of months over summer?

Yes. So we're clearly disappointed that the negotiations that we had with BALPA didn't receive a positive vote. But you should know that we had -- it was a 56% vote against it. So it's very narrow by any standards on that. And I think that we are offering competitive pay, and we believe it's a good competitive package for our pilots, and it was, like I said, a close vote on that. And now we're engaging back again, with BALPA, I think that they are going to do clearly some work first to try to understand this because this was actually were supported by the local counsel on there. And we just stay very close to them and negotiate constructively with them to get that in place. So that is something that we take into consideration what the deals are. We anticipate what it will be. And they would all be part of our cost projections as we go forward as well.

And yes, on the Holidays, clearly the margin is slightly higher than the volumes. That's clearly, that number, there were 35%, I think, on volume, 40% on margin. And I think 6 months ago, I talked about the dynamic inventory links we were having with the hotels where we would have direct access into their inventory. That's starting to pay quite good dividends for us. So we've got all room types available right up to the last minute, and we're seeing that we're able to get quite decent margin from them quite late. And also just that late jump that I talked about earlier, that's going at quite good margin as well. So we're quite pleased with how that's developing. So that's what's driving the difference between the 35% volume and the 40% margin.

It's Andrew from Barclays. Kenton, congratulations on your new gig, it sounds interesting. And Johan also congratulations because I think the fact that the Board has chosen to appoint Kenton an internal candidate, makes him a continuity candidate and there can be no greater complement to what you've done with the business than them wanting to do that. So congrats to you as well. Questions. If I can come back to James' first one and just try to get a bit more clarity on how you're seeing the unit revenues progress in the summer. I think when you talk to the market about unit revenues, of course, you don't know how it's going to absolutely land because they're late bookings are the most valuable and they can swing around. But can you perhaps describe, how you were seeing what's on the books and how that competes what your expectation is at the end at the moment? Just because I think that's the way that we can get confused. And then can I ask about Jet2s entry into Liverpool. And have you noticed that having any pressure to Garry's Mighty Empire or indeed Sophie's the performance of the airline out of there? And have you seen anything that resonates with what Jet2 said about softness in April and May?

Yes. So on Jet2, no, we continue to see a good performance in there. It is a good base for us. And I do think it's -- when you're looking at the -- when you're competing against other airlines, I mean, Liverpool, as you know, Andrew, we're -- I think we have a market share that -- we have 45 or something like that as well. And Ryanair has been a big and we've been coexisting because we actually don't fly to the to the same places, coming back to the point about the primary network advantage of doing so. But I do think also that the value that we're providing can do that means that we can easily continue to see this as a very strong performing base and coexist with competitors. We can compete with anyone anywhere where we fly, where we choose to go as well. So we haven't seen anything that has really impacted that as well. I mean on the yield, Andrew, coming back to what we've said. I think it is pretty consistent with what we have seen. We don't see that there are any big changes coming in here and there. We see that there is a positive pretty steady demand that is in there. But it will be difficult to estimate how much capacity is left to the market. What is the latest market is going to do, how much new market, how much are people waiting to then go and take a bet depending on whether it's raining down here in the U.K. and what the situation is elsewhere. So that is always the case for the summer. There is this level of uncertainty that we have to live with. And I think when you only book 39% in the quarter here, it is difficult to make another set of judgment and apart from the guidance we provided.

Yes. And I'd kind of add for the color on the April softness. I don't really think that would have surprised anyone when Easter moves early, April always becomes a softer month. It's, therefore, a long month without any bank holidays. But what we're seeing and included in the guidance of still being slightly up for Q3 despite the April softness is that we're growing the capacity by 8%. We're seeing a strength in May and June that overturn the absence of Easter in April. And that again is not uncommon. You often have a good May after an early Easter and then people looking to come back and travel again through the bank holidays and the May period. So I think it's what we expect really as we move through Q3, but it's great to see the extra capacity we've put on is being taken up.

It's Ruairi Cullinane from RBC. First question follows up on the capacity backdrop. It all sounded quite positive. But I wondered, if any routes looked incrementally less constrained perhaps as a result of capacity redeployed from Middle Eastern routes? And then secondly, perhaps you could provide some detail on the contribution of holidays towards the working capital of the business and particularly the growth of unearned revenue. And if you were looking at any metrics any differently as a result of the growing holidays business?

I think -- I mean if you're looking through the network, we're looking and when we're allocating aircraft and where we do -- looking at our pricing and opportunities, very much coming down to what Sophie said head-to-head capacity increase. And we do have seen clearly the trend that legacies and flags has to a number of degrees following on from the recovery of the pandemic has returned because the metal and the capacity is gone. I think we saw that there was a shift into certain markets. Obviously, where Italy, as you would know, was heavily, heavily competed between the low-cost airlines. We've seen, as Sophie pointed out now that, that has dynamics have changed slightly, which means that you're seeing quite a substantial profit improvement in those places where it actually was tough. So we should remind ourselves on that. I think that this constraint that exists amongst some of the airlines because -- or whether that is the Pratt issue or the Boeing issue, means that they need to be much more careful how they're allocating that capacity. So we see some has gone even further out East. Some has gone, as you know, Abu Dhabi, whatever have you. And that has kind of eaten up some of that competitive pressure. But at the same time, it's quite a dynamic picture. But I would say that the constraint has meant being a different and slightly perhaps better competitive environment in some of these areas that we have. But that's why it's important for us that we continue to build those presence at this constrained airport because once you have them, you have them, they won't go away. And that's what is so brilliant about the application that we have ahead of ourselves, that is unique to us, really, that we can, as Kenton pointed out, just go to from 319 to the 320s to the 321s and to build on that presence.

And on the working cap, yes. So on the working capital, I mean, yes, Holidays provides a very good working capital inflow for the business. We obviously get a deposit from the customers at the time of booking, which I would have to say is a very reasonable market leadingly low deposits, so that's good. And then a balance prior to departure -- from the Holidays business, you tend to pay the hoteliers after the customer stayed in resort. So it's a very positive working capital benefit. That's part of the reason our unearned revenues is driven up by over 10% year-on-year. But we -- it's really the balance payments that come in because it's a very attractive deposit that we offer to our customers on holidays.

It's [indiscernible] from Bloomberg Intelligence. So I just wondered if you could comment a bit more on the relative demand between, say, beach city and business. I realize we're entering a very leisure-heavy part of the year, but perhaps see how that feeds into your yield performance, too? And then the second one, a bit of Holidays one as well. We've seen Ryanair formalize more deals with tour operators and OTAs. So does that impact the competitive dynamics at all for you?

Yes. I think, as you know, we've seen that the beach capacities and demand has been the one who's been driving really the recovery that we've seen. And we've seen that it was a slower growth coming into the city and then also business. Business travel, we're actually not far off now when we were in 2019. I think when I'm reading what flags and legacies are saying about the business that are now don't expect to come back to that extent. And we're almost there or thereabout because our focus has been, as you know, on the SMEs, they don't have the travel restrictions in the same way. And then also more physical business travel, we actually have to go to a power plant, we have to do things. I think this has been the one who's been slower to recover or in line with the business travel, but that is starting to come back as well. So while we see the changes we've done in the mix on the overall program, you would have seen that it is more beach now that is there, but we're seeing a pickup also on the city side now.

Yes. I mean to add to that, our mix of business in full year '19, we had something like 53% of our business was on cities. So our network was on cities, that dropped to 47% last year. The really pleasing thing is from '23 to '24, we're going to be growing our capacity by 9%, but cities has held that 47% mix. So you can see that the demand is starting to come back into cities. Now obviously, beach destinations has gone from 21% to 27%, it’s an important part of our network. But what's really healthy is beach is fighting for a greater share. Cities are now fighting for a greater share. We're expanding in non-EU, so it's almost back to the potential on growth. The demands are coming back nicely.

Yes, just on the right [indiscernible]. I mean it's -- nothing's changed. I mean they were scraping before. They now have a deal with them. And Sophie sells seats to third parties that still continues. As far as we are concerned, it's BAU, and we're certainly not seeing any impact of it.

[indiscernible] from Bernstein. ESG is now the most popular topic currently among investors, but I know you gave the workshop last year on SAF. And given that you're more exposed than your competitors, especially to the free allowances, I was wondering how your strategy -- the execution of your strategy is going in that regard and whether you see any challenges with delayed aircraft deliveries?

On the -- sorry, I didn't get -- on ESG? Right. I mean, look, first of all, if you're looking at the whole plan we have, and I'll take the road map to net zero, which consists of very different things in there, SAF being one of them as well. We have flexibility within these levers in order to do that. I think in all fairness, I think we have a SAF supply, question that is clearly out there, as you know. The biofuels that are in play right now are probably going to run out by 2037 and '38. So they need to move on to the next generation of the so-called e-fuels as well. Hydrogen will take a longer period of time, as you know, but it's only anticipated at the very end of our roadmap to net zero and we will hold other range of things we can continue to do to decarbonize. But remember this, the fleet order that we just announced here in December that's going to take us from the '29 to '34, I mean, we're going to continue also just on the investments we're doing with all the new aircraft that we are now taking into consideration that's going to drive very nicely into the line of reduction of the carbon intensity we have. We have a lot of operational things and improvements we can still do, the descent profile optimization that we talked about as an example. So I think from an ESG point of view, and we look at that environment, we have continuous progress we can do on that. And the ratings we've seen, the CDP ratings, A- as that we achieved here recently. I think it speaks also something about the initiatives that we have. And it's not like we've run out of options in here and what we can do going forward.

Maybe some of the final question.

Gerald Khoo from Liberum. Two, If I can, both related to the Holidays. Firstly, when you talk about Holidays and to the extent your books, I think the number was 77%, you talked about 77% of the planned capacity with the planned program. How much flexibility do you have on that plan program up and down? And at what point does that flexibility drop away. Are you still able if the demand was there to add to the program, for example? And secondly, in relation to forward bookings on the airline as a whole, to what extent is that better -- that slightly better performance driven by the growth of holidays and the sort of earlier booking profile of the Holidays business?

I can do the last part, and Garry can talk about that as well. Look, I mean, it's clearly part we do. But remember that this is still a relatively small proportion still in terms of the capacities, so the seats available for the airlines. So this is an overall positive demand that we're seeing. I think what this is doing, this model allows us to convert people who are flying with easyJet, but wants the accommodation. That's the beauty of this model as well. So this is actually not to say that, well, we're not picking up anything else apart from the holiday. That's not correct at all, and we talked about the recovery into the city as an example, and it's still a relatively small part of the program.

Yes. And on the flexibility, I mean, yes, there is no fixed capacity and there's no fixed capacity on the beds either. So the answer, Joe, it can go up and down as we choose. I mean, obviously this all sounds fantastic from an airline perspective, but from a tour operator perspective, you'd expect to be kind of 70-plus at this point anyway. We can flex that up if we see there is demand, but we're working a cost-plus model. So what we won't do is go in really heavy to compete with a lot of the traditional operators who will be really ramping prices down to try to fill spare capacity on that cost plus, we'll maintain the margins. But absolutely, we can follow with the demand and where it is, and that's not fixed.

And to put it into context Gerald, we did 1.9 million customers with easyJet Holidays last year. We're looking to grow that to 2.6. So if they consume 5.2 million seats, that's on 100 million seats of the airline. So it's an important growth, but it's not everything for Sophie.

All right. Listen, thank you so much for joining us here today. As well, hope to see you on board on easyJet flight again. If not, we'll do it at the next update. Thanks so much for coming, yes. Thank you.