Fly Play hf. (PLAY) Earnings Call Transcript & Summary

Good afternoon, and welcome to this presentation where we present results of the second quarter of 2023. My name is Birgir Jonsson, and I'm the CEO of PLAY. I will begin by going over the highlights of the quarter. Then also Olafur, Johannesson our CFO, will talk us through the financial numbers and the financial performance. And then I will come back and talk about the outlook for the year. we encourage you to send questions to the email address ir@flyplay.com .We will post the answers within the next few hours on our website. And we really hope to get some good questions. If we look at the quarter at a glance, this was monumental quarter in our brief history, we managed to reach the achievement and the milestone of getting 10 aircraft into service and thereby getting into the scale that we have been ramping up to for the last two years. We flew just under 400,000 passengers in the quarter between 34 destinations. We had 84.3% punctuality, or on-time performance and our load factor was 84.6%. The passenger mix, we had about 43% of our passengers -- flow passengers for the VIA traffic from Europe to U.S., 30% of our passenger mix was FROM passenger -- people going abroad basically and 27% were TO passengers or tours coming to Iceland. One of the key KPIs or the key metrics that we are focused on here play is the on-time performance. And here, we lay out the slide where we show the on-time performance in comparison to our competitor here in Iceland. And we can see that we are, by far, the most punctual airline here in our market. And this is important for a number of reasons. Number one, this is highly important for our passengers. They want to get to their destinations on time because they have onward journeys or some commitments that they want to do or fund things they want to do at their destination, and we don't want to be late for that. And it also means that we can keep the integrity of our network. We are we are not running into cost because we are in delays, technical issues, having to pay fines or extra costs because we have to pay extra handling and stuff like that. The network is running like clockwork, and this is a big point of ambition for us. And we can see that while the network is functioning well. We can also see that we are now reaching a very acceptable level of load factor or utilization in our network within our network, and that's a good sign of the quality of the distribution, the sales and marketing efforts that we are reaching the right market segment, the right passengers and getting quite a good utilization. And as our company matures and the capacity growth, we are also seeing the number of passengers per month grow quite significantly. As you can see here from the beginning, we had just over 160,000 passengers in June this year. If we look at the market share, we made a slight shift in our strategy for this summer where we've put more emphasis on the TO and FROM markets and shifted a little bit away from the FROM market or the VIA market, and we can see that our share of FROM traffic -- from Iceland basically Icelandic people traveling abroad, there was a 41% of all Icelandic people traveled abroad in the quarter chose PLAY. And this is for the quarter, if we look at the month of June, I think it was 54%, which is astonishing. So we are really happy about that, and there's a great lot of confidence from our local market, and we are absolutely thrilled with that. We have about 19% of the total seats at Keflavik Airport, which also has been growing and will grow in the future also. We have 15% of the total To and From market and 7% of the basically tourist contracted in to the quarter who chose PLAY. So we can say that our strategy of focusing more into point-to-point travel or To and From has been successful and is working, and that is also maybe the market segment that is historically gives us the margin and the ancillary revenue that we are searching for and we need. Of course, we are doubling our available seat kilometers or the capacity between quarter 2 last year and quarter 2 this year, we doubled our capacity. And it's very good to see that while doing that, we are also being able to increase our Revenue Per Available seat Kilometer or the RASK, which shows us that we are not stunning the market with too much capacity, and we are not flooding it with unwanted seats. We're basically adding capacity into the right markets at the right frequency and able to yield the right kind of revenue from it. And that's something that we aim to continue doing in the future. We are always investing in our network and adding new destinations. And in the quarter, and let's say, run up to the summer, we launched 13 new destinations. And I think we relaunched 7 of them also. So we had, let's say, 20 new destinations in the network for the summer and in the quarter and that is notable because that brings with it some kind of challenges. There's directionality issues in the load factor. More people are going one way than the other, and it takes a few weeks to get the balance right. And it also means that, of course, when you want to win a new market share in a new market, you have to kind of do it on a price level. So we are seeing a quarter, even though we are quite satisfied with the results. We also know that we are -- we will do better in the future because we have such a high proportion of new markets, which have relatively low prices because they are beginning and the directionality issues in the load factors. And if we look at how the RASK is developing, we can see that the existing markets or what we launched mostly last year, we've seen that we are able to increase the RASK on those markets by 11% even though the competition has been adding 16% of capacity in the same market. So it's not the fact that we are alone in the market and we can charge what we want the customers are choosing us over the competition because of something, and that is quite an interesting fact. Of course, we are a young company, and we celebrate the second operational birthday this quarter or actually in June. We had our inaugural flight June 24, 2021. And of course, you did a lot of events onboard in our Keflavik airport here in Iceland and also did a very successful social media stunt, where we set the crew of people to Washington, D.C., asked some random people about Iceland and strange things about Iceland. Met some people that knew the answers, and they were wished to Iceland within a few hours and got to experience Iceland basically a few hours after they met some strange people on the street and rest some great questions. Why are we doing this? This is simply to raise the awareness of the company, communicate the spirit of the brand. We are called PLAY. We want to be playful and we want to make sure that our passengers and everyone that touches the brand and touch the product, feels that we can enjoy the life and have fun. Under -- in June or just closing the quarter, we got a very enjoyable news that we were voted the best low-cost airline in Northern Europe in the Skytrax World Airline Awards. This is, of course, extremely important to us because this is awarded by the passengers. This is a massive survey of passengers global airline customers, and we came #1 in Northern Europe. We came #10 for the best low-cost airline in Europe, and we made the top 100 list of the best airline in the world, not only local talent, but the best airline in the world. For a company that was just celebrating its second birthday, there was a massive vote of confidence. It was -- it's a great kind of statement from the market to keep on going and keep on doing a great job that our great crew and all our team of people here have been doing for the last two years. Talking about the great crew and the great team. We had about 8,000 applications for jobs in this year for this ramp-up. Our human resources team and operations team did 1,000 job interviews. And we hired and trained and welcomed 300 new employees taking total number of employees to about 530 at the end of the quarter. Also quite important is to note that 21% of our employees developed in the job and got new positions. And by that, I mean cabin crew members being promoted to senior cabin crew members, first officers being promoted to captains and of course, all kinds of promotions with the office and specialist field. And that's an important for a company and for an airline that is in a very competitive market for people. I said we can offer people a great working environment and the way to progress in the career. I have often mentioned in these presentations that we take the cluster of the company extremely seriously, and we do not want to lose the opportunity of when you build the company from the ground up that if you focus on culture and how we want people to feel and function and perform within a new company, you really have to basically do it through day one and make sure that you don't lose the opportunity. You cannot really do anything unless you can measure it because one of our values is being data-driven and focused on the data. So we are always trying to measure all kinds of stuff. And we're doing all kinds of employee service, and we are using external consultants and external tools so we can always compare ourselves to other companies, both here in Iceland and in the international market. And we can see that our employee engagement or basically how people are functioning in their jobs. And are they -- do they show up for the job every day with the dedication and the conviction to do their best? It's 4.26 out of 5, and that has been improving by 7 points since we did the last survey a couple months ago. Job satisfaction is 4.21. And the Pride on feel in working at PLAY is also quite high, especially in relation to here, the companies in Iceland, 4.37. So this is something that we take really seriously, and it is the key to making sure that our passengers feel welcomed, secure and happy. Having said that, I want to welcome Olafur Johannesson, our CFO, and he will talk us through the financial performance of the quarter. Thank you.

Thank you, Birgir. I'm very pleased to go through the financial results for the second quarter of 2023, where we had total revenue, the highest revenue quarter from beginning of $73 million during the quarter. We had positive EBIT of $0.4 million during the second quarter, which is around $50 million improvement from previous year. We had positive cash flow during the quarter by $17 million resulting in cash position at $54 million at end of quarter. We had -- and yes, I can say, impressive $3.5 in ex-fuel CASK during the quarter, which is a decrease -- a significant decrease from the previous quarter and year-on-year comparison. We had $5.3 in TRASK despite double amount of available seat kilometers from previous year, and as before, we have 0 external interest-bearing debt. But of course, we have to comply with the IFRS 16 regarding the accounting for right of use of assets and related to the liabilities. As I mentioned in the first slide, we had total revenue of $73 million during the quarter. It was up by 125% between years, we have available seat kilometers up by 99% and the TRASK up by 13% that produced this increase from the previous years. And regarding the operation, we had 9 aircraft in April and May, and we got our tenth aircraft in operation from the beginning of June. Positive EBIT in the second quarter that was ahead of our expectations and a great improvement from previous year, around $50 million improvement. Cash position, $54.5 million, we had positive cash from operation, and we have also increased inflow of cost due to strong forward bookings and improved operating results during the quarter. And as I mentioned before, we have no interest-bearing debts. During the quarter, the revenues increased by $39 million from the same quarter $22 million. At the same time, the operating expenses increased by $19 million and the depreciation increased by $6 million from the same quarter '22, and that was mainly driven by the extra aircraft we added both in the first quarter of '23 and the second quarter. And all this resulted in a positive EBIT of $0.4 million compared to minus $14.4 million in last year, and we are, of course, very proud of that resource and be positive EBIT for the second quarter of the year. To the operating income, we had very similar total yield between years but we have to bear in mind we had a very different mix of positive between years . We started our VIA operation in the second quarter of 2022, and we, therefore, had our main focus on leisure market at the time. But taking that into account, we are very satisfied with the trend in the total years during the -- during in the quarter. And we want to point out, especially the ancillary part of the total yield that accounts for 28% of the total yield during the quarter and for the first time we had ancillary per passenger over $50 per passenger, and that is 24% quarter-on-quarter increase and 18% year-on-year. As we have mentioned in our previous reports and the presentations, we have been in an introduction phase of bundles, we are in progressing our optimization of current products. We are driving input ancillary yield therefore. And we are expecting the year-on-year improvement in ancillary yield to continue in the following quarters due to the further optimization of these services as well as introduction of new products and services. And as you can see, the TRASK, it's increasing from $0.47 to $0.53 from the second quarter of '22 that is around 13% increase. Operating expenses. We have actual CASK $0.35 in the second quarter of 23%, and it is in line with our expectations. The total CASK decreased by 22% between years and the actual CASK decreased by 12.5%, and that was mainly driven by the hub and spoke model inform. We had improved utilization of the company's fleet and as well, we had increasing number of seats and lower fuel price during the period. The Jet Fuel represents 33% of the total operating costs, and to summarize this, we are expecting similar actual cost trends as last year in the next quarters. And we are forecasting the ex-fuel CASK to be for the full year between $0.36 and $0.37 for the full year 2023. The size of the balance sheet has increased significantly from both -- from the year beginning and from the end of first quarter. The total increase is around $200 million, and it is mainly driven by the 4 new aircraft. Two in the first quarter and two in the second quarter. And of course, the seasonality of the business and fact, we have deferred income at $82.4 million at the end of the second quarter of the year. But we are expecting and we know that the deferred income and the cash position will decrease in next quarter. Therefore, we had the total assets of $528 million at the end of second quarter compared to $435 million at the end of first quarter. We had no external interest-bearing debt and the equity amounts to $14.5 million at the end of the quarter. The cash flow was strong during the quarter. The positive -- it was positive from operation totaled $21 million during the quarter. The starting point of the cash was $37.6 million, and the ending position of cash is $54.5 million, that consists of restricted cash of $8.5 million and cash of $46 million. And as I mentioned before, we are forecasting the cash position to decrease in next quarter because the working capital movements will be negative in the third quarter, but has been very positive in both in the first and second quarter of the year. The fuel price development, the fuel hedging, that's the status of our hedging and just to remind you of the head strategy of the company, we have Hedge strategy to hedge up to 60% of estimated consumption for the next three months up to 40% for the months 4 to 6 and up to 30% for the months 7 to 9. The prices were -- yes, if I can say more stabilized or more stable within second quarter than in the first quarter. But in recent days, oil prices or fuel prices have been trending up. So we are seeing that in -- on the right side of this slide. And to summarize the fuel hedge and for the next quarter, we have hedged 44% of our estimated consumption during the third quarter on the price $911 . For the fourth quarter, we have had 39% at the price $805. For the first quarter of '24, we have hedged 23% of estimated consumption at a price $789. And for the second quarter that we have hedged, yet just only 4% at the price, $815 and the current spot yesterday was $864. So that's all for me, and over to you again, Birgir.

Okay. Thank you, Olafur. We go into the outlook for the coming months. We can see this year, we've had record breaking months in sales nearly every month. And this is a graph that shows basically there are number of or the quarterly sold revenue. This is -- translates into the strong cash position that Ola was talking about and also is a good indicator of the future booking status of the company and future kind of demand is shaping up, and we only see very strong demand from our markets in the coming months. We can also see that, again, as I mentioned before, as we are increasing our capacity or the available seat kilometers in the market, we see a significantly stronger booking position from -- in the coming months and quarters. And in quarter 3, we are about 7 percentage points better than at the same time last year and about 11 percentage points better in the quarter 4 last year. And again, this is a good thing to keep in mind that we are also seeing higher yields and higher revenue, better booking position and a lot more capacity. So we are taking this very steep growth, but we're doing it in a very sustainable and careful manner, although the numbers are quite -- the growth numbers are quite high. We wanted also to show the difference in the prices in the yields in VIA because there's a very strong demand from North America in the last months. And this is a graph that shows the weekly sales of VIA tickets. And basically, the difference in the yields between last year, the grey dotted line and this year, the red line. So we are seeing significantly higher prices, and this is why we are also quite happy to see the growth and the ratio of the Flow passengers being higher than we have seen before. It's basically about using the flexibility of the network and the business model to put capacity where the demand is at any given time because we have a -- we have a few levers that we can pull to adjust ourselves to the market dynamics. We're always adding new destinations. And today, we announced flights to Frankfurt in Germany, a very important city in, of course, Europe, a very important VIA city or connecting point to the U.S. We will start those flights in December and the tickets are now already on sale. We also announced a couple of weeks ago, Daily Flight plans in the Schiphol and other very important Continental European hub. A new ski destination in Italy in Verona, joining Salzburg and Geneva as our ski product. And we are strengthening our position in Southern Europe, Lisbon, Barcelona, Athens has been going really well. And we are also adding a new destination Fuerteventura in the winter. Going a bit technical also. We have to do that for the aviation geek, watching. We just got ETOPS approval, which for those that haven't heard of or this means that we can now after having invested in quite an extensive training program and some upgrades to our aircraft. We can fly for a longer period of time over open water. So basically, as you can see on the graph, we can take a shorter route to the U.S., meaning that we are saving fuel. We're cutting trip duration. And of course, the CO2 footprint will get smaller. And this will save up to about -- or just over $0.5 million per year based on these assumptions and something that is a great achievement for our technical and operations team to achieve this approval. Our outlook for the year is unchanged. We are forecasting positive operational profit or EBIT for the year. we will -- our revenue will be around $280 million to $310 million. We will transport about 1.5 million to 1.7 million passengers we are assuming stable fuel prices as Olafur went over and have been taking measures to protect ourselves against those fluctuations and ex-fuel CASK and our cost base unit cost, $0.36 to $0.37 per kilometer. And if we try to summarize in some takeaways, we see a massive turnaround between the second quarter last year and this year, about $15 million in turnaround, positive cash flow, very healthy cash position and a very strong booking status going forward. Our first half of the year, the results are in line with our forecast basically. So we are sticking to our outlook for the year. Our key KPIs are trending in a positive manner despite a steep growth in the company. So we are not losing control of the cost or anything like that, even though we are growing the company quite a lot. And I also want to go back to the culture and the survey, the staff survey, people are running and they are happy. And last but not least, we are managing to keep our laser focus on the cost because that is really the reason that we would be successful if we keep our unit costs low, we can offer the most competitive prices in the market. Again, questions ir@flyplay.com and we are really looking forward to meeting you again when we present the quarter 3 results late October. Thank you.