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

Good morning, dear viewers, and welcome to PLAY's presentation on the financials for 2024 and the last quarter of the year and our presentation for the upcoming year. Today, we're going to cover some of the highlights of the company in 2024. We will cover the financial results of the company in 2024 and the last quarter of the year, in particular. And then there is a CEO update towards the end of the presentation, where we will cover how things are progressing according to our new business model and how we are already on a good way of altering the way we divest our fleet towards the sunnier destinations and how we have already placed 3 of our aircraft with an European carrier that will have our aircraft in their use from the spring of this year and throughout the year 2027. Viewers can place questions with [email protected], and we will answer those towards the end of the presentation. Right. So highlights. Here are some figures for PLAY during last year. In the last quarter of the year, PLAY flew 336,000 passengers, a little bit less than the 376,000 we did in the last quarter of 2023. You'll see some other good numbers there, but I want to point out that last year, 29% of our passengers were flying from Iceland, 32% of them were flying to Iceland and 39% VIA Iceland, stopover passengers. This pie is sort of shifting a little bit away from the VIA segment with alterations we are making. This is a slide we show every quarter where we are bragging about our on-time performance and how that is superior to our -- or versus our main competitor in almost every month that we have been operating. We also like to point out to you that we did announce a few new destinations last year, most of whom we are starting flying to this year. Those are Aalborg in Denmark; Antalya in Turkey, starting this spring; as is Faro in Portugal, Pula in Croatia and Valencia in Spain. Valencia, yet another destination in Spain, but Icelanders have been very keen on our traffic towards that beautiful country. We did a lot of other things last year. And just to name a few, we started a new collaboration with Odin Cargo regarding our air freight. We implemented in May of last year, GDS bookings that we have seen a significant growth ever since. In the beginning of last year, we launched the STAYover program where passengers can stay in Iceland up to 10 days without -- sort of on their way between North America and Northern Europe without any extra cost. And we have also now this PLAY Connect, where passengers can access more destinations through our partnership with Dohop that several other airlines also have. As we also like to continuously point out, Icelanders choose PLAY for their travel. 477,000 passengers flew from Iceland with PLAY last year or 477,000 flights where with -- from passengers. This is a 17% increase from last year. And we are now seeing that there is -- there are all indications that there will be a significant increase again this year as we have 9% more from tickets sold at this point versus last year. So our market share of Iceland, that's flying out of Iceland is way, way bigger than our market share in Keflavik as a total. So Icelanders continue to love PLAY. And unsurprisingly, they are very happy with us. The company has a Net Promoter Score last year of 38 points, which is quite a respectable score, up 27% from the year before. And the trend continues as we see that the last quarter of the year had the highest score, and we are actually seeing higher score yet this year. Now on to the financial results of the company for the last quarter of the year and the year as a total. Here, you see some key numbers, but we will cover them all in more detail in the next few slides. So total revenue of the company in the last quarter of last year was EUR 59 million, which is 10% less than it was in the last quarter of 2023, but this is -- this 10% decrease is on the back of 17% less production, less available seat kilometers. So the revenue decline is less than the production. And we here see also the effect of the changes we are making in that, although the company is unprofitable in this -- with the quarter, this fourth quarter. The loss is significantly less than it was a year earlier or $15.3 million EBIT loss versus $19.9 million the year before. And we can also see that the cash position is stronger than it was a year earlier. Now the quarterly income statement again shows an improvement of $4.7 million between years. But we also see an unusual income tax number here being negative on the back of negative results. This is usually a positive number. But in this case, uncertainty over our ability to utilize our tax carryforward losses means that we are writing that down to a great extent. This really just means that there is uncertainty that profits that we will be making over the next few years, it's not certain that it will be so high that we will be able to use all the deferred tax assets that we have on our books has really no meaning, no betting on our operations, our cash, cash flow, cash flow projections or anything of that sort. And the income statement for the full year. The -- as we had announced, the EBIT loss for the year is slightly bigger than it was a year earlier. The -- so there is -- the operating income is up by close to 4% or $10 million. The operating expense and depreciation is increasing slightly more, resulting in a slightly worse EBIT. But as pointed out in the last slide, the trajectory is on the right track as the fourth quarter is improving year-on-year. And digging a little bit deeper into the income part of the equation. So in the fourth quarter, we see all parameters really moving in the right direction. The -- so yield per passengers is up by 9%, and this is both airfare and ancillary revenues. Likewise, the load factor is also increasing from 78.3 to 82.5, and this translates into our RASK or revenue or sort of unit revenue, revenue per available seat kilometer is just being 17% from 4.1 to 4.8, again, showing how our shift in our business plan is taking us into a better direction. For the full year, the story, unfortunately isn't as good as the first 3 quarters were quite difficult for us. So the yield per passenger is actually down by 3%. Load factor compensates, to a degree, is up by 2% from 83.4% to 85.3%, translating into our RASK being down 1%. And then the cost side of things. So not great changes, be aware that the RevPARs are sort of cut in the middle. So this looks more dramatic than it is. So really sort of small changes. The total CASK in the fourth quarter rose by 2.1%. The ex-fuel CASK rose by 6.2%, lowering cost of fuel, helping us a little bit. The 6.2% CASK increase is mostly due to the fact that we are flying a little bit less, we are producing a little bit less. So the fixed cost of owning the aircraft and having the head office and all the fixed cost is spread over fewer kilometers. So increasing the total cost a little bit, which is only natural, particularly as within a transformative phase. So we expect this to come down again. For the full year, the total CASK is down actually by 0.5%, the ex-fuel CASK up by 4.7% to some extent on the back of the 6.2% Q4 CASK increase. But otherwise, generally just sort of in line with inflation. Again, we are in a bit of a transformation phase. So there are some costs that are -- that we're facing that are double in some of the months this year, and we do expect to bring that down this year. Now on to the balance sheet. So our cash position year-on-year is increasing by 9% with cash a little bit shy of $24 million at the end of the year. Trade and other receivables are declining by $8 million. This is driven by sort of improved collections, enhanced cash flow efficiency and improved settlement terms with credit card acquirers. The shareholder equity is significantly down and is now negative by $33.1 million. This is, to a large degree, because of the write-off of deferred tax asset that I mentioned just a little bit earlier, which has really no bearing again on our operation, our cash flow, our cash position or really anything, but is sort of a cautious approach on our behalf as there remains some doubt about the company's ability to generate the profit levels required to make use of all the deferred tax assets that we have. We -- it's also may be worthwhile pointing out that negative shareholder equity is quite common in the shareholder industry, and I urge you to look at the footnote here. Now cash flow for the year. So again, cash flow improving between years by some $2 million. The operating activities and working capital are helping us lease liability payments, obviously, significant share capital increase of note and investing activity of about $10 million. Now fuel price development. So fuel was -- so fuel price was on the down most of last year and is now somewhat lower than it was on average last year. The spot price a couple of days ago was about $750 per metric ton. And we see that our hedge position is in line with our strategy, being 44%. So we are 44% hedged in this quarter at $787, slightly higher than the current market price. But this is obviously because we were sort of securing those hedges some months or quarters ago when fuel prices were higher. And then quarter 2 and quarter 3, we have less hedge and at lower prices, as is natural, but we feel that this position is -- we're in a pretty good position. The forward curve is pretty flat, but trending a little bit downwards. So we can basically secure -- like in the current market, we can secure more hedging at sort of similar levels as we have in Q3. Now on to what's ahead of us and how we view things. It is worthwhile noting and remembering that a few months ago, last fall in our Q3 presentation, we presented a shift in our business strategy. And this was on the back of our financial results not being exactly as we had hoped for. And so the company announced plans to make some changes. And those are in very simplistic ways, on one hand, to reduce flying to the least profitable routes or the sort of money-losing routes, I guess, some of the North America destinations and some of the Northern European destinations, and basically take that capacity and divert it on one hand, towards the Mediterranean or the sunnier destinations that Icelanders love. And on the other hand, use some spare capacity that this creates and use it to fly for other carriers in sort of an ACMI kind of business. And we can tell you now that we have come to an agreement with a carrier where we are placing 3 aircraft from this spring until the end of 2027 and a very good deal for both parties. And just to remind ourselves why we are actually doing this. So we can see on the left hand of the slide, how the leisure market has been performing much, much better for PLAY than the other 2 markets, the North America East Coast destinations and the sort of northern European destinations. So they have been lagging behind the leisure destinations pretty much since we started the business. So we are going to be decreasing the emphasis on the lesser performing routes and increasing our emphasis on the better performing routes and the destinations. So we'll be focusing more on that. And on the right-hand side of the slide, you see how this translates into change capacity. So with increasing capacity on the European leisure vis-a-vis the same quarter last year. So this quarter, quarter 1, '25. So we'll be doing 13% more leisure than last year, but 17% less capacity on Northern European cities and 27% on North America East Coast and then onwards by the quarters. You see the smallest change is in quarter 4. And this is because this transformation is already happening in quarter 4 '24. So the change is a little bit less in the quarter 4 of '25. It is worth noting and explaining a little bit what this ACMI business is about and how we see it. So this ACMI market and ACMI means aircraft, crew, maintenance and insurance, which is what the lessor is providing. And then lessee takes care of everything else, such as fuel and other cost items, handling and whatever. And so this market has traditionally been dominated by companies operating sort of 12- to 20-year-old aircraft, and it has been primarily used to sort of fill gaps in the networks of carriers often on a short-term basis. This is sort of the big picture. However, we see now lately that airlines, including legacy airlines are now increasingly using this as a sort of just a part of the solution, part of their fleet, taking in ACMI aircraft. And -- the driver for this is to a great extent, the need for aircraft as particularly Boeing, but also Airbus are late in deliveries. So many carriers are lacking aircraft. Same goes with engines. There have been a lot of engine trouble. So a lot of aircraft are actually on the ground because they don't really have operating engines. But there is also greater demand for operational flexibility. And there is this -- there is this thing where the Northern Hemisphere actually needs more aircraft during summertime and the Southern Hemisphere needs more aircraft well actually during their summertime, which is incidentally our winter. So there is -- it makes sense to sort of shift capacity between hemispheres seasonally and also just to provide carriers with -- that are growing with more aircraft. And the economics are also shifting in this business, making newer aircraft more attractive in this business. So I mean, lease rates are obviously higher for newer aircraft, nice aircraft like we have. But at the same time, these aircraft offers several benefits such as improved fuel and emission efficiency, generally just enhanced technical reliability and so less AOG and so forth. And there's more available block hours per month as these aircraft are sort of generally in good condition to fly. Additionally, stricter sort of environmental regulations are having an impact such as regarding noise emission and so forth. So our aircraft are becoming very, very good for this business. So what we want to emphasize here is that basically everything that we set out to do last fall and explained to the market that we were going to be doing is coming to fruition. So we have negotiated terms of deployment of 3 aircraft on a long-term ACMI deal with a European airline. This creates a very predictable and profitable income for PLAY. We are already operating 1 aircraft on an ACMI -- on ACMI terms in Miami during this winter. The multi AOC application that we talked about last fall, this is all on track, and we expect to get it this spring. And the schedule has been amended as we presented in Q3 where we have scaled back significantly on the North America and Northern European part of our business and increased our leisure part of the network. Now so sort of outlook for the year. Unit revenue or RASK has improved year-on-year for 5 consecutive months. And we now see that the forward RASK is tracking ahead of last year by some margin. The network has already been adjusted. So we are focusing now on the point-to-point leisure business. And it's worth pointing out that labor agreement expired at the end of January and the negotiations are in progress. We continue to be focused on cost as we are committed to offering low fares. So offering low fares has to be in conjunction with low cost. And we are now targeting 15% to 20% reduction in overhead cost in 2025 vis-a-vis last year. And this is propelled by -- to some extent by just less own production. So there will be less IT development, which has been quite significant in the past couple of years. But we are also seeing improved supplier contracts and significant benefits from our Vilnius office that offers a lower cost base. Financial outlook for the year. So we are expecting quarter 1 to be similar to last year. And this is to a large degree because Easter that was in Q1 last year is in quarter 2 this year, and this has a several million dollar effect sort of moving profitability from quarter 1 to quarter 2 this year. But we are expecting all other quarters to be significantly better than last year based on basically the changes in the business model, the updated schedule and the 3 aircraft that we are moving outside of our own production as we have covered. And so what we want to leave as sort of key takeaways here is that, number one, the plan we presented last fall is progressing more or less exactly as we had hoped. We are focusing on the profitable routes, cutting out the lesser ones and increasing the share of the leisure destinations that we have shown are performing much better. And we are deploying 3 of our aircraft in our long-term ACMI project. Secondly, we already see in quarter 4 a significant financial improvements on the back of this changed business model, although this is still substandard and the effect of our new business model is only partially shown there. So we see that the tide is turning. Cost reduction measures are just now starting to take effect, and the change in our flight schedule already yielding higher unit revenue and the year ahead looks very promising. And with regards to capital requirement. So our cash position at the end of last year was $2 million better than it was the year before. And the business outlook for this year is vastly superior to what it was a year earlier. To support our liquidity position, we are prioritizing cost control, working capital and so ensuring efficient operation and sustainable growth. But we continuously evaluate the position we are in to ensure flexibility and stability. And as a part of that, we will, from time to time, consider raising capital somewhere in the organizational structure based on sort of market conditions and our strategic needs. Thank you for joining us. And as I start the presentation on saying, we are happy to answer questions that you may post to [email protected]. And so we are eager to see if you have any. Let's see.

Yes. So can you confirm which airline has signed the contract with us? So unfortunately, at this stage, we cannot. It was only done really yesterday. So we can probably share this with you in a couple of weeks' time, but we'll have to wait a little bit. It seems we have more questions. Are we receiving any prepayment for the ACMI contract to get cash in? If yes, how much? Okay. I'm not going to go into details of the agreement. But generally, with ACMI agreements that is -- there are deposits being paid. So I assume that's the question. And yes, we are getting paid deposit because of sort of -- as a part of this agreement. So -- okay, you previously stated you would reduce flight capacity to North America yet you still operate numerous flights to the region, what's the reasoning behind this? Okay. So I mean there has been some, I guess, misunderstanding about this. So when we say we are scaling back, maybe the wording isn't perfect, English isn't my native language. So I mean what really has happened is that we have reduced our capacity significantly in this part of our business. So we did have at the peak 5 destinations on the North America side, with daily flights. Now there are 3 for the summer. And so we are certainly reducing these flights, but we're not leaving this market. So you have announced an agreement to lease 3 aircraft, who is the taker, how will this impact your company's profitability? Again, I'm not going to name the partner. How will this impact your company's profitability? So I mean it is really a totally different business. This ACMI business. One, I mean, it's a totally different thing, just sort of operating an aircraft for somebody else who just pays a fixed price more or less, actually, nevertheless, just more. Of course, there is a minimum. In this ACMI business, we see that sort of over the past few years, just to explain sort of how this business works. And we can say that the ACMI companies have sort of as a rule of thumb been profiting around about $1 million a year per aircraft. This is the sort of profitability we see in this business for ourselves for the 3 aircraft. And then obviously, we're still operating the others for ourselves. Okay. Another question, how is booking developing for the year? I think we have it somewhere in our announcement or the presentation that actually bookings are significantly ahead of last year. So all or almost all months into '25 are progressing better than last year. The main difference actually being sort of March and April where we have Easter in April this year, whereas it was in March last year. But generally, our unit revenue into the year is significantly higher than it was at the same time last year. These are all the questions we had. You have had a few minutes, so I'm not going to give you any more, I think. So just thank you for joining us. And yes, until next time. Thanks.