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

Welcome, dear viewers, to this presentation to our first quarter results of the year 2025. We will keep this as we have in the past few quarters that we will go through some of the highlights of the quarters. Then we will go through the financials of the first quarter. And then I will give you an update of where we are and where we're going as a company. So starting with just a few basic highlight numbers. We see that our on-time performance in the quarter was 81.5% and our load factor 77.2%. We had 8 aircraft in operation in the first quarter of last year -- of this year, sorry, one being more or less in maintenance and one in operation in Miami, as we have told you before. In the bottom right corner, you can see the passenger mix and the passengers traveling from Iceland were 32%, to Iceland 40% and via passengers 28%. This reflects the changes we are making to our business. The via share of our customers has been the biggest portion of the pie until now, and we will presumably see this shrink even further. Now we have obviously told you before, but there was a major milestone for us towards the end of last quarter, where on March 28, we were awarded our second AOC and this one in Malta. And so PLAY Europe is now a 100% owned subsidiary of Fly Play and is a Maltese entity. We have leased 4 321neo aircraft, 4 of our 10 aircraft to the company, SkyUp, and we're starting operations in quarter 2. Those 4 aircraft will all be assigned to this -- to the Maltese AOC and one has already been registered down there. We are also committed on our path to continue and increase our focus on the leisure part of our network. We can see this in the first quarter of this year in that there was a 17% increase in leisure capacity when compared with the first quarter of last year. And this happens despite a 14% reduction in overall seat capacity or available seat kilometers during the quarter with only 8 aircraft in production as told before. And this means that the leisure part of our network is going up from 23% in the first quarter of last year to 31% in the first quarter of this year. And we are continuing to provide Icelanders and other people residing in Iceland with exciting new leisure destinations and have just started flying to Faro in Portugal and Antalya in Turkey for the first time. We are also pleased to be able to tell you about a growing customer satisfaction. We were actually also able to tell you this in our last presentation where our Net Promoter Score was increasing between '23 and '24. And we are seeing a continuous of that with almost a 50% rise in the NPS score between first quarter of last year and first quarter of this year from 33 to 49. And we are as ever committed to provide our customers a great product, low prices, exciting destinations, and we see and sense that the -- our customer base and the people here are really thrilled with our offering. And now on to the financial results. So here are some of the numbers that we will be covering in more detail in the next couple of slides. And I think -- well, I'll think I'll just let this sit here for a second before we go on to the -- into some more detail. So here, we can see that the revenues in the first quarter of this year was $46.4 million, down $8 million on last year with decreased capacity. So revenue is down 15%, almost identical to the decrease in available seat kilometers. And this is reflected in a very similar EBIT, $21.7 million negative EBIT, almost identical to last year, and this is despite a sort of delayed Easter impact as Easter was part of the first quarter last year, but was mid-April this year. And so the Easter effect, one of the better periods every year for this airline is in second quarter. And we're also happy to tell you that our cash position is almost $4 million better than it was at the end of first quarter last year, so $21.1 million. And as ever, no external interest-bearing debt. With the income statement, we can again see the operating income, how that is down $8 million vis-a-vis last year on the back of less production. We see the ACMI revenue of $1.3 million. That's recognized in other revenue. And we also see that the cargo revenue is flat year-on-year despite considerable reduction in capacity. So like-for-like, the cargo is up. Operating expenses are decreasing almost identical dollar number as the revenue. And this despite that the ETS units being $2.6 million higher this year than last. Last year, there was actually a positive impact from the ETS being -- the prices having dropped in that quarter. And so this remains that the EBIT remains stable and net result for the period is slightly better than last year. And so when we look at how this is made up, we see that the yield per passenger is going up a little bit, 1.2%, while the load factor is going down a little bit and the decreased load factor is a reflection of the changes in the business model as we have always seen a slightly lower load factor in the point-to-point part of our network where we can't just fill the aircraft with via passengers. And so this results in our TRASK being down 3.3% from 4.24 to 4.1. But again, it should be noted that our RASK was higher year-on-year or considerably higher year-on-year until the 2 last weeks of the quarter when the Easter factor last year through the -- sort of through the RASK this quarter slightly below that of last year. And then on to our cost -- our CASK, cost per available seat kilometer. This is almost flat as well, 2.5% up. And we see the biggest contributor there is the ETS units, $0.23 per available seat kilometers. Had we not had that factor, obviously, we would have been down. Fuel price has gone down. So we see an effect of that to our benefit. Depreciation is slightly up, but these are all, I would say, not huge numbers. And we can say that our commitment to cost optimization is as strong as ever. Now on to the balance sheet. We -- I have already mentioned, as you can see here as well, that our cash position is up almost $4 million compared with same time last year. Other than that, we can see that the balance sheet is shrinking a little bit. I have explained many times, and I can do that once again, that we don't have really interest-bearing debt. It's just that we have our -- according to IFRS, we book as assets, the long-term lease agreements we have with the 10 aircraft we have on long-term lease. And on the flip side of that coin, we post as debt, the lease liabilities. And these assets and this debt does decrease with time as the lease -- well, as the lease agreements have a shorter term with time. So the balance sheet is shrinking a little bit. I don't think there is anything really major else going on here. Now on to the cash flow. So the cash flow in the quarter was negative by $2.5 million. We see that we posted a loss higher than that. But as always, in the first quarter, we see working capital movements in our favor. This is because we are selling and collecting more in the first quarter, selling the summer period. And then we will see in the latter part of the year, this reverse when the profits go up and the working capital movements go the other way. This is an improvement on the first quarter of last year by $4 million, where the -- yes, where the cash flow is better by $4 million than it was in the same quarter last year. Now fuel price development has generally been favorable for the past few quarters or throughout '24, more or less and continues to be so. The current spot price is slightly lower than $700 and almost the lowest we've seen since we started operations, which obviously is favorable for an airline. We have a hedge policy in place that has remained unchanged for a couple of years. And it says that we're supposed to hedge up to 60% of our estimated oil purchase for the next quarter, up to 40% for the quarter after that and the 6 months after that up to 30%. We can see that we have now hedged 46% of quarter 2, 34% of quarter 3 and then 14% and 16% of the quarters after that. This is somewhat lower than we are permitted to do, which is fortunate with the situation as it is as the hedges are, of course, at a higher level than the current prices as we have been hedging along the way when the price has been higher. So the hedges are out of the money, but this helps smoothen out fluctuations and our cost. And so a summary of our financials. We can see operational improvements materializing. There is a modest improvement in net income between years, which is in line with what was communicated 3 months ago. So in our last quarterly statement in our announcement and in a similar webcast, I said that we would have a very similar net results as we had in the first quarter of last year, and that is exactly what has happened. So RASK and CASK are almost flat between years, slight adverse movements in both. RASK, as I said before, was improving throughout the quarter with the only exception being the final 2 weeks of March that are affected by the shift in Easter, which was, again, in first quarter last year, not this year. And when we are comparing like-for-like and adjusting for one-off items, CASK and our ex-fuel CASK is also improving between years. And there is improvement in cargo per production unit. So there is improvement sort of across the board. Now on to where we are and how things are looking from our perspective. So approximately 6 months ago, we announced these changes in our approach to the market. And there are -- there were 2 main items that we said that we would place our focus on 2 pillars. So we would continue to focus on the leisure market and grow our market share there, grow our reliance on the point-to-point leisure market. And so we are seeing 7% increase in our leisure capacity for the year 2025 despite fewer aircraft being operated out of Keflavik airport and considerably less production or considerably less own production. This is because the leisure destinations continue to be profitable for PLAY. We will operate 7 aircraft out of Keflavik during the busiest months of the year, and this includes 1 aircraft that we have leased in to maintain very close to the announced flight schedule this summer. And the second pillar that we will rest our future on is this business of operating our aircraft for other operators. And so we have secured this agreement by deploying 4 aircraft for the Maltese airline SkyUp from the spring and summer of this year onwards. The first aircraft will be deployed in about 2 weeks' time on May 12. And then at the beginning of July, there will be 4 aircraft operating for SkyUp. And this part of the business will provide us with a stable, predictable, profitable income. We are also fortunate to see that we can see RASK improvements going forward. To some extent, this is because we have changed our approach to the market. So we have cut some of the poorer routes that we had out of the system. So we are seeing that the better performing Eurocity and better performing North America destinations in our network and the worst performers out. And this, we can see is resulting in a stronger forward unit revenue. The leisure part of the network, we are actually growing, but we're also seeing the forward revenue there being increased year-on-year. The least improvement we can see in quarter 2 going forward, this is because the network is growing very rapidly in quarter 2, whereas the growth in the latter part of the year is more modest as we had already in the latter part of last year, started to increase our leisure part of the network. So we can also report that the load factor is ahead of last year, ahead of where we were at the same time last year. So we can see we are ahead for all quarters in the 2025. And we're happy to report that our ancillary revenues are improving year-on-year, also looking at all quarters of the year. So this is a result of our continuous efforts in improving our ancillary product offering and giving our customers products that they like. And so in general, we are happy to report to you that all of the elements of the new business model are progressing as we planned and as we have outlined for you. So we have a scheduled -- so we have our schedule streamlined. We have more leisure capacity available from Keflavik this year than last, increasing the portion of our network being in the leisure part up from 27% to 36% of this year, and we will see it higher still in 2026. This is one of the main things we announced last fall that we would do. We would increase our reliance on the leisure part of our network. And we also have established this AOC in Malta, and we have secured contract for 4 of our 10 aircraft on a long-term contract, which will be very beneficial to PLAY. And now on to the outlook for 2025. We feel that we are entering the summer season with a very strong, well-planned network and a balanced fleet deployment strategy that is split into these 2 pillars, 6 aircraft being -- of our own aircraft being operated from Keflavik with the addition of 1 ACMI aircraft in Keflavik. And then 4 operating ACMI projects with SkyUp. We are seeing continued improvements in RASK across each quarter of the year. We are seeing stable, predictable and profitable income from the ACMI operation that we're starting in 2 weeks' time. And we can also report that collective labor agreement negotiations are progressing on the cabin crew side, an agreement has been signed. And this is in the progress of being voted on. On the pilot side, we can say that negotiations are at an advanced stage. And financially, we expect to see operational improvements in all remaining quarters of the year. And we can say we are on target to reach 15% to 20% reduction in overhead cost as we had reported earlier. And so what we feel should be the key takeaways from this announcement and presentation is that, firstly, things are progressing as planned. We are increasing the share of the leisure part of our network. We are focusing on the profitable routes, cutting out the less so or the loss-making ones. And we have deployed 4 of our aircraft in long-term ACMI contracts. Secondly, we are happy that the Q1 results are more or less exactly as we predicted 3 months ago. And so we're happy to -- that we are able to see at least one or maybe a couple of quarters ahead, how things are progressing. And we can confidently say that we are on the right path. All signs indicate that the changes we are making in our business model will result in a much improved financial performance of the company. And we also see that our cash position is better than it was at the same time last year. And we are ending this with, I think, identical or at least almost identical slide as we've had for the past 2 quarters. Our cash position is now stronger than it was at the same time last year, and our business outlook is much improved. PLAY prioritizes as ever, cost control and effective working capital management to support our liquidity. We do continuously evaluate our financial position to ensure flexibility and stability. As part of this, the company may consider raising capital within the organizational structure depending on market conditions and strategic needs. Thank you.

You can send questions to [email protected], and I will try to answer them the best I can. So what are the revenue expectations? So I'm already getting questions. What are the revenue expectations from the SkyUp Malta ACMI contract? So we have previously reported that what we've seen typically in this business for the past few years is that ACMI providers seem to have been able to, we can say, profit roughly $1 million per aircraft per year. And we've also said that we are expecting to get similar results as we see in the business. Another question here is the market being so favorable for ACMI projects, are you confident you can have better yields operating leisure flights from Iceland instead of putting more in ACMI? I would say this is a fair question. So if the ACMI market is so great, why don't we just place all the aircraft there? And the answer is, it's already stipulated in the question, we are confident or -- yes, we are confident that we can place at least several aircraft in Keflavik flying point-to-point leisure flights with better results than the ACMI market seems to be able to give. And it's not just -- I think it's not just a wishful thinking. This is just based on past results. With the new ACMI agreement and fewer aircraft operating from Iceland, will you still be looking to operate new destinations? Also a fair question. The answer is yes. We do expect to increase our leisure offering year-on-year, hopefully, indefinitely. And this will presumably both be seen in added frequency on the better routes, and we will continue to offer new destinations. We are expecting that -- I mean, the Icelandic leisure market has been growing quite significantly over the past 10 years or so, and we don't see why it should not continue to do so with the increased wealth of -- people in the Western world and certainly in Iceland, we have seen an increased propensity to travel, and I certainly expect that to continue. And we will take part in that. And more than that, I expect us to take an increased market share in this part of the business. I don't have further questions. And I don't think we'll give it much time because me staring at the camera isn't so exciting. So I will thank you all who are watching this for taking the time. And thank you.