Fly Play hf. (PLAY) Q2 FY2025 Earnings Call Transcript & Summary

Dear investors and other interested viewers of this webcast, welcome to this presentation of Play's second quarter results of 2025. On the agenda, we have some highlights from this last quarter, then we'll cover our financial results. And finally, I will give you some update and insight into how we're seeing the imminent future. So just at a glance, the operations out of Keflavik we show here, we moved 361,000 passengers, somewhat down from last -- from second quarter last year, as always, reminding you that we are producing less for ourselves and ever more for other operators. We had a respectful 83% load factor and an impressive 91% on-time performance. The share of the VIA passengers is ever decreasing, as you can see in the bottom right corner, and the front passengers are getting a bigger share, and we will see this development, obviously, move on. And now we've shown you our sort of a glimpse into our ACMI operation. We also have a very impressive on-time performance there, 89% almost in our 2 operational bases in Chi?in?u, Moldova, and Katowice in Poland. We had 2 aircraft in operation during this quarter. The first started in middle of May and the second one joined in June. In the second quarter of the year, we celebrated our fourth anniversary, a happy day. And yes, always good to celebrate. We also celebrated 2 inaugural flights, one to Faro in Portugal, our fourth destination in Portugal, as we count Madera. And then Antalya in Turkey, our -- really our first venture into Asia. Also in the second quarter, Play sold $20 million worth of a convertible bond. This was a conclusion of a process that started a couple of weeks earlier, whereby it was announced that there was a plan to delist the company and increase the capital in a delisted company, but ended up slightly differently as has been announced previously. So with a $20 million bond issuance. And we have -- in just over a week's time, we have a shareholders' meeting that will pave the way for the issuance of this bond later this month. We are also proud to present to you a very impressive NPS score, Net Promoter Score of 54. I doubt you will find a much higher score with any airline in the world, jumping 74% from 31, still very respectable 31 last year. So we're thrilled that our passengers are so happy with us. So we're happy back. Also, we can probably remind you that we reached an agreement with the labor union that we are dealing with, FF for slenska Flugst ttarf lagi . So there were renewed contracts, both with the cabin crew and the flight crew. And so I'm thrilled that we reached this agreement after honestly, quite a few months of haggling back and forth. And I think we can all now lay to rest any notion of this labor union not being a proper one. The results of the agreements are more or less in line with the sort of general labor agreement that were made last year, as a general rule in Iceland called st ugleikasamningar. We can also tell you about our good staff that unfortunately, we are seeing a reduction in the number of our employees. This is obviously a direct result of the changes in the business model that we have been presenting first in October of last year and ever since then. So I hope it's not a surprise when news of a reduction in staff here at play hits the news. It would be odd if that was not happening with our own production going from 10 aircraft down to 4. This is happening through temporary contract expiring, some staff resigns, and then there are unfortunately some layoffs. Now on to the financial results. So here, we see some headline numbers that we will dig into in the next few slides. So we see a $6 million, an 8% decrease in revenue between second quarter of last year and second quarter of this year, reflecting basically just the changes in our schedule. There is less revenue and less cost in operating ACMI for other operators as we don't assume the so-called DOC cost or direct operational costs, fuel, and so forth. So revenue being down slightly should not be a surprise, neither should the financial performance be, as we have already issued a statement saying that we are slightly worse than last year. So last year was minus $6 million. This year is minus $9 million. So EBIT down by $3-ointsome million, and we will dig into that a little bit deeper later in the presentation. And regarding the balance sheet, we are reporting that we had about $12 million in our accounts at the end of last quarter, which will then be enhanced by the $20 million bond issue that I touched up on just a bit earlier. And then the income statement, we see the $6 million revenue decrease that I was just mentioning. Operating expenses are down $3 million, and hence, the EBIT is lower by $3.6 million. If we look at the variance column there on the right, we see that the fuel is down. Obviously, we're flying less for our own production, so less volume of fuel. There's also a slightly lower price of fuel. But what is hitting us on the counter is the ETS movement, which was negligible last year due to us or due to Play acknowledging in that quarter, the sort of EPS units being distributed to the company, where this is not happening this quarter of this year. So a big effect there. So this explains, actually, most of the deviation between years. We can say that the difference in ETS units more than explains all the difference in our EBIT between years. And so if you look at our income, yield per passenger is up by 4.1%, but load factor is down by 2.7%. Both of these are a reflection of the changes we are making in our offering and our business mix as the leisure destinations are ever-increasing portion of our production, they are yielding or resulting in a higher yield, but a slightly lower load factor. But this translates into a higher TRASK or higher unit revenue of about 3% or 2.9%. At the same time, our cost is somewhat up, but if we're looking past one-off items, our unit cost is actually going down. So if we look past the 3 EPS units, currency fluctuations that are -- or currency movements that are going against us, the rest of the cash bridge shows a very small but positive movement from 6 to 595. So it's both that the dollar, which is our -- the currency that we make our accounts in. The dollar is weakening, and the krona is strengthening. So this is hitting us a little bit both economically, but also just in the accounts as we presented. And now our balance sheet, I guess, the biggest movements as always, are that the balance sheet is shrinking a little bit with the aging of the fleet that we are using, so that the right-of-use assets, which makes up the bulk of our assets is decreasing with the -- as the leases get closer to expiration, although it's pretty far still. And at the same time, the lease liabilities are decreasing at approximately same pace. Other movements, I think we've discussed already. Cash is decreasing, as mentioned before, but being counted with this bond issuance. And the same with cash flow. Cash flow is negative about the same dollar number as it was last year. So Q2 usually not a positive cash flow quarter. And yes, I don't think I have to remind you again that we sold $20 million worth of convertible bond in the quarter to establish a cushion in the cash balance. Fuel price has been decreasing slowly, but somewhat steadily over the past year or even a little bit more. So you can see this in the chart there on the right, market price sort of decreasing quite slowly. And then with the blue-ish line, you see a more stable effective fuel price that we are experiencing, usually a little bit higher than the market price as the price is going down and we are hedged. So when the price is going down, we don't experience quite the same drop in price. But conversely, if the price gets higher, we will not experience that as sharply. Quite happy with the position we have, about 30%, 40% hedged over the next 3 quarters at prices that are around or lower than the current spot price. So generally, our financial summary. So even though our EBIT is slightly worse than it was last year, we are experiencing a higher unit revenue. We're also experiencing higher unit cost, looking past the one-off items. And on top of that, our calculations show that we are impacted by almost $5 million by a weaker dollar. And then there is also the fleet mix shift to the A320s, which is slightly higher cost, but something that we will be experiencing going forward. Having a part of our fleet on this ACMI market reduces the revenue, as explained before, we don't pay the fuel or the direct operational cost, but get lower revenue instead. But this -- yes, so this lowers revenue, lowers cost, lowers our cash needs, tax liabilities, and gives way more stability. And so cutting out the loss-making routes like we're doing now and discontinuing from the -- basically from the fall onwards, we'll be focusing on the markets that have been giving us profit basically since we started. A little bit on how we see the future. And for those of you who have been diligently watching this every quarter, you're going to be hearing some of the same things over and over again. So we are -- we have a continued focus on the leisure market. There was a 15% increase in leisure capacity in quarter 2 compared to quarter 2 last year, even with fewer aircraft operating out of Keflavik, 7 to 8 versus 10. And these are the profitable routes or the more profitable routes for us. The schedule out of Keflavik after October will be without the transatlantic business, without any America flights. And basically, the bulk of it will be these leisure destinations, but complemented by some Northern European or Eastern European destinations. And then we have the ACMI leasing part of the business. This gives much more stable financial income. It also gives a much better financial income during the winter that has been honestly quite tough for us, the past few winters. And so this operation began on May 12, really. And we, a long time ago, announced that we had these 4 aircraft on this long-term agreement. We can now tell you that we have then since withdrawn 2 from our own operations or are withdrawing them from November onwards. And we've already secured a contract for one of them until late 2026. And then the last aircraft is being marketed as we speak, and we have no worries that it will not be successfully placed. We can also tell you that the change in the business mix is resulting in a stronger forward revenue than we were seeing at the same time last year. So we're seeing higher unit revenue, which is a combination of price and load, yield and load. So we're seeing this being higher for quarter 3 and quarter 4 and basically just onwards. And we are just showing you here that we are still increasing our capabilities and learning how to optimize our ancillary revenues, and we see here how those are growing compared with year earlier. So we can confidently tell you that the business plan that we have been presenting now for a couple of quarters is advancing as we have presented. The 2025 network is being optimized with a great focus on the leisure out of Keflavik will be making up bulk of our own production. The Malta's AOC is already established. There are a couple of aircraft already listed on our Malta's AOC. And before year-end, we expect to have all 10 aircraft operating under Malta's AOC. And to reiterate, we have finished long-term contracts for 5 of the 6 aircraft that we plan not to operate ourselves during the winter. For the outlook, so we're operating the last hub-and-spoke flight at the end of October. From then on, we will have 4 aircraft in operation out of Keflavik. Full shift of the aviation part of our business will be moved to Malta before end of the year and resulting in a sort of eliminating the dual cost that we're experiencing now having 2 AOCs, one in Iceland and in Malta. And then once everything is Malta, we'll be experiencing a lower operational cost base down there. Commercially, we are seeing the forward unit revenue trending positively for all quarters that we see. And the aircraft dedicated to our ACMI business are enabling us to garner -- to get stable revenue and a much better utilization of the fleet than during past winters. Financially, we can say that the quarter 3 net income is expected to be in line with last year, despite one aircraft being in extended maintenance unexpectedly. So a 10% basically decrease in our production capacity being taken away. And another one was actually away for 3 weeks due to a hail incident that has been reported. Regarding next winter, and now it's August, so winter is almost up on us here in Iceland. We are expecting to see a dramatical change in fortunes. And so if we take quarter 4 in '25 and first quarter '26, we're expecting to improve our financial performance over that period by somewhere north of $25 million. And then we are expecting to be profitable in 2026. And so to end this, we can confidently say that we are progressing as expected. We are on track. The leisure part of our business is growing, and we'll be taking it more or less over. And we are having our long-term ACMI business being established pretty well. We're still in this transitional period. So having -- and having some sort of temporarily financial impact along the way. Very strong operational performance. Our unit revenue is up in last quarter, and adjusted for one-off items, the unit cost is also down. There is some sort of aircraft maintenance delay, FS development, EPS unit stuff, and so forth, that's throwing the numbers a little bit off track. We are seeing our cash position being strengthened through the $20 million convertible bond that was being backed by the largest shareholders of the company and some institutional investors joining forces with us. And so our cash position remains solid despite these one-off items. And our business looks good going forward, and the company is stable. I think this is where we end. As always, we are open up to questions.And I see we already have one. Is Play planning to launch any new destinations from Iceland in the coming quarters? And what regions are you targeting? Okay. So I can't really tell you what and when we will announce regarding new destinations, but we will certainly, in the not-too-distant future, be announcing new destinations. I mean we are the company that is like -- that keep on giving Icelanders new and exciting destinations like -- I mean we are having 2 destinations in Morocco next winter, Antalya in Turkey, destinations that our competitors are not offering, and we will continue to offer exciting new destinations. How do the forward booking for the quarter 3 and 4 look for the Icelandic market? So I'm not entirely sure if the Icelandic market means to Iceland or from Iceland. But I want to say -- so we can say that in past October, when we only have 4 aircraft in operation and are no longer doing the hub-and-spoke business, we're doing point-to-point. It's going to be -- we're expecting it to be something close to 2/3 of our passengers being flying from Iceland or their trip starting in Iceland and then mostly coming back as well, and 1/3 the other way around. So it's a market and a 2 market. So 1/3 of our customers will be tours to Iceland, and 2/3 Iceland is going abroad. We are actually experiencing both of these markets pretty good. We don't see any trauma within the Icelandic economy or the Icelandic consumer. So the bookings are looking pretty good. Yes. And I think this summer and this year, tourism-wise in Iceland will be also pretty good. How much revenue are you expecting annually from ACMI in '26, so I guess, from '26 onwards? And do you anticipate further fleet reallocation towards Lullebloom? So how much revenue are you expecting annually from ACMI in 2026? And do you anticipate further fleet reallocation towards ACMI beyond the current 6 aircraft? So we have on our website a presentation that was made when we were in this -- well, first, this sort of takeover thinking, and then when we were selling the bond. And if I remember correctly, it's a little bit north of $100 million that we're expecting annually from the ACMI business. It's there somewhere on the website. We don't expect to allocate more than 6 of the 10 aircraft we currently have to this business. That does not mean that I don't see us growing in the ACMI business, but that would then be through sort of play sourcing more aircraft. I can definitely see that happening, but I don't see us decreasing from the 4 in Iceland. Any more questions? No, we don't seem to have more questions. So if you don't, then I thank you who took time to watch and listen. Thank you for your time until next time.