Jazeera Airways K.S.C.P. (JAZEERA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Jazeera Airways Fourth Quarter 2019 Results Conference Call. [Operator Instructions] I now pass the floor to your speaker, Mr. Sidharth Saboo. Sir, please go ahead.

Thank you. Hello, everyone, and thank you for joining us today. This is Sidharth Saboo. And on behalf of Arqaam Capital, I'm delighted to welcome you to Jazeera Airways Full Year 2019 Results Conference Call. I have with me here today, Mr. Rohit Ramachandran, CEO of Jazeera Airways; and Mr. Krishnan Balakrishnan, Company's CFO. With no further delay, I'll now turn over the call to Mr. Rohit.

Thank you very much, Sidharth. Good afternoon, everyone. It gives me great pleasure once again to welcome you to the Jazeera Airways earnings conference call for the closing of the fiscal year 2019. Our audited financials were released yesterday, along with the resolution of the Board of Directors meeting that also took place. I'm delighted to welcome you to our call today to discuss a record year for Jazeera Airways, in which the company saw its highest-ever operating revenue as well as profit. We continue to see this as a very positive sign that we are heading in the right direction and the market we operate in, represented by key stakeholders are rewarding us for the strategy that we are pursuing. In the coming 1 hour, we will follow the by now familiar format along the coming slides in order to dig deeper into the details of our operational and financial performance as well as look at our outlook for 2020, and the several interesting initiatives that are now giving us the results that we had forecasted. And at the very end, we will, of course, have a Q&A session. I now invite you to move to Slide #8 of the presentation. The airline business posted yet another quarter of growth in the number of passengers that it carried, was up by 29% over the fourth quarter of the previous year, which was 2018, and it was driven by an increase in load factor, the addition of 3 new aircraft to our fleet and the introduction of 7 new routes. The aircraft utilization dropped slightly, given that new aircraft deliveries during the quarter, there is usually a brief ramp-up period until new additions, they integrate themselves into the operating schedule and catch up with the rest of the fleet. Yield or the average fare per person was under significant pressure during the quarter. This trend was driven by multiple factors, some of which were external, some of which were internal. Externally, the fourth quarter of the year is usually weak which drives aggressive promotions from almost all airlines in the region. We, of course, compete aggressively to protect our market share. Internally, and as planned earlier, we launched 7 new routes during the fourth quarter after taking delivery of our 3 brand-new A320neo aircraft. By virtue of that alone, our blended yields came under some pressure as we gradually support the growth of these newly launched routes to become mature and start contributing to the overall top line. Now moving on to Slide 9. On an annual basis, we continue to hit new heights in terms of the number of passengers we served. And during the year, we reached 2.4 million passengers in 2019, which is 25% above the 2 million that we reached in 2018. The load factors also improved to 77.5%, which is about 2.5% higher than the previous year. While the annualized utilization of aircraft was more or less the same as the previous year, maybe slightly lower, which was driven by the deliveries of new aircraft, which I spoke about in the previous slide. The blended yields saw a modest 1.6% over 2018. Operationally, we categorized 2019 as a very good year, which confirmed that our strategic initiatives are leading Jazeera in the right direction. Our growth in terms of fleet, number of passengers carried and destinations offered along with the improvements in our load factors, they laid the foundation for 2020 as well as beyond. Moving to Slide 10. Let us now discuss our financial performance. The fourth quarter of 2019 was a challenging one for the factors mentioned earlier. Mainly, however, it was a very busy operational quarter as we took delivery of the 3 aircraft and immediately put them into operation on the new destinations that we have planned. Our revenue growth in the fourth quarter was mainly a result of the ability to carry more passengers, which offset the negative contribution from the yield side. It's worth noting that the drop in operating profit and the normalized net profit was as per our plan. And as communicated earlier during our third quarter 2019 investor call and given the addition of the fixed cost pertaining to the delivery of the new aircraft, we are quite satisfied with the reduction in the loss for the fourth quarter compared to 2018. Moving on to Slide 11. And this, in my view, is the most important one of the day. For the annual results, we are glad to see that all our operational achievements are being translated into a strong set of record financial results, with a 26% increase in revenue, which came in at KWD 104 million. This is the highest-ever recorded in the company's history. Operating profit increased by 109% to KWD 14 million, while net profit jumped 124% to KWD 15 million, against the KWD 6.7 million the previous year. Our results were further supported by a one-off gain recognized from the sale and leaseback of 2 engines during the year. A policy we are following to maintain our light asset base, which we are committed to. Krishnan will provide more on this in his discussion under the CFO summary. Let's move on to Slide 12. Our growth in ancillary revenue outpaced that of passengers to report an increase of 35% during the year as passengers are gradually becoming more accustomed to our LCC offering. We have seen improvements across the board in all our ancillary offerings. For instance, our cargo revenue increased 2.5x the previous year during the course of 2019. Slide 14, I'd like to cover Jazeera's key operational achievements during 2019. We are proud to announce that we started 8 new routes during the year, of which 3 are in Europe, 2 in the Middle East and 3 in Asia. 7 out of these 8 routes which we established during the year, is the first time these points were being connected with our hub in Kuwait, while our operation to Gatwick was the first connection between the GCC and the U.K. operated by a low cost carrier. Further, we took delivery of 3 new aircraft which joined our fleet. In addition to the temporary 12-month lease of another aircraft, bringing our year-end total fleet size to 13. Now with all this growth, we need to invest in talent and our management team continued to grow in line with the growth of our operations. And we brought in 4 new senior executives to support this growth during the year. The first was the Chief Operating Officer; Mr. Shaheen AlGhanim, who used to be the Director of Aviation Safety at the Kuwait DGCA, the regulator. We brought in a new VP in maintenance and engineering, who is spearheading our engineering services improvements and efficiencies. His name is Mr. Robert Woods and he joins us from previous similar senior responsibilities at Royal Brunei, Air Arabia and Thomas Cook before that. And last but not the least, we also brought in a new CEO for Jazeera Terminal T5 to be fully dedicated to the management of Jazeera's facilities as well as monetization of the terminal. We are also in the process of recruiting a new Vice President of Sales with the hardcore LCC background. He will be joining our team in early March. Let's move over to Slide 15, where we provide more details of some of these achievements. I think we have already discussed many of them during previous calls. And a few of them, I will explain in greater detail as we go along today's call. But this one slide summarizes some of the important ones. Let's move to Slide 17. In fact, Slide 17 and 18, discuss the now familiar breakdown of our market share in every destination that we fly to, in addition to the evolution of our passengers geographically. As you can see, the developments we have been discussing over 8 quarters now are shaping up, and we will continue to focus on strengthening our existing routes, while adding new profitable ones to our portfolio. In this regard, our view remains solid and unchanged that there's a very large market for Jazeera to capture in terms of demographics. Also catchment areas and the segment demand that we aim to penetrate over the coming few years is strong and solid. Let's move to the next Slide 19. Another shining star in 2019 was actually Jazeera Terminal T5. I'm glad to announce that T5 reported an annual revenue of KWD 4.3 million and a net profit of KWD 1.2 million as our team managed to get across some very difficult hurdles that are now behind us. You will know what those are from our previous calls, including certain regulatory and municipality approvals. I'm happy to say that, that is all now done and behind us. During the year -- last year, we managed to receive all these approvals that were holding back leasing activity. And we also managed to open a new immigration desk in the third quarter of last year to facilitate visa on arrival services for eligible GCC residents. Further, the 2 lounges are now fully operational. And all the other concessions and related contracts are also up and running. I'm also glad to inform you that we are seeing significant activity in retail and leasing and will have much more positive news in the coming 2 quarters. So let me give you some of the highlights relating to the terminal because I know several investors would like more detail. So the DGCA approvals and the municipality licenses, they came in finally in October in a complete form. As of October, 2/3 -- as of December, sorry, 2/3 of our leasable space on the land side was leased out. And almost 100% of the leasable space in the air side is already leased out. The 2 lounges, they occupy almost 300 square meters, which is on a very lucrative profit share model. Just since October, about a further 500 square meters have been taken by some very good brands in Kuwait. This includes electronic stores, 3 additional F&B outlets as well as an exchange company. We still have about 1/3 of the available space in the terminal land side left to be leased. Our commercial teams are aggressively pursuing this opportunity. And these areas, we expect to be fully leased by middle of the year. Let's move now to Slide 21. Here, we start our discussions on the outlook for the year. Our route growth plans will continue but more importantly, we are looking at increasing frequency on several of our existing very profitable routes. This is something that we were unable to do so far, given the shortage of aircraft in our fleet. To achieve this, we will take delivery of 5 new aircraft within the full year of 2020. And one leased airplane that I mentioned earlier will be returned to the lessor. This means we will close the year with 17 airplanes. Further information about these new additions will take place during the year as we go along. We also started a very new important initiative which we put in place from the 1st of January 2020, which is to withdraw business class from Jazeera Airways altogether, and shift towards a more flexible ticketing system, offering 3 economy class fare categories, as you can see in the next Slide 22. These changes, they actually provide better revenue opportunities. In the case of removing the business class configuration, it adds 8 additional seats to the salable capacity of the aircraft. And we can play to our strengths and retain the core LCC DNA that is necessary for the focus and simplicity of our business model. These efficiencies and the simplicity in the processes of our business model is what delivers to us the cost savings, which we pass on to the customer as lower fares. Let's now move to Slide 23. Those of you who have been following Jazeera know that we have been talking for quite a lot of time about recognizing cost savings through economies of scale. We are glad to say that 2020 will be the first year to effectively reap the benefits of our growing business and fleet. To that end, we have signed several key engineering agreements with global leaders in their respective products and services. Agreements that we could have never negotiated in the past with our smaller fleet size of 7 or 10 airplanes. In fact, a large part of these agreements is based on the conviction, trust and belief that our partners have in us as they see Jazeera becoming a significantly larger airline in the coming 5 years. One such agreement is the 20-year contract signed with CFM, the engine manufacturer, of the LEAP engines on the A320neo aircraft and covers all maintenance costs during the entire lifetime of these engines, while they remain in Jazeera's books. Under this contract, Jazeera will pay an hourly charge per engine flying hour with a committed rate that is very competitive and that will remove operating cost uncertainty for the next 20 years. Another one is the Airbus Power by the Hour contract, which covers a major portion of the components on Jazeera's fleet. Again, this contract also removes the uncertainty of the cost of repair and overhaul or escalation over the term of the aircraft life, while with Jazeera and is expected to create savings in the range of 40% compared to what we used to pay for components. Let's now move to Slide 24. In this slide, we discuss yet another significant milestone related to the same cost-saving initiatives I've been speaking about. During 2019, we hired a highly competitive and professional team of engineers led by our VP Engineering and Maintenance, who together managed to finally receive the Part 145 approval and certification from DGCA Kuwait in January 2020, which enables us to conduct live maintenance activities on our own aircraft in-house for the first time in the airline's history. Previously, Kuwait Airways Engineering has been managing Jazeera's line maintenance since inception. This contract was restructured for a pay-per-use model effective 1st of April 2020. This change is expected to generate cost savings in the range of 30% on this line maintenance item alone. We are glad to announce that Jazeera's engineering team has already executed the required line maintenance activities or begun executing the line maintenance activities on one aircraft in our fleet and will gradually increase the number of aircraft that we take over from Kuwait Airways under our own maintenance. And this process will take place over the next few weeks, culminating in the entire fleet being managed by us by June. Let's now move to Slide 26. I conclude my section with a quick discussion on the outlook for 2020. The overall picture for Jazeera remains positive, and we are looking forward to another busy year. However, we have to be cautious of several factors shaping our operational ecosystem. As I'm sure you're all aware, the start of the new year brought with it some geopolitical tensions in the Middle East. And this included certain airspace closures, which were subsequently reopened, but still uncertainty around the traffic to some of our key relative traffic destinations like Mashhad and Najaf. This was then followed a few weeks ago by the outbreak of coronavirus. All of this added to the fact that the first quarter, which is anyway a slow quarter, and it has indeed had a negative impact on traveling patterns and sentiment. Perhaps to a lesser extent for Jazeera compared to other airlines in this region, since we don't fly to China or anywhere near the Far East. But this impact is very pronounced on the market, nonetheless. Further, as the business slows down, you immediately fall under pressure and with the established regional oversupply, the impact is significant. So this is going to be a tough quarter. But we have contingencies for this sort of an eventuality. We in the airline business have seen this before. In 2003, you had SARS and in between, you had MERS in 2008, you had swine flu. So with all these initiatives, we know how to match the capacity that we deploy with the demand that exists on any particular route. And a number of cost-saving initiatives have been put in place during what we expect to be a challenging couple of months ahead. Now before I end my section, allow me to share a few additional thoughts. I was talking to a large institutional investor yesterday who asked me, the profits have doubled. The fleet has doubled, the terminal is now up and running, and the bottom line is healthy. Have we reached the end of the road? Is Jazeera Airways now fully tapped out? To answer this question, my friends, I would like to make a slight departure from my usual approach of letting the numbers do the talking. But on this occasion, I would like to talk about the future because I believe it is important for you as investors to have visibility about the future. To answer the original question, have we reached the end of the road? No, we are just getting warmed up. Of course, the overwhelming focus will be on bread and butter issues, the seat factors, the yields, the punctuality, the operational excellence, the terminal, et cetera. You know all this because I speak about this quite often, but over the course of the next 2 years, here is what you can expect. You can expect a fleet of 25 airplanes flying to 50 destinations. This is over 2 years. You can expect Jazeera completely managing our own maintenance, including having a hanger and thereby significantly driving down costs further. You can expect a review of all other unit costs, including we are looking at the feasibility of having our own ground handling. You can expect us to look at having our own duty-free business. The expansion of our current terminal and very shortly thereafter, we are looking at having a totally new terminal project. You're aware of the development so far around the passenger service fee, and that presents some interesting possibilities. For us, the expansion of traffic rights to India, along with other key capacity-restricted countries is a big priority, which I'm certain will bear very good results by the second half of this year. We are looking at dramatic initiatives to control fuel costs. We're looking at having our own catering company, so we don't have to pay the high charges for very average quality provided by other local catering companies. We are looking at having our own flight training organization, which could include simulators. Many of these strategic projects are personally being driven by our Chairman, Mr. Marwan Boodai. Every one of these projects has the objective of driving down costs, boosting revenue, enhancing operating excellence and sometimes all 3. I would like to end on a personal note. Last week, I completed 3 years as Chief Executive of Jazeera, during which I've had the pleasure of hosting these investor calls 12 times. The entire management team and I are very mindful of the trust reposed in us by investors, and our focus on enhancing shareholder value is second only to flight safety. With that, I will now hand you over to our CFO, Krishnan for a more detailed discussion of the financials. And at the end, I will be available to take any questions that you might have. Krishnan, over to you.

Thank you, Rohit. I'm very happy to be part of this call. Thank you all for joining in. Let me take you straight to Slide #30 because 28 and 29 cover the key parameters, which have already been discussed by Rohit earlier. So if you look at the Slide #30, our revenues for the quarter 4 went up by 12% and the expenses went up by 14%. The reasons for the revenue being lower, were already briefed by Rohit, primarily the yield decline that we saw. However, the operating expenses were well below the 22% capacity increase, which is a good sign and indicating the cost controls that we have in place, yielding results. The operating profit was up by 22%, the net profit by 35%. And the reason why the net profit is much higher is because of the sale and leaseback profit which was mentioned about earlier, we did the sale of 2 engines that we owned, 1 NEO engine and 1 CEO engine. I'll then take you to slide number 31. For the financial year '19, we ended the year with a profit of KWD 14.9 million net after tax. The operating revenues went up by 26% and the expenses by 18%, whereas the capacity increase was also 18%. So the revenues outdid the capacity increase because of the higher seat factor and the better yield for the whole year as compared to the previous year. The operating profit was KWD 14.2 million. And with the sale profits on the engine sales, we achieved a net profit of KWD 14.9 million for the year. If I may then take you to Slide #33, which discusses the balance sheet movements. The assets of the company increased by KWD 104 million because of primarily the IFRS 16 leased assets, which were recognized for the first time in 2019. That was KWD 83 million, the cash increased by KWD 17 million because of the operating profits in cash and also the recovery of cash from the lessors by replacing the cash reserves with letters of credit or bank guarantees. We also saw an increase in the assets despite the fact that we did pay a KWD 7 million dividend for the year. And also the net investment after the sale, the net investment in further assets was about KWD 300,000. The liabilities went up by KWD 101 million, primarily because of the IFRS 16 liabilities which is KWD 89 million. And the replacement of the maintenance reserve with the bank guarantees gave us -- that increased the liabilities because we have to still pay them. And overall increase in the operations helped us -- rather contributed to the increase in liability. With that, I end my section of the presentation, and you may now ask questions as you deal with.

[Operator Instructions] The first question comes from Nishit Lakhotia from SICO.

And congratulations on a good year and a very strong dividend payout, was a good surprise at the end of the year. I have a couple of questions. First, on the macro environment, Rohit, you did touch upon the yield and the current situation within the region in terms of geopolitics and the problem with the virus right now. But I wanted to check how is -- what's your outlook with the multiple events? You might have Dubai Expo 2020 towards the end, you might have some traffic from there. But the competition is evolving and I would want to know how do you see the yields moving this year? What's -- versus last year, which has been a very strong year, given that you're also launching a lot of new routes and deploying the aircraft as you're expanding quite significantly. So that's my first question. And within that some color on the hedging as well. I mean, we didn't see any details of hedging in this quarter. So if you have hedged, at what levels and given the rate has fallen quite a bit? So that's my first question. Second is on the seats, you mentioned the new -- I mean, by taking out the business class, you've got 8 new seats. So what exactly are the number of seats right now in your CEO aircraft and the new aircraft? So is it around 165 in the CEO? So any more color on that? And also -- so going forward, I understand you can't literally fly full load to London. So what kind of seats load factor should we assume on those routes? So that's my second question. Third on the terminal, you briefly mentioned about the expansion, a bit more color on how much more -- what kind of expansion currently is happening within this current terminal? And would I be assuming that your terminal will be nearing capacity next year after the inclusion of 5 more planes or that would not be the right assumption? So a bit more on -- details on the terminal expansion immediately on the current terminal. And what if you don't get the Indian routes by second half next year? You have so many planes coming in. So would you be -- I mean, in terms of deploying the routes, you mentioned a few routes, but would that be enough or you -- that can be an issue if the Indian routes traffic side does not come on time?

Right. Nishit, thank you very much for your 5 questions as I make a note of them. Good to hear from you as always. Let me tackle them in the order that you've asked them. The answer is, yes. The first quarter, the year has begun with more challenges than one would expect in a typical Q1, which is anyway quite challenging. I mentioned the geopolitical aspect, which saw it -- some -- 2 or 3 of our routes temporarily affected. In general, there was a standard amount of overcapacity as well. So on some of our routes, we had yield going down slightly as we adopted an aggressive posture to protect our market share. And this is all very normal in the airline business, and we are used to dealing with them. The virus was a new one and although the fundamentals should not really change because there has been no significant real problem related to the coronavirus in any of our key markets. I think sentiment has certainly affected the demand for some of the discretionary travel that people make. Now having been through this before, as I mentioned, with other similar outbreaks, I know that this normally takes about 2 to 3 months to sort itself out. And the key for us as an entrepreneurial company and a responsible company is to make sure that during these 2 or 3 months, we adopt a defensive posture and make sure that we trim capacity on routes in order to reduce the variable costs associated with flying airplanes that are not very full, which we have already done. The result of the additional capacity that becomes available as a result of these tactical cancellations, we are deploying on to more profitable routes, which is why you would see some of the profitable routes in Saudi Arabia, such as Riyadh and the newly launched Dammam and now seeing an increase in frequency because those routes are doing very, very well. Talking about routes, I would also like to mention an interesting statistic that every single route that we have, including the 8 new routes that we launched most recently are profitable. They cover all their direct operating costs and contribute healthy to the company. The only exception to that was Al Ain, which had a very small loss of about KWD 5,000 in this -- and that was because Al Ain started only in the second half of December. So it's just a couple of weeks. Yes. I hope I've been able to address your question regarding the virus. By the way, one more thing which I want to touch upon it -- one more thing I want to touch upon regarding this temporary drop in demand that we've seen because of market sentiment. And that is, we are very lucky to have the terminal. So compared to any other airline in this part of the world or any part of the world, when we have these kind of temporary blips that appear for the core airline business, we are -- we have the benefit of unchanged support from the terminal side of the business. And that's something that makes our overall earnings quite resilient. Let's now move on to the hedge. You're right. We haven't disclosed details of the hedge because we don't normally disclose specifics regarding the hedge. Currently, we have about 30% of our fuel for 2 years hedged at very attractive entry points and levels. I'm happy to say that our hedge so far for 2019, since we got into the hedge until now, has had a positive cash impact in the very high 6 figures U.S. dollars. I won't go into more detail than that because we don't look at the hedge as a mechanism to make money. We look at it as a risk mitigation strategy and a budgeting tool more than anything else, yes? Now let me talk about the seats. By removing business class, it actually has 2 advantages. One is we go back to our core LCC DNA, and it's really important for us to stay focused and disciplined rather than get distracted with tinkering with the business model, right? So we want to stay true to our DNA. Our economy class really is world-class, and it has with the leather seats and the seat pitch that we have in economy class is well accepted as a very high-quality economy class. To be fair, compared to some of the regional competitors who have flatbeds and very, very advanced business class products earlier. We weren't really serious competition in the business class category. So the second advantage is we are now playing to our strengths. So where we would have, for example, 80% load factor in economy class and about 50% load factor in business class, why actually waste time and effort competing in a category where it is not our strength. Plus, by removing our business class, we now get back -- I must correct myself, it is 6 seats and not 8 seats into the overall capacity of the airplane. We now have in our CEOs, 168 seats total capacity. And in our NEOs, we have 174 seats. I'm happy to report even on London Gatwick, where we have a few seats unsalable because of the payload penalty on the distance. We have monetized those seats. And overall, the route did an operational breakeven, even though it's just 3 months old, the London Gatwick route, right? Coming to your question regarding the terminal. The terminal now is actually by this year-end, reaching its original design capacity. We will exceed 3 million passengers, and that will max out if we remain unchanged. But as I mentioned during my little remarks on the terminal earlier, we are not sitting idle. We have just embarked on a major expansion of the terminal, which will be ready presummer by around May. And this will increase the capacity of the terminal by around another 1 million passengers or so. This includes one very large transit area. It includes another 2 ground gates. It includes a third baggage carousel. And all these initiatives will ensure that we are good for at least another couple of years. Beyond that, and I don't want to go into too much detail now. I think we will cover that in a future call. We have the plan for a completely new greenfield terminal that we are talking about 10 million passengers and more. And that's going to happen in 2 to 3 years' time. That's regarding the terminal. Indian traffic...

And Rohit, if I can just interrupt. Sorry, in the terminal, with -- sorry, in the terminal with this expansion, what would your design capacity then move up to after this 2 more ground gates and extra baggage belt and transit area?

By another 1 million. So from 3 million to 4 million. It will move up to 4 million. Moving on to India traffic rights. I think this is a very important necessary step for the evolution of traffic between Kuwait and India. The last bilateral was signed in 2007 and limits the seats just at 12,000 seats for carriers of each country. This is being taken up by the highest levels in Kuwait, with the highest level in India. By the highest level, I don't mean the second-highest level. I do indeed mean the highest level. And I expect a positive outcome with this in the second half of the year. Nevertheless, even without expansion into India, we have another 15 routes that we really want to launch and the business model and the business cases are so strong for these routes, but we are unable to launch them because of shortage of aircraft. So until the end of 2021, even without any expansion in India, we are very, very well covered. I've had to take on an unplanned A320neo in February, which was not part of the original plan because we have received approval for traffic rights to Bangladesh, for example. So we've gone out, we've got this aircraft at very, very attractive terms. I have a team in Toulouse at the moment, taking delivery of this aircraft. It was supposed to go to a Italian low-cost airline, but the lessors, the owners of the aircraft felt more comfortable pulling it back from there and giving it to Jazeera based on the strong credit risk and the strong balance sheet that we currently have, yes? I hope I have been able to adequately answer all your questions, Nishit?

Yes.

The next question comes from Jonathan Milan from Waha Capital.

All of my questions have been pretty much answered. If you can simply elaborate, I know you don't want to give a pricing on the fuel hedge, but is it above or current -- above or below the current fuel price, if it's possible to comment on that? And also, what do you expect the terminal to deliver at, say, full capacity in terms of net profit? Would it be in the range of KWD 5 million?

Thank you, Jonathan. And I'm glad I've been able to answer the majority of your questions. I suspect that I will not be able to give you a fully satisfactory answer to both your questions. Okay. But I will try my best to share as much information as I can. As I mentioned, I don't go into releasing or disclosing individual hedge prices and mark to market based on every price movement. But I can tell you that it is been very favorable since we entered the hedge. And we are actually looking at the moment, we actually have Board approval as well for increasing the hedge at or around current levels. So it's very favorable. But I won't go into the specific price of the hedge, if you don't mind, please forgive me. Second, regarding the terminal as well. What is interesting is all the costs associated with the terminal are largely now in place, right? And any additional revenue that comes in as a result of leasing out more space and the lounges, for example, delivering more revenue, that flows straight through to the bottom line. So the figure -- I wouldn't give you a specific figure because I'd rather let the numbers do the talking rather than giving you projections. But the figure you mentioned, in my view, is pessimistic.

Okay. I mean, because I understand there's a -- even the leasing and all the other contracts at the terminal are based on, say, passenger traffic. And -- sorry, I mean, I misspoke. I meant to say KWD 7 million, KWD 8 million, if we were to assume say full capacity, and this could be easily done over the next 2 years. And just if you could comment on the slowdown in -- was it a slowdown in passenger growth in Q4? I believe -- no, sorry, so just again, on the terminals, if we were to assume full capacity, given that it's a formula, wouldn't it be more in the range of KWD 7 million, KWD 8 million? I mean -- and if you could give some guidance for 2020?

I would say that's a reasonable assumption.

Okay. And then would you -- do you usually give guidance for the year?

No. We don't give guidance for the year, but I try and be as transparent as possible regarding the outlook, but I don't get into specific numbers.

Okay. And just one last question on the maintenance costs. I mean, we can see how much maintenance cost as a percentage of total. Do you mean to say that the entire maintenance cost could be cut by up to 1/3?

I believe that is exactly the objective. And I'm hoping it can be a bit more than 1/3.

Okay. Excellent. So your nonfuel cost per passenger or per plane should drop by the low to mid-single-digit in 2020 year-on-year? Nonfuel cost?

Yes. That is exactly the objective. Yes.

And congratulations on a fantastic year.

Thank you very much, Jonathan. Really appreciate your good wishes.