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

Hello, everyone. This is Hatem Alaa from EFG Hermes and welcome to Jazeera Airways Third quarter 2024 results call. I'm pleased to have on the call today from Jazeera, Barathan Pasupathi, CEO; Krishnan Balakrishnan, CFO; and Mostafa El-Maghraby, Head of Investor Relations. We'll start by a presentation from management, and then we'll open the floor for Q&A. [Operator Instructions] Gentlemen, please go ahead.

Thank you and good afternoon to everyone on the call today. With me [indiscernible] and Group CFO, Krishnan Balakrishnan, as we celebrate 19 years of flying, we are pleased to announce a strong set of result in 2024. Jazeera delivered growth in revenue and passenger numbers and improved net profit by 66% quarter relative to 2023. These results were also achieved with strong reliability improvements by 15 points this quarter, good growth in market share in Kuwait. Now let's unpack the successful quarter by referring you to the key Q3 operational and financial headlines on Slide 6. Here, you'll see that passenger growth continued its momentum from Q2, with 1.409 million customers seen across the network, posting a 1.8% growth. Load factors also improved marginally by 0.3% and have seen 80.6% load factors across the network. Utilization at 13.2 was, however, 6.5% short of Q3 2023 but improved relative to Q2 of 2024. And yield is the highlight of this quarter, where we have seen a 3 -- almost 4 points or 4% improvement where Jazeera posted 3Q yields of KWD 42.7 relative to KWD 41.2 in Q3 of 2023. As we move on to the 9 months of 2024 operational headlines, you'll see the similar trend from Q2 and Q3 continue on to the 9 months. Nine months passenger members improved by 3.9%, and we've seen 3.7 million customers across the network. The load factors were a tad lower compared to the 9 months of 2023. Utilization is also narrowing relative to Q2, and the yield situation relative to Q -- 9 months of 2023 was marginally lower at 1.5%. However, when you look into the financial headlines on Page 8, you'll see that all 3 indicators of revenue, operating profit and net profit have improved. In 3Q 2024, revenue improved by 5.7%, posting KWD 64.6 million across the network. Operating profit improved by 45.4% at KWD 12.7 million and net profits saw an impressive growth of 66.1% at KWD 11.6 million. We operated 23 aircraft across the network, over 61 destinations. And this results were a result of good revenue optimization and cost management in the quarter, which Krishnan will cover too, in the financial headlines. If you then move on to the 9 months of 2024, you'll see a similar trend from Q2 and Q3 continue on the 9 months. Revenue improved by KWD 2.9 million -- 2.9%, posting KWD 163.5 million. Operating profit improved by 14.5% and net profits improved by 8.2% at KWD 14.4 million. The momentum that we've seen in quarter 2 and quarter 3 after the results in Q1 have shown the Jazeera move into positive territory in the 9 months of 2024. We'd like to remind you at this stage that the 9-month comparison would have been significantly improved, if not for the devaluation of foreign exchange loss of KWD 2.5 million that were seen in Q1 of 2024. Ancillary revenue. You'll see that in ancillary revenue, we continue to post quarter-on-quarter improvements in 2023 relative to -- 2024 relative to 2023. In the 3 months, ancillary revenue of KWD 6 million improved by 25.9%, and that brought up the 9-month performance to 20.5%. This is due to various segments on ancillary attachment with the passenger ticket sales, and we will continue to pursue multiple opportunities. Cargo revenue was marginally lower due to the higher passenger charter operations in the peak summer months, where the higher passenger loads displaced cargo valuable capacity. On Terminal 5, both Q3 and the 9-month performance in 2024 has been nothing short of impressive. You'll see that with 3.7 million passengers in the terminal, 9-month revenues were KWD 11 million, EBITDA was at KWD 8.9 million and net profit at KWD 8.1 million. The focus on Duty Free services, lounge conveniences and other adjacent passenger revenue attachments initiatives will be contributors in the terminal. Now the terminal footprint is also going to see positive news shortly. The good news is we have regulatory approvals for the T5 expansion. And we are moving on completing and developing plans for faster expansion plan once we get the full approvals from all the different regulatory bodies. If you look at the 9-month share of market share and passenger contributions, the dual brand and product offering in Kuwait continues to see Jazeera contributing close to 30% in market share. This is an impressive record in supporting the Kuwait hub with a dual brand offering. We continue to emphasize why both national carriers play an important role establishing direct connectivity from Kuwait to key markets and key destination -- destinations. This is complementary aspect -- this complementary aspect between both carriers serving Kuwait is important in the Kuwait aviation hub for both connectivity and direct capacity increases. From official statistics, Jazeera has maintained market share during the entire first 3 quarters in 2024, you'll see in Q2 and Q3, market share growing by 29.8%. If you look at what Jazeera achieved in the 9 months of 2019, as we posted on the slide, you'll see that Jazeera today has doubled its market share footprint in Kuwait. Overall, in terms of capacity, we are seeing mild capacity retraction in the overall market in Kuwait, and this bodes well for Jazeera and all operators in Kuwait. Passenger distribution across the markets have remained similar. You'll see Egypt, the Indian subcontinent and GCC continue to hold the majority market share across the network. In terms of operational highlights, over this quarter relative to 2023, Jazeera increased fleet by 1 aircraft. 24 aircraft maintained in AOC and Jazeera operated it across the networks in the peak months in summer. As we highlighted in Q1 of 2024, we started nimble capacity management with wet-lease operations at the end of Q3. Important aspect is this year, Jazeera did not lease any third-party wet-lease aircraft into the fleet, and that has contributed well to performance as we'll see being covered in the financial highlights. This quarter and the 9 months have been also seeing the most active rotations with 13,790 aircraft movements recorded this year. In terms of passenger movements, we had a very active quarter in the history of Jazeera and the 9 months posting 3.7 million passengers across the network and Terminal 5. We've also seen the yield mix improve with very selective route operated in the summer peaks and optimizing direct and transit markets. In terms of operations and operational efficiency, we achieved very high OTPs for a peak month -- peak 3 months of July, August and September in 2024. The operational refinements that were conducted in both the ramp and terminal has allowed us to do this to achieve a very strong OTP along with investments that have been made in the terminal. Another good aspect in the 9 months is the cost of fuel. We see that moderating with a global outlook and potential production increases and you have seen the Brent price slightly come off by almost 6% in this quarter. In terms of network expansion, we will continue optimizing the network, in line with the yield improvements we've seen in the respective Q2 and Q3 of 2024 into Q4. As we have bound down summer, and increased winter operations, we will focus on higher-margin direct markets relative to the transit markets across the network. We will also embark on operating year-long routes and extending our summer offerings in Larnaca and Sharm El-Sheikh into winter. And very soon on the 9th of November, we will commence our Bhairahawa operations into Nepal, keeping almost 10 frequencies between Kathmandu and Bhairahawa for the winter. And the other aspect is to note is that we have successfully restarted Ahmedabad and Thiruvananthapuram in India. In terms of the fourth quarter 2024 and the 2025 outlook. While we see rationalizing -- rationalization coming back into market, the business at Jazeera has been resilient. In operations, geopolitics has played a key role across the business in this quarter. However, we have seen very strong resilience in Q3, and we continue to see that in Q4. In terms of jet fuel, the easing and production volumes are tailwinds for this year in Q3 and Q4. In terms of costs, you'll hear from Krishnan on how we have managed our cost initiatives very well in the quarter, and we'll continue to do that in Q4. And these have been successfully rolled out following Q2 to Q4. As for the network, we will manage network supply and demand conditions very tightly and continue to see opportunities across the markets in the winter months. In terms of travel outlook, the passenger movements will be in line with growth and what was expected and seen in Q3 into Q4 of 2024. Given our comments on market capacity and demand, we expect yields to moderate and potentially are likely seeing a start of yield normalization and stabilization. The Kuwait economy is also expected to open up further as we'll potentially see more project announcements and investments, and this is positive for 2025. As we celebrate 19 years of flying, I'd like to take this moment to acknowledge the passionate and incredible people and teams across the networks and Jazeera Airways for the outstanding efforts and the resilient performance we have seen in Q3 and for the remainder of Q4 as well. Meanwhile, let me hand over to our Deputy CEO, Krishnan Balakrishnan to give you further details of the financial performance.

Thank you, Barath. Good afternoon to all the participants on the call. Let me take you to the Slide 19. As Barath mentioned, we have been very selective in flying to destinations in '24 with a focus on optimizing the point-to-point traffic. As a result, you will see that the destinations have reduced in the third quarter of '24 to 59 as compared to 63 in the third quarter of '23 and similarly from 68 in the 9 months of '23 to 64 in the 9 months of '24. The selective profitable flying also resulted in the shorter flight time on average, which was 2.76 hours in the third quarter '24 as against 2.84 hours in the same quarter last year and 2.8 hours in the 9 months of '24 versus 2.95 hours in '23 9 months. With more aircraft in the fleet, having [ 174 ] seats, we could sell 1 seat more on average in each flight in 2024 as compared to the previous year. In the third quarter '24, the increase in seats was 1.3%, though passenger numbers increased by 1.8%, showing a positive movement in the seat factor. Now moving on to the Slide #20. As a result of the various initiatives, which I just mentioned, the operating revenues in the third quarter '24 were 5.7% higher compared to the third quarter in '23. Operating costs were lower by 1% as compared to the previous year. Despite an increase in fuel price of 9% year-on-year for the same period. Several contracts are renegotiated across departments and activities were in-sourced to bring unit costs down. As a result, the operating margin was higher by KWD 4 million and 45% as compared to the same period last year. A further benefit of KWD 943,000 to the net profit in the third quarter '24 was from the U.S. dollar weakening against the Kuwaiti Dinar. The net profit for '24 third quarter was KWD 4.6 million better than the previous year third quarter. Now moving on to the 9-months results on Slide 21. The trend was very similar in the 9 months of '24 as compared to the 9 months of '23, with higher revenues driven by volume growth. Costs were more efficiently managed and remained well below the increase in the level of operations. Resulting operating profit being higher than the previous year by KWD 2.63 million and 14.5%. Net profit was KWD 1.1 million better and 8.2% better than the previous year, primarily because of the impact of the devaluation of certain regional currencies that we saw in the first quarter of 2024. The cash balance in the company increased in by KWD 31 million due to increased cash generated by the operations and utilization of credit bank facilities. After setting the bank loans, our net free cash as on 30 September, 2024 is KWD 22 million positive. Liabilities are higher primarily because of the advanced bookings and certain bank loans. And with that, I conclude my section. Thank you, everyone. Back to you, Barath.

Thank you very much, Krishnan. I now have the floor open if you have any questions. Over to you, Hatem.

[Operator Instructions] We'll take the first question from the line of Gus Chehayeb. Gus, maybe you can have your questions in the chat, and I'll read it out. In the meantime, I'll take the next question from the line of Nishit Lakhotia.

Congratulations on a very strong third quarter. I have a couple of questions. First on how are we looking at fourth quarter. We've seen some very interesting and even aggressive promotions by Jazeera. Some of your competitors are also doing it, but this promotion will move more towards the lean period till October, November months. So how do we see the strong summer? How do you see the yield evolution in fourth quarter? Because of these promotions, if you can give some idea. And also coming to the fourth quarter, we've also seen some geopolitical risks, some closures, temporarily of certain routes, air space, did you see any material impact from that in the fourth quarter till date? So that's on the fourth quarter. Any update on that? Then on T5, when do we see the final execution start of the expansion that you're waiting for mission? How do you see it? Any update on that? So that would be helpful. And finally, on the wet-lease that you've given, how long is that for 1 plane? And how do we see that going forward in terms of your fleet? Do you intend to give more planes on sublease or will only be the 1 plane that you plan to just lease in the low season? Anything on your subleasing strategy would be helpful.

Thank you for the questions. Look, clearly, I think there are 3 clear questions in there. And the first part is more on the network, yield and geopolitics. I'll address that first. When it comes to the fourth quarter yield evolution, as you've requested from us. Look, I think we all know the fourth quarter coming off of a very strong summer month into Kuwait is seasonally a very big point of sale from both the channel mix as well as the market mix. What we have done in this fourth quarter (sic) [third quarter] is that you've seen very targeted promotional campaigns. That's to build the base loads of seats. You'll see that Jazeera has been active, as you correctly pointed out, in certain markets, but not all markets where we want to build forward loads, and we have been successfully doing that over Q2 and Q3, and we'll continue that in Q4. However, in terms of yield evolution, I don't think you can expect any magic in Q4 relative to all the prior years. But one thing that we have been doing very actively, which is attached to your third question on the wet-lease operation is that we have been managing capacity in a very nimble and agile manner. Very early in post Q1 call, we've highlighted that coming into the shoulder months after the peaks we will rationalize capacity where it needs to. But at the same time, we are seeing opportunities across the network. You've seen -- if you look at the route mix in Jazeera relative to Q4 of 2023, you've seen that we had capacity in certain markets like Egypt, very aggressively. That's also in terms of the supply-demand balances in the market that we're taking opportunity too. Now -- so that's the first thing on yield. We should not see any magic on the yield situation in Q4. But what we can tell you is what you've heard from Krishnan earlier, we are managing costs very aggressively. We are maintaining and managing in a very agile manner, the capacity. And both of that should bode well for Jazeera in Q4. As with your comments on the geopolitics, yes, we have seen some ad hoc airspace closures. We have seen some specific airport closures that have only been over 24 and less than 48 hours. We have not seen a major impact of fallout in our performance or business resilience from the geopolitics. That's my comment earlier, when I mentioned in terms of operations and outlook. The business remains very resilient even in the current Geoff Brownpolitic landscape that we are seeing at the moment in the Middle East. However, there will be further opportunities when these geopolitics eases for Jazeera. Now in terms of the second question on the expansion of Terminal 5, as I mentioned, we have got the initial approvals. And right now, we are on the drawing board in terms of fast tracking design. And once we get the final... [Technical Difficulty]

All right. I think your disconnected.

On the last part. Hello?

Yes, you broke. You disconnected for a bit. I think you were starting to talk about the T5 expansion.

Okay, on the T5 expansion, as I said earlier, we have received the first level of approvals. We are at the design stage in terms of coming up with a plan and fast-tracking the construction of T5 expansion. And once we get the final approvals that is required for regulatory purpose procedure, we will embark on constructing it. And what I've highlighted earlier is we will surpass 5 million customers in 2025. And hence, we were keen to have Terminal 5 expansion operating before the middle of 2026. Thank you. And on wet-lease and how long we'll proceed with the wet-lease, it's a matter of nimble and agile capacity management. Once we come out of summer on both the shoulders, where we have capacity that we can profitably, lease out, we will do so. And interestingly, given our operational reliability and performance reliability, we have been approached by a number of operators, both in the Middle East and around the region on performing operations outside our peak months. And so we will opportunistically pursue that, but keeping intact that our growth in the Kuwait hub is the #1 priority for Jazeera.

Thank you. I'll take a question from the chat. Question from Rajat Bagchi, any update on the corporate tax implementation in Kuwait and if Jazeera will fall under the net? Are you hearing anything on a potential VAT implementation. [Technical Difficulty] Guys, you disconnected again. Barath, can you hear us?

Yes, I can hear you.

The question is on the corporate tax and the VAT.

Yes. On corporate tax and VAT, we don't see an implementation of both in the foreseeable future. Though we have seen some news mills running that. We have not seen anything from a regulatory approach to us on both the VAT and corporate tax.

Question from Chedan. With the recent geopolitical risks, how would that affect cost per flight in the fourth quarter of '24 quarter and first quarter of '25? How much of your routes are affected? Are major routes affected? And how much do they represent of total flights? And will we see an increase in ticket prices due to the longevity of flights in the first quarter? If yes, by how much and is across all the markets?

Our answer to that is very simple. We have seen a very muted response on the geopolitical impact on the business given the resilience we've seen around the business in Jazeera. We do not see that carrying on in Q4 to Q1 if it continues at this level. However, we don't have a crystal ball. We do not know what is going to transpire in that. But we have been managing the situation very aggressively and opportunistically, where we have seen some limited impact, that's only been between 24 to 48 hours. We've been able to get passengers from point A to point B in destinations that are impacted without any issue. Thank you.

Thank you. Question from Mohamad. What specific cost-saving initiatives have been implemented to mitigate the financial challenges experienced in Q4 '23?

Let me just pass this on to Krishnan. Over to you, Krishnan.

Thank you for that question. Obviously, we will not be able to delve into too much of details on what exact measures we have taken, but I can give you certain highlights. We are basically renegotiating almost all contracts across departments, such as -- I can give you examples such as the ground handling in the whole network. We're looking at the maintenance contracts. We are also managing our interest costs by making sure the cash flow is optimized. Marketing costs are constantly being reviewed, we shift more to digital marketing than the traditional marketing avenues. The catering costs are also being optimized because we are uplifting food from different local markets which are suited for the passengers coming from there and also giving us a cost advantage. Additionally, we are constantly monitoring our fuel optimization measures. So the pilots have very clear mandates on how to manage the fuel and rather optimize and reduce the consumption. And we are seeing good results from those. So it's an effort across all areas of operations, and we are seeing some good results out of those. So far, we are exceeding the targets that we set for ourselves internally. Obviously, I am not at liberty to disclose more details at this moment.

Thank you. Question from -- 2 follow-ups from Rajat. First one is there -- I'll read one by one. The first one, is there a risk to the removal of the fuel subsidy, and can you please comment on how the subsidy works? And what would be the potential impact if it gets removed?

Can you hear us?

Yes, can you hear me?

Go ahead.

Yes, follow-up from Rajat. Is there a risk to the removal of the fuel subsidy? Can you comment on how it works? And what would be the potential impact if it's removed?

As far as you're concerned, you've how we have performed this quarter on costs excluding fuel, we have managed our costs extremely well. I think you have 2 points I've highlighted. One, you've heard from me and you've heard from Krishnan in terms of how we have been managing the yield mix and the route mix in the revenue composition. And we have done that in Q2 and Q3 very successfully by toggling between the point-to-point markets and the transit markets. So that has really helped the top line numbers. Now when it comes to bottom line, you've seen Krishnan's explanation on how we have put everything on the table from end-to-end, in the operational scope of cost management from ground operations to fuel management to airport negotiations to engineering and maintenance contracts. And likewise, we are doing that across the entire organization. And we've been successfully been able to reduce our costs in the quarter, as Krishnan has highlighted on the call earlier, and we will continue to mitigate any risk or any attachment of risk associated in any fuel benefit reductions that has been asked on the call.

Second question is how do you see capacity evolving in '25 and '26 from Kuwait Airways and foreign operators? And there are several questions on yield as well. How do you see yields evolving going forward? Do you expect us to go back to 2022 levels?

Okay. Let me first tackle the capacity question. If you've seen the overlay of the Kuwait Airport statistics in terms of capacity and then overlay Jazeera's market share on the statistics, you'll see a very interesting trend line. You've heard a number of carriers have actually retracted capacity out of Kuwait last year and even in the middle or third quarter of this year. Now with that and Jazeera increasing rotation out of Kuwait, we have the busiest 9 months to date, and we have 24 units on our books at the moment. We are positioned well in terms of managing and rebalancing capacity to market share very aggressively for the foreseeable future. In Q4 and Q1, we will continue to put capacity where the yield mix is very strong, and we have identified a number of markets. If you look at the market share and where most of the growth is, Egypt is the #1 market for us in terms of market share. The GCC is very strong. We are likely the largest international carrier going into the GCC from a religious market point of view as well. So with that, we will continue to believe that from Jazeera's point of view, we will always maintain, if not even grow our capacity share in the market. In terms of market capacity, we believe that the trend line you've seen in this year will likely continue next year. And we will potentially see the market growing by 3%, 4% and a clip rate. And Jazeera maintaining market share by growing along the clip rate as well, and achieving its balance in terms of market share. In terms of yield, the comments earlier in terms of the imbalances we have seen in certain targeted markets has done well for us. In terms of seasonality, the high level of capacity additions just when COVID was lifted, has been kind of muted post the additions. If you study the Turkish market, you've seen there's huge -- almost 50% of capacity retraction between Kuwait and Istanbul as a market. Likewise, we have seen certain targeted markets where capacity has been retracted by competitors and Jazeera doing very well. In fact, that's one leg of it. And the other part is that we have done well in certain markets with single frequencies, we've actually doubled frequencies in some of the leisure points, and that has been very good for us as well.

The next question is from Mohamad M., are Terminal 6 plans on hold given that you're expanding T5? And what's the current passenger capacity utilization?

First and foremost, we are utilizing T5 at 100%. As you can see from the performance in T5, it is built to accommodate slightly under 3 million. And next year, we will be hovering above 5 million customers in Terminal 5. And hence, our immediate priorities, given that we need greater terminal capacity footprint to accommodate the growth we're going to see in Jazeera is to expand terminal. We have not ruled out Terminal 6 expansion, but that is not for the current 2 to 3 to 4 years at present. And T6 is probably something that we will incubate and plan once we have completed the T5 expansion.

Some questions from Gus from the chat. The first one is what percent of passengers were in transit in the third quarter? And how does that compare to last year? And what are the transit travel implications for the airline and the terminal?

Look, on the transit profile of customers, you will see that we have reduced the content of transit traffic passengers in the peak high-yield months to get benefit from direct point-to-point markets from Kuwait, which is highly lucrative for Jazeera. On the actual statistics to that, let me just hand it over to Krishnan.

So in 2023, our transit passenger percentage was 23%. And in '24, it was about 16% as a comparison.

More questions from Gus. What was the seats or plane capacity of Kuwait Airways in the third quarter relative to last year? And what drove the large jump in your ancillary revenue?

Can you repeat your question on Kuwait? I didn't come to the...

What was their seat or plane capacity this quarter -- in the third quarter versus last year? Did they increase capacity year-on-year?

As far as Kuwait Airways is concerned, I think the market statistics, Kuwait International Airport will giva a full clarity on their market share and their capacity share, and I encourage you to have a read of that. It is publicly available. As far as your second question, the high 20% to 25% growth we have seen on the Q3 and the 9-month ancillary revenue numbers purely a reflection of how we monetize the customer -- across the customer journey, both at the terminal and at the airline on the ground, the terminal at the prebooking phase and the onboard offerings we have at Jazeera, including baggage. So every single element of the customer journey, ancillary attachment did very well in Q3 of 2024, given the focus we put into the business on aggressively marketing that. And you'll see Jazeera do more of that in the ensuing quarters as well.

Questions from Ahmed. 2 questions. The first one is, how is the increase in your market share linked to the improved yields? Are the higher yields the results of non-Kuwaiti airlines exiting the market or are you gaining market share from Kuwait Airways?

Good question. If you looked at what we did in the peak month of July, August and September in the peak window of summer, we've ramped up capacity in the leisure markets. Obviously, in terms of a portfolio approach on your customer segmentation, the leisure market outbound in Kuwait, just as the European carriers will see that in the European markets during summer, is highly lucrative. I think this follows the comments that we have consistently implemented that we shared in Q1 and Q2 on what we're going to do for Q3. Prior to going into summer, we were very clear that we're putting more than 300,000 seats into a very busy summer season, and that's exactly what we did. By successfully launching a greater share of segment mix of choosing leisure versus long-flying trunk markets, we did very well in terms of 2 things. One is market share from a direct point of view, from Kuwait, and second thing is improving our yields. And we will tactically and on a strategic level, continue to pursue that approach. And with regards to the question on whether it evolves with third-party carriers flying into Kuwait, losing market share. I think we cannot comment on a global level because each route has got different competitive dynamics. And in each route, we are either the only operator on the route or the second, third, and fourth operator on the route. And in that mix, I would say that we maintained our market share, but we cannot comment on who actually lost any market share in that.

Next question is jet fuel prices are lower year-on-year in the third quarter, but this is not very visible in your income statement. Do you have any hedges in place?

Yes, we have the crack spread hedge that is in place. And if you look at the current pricing of the crack spread, it's even to our hedges. And we've done well with regard. As far as the fuel situation and the way we've managed it, I will then encourage you to look at our costs, excluding fuel. We've done very well on that regard. And we can also comment that the current look on both Brent and Jet, given the global economic forecast and also the production -- potential production increases could be potential tailwinds for Jazeera.

Question from Asad-Ullah, more than the third quarter operating cost, staff costs have been reduced by 14% year-on-year. Can you elaborate how was that implemented? Secondly, there was a significant 33% reduction in marketing costs. Could that hamper the attraction of more demand?

So far as the staff costs are concerned, Yes, we have increased our fleet during the course of last year and partially this year, and the manpower required for them were ramped up over the last few quarters. So now that we have a fleet, we have enough people. We're not adding more. So that would be one of the reasons for the decline is that. Secondly, I would request that we wait for the year-end results to do a proper comparison because there will be some year-end adjustments based on how we perform, based on certain approvals and valuations. So I would suggest that we wait for the full year results to see the real comparison of the staff costs year-on-year. Second, coming to your marketing expenses, as I mentioned earlier, we have been very focused on doing more digital marketing. And obviously, the costs for those are much lower than your traditional marketing avenues. So that is why you have seen that the cost has reduced. We are very strongly of the belief that this is not in any way going to hamper our attraction. And we are doing very focused marketing as well, wherever the routes are. We are not doing just a marketing exercise for just the branding, but where we need, where we have to focus on new markets, we have done the marketing. So we have not reduced our marketing expenses without logic and without proper justification.

Question from Ankit. What are the long-term fleet expansion plans? The goal earlier was to get to 35 planes in the medium term? Is this still valid?

Yes. With regards to the fleet, I think everyone on the call is aware that we have an order book of 26 new aircraft, 18 A320neos and 8 A321neos to be delivered to Jazeera from the middle of 2026 onwards. Now with regards to the fleet plans, we are pretty stable with the 24 aircraft in the network. But we will like to put more seats in the market. And hopefully, we can share more with you in the ensuing months and even as early as next quarter because we would like to grow our volumes in the market next year by more than 10% in terms of seats offered in the Kuwait market. That's primarily on the count that given the growth trajectory we've seen over the last 2 years and the growth we expect next year, we are confident that Jazeera could put in at least another 10% of additional seat capacity in the market, and we will address that by either by looking at opportunistic leases if we have to do it or looking at other solutions, which hopefully we could share more with you in the Q4 call.

The last question, I'll take up on the market. I think you've addressed some of it but I'll mention them if you have something to add from Rajat and Zuhaib. Can you share some numbers on the system-wide passenger growth rates? How do you see the current system-wide passenger numbers versus pre-COVID levels? And the other question is on the competitive landscape and their capacity, if you have any updates or in to add to what you've mentioned?

It's a good question. Thank you. From -- on a system-wide basis, given the growth you've seen in Kuwait International Airport, and you've seen what growth -- or the clip rate that Jazeera has grown in last 2 to 3 years and this year, we expect to continue our growth momentum by a minimum of at least 4% to 5% a year. That's on the back of my comments earlier that next year, we need to grow by 10%, and that's where we want to add almost 10% more seats into the market next year. We see some opportunistic inroads in the initial years, and then we expect the system-wide network growth to be hovering between 4% to 5%. That's for both Jazeera and the market. However, you've seen how low-cost carriers have penetrated market share in certain markets in Europe, in Asia, low-cost carriers have actually held up to 60% market share in Indonesia or Malaysia or Philippines, where the overall market has grown and the main dominant contributor to the overall market has been LCCs. With that remark, we believe that Jazeera has got potential upsides to grow in the Kuwait market by making travel more affordable and accessible to the wider market and network and along with the markets we operate in.

We'll take the last question from Nishit Lakhotia and then we can conclude.

I just have one question on your airline business profitability in general. I mean your terminal has contributed KWD 8 million plus in your bottom line in 9 months. And by the end of this year, your terminal profitability to the Jazeera group would be around KWD 10 million or more than that? And if you look at the group profitability, given that 4Q would likely be some loss, it will be around KWD 12 million or something like that. So your core airline business, is not really contributing a lot to the bottom line if it was not for the terminal. So what do you have to comment as to where you see the profitability in the coming years? How much only is the airline business would be? And possibily, the next question would be the IPO of the terminal business. Is there any strategy or intention to do that at a future date?

I think you've got a couple of questions rolled into one question, and I'll address them. Let me first handle the question on the airline and group. I think on the onset, we have to understand it's a symbiotic relationship between the terminal and the airline, and both needed for a successful group model to coexist. Now if you've seen -- obviously, we've incubated the terminal. The terminal is running well by itself. There's a lot of good revenue attachment to the terminal across the various segments of Duty Free, retail outlets and other charges in the terminal. As for the airline, post-COVID, just post-COVID, the airline did very well. I think if you all of you reflect on the numbers that Jazeera has posted, it did very well in the ensuing ones post-COVID, that's predominantly on the base of high yields or the revenge travel that came up. However, what has happened transpired over then when yield has normalized with the expansion of capacity into Kuwait post-COVID. And you've seen Jazeera managed that very aggressively last year. In the last 2 quarters, we have already shown you that 2 things has been done. One, on the year mix, there has been a lot of tremendous focus on optimizing markets, on selecting markets very acutely that will generate the best yield mix across the different seasons we have in Kuwait. And you can clearly put a tick on that because that's delivered in Q2 and Q3. The other thing that we are addressing on that Krishnan covered very well is cost. And I commented on it earlier, every single cost item is on the table in Jazeera, on scrutiny and as well as improving cost dynamics, especially when we have scale. So don't be surprised if you see us in certain cost segments where we had to outsource certain services. In the future, Jazeera looking at a potential in-source model. Because we're very clear that some of the margins that has been given up from the airline to third-party vendors potentially will prove better being retained at the airline. And that is coming to a very good journey at this stage with the right size of growth we've had with 24 aircraft and the additional 26 coming on the books in Jazeera, it now gives us the added opportunity to pursue such margin expansions in other areas where we had outsourced service provisions. So -- and the -- so that will address your question 1 and question 2. As far as your terminal multiple and your IPO. Yes, you're absolutely right. There is a high-margin multiple normally attached to infrastructure across aviation. It is something that is very attractive and a lot of groups pursue that. And likewise, Jazeera will consider that at the right time and the right opportunity. But at the present moment, we are very pleased with the group model we have, between the terminal and the airline. But it -- there's nothing that says that we will not ignore it or we will not pursue the option. Thank you.

I think we can conclude on this note. So I'd like to thank Jazeera's management for their time today. And thank you, everyone, for participating.

Thank you.

Thank You. Have a good rest of the day everyone. And this concludes today's call.

Thank you.