Wizz Air Holdings Plc (WIZZ) Earnings Call Transcript & Summary

Hello and welcome to the Wizz Air F 2022 Half Year Results. [Operator Instructions] Just to remind you, this conference call is being recorded. Today I'm pleased to present Wizz Air's CEO, Jozsef Varadi; and Wizz Air Executive Vice President and Group CFO, Jourik Hooghe. Please begin your meeting.

Thank you very much. So again, good morning, everyone. Thank you for coming. Really appreciate your presence, and good to see you as human beings around us. Good to be back in life, in business. So this is to report the first half of our financial year called Fiscal '22. So maybe I would start with a quick wrap-up upfront. So in summer, just behind us, we ramped up operations pretty much to 2019 capacity levels. This is one of the highest in the industry in Europe. We did pretty well on that. It was a profitable quarter in terms of operating profit. So we were clearly seeing a ramp up of the financial metrics as well during this period. We delivered positive cash flow in this period, liquidity reaching EUR 1.7 billion at the end of September. Importantly, both Fitch and Moody's reconfirmed our credit rating, investment-grade credit rating. That obviously is a very important matter to us given our exposure to capital market, especially when it comes to aircraft financing. Short term, we are seeing a number of temporary challenges the business is facing. I will talk about this later, but just the headlines, we are seeing a few of our markets that are under-vaccinated relative to Western European levels. Obviously that is affecting short-term demand. We are seeing a significant ramp up of our capacity to 170 aircraft next year versus 419at the breakout of the pandemic, that's a significant growth. Obviously that carries some level of inefficiency in -- at the moment with regard to aircraft utilization and crew productivity. But once we are fully ramped up, we will be back to our historical operational levels. And also we are seeing the macro environment playing against us on commodities when it comes to fuel pricing and FX. We are much focused on executing against the Wizz 500 agenda. That is strategically important to us. We continue to invest in our fleet, in our network and our people. Just to give you some numbers, as said, we are going up 170 aircraft operation by September next year. This is roughly 50% capacity increase versus the breakout of COVID in March. We are hiring people. We are looking at having 6,700 employees in the company at that time in September. That compares to 5,000 at the breakout of COVID-19, and 4,000 at the low end during the pandemic. And we have been investing a lot into diversifying our markets. We opened up a lot of new countries, new operating bases and new routes. And you see how that investment has been flown through. If you look at the current snapshot of our business metrics, as said, we have been back into 2019 level on capacity, and to a large extent also in terms of passenger traffic. Added a number of airports, aircraft and operating bases. So we are now having 44 operating bases in operations or announced compared to 26 in March 2020. If you look at the route network, we have a total network of 1,155 routes, of which 440 were opened during the pandemic. So we have been greatly diversifying our network during this period. So if you look at capacity levers, you are seeing that this is the calendar year from week 13 to week 44. We are in week 40 -- in 44 today. So this is tracking until week 43. You are seeing that our capacity level is pretty much on 2019 ASK level. Load factor is also ramping up. We have not reached a level of operational efficiency what the business delivered in 2019. But we are certainly on the way to achieve that. So it's still a weaker demand environment, but relative to the industry, relative to our competitors we have been performing quite well, showing how effective we've been in ramping up operations. This is the market share gain. And the market share gain given the period we are in. And this is a deliberate choice of ours. If you look back in 2019, 2010, we did exactly the same thing. We took of the weak market, we took advantage of the weakness of our competitors, and we invested into those markets by gaining market shares. That's exactly the same what's happening at this point in time. You can see that pretty much in every one of our countries we are building our market positions. We are grabbing significant market shares. Just to name a few countries, if you look at Albania, out of the blue we became the largest carrier in the country. We stepped up in Italy in a big way, tripling our presence in the market, going from 3% to 9%. But even on our existing markets like Romania, we have been able to step up, taking advantage of the situation, the weakness of our competitors. So this is a deliberate investment into markets which we believe will benefit us on the medium haul and the long term, irrespective of some of the short-term challenges that we are facing right now. And with that note, let me hand it over to Jourik.

Thanks, Jozsef. And good morning also from my side. It's great to see some of you face to face. Let me give some highlights on the financial performance. So looking at the key KPIs, starting with revenue. You see that the revenue for the first half increased 87%. Revenue for the quarter increased 80%. So very strong performance. Obviously the base was still very low, but as explained we're nearing the ASK levels of 2019, which is very strong. Looking at the profit side, the operating profit for the year, sorry, for the first half of the year was minus EUR 52 million. The operating profit for the quarter, as Jozsef said, was EUR 57 million positive. So we're turning a positive on the operating profit. From a total net income for the first half, we're at minus EUR 120 million which basically implies a minus EUR 6 million operating -- sorry, net income loss for the quarter. There's a big difference between this positive EUR 57 million operating profit and the EUR 6 million loss. And that difference is essentially explained by the unrealized FX losses that we have. As you know, we are long on U.S. dollar liabilities on the balance sheet. And as the dollar strengthened during the last weeks of September basically we've kind of had to recognize this unrealized loss. But this has nothing to do with operational performance. This is, let's say, purely related to the devaluation of the balance sheet liabilities. We'll talk a little bit more about cash in a few slides. Looking at the cash performance, you'll see that the first half delivered a cash performance of EUR 0.0275. The quarter delivered a performance of EUR 0.0243 for quarter 2. That is around 12% above the quarter pre-COVID. So we're getting closer to our cash performance, but we're not fully there yet. As Jozsef highlighted, we're continuing to carry a little bit of inefficiency because of utilization on fleet and on crew. So if you look at the feet line here, which is basically the depreciation line, you'll see there's a significant inefficiency. So there is about close to EUR 0.30. And then also in the crew line, you can see the balance. I mean, those 2 lines basically add up to almost EUR 0.40 of inefficiency in the first half. And we'll continue to carry that until we're really, really fully ramped up. Remember we, at this point in time we have 20% more capacity than we operate. But that gap is going to close by next spring. And then obviously the normal regular cost structure, pre-COVID cost structure will be fully back and may even have potential to do better. Obviously we have invested a lot, not only in feet, but in better feet, and that should come and translate back into the cost structure. Moving on to cash. You can see that we have gradually maintained and even built our cash position, our liquidity position. We've remained at EUR 1.7 billion. Our balance sheet remains investment-graded with Fitch and Moody's, as Jozsef mentioned. Fitch revised the outlook in a report last week, which may have seen from negative to stable as they look at -- as they basically resize the outlook for next summer where they see obviously stronger vaccination rates giving more confidence for travel to return to pre-COVID and above levels. We continue to have a short booking window, which you actually see in the next slide, when we unpack the cash performance into the different drivers. So firstly, if you look at cash from an operating point of view, given the cost structure, which as said was around 12% higher on the ex-fuel CASK, but also given the pricing environment, which is still 25% below pre-COVID from a RASK point of view in the last quarter. Obviously the operating profit was positive, was not where it used to be, right. So clearly we have ways to go. As confidence comes back, as restrictions fully lift, that pricing performance will return. And most of that should happen by next spring, next summer. And that operating cash flow will obviously continue to increase. Working capital was a positive change. There's 2 components to that. I mean, we had a higher volume of activity. So payables contributed to working capital. But we are in front of a lower-volume quarter from a revenue point of view. Seasonally speaking, winter is slower than, let's say, summer. So unflown revenue has declined. But still, those 2 combinations together lead to a positive EUR 36 million contribution from a working capital point of view. Currencies whereas a hurt on the P&L were a help on cash because of the U.S. dollar deposits. And then last year, as we've always guided, PDP payments this quarter would be relatively elevated. For the year we have around EUR 120 million predelivery payments. Most of that came this quarter. The balance, the EUR 40 million balance is coming in the second half. So all in all, very strong cash performance I would say. If you look at ancillaries, that continues to be a stronghold for us. Ancillaries in the first half were up EUR 5 per passenger versus F '20, so EUR 2.5 per year. That's kind of well ahead of our target of EUR 1 per passenger per year increase. The quarter was a bit lower than the EUR 5. Whereas in Q2 we had EUR 3 per passenger per -- per passenger increase versus F '20. So it's slowing down a little bit. They may continue in half 2. And the reason for that is obviously the market is more price-sensitive, more price-elastic, I would say. And that also means that you lure in, or you get basically passengers which are more price-sensitive, and they would also buy less ancillary services over the summer quarter and then they continue to some extent over half 2. But as pricing will restore next year, that obviously will also restore further to strengthen ancillary. So all in all, we're well on track to deliver our targets for the full year also in ancillary performance. And with that I hand it back to Jozsef.

Thank you, Jourik. I think it is very important that you fully understand what we are doing here with regard to investing into our future with much focus on fiscal '23. We're seeing fiscal '23 is going to be a year in which you will see our financial metrics largely restored to our -- to historical levels. So our investment has been going through 3 lines essentially. We have strengthened our fleet plans. I will talk about that in a moment. It's not only that we are ramping up our existing markets, but we have been adding a number of new markets. And we are starting to see some maturity coming through those early investments during the pandemic. And as said before, we have been substantially hiring people. Just over the last 3 months we hired over 1,000 people. I mean that relates 4,000 at the bottom of the pandemic. So versus that level we have been hiring 25% new employees in the company for getting ready for next spring. If you look at vaccination, we're seeing that there is a very clear correspondence between vaccination rates and travel restrictions. So European travel has been evolving around the concept of vaccination rollout. Vaccinated people can travel, nonvaccinated people cannot travel or facing, they are facing significant restrictions. And you see how these lines have been evolving. So clearly, vaccinated people are now pretty much free to move around Europe. But nonvaccinated people are getting increasingly restricted. Essentially they are fully restricted as we speak now. That poses some short-term challenges, as said, on our network because Central and Easter Europe is less vaccinated than Western Europe. And it's playing catch up. Having said that, the rate of improvement is pretty enormous I would say. Look at a country like Romania. Romania is vaccinated at around 30% level and is expected to reach 75% by February. I mean, obviously events in the country are tragic and people are acting on it by fear. But there is a very clear improvement. So we're going to be seeing medium-term beyond the next 3 to 6 months a significant kind of settling on this issue in some of the markets that today we are negativity affected. So we're seeing vaccination is a key issue. And vaccination will be driving travel demand and people's ability to fly. That's kind of another way of looking at vaccination. So today around 20% of our capacity is placed in markets where at least 70% vaccination level has been achieved. And that rate is going to improve immensely in the coming period. So when we come to the end of the winter period, March 2022, it's going to be over 50% of our market reaching this 70-plus percent vaccination level. And you see that going into the summer, that is expected to further improve beyond 80%. And getting into winter, next winter, 2022, we're going to be basically fully vaccinated. And I would also say that those people who are not vaccinated are probably not our travelers at that time in any event. So around summer we're going to be seeing a traveling public we are targeting being fully vaccinated. So that is giving us the confidence that 2023 has got to be a very different period for the airline sector for Wizz Air in terms of our ability to perform properly, not only in capacity but also financially speaking, because simply we're going to be carrying a fully vaccinated traveling public. Talking about the fleet, that's one of the key issues we have been focused on and we are still focusing on. This chart is showing to you that if you look at the blue line and the red line, that we essentially are upping the game and we are adding more capacity, we are planning on more growth, we are acting on some of the newly arising market opportunities happening recently. I mean, some airlines are struggling, contracting capacity, opening up opportunities for us. We are seeing Ukraine signing an open sky agreement with EU, giving us access to certain markets. So essentially, we have been adding capacity. We have been adding more growth to the system as we speak, relatively what we saw just 3 months ago. And we are delivering it on the basis of extending some of the aircraft we have in use at the moment, and we are also trying to advance some of the new aircraft deliveries. The other line, which I think is also important is to see the gauge of the aircraft. Last year we were operated a fleet with average seat count of around 200, and that is going to go to 225 in good 2 years from now. I mean this is a significant improvement because the gauge of the aircraft corresponds directly with the unit cost. So the bigger the aircraft the lower the unit cost will become. And it's not only the gauging effect but also the age effect which benefits us that right now we have a fleet age of around 5 years, and that will go down to around 4.4 in the next 2 to 3 years, which will also yield significant financial benefits on the operational metrics. So we've seen that we will get a lot of competitive advantage out of the fleet. That's why we are continuing to invest into that area going forward. And this is against the backdrop of the industry that you will see airlines flying an aging fleet of aircraft, which will end up with significantly higher unit cost versus the fleet what we're going to be flying with much lower unit cost coming from innovation, fleet age and technology what we are using. I mean, all the new aircraft we are taking delivery of is a 20% lower unit cost than the previous effort. So the a321neo delivers 20% lower unit cost than the a320ceo aircraft. And if you look at the market, we continue to add capacity pretty much in each of our market. So starting with core CEE, we are adding aircraft, and we are delivering through this market. So it's not only that we are just ramping our operations back up to 2019 level, but actually we are growing our presence in Central and Eastern Europe. But at the same time, we have been opening a number of new markets like Italy, U.K. Wizz U.K. continues to strengthen its presence. We continue to invest in the United Kingdom. Ukraine, I just said, on the backdrop of the Open Skies agreement with EU. We are seeing a lot more access to markets. Albania is a brand new market. And also we are ramping up Abu Dhabi in this period. And at the same time, you are now seeing some changes in the market with regard to consolidation. A few airlines are now going down or getting totally distressed. We are seeing airlines contracting capacity, not only in winter but beyond winter. Based on published schedules we are seeing a lot less capacity committed for next summer. And that's really the opportunity what we are chasing. We are growing our workforce, and we are investing into our people. As said, we've just hired 1,000 people over the last 3 months. We are building our organization for 170 aircraft operation in summer 2022, requiring 6,700 people. Jourik was talking about the inefficiency we keep cutting. The red line is showing you the organizational requirement of the existing fleet and how that's ramping up. And the blue line is showing the actual utility of the workforce. So you are seeing that we are clearly underutilizing our workforce, our fleet at this point in time. But by spring 2022 we're going to be fully ramped up and fully utilized. And we're going to be able to restore our historical operational metrics. And that comes on a newer fleet, on an upgraded fleet on a newer technology fleet, which we yield significant financial benefits versus our history performance, but certainly versus the market versus other airlines. With regard to sustainability, we are very committed to sustainability. We don't think there is a greener airline than Wizz Air. So if you are really serious about being green, you should all fly Wizz Air. If you were to apply the Wizz Air operating model in Europe, operated with Wizz Air aircraft, Europe's emission would come down by 34%. So this is the operational efficiency what we are bringing to the market versus the rest of the industry. And we tend to be the most innovative airline bringing technology to the market. As said, we have been adding 37 brand new aircraft during the pandemic. Not many airlines have done this. And the new aircraft we are bringing is far more ecologically efficient than previous technology. And we believe that at the end of the day, if this industry is serious about being green and serious about sustainability, it's all about the technology, and it's all about the operational efficiency, how that technology is going to be used. And I believe that we have been demonstrating that we are in the forefront of those developments. Obviously we are also trying to address the short-term and the medium-term issues and bridging ourselves through that period. We are investing a lot into our people, as said, and we take our employees very seriously. We have been restoring the dialogue in person with our people. I think people are very supportive of the company's strategy. They have been supportive in the downturn. And obviously they are supportive in the upturn we are going through right now. And we are getting some more credits from the market with regard to our ESG efforts. Wizz Air is now linked by Sustainalytics #8 in the world out of 70 rated airlines, which is quite a good ranking. And we are taking other steps not only to address sustainability but also to improve our standing on diversity, especially at Board level and senior leadership level. So just to recap the presentation. So summer H2 in total was strong in terms of rebuilding capacity in terms of recapturing travel demand. At the same time, we are seeing that the high demand periods are very strong, but the off periods are somewhat muted. Q3 capacity will be at around 2019 level going forward. And in Q4, it's going to be probably somewhat more than Q4 '20 -- fiscal 2020. We're going to be exceeding that capacity level. So I would say that in terms of operated capacity in the market, we are pretty much back in the game. We will continue to invest. We will continue to invest in our fleet, in our network and our people. And we are looking at spring '22 as the time period that we can be fully ramped up. And our operational efficiency and financial metrics may be resumed and reinstated at that point. And this is all on the backdrop on improving vaccination rates across our markets. And we believe that we're going to be in great position to stimulate demand. Given our improved fleet and our improved economics, we will be in the forefront of being able to capture the rising market opportunities coming out of the woods. Nonetheless, short term, we are expecting some turbulences. The commodity market remains volatile, including fuel as well as FX. We see how this play out. We are expecting a loss in Q3, given the investments we keep making and some of the issues temporary the business is facing, like under-vaccinated countries, the commodities, but we believe that these issues are short-term leave. And in a few months, towards the end of the winter period, early spring, these issues will largely be behind us. So Q4 is an uncertain period with that regard. We'll see to what extent those issues continue to prevail at that point. As said, fiscal '22, we see as a transition year into fiscal '23. And we are full-swing focused on fiscal '23 to make sure that we are delivering a 50% growth versus prepandemic times, and we are fully ramped up for that growth in terms of markets, in terms of fleet and in terms of the organizational requirements of our people. And with that, I would close this presentation and would hand over to the floor for any questions you may have.

I'm Jaime Rowbotham from Deutsche Bank. I've got 3, please. On fuel, we learned this week that Ryanair had splashed out on some fuel caps as a bit of an insurance. Is that not something that appeals to Wizz in the absence of any hedging? Second one is on maintenance. Jourik, the 2Q maintenance costs, very low, I think it's EUR 17 million, down from EUR 42 million in Q1. I think that has something to do with lease extensions, but perhaps you could clarify. And the last one is pricing. Any comment on fares versus precrisis for next summer? Sorry to mention them again, but Ryanair said plus 5%, albeit on low volumes earlier this week. So any comment there would be great.

Okay. So I hope you can hear me well. On the caps, I mean, they also come with a price. So nothing is for free in this world. You typically look at a percent of the underlying commodity that you're hedging. So if you look at it, I mean, the prices today are actually trading lower probably than the caps that they have put on. So we've committed to a no-hedge policy. It's a bit difficult in an inflationary cycle. But you need to see through the full cycle. We'll need to see what the industry is doing when the cycle goes the other way. It is painful in the short term, but we know -- and in the long term we don't pay the fees to the bank. We know that the drivers of the hedge decision was really linked to the fact that we have routes that we're still operating, the power that we may have there to adjust pricing if needed. And obviously we have strength on the balance sheet to see through, let's say, the short-term painfulness or inconvenience, if I may call it like that. So clearly, yes, we've looked at it, but we decided not to do it. On maintenance, it's true the lease extensions have helped with the maintenance line in the quarter. I mean, maintenance is always an ebb and flow of cost. I mean this year we have 14 redeliveries, for example. They come with more cost. We didn't have any redeliveries in 2019 or in 2020 and the current year. So you will see some fluctuations as we go. But yes, this quarter we've been helped by the lease extensions. And then lastly, on the fares, I mean, I think we are booked 1% for next summer. I don't know what quantum of data people need to guide on to be statistically relevant, but probably we wouldn't be guiding on the basis of 1% of bookings.

I may just want to add to the pricing environment. I mean there are few trends we're going to be observing going into summer. 1 is that rising input costs will feed through into the fare environment. I mean we know it. I mean this is empirical. We have seen it a lot of times. And when substantial changes are happening to input costs, that those feeds through into the fare environment, possibly with a 6 months time lag. At least this is the empirical evidence. So that is one trend. The other trend is that quite likely the industry will be facing significant inflationary pressure coming from various directions like monopoly charges, possibly fuel and possibly increased cost of indebtedness of the industry. So I think that's going to push the industry towards higher pricing. At the same time, I think you're also going to be seeing some other factors like potential overcapacity. We will see how the competitive environment will play out at that time. That will vary depending on the market, depending on the competitive dynamics. But that can -- that might be a balancing act. As far as we are concerned, as we said, we think we would be in a unique position relative to the industry because we will have a significantly improved fleet to operate versus a deteriorating fleet of all other airlines, aging fleet, less efficient fleet. And at the same time, as said, we're going to be flying a younger fleet of aircraft, up-gauged fleet, newer technology, giving us a significant strategic advantage. So we can play a slightly different game in the market versus the other airlines. I think we can invest more into stimulating the market and not necessarily by raising fares. We will benefit from the overall market trends should the pricing environment improve. But at the same time, given our improving cost base coming on the platform of technology, we will have room to maneuver.

It's Jarrod Castle from UBS. 3, if I may, probably more medium-term focused. You've obviously got this ambition to get to 500 planes circa, maybe towards 300 at the moment. Just any comments in terms of conversations, just [indiscernible] another order and your view on maybe M&A to kind of acquire planes. Then just secondly, you've obviously got a very favorable tax rate. Obviously there's a lot of pressure globally to increase tax rates. I would just be interested in your views over the medium term, how you see that potentially impacting you. And then just any further comments on Abu Dhabi, you did touch on it, but be interested just to kind of get a bit more color.

Let me start with the 500 aircraft question. 500 aircraft Wizz 500 [ as a past ] is established on the base of organic growth, not on M&As. If you look at the history of Wizz, we have been growing organically. Of course we are interested in market consolidation. We have been looking at it more from the perspective of acquiring assets, especially airport slots. And that will be the prevailing focus going forward. As venue break it down by market. If you kind of portray 500 aircraft in 9 years towards the end of the decade, I would expect half of it to be deployed in our Central and Eastern European core markets. That basically requires us to double down versus where we are today. Delivering that level of growth over 9 years would translate into around the 7%, 8% CAGR. We think we can deliver it. We have been growing Central and Eastern Europe with double-digit growth rates over the years. So we think it's very doable. Another quarter of the 500 aircraft would come from CLEC markets in Western Europe. We have made 3 commitments today, the United Kingdom, Italy and Austria. We continue to enhance our presence in those markets, and we continue to invest. We think we are strategically well-positioned to win in each of these markets, and we will follow through our initial investments there. And the remaining quarter of the 500 aircraft shall come out of our Go East strategy. Abu Dhabi is the first pillar of that. Now you are seeing us stepping up in Ukraine. And there might be further initiatives during the course of the next 9 years to enhance that line. So that's sort of how we are seeing 500 aircraft coming together over the course of the next 9 years. In terms of aircraft order, indeed at one point we will have to place an aircraft order to make sure that we have the supply of aircraft, but I just don't want to speculate on them. In due course we'll take care of that issue.

Just on the tax rate. I mean, we're reading what we are reading. So we've seen the OECD agreement to 15% tax rate as of 2023, likely will probably be at least a year delay as of when it would be implemented in, let's say, all the respective countries. And then there's obviously a question that we have once the tax will be published in terms of the carve-outs that have been negotiated, carve-outs for asset investments, for employment. It could be that there may be more exceptions and rules. And so we will need to really understand it. But I think over time it is prudent to plot a higher tax rate than what we are currently enjoying if you look at the overall trends in the market. But it may not be all the way to 15%, and it may not be all the way as of Jan 1, 2023.

Abu Dhabi is now moving. Abu Dhabi used to be highly restricted by government-imposed measures. They've been largely relaxed recently. A number of markets opened up as a result. And we are ramping capacity up against those new operating conditions. We have 4 aircraft base in Abu Dhabi. We think we're going to be fully operational with full utilization towards the beginning of next calendar year, 2022. And of course we'll take it from there as we are seeing further opportunities, access to our -- to markets on the base of bilateral designations, we will continue to follow up that investment. But I don't think anything has changed with regard to our strategic views on Abu Dhabi. Short term, maybe the start has been a bit more difficult given the restrictions prevailing. But now we are indeed coming out of the woods. And I would even say that COVID-19 might be just accelerating our plans in Abu Dhabi, given the reset of some of the other airlines. I mean you see that Etihad, for example, is restructuring its business, probably giving us more opportunities than what we would have saw before.

It's James Hollins from BNP Paribas. Few for me, please. Just a couple of follow-ups on your comments, Jozsef. I think the [indiscernible] is talking about a decent market on capacity next summer. Seems to be a bit of backpedaling on that, and you've talked about overcapacity. I was just wondering if you could highlight any particular markets you're concerned about. And obviously your own capacity is increasing quite considerably. Secondly, another comment you made was talking about looking to acquire slots. I was wondering if you are going to likely to have any success of getting into Gatwick for summer season 2022, if that's still top of your agenda. And then the third one, obviously Jozsef you have your, I guess, juicy long-term contract. If we talk about the trajectory of that, you've talked about full year fiscal '22 as transition. The Slide 13 was rather scary to me in terms of that vaccination rate. Should we be thinking about fiscal '23 as you're growing 50% a lot more recruitment getting through that vaccination process and then the kind of the profit delivery, the returns on everything you're doing comes through in fiscal '24. Those are the 3.

All right. Well, with regard to our -- to capacity, I mean, I think the history is telling us that especially in peak periods the industry has the tendency to overdo capacity, and we shall see how capacity discipline is going to play into this summer. A lot of state aid has been injected into the industry, which I think takes away the incentive from those legacy carriers to rationalize capacity. So simply, we should just see how that's going to play out. I also think that depending on how the slot regulations work out for next summer, that may be driving some unnecessary capacity in the market. So if airlines will have to fight for that [indiscernible] slot positions and maybe decide to operate capacity not needed for the market, that may result in overcapacity. So we shall see. So I don't know, but given the tendencies we have been observing before, I don't think this is such a straight line that necessarily we should be concluding that it's going to be capacity discipline going into summer. With regard to slots in Gatwick. I don't think I can report anything new versus what we have said. Yes, we are interested in expanding Gatwick, yes. We are interested in acquiring slots. But at the moment we have no possession of any further slots at Gatwick. We need to understand how the slot regulatory framework continues to evolve. What it really means for next summer and what impact that's going to make on existing players and what they want to do with the slot portfolio, what they have. But for the time being, I cannot really report anything new. With regard to 2023 versus 2024, I think I'm very confident 2023. 2023 is going to be underpinned with the improving vaccination. I mean, obviously there is no guarantee that the world is not going to be put upside down by something. But putting that kind of a black swan scenario side, looking at it from a COVID-19 perspective, looking at it from an intention to travel perspective, people want to go, people want to travel. They have the financial capacity to do that. And their ability to travel has been much more corresponding with government-imposed restrictions as opposed to fear of COVID. And I think we're just going to be in a much better situation. I mean you look at London today compared to what it was just even a few months ago. I mean, it has become free land again, versus a very restricted territory before. And I think we're going to be seeing that happening in many more places. As said, the U.K. is 85% vaccinated. Again, compared to Romania, 30% vaccinated, but Romania is going to be 75% vaccinated by February. So it's going very quickly. The issue is not the availability of vaccines. The issue has been peoples' willingness to get vaccinated. But I think that's all changing, the attitude is changing given the recent events. So I think that backdrop is very critical to the resumption of air travel. And we are seeing that backdrop improving significantly, creating the framework for air travel. And there is no other airline in better position than Wizz Air to take advantage of that demand increase in the marketplace. We are the lowest-cost operator. We're going to be improving our competitive advantages. We are liquid. And on that basis, we should be able to do well significantly better than the rest of the industry. So if your question is whether I think the industry is going to be back to normal in fiscal '23. My answer is definitely no. The industry is not going to be back to normal in 2023. If your question is that, is Wizz going to be back to pretty much normal or will be approaching the normalities in fiscal '23, my answer is yes. Simply because we are in a better position than the rest of the industry.

It's Andrew Lobbenberg from HSBC. I think in the presentation remarks you spoke of some of the new markets starting to show signs of maturity. So yes, could you give us a bit of color on which of the markets are behaving? And then can I ask about ATC costs among the inflationary pressures. You didn't put that up at the flag pole whereas most people have done. So to what extent is that a concern? And then at home in Budapest, I think there's an ongoing battle to try and nationalize the airport. Does that come with threat for you or opportunities?

Okay. Thank you, Andrew. Well, with regard to ATC. Yes, I think ATC is a concern. We think monopoly charges will increase, increasing ATC, we shall see to what extent this is going to affect the business. I mean, clearly we are seeing headwinds as well as tailwinds in the business going into fiscal '23. One of the headwinds actually is this, how monopoly airports, monopoly service providers will impose cost on the industry. But again, at the same time, we're going to be gaining significantly on the aircraft, younger aircraft, up-gauged aircraft. We're going to be gaining on crew productivity. I mean just think about it like operating a 180-seater A320 with 2 pilots and then operating at 239-seater aircraft with the same 2 pilots, that's going to give us a lot of productivity gain and a cost gain with that regard. So I think it's going to be a mixed bag. So obviously some issues, fuel, monopoly charges, some labor inflation. But at the same time, we're also going to have a number of offsetting tailwinds like gauge, like age of the aircraft and technology improvement and productivity improvement coming out of it. I think it's kind of hard to predict the exact balance between the 2 lines, but it's -- I think it's going to be a balance matter. With regard to Budapest Airport, I personally would not expect any major change no matter who owns the airport. I mean, airport ownership is one, it's true. Airport operation is another. Budapest Airport has been a bad-operated airport from our standpoint. And we are seeing actually some positive changes here or there when the airport gets nationalized. So Albania might be a good example. Albania used to be owned by a foreign consortium. Then it was renationalized, and as a result the airport became far more commercial. And actually, that gave us a significant entry to the market. So if there is any change, quite likely it's going to be positive with that regard. But it's kind of hard to predict, the airport is still not nationalized. And it has not been communicated any ways how commercially the position of the airport would change, if that would change at all. With regard to our maturity of our markets, maybe just a few examples. Clearly we started seeing some early wins in Italy in summer, some of the early Italian investments we have made delivered profit. Albania, quite quickly matured. And also the U.K. during the summer did very well. So when the markets were unrestricted, we did very well. But obviously we kind of fell off the cliff when the markets got closed off by the government. But again we are seeing a reopening. And again, the real issue from our standpoint is as the market, the market demand or peoples' intention to travel or peoples' intention to take up on Wizz. This is much more the volatility around restrictions. But we're seeing that those volatile measures should be largely phased out with the improving vaccination rates going into next financial year.

Neil Glynn from Credit Suisse. If I could also grab 3, please. The first one, back to the fuel hedging topic. I guess one of the most important aspects here is how it impacts competitive dynamics in the market, and Ryanair obviously isn't your only competitor. But do you have an awareness or a decent understanding of how your CEE competitors, the flag carriers in that market are hedged or not at the moment because I would expect that to have a bearing on pricing for next year. Then the second and the third question, both kind of slightly Indigo related. Back to the potential next aircraft order. Is that likely to come via Indigo or come via Wizz Air? Or is that something that's possible, to help us understand at this point? And then a third question, it might feel a bit random, but your, I guess, sister company, JetSmart has recently had an investment from American Airlines, which I assume will eventually have some kind of an operational partnership. Is that kind of venture in any way on Wizz Air's agenda? Or does that just simply not make sense because of the potential complexity if you were to do anything with any other long-haul-oriented carrier, for example?

Maybe I'll take the first one. So generally what you see is that the bigger well-funded players are to some extent hedged. But the smaller airlines are typically not hedged. I mean it's not only in the East, particularly in the West, if you look at some of the Scandinavian airlines, et cetera. So yes, clearly this will also help us in our region, of course, given that most of the competitive backdrop there hasn't really hedged and is at that terms on equal level playing field because we are hedged through the technology and a better consumption efficiency than they have.

So being legally correct, there is no such thing as an Indigo aircraft order. There has never been. Aircraft orders have been placed by airlines. We signed, Wizz Air signed agreement with Airbus. And whichever aircraft order is going to be placed in the future, it's going to be a Wizz Air aircraft order with Airbus. We use the Indigo framework as a negotiating platform. But legally speaking, each of the airlines make commitments on the aircraft order to Airbus. So I think it's been a good formula, and we quite likely will apply that formula going forward. By the way, it is extended beyond aircraft orders. And I think we are doing it on many other fields, buying parts, services, products in various fields. With regard to JetSmart, but actually I am on the board of JetSmart, so I'm kind of close to the fire with regard to the American Airlines investment. I think it shall be seen as a unique proposition for JetSmart in South America by American Airlines and not as a pattern that may become applicable for Wizz Air. I think we are on a very different path. We are in a very different stage of development of our business. And we are just operating in very different markets with that regard, and we don't look at it as a model to be reapplied.

Alex Irving from Bernstein. 3 from me, please, all on labor. So first of all, on -- one of your competitor has been talking about Wizz Air having to cancel a number of flights in the last quarter due to not having enough crew to pilot those. Can you please speak to the truth of this? How large of a problem is it? And kind of what's the real story on there? Secondly, as we ramp up into kind of spring 2022 and you're talking about full utilization, it looks like your FTE numbers indexed to 2020 are below where they -- are below. So the fleet ramp-up. Just the fact if you're running a larger aircraft requiring maybe more cabin crew per flight. What gives you the confidence here that you can ramp up and avoid the rostering issues that have maybe dogged some of your U.S. peers as they've ramped up in recent months? And then finally, on just labor cost pressures, what are you seeing with regards to pilots and cabin crew in the market at the moment, please?

All right. So maybe I take these questions. But with regard to flight cancellations, turbulences, et cetera, we had a few days actually when we came under pressure. And it was the result of market opening on the one hand which attracted us to deploy more capacity against those newly arising market opportunities. But at the same time, we underestimated the rusty nature of the industry with regard to the supply chain and suffered significantly a weaker operating performance, especially on-time performance, distressing the rostering of the crew and kind of resulting in issues on crew headcount. We are quickly -- I think we quickly resolved those issues, first by taking a few wet leased aircraft from the market. But we phased those wet leases out after a few weeks of operations. So now we are fully food in control of our own destiny for a long time. We haven't canceled any flights for any crew purposes or crew shortage issue. So we think that we are back in the game. We are controlling the operational performance of the airline. But indeed, we had a few weeks of turbulences. So -- but I think you need to relate it to almost to like one-off events of sudden demand rise and kind of sudden breakdown of the supply chain. But the supply chain has been improving. I think we are better planning on these issues, and we are not seeing those issues recurring coming back in the business. So I think events have passed with that regard. Our competitors like talking about this, but we are definitely in a much better shape than some of the U.S. peers like Southwest or American Airlines who will be constantly struggling with resources, getting crews, getting the rosters going through. With regard to ramping up and ensuring roster stability, we are investing a lot for that. We think roster stability is one of the key issues in the industry, not only in terms of operability of the airline, but also in terms of engagement with our staff, with our employees. That's where things can go wrong, and we are much focused on that. And we understand that it requires a constant effort. And with regard to that issue also some investment creating more standbys, more reserves, more buffers in the system. And this is how we are ramping our operations up. I think we are taking full note of the challenge and the issues we have been learning from and what we might be expecting going forward, and we are trying to address those upfront. I'm fairly confident that based on the plans that we have in place, this should not be distressing ourselves, but it's a work having been done, and it's a work still to be done in that regard, but we are fully aware of what we need to do there. In terms of inflationary cost on labor, yes, it's happening. Interestingly, we are seeing more challenges with cabin-crew workforce than pilots. This is the result of cabin crew being lower paid than pilots, but also having more alternatives, carrier alternatives than pilots. So we are seeing a lot more retention issues and a lot more issues with regard to being able to attract a large number of interests from the other market. Some of it is going to be short-lived. And once the industry is back in its feet, we're going to be seeing that kind of attractiveness to be a reinstated. Despite all these issues, we hired around 800 cabin crew just over the last few weeks, few months. So I'm confident that we're going to be able to deal with this challenge. But we are seeing a lot more inflationary pressure on cabin crew. With regard to pilots, I think this is still a volatile market. We have been very clear with our pilot workforce. And I think that has worked. We try to protect their jobs during the bad times. Based on that, they've been very supportive to the company, going through the crisis. And I think they are also very supportive today when it comes to ramping up operations. So we have a good engagement with the pilot force, and we don't necessarily see a huge inflationary pressure coming from that. It's a bigger issue with the cabin crew.

Could I just follow up on the pilot point, you talked about protecting the jobs through the crisis -- just to follow up on the pilot's point, you talked about protecting the jobs through the crisis. Can you give us a sense of how many pilots you had precrisis, how many was at the trough, and how many you have now today, please?

Yes. So basically we implemented an early layoff in around April time, April 2020, when we laid off 20% of the pilot force, 20% of the cabin crew force and 20% of the office. So it was fair and equitable with that regard. So we went from 5,000 to around 4,000 employees in the company at that time. With regard to the pilot force, specifically that affected, roughly speaking, 300 pilots. We have reinstated over 70% of them. That was a temporary layoff. And we went back to those people, and 70% are now back. And beyond the reinstatement, we started hiring new pilots as well, and we are putting them through training programs, et cetera. So I think we have totally reinstated our engagement with the pilot force and even we have gone beyond that.

Conor Dwyer here from Berenberg. Just a quick follow-up on the last question about inflationary pressures on wages and talking about going into markets like Italy. Do you think there's any risk that we might see more talk about unionization as a result of perhaps going into more western markets? So a bit more medium-term.

Our engagement model remains intact. We have developed a model which we think is a better alternative for the workforce than unions. We are a high-growth business, even we're going to be higher growth business going forward in the next few years, offering significant carrier opportunities for people. If people have alternatives and can sort of own their own destiny in terms of managing their carriers and managing their well-being, on that basis I think they would be voting for that option. Unionization is more of a threat in businesses which don't prosper. They don't develop, they don't grow, and then people are looking for ways of protecting themselves in that environment. But Wizz has been a high-growth business. We remain a high-growth business in the foreseeable future. So we don't think that it should be posing significant challenges to the engagement model that we have of our people. Indeed, unionization may be a bigger scheme in some of the countries we are entering. But at the same time, I also think that we are capable of implementing our model, which is based on dialogue with people, understanding their issues, being proactive and acting on their issues or the opportunities what they see. And most importantly, being able to offer carrier opportunities, and with that, significant pay opportunities to people. All right. So I think that concludes the Q&A on the floor. So -- sorry, one more here.

Harleen Teja from Citi. Just 2 really quick ones for me, please. In terms of bookings, where are they currently in relation to pre-COVID levels? Should we be thinking about -- how should we be thinking about overall loads and pricing for the third quarter? And then secondly, guidance for Q3, you've guided to an operating loss of EUR 200 million. Last year that was EUR 142 million. So what are the moving parts of that? Is it a factor of lower pricing or higher costs, please?

Yes. So if you look at bookings versus pre-COVID and previously we had like 90% of revenue in the span of 3 months. There's a bit of a difference here with Christmas, but typically we have around 90% of revenue in the full month. So that's still the booking window. It's still very short. The Christmas period is maybe 25% booked at this point in time, which is maybe a little bit of an aberration versus what we've seen over the last couple of weeks, but it's a very short booking window as we speak. If you look at Q3, loads and pricing. Well, if you look at the past quarter, pricing, as mentioned, the RASK was down 25%. Loads, as you've seen, are around 80% load factor for the quarter. Probably that will be more or less similar for the next quarter. We'll continue to see very strong price stimulation to basically attract the passenger into our service. And loads, it's obviously a different season than the summer season, maybe somewhere between 75% and 80%. We need to see what happens. If you look at the drivers of the Q3 loss, there's basically 3 drivers, 3 big drivers. The single largest driver is really the overall trading environment because we need to price-stimulate the demand, that's actually leading to the lower RASK. And if you would do the math on that, that's the single biggest driver of the EUR 200 million. The 2 other drivers are, as mentioned, are the commodity headwinds that we're seeing and the, let's say, the suboptimal productivity that we have on our assets, with fleet assets or crew assets, that lead to the higher ex-fuel CASK on those 2 specific lines as you've seen for the half year results. So those are really the 3 drivers. Now we think those drivers will still be around for Q4, but the quantum of those drivers may be different. But at this point in time, it's kind of hard to call. But it's most important to say that those drivers are temporary. They will be kind of subsiding by spring next year. I mean, obviously we don't know on commodities what will remain, but obviously in a post-winter environment and an environment where supply chains will have been able to recover to some extent, one could say that, that should also be a better environment. And we have, as Jozsef mentioned, really, really worked and invested during that period to have a structural cost advantage and that will fully come to fruition as of next spring.

This concludes the Q&A on the ground. So now we are taking questions from people online.

[Operator Instructions] Our first question is from Mark Simpson of Goodbody.

Couple of questions. One, just thinking about summer '22, and actually you're referencing your load factors there. Ryanair talking about being into the kind of 93%, 94%, seeing that as an opportunity to drive pricing. In terms of your view into next summer, are you targeting similar levels? And equally, I mean, one of the impressive announcements this morning was the [indiscernible] with an incredible CV in the AI world. Can you take that and talk about the kind of dynamic pricing approach that can be applied once you get load factors back up to historical highs? And then just on the cash front. I mean, clearly we've seen significant movements on the FX front, reflecting U.S. dollar volatility on leases. Cash seems to be now more euro than U.S. dollar. But is there an argument for actually having a natural hedge and moving cash balances back into U.S. dollar deposits?

So thank you, Mark. So with regard to the summer trading environment, indeed it shall be a lot better trading environment than what we have seen over the last 2 summers. And as said before, we should be able to restore our historical operating efficiency metrics, including load factors. So indeed, we would be looking at sort of those historic numbers to be achieved well above 90%. And once you are full, then it gives you a different pricing power. And as Jourik alluded to, we have significant portions of our network where we operate ourselves. So our ability to price is much greater than some of the competing markets. But even when you look at our ability to pricing competing markets, as said, we're going to have a lot lower operating unit cost relative to our competitors going into summer. So our pricing ability will significantly improve relative to competitors. And as also said, that given the -- some of the inflationary pressure we are seeing in the industry and some of the input costs sort of feeding through into the fare environment, we should be seeing a lot of cost pressure pushing airlines to price up along that pressure giving us an opportunity to compete effectively and improve margins at the same time. So yes, I think summer should be a very strong period for Wizz. Anna is a great addition to the Board. I should have commented on her. She brings in a lot of entrepreneur spirit to the Board. That's what we need. And that's one of the Board dynamics we are much focused on to make sure that we remain an entrepreneurial business as opposed to getting followed by the corporate bureaucracy of the FTSE system. And I think she will do very well with that regard. She is very well educated. And she comes from Italy. And Italy is a very important market for us. I'm pretty sure that she is going to be able to bring in significant insights. And with that, I will just turn it over to Jourik.

Thanks, Jozsef. On the cash side, Mark, you're right. I mean, any excess euro or other currency that we have is immediately converted into a dollar balance already since a large number of months. So this is how we operate, and we'll continue to operate under -- if the market conditions remain as they are today.

Okay. Just going back on dynamic pricing, and the application of AI. I mean, let's just say the new appointment very much helps to drive that forward. Can you just give us a feel for where you think you are as a business in rolling out new algos on that to help you?

We are going highly sophisticated on this matter. If you really look at how we have been operating, I made the best example to use is when we started this business back in 2004, I had 6 people working on pricing and revenue management. Today, we are million times bigger as a business, and I have 6 people on pricing and revenue management working on this business. So it just gives you the sense of automation and technology being used for pricing. And we are taking it a notch above versus where we used to be by applying artificial intelligence and data science. And we are looking at dynamic pricing in a much broader scale. We used to be focused on ticket pricing, base fare pricing. But now we are expanding that approach across our ancillary revenue streams increasingly. So we had a lot more dynamic than ever before, and we will become even more dynamic going forward. And we are applying machine learnings as a methodology. We have an assigned team working on all these aspects, and we are seeing significant improvements, basically initiative by initiative, implying and kind of further refining our dynamic pricing approach to various revenue streams, including tickets as well as nonticket items.

And it's fair to say we'll see a greater impact of that FY '23, '24 with a return to stability in the market.

Yes.

Our final question is from Ross Harvey of Davy.

I just want to revert to the fuel hedging question. I'm just wondering, can you run us through again just the general rationale for that 0 hedge policy in a post-COVID world? And I'm just wondering, was that kind of a suggestion from management or from the Board or from your shareholders and just your commitment to that in the medium term with the continued commodity price escalation. The second question is in terms of summer 2022 and fiscal '23 as a whole. And obviously, Jozsef, you've spoken about the exceptional opportunity there, strong language. And clearly RASK is too hard to call. But what would exceptional look like on the ex-fuel CASK line? Would it be getting back to pre-COVID levels? Or do you think you can go below that in fiscal '23?

So on fuel hedging, if you look through the cycle and if you look historically, so first starting historically, fuel hedging is not a profit center. It's quite the opposite with an increasing volatile world. The company has actually lost a lot of money on fuel hedging. We didn't want to repeat that in the future. So we obviously critically looked at the fuel hedging. The fact is that, as said, it's not a profit center looking forward, it's paying fees to people that are more expert in fuel hedging than the company itself. And we have a strong balance sheet that would allow us to get through, let's say, the short-term disadvantages that you may have here in an inflationary cycle. And obviously you get tailwinds in a deflationary cycle. So we'll need to see this through. I think it will be interesting to see what the industry will do as, let's say, prices are at the level of today, will they continue to layer on the hedges for the future, or will they stop hedging, because if you look at it in theory, hedging only makes sense if you hedge at the bottom quartile of the historic pricing and hold them for a long enough time and not if the prices are high. So I think the jury is out. We'll see how the actors are going to behave in the future. This is a market -- if Europe is going to become like the U.S. or of Europe will main Europe because of other dynamics in the industry. On the how exceptional could look like on F '23. I mean, look, we've always said that we wanted to keep our costs flat. If you look over the longer term in the past 10 years, our ex-fuel cost has been flat against, I would say, all odd and against a lot of the other dynamics you have seen in the industry. I mean even Ryanair has seen significant inflation on costs pre-COVID in the last 2 to 3 years of their costs. So there's a lot of headwinds coming, as we know, on ex-fuel cost, but we have invested in the right infrastructure and the right asset base to counter some of these headwinds, how these things will weigh one to the other. I mean, one day I would say we could be better, one day I'll say we could be flat. We'll need to see how it all boils down. There's a lot of volatilities in some of the drivers. But for us exceptional, we'll definitely be targeting to get better than planned.

Okay. Thank you. I think this concludes the event. Thank you very much. Maybe just a few words to summarize it. I hope you see our efforts as investments going into post-COVID markets, into post-COVID position of Wizz Air. And we think that should be much stronger than what it is today, certainly than what it was prior to COVID-19. COVID-19 is giving us an opportunity to step change our presence, to become a more formidable competing force. We are investing into aircraft going from 119 to 170 aircraft by summer next year. We are investing into markets from 26 operating bases in March 2020 to 44 next summer. And we are investing into people, 5,000 people prior to COVID, 6,700 in summer. And those investments will make us a better business, a lower-cost operator and more formidable competing force to take advantage of the recovery of the industry. And with that, thank you for your interest, and thank you for coming.

Thank you.

This now concludes our conference call. Thank you for attending. You may now disconnect your lines.